Elizabeth Harrington v. Cap Gemini Ernst & Young Hong Kong Ltd
Read the full judgment text of HCCL 10/2002 on BabelCite. This HCCL judgment was delivered on 17 May 2004.
1. This is a dispute about whether a contract of employment ever came into existence between the parties to this litigation.
Cites 2 cases
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HCCL 10/2002 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE COMMERCIAL ACTION NO.10 AND NO.61 OF 2002 -------------------------
------------------------- Coram: Hon Stone J in Court Dates of Hearing: 24, 29-31 March, 2 April 2004 Date of Judgment: 17 May 2004 ------------------------- J U D G M E N T ------------------------- Introduction 1.This is a dispute about whether a contract of employment ever came into existence between the parties to this litigation. 2.The plaintiff, Miss Elizabeth Harrington, an American lady, is a management consultant. Upon taking early retirement in September 2000 as a US partner with PricewaterhouseCoopers, seconded to Hong Kong, she sought employment with the defendant, Cap Gemini Ernst & Young Limited, a Hong Kong company which provides management consultancy services in Asia. 3.There is no doubt that Cap Gemini, as I shall henceforth term it, wished to employ Miss Harrington. The focus of this case is whether at any time a contractual relationship existed between them and, if it did, whether and to what extent the provisions of the Employment Ordinance, Cap.57, impacted upon any such relationship. 4.A curious feature of this litigation is the existence of two separate actions involving the same factual matrix. 5.The relief sought by the plaintiff in the first action, mounted by writ dated 20 February 2002, included both a claim for specific performance of an agreement to provide a written contract embodying the terms of an oral agreement, whereunder it had been allegedly agreed that the defendant would employ the plaintiff for a period of two years - this form of equitable relief being sought in an attempt to circumvent the provisions of section 5(2) of the Employment Ordinance - and also a claim for damages for breach of that contract. 6.At the interlocutory stage the defendant took the point that under section 7 of the Labour Tribunal Ordinance the damages element of the claim fell within the exclusive jurisdiction of the Labour Tribunal, and hence moved for a stay of this part of the case. The issue came before this court in June 2002, wherein it was ordered that the claim for damages formally be remitted to the Labour Tribunal, together with a direction to the presiding officer of that tribunal that this element be remitted back for trial in the High Court. 7.This procedure occasioned a brief hiatus, and also necessitated a separate action number upon such remission of this part of the claim. After this procedural roundabout, the two actions were consolidated, and thereafter proceeded in normal course. The factual background 8.There is little that factually is in dispute in this case; to the contrary there is a very large measure of common ground. 9.Perhaps the only factual issue of note which the court is required to resolve is as to what was, or was not, agreed during a telephone call between Miss Harrington and Mr Bayless of the defendant on March 22 or 23, 2001. But this is to get ahead of the story. 10.Miss Harrington, as I have said, is a management consultant of seniority and, I have little doubt, a lady of considerable expertise. At the date of her retirement as a partner with PricewaterhouseCoopers ('PwC') she was 59, and notwithstanding a generous retirement package from PwC she evidently felt that she had a good deal still to offer within the field. 11.Hence, when she was approached by Cap Gemini in October 2000, upon the recommendation of Dairy Farm, a mutual client, she became interested in working for Cap Gemini, which at that time was planning to build its China practice, and was looking for someone of Miss Harrington's background and experience. 12.After an initial meeting with Mr Freicke of Cap Gemini, detailed discussions and negotiations ensued, and in December 2000 Miss Harrington was interviewed by various senior executives within Cap Gemini. As she stated, and I have no reason to doubt, "our discussions went very well" and "I seemed to have the right experience, skills and client fit to match [Cap Gemini's] requirements." 13.The factual detail in this case centres upon the course of these discussions and negotiations, which went through a number of twists and turns, and in substance continued from these beginnings until early October 2001, when by letter dated 2 October 2001 Cap Gemini through its Regional Legal Director informed Miss Harrington that it had decided "to withdraw all outstanding offers of employment to you", this letter further stating that "as you have never accepted terms under which [Cap Gemini] was prepared to employ you, [Cap Gemini] believes that no agreement has ever been reached." 14.Although the negotiations, in their various forms, ultimately spanned the period December 2000 to October 2001, the issue the subject of this case - namely, whether an employment contract came into existence between Miss Harrington and Cap Gemini - is restricted to a consideration of events as they occurred at a relatively early stage, and in particular focuses on the period February to March 2001. 15.It is apparent that although Miss Harrington in fact continued to negotiate with Cap Gemini until the eventual termination of all contact between them in October 2001, she did so on the basis of a reservation of accrued rights, and no point has been taken, or pleaded, that in thus continuing to negotiate and in attempting to conclude agreement with Cap Gemini on a basis different from that now asserted to be the contractual agreement that there has been any waiver of such rights, or that by reason thereof Miss Harrington otherwise is precluded from asserting that a contractual relationship came into being between herself and Cap Gemini at the latest by the end of March 2001. 16.It is common ground that consequent upon the early negotiations between the parties two draft letters of appointment were sent to Miss Harrington by Cap Gemini. Neither has been signed. 17.The first was dated January 19 2001, and was quickly superseded. Its only relevance is that in Clause 15 thereof, which is the clause entitled 'Probation, Resignation & Termination of Service', there are therein three distinct elements : first, that the first six months of service would be probationary, and that during that period either party could give written notice of not less than one month, second, that on completion of the probationary period that the employment may be terminated by either party at any time by the giving to the other of two months' written notice, and third, that the employment may be terminated forthwith without notice in the event of wilful neglect or misconduct, that is, 'for cause'. 18.This initial draft was replaced by a further draft Letter of Appointment dated February 1, 2001. In the context of this case this is a significant document. It offered Miss Harrington employment as Vice President, Consumer Product, Retail and Distribution, Greater China, with a potential compensation package, comprising base salary and performance bonuses, of US$1,040,000. No term of employment was specified, albeit Clause 15 had been amended; now it was entitled 'Resignation & Termination of Service', and when compared with the first version of that clause had had the provisions relating to probation removed, so that there remained provision therein for mutual contractual termination upon two months' notice, together with termination 'for cause'. 19.The deletion of the provisions as to probation had been the result of Miss Harrington's specific objections. However, she remained unhappy at the prospect of termination on two month's notice, since she was anxious to secure a fixed term of employment with Cap Gemini. Moreover, although she had been sent this second draft Letter of Appointment, it is not in dispute that she had been asked not to sign it pending resolution of difficulties which were posed by the retirement arrangements which then were in place between Miss Harrington and her former employer, PwC. 20.Miss Harrington's relationship with PwC has formed a theme running through this case. When she had retired from that firm Miss Harrington had secured that which she herself described as an advantageous retirement package, which contained not only monetary and health coverage benefits (the latter being particularly important to her, since her husband was a transplant patient), but also, and unusually, Miss Harrington had been permitted in retirement to continue to service five major clients, including Disney and the PRC Government, upon a global basis. Apparently, also, under this arrangement Miss Harrington could continue to act for these clients whether working independently or for another company. 21.On 7 February 2001 Miss Harrington had a telephone conversation with Mr Bayless, the senior executive of Cap Gemini with whom she had been negotiating; in that conversation she was asked to approach PwC to request approval for her to serve all of Cap Gemini's existing clients in Asia, which would of course have infringed upon the existing PwC 'five clients' exception. It is not in dispute that it was in this conversation that Miss Harrington was told that she should not sign the draft Letter of Appointment of February 1 2001 until PwC had given its approval to Miss Harrington joining Cap Gemini and to servicing its existing clientele. Evidently Cap Gemini was concerned that there should be no allegation that it had induced Miss Harrington to violate the terms of her retirement agreement with PwC. 22.In the same conversation of 7 February 2001 Miss Harrington had asked Mr Bayless for a letter confirming Cap Gemini's offer of employment; she told the court, and I accept, that she was not prepared to approach PwC without "some kind of guarantee" from Cap Gemini. Mr Bayless had understood this request, and is said to have indicated that his superior, Mr Spence, was prepared to offer her employment for a fixed two year period, and that this assurance would be put into writing. In her evidence Miss Harrington said that at this stage she had understood that there was a firm contract in place between herself and Cap Gemini. 23.Be that as it may. It had also been agreed that Cap Gemini's lawyers would be preparing a draft letter for Miss Harrington to send to PwC to assist in her attempt to secure the latter's approval to the change in her retirement terms, and this draft was received by her two days later, on 9 February 2001. However, Miss Harrington was not willing to go to PwC to seek a release from her existing covenants until Cap Gemini formally had committed themselves in writing to her employment with them. 24.Further telephone conversations followed with Mr Bayless, on March 1, 5 and 7 2001. In the conversation of March 1 Miss Harrington said, and I accept, that she had emphasized to Mr Bayless that due to the "risks" she considered she was assuming in even approaching PwC in a bid to alter her existing retirement arrangements, she should have a two year contract which could not be terminated save for cause; it is tolerably clear, also, that this risk to her of a potential loss of her PwC retirement benefits, and the necessity for guaranteed employment, continued to be referred to in her other telephone conversations with him. Her evidence was that Mr Bayless had said that Cap Gemini would provide her with a signed contract of employment for two years as soon as PwC had given their consent to the course of action that Miss Harrington was to propose. 25.Consequent upon these conversations, Mr Bayless wrote to Miss Harrington in a letter dated 16 March 2001. This letter is perhaps the most important document in this case, and forms an integral part of Miss Harrington's case. It states, in material part :
26.Several days later, on 22 or 23 March 2001, there was a further telephone conversation between Miss Harrington and Mr Bayless. It is this conversation which ultimately forms the crux of this case, and I revert to it later in this judgment. 27.In the event, on 27 March 2001 Miss Harrington sent to PwC the letter which had been drafted for this purpose by Cap Gemini's attorney, Mr Archer. By this letter, which speaks for itself, Miss Harrington advised Mr Scalia, Head of Partner Affairs at PwC, that she was in receipt of an offer from Cap Gemini Ernst & Young to become an employee of that organization, situated in their Hong Kong office, and further advised that the services asked of her were not only to directly provide services to her existing five major clients but also to provide any incidental services in support of existing Cap Gemini Ernst & Young clients. In this regard, confirmation was requested that "should I accept such an offer, this would not cause any problems with our agreement as to retirement payments and benefits". 28.PwC's initial response came on 11 April 2001. It was not favourable, stating that if Miss Harrington were to provide services to Cap Gemini, problems relating to her PwC retirement payments and benefits would be inevitable. 29.Thereafter Miss Harrington embarked upon "lengthy and costly negotiations" with PwC, about which she kept Mr Bayless informed, and in late May 2001 she succeeded in negotiating a deal which gave her approval to work for all of Cap Gemini's clients in Asia, but that she had to give up her right to consult for her five approved clients or a global basis; under this revised deal, she would be able to work for these five approved clients within Australasia only. 30.PwC's formal consent to this revised arrangement came in the form of a letter dated 30 May 2001. Upon receipt of this letter Miss Harrington forwarded a copy to Mr Bayless and spoke with him on the telephone the following day, in which conversation Mr Bayless confirmed to Miss Harrington that she could sign the letter, as amended, and return it to PwC. 31.In early June meetings were held in Hong Kong between Miss Harrington and executives of Cap Gemini preparatory to her joining the firm, and in anticipation of imminently receiving a formal employment contract Miss Harrington engaged property consultants to look for an apartment in Hong Kong. 32.It is undisputed that no further letter of appointment was ever sent to Miss Harrington by Cap Gemini. 33.On June 18, 2001 Miss Harrington had a further telephone conversation with Mr Bayless in an attempt to ascertain the status of her contract, and thus enable her to sign a lease for an apartment in Hong Kong. During this conversation the proposed starting date for her employment was varied to 3 September and Mr Bayless mentioned, also, a possible delay of the contract given that Cap Gemini's Human Resources department was asking for a six month probation period to be included. Miss Harrington indicated that this suggestion was unacceptable - so far as she was concerned she reminded Mr Bayless that she had a guaranteed two year deal. 34.However, on 18 July 2001 Miss Harrington received an email from Caroline Lim, head of Cap Gemini's Human Resources unit. This letter came as rather a bombshell. Miss Lim wrote thus :
35.Miss Harrington was alarmed and surprised. She took legal advice, and then wrote to Mr Bayless on 23 July 2001. This letter marked a watershed in her relations with Cap Gemini. It reads, in material part :
36.It is evident that this letter, and the fact that Miss Harrington had consulted lawyers, was a material factor in the decision by Mr Spence, whom since 1 June 2001 had become CEO of Cap Gemini Asia, to withdraw from further negotiation with Miss Harrington, and not to proceed further with the issue of her employment. In a telephone conversation with Mr Bayless Miss Harrington had been informed that Mr Spence had been "polarized" by this letter, and Mr Spence's attitude is clearly spelled out in his internal email of July 23, 2001 to Mr Bayless and Miss Lim :
37.That which occurred subsequently, during the period July to October 2001, was that in an effort to rescue the situation, further negotiations continued between Miss Harrington, Mr Bayless and Mr Crawford, another senior executive of Cap Gemini with responsibility for a different arm of that firm; Mr Crawford had told her, on 31 July 2001, that she appeared to be a victim of "bad timing" in terms of leadership changes within the firm. Thereafter, in an email of 16 August 2001, Mr Crawford wrote to say that "a lot had changed" in the consulting industry, which then was dramatically downsizing, and that at Cap Gemini there had been an earnings restatement which significantly lowered its market capitalization. 38.In the event, a new offer was sent to Miss Harrington in the form of an email from Mr Bayless of August 20, 2001, which proposed a one year fixed employment contract, and thereafter an open contract "subject to the normal performance management process", an offer which Miss Harrington made clear, in her letter of response of August 26, 2001, that she was considering without compromising her rights under what she perceived as the existing agreement that she already had with Cap Gemini :
39.For this new contract there was to be an anticipated start date of October 1, 2001. In this instance, however, no formal contract was to be forthcoming either. The tragedy of 9/11 in New York intervened, with commensurate damage to the world economic climate. 40.Once more, therefore, negotiations had come to naught, at least in terms of any formal contract, and, as earlier recited, all communication between Miss Harrington and Cap Gemini terminated with the Regional Legal Director's letter of October 2, 2001. Thereafter, proceedings in this case were issued by Miss Harrington on 20 February 2002, the cause of action being confined solely to the agreement allegedly reached between the parties at the end of March 2001. The evidence 41.In addition to the available documentation, a total of four witnesses gave viva voce evidence. Miss Harrington was the only witness on her behalf, whilst for the defendant three witnesses were called, namely Mr Paul Spence, Mr Charles Bayless and Miss Caroline Lim. 42.My impression is that all of these witnesses attempted to give their evidence honestly whilst at the same time seeking to maintain the parties' respective contentions, and given the large incidence of common ground which emerged as the evidence unfolded, save for one narrow instance there is no necessity for the court to be in the position of having to prefer one account as against another. 43.Even in the one instance in question, namely that which transpired in the telephone call on March 22 or 23, 2001 between Miss Harrington and Mr Bayless, the lack of specific recollection by Mr Bayless of this particular telephone conversation means that the evaluation of the evidence involves more a judgment upon the probabilities as to that which transpired rather than the necessity to reach any conclusion as to personal veracity. The issues for decision 44.At the outset of this trial counsel on each side were able to agree a list of issues for decision in this case. Six such issues were identified, and I am content to frame this judgment along at least the broad lines thus defined. In fact, these six issues can be subsumed under three heads, as hereafter appears. (i) Was there a contract? 45.This head encompasses the first two agreed issues of fact, namely, whether the defendant offered the plaintiff a contract of employment for a fixed term of two years that was not terminable within that period save for cause, and, if so, whether the plaintiff accepted such offer so that a binding agreement was entered into between the parties. 46.This represents the major point of departure between the respective cases. 47.Miss Harrington says that the answer is clearly 'yes', and that it is possible to identify a clear contractual obligation from the terms of the draft Letter of Appointment of February 1, 2001, taken together with the terms of the letter from Mr Bayless to her of 16 March 2001, as supplemented and clarified by the telephone conversation with Mr Bayless of March 22 or 23, 2001. 48.At this point, it is submitted, the sole material aspect which remained further to be concluded was the issue of that which, for convenience, may be termed the 'PwC release' from her existing covenants, which would enable her to service all of Cap Gemini's existing clients, as opposed to the five major clients for which she already had PwC's blessing. So that when this release from PwC was obtained, albeit at the price that was extracted - namely the loss of the ability to serve the five clients on a global, as opposed to an Australasian basis - the agreement which she had obtained from the defendant crystallized, and there was in place a clear contractual obligation between herself and Cap Gemini. 49.The defendant, on the other hand, whilst for the most part not disputing Miss Harrington's account of the events that took place, takes the primary position that Miss Harrington is in error in having interpreted the position in the way that she has. The defendant says, with equal conviction, that in fact the parties never were ad idem, and that no contract ever came into existence, whatever Miss Harrington may have thought, or indeed still continues to think. That which undoubtedly had taken place, maintains the defendant, were detailed negotiations which never crystallised into contractual commitment. 50.I confess that I have not found this an easy question to resolve, and it is a matter that has occasioned considerable reflection. 51.The undisputed context within which the negotiations were conducted provides a convenient starting point. There is no doubt, and in any event I so find, that during the discussions which took place between Miss Harrington and Mr Bayless in the early part of 2001, there were two major, and clearly discernible, considerations at play in their exchanges. 52.First, if she was to join Cap Gemini Miss Harrington was set upon obtaining a fixed term of employment of at least two years. In this connection she said, and I accept, that she would not have considered risking going back to her former employer, PwC, and effectively renegotiating her already advantageous retirement package, unless she had securely in place from Cap Gemini the assurance of a continuous period of employment for two years. This had been her consistent position, at least as from February 7, 2001, when it was first suggested to her that in order to be employed by Cap Gemini she should be in a position to work for all of Cap Gemini's clients, and hence it would be necessary for her to go back to PwC and to obtain a release from her existing covenants. 53.The other side of this coin, so far as Cap Gemini was concerned, was that not only did they not want their new senior executive to be subject to restrictions in terms of servicing their existing clientele, but equally, in employing Miss Harrington, they did not want to cut across PwC's bows and to become embroiled in a dispute which potentially might see them accused of acting in a way that might be said to have induced Miss Harrington to breach her existing obligations to her former employer. Much better, therefore, for the 'PwC element' to be sorted out at the start. 54.This then was the background to the request, by Mr Bayless, that Miss Harrington should not sign the second draft Letter of Appointment of February 1, 2001. 55.In fact, Miss Harrington did not wish to do so anyway, since this draft pointedly did not meet her principal requirement that she should have the security of a fixed term of employment; as earlier noted, this draft Letter was silent as to term, and Clause 15 contained within it not only the power to dismiss 'for cause' - an aspect which never had been in contention - but also retained the 'two months notice' provision, which so far as Miss Harrington was concerned flew in the face of her desire to secure employment for a term certain. 56.In his evidence Mr Bayless did not dispute this concern, and recognized that it was precisely this reason which lay behind Miss Harrington's request for a specific expression of commitment from Cap Gemini - which letter, of course, came to be that dated March 16, 2001 from Mr Bayless, to which detailed reference has been made earlier in this judgment. 57.It is evident both from the oral evidence, and from the contemporary documents in the form both of email and telephone notes, that notwithstanding the clear statement in the letter that "Cap Gemini Ernst & Young is willing to offer a firm commitment of employment for a two-year period (twenty-four months) from the date of joining", the reference which immediately followed that statement drawing attention to Clause 15 of the draft offer letter was something which caused Miss Harrington to seek immediate clarification of the position. It seems to me entirely understandable, and again I accept, that Miss Harrington's concern was as to the apparent discrepancy between on the one hand the expressed "firm commitment of employment for a two year period" in the letter of March 16, 2001, and on the other the specific reservation of the right to terminate on two month's notice, which remained enshrined within Clause 15; the probation requirement, which had been in the first draft letter of appointment of January 2001, had of course already been removed consequent upon Miss Harrington's earlier objection. 58.Perhaps it does not greatly matter, when he sent his letter of March 16, 2001 with its attendant reference to Clause 15, whether Mr Bayless had spotted the logical inconsistency which was to concern Miss Harrington, although I am inclined to conclude that he had not then focused upon it; he struck me as a straightforward man, who whilst naturally keen to uphold his client's position in this case nevertheless took care in his evidence neither to embroider nor to overstep the mark, and the likelihood is that this particular point has come to full flower with the benefit of subsequent legal advice. In any event, the foregoing forms the context against which the Harrington/Bayless telephone call of March 22 or 23 2001 falls to be evaluated. 59.Counsel agree that the way in which the evidence has come out in this case has resulted in this telephone conversation becoming the major point of contention between these parties - as Mr Carolan succinctly put it, did this telephone call, following upon the letter of March 16, 2001, "change the picture again"? In this conversation had Mr Bayless made it clear to Miss Harrington that the reference in the March 16 letter to Clause 15 should be read as being limited to termination for cause, and that the first part of this revamped clause, which maintained the requirement of two month's notice, was to form no part of their agreement? 60.As to this Miss Harrington was in no doubt. Her evidence was that in this call she had sought clarification of the 'two month issue' and that she was given precisely that. She put the position thus :
Thereafter in cross-examination, on the question of whether the letter of March 16, 2001 accorded with her requirements, she stated :
and later, when again pressed as to the letter, she said :
61.In his witness statement Mr Bayless makes no reference to this conversation, which Miss Harrington had dealt with in her witness statement (at paragraph 30), although it was canvassed with him in cross-examination. The broad thrust of his evidence was that he did not recall the conversation in question, that it was likely that these were the concerns that Miss Harrington said she was presenting (indeed it was precisely the concern as to an assurance of a fixed employment period that had generated the March 16th letter), but that in the circumstances he would not have given an unconditional representation/confirmation to Miss Harrington; instead, as the designated negotiator for Cap Gemini, he would have referred the issue of 'two years certain' back to Mr Spence, with whom he was involved in terms of Miss Harrington's employment with Cap Gemini. 62.As to the detail of this particular telephone call, in cross-examination Mr Bayless accepted that Miss Harrington had called after receipt of the letter of 16 March, and had been concerned that the 'two month's notice' provision in clause 15 in effect destroyed the purpose of the commitment in the letter - "That sounds right" - and that it was "most likely" that she had asked for clarification in due course when the final contract was produced, but that :
Thereafter, the following exchange took place :
63.Shortly thereafter, when taxed by the fact that not long after this phone call Miss Harrington had sent the letter to PwC which had been drafted by Cap Gemini, and that she had done this when she did because she had obtained from Mr Bayless the necessary confirmation she had sought a few days previously, and that the conversation between them indeed had taken place as she had suggested, Mr Bayless responded :
64.Mr Bayless agreed that on 31 May 2001, upon the necessary consent having been obtained from PwC, that Miss Harrington immediately had got in touch with him after faxing him the confirmatory PwC letter, and that amendment to the terms of that PwC letter was made consequent upon their conversation, but he did not recall any conversation to the effect that he was asked by Miss Harrington for a final assurance that a contract would be forthcoming before she signed this letter, with amendments, and returned it to PwC. However, he did agree that "there was still an intention to move forward and try and reach agreement on the terms" but that :
65.The foregoing extracts from the evidence demonstrate how narrow is the point currently for decision. Mr Carolan accepts that for a contractual obligation to come into existence it is not necessary to have every term of the contract in place, and it is eminently clear that there were details, such as the ambit of health benefits, which remained outstanding even after the conversations in question. 66.However, upon the central issue, as presented to this court, can it be said that this telephone call of March 22 or 23, 2001, when viewed against the immediate background of the letter of commitment of 16 March 2001 and the draft offer letter of February 1, 2001, was sufficient to establish a contractual obligation on the part of Cap Gemini to Miss Harrington to employ her for a fixed period of two years? 67.The test, as counsel accept, is an objective one. It matters not what Miss Harrington privately thought, nor what Mr Bayless thought. Each has given this court the advantage of their views; Miss Harrington's suggestion in evidence that a contract had come into existence at a somewhat earlier stage was not pursued in final submission. 68.Moreover if, as appears to be accepted on both sides, all hinges on what was, or was not, agreed during this particular telephone call, it is the more unfortunate that in this particular instance there is no such record, notwithstanding that Miss Harrington described herself in her evidence as a "compulsive note taker", as evidenced by her scribbled notes relating to other conversations. In this regard I accept her evidence that at the time of this particular telephone call she was in the southern states of America and in the course of supervising a family bereavement, and in the circumstances I attach no negative inference to the absence of any such contemporaneous record. 69.At the end of the day the issue of what transpired falls to be decided upon the inherent probabilities, although I do not overlook the fact that it is Miss Harrington who possesses a specific recollection of this telephone conversation. 70.Whilst I bear in mind the evidence of Mr Bayless that 'fixed term contracts', in the true sense at least, did not and do not form part of the corporate culture within Cap Gemini, and indeed that no other senior executive within that firm had such an agreement - his own contract, for example, remains terminable upon three month's notice - on reflection this point does not carry the weight to which initially I was prepared to accord it. 71.On any basis Miss Harrington was in a special position, and, as Mr Smith SC pointed out, when negotiations thereafter continued, resulting in Mr Bayless' email of August 20, 2001, that which resulted was precisely an offer for a fixed term, albeit in this instance for one year instead of the two which throughout had been Miss Harrington's goal. 72.It seems to me that it is overwhelmingly probable that in light of her concerns at the time that Miss Harrington - who despite her charming demeanour struck me as a lady likely to have proved a tough negotiator, and as someone who did not entertain a diminished view of her own importance in the scheme of things - would not have taken the step of going to PwC, and potentially upsetting her retirement applecart, unless she had had in place the promise of a fixed term of employment, namely the two years which she consistently had sought. 73.The guarantee of, or commitment to, a fixed term, and the advisability of granting such to Miss Harrington, is something to which reference is made throughout Cap Gemini's discovered internal email correspondence regarding her employment, and it is clear that the concept of such a guarantee is a matter which excited concern among Cap Gemini's executives, in particular Miss Lim as Head of the Human Resources Division. 74.An email of July 16 2001 from Miss Lim to Mr Bayless recounted legal advice she had obtained from inhouse counsel about "the need for us to provide her with a two year guarantee as outlined in your earlier letter to her", and concluded that :
Whilst in an email to Mr Bayless of a month earlier, on June 6 2001, Miss Lim had emphasized that "before providing the final offer to Elizabeth" that :
75.This latter email, in particular, is perhaps revelatory of the mind-set of Cap Gemini at this stage. Whilst the executives at Cap Gemini apparently were working on the basis that as yet there was no concluded agreement, this message at the least tends to suggest a case of wishing to move the goal posts once the potential PwC obstacle had been removed. I do not wish to be unfair, and the cross-examination of Miss Lim on the point did not greatly assist, but it looks to me as if, in effect, the view was being taken that since the two year guarantee had done its job in terms of Miss Harrington moving to obtain the relevant PwC consent, there now could be no obstacle to reverting to 'normal' corporate hiring policy. 76.I bear in mind, of course, that these views were expressed after the telephone call of March 22 or 23 2001, and also, as earlier noted, that during this period Cap Gemini did not consider that an agreement was yet in place. What this does illustrate, however, is the extent of the concern that such a commitment to a two year fixed term in fact had been made to Miss Harrington, and I regard this as a circumstantial factor in terms of assessing the probability of that which was agreed in the critical telephone conversation between Miss Harrington and Mr Bayless. 77.Absent an agreement in the terms Miss Harrington has alleged, it is not easy to see why she would have behaved as she then did, and to get in touch with PwC in order to obtain their consent and so forth. In my view it would not have made a great deal of sense, in the circumstances, if she had embarked upon this course without having obtained precisely the assurance that it is undisputed that the letter of March 16 was designed to provide, and without, also, obtaining clarification of the logical inconsistency she had identified within that letter. I do not believe that at this stage she would have been content simply with an assurance that this central issue was something which could safely be left in abeyance for further consideration within Cap Gemini, as the defendant effectively suggests was the position. 78.Nor in the circumstances does it seem to me that there is any question of there having been no acceptance by Miss Harrington of the Cap Gemini position as reflected in the February 1 letter of appointment, as thereafter clarified by the March 16 letter and the subsequent telephone conversation of March 22 or 23 2001. If Miss Harrington is correct on this conversation, as now I have found her to be, the hard fact is that she had negotiated, and had obtained agreement to, the major terms of the agreement which she consistently had requested. The issue of her acceptance was accorded no profile within final argument, for the good reason, I suspect, that by reverting to PwC as she did, she demonstrated unequivocally her acceptance of, and satisfaction with, the clarified position; once PwC's consent had been obtained to the lifting of the 'five clients' restriction, save for certain outstanding details, no major term remained to be agreed with Cap Gemini. 79.Hence, I am prepared to find, and now so do, that there was consensus ad idem consequent upon the crucial telephone conversation, and that, to revert to the issue as framed, a contractual obligation had arisen to employ Miss Harrington upon the terms agreed for a fixed term of two years which was not terminable save for cause, subject to fulfilment, as subsequently occurred, of the condition requiring the necessary PwC consent. 80.If this be correct, as I believe is established on the evidence before this court, I move to consider the further matters contingent upon this primary conclusion. (ii) The specific performance issue 81.This issue is shorthand for the third and fourth issues agreed by counsel to arise for decision, namely whether it was agreed that the defendant would produce a written contract of employment embodying the terms agreed, and, if so, whether the plaintiff is entitled to specific performance of such agreement? 82.I have alluded earlier in this judgment to the fact that this form of equitable relief is sought in an attempt to circumvent the provisions of section 5(2) of the Employment Ordinance, Cap.57. Sections 5(1) and 5(2) read as follows :
83.Mr Smith has told the court that this difficulty had always been recognized by those advising the plaintiff, hence the prayer for specific performance of the agreement "whereby the defendant agreed to produce and sign a written contract embodying the terms of the employment contract made between the parties." 84.There is no doubt on the evidence, and in any event it is undisputed, that it had been accepted by Cap Gemini that upon the conclusion of agreement a formal contract would be sent to Miss Harrington; the fact that Cap Gemini did not send her a contract reflected their position, namely that in their view no contractual relationship had been concluded between themselves and Miss Harrington necessitating production of a such a document. 85.Having succeeded at the first hurdle, Mr Smith seeks specifically to enforce what he maintains is a separate binding oral agreement to sign and produce a written contract - an agreement which I note is pleaded to have been reached on February 7 and/or March 1 2001. If he is unable to get home on this contention Mr Smith accepts that his client is caught by the provisions of section 5(2) of the Employment Ordinance. 86.On the evidence I discern no such distinct and separate binding agreement. I remind myself that Miss Harrington was specifically told not to sign the draft Letter of Appointment of February 1 2001, although on her own case she would not have wished to sign that in any event, given the absence therein of a term certain and the presence of the two-months notice provision, the crucial aspect that was clarified only by the subsequent letter of commitment of March 16 together with the telephone call of a few days thereafter. Nor do I consider that her approach to PwC, upon which considerable reliance is placed, and which had resulted in PwC giving her the necessary clearance to work for Cap Gemini, in itself is indicative of the existence of the separate agreement such as now is sought to be established. 87.There certainly was an understanding that a formal agreement ultimately would be forthcoming which set out the agreed product of the negotiations, but in my view this formed part and parcel of the overrall contract negotiations, no more and no less. Mr Smith acknowledged that a mere 'understanding' was insufficient for his purpose, and after reflecting on the evidence I am unable to accept the contention that this understanding may conveniently be regarded as, or transmuted into, a separately identifiable and specifically enforceable agreement. 88.Accordingly, I find, as a matter of fact, that in this case there is no such independent agreement as that for which the plaintiff now contends. This argument strikes me as essentially artificial, and as a classification of the facts advanced solely by reason of the strictures imposed upon this claim by virtue of section 5(2) of the Employment Ordinance. 89.Accordingly, I decline the plaintiff's claim for specific performance. 90.Since I have not found the existence of any such separate independent contract which may be subject to specific performance, it follows that no basis is established for the so-called 'alternative claim', which was put forward in the alternative to the grant of specific performance. I confess that I was less than impressed by this 'alternative claim', which was raised, said Mr Smith, in the event that the court was to conclude "for one reason or another" that section 5(2) would preclude the recovery of more than one month's compensation, in which case the plaintiff sought damages in lieu. It is not easy to appreciate, if section 5(2) indeed were to have such an effect, why such a claim for damages in lieu would remain open; nor, in response to queries from the court, was Mr Smith able to explain why, under this head, it should have been thought that the plaintiff would be entitled to compensatory damages over five years at the rate of US$1 million per year, which is the way this part of the claim has been canvassed on the pleading. In fact during his submission Mr Smith appeared finally to conclude that the circumstances in which the court would find itself having to consider this claim "are probably realistically not there", and that on his argument there would be no difference between the quantum under the plaintiff's primary claim as under the 'alternative claim', namely a sum representing two years' damages. 91.In any event, whichever way it is put this 'alternative claim' - which contains within it not only a plea for damages but also that which appears to be a mutually inconsistent claim for wasted expenditure - is dismissed also. The short point, it seems to me, is that either the plaintiff is caught by the provisions of section 5(2) of the Employment Ordinance, or she is not. On the facts of this case I have held that she is. 92.The primary factual conclusion thus reached begs the interesting question, which does not now arise for decision, as to whether, if and in so far as there had existed an identifiable collateral agreement, such a contract could be specifically enforced notwithstanding the specific provisions of section 5(2)? I am told that there is no authority on the point. 93.Mr Carolan says that the answer to this is clearly 'No'. He says that such a collateral promise argument in effect runs a coach and horses through this statutory provision. Mr Smith contended to the contrary. He says that a party should not be allowed "to make use of statutory provisions in circumstances where such goes against the rights of the other party", a submission which seems to me to sidestep the analytical issue and to represent little more than a thinly-disguised 'merits' argument. 94.Section 5(2) is couched in stern terms : notwithstanding that it is "proved" that an employment contract is for in excess of one month, absent compliance with the necessary formalities this is "deemed" to be a contract for one month renewable from month to month. The Hong Kong courts have recognized the impact of this provision : see, for example, Law Shiu Kai v. Dynasty International Hotel Corporation and ors, 2004, unreported, a decision of Mr Justice Chung, wherein the learned judge concluded on the facts of that case that the necessary formalities had not been met notwithstanding a specific finding that there had been an agreement for a fixed term - although in that case no argument as to specific performance was raised by the plaintiff. 95.In light of the terminology of section 5(2), there no doubt is scope for dispute about whether it remains open to a party who has "proved" to the satisfaction of the court that he has an employment contract of "in excess of 1 month" nevertheless successfully to circumvent the statutory requirement for giving effect to such agreement by invoking the remedy of specific performance of a collateral promise. It might be said that the legislature has chosen to enact a provision which has the practical effect of circumventing precisely the type of argument such has occurred in this case. In this context Mr Carolan strongly submitted that there is no 'magic' in the 'separate promise argument', and that if an employee indeed successfully has "proved" an oral promise for a fixed term which, absent a written signed contract, is "deemed" to be a contract for one month renewable from month to month, there is no clear reason in logic or principle why he/she should be treated any less favourably than an employee who similarly is able to "prove" such an oral agreement, but whom further, and perhaps unusually, is in the position to "prove" a separate promise to produce a document satisfying the formalities of section 5(2). 96.The point is a difficult one, and in the circumstances of this case I did not derive much assistance from the authorities cited by Mr Smith, including the English decision of Giles v. Morris [1972] 1 WLR 307, wherein Megarry J (as he then was) emphasized the distinction between an order to perform a contract for services and an order to procure the execution of such a contract, and further held that the mere presence in a contract of one provision which, by itself, would not be specifically enforceable did not prevent the contract as a whole from being specifically enforced. 97.Much obviously will depend upon the particular factual matrix with which a court is faced, but on reflection I am unable to accept the proposition, persuasively canvassed by Mr Carolan, that absent a duly formalised contract that, in effect, must be that. This issue usefully could admit of appellate clarification, but for my own part I remain unpersuaded by the submission that the effect of section 5(2) is such as to preclude specific performance of a collateral promise to produce a signed written contract wherein circumstances dictate the grant of such remedy. Accordingly, whilst in this instance I did not find this to be the case, were I to be wrong in this primary factual conclusion I am of the view that the defendant's argument in this regard is not correct as a matter of law. (iii) Quantum 98.The final two issues agreed by counsel are in effect matters of quantum, namely whether, by section 5(2) of the Employment Ordinance, the agreement is 'a contract for one month renewable from month to month', and, if so, whether the plaintiff's damages are limited to a sum equal to the amount of one month's wages by reason of sections 6, 7 and 8A of the Employment Ordinance. 99.In light of the conclusions reached earlier in this judgment, it is clear that the relevant quantum assessment is governed by the impact of section 5(2), and that given its findings this court will approach this case on the basis that the agreement in question was for one month, renewable from month to month. 100.Section 6 of the Ordinance deals with the termination of a contract by notice, and lays down the length of notice required to terminate a contract in different instances; section 6(2)(a), for example, says that in the case of a contract deemed by the provisions of section 5 to be a contract from month to month, and which does not make provision for the length of notice required to terminate the contract, such notice shall be "not less than one month". Section 7 deals with the issue of termination by payment in lieu of notice, which is irrelevant in this case, whilst section 8A deals with damages for wrongful termination of contract. Section 8A(1) provides that where a contract is terminated otherwise than in accordance with the statutory provisions as to notice, such damages shall be referable to "a sum equal to the amount of wages which would have accrued to the employee during the period of notice required by section 6 ..." 101.On behalf of Cap Gemini Mr Carolan says that if and in so far as the court gets to this stage of the analysis, and holds that Miss Harrington possessed any enforceable right against his client, the amount of damages due to Miss Harrington would be but one month's salary : this would be a section 5(2) situation, and on the basis of section 6(2)(a) and section 8A, the only sum to which she would be entitled is the amount which would accrue to her under the agreement for one month. Mr Carolan submitted that section 8A of the Employment Ordinance operates as a statutory form of liquidated damages, and that there is simply no scope to extend liability beyond it. 102.However, he does not stop there. He says that in calculating this amount no account can be taken of that element of her salary that involved bonus payments dependent upon performance. Thus, if in any agreement found to exist by the court the salary figure within the draft Letter of Appointment of February 1 2001 is adopted, the total "potential compensation package" therein, based on "maximum performance expectations", was stated to yield a total of US$1,040,000, of which US$480,000 represented bonus elements to be paid after the closing of the particular fiscal year. Hence in this case, he said, in base terms one month's salary should be US$560,000/12, which amounted to US$46,666 per month. 103.Central to Mr Smith's contention, of course, was that specific performance, or the 'alternative claim' in lieu thereof, was appropriate in this case. However, I have decided against him on this, and in the unusual absence of a written closing submission it is not clear precisely what otherwise is or is not accepted - I do not, for example, recall any submission from him upon the 'performance element' within the computation as to loss. Mr Smith did however venture the point, towards the conclusion of his final submission, that if the court was to be against his client, absent a written and signed contract, in terms of her claim for two year's compensation, then as a variation upon his primary argument there at the least should be an award of two month's salary, being the period of notice stipulated within Clause 15. I assume in this context that he was purporting to apply the provisions of section 6(2)(b) of the Employment Ordinance, which provides that in the case of a contract deemed by the provisions of section 5 to be a contract for one month, renewable from month to month, and which makes provision for the length of notice required to terminate the contract, the length of notice required to terminate the contract is to be the agreed period, but in any event not less than seven days. 104.Putting to one side the difficulty posed by a contract statutorily deemed to be for one month, renewable for month to month, which has a notice period of two months, the suggestion nevertheless made, should her primary argument be unsuccessful, that the plaintiff can secure two months salary by virtue of Clause 15, strikes me as ambitious, to say the least. In reply Mr Carolan was rather more trenchant in his criticism of this approach. The position seems to me to be tolerably clear. The plaintiff's unequivocal case was that she had an agreement for a fixed term of two years wherein there was no provision for early termination, and having failed on the specific performance argument, in my view it is not now open to her to invoke the provisions of a contractual term which she has insisted throughout this case had no application to her situation. It follows, therefore, that this additional argument must fail also. 105.Mr Carolan further submitted that in any event the plaintiff had "spectacularly" failed to mitigate her loss, noting that upon learning that the premise for the revision to the PwC agreement no longer applied - that is, that now she would not be working for Cap Gemini - she had not taken the opportunity to revisit PwC and to request reinstatement of the original PwC position permitting her globally to service the demands of her five permitted clients. 106.The issue of mitigation is not, I think, a nettle that needs to be grasped in the present circumstances, given that I have held against the plaintiff on the specific performance issue and also that, as Mr Carolan has pointed out, section 8A of the Employment Ordinance provides, as a matter of policy, a statutory form of liquidated damages, a proposition which seems to me to be correct. 107.If I be wrong, however, suffice to say that I accept Miss Harrington's evidence to the effect that, at the time of the renegotiation of the PwC retirement position, it had been made very clear to her that the position as revised by PwC was to be final, and that the matter would not further be revisited. On reflection I do not consider that in the circumstances it would have been reasonable to expect her to have returned again to PwC and to have attempted to undo that which, at the defendant's urging, she had spent considerable time and effort with her former employer to achieve. 108.To revert, therefore, to the agreed issues, I hold that, pursuant to section 5(2) of the Employment Ordinance, the agreement is one which is "deemed" to be 'a contract for one month renewable from month to month', and that the plaintiff's damages for breach of that contract are to be limited to a sum equal to the amount of one month's basic salary. Order 109.By reason of the foregoing, therefore, the order of this court is that the defendant is to pay to the plaintiff the sum of US$46,666.00. 110.Absent agreement thereon, I will hear the parties on the twin issues of interest and costs.
Representation: Mr Clifford Smith, SC leading Mr Kevin Egan, instructed by Messrs Stephenson Harwood & Lo, for the Plaintiff Mr Paul Carolan, instructed by Messrs Minter Ellison, for the Defendant Appeal by the Plaintiff to Court of Appeal. Appeal dismissed. Please refer to the appeal judgment of CACV287/2004. |
Cases cited in this judgment
Further hearings and rulings under HCCL 10/2002