Qantex Capital Markets Ltd v. Dimitri Philippides
Read the full judgment text of HCA 752/2018 on BabelCite. This High Court CFI judgment was delivered on 17 January 2019.
1. There are 5 sets of proceedings between the plaintiff Qantex Capital Markets Limited (“ QC ”) and 5 of its former employees (“ Employees ”). The 1 st to 4 th defendants were derivative traders who had worked for QC, the 1 st to 3 rd defendants on the Delta One Options Desk (“ Desk ”), and the 4 th defendant on the Ex-Japan Options Desk. The 3 rd defendant was the head of the Desk. The 5 th defendant was a middle office support employee with the Desk.
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HCA 752/2018, IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 752 OF 2018 ____________
____________ AND HCA 753/2018 ACTION NO 753 OF 2018 ____________
____________ AND HCA 755/2018 ACTION NO 755 OF 2018 ____________
____________ AND HCA 756/2018 ACTION NO 756 OF 2018 ____________
____________ AND HCA 757/2018 ACTION NO 757 OF 2018 ____________
____________ (Heard Together)
______________________ D E C I S I O N ______________________ 1.There are 5 sets of proceedings between the plaintiff Qantex Capital Markets Limited (“QC”) and 5 of its former employees (“Employees”). The 1st to 4th defendants were derivative traders who had worked for QC, the 1st to 3rd defendants on the Delta One Options Desk (“Desk”), and the 4th defendant on the Ex-Japan Options Desk. The 3rd defendant was the head of the Desk. The 5th defendant was a middle office support employee with the Desk. 2.On 29 September 2017 (“Termination Date”), the defendants resigned en masse to join a competitor of QC. Each delivered a letter constituting notice of immediate termination of employment, and each tendered an amount of money purported to be in lieu of notice under section 7 of the Employment Ordinance (“Ordinance”). The dispute between the parties is whether the payment in lieu of notice should include quarterly bonuses which had been paid by QC to the defendants as “wages” earned by each defendant in the 12 months prior to the Termination Date. There is also dispute as to whether bonuses paid to the defendants are subject to claw back by QC upon termination of their employment, pursuant to “clawback provisions” contained in the contracts of employment of the 1st to 3rd defendants. 3.On 30 May 2018, QC applied by summons (“Summons”) under Order 14A RHC for determination of the following points of law:
4.In the Summons, the plaintiff also sought summary judgment under Order 14 RHC for payment of wages in lieu of notice, and repayment of the quarterly bonuses paid, as pleaded in the Statement of Claim. 5.The Summons was later amended to refer to the Amended Statement of Claim which was filed and served on 22 June 2018. 6.The only questions of law identified in the Summons, as amended, are those set out in paragraphs (a) and (b) in the Summons and summarized in paragraph 3 above (“Questions”). At the hearing, Counsel for QC argued that further questions can and should be determined summarily, as being “closely related” to the Questions, namely:
7.In brief, the Summons only identified the 2 Questions. If QC seeks to have further questions of law to be determined summarily under Order 14A, the Summons must be amended, and proper notice of the application must be made with at least 2 clear days’ notice as required under Order 32 rule 3 for service of any summons. Having failed to do this, the defendants did not have adequate prior notice of QC’s application for determination of the “related” questions referred to in the preceding paragraphs, to properly consider and deal with these additional questions. 8.QC’s application by the Summons will therefore be confined only to the Questions which have been properly identified. 9.The legal principles applicable to the determination of applications made under Orders 14 and 14A are clear, not disputed in this case, and will not be repeated here. 10.Determination of the Questions turn on the construction of the relevant provisions in the contract of employment between QC and the defendants (“Contract”). There is no dispute that the relevant provisions are clause 8.1 of the Contract and schedule 1 to the Contract (“Schedule”). 11.Clause 8.1 states:
12.The Schedule sets out the following conditions:
13.Relevant Period, Bonus Pool, Net Revenues, Employment Costs and Other Costs are all defined in the Schedule. In particular, “Net Revenues” are defined to mean “brokerage income generated by the Desk and billed by and paid to (QC) in respect of the Relevant Period, less all brokerage charges, taxes, and of the transaction-related charges or costs of business. “Bonus Pool” is defined to mean “Net Revenues less bad debts and trading errors (including without limitation any losses to revenue over the Relevant Period that have been incurred as a result of gross negligence, recklessness or willful default or compensation paid to clients as a result of broker errors made by any member of the Desk) for the Relevant Period. “Employment Costs” are defined to mean the cost of salaries, benefits, guaranteed bonuses and reimbursed expenses for members of the Desk. 14.“Remuneration” is set out in clause 7 of the Contract and it is not disputed that the remuneration package for the 1st to 4th defendants is essentially the same, comprising a basic annual salary and a bonus. The bonus for each of the 1st to 4th defendants is from the Bonus Pool defined in the Schedule. The bonus for the 1st and 2nd defendant is from the Bonus Pool in respect of the Desk, and the bonus for the 4th defendant is from the Bonus Pool of the Japan Options Desk to which he was assigned for work. 15.For the 3rd defendant (the head of the Desk), he was entitled to a “one-off discretionary welcome bonus” (clause 7.2 of his Contract), and as distinct from the other defendants, the Schedule to his Contract provides as follows:
“Employment Costs”, “Other Costs”, and “Net Revenues” in the Schedule to the 3rd defendant’s Contract identify the Employment Costs for the 3rd defendant, the Other Costs allocated to him, and the brokerage income generated by him only. 16.The 5th defendant’s Contract does not have any Schedule. Clause 7.1 of her Contract provides for a basic annual salary, and clause 7.2 states as follows:
17.For QC, it is contended that the authorities are now clear, that bonuses such as the ones provided for in the defendants’ Contracts are their contractual entitlement, and despite the fact that any bonus may be stated to be at the discretion of the employer, since the courts have held that such discretion must be exercised reasonably and in good faith, in a manner which is not irrational or perverse, the bonus is contractually enforceable, and thus forms part of the employee’s “wages”. 18.Counsel for QC argued that wages are defined very broadly under section (1) of the Ordinance (Cathay Pacific Airways Ltd v Kwan Siu Wa, Becky (2013) 15 HKCFAR 615) to include all remuneration, earnings, and commission, however designated or calculated, payable to an employee in respect of work done or to be done under his contract of employment. There is an implied term in every contract of employment that any discretion on the part of the employer must be exercised reasonably, in good faith, in a manner that is not perverse, and is contractually enforceable. The fact that whether to pay a bonus at all and/or the amount of the bonus are in the discretion of the employer, does not make the bonus wholly discretionary and/or non-contractual. Counsel relies on Joanne Kay Wood v Jardine Fleming Holdings Ltd [2001] 2 HKC 735, Cantor Fitzgerald Int’l v Horkulak [2003] IRLR 756, ICAP v Elaine Chan [2010] HKCFI 1039, Commerzbank AG v Keen [2007] ICR 348. The fact that the amount of the bonus may be discretionary does not prevent the bonus scheme from being contractual, to fall within the statutory definition of “wages” (Clark v BET Plc [1997] IRLR 348, Tadjudin Sunny v Bank of America NA [2016] HKCA 201). 19.Counsel therefore argued that QC’s claims are clear and simple, there are no issues which require to be determined by a full trial, the Questions should be decided in QC’s favor on the affirmations filed, and summary judgment should be entered. 20.The cases relied upon by Counsel mainly follow the decision of Burton J in Clark v Nomura International plc [2000] IRLR 766, which itself dealt with a contract which provided for a “discretionary bonus scheme which is not guaranteed in any way and is dependent upon individual performance”. In the judgment of Burton J, the employer’s discretion is not unfettered, as even a simple discretion whether to award a bonus must not be exercised capriciously. In deciding whether an employer is in breach of contract in having exercised a discretion which on the face of the contract is unfettered or absolute, or even one which is contractually fettered, Burton J found in Clark v Nomura that the test is one of “irrationality or perversity (of which caprice or capriciousness would be a good example) i.e. that no reasonable employer would have exercised his discretion in this way”. 21.Cases such as Tadjudin Sunny v Bank of America NA and Cantor Fitzgerald Int’l v Horkulak are decisions on whether the employer had exercised its discretion properly, without perversity or capriciousness, to be in breach of contract. In each case, however, unless the point was agreed or not disputed, the court had to construe the contract and the particular provision in question, to decide whether the bonus payable was discretionary, or a contractual entitlement. This of course depends on the language used in the contract, the context in which the agreement was made, and if appropriate, the evidence on the industry within which the agreement was set (as the court pointed out in paragraph 29.2 of the judgment in Clark v Nomura). 22.In ICAP v Elaine Chan (which involved a trial of 3 days), the contract in question provided that the employee was “entitled to a discretionary profit sharing scheme… payable every 6 months”. It was not disputed in the case that the profit-sharing scheme was the creation of a bonus pool of 50% of the profits of the relevant equity desk, distributed at the discretion of the employer, and that the 2 employees were each entitled to “a discretionary bonus”, but that there was no contractual right to the bonus. 23.In Clark v BET, the relevant contract provided that the employee’s salary “shall be reviewed annually and be increased by such amount if any as the Board shall in its absolute discretion decide”. The court held in that case that the word “shall” governed the increase of salary and that the employee had a contractual right to receive an upward adjustment in salary, and only the amount of the increase was discretionary, the exercise of which was not completely unfettered and could not be exercised in bad faith or capriciously. 24.In Horkulak v Cantor Fitzgerald International [2004] IRLR 942, the court construed the contractual provision which provided that the employer “may in its discretion, pay [the employee] an annual discretionary bonus … the amount of which shall be mutually agreed … however the final decision shall be in the sole discretion of the president”. The court held that the word “may” attaches the discretion to the obligation to pay a bonus, but the employee was entitled to a bona fide and rational exercise of the discretion as to whether or not to pay the employee a bonus, and in what sum. 25.In my judgment, the relevant authorities referred to above and relied upon by QC govern (with the exception of ICAP v Elaine Chan, dealt with below) the manner of exercise of any discretion which may be conferred on be employer under the contract, and the fact that the employee is entitled to damages in respect of any breach by the employer of its implied obligation to exercise its discretion in good faith and not capriciously. However, they are not direct authorities on the issue of whether the bonuses which are the subject of the discretion form “wages” of the employee, within the meaning of section 7 of the Ordinance. To decide the latter question, the court has to construe the relevant contractual provision, to see whether the bonus in question comes within the statutory inclusion of “all remuneration, earnings, allowances, … commission, … however designated or calculated”, and outside the exception set out in section 2 (1) of the Ordinance. There, “wages” do not include: “any commission which is of a gratuitous nature or which is payable only at the discretion of the employer”, and “any annual bonus, or any proportion thereof, which is of a gratuitous nature or which is payable only at the discretion of the employer”. (Emphases added) 26.The defendants claim that the quarterly bonus is in fact “commission”, or proportions of the “annual bonus”, and that the bonus/commission is gratuitous in nature, payable only at the discretion of the employer, to be excluded from “wages” as defined in section 2 of the Ordinance. There is dispute on facts, as to the method of calculation of the quarterly bonuses paid (“Disputed Payments”) to the defendants. The defendants allege that notwithstanding the references in the Schedule, the Disputed Payments were calculated solely by reference to the defendants’ personal performance for each quarter, using the formula of 60% of the net revenues generated by each defendant, less employment costs and other costs, and that the Disputed Payments were in fact and in practice directly proportional to, and arose out of, the revenue generated by each defendant personally. According to the defendants, the Disputed Payments, although labeled bonuses, were actually commissions earned through trading by members of the relevant Desk. 27.The defendants’ assertion is disputed by QC, which claims that although the Disputed Payments involved calculations by reference to a formula taking into account the revenue generated by each defendant in a given quarter, the actual amounts paid out were subject to adjustments (made in consultation with the 3rd defendant) which had regard to factors other than the defendant’s revenue. QC also referred to references made in contractual documents and correspondence to “bonuses”, and not “commission”. However, it is trite that it is the substance of the Disputed Payments which is to be considered, rather than any label attached thereto. The defendants have not had the opportunity to reply to these factual matters relied upon by QC, which are disputed. 28.The defendants have drawn comparison between how QC and the defendants themselves have treated and dealt with the defendants’ monthly basic salary, their annual leave payments, and the Disputed Payments (quarterly bonuses), to distinguish the former 2 categories which fall within the statutory meaning of “wages”, and the Disputed Payments which do not. According to the defendants, QC did not include the defendants’ annual leave payments (which are “wages”) in the Disputed Payments, and the Disputed Payments were never paid within 7 days of the expiry of the last day of the “wage” period (as required under section 23 of the Ordinance). 29.On behalf of QC, it was argued that “commission” is, by nature, payable to the agent or employee regardless of whether the principal makes a profit, whereas the bonuses paid to the defendants were by nature distributions from the Bonus Pool, which was determined by reference to net trading profits. 30.By dictionary definition, a “commission” is simply a sum or percentage allowed to an agent or salesman for services, which may be proportional to the amount involved in the transaction, or a percentage of the amount involved. It is a matter of agreement whether the commission is to be referable to the gross amount, or the net profit, of the transaction. There is no fixed or implicit meaning that a commission cannot be based on profit, or net of costs. The decision in Chan Hon Wing v Hung Tat Warehouse Transportation and Shipping Co Ltd [2009] HKCA 590 (relied upon by QC) cannot assist. 31.In my judgment, a finding on whether the Disputed Payments were in in the nature and substance of commissions, or bonuses, depends on how they were calculated in practice, and what the Bonus Pool comprised of – which is a matter of factual evidence to be adduced by the witnesses, after discovery of documents, all to be tested at trial. The matters referred to by Counsel for QC as to how the allocation of the distributions from the Bonus Pool was made are all matters of factual evidence, to be properly adduced by witnesses, who are to be cross-examined at trial. The Questions cannot be determined on their own, in isolation from the entirely of the factual evidence and further documentary evidence to be adduced for trial. 32.As to whether the Disputed Payments were “annual bonuses”, Counsel for QC relies on Peter David Rice v Baring Securities (HK) Ltd [1997] 1 HKC 76, and ICAP v Elaine Chan [2001] HKCFI 1039. Both cases were decided on their own facts. In ICAP, the relevant contract provision provides for a discretionary profit sharing scheme expressed to be “payable every 6 months”. The evidence from the witnesses in the case was that the salary and bonus were “part of the annual remuneration package”, and the revised contracts made it plain to the judge that the bonus was “payable every 6 months”, in April and October, such that he found that it was not “end year payment”, or “annual bonus”, within the exclusion of “any end of year payment, or any proportion thereof” from “wages”. 33.In the Baring case, the court considered the language used in the relevant contract in order to ascertain the nature of the bonus paid to the employees, and whether they were staged payments of an agreed one of bonus, or an end of year payment. On construction, the court considered the minimum guaranteed bonus of HK$1.5 million to which the employee was stated to be “entitled” in March 1996 to be a bonus with reference to that year, and was an “annual bonus of a contractual nature” within section 11A of the Ordinance. 34.Having considered the cases relied upon by Counsel, it cannot in my view be disputed that each case must be decided on its own facts, and each decision depends on the court’s construction of the language used in the relevant contract, construed in the context of the case and after considering any disputed factual evidence. This was also recognized and reflected in the judgment of Sakhrani J in ICAP v Elaine Chan, at paragraphs 68 and 69. There was also no dispute in that case as to the way in which the bonus pool was calculated and distributed (paragraphs 77 and 78). It was on the evidence adduced and as a matter of construction of the relevant revised contracts that the court came to the conclusion that there was little or no discretion involved in calculating the bonus pool, and that the bonuses payable were neither of a gratuitous nature nor payable only at the discretion of the employer. 35.In the same way, the judgment in Wong Huey Lan v Colgate-Palmolive (HK) Limited [2002] HKCFI 436 highlighted the fact that the decision was based on the very facts of the case. Having found that the payment made to the employee in the case was “a formulaic incentive payment” rather than a discretionary bonus, such that it could not be regarded as payable “only at the discretion of the employer”, at the ultimate paragraph of the judgment, the court expressly left open the question whether in the situation of a “truly discretionary bonus” as in the case of Clark v Nomura, the bonus could still be regarded as payable only at the discretion of the employer. 36.Further, there is the issue of estoppel, which requires factual evidence of conduct, reliance, and prejudice, and evidence as to QC’s treatment of the bonuses, how they were paid and whether they had in the course of the Contracts been included in calculations of annual leave payments. In Wong Huey Lan v Colgate-Palmolive (HK) Limited, the court considered it relevant to take into account how the parties themselves regarded the payment, in determining whether the payment could be properly regarded as “only payable at the discretion of the employer”. 37.For all the above reasons, I consider that it is totally inappropriate in this case for the Questions to be determined, when the issues as to the nature of the Disputed Payments, how they were calculated or determined, whether they were contractual or payable only at the discretion of QC, and whether they were proportions of an annual bonus, are all interwoven with issues of fact which are in dispute and which remain to be resolved at trial by cross-examination of the witnesses and by consideration of the relevant documents. There are clearly triable issues, which make summary judgment under Order 14 inappropriate. 38.The Summons in each of the proceedings are dismissed, with costs to the Defendants, with Certificate for Counsel. The parties are to confer and submit within 14 days agreed directions for the conduct of the proceedings.
Mr Edward Alder, instructed by Tanner De Witt, for the plaintiff (in all 5 actions) Mr Russell Coleman SC and Mr Justin Ho, instructed by Slaughter & May, for the defendant (in all 5 actions) | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment
Further hearings and rulings under HCA 752/2018