Ho Juan Hee, Edward and Another v. Pico Exhibits (H.K.) Ltd.
Read the full judgment text of HCA 470/1997 on BabelCite. This High Court CFI judgment was delivered on 9 November 2000.
1. This a claim for moneys said to be due and owing under a contract of employment. The defence is that there is no such liability; in the event there is, the amount of what is claimed is disputed.
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HCA000470A/1997 HCA 470/1997 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO. 470 OF 1997 (Transferred from Labour Tribunal Claim No. LT 4929/1996) ____________
____________ Coram: Deputy High Court Judge Gill in Court Dates of Hearing: 1-2 November 2000 Date of Judgment: 9 November 2000 _______________ J U D G M E N T _______________ 1. This a claim for moneys said to be due and owing under a contract of employment. The defence is that there is no such liability; in the event there is, the amount of what is claimed is disputed. Background 2. Pico Group is the collective name for a group of companies comprising the parent, called Pico Far East Holdings Limited, which is now listed on the Hong Kong Stock Exchange, and a number of subsidiaries, one of which is the defendant. I shall call it Pico Exhibits. The core business of the Pico Group is the design and manufacture of exhibition stands for use at trade fairs and the like. It began its life in Singapore and expanded into Hong Kong in the early 1980's. Since then there has been further expansion into numerous other cities in China and South East Asia. The listing came about in 1992. 3. Pico Exhibits is used as the vehicle to undertake diversified activity, namely the design and manufacture of the interiors of museums, theme parks, visitors' centres and other similar undertakings, in Hong Kong and elsewhere. 4. I shall call the first named plaintiff Mr Ho. He came to be employed by a member of the Pico Group as a trainee in management in June 1984. He was to remain associated with the Group until his departure, on his own accord, on 1 March 1996. From that modest start he rose through the ranks until, in 1993, he was offered a position with Pico Exhibits with the full title of General Manager - Business Development and Special Projects Divisions. He accepted. On advice he incorporated a service company, the second named plaintiff, which I shall call 4H, and 4H entered into a service contract entitled Terms and Conditions of Appointment with Pico Exhibits. The letter of appointment and the terms and conditions of appointment are reproduced as follows:
5. Clause 8 was later inserted as follows:
6. It is Mr Ho's case that in all material ways he was the employee. He had in the past caused some of his income to be paid in Singapore dollars into a personal account in Singapore. This continued after the contract was entered into. His salary was recorded on payslips made out to him. Correspondence from Pico Exhibits concerning his employment, for instance a subsequent announced salary increase and promotion to the post of Executive Director, was directed to him personally. When requested to write to the Singapore tax authorities concerning a claim for tax exemption, Pico Exhibits wrote that Mr Ho was then presently employed as an Executive Director. And when, as a reward for his services, Mr Ho was in 1993 allotted shares in the newly listed parent company, they were allocated to him in his name. 7. I shall return to the issue of who or what was the employee of Pico Exhibits because that is one of the disputes to be resolved. 8. It has been a longstanding policy of the Pico Group to reward its senior staff with a share of profits earned in projects in which they have played a material role. Paragraph 8 of the Terms and Conditions of Appointment reflects this. In practice, Pico Exhibits came to reward Mr Ho (not as it can be seen 4H) as evidenced by two letters of 20 July 1993 and 3 July 1995 I reproduce below:
9. Upon his return to work after a Chinese New Year Holiday which concluded in about mid February 1995, Mr Ho found in his intray a memorandum titled Enhanced Profit Sharing Scheme which I reproduce in full:
10. The covering letter at G came from Mr Ho's immediate superior, Mr Jolly Chang (Mr Chang) as follows:
11. Mr Ho's reaction to these documents is a matter of dispute as I shall return to. Suffice to say that he regarded himself (or, if it be found that the employee was not him but his service company, then 4H) as not bound to accept the terms of the enhanced profit sharing scheme (EPSS); nor was it accepted. 12. By letter dated 8 December 1995, Mr Ho caused 4H to give notice of its intention to terminate the employment contract to take effect from 1 March 1996. This was accepted by Pico Exhibits and as from that date Mr Ho retired from the Pico Group. Subsequent to that and based on his own calculations from accounts made available to him, Mr Ho has claimed to be entitled to be paid by Pico Exhibits the sums of $397,790.00 and $86,588.00 being 5% of the profits after tax earned in projects managed by him to 31 October 1995 and 29 February 1996 respectively. Pico Exhibits denies liability and in any event that Mr Ho's calculations are faulty and do not reflect the profits earned. Liability is denied because first its employee was 4H and not Mr Ho, and secondly because Pico Exhibits had the right to withhold any profit entitlement and chose to do so from a manager who had terminated his association with the company. 13. The parties being unable to resolve their differences these proceedings resulted. 14. To deal with the issues in dispute it is necessary to recount some of the evidence, which I come to next. Evidence 15. Mr Ho says that whilst the contract of employment was entered into between the defendant and 4H, this was a device for tax purposes, and the reality was that, as before, he was the employee. And that was how he was regarded by those he dealt with in Pico Exhibits and the other members of the Pico Group. So it is he says, that he is the primary claimant. The joining of 4H was an unnecessary and, in terms of costs, a wasteful process, caused by Pico Exhibits taking issue in the pleadings. 16. He says that he took immediate exception when he first read the memo announcing the EPSS. He took it together with Mr Chang's accompanying memo of 9 February into Mr Chang's office to voice his concern; in particular that he did not accept the EPSS. The response from Mr Chang was non-committal and not encouraging and he resolved then and there to record his opposition. He did this, whilst still in Mr Chang's office, at the foot of Mr Chang's memo. Then he left the memo with Mr Chang, so that he could refer his grievances to the Board. Again, I reproduce the memo, this time with Mr Ho's note at the foot:
17. His concern was that whilst the EPSS was presented as an enhanced scheme with increased percentages due if substantial profits were achieved, there were, to his mind, features in it that were not favourable, or at least less so than those agreed to in his contract of employment. In particular, the cap on what would be paid at paragraph F5 was new, as were other conditions and limitations in paragraph F. 18. He says there was no response forthcoming to his refusal to accept. In the event he took no further steps, confident that Pico Exhibits had no authority to adjust unilaterally a term of the contract of employment. As Pico Exhibits has in its defence pleaded that it was, by applying the terms and conditions of the EPSS, entitled to withhold all further remuneration from Mr Ho, or 4H, he says that it has no right to invoke terms not expressly agreed to between contracting parties. Under the 'old' terms of profit sharing, to which the parties are contractually bound at paragraph 8 of the Terms and Conditions of Appointment, headed profit sharing, he is entitled to the amounts he now claims. 19. To establish his entitlement he has taken me to the figures prepared by Mr Ho Koon Dow (Mr K D Ho) group accountant and executive of Pico Exhibits, which I reproduce below:
Re: Taipei Observatory Museum;
20. Mr Ho takes issue with the deduction of $663,097.00 from the project profit total being an amount held back pending profit sharing amongst the staff. This, he says, was already accounted for in the figure of $97,750.00. He also says the costs overrun was incurred after his departure for which he could not be held accountable; further, that there should be no deduction for the Ma Lu project, for there was no indication it was included in the first place. He took no issue with the figures for the period ending 29 February 1996, save for a mathematical error calculating one third of $4,649,266.00. His adjustments, recorded in the same way for comparison, reveal the following figures:
Re: Taipei Observatory Museum;
21. Hence, therefore his claim, in total of $484,378.00. 22. Mr Chang was called to give evidence for Pico Exhibits. Curiously, he took no issue with Mr Ho's claim that he was to all intents and purposes the employee of Pico Exhibits for the period in question, notwithstanding the existence of the contract of employment and the defendant's stance as stated in the pleadings. 23. However, his account of Mr Ho's reaction to the EPSS announcement and supporting memo is materially different. The first indication he had of any concern was the presence in his intray of his own memo with Mr Ho's handwritten notes at the foot. He cannot remember the date but insofar as the note is dated 14 February it was probably on or just after that date. He called Mr Ho in, to discover that his concern was the content of the memo itself, where the net profit before tax target for his Group was fixed at $5.5m. He said Mr Ho was of the mistaken belief that his profit centre's budget figure, arrived at after much consideration and debate at a conference in which he had participated, had been juggled without further reference to him. When it was explained to him that this had no bearing on the budget which remained unaffected, he appeared to be content and went away. He did not write the note in his office and his presence; he did not leave bearing a grievance. In particular, he did not raise the topic of the EPSS at all - his concerns both written and verbal were directed at the target figure. 24. When asked to deal with Pico's right to impose new conditions of profit sharing on its staff without consultation and specific agreement, he said that in his view the EPSS was not so much a change as a refinement to the existing profit sharing arrangement, and, as its name implies, one which was designed to favour the employees and provide a greater incentive for achieving a profit. Whilst accepting that there were spelt out conditions and a cap not hitherto in print, he said they were no more than expressions of policy which were already in place, to provide transparency. In any event, he said there was not opposition to the EPSS and, in particular, no objection raised by Mr Ho. 25. Furthermore, he said that every employee from the most menial to the Chairman of the Board is bound by the provisions of Pico's company policy, which is a comprehensive policy document, varied from time to time as needs arise and which is handed to every new employee upon appointment. Whilst accepting that the contract of employment with 4H did not specify that the policy document was part and parcel of the terms and conditions and was in that respect deficient, he said that it was so well known to be tacitly incorporated that Mr Ho as a longstanding employee would have been aware of this and so thus would 4H. The policy document in force on the date of the contract of employment was that of 1991. Clause 5.3 under the heading "Bonus" dealt with the profit sharing entitlement. That is as follows:
26. By invoking the provisions of the EPSS and the policy document and the discretion available to it in the Terms and Conditions of Appointment, Pico Exhibits was within its rights to withhold any profit share to which Mr Ho claimed to be entitled. 27. The remaining witness was Mr K D Ho, the author of the figures I have reproduced. He said the calculations establishing the level of profits were in accordance with Pico Group's standard procedures in the preparation of management accounts and passed muster with the auditors. The cost overrun whilst not uncovered until after Mr Ho's departure was nevertheless a bona fide deduction and could not be disregarded. The overall profit earned included the Ma Lu project. As Mr Ho had played no part in that it was appropriate that the profit attributable to that should be deducted. However, he conceded that the deduction of $663,097.00 amounted to a double entry and that that amount should be written back. He also agreed that there was an error in the mathematics giving rise to the profits earned to 29 February as spotted by Mr Ho. He was prepared to amend his figures accordingly. 28. That being the evidence, it is now appropriate to define the issues. The issues 29. Who or what was employed by Pico Exhibits? Was it Mr Ho or 4H? 30. Was the employee entitled as of right to a share of profits earned in projects attributable to Mr Ho to 31 October 1995, and 29 February 1996? 31. If so, what does that amount to? The outcome 32. In my view, the employee is 4H. There is no other way one can interpret the appointment letter of 1 April 1993 and the Terms and Conditions of Appointment attached. It is of course true as I accept that some of the correspondence between Pico Exhibits and Mr Ho and the Singapore tax authorities would seem to indicate that it was Mr Ho who was the employee. But I regard these as being an exercise in shorthand because it was Mr Ho through whom 4H was committed to provide the consultancy service under the employment contract. And to all intents and purposes to deal with Mr Ho was to deal with 4H. Similarly, that the payslips were made out to Mr Ho and not 4H was a matter of convenience rather than that it altered the status of the parties clearly spelt out. So, whilst Mr Ho in evidence said, and I quote verbatim from his witness statement as follows:
and whilst Mr Chang said much the same from the witness box, nevertheless I am satisfied 4H was the employee and now the claimant in these proceedings. 33. I come now to the issue of Pico Exhibit's liability, if any, to meet 4H's demand for a share of the profits said to have accrued during the period of Mr Ho's control over the projects concerned. 34. By way of introduction to this topic I turn to the Pico Group policy document that has been exhibited which Mr Chang says, as I accept, is handed to every new appointee upon his entry into the Pico Group. The 1991 version in force at the time of 4H's appointment into Pico Exhibits has since been superseded but at the material time was in force and has not since been materially amended. 35. The document begins by spelling out the philosophy of the Group and speaks of what is expected of the staff, in a section headed "Message from the Board of Directors". The second section introduces the system of benefits available over and above salary at the discretion of the Board. The third defines the terms and conditions and in particular that all employees from the Chairman downwards are included. From there the document covers all matters dealing with the mutual rights and responsibilities of employer and employee. I have already reproduced section 5.3 under the heading "Bonus". I now do the same for section 2 under the heading "Introduction":-
36. Given the level of expansion of the Pico Group and how far widespread it had become it was understandably thought desirable that all staff members be made aware of its philosophy, rules and regulations, and that included expectation as to their joint as well as individual contributions. I am satisfied that the policy document was intended to and does bind both employer and employee, in the way that the rules of a club bind its members. But there must be an exception, and that is where in a separate contract of employment between employer and employee there is a term at odds with the policy document. Then the term in the contract must and should prevail. But if the policy document serves to clarify a term of the contract or expand upon it without diminishing the rights or obligations contained in it then the two can and should be read together, and together prevail. 37. I turn now to the EPSS. The same applies. If it served to do no more than extend a term of a contract without diminishing or otherwise affecting adversely any entitlement contained in it then it, too, on introduction became part and parcel of the parties' rights and obligations. 38. Coming now back to this claim, I turn to clause 8 of the Terms and Conditions of Appointment which is the obvious starting point. Mr Chang says that it is so worded that it gives Pico Exhibits a discretion to pay a profit share out up to 5%, but not at all if the circumstances warrant. Although it could have been phrased with greater clarity I agree that by opting to pay 0% Pico Exhibits would effectively have that right. Thus in my view it does not contradict the provisions of sections 2 or 5.3 of the policy document or the EPSS whose terms merely clarify and expand upon clause 8 without diminishing the employee's, that is 4H's, rights. 39. Thus I have formed the view that Pico Exhibits did then and continues to have a discretionary right to withhold the profit share that is the subject of 4H's claim. 40. It follows that I do not need to come to a finding of fact on Mr Ho's reaction to the EPSS when it first came to his attention. But in case it becomes significant I record now that I find his account fanciful and far-fetched. I am satisfied that he wrote his note before meeting Mr Chang and his grievance, since resolved, concerned a different matter altogether. Although the general rule is that a contract cannot be varied by silence, on the facts of this case I am satisfied Mr Ho by his non-opposition accepted the terms of the EPSS. 41. It follows further that I do not have to be concerned about the amount of the claim. Again for completeness I have to say that were it to count I accept Mr K D Ho's calculations, as adjusted by him in the witness box, so that the percentage entitlement would have derived from his amended figures. 42. As a footnote I mention that it seems to me quite natural and appropriate that a profit sharing scheme such as is utilised by the Pico Group is designed not just to reward employees for their efforts in winning a profit for their employer but as an incentive to encourage loyalty and future performance. The employee who hands in his notice and then withdraws must expect thereafter not to be treated in the same way. 43. My orders now follow. 44. The plaintiffs' claims are dismissed. 45. Costs taxed if not agreed shall be to the defendant. 46. The costs order shall be nisi at first instance.
Representation: Mr J Lam, instructed by Messrs W M Lo & Co., for the plaintiffs Ms J Molloy, instructed by Messrs Deacons, for the defendant | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
Further hearings and rulings under HCA 470/1997