Mcguire Michael John Edmund v. Agw Holdings Ltd t/a A G Wilkinson & Associates and Another
Read the full judgment text of HCA 4984/2001 on BabelCite. This High Court CFI judgment was delivered on 10 November 2003.
1. The Plaintiff claims that his employment with the 1st Defendant ("Holdings") was wrongfully terminated. He claims various fees, payments and compensation which he says are owed to him as a result of his employment and its wrongful termination but which Holdings refuses to pay.
Cited by 2 cases
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HCA004984/2001 HCA 4984/2001 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 4984 OF 2001 ____________
____________ Coram: Hon Reyes J in Court Dates of Hearing: 20, 21 and 22 October 2003 Date of Judgment: 10 November 2003 _______________ J U D G M E N T _______________ I. Background 1.The Plaintiff claims that his employment with the 1st Defendant ("Holdings") was wrongfully terminated. He claims various fees, payments and compensation which he says are owed to him as a result of his employment and its wrongful termination but which Holdings refuses to pay. 2.By a letter dated 12 July 1982 A G Wilkinson & Associates ("Associates") confirmed the Plaintiff's employment as Graduate Surveyor with effect from 19 July 1982 at a monthly salary of $8,500. 3.On 29 June 1984 Holdings was incorporated. By a Memo dated 2 January 1985 Mr Tai Yu Wong of Holdings informed the staff of Associates (including the Plaintiff) that Holdings would take over as their employer and new letters of employment would be drawn up. 4.At the end of 1989 the Plaintiff asked whether Holdings could engage him through a service company "to maximise his tax efficiency". Holdings agreed. By letter dated 30 December 1989 Holdings entered into a consultancy agreement ("Glenharvic Agreement") with Glenharvic Limited ("Glenharvic"), a company beneficially owned by the Plaintiff. The Glenharvic Agreement provided as follows:-
5.The 2nd Defendant ("Mr Tam") has suggested that, upon entry into the Glenharvic Agreement, Holdings instructed National Mutual Insurance Company Limited ("National Mutual") to release to the Plaintiff his share of provident fund scheme benefit relating to his past service as a Holdings employee. The sum of $49,888.88 is said to have been paid. There is no evidence of such payment having been either mandated by Holdings, paid by National Mutual or received by the Plaintiff. The solitary document raised in support of Mr Tam's vague recollection was a sheet showing a calculation based on a 5% salary contribution running from July 1990 to June 1993. That calculation reckons that, on an assumption of certain monthly interest rates, a sum of $49,888.88 would have accrued from the salary contributions. The purpose of the calculation is unknown. Plainly it cannot concern any payment in late 1989 or early 1990. Since (as seen below) Holdings apparently only started a provident fund scheme in July 1990, I reject the suggestion that National Mutual made any provident fund payment to the Plaintiff in late 1989 or early 1990. 6.By memo dated 2 July 1990 Holdings introduced a Provident Fund Scheme for permanent staff. Under the scheme Holdings and a participating employee would each contribute 5% of the latter's basic salary to a fund. Upon retirement or death the employee would receive a lump sum comprising his contribution and a percentage of Holdings' contribution dependent on the employee's years of service. Further, an employee who had worked for Holdings (including Associates) for more than 5 years as of 1 July 1990 would enjoy a lump sum bonus contributed by Holdings. 7.Since strictly the Plaintiff was working for Holdings under a consultancy agreement rather than an employment contract, Holdings and Glenharvic entered into a special arrangement in respect of the lump sum bonus. By letter dated 9 July 1990 Holdings stated that from 1 July 1990 Glenharvic would be entitled to a gratuity calculated thus:-
Holdings agreed to pay $51,000 into a fund for Glenharvic's benefit in yearly instalments of $10,200 over the next 5 years. The entitlement would end when Glenharvic's consultancy agreement with Holdings terminated. 8.By another letter dated 9 July 1990 Holdings told Glenharvic that it would also be entitled to a monthly bonus of 5% of the agreed consultancy fee on a graduated basis. Thus, from 1 July 1990 to 30 June 1991 Glenharvic would only be entitled to 80% of this bonus, but it had the potential to receive more (up to 100% of the bonus from 1 July 1992) depending on how long it worked for Holdings. 9.The arrangements in the 2 preceding paragraphs were confirmed in a revised consultancy agreement between the Plaintiff and Glenharvic dated 15 December 1990. 10.In early 1991 Mr Tam, Mr Sal To Wing Nin ("Mr To"), Mr Victor Yang Yan Chi ("Mr Yang") and the Plaintiff (collectively, "the Four") became shareholders of Smart Idea Limited ("Smart Idea"). The Four intended to use Smart Idea as a vehicle for acquiring Holdings from its then controlling shareholder, Mandarin Resources. Following buy-out of Mandarin Resources on 30 January 1991, Smart Idea became Holdings' sole beneficial owner. 11.Mr Tam was allotted 47,000 shares in Smart Idea; Mr To 43,000 shares and Mr Yang and the Plaintiff 5,000 shares each. The terms agreed among the Four as to the conduct of Smart Idea's business were reflected in a Shareholders' Agreement ("the Smart Idea Agreement") dated 16 July 1991. The latter provided (among other terms) as follows:-
12.The Plaintiff paid for his 5,000 shares and his pro-rata share of additional working capital for Smart Idea in 2 payments of $25,000 each made on 31 January and 1 March 1991. 13.Holdings being under new management, it had an organisational restructuring. Mr Tam, Mr To and the Plaintiff became directors of Holdings. From time to time Mr Tam or Mr To, as Holdings' 2 executive directors, issued memos to staff. I highlight some of those memos below to the extent needed. 14.By memo dated 1 July 1991, Mr Tam wrote that, although the job nature and responsibilities of the Plaintiff, Mr Yang and Ms Wong Sin Yee would remain as before, their job title would be changed from Associate to Assistant Director. 15.On about 28 January 1992 the Plaintiff made a shareholders' loan of $30,000 to Smart Idea. This was acknowledged by Mr Tam as Smart Idea director. 16.By memo dated 10 December 1992 Mr To issued new terms for Holdings' Referral Scheme ("the Scheme"), which (Mr To stated) took immediate effect. The revised terms were as follows:-
17.On 2 March 1993 Mr Tam issued a memo to all Holdings assistant directors and managers as follows:-
18.On 28 October 1994 Mr To issued a memo which stated:-
19.The Amended Defence of the 1st and 2nd Defendants ("AMDEF") alleges that in November 1994, because Holdings was then experiencing cashflow difficulties:-
The Plaintiff denies that any oral agreement was made. Mr To (who gave evidence before me on subpoena and who is the person referred to in AMDEF as the "other shareholder of Smart Idea") also denies the agreement. According to Mr Tam, Mr Yang (the remaining Smart Idea shareholder) had left Holdings' employment by November 1994. Presumably for this reason, the Defendants have not said that Mr Yang was privy to the November 1994 agreement. I refer below to the alleged 1994 oral agreement as "Oral Agreement I". 20.On 28 February 1995 Glenharvic wrote to Holdings as follows:-
Holdings signed a copy of the letter to show acceptance of its terms. 21.Following termination of the Glenharvic Agreement, by letter dated 1 April 1995 Holdings confirmed the Plaintiff's employment as Assistant Director of Investment Department Agency. The letter stated:-
22.In his Witness Statement, the Plaintiff explained the rationale for termination of the Glenharvic Agreement on 31 March 1995 and entry into a fresh employment contract on 1 April 1995 as follows:-
23.Thereafter, the gratuity of $51,000 (originally proposed in July 1990) was paid to Glenharvic without interest in instalments of $7,500 (on 1 December 1995); $8,925 (on 8 January 1996); $4,050 (on 7 February 1996); $575 (on 7 March 1996); $8,400 (on 9 April 1996) and $21,550 (on 7 May 1996). 24.On 23 June 1997 Holdings' authorised capital increased from $2 million to $5 million through creation of 3 million A shares of $1.00 each. Shares were allotted to Mr Tam, Mr To and the Plaintiff with the end result that as at 23 June 1997 Holdings became owned as follows:-
The shares were paid for by setting off their nominal amount against sums due from Holdings to Mr Tam, Mr To and the Plaintiff respectively. 25.AMDEF alleges that:-
I refer to this alleged 1998 agreement as "Oral Agreement II". It is denied by the Plaintiff. It is denied by Mr To who is said by the Defendants to have been privy to Oral Agreement II as well. During the trial Mr Philip Tam ("Mr Philip Tam") (appearing for the Defendants) clarified that, despite being pleaded as a fresh contract, Oral Agreement II was in reality a mere re-affirmation of Oral Agreement I which had never come to an end. Further, although AMDEF refers to Holdings being "again" in cashflow hardship in 1998, in fact (Mr Philip Tam submitted) Holdings had perennial liquidity problems in the sense that, even if from time to time Holdings could pay the debts of outside creditors as and when due, anticipated cash demands meant that Holdings lacked funds to pay remuneration due to Mr Tam, Mr To and the Plaintiff. 26.On 30 July 1999 Ms Flora Hung ("Ms Hung"), Holdings' Finance and Administration Manager, issued a memo warning staff about timekeeping. With effect from 1 August 1999 written warnings would be sent to latecomers and, based on the number of warnings issued, penalties could be imposed. 27.By letter dated 12 August 2000 Mr Tam informed the Plaintiff that his monthly salary had been raised to $46,390 with retrospective effect from 1 July 2000. 28.On 25 October 2000 at a Holdings board meeting ("the 2000 Meeting") a heated argument took place between Mr Tam and Mr To over Holdings' management. The Plaintiff was present although it apparently was the usual practice that he, not being an executive director, did not (and was not expected to) attend board meetings. Mr Tam queried the appropriateness of the Plaintiff's presence. After discussion the Plaintiff remained, but Mr Tam perceived the Plaintiff's presence as indicative of the latter's support for Mr To rather than Mr Tam. 29.The 2000 Meeting was taped. The minutes ("the Minutes") of the 2000 meeting record the following:-
30.Subsequently, a memo dated 5 December 2000 signed by Mr To and the Plaintiff was issued. The memo stated that, as a result of a resolution passed at the 2000 Meeting, Mr To was temporarily taking over Holdings' financial management from Mr Tam. Mr Tam's response was swift. By letter dated 6 December 2000 Messrs Chan, Lau & Wai (Mr Tam's solicitors) challenged the validity of the resolutions recorded in §§1.36 and 1.37 of the Minutes and demanded that the 5 December 2000 memo be withdrawn on threat of legal proceedings. As far as Mr Tam was concerned, the 2000 Meeting was void and of no legal effect. 31.On 12 January 2001 Mr Tam sent a memo to Mr To and the Plaintiff as follows:-
32.On 9 February 2001 Mr To was dismissed from Holdings. 33.On 21 February 2001 Ms Hung on Mr Tam's instructions issued a memo to the Plaintiff in the following terms:-
The Plaintiff responded by writing to Ms Hung that he had never previously been required to inform anyone of his appointments. He asked whether §2 of the memo was intended to apply to other department heads and associate or assistant directors. Ms Hung referred the matter to Mr Tam. There is no evidence of a substantive response to the Plaintiff's query. 34.On 5 March 2001 the Plaintiff wrote a memo ("Referral Memo I") to Ms Hung as follows:-
The Plaintiff spoke personally to Ms Hung after sending the memo. She was non-committal. She passed the memo on to Mr Tam who said that he would deal with it. But the Plaintiff received no substantive response from Mr Tam. 35.The Plaintiff sent a 2nd memo ("Referral Memo II") on the subject of overdue referral fees to Ms Hung on 27 March 2001. That stated:-
Again the memo was relayed to Mr Tam. Again Mr Tam failed to respond substantively to the Plaintiffs request. 36.On 31 March 2001 the Plaintiff was informed by letter ("the Termination Letter") signed by Mr Tam that his employment with Holdings was terminated with immediate effect "due to your misbehaviour at work in accordance with the terms and conditions of employment of April 1, 1995". No particulars of "misbehaviour" were specified. 37.On 16 May 2001 the Plaintiff sued Holdings for unpaid wages, referral fees and other amounts in Claim No. LBTC 3546/2001 at the Labour Tribunal. By Order dated 2 November 2001 the Plaintiff's claim was transferred from the Labour Tribunal to the High Court. II. Discussion 38.I consider the Plaintiff's action by reference to 3 Issues:-
A. Issue (1): Wrongful termination? 39.In his Witness Statement, Mr Tam alleges the following acts of misbehaviour by the Plaintiff while employed:-
40.In my view, the particulars of alleged misconduct are vague and imprecise. They do not justify summary termination of the Plaintiff's employment. I examine each alleged particular in detail. 41.Absence and timekeeping. Precisely when (for what periods of time on which days) was the Plaintiff found (by whom) to be missing without explanation (did anyone and (if so) who asked the Plaintiff for explanation)? No serious evidence was adduced on the matter. 42.The best that Mr Tam could do in evidence at trial was to contend that from February 2001 onwards the Plaintiff's behaviour became "irregular" and, contrary to Holdings' 21 February 2001 memo, the Plaintiff did not report his movements. No record of written warnings to the Plaintiff about bad timekeeping were produced, although one might have expected such evidence given Holdings' 30 July 1999 memo. 43.Even as regards the 21 February 2001 memo which the Plaintiff is said to have ignored, the Plaintiff does not seem to have received a substantive answer to his query whether §2 of the memo applied to him. This was important. Since 2 March 1993 assistant directors had been afforded a degree of flexibility in timekeeping and were exempted from having to notify their movements prior to leaving the office. The 21 February 2001 memo refers in §2 to the Plaintiff being "reminded" of the need to report his movements. That (as the Plaintiff observed in writing to Ms Hung) was strange since Assistant Directors had not been required since 1993 to report their movements. If the practice since 1993 had suddenly been revised, the Plaintiff was entitled for that to be spelled out to him cogently. 44.Drinks with an ex-employee. The ex-employee which Mr Tam had in mind was Mr To. Although he alludes to tea with "others of the Defendants", those "others" were never identified. 45.Mr Philip Tam asked the Plaintiff in cross-examination whether he had taken tea with Mr To during office hours, after the latter's dismissal. The Plaintiff said that it was possible. When asked how many times, the Plaintiff thought that, between Mr To's dismissal and his own, they might have taken tea some "3 or 4 times or possibly less". Undoubtedly Mr Tam might have regarded having tea with Mr To as disloyalty towards Mr Tam. But it is difficult to understand how having tea with an ex-employee some 3 or 4 times, possibly less, during unspecified "office hours" for an unspecified period can qualify as a serious dereliction of duty demanding immediate dismissal. 46.One must also bear in mind that, though no longer an employee of Holdings from 9 February 2001, Mr To remained a director of Holdings until after 31 March 2001 when the Plaintiff was himself dismissed. It is conceivable that the Plaintiff and Mr To were discussing matters relevant to Holdings' smooth operation over tea. That would not only be innocent. It would also be consistent with the Plaintiff's duty of fidelity as a Holdings employee. The topics of tea-time conversation between the Plaintiff and Mr To were not explored in cross-examination by the Defendants on whom the onus of proving misbehaviour on the Plaintiff's part squarely rests. 47.Rudeness and lack of cooperation. The Defendants identified no particular staff member as having been rudely treated by the Plaintiff. Nor were any particulars volunteered by the Defendants at any time as to how, when and where the Plaintiff manifested himself in a rude and uncooperative manner. 48.Absent proper particulars and evidence, the Court can only conclude that the allegations of misbehaviour are unfounded. Holdings had no basis summarily to terminate the Plaintiff's employment on 31 March 2001. The termination was wrongful. B. Issue (2): Oral Agreements I and II 49.Mr Tam's credibility. Proof of Oral Agreements I and II largely rests on Mr Tam's oral evidence. I did not find Mr Tam to be credible on Oral Agreements I and II. Where his evidence conflicted with that of the Plaintiff, I have preferred the Plaintiff's version of events. I found that Mr To to a large extent corroborated the Plaintiff's evidence. 50.During the trial Mr Tam qualified the alleged terms of Oral Agreements I and II. He claimed that under Oral Agreements I and II Holdings could pay directors some emolument to the extent possible at a given time in view of then current or anticipated demands on funds in hand. Thus, at times (Mr Tam was vague as to precisely when), directors would receive some, but not necessarily all, of the amounts due to them. This version of Oral Agreements I and II was different from that in AMDEF and Mr Tam's Witness Statement. That this clarification of the scope of Oral Agreements I and II came late in the day undermined Mr Tam's overall credibility. 51.More fundamentally, it would be surprising if Mr Tam, Mr To and the Plaintiff entered into a nebulous oral agreement to forego indefinitely monies due, until such time when some person determined that Holdings had enough cash to pay those monies. How would the directors survive in the meantime? How would they manage their own cashflow requirements if, at any given time, they could not be certain when or how much they would be paid (if at all)? Even now, at the start of trial, Holdings asserts that, while it has sufficient cash to meet its commitments to other creditors, it does not have enough to pay referral fees accepted as due to the Plaintiff. 52.One would have expected the relevant parties to commit into writing such a momentous contract as that alleged by the Defendants. Indeed, one would expect more. One would think that there would have been regular reports and memos passing among the parties dealing with whether cashflow allowed payment of their remuneration (and if so, how much) at different points of time. One would think that there would be notes of discussions among the parties as to whether Holdings should incur a future liability, where that might use up available funds and mean postponing receipt of directors' remuneration. There would also be notes to accounting staff so that proper records might be kept of who gave up what remuneration in a given month by way of a shareholder's loan. One does not see the paper trail that one might expect to see if Oral Agreements I and II were the reality that they are asserted to be. One sees nothing in writing. 53.The pleading of Oral Agreements I and II is in itself odd. What was the need for Oral Agreement II if (as Mr Philip Tam asserted at the outset) Oral Agreement I was still in effect? 54.I asked Mr Philip Tam whether Oral Agreements I and II, even if established as pleaded, would be so vague as to be unenforceable. See Chitty on Contracts (28th ed.), I, §2-128 (pp. 147-8): "An agreement may be so vague or uncertain that it cannot give rise to a binding contract". I expressed concern that no mechanism is alleged in AMDEF to have been agreed for determining "when the financial position of [Holdings] would allow" payment of remuneration. For example, was Holdings' financial position to be assessed every day, month or year? By whom? And then by what criteria? Mr Philip Tam accepted that the mechanism for evaluating whether Holdings could pay remuneration was vague. But he suggested that a term could be implied, presumably on grounds of commercial efficacy, that Holdings' financial position was to be reviewed "monthly or at latest yearly". The criteria to be used for determining whether Holdings could make payment was its balance sheet. I asked whether the balance sheet had to be an audited one. Mr Philip Tam initially thought so. However, when it was pointed out that (on the evidence) Holdings' audited accounts were not ready until around 2 years after a financial year, he thought that in such situation the balance sheet could be unaudited. 55.I doubt that the officious bystander would be curtly dismissed if (looking over the shoulders of Holdings directors as they were discussing Oral Agreements I and II) he suggested that they agree transparent criteria for assessing when Holdings' financial position allowed payment of remuneration. I do not agree that the terms mentioned by Mr Philip Tam can be implied. On the contrary, Mr Philip Tam's obvious difficulties with questions on the scope and working of Oral Agreements I and II fortify my conclusion that the contracts are so unworkable as to make it highly unlikely that experienced commercial men such as Mr Tam, Mr To and the Plaintiff ever agreed them. 56.Mr Philip Tam relies on the following as significant pointers towards the existence of Oral Agreements I and II:-
Mr Philip Tam says that "the only reasonable inference" to be drawn from these 6 pointers "must be that there was [a] certain arrangement made between the Plaintiff, [Mr Tam] and Mr To ... consistent with the existence of the oral agreements". 57.I disagree. In my view, the 6 pointers do not support Oral Agreements I and II. Taken singly or together, the 6 pieces of evidence may even be incompatible with the existence of Oral Agreements I and II. I consider each "pointer" in turn. 58.The Smart Idea Agreement. I do not understand how the fact of the Smart Idea Agreement makes it easier to accept Oral Agreements I and II as a reality. 59.By the Smart Idea Agreement, working capital of $900,000 ($1 million if monies paid for Smart Idea's shares are included) was raised for the day-to-day management of Holdings' business. The Smart Idea Agreement further stipulated a precise mechanism whereby additional monies might be raised as and when required by way of loans proportionate to shares held by individual members. Such loans would be made within 7 working days of being resolved by Smart Idea's board. 60.A formal mechanism having been agreed in writing, why should there be any need to agree for provision of further advances to Holdings by an unwritten and nebulous agreement indefinitely to forego all (or some) remuneration due from Holdings to its directors? Loans made through this informal mechanism would almost certainly not be in proportion to individual shareholdings in Smart Idea or (after 23 June 1997) in Holdings. Accounting for "loans" advanced in the form of remuneration postponed would be awkward. Instead of a certain amount being resolved by the Board as necessary for Holdings and contributions being made proportionately to cover that amount, every month an unknown amount dependent (among other factors) on commission or fees generated over a relevant period would be treated as loaned. The transparency of the mechanism in the Smart Idea Agreement is replaced by uncertainty. It would thus be odd if, having entered into the Smart Idea Agreement, the same parties later agreed to operate a less rigorous parallel arrangement. 61.The allotment of Holdings shares in June 1997. I do not see how the allotment of shares in Holdings which took place in 1997 takes the Defendants' case very far. 62.The Defendants say that Holdings was experiencing cashflow difficulties from 1994 onwards. That does not seem to be strictly accurate since Holdings' audited accounts show a profit of $4,452,062 for the financial year ended 30 June 1997. The balance sheet in the same accounts further state that current assets exceeded current liabilities by $978,371. 63.But assume for argument's sake that there was a cashflow problem, such that it was deemed prudent to pay off some of the debt owing to Holdings' directors by capitalising the same and allotting the equivalent in Holdings shares. There would still be no irresistible inference to be drawn from such capitalisation in respect of the making of Oral Agreement I in 1994 or Oral Agreement II in 1998. 64.Holdings audited statements. Mr Philip Tam relies on the financial statements principally to establish that Holdings was experiencing cashflow problems from 1994 onwards. As mentioned above, in at least one financial year (1996-97) when Oral Agreement I was said to be effective, Holdings made a significant profit. So historically there are difficulties with Mr Philip Tam's submission. Even if it could be said that Holdings was experiencing cashflow problems for most of the time from 1995 to 2001, I disagree with Mr Tam's suggestion that such situation renders it more likely than not on the balance of probability that Oral Agreements I and II were made. 65.The audited accounts are double-edged for the Defendants. The accounts indicate that remuneration may have been regularly paid to Mr Tam and Mr To during the time when Oral Agreements I and II are said to have been operative. If regular payments were indeed made, such conduct would be inconsistent with the existence of Oral Agreements I and II and would cast doubt on Mr Tam's evidence. 66.Mr Tam said in Court that he was only entitled to receive salary from Holdings. For the relevant period, Mr Tam's monthly salary was in the region of $90,000 to $100,000. Mr Tam could not be more specific. 67.Mr To said that he was only entitled to receive a monthly payment of $90,000 from Holdings. This amount was paid to Mr To, not as director's remuneration, but in the form of consultancy fees to his service company, Trillion Limited ("Trillion") (now Partners Corporation Limited). By HCA No. 1797 of 2001 Trillion is suing Holdings for unpaid fees covering the period from March 1997 to February 2001. A total of $4,310,928 is pleaded to be outstanding. 68.The Plaintiff received a monthly basic salary (see Section I above for the quantum over time), supplemented by referral fees. At a meeting in January 1997 with Mr To and Mr Tam, it was agreed that the Plaintiff would concentrate on business development activity, particularly in the project marketing sector. As a result, the Plaintiff's role in Holdings focussed more on sourcing project work. For this he received 10% of all billings, as per the terms of the Scheme. The bulk of the Plaintiff's supplemental income since January 1997 then was derived from referral fees, rather than agency commissions. 69.Note 4 to the Profit and Loss Account of Holdings' financial statement for the year ended 30 June 1995 (covering November 1994 when Oral Agreement I is alleged to have become operative) records $1,276,500 as directors' remuneration, compared to $1,105,000 in the previous financial year. The 1994-95 statement further reports:-
$1,080,000 is equal to $90,000 times 12 months. 70.Note 5 to the Profit and Loss Account of Holdings' financial statement for the year ended 30 June 1996 records $1,686,000 as directors' remuneration. The 1995-96 accounts further report that $1,080,000 was paid to Trillion during the year. 71.Note 5 to the Profit and Loss Account of Holdings's financial statement for the year ended 30 June 1997 records $1,729,200 as directors' remuneration. The 1995-96 accounts further report that $1,080,000 was paid to Trillion during the year. 72.Note 5 to the Profit and Loss Account of Holdings's financial statement for the year ended 30 June 1998 records $2,156,571 as directors' remuneration. The 1995-96 accounts further report that $1,200,000 was paid to Trillion during the year. 73.Holdings's financial statement for the year ended 30 June 1999 (which would cover mid-1998 when Oral Agreement II is said to have become operative) is in a different format to previous statements. It has a Detailed Profits and Loss Account which records $1,689,920 as directors' remuneration. The accounts state only $2,041,103 (as opposed to $2,156,571 mentioned in the previous year's report) as directors' remuneration for the year 1997-98. No evidence was adduced at trial to explain the latter discrepancy. But I do not think that it is material to my conclusions. The 1998-99 statement also reports that $1,080,000 was paid to Trillion. 74.Holdings audited accounts for later years were not provided in evidence at trial. 75.Shown the foregoing evidence, Mr Tam said that the directors' remuneration entries in the accounts merely showed liabilities which had accrued but had not necessarily been paid. However, that does not explain the unequivocal statements that fees were "paid" to Trillion. 76.Additionally, there is no dispute that the Plaintiff was paid his basic salary. Given that such salary formed part of directors' remuneration in a given financial year, 12 months of a salary of $45,500 (that is, the Plaintiff's approximate basic monthly wage during the years in question) amounts to $546,000. At least that amount was actually paid and not just accrued. This suggests that the directors' remuneration entries in the financial statement do not just comprise accrued liabilities. They also include payments that were actually made. 77.It follows that the balance of directors' remuneration reported in the financial statements (that is, that part not actually paid to the Plaintiff) would either have been paid or accrued to Mr Tam as salary. Without evidence to show that the balance was not in fact paid but only accrued as a liability, the Court cannot regard the audited accounts as supportive of the Defendants' contentions in any way. 78.Mr Tam noted entries in the audited accounts stating that certain amounts were due to directors. For instance, the following are shown to have been due to directors in Holdings' balance sheets:-
Mr Tam observed that these amounts were typically described as "unsecured, interest free and [having] no fixed repayment terms". The directors are said in the audited reports to be of the opinion that such amounts "will not be repaid within twelve months from the balance sheet date". Consequently, "the amounts are shown as non-current in the balance sheet". 79.Again there are difficulties with the foregoing as any evidence of the Defendants' contentions. The amounts said to be due to directors in a given year do not necessarily incorporate unpaid but accrued directors' remuneration in the same or previous financial years. The evidence merely shows that loans were made by directors. The Court does not know from the audited accounts who loaned what amount at what time. It is one thing to claim that directors' remuneration shown in the accounts were accrued but unpaid. It is another thing to assert that these accrued but unpaid amounts were then treated by Holdings' accountants as shareholders' loans with no fixed time for repayment. The accounts are silent on that. No accounting evidence was adduced to flesh them out. 80.I draw a simple conclusion from all this. Far from substantiating the existence of Oral Agreements I and II, Holdings' accounts may possibly show that directors' remuneration was paid to Mr Tam and Mr To when (on the Defendants' version of events) they were supposed to be foregoing remuneration. Mr To for one appears to have been regularly paid consultancy fees in the financial years just considered, despite Mr To allegedly being a party to Oral Agreements I and II. What the audited financial statements do not do is to buttress the Defendants' case. 81.Letters of support. The auditors periodically requested Holdings' shareholders to sign letters in the following terms:-
Letters in those terms dated 8 June 1998, 31 March 1999 and 19 February 2000 were produced to the Court by way of example. They are standard letters which auditors commonly obtain from shareholders, especially where the audited accounts show that a company has incurred a loss in a financial year. The bare fact that the letters were signed by Mr Tam, Mr To, the Plaintiff and Smart Idea does not support any inference that Oral Agreements I and II were made. 82.The Minutes. The 2000 Meeting is criticised by Mr Tam as irregular. It is therefore ironic that he should rely on the Minutes in support of the Defendants' argument. If anything, however, the Minutes are against those contentions. 83.In the course of the 2000 Meeting, the Minutes record Mr Tam as saying that there was no problem with cashflow management and no need for further advances to Holdings from its shareholders. See Minutes §§1.22 and 1.26. If so, Holdings would have no reason, even if Oral Agreements I and II had been made, for withholding accrued directors' payments from the Plaintiff. 84.More pertinently, during the 2000 Meeting, it is strange that Mr Tam, Mr To and the Plaintiff do not refer to Oral Agreements I and II at all. One would have thought that those arrangements would have been uppermost in the minds of all. If Oral Agreements I and II had been truly agreed by the directors, one would have expected discussion (perhaps heated) at the way month after month significant sums were not being paid to each director, ostensibly because of cashflow problems, with no indication that the situation would improve in the near future. It is equally curious that Mr To and the Plaintiff should be prepared to advance further monies without taking account of sums that would presumably be withheld from them in September 2000 and succeeding months under the terms of Oral Agreements I and II. In my judgment, the reason that no mention is made of the 2 latter contracts is because they never existed. 85.Referral Memos I and II. In cross-examination of the Plaintiff Mr Philip Tam suggested that, until Referral Memos I and II were written, the Plaintiff had never complained about the withholding of referral fees. That (Mr Philip Tam put it) was because the Plaintiff knew that under Oral Agreements I and II he was not entitled to receive fees until Holdings' financial position had improved. The Plaintiff denied the suggestion. 86.It later became plain from the Defendants' own witnesses (Mr Tam and Ms Hung) that the Plaintiff had regularly complained orally, principally to Ms Hung, about slow payment ("drip-feeding") of his referral fees. Referral Memo I itself corroborates this in its allusion to the Plaintiff's "usual representations and complaints" about late payment of his fees. 87.In closing Mr Philip Tam had to change tack. He argued that the Court could infer the existence of Oral Agreements I and II from the Plaintiff not strenuously pressing for payment after being told by Ms Hung that Holdings' financial position was not sound. I reject Mr Philip Tam's argument. 88.The revised allegation was not put to the Plaintiff in cross-examination. In any event, the evidence shows that the Plaintiff regularly pressed for payment of overdue referral fees regardless of Holdings' financial position. Since he did not wish to make a scene, he restrained himself from putting his complaints in writing until, fed up, he sent Referral Memos I and II. But his restraint does not diminish the reality that he constantly complained about late payment. 89.Conclusion on Oral Agreements I and II. I find that Oral Agreements I and II were never made. Even if made, I would have found that the agreements were vague and unworkable so as to be incapable of enforcement. Finally, even if Oral Agreements I and II had been made and were workable, no evidence of Holdings's current financial position was adduced at trial. There is no evidence that Holdings' present finances render impossible the payment at this time of any monies owed to the Plaintiff by reason of his employment and its wrongful termination. C. Issue (3): Remedies 90.It follows from my findings on Issues (1) and (2) that Holdings is liable to the Plaintiff. The Plaintiff did not bring these proceedings in breach of Oral Agreements I and II as alleged in the counterclaim. I now consider the quantum of Holdings' liability to the Plaintiff. 91.Some heads of damage were agreed between the parties as follows:-
92.This left the following claimed heads of damage in dispute:-
I examine each of the disputed heads. 93.Long service payment. The debate is whether, for the purposes of calculating the Plaintiff's long service pay, the Court should:-
94.The Defendants argue that the Plaintiff's initial employment with Holdings ceased in December 1989 and was replaced by the Glenharvic Agreement. The latter contract being a consultancy, the Plaintiff was not an employee when the Glenharvic Agreement was effective. What is more, the Plaintiff benefitted from the Glenharvic Agreement in that he could deduct a range of expenses from the fees received under the Glenharvic Agreement and reduce profits tax. Had the Plaintiff received those fees as salary from Holdings, he would have had to pay salaries tax and could not have made the deductions allowed by the Revenue in the computation of profits tax. Since he derived a benefit from being treated as a consultant for tax purposes, the Plaintiff should not now be permitted to resile from his previous position and seek to be treated as an employee during the period of the Glenharvic Agreement so as to obtain more long service pay. 95.The question is not free of case law. I review 3 cases on similar facts to ascertain what the approach should be on this sub-issue. 96.In Massey v Crown Life Insurance Co. [1978] 2 All ER 576, Massey worked as Crown Life's manager under 2 contracts, one a contract of employment, the other a contract of general agency. Tax and other contributions were deducted from wages paid under the former, while commission was paid under the agency contract. Under the agency contract Massey could work for other insurance brokers. Later, with Crown Life's agreement, Massey registered himself as Massey & Associates and, trading under such name, entered into a new contract as a self-employed person with Crown Life in 1973. Massey's duties under the new contract remained the same, although tax and other contributions were no longer deducted from monies paid to him. When Crown Life dismissed Massey in 1975, he brought a claim for unfair dismissal. The question was whether he was entitled to make such claim since (Crown Life argued) he was not an employee under a contract of employment. A tribunal decided that Massey had no locus. He eventually appealed to the Court of Appeal. 97.The Court of Appeal dismissed Massey's appeal. Lord Denning MR stated (at 579j-580b):-
98.Lord Denning's judgment in Massey was closely analysed by the Court of Appeal in Young & Woods Ltd v West [1980] IRLR 201. Y & W gave West the option of being paid as an employee or a self-employed person. West preferred the latter. No tax was accordingly deducted from his salary as would have been the case had he been treated as an employee. The Inland Revenue knew of the arrangement. West having been dismissed by Y & W, he claimed unfair dismissal. An industrial tribunal found for West. The Employment Appeal Tribunal by a majority also found for West. The Court of Appeal affirmed the last decision. 99.Delivering the principal judgment, Stephenson LJ quoted extensively from Lord Denning's judgment in Massey. He then said:-
100.There is finally the relatively recent decision of the UK Employment Appeal Tribunal in Catamaran Cruisers Ltd v Williams [1994] IRLR 386. The case illustrates how the principles are applied to a given situation. Williams provided his services to Catamaran through Unicorn, a limited company. Could he be treated as an employee within the terms of the Employment Protection (Consolidation) Act 1978? 101.Tudor Evans J, delivering the judgment of the tribunal, again cited Lord Denning in Massey. He continued:-
102.The foregoing cases establish that, in deciding how to characterise the Plaintiff's relationship with Holdings during the period of the Glenharvic agreement, I should focus on the facts. Although entry into the Glenharvic Agreement is a fact which I can take into account, it is not decisive. Nor is the label used by the parties in the Glenharvic Agreement to describe their relationship determinative. Further, although tempting, one should not prejudge the issue of characterisation on the basis that the Plaintiff in all likelihood derived a significant tax advantage from entering into the Glenharvic Agreement and paying profits tax rather than salaries tax. If the Court finds that the true relation between Holdings and the Plaintiff was all along one of master and servant, it would be open for the Commissioner of Inland Revenue to consider whether or not the Plaintiff should be re-assessed to additional tax. 103.Given the approach just summarised, I think that the facts unequivocally point to the Plaintiff having been at all times in an employment relationship with Holdings. Indeed, at all material times, all parties actually thought of the Plaintiff as having been continuously employed by Holdings since 19 July 1982. 104.The following evidence supports my conclusion:-
105.I therefore find in the Plaintiff's favour on long service pay. 106.Reimbursement of RICS subscription. I also find here in the Plaintiff's favour. 107.By its 28 October 1994 memo, Holdings announced a policy of reimbursing RICS membership fees. It would have formed part of Holdings' rules and regulations (including notices issued from time to time) incorporated as a term of the Plaintiff's employment by cl.7 of his contract with Holdings dated 1 April 1995. The October 1994 memo stipulates pro-rata reimbursement when a staff member terminates his employment. Here, Holdings and not the Plaintiff terminated the employment. Thus, the pro-rata provision does not apply. 108.In any event, the evidence shows that the Plaintiff only paid his RICS subscription on 15 February 2001, after he had been assured by Ms Hung that Holdings would refund the same. Holdings is thus estopped from denying an obligation to reimburse the Plaintiff. 109.Anticipated referral fees. The Plaintiff claims referral fees on commission income which Holdings has either received on 3 projects since termination of the Plaintiff's employment or which it is anticipated Holdings will receive in the future in respect of the 3 projects. The 3 projects and the referral fee amounts claimed by the Plaintiff in respect of each are as follows:-
The Plaintiff calculates his referral fee amounts by assuming that certain units in each project have been or will be leased by Holdings following his departure from office. 110.The Defendants deny that the Plaintiff is entitled to receive anything. They argue first that to be entitled to referral commission the Plaintiff must not only refer a client, but he must also follow up the project. I am not convinced by this argument. Obviously, the Plaintiff could not follow up as his employment with Holdings was prematurely terminated. Holdings cannot rely on its wrongful act as a defence from having to pay any referral fees due. 111.Then, Mr Tam states in his Supplemental Witness Statement that:-
112.I am not persuaded that a nebulous "norm" or "practice" which has not been recorded in the December 1992 memo setting out the Scheme or any later notice can affect rights accruing to an employee who conducts himself on the basis of the Scheme as set out in the December 1992 memo. 113.It is true that the December 1992 memo states that the Scheme is "not intended to form any part or terms of individual's employment contract". But where (as here) an employee works to introduce clients on the understanding that his introduction will be rewarded with a referral fee, I do not think that Holdings can deny payment of referral fees in respect of clients already introduced. Holdings may possibly be able unilaterally to modify the Scheme in how it rewards employees in respect of clients introduced in the future. But if, as here, a client has already been introduced and Holdings has obtained the benefit of such introduction, I do not think Holdings can resile from paying the promised benefit by vague reference to an unrecorded "practice". 114.Finally, the Defendants say that they have only received the following amounts to date from clients introduced by the Plaintiff in respect of the 3 projects:-
115.In my judgment the Plaintiff is entitled to receive referral fees for clients introduced by him on the 3 projects prior to the cessation of his employment. The question is how much. To a certain extent there is inevitably an element of assumption in ascertaining a figure. 116.How much is Holdings likely to receive all told from clients introduced by the Plaintiff on the 3 projects? Ms Cruden (appearing for the Plaintiff) did not cross-examine Mr Tam on Holdings' low receipts from the 3 projects. I will assume then, in light of Mr Tam's evidence, that actual receipts so far since 31 March 2001 are lower than originally expected. This suggests that the Plaintiff's projections (as to how much income Holdings might receive in all from the clients introduced by him on the 3 projects) are over-optimistic. 117.Ms Cruden has argued that the Plaintiff was deprived of the opportunity to follow through with the clients introduced by him. Had he remained with Holdings, he could have pushed such clients (Ms Cruden says) to place more business with Holdings. But, if one treats the Termination Letter as Holdings giving the requisite 1 months' notice to end the Plaintiff's employment, the Plaintiff would only have had a month in which to work on clients. I am not persuaded that, in the month from 31 March to 30 April 2001, the Plaintiff could have substantially altered the position on the 3 projects, however hard he may have worked on the matter. 118.Consequently, doing the best that I can in a rough and ready way, I would reduce the amounts claimed by the Plaintiff as follows:-
119.The resultant total on the 3 projects would be $60,900. Under the Scheme, the Plaintiff is only entitled to payment of referral fees after commission is actually received by Holdings. Since I am in effect awarding the present value of anticipated receipts, I think it would be appropriate further to discount the figure of $60,900 to a round $60,000. III. Conclusion 120.The Plaintiff's Claim succeeds. The Counterclaim is dismissed. 121.I award the following sums to the Plaintiff:-
122.The Plaintiff is to have interest on the sum of $968,541.61 (that is, $1,028,541.61 less the anticipated referral fees of $60,000) at a rate of 2% over Hong Kong prime from 16 May 2001 (the date when the Labour Tribunal claim commenced) to date of judgment and thereafter at the judgment rate. Interests is to run on the $60,000 of anticipated referral fees from date of judgment at the judgment rate. 123.I make an Order Nisi that the Plaintiff is to have his costs of the Claim and Counterclaim from both Defendants, such costs to be taxed if not agreed.
Representation: Ms Liza Jane Cruden, instructed by Messrs Wilkinson & Grist, for the Plaintiff Mr Philip Tam, instructed by Messrs Chan, Lau & Wai, for the Defendants | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||