HCA6174/1997 WONG YICK MAN, FRANCIS v. STAR TELECOM INTERNATIONAL HOLDING LTD. - LawHero
HCA6174/1997
高等法院（民事訴訟）Deputy High Court Judge Whaley7/11/2000
HCA6174/1997
HCA6174/1997
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO.6174 OF 1997
(Transferred from Labour Tribunal Claim No. LT2130 of 1997)
-------------------------
BETWEEN
WONG YICK MAN, FRANCIS Plaintiff
and
STAR TELECOM INTERNATIONAL Defendant
HOLDING LIMITED
-------------------
Before : Deputy High Court Judge Whaley in Court
Dates of Hearing : 23-25, 27 October 2000
Date of Judgment : 8 November 2000
----------------------
JUDGMENT
----------------------
The plaintiff’s claim against the defendant is for damages
sustained in consequence of the defendant’s alleged wrongful termination
of his contract of employment.
By the contract of employment dated 26 July 1996 (“the
Contract”), the defendant agreed to employ the plaintiff as Managing
Director and Chief Executive Officer of the defendant upon the terms and
conditions set out in the Contract, including, inter alia, the following :
- 2 -
“5.1 The remuneration of the [plaintiff] shall be:
(a) a fixed salary at the rate of HK$2,500,000 per annum,
divisible into 12 monthly payments of HK$208,333,
payable in arrears;
….
5.3 The fixed salary shall be increased to HK$3,000,000 per
annum on January 1, 1997. Thereafter, it shall be
reviewed and revised annually with the approval of the
Board.
6. STOCK ENTITLEMENTS
The [plaintiff[, at the sole and absolute discretion of the
Board, may participate in any employee stock option plan
adopted by the Group on the terms and conditions
nominated by the Board. Upon commencement of
employment the Company will offer stock option for
5,500,000 shares to the [plaintiff].
….
8.
…. The [plaintiff]’s employment hereunder may be determined
at any time after the expiration of the initial period of
twenty-four (24) months by either of the parties hereto
giving to the other not less than six (6) months prior written
notice provided that the Company may after the initial
period elect to terminate the Employee’s employment
hereunder forthwith upon payment to the [plaintiff] of not
less than six (6) month’s Base Salary in lieu of notice.”
The plaintiff’s case as pleaded is that the defendant,
wrongfully and in repudiatory breach of the express and/or implied terms
of the Contract, by its letter dated 9 January 1997 handed to the plaintiff at
a board meeting of the defendant on that day, wrongfully terminated the
plaintiff’s employment, and purported to dismiss the plaintiff without
notice and with immediate effect, before the initial period of 24 months
had expired, and without the six months’ written notice thereafter, without
any payment or benefit other than salary accrued due and payable as at
- 3 -
9 January 1997. Further, by a notice from the defendant’s directors dated
10 January 1997, the defendant purported to remove the plaintiff as a
director of the defendant.
By his solicitors’ letter dated 10 January 1997, the plaintiff
accepted the said repudiatory breaches.
The plaintiff’s claim is for damages in the total sum of
HK$12,047,829, comprising :
(1) a claim for HK$6,166,666 in respect of salary for the
remaining period of the Contract and the notice period,
namely, 24 2/3 months at $3,000,000 per year;
(2) the value of the stock options in the sum of $6,641,800; and
(3) holiday pay in the sum of $64,363.
The defendant alleges that it was entitled to summarily
dismiss the plaintiff on 9 January 1997. The letter of that date by which it
purported to do so reads as follows :
“Dear Sir,
Re: Notice of Termination of Your Employment with
Star Telecom International Holding Limited (the ‘Company’)
Pursuant to Clause 8.03 of your contract of employment with the
Company dated 26th July 1996 (the ‘Employment Contract’) and
upon resolution of the Board of Directors of the Company passed
at the meeting held on 9th January 1997, we hereby serve you
notice to terminate the Employment Contract with the Company
with immediate effect.
After careful consideration, the Board of Directors resolved that
you have committed, inter alia, the following serious
- 4 -
misconducts which are detrimental to the interests of the
Company and its subsidiaries and associates (the ‘Group’):
1. acting without due authorization of the Board of Directors in
issuing the notice to exercise all the warrants owned by Mr Wong
Kam Fu and Ms Chu Wai Fun on 13th December 1996;
2. misrepresenting to Ms Christine Cheung of South China
Securities Limited that Mr Wong Kam Fu was no longer the
‘boss’ of the Company on 7th January 1997;
3. using abusive and hostile language during telephone
conversation with Mr. Mico Chung and Frederick Sum of China
Strategic Holdings Limited on 8th January 1997 which tend to
lower the esteem and image of the Group as a public company.
In the circumstances, the Board of Directors resolved that your
Employment Contract be and is hereby terminated with
immediate effect without any payment or benefit whatsoever
other than salary actually accrued due and payable in respect of
your service up to date of this letter.”
Mr Chan concedes that there was no evidence to support the
allegation in relation to Mr Mico Chung, and the defendant no longer relies
thereon as part of the grounds which entitled it to summarily dismiss the
plaintiff.
In order to properly evaluate the conduct of the plaintiff which
the defendant alleges entitled it to summarily dismiss him, it is necessary
to understand the full context in which it occurred, and the background
leading up to it.
Before he took up employment with the defendant, the
plaintiff had, on 1 March 1995, set up a telecommunication consulting
company, FW & Associates Limited (“FWA”). The plaintiff met
Mr Nelson Wong Kam Fu (“Nelson Wong”) in July 1995, who was the
Managing Director and Chief Executive Officer of the defendant at the
- 5 -
time, in addition to being its major shareholder (Nelson Wong and his wife
controlled approximately 50.5% of the shares of the defendant). They
developed a working relationship, and the plaintiff’s company was
engaged by the defendant to provide consultancy services in relation to
certain specific projects. Between July 1995 and 1 August 1996 their
working relationship became close, and Nelson Wong suggested that the
plaintiff should join the defendant as its Chief Executive Officer. Over
the months they discussed the basic terms upon which the plaintiff would
do so, and towards the end of July 1996, at a dinner meeting, they signed
an employment contract, the terms of which the plaintiff had drafted, at
Nelson Wong’s request.
The plaintiff testified that it was a key term of the Contract
from his point of view that his appointment would be for a minimum term
of two years, during which it could not be terminated except for serious
misconduct, or other offences as specifically defined in the Contract. It
was on this basis that he agreed to close his own consulting practice, FWA,
which was doing well at that time. It was, therefore, a significant career
decision for him to join the defendant, and he would not have done so
without the two-year minimum term of employment being specifically
provided for in his contract of employment. He did not make any
immediate substantial financial gain by joining the defendant, though he
did intend to benefit financially from the stock options which were offered
to him as part of his remuneration package.
The plaintiff further testified that at the time he joined the
defendant, he and Nelson Wong had an excellent working relationship, and
- 6 -
that Nelson Wong had agreed to give him complete autonomy in running
the defendant.
The defendant was in financial difficulties due to high gearing
and decrease of the income from its core paging business. It was one of
the plaintiff’s foremost tasks to raise funds by executing the joint venture
proposals which he had helped to develop while FWA was acting as the
defendant’s consultant. In October 1996, when they were finalizing the
sale of a part of the defendant’s equity interest in Star Digital Limited
(“SDL”) to the International Wireless Company (“IWC”), the defendant’s
auditors suggested that, in order to facilitate the closing of the deal, it was
necessary for Nelson Wong and his wife to exercise the approximately
50,000,000 warrants of the defendant which they held between them, each
of which conferred rights to subscribe for shares of the defendant at a
subscription price of $3.10 per share, such rights expiring at the close of
business on 31 December 1996.
Nelson Wong and his wife consequently entered into a deed of
undertaking with the defendant on 15 October 1996, which provided, inter
alia, as follows :
“WHEREAS
(1) The Covenators [sic] are husband and wife and are both
directors of the Company and as at the date hereof the
Covenantors together own approximately 50.2% of the
shares of HK$0.1 each in the issued share capital of the
Company (the ‘Shares’) and also together own 50,749,.744
warrants of the Company each conferring rights to
subscribe for $3.10 in cash for the Shares (the ‘Warrants’)
at a subscription price of $3.10 per Share which rights shall
expire at the close of the business on 31st December, 1996.
- 7 -
(2) The Covenantors and the Company are of the view that the
Company needs cash to discharge its various obligations for
period from the date hereof to December, 1997. And the
Covenantors are both optimistic about the prospect of the
Company and are desirous of exercising some or all
Warrants owned by the Covenantors as at the date hereof.
NOW THIS DEED WITNESSETH as follows :-
1. The Covenantors hereby covenant with the Company and
irrevocably undertake to exercise the rights of all the
Warrants owned by the Covenantors (or any number of the
Warrants as the directors may deem fit .…) to subscribe for
the shares if so deemed necessary and sufficient to meet the
cash flow of the Company by resolution of the board of
directors of the Company within 14 days upon receipt of a
notice from the Company to that effect ….
2. Notwithstanding any stipulation to the contrary in this Deed
of Undertaking, the Covenantors shall not be obliged to
exercise any Warrant if the closing price of the share quoted
on The Stock Exchange of Hong Kong .… is lower than
HK$1.8275 per share ….
3. The Covenantors shall abstain from voting in any
resolution or decision in respect of any matter referred to in
Article 1 above in and meeting of the board of directors.”
By a supplemental deed of undertaking dated 25 November
1996, Nelson Wong and his wife waived the condition in the original deed
that they could not be required to exercise the warrants if the closing price
of the share was less than HK$1.8275 per share; and finally, by a second
supplemental deed of undertaking dated 17 December 1996, the period of
14 days following receipt of a notice from the defendant within which
Nelson Wong and his wife undertook to subscribe for the shares, was
reduced to 10 days.
One of the methods by which the defendant addressed its
cashflow problems was to raise a HK$20 million uncommitted revolving
credit facility from the Sumitomo Trust & Banking Co. Ltd (“Sumitomo”).
- 8 -
On 26 November 1996, the defendant entered into a deed of undertaking
with Sumitomo which referred to the undertakings which had been given
by Nelson Wong and his wife to exercise their warrants when required to
do so by the board of the defendant, and stated it as a condition precedent
to Sumitomo granting any further credit under the facility, that the
defendant enter into this deed to ensure that the defendant would deposit
with Sumitomo a sum of at least HK$20 million, being part of the monies
to be received by the borrower from Nelson Wong and his wife exercising
their share warrants; and the defendant irrevocably and unconditionally
undertook : to notify the bank in writing as soon as the majority of the
board of directors of the defendant had requested Nelson Wong and his
wife to exercise their warrants; and immediately upon payment by
Nelson Wong and his wife for the shares, to deposit from the proceeds
thereof a sum of at least HK$20 million with the bank.
On the same day the plaintiff and five other directors of the
defendant entered into a further deed of undertaking with Sumitomo, as a
condition precedent to Sumitomo providing a $20 million term loan
facility to the defendant, in terms of which the directors jointly and
severally undertook to convene a meeting of the board of directors of the
defendant as soon as practicable, but in any event not later than 14 days
before 31 December 1996; and to procure that a majority of the directors at
the meeting shall vote and resolve to exercise the defendant’s right under
the undertaking of 15 October 1996 to demand that Mr and Mrs Wong
exercise their warrants; and to do everything necessary to ensure that the
undertaking becomes immediately exercisable by the defendant, and that
the defendant received the full payment for the subscription of the shares
- 9 -
in cash on or before the repayment date. This undertaking was signed by
the plaintiff and five other directors of the defendant.
On 12 December 1996, Sumitomo faxed a letter to the
defendant, for the attention of Mr Alfred Shao, General Manager, in the
following terms :
“Re: HKD20 Million Uncommitted Revolving Credit Facility &
HKD20 Million Term Loan
As the Final Maturity Date of the HKD20 Million Term Loan
(Facility Letter dated November 26, 1996) is approaching, we
would like to remind you the following 2 procedures:
- Pursuant to point 1 of the Undertaking of majority of
Shareholders (as attached) dated November 26, 1996,
the board of directors of your company have to request
Mr. Wong Kam Fu and Ms. Chu Wai Fun on or before
December 17, 1996 to exercise their warrants as per the
undertaking to your company dated October 15, 1996.
You shall notify us immediately after the board of
directors raised such request.
- Pursuant to Point 3 of the said Undertaking, the exercise
of warrants by Mr Wong Kam Fu and Ms. Chu Wai Fun
have to take place on or before the Final Maturity Date
of the Term Loan (i.e. December 20, 1996).
We would be most grateful if you could keep us updated with
any significant progress in the above matter. ….”
The plaintiff further testified that following certain
developments in November 1996 which had impacted negatively upon the
defendant’s public image, by early December 1996 it had become apparent
that the defendant was experiencing increasing difficulty in raising
additional finance or obtaining bank loans. A major syndicated loan
repayment in the sum of HK$40 million was due on 20 December 1996,
and the defendant urgently needed to raise cash. The plaintiff invited an
- 10 -
investment adviser, Wheelock NatWest, to review the defendant’s situation
and give advice on how to raise funds.
The plaintiff said that on 12 December, he, Maurice Ngai
(Company Secretary) and Alfred Shao (General Manager) were all aware
of the undertaking that had been given to Sumitomo, and the need to give
notice to Mr and Mrs Wong to exercise their warrants. They decided to
call a board meeting for the following day to discuss and deal with the
matter. On the morning of 13 December, the plaintiff instructed
Maurice Ngai to contact the defendant’s legal adviser, C.Y. Lee, to draft
the notice to be presented to Mr and Mrs Wong to put before the board
meeting. Directors were telephoned on that same morning, and a meeting
was held in the Board Room of the defendant at about 4 p.m. They
discussed the options which were available to the defendant, and
specifically whether or not the defendant should serve the notice on
Mr and Mrs Wong requiring them to exercise the warrants.
The plaintiff further testified that Francis Yeung, the
representative of Wheelock NatWest, informed the board that the board
and each individual member had fiduciary duties to its shareholders, and
that maintaining liquidity formed part of such duties; while Maurice Ngai
made it clear during the meeting that it was the board’s collective duty to
issue the notice as a step to maintain liquidity and to avoid a technical
insolvency situation which would occur if the notice were not issued.
The plaintiff said that Nelson Wong was present while the
subject was thoroughly discussed, and it was made clear to the meeting
that he did not want to exercise his warrants and did not want the board to
- 11 -
issue the notice to him. It was during this meeting that it became
apparent for the first time that Nelson Wong did not have the cash to
enable him to exercise the warrants without first raising the cash. After a
thorough discussion, the consensus of the board was that the notice had to
be formally issued immediately in order to comply with the 14-day notice
period, keeping in mind that the board could still cancel the notice in the
event that alternative funding became available, and that other funding
options should, in the meantime, be actively explored. According to the
plaintiff, Nelson Wong then walked out of the meeting, and he followed
him shortly thereafter to discuss with him alone the need for the board to
serve him with the notice. After the discussion, he signed the notice and
handed it to Nelson Wong, and asked him to sign and return it by way of
acknowledgement. Nelson Wong said that he would need to think about
it, and was quite upset. The plaintiff testified that he believed that serving
the notice on Nelson Wong was within his authority and was the only way
to ensure that Nelson Wong would exercise his warrants.
The notice is in the following terms :
“To: Mr. Wong Kam Fu
and Ms. Chu Wai Fun
Whereas :
(A) …. [This refers to the details of the Deed of Undertaking
given by Mr Wong and his wife in favour of the defendant
dated 15 October 1996.]
(B) The directors of the Company met on 13th December, 1996
and resolved that a notice to the Covenantors be served
requesting the Covenantors to exercise all the Warrants
owned by the Covenantors.
NOW NOTICE IS HEREBY GIVEN to the Covenantors to
exercise all the Warrants owned by the Covenantors pursuant to
the Deeds of Undertaking on or before 20th December, 1996.”
- 12 -
It was signed by the plaintiff on behalf of the defendant company, dated
13 December 1996, with an endorsement underneath :
“ Agreed to the contents of the above notice and agreed to
exercise all the Warrants owned by us on or before
20th December, 1996 despite any stipulation to the contrary (if
any) in the Deeds of Undertaking by :-
WONG KAM FU CHU WAI FUN”
Relevant documents after 13 December
The records of the defendant show that a notice of meeting
dated 14 December 1996 was issued stating that an urgent meeting of the
board of directors will be held on 14 December 1996, and the first item on
the agenda is :
“To consider the issuance of the notice to exercise the Warrants
owned by Mr. Wong Kam Fu and Ms Chu Wai Fun pursuant to
the Undertakings dated 15th October, 1996 and 25th November,
1996.”
A further notice dated 16 December 1996 reads :
“Further to our notice dated 14th December, 1996, …. the board
of director meeting is rescheduled on 16th December, 1996 at
4:30 p.m. …. with the following additional agenda :-
1 To appoint Wheelock NatWest Corporate Finance Limited
as the financial adviser to the Board …. in respect of the
up-to-date cash flow position, in particular in relation to the
undertakings by Mr Wong Kam Fu and Mrs Chu Wai Fun
to exercise their warrants in the Company.”
It should be recalled that the second supplemental deed of undertaking was
executed by Mr and Mrs Wong on 17 December 1996, in terms of which
- 13 -
the undertaking in the original deed to subscribe for the shares within
14 days of receipt of a notice from the defendant was amended to 10 days.
A further notice dated 17 December 1996 reads :
“NOTICE is hereby given that in view of cash flow problem to
the Group, it was resolved at the board meeting held on
17th December, 1996 at 8:00 a.m. ….
1. To appoint Wheelock NatWest Corporate Finance Limited
as the Company’s Financial advisers ….
2. A regular of the full Board Meeting to be held everyday’s
morning at 8:00 a.m. to monitor the progress of any
matters/plans relating to cash flow of the Company until
further notices.
3. A board meeting will be held ….. on 17th December, 1996
at 5:00 p.m. to update the progress of the proposed plan (if
any) and in particular make necessary enquiry into the
progress of the work done by South China Capital Ltd. who
had been appointed as the financial advisors in procurement
of the Company’s finance.”
It should be noted that Maurice Ngai, whose job it was to
issue and sign all the notices of the board meetings, was emphatic in his
testimony that the initial part of this notice had been wrongly drafted, since
there had been no board meeting on 17 December prior to the issue of this
notice, and there had been no resolution to appoint Wheelock NatWest as
the defendant’s financial advisers (this latter point was confirmed by the
plaintiff in his testimony) : the document was intended to simply give
notice of a board meeting to be held on 17 December 1996 to discuss all
three of the agenda items set out therein.
Paragraphs 4.2, 6.1 and 6.2 of the minutes of a meeting of the
board held on 18 December 1996 reads :
- 14 -
“4.2 All directors also were aware that even there were any such
committed offers to the Company, which become an
additional source of fund, the directors other than Mr Wong
Kam Fu and Ms Chu Wai Fun had to satisfy themselves
whether it was in the best interest of the Company to justify
no issuance of the notice to Mr Wong and Ms Chu to
exercise their warrants pursuant to the Undertaking dated
15th October, 1996 to the Company.
….
6.1 IT WAS RESOLVED THAT according to the discussed
action plan, a Board Meeting will be convened on 20 th
December, 1996 at 12:00 noon to appoint the Company’s
financial advisors (if any) and to effect any of alternative
plans to resolve the Company’s cash flow (including notice
to Mr Wong Kam Fu and Ms Chu Wai fun requesting
exercise of their warrants.)
6.2 The board reminded Mr Wong Kam Fu, who was present in
the Meeting to have his lawyer to represent him and
Ms Chu Wai Fun at the board meeting on 20th December,
1996.”
The minutes of the meeting of the board held on 20 December
1996 recorded that Mr and Mrs Wong had notified the board that they had,
on 20 December 1996, exercised in full all the warrants beneficially owned
by them, and further had borrowed HK$180 million from China Strategic
Holdings Limited (“CSH”), a large part of which had been utilized to
exercise the warrants.
The plaintiff had in the meantime been authorized by the
board on 18 December 1996 to pursue a deal that he was working on to
sell the defendant’s interest in P. Plus Communications Limited to Pacific
Electric Wire & Cable (“PEWC”), and to travel to Taipei to finalize the
details of the agreements and to take a deposit of HK$20 million on the
transaction. The plaintiff testified that he strongly believed that this deal
was the solution to the defendant’s problems, since it would raise funds for
- 15 -
the defendant of approximately HK$160 million. He travelled to Taiwan
on 19 December 1996 and successfully negotiated it. The plaintiff
attended the board meeting on 20 December 1996 in the full expectation
that the board would authorize him to “sign-off” on the deal with PEWC,
and was shocked to be told by Nelson Wong in the meeting to forget that
deal since the defendant was now receiving a HK$150 million cash
injection as a result of the voluntary exercise of his and his wife’s warrants,
with the help of a loan which he had obtained from CSH.
The plaintiff testified that the working relationship between
himself and Nelson Wong deteriorated from that point onwards. It
became clear to him in the succeeding days that Nelson Wong was
bypassing him, and working directly with Alfred Shao in the defendant’s
dealings with CSH. At Nelson Wong’s suggestion, CSH staff members
started to work within the defendant’s offices, and attended a board
meeting of the defendant on 30 December 1996 for the first time. These
CSH staff members would deal directly with Alfred Shao or Maurice Ngai
when they attended the defendant’s offices, and totally bypassed the
plaintiff. The plaintiff was not happy about the CSH staff members being
exposed to confidential information within the defendant’s offices, and
taking part in the board meetings and purporting to advise the defendant on
certain aspects of its business. The plaintiff attempted, inter alia, to talk
to Mr Frederick Sum of CSH in an attempt to open up some constructive
dialogue with CSH, but found that Frederick Sum did not wish to
cooperate with him.
- 16 -
The Christine Cheung incident
On 7 January 1997, the defendant’s accounting department
passed to him a purchase requisition form to requisition the payment of
HK$500,000 to South China Securities Ltd (“South China”), being a “fee
for procurement of finance”. The plaintiff knew that in terms of the
agreement which had been concluded with South China, in the event that
South China was not successful in procuring funds for the defendant, the
defendant would be liable to pay South China’s executives’ time costs
spent in the procurement, which were not expected to exceed HK$100,000,
together with all costs and expenses reasonably incurred by South China.
Since South China had indeed been unsuccessful in procuring any funds
for the defendant, the plaintiff considered that it was entitled to be paid a
fee of HK$100,000 in terms of the agreement; he accordingly rejected the
purchase requisition form requisitioning a payment of HK$500,000. He
also explained the situation to Nelson Wong and Alfred Shao.
Nelson Wong’s response was simply to ask Alfred Shao to countersign the
cheque for HK$500,000.
On the same day, the plaintiff telephoned Christine Cheung,
the Managing Director of South China, to advise her of his views, and he
asked her to revise the bill which had been presented by South China.
(Prior to this, all of the plaintiff’s dealings with South China had been with
Dan Hui.) Christine Cheung said she would speak to Dan Hui about it,
and a little while later, she called back and said that the amount (of
HK$500,000) had been approved by Nelson Wong. The plaintiff told her
that Nelson Wong may have misunderstood the position as he had not read
the agreement which had been concluded between the defendant and South
China. He demanded that Christine Cheung amend the bill for his
- 17 -
approval. She then asked him who the boss was, whereupon the plaintiff
told her that as he was the Chief Executive Officer of the defendant, he
was in charge. She said she would speak to Nelson Wong about it.
Nelson Wong later called the plaintiff in to ask him about the matter, and
when the plaintiff repeated his views on the matter, Nelson Wong said that
the defendant should simply pay the $500,000 in any event. The plaintiff
reiterated that the defendant should not pay more than $100,000, to which
South China was entitled in terms of the agreement.
The Frederick Sum incident
On 8 January, the plaintiff called Mr Frederick Sum of CSH
again, and demanded an explanation as to why he would not co-operate
with him. Mr Sum was unfriendly, and the plaintiff became so frustrated
that he used foul language towards him, namely “Fuck your mother” (the
conversation was in Cantonese).
On 9 January, the board voted to terminate the plaintiff’s
employment. After the vote, Nelson Wong approached the plaintiff in
tears and attempted to salvage their relationship; he urged the plaintiff to
resign and offered him six months’ salary. The plaintiff refused to resign
as he said he had done nothing wrong, whereupon he was handed the letter
terminating his services.
The giving of the notice to Mr Nelson Wong Kam Fu on 13 December 1996
This has always been the main ground upon which the
defendant relied to summarily dismiss the plaintiff. The defendant
pleaded the matter as follows, after referring to the undertaking given by
- 18 -
Mr and Mrs Wong to exercise their warrants if required by the board of the
defendant to do so.
“On or about 13th December 1997, the plaintiff, without the
knowledge or consent of the Board misrepresented to
Mr Wong Kam Fu that the Board had already made a resolution
requiring Mr and Mrs Wong to exercise the warrants in
accordance with the deed and the Supplemental Deed and
presented the document to Mr Wong for the signatures of Mr and
Mrs Wong for the purpose of exercising the warrants as aforesaid.
In truth and in fact, the Board had never made any request to Mr
or Mrs Wong for them to exercise such warrants pursuant to the
Deed of Undertaking and Supplemental Deed or otherwise and
the conduct of the plaintiff as aforesaid is dishonest and contrary
to his duties to the defendant as set out in paragraphs 3 and 4
above.”
Paragraph 3 of the Amended Defence refers to the plaintiff’s
express duties as set out in Clause 4 of the contract of employment, while
paragraph 4 pleads his implied duties :
“4. Furthermore by reason of his position as the Managing
Director/Chief Executive Officer of the Defendant, the
Plaintiff owes the Defendant the following implied
duties :-
a. to serve the Defendant with good faith and fidelity;
b. to behave in an honest, upright and faithful manner in
all his dealings with the board of the Defendant
including its Founder, Chairman and majority
shareholder, Mr. Wong Kam Fu, and any of its
members;
c. to faithfully co-operate with all members of the board
of the Defendant including the Chairman and any of its
members;
d. not to do anything which may damage or harm the
image of the Defendant including the image of
Mr. Wong Kam Fu in his capacity as the Founder,
Chairman and majority shareholder of the Defendant.”
- 19 -
I have described above the plaintiff’s testimony as to the
events of 13 December.
Mr Francis Yeung, the plaintiff’s witness, was employed by
Wheelock NatWest at the time, which company had been instructed to act
as an independent financial adviser to the defendant in relation to the IWC
transaction. He recalled attending a board meeting of the defendant
around mid-December 1996, in which he briefly discussed the options
available to the defendant to sort out its financial difficulties, including the
option of serving a notice upon Nelson Wong requiring him to exercise his
warrants of the defendant. His evidence in chief was to the effect that he
“believed” that he explained to the board that even though Nelson Wong
was their “boss”, they had a duty to act in the best interests of the
defendant— whereupon Nelson Wong became upset with him and began to
blame both him and C.Y. Lee for not advising him in relation to his legal
obligations prior to his signing the deed of undertaking. This did not sit
comfortably with his oral evidence that he clearly remembered that
Nelson Wong had only joined this meeting in the middle of it, and his
evidence under cross-examination that when he talked to the meeting about
these matters and advised them that they should issue a notice to
Nelson Wong, Nelson Wong was not present, and had only joined the
meeting after these matters had been discussed. He had no recollection
whether Nelson Wong had left the meeting at any time, and whether the
plaintiff had followed him out.
Nelson Wong testified that he and his wife had executed the
deed of undertaking of 15 October 1996 at the plaintiff’s suggestion, as a
means to satisfy the banks as to the defendant’s ability to repay any loans
- 20 -
that they advanced, and only after the plaintiff had assured him that he
would solve the cashflow problems of the defendant without calling upon
Nelson Wong and his wife to exercise their warrants.
On 13 December the plaintiff had come to his room, told him
that the board had passed a resolution calling upon him and his wife to
exercise their warrants, and handed him the notice which he
misrepresented was issued pursuant to a resolution of the board. He
insisted that he had not attended a board meeting on that morning, and
when he had subsequently made his own enquiries with the other directors,
they confirmed that no board meeting had been held and no resolution had
been passed. His evidence was hopelessly contradictory when he was
persistently questioned about whether or not he had signed the notice at
any time after the plaintiff had served it upon him. He had eventually cut
up and disposed of the notice.
He made no bones in his testimony about his resentment that
the plaintiff had prevailed upon him — the Chairman and major
shareholder of the defendant — to enter into the deed of undertaking to the
defendant, when the main reason that the plaintiff had been employed was
to find outside investors to invest in the defendant, which, if he had
accomplished it, would have removed the necessity for Nelson Wong and
his wife to exercise their warrants in the defendant.
Following the plaintiff’s misrepresentation on 13 December,
he felt that the plaintiff could not be trusted, nor relied upon to resolve the
financial problems of the defendant.
- 21 -
He confirmed that it would have caused grave financial
difficulties to exercise the warrants at the time, since he and his wife did
not have the necessary cash.
Mr Yim Sang, who was a director of the defendant at the time,
testified that he had no recollection of attending any meeting of the
directors of the defendant on 13 December, nor of being asked by anybody
to attend such a meeting.
Mr Maurice Ngai, who was the Company Secretary of the
defendant at the time, was also unable to recall a meeting on 13 December,
though he made it clear that he could not say that such a meeting had not
been held. As Company Secretary, it was his function to issue notices of
all board meetings and prepare minutes of such meetings : no such records
existed in relation to any meeting on 13 December, although there were
quite frequent occasions when directors held informal meetings at which
matters of concern to the company would be discussed, without any notice
having been issued or minutes prepared.
The demeanour of the plaintiff as a witness was generally
favourable; however several aspects of the events relating to 13 December
have not been satisfactorily explained, and remain something of a mystery.
I had no reason to believe, from their demeanour, that any of the witnesses
were lying.
On all of the evidence I find on the probabilities that there
was an informal meeting of directors of the defendant on 13 December at
which the plaintiff was present, and during which the cashflow problems
- 22 -
of the defendant, and the question whether a notice should be issued
requiring Nelson Wong and his wife to exercise their warrants, were
discussed. It appears that Nelson Wong was present for a part of that
meeting. I accept the plaintiff’s evidence that there was a consensus at
the meeting that it was in the interests of the defendant that a notice should
be issued to Nelson Wong and his wife requiring them to exercise their
warrants in terms of their undertaking to the defendant. There is no
dispute that the matter was never put to a vote, and no resolution was
passed.
At some stage after Nelson Wong had left the meeting, the
plaintiff sought him out and served the notice on him — which had been
drafted by C.Y. Lee earlier that morning, and signed by the plaintiff on
behalf of the defendant. Precisely where this encounter took place,
whether in Nelson Wong’s office or elsewhere, as also the full terms of the
conversation that took place between them, have not been established,
however I find as a probability that the plaintiff did tell Nelson Wong that
the board had resolved that a notice be served requiring him and his wife to
exercise their warrants. Nelson Wong was upset on being handed the
notice, and said that he needed time to think about it. The plaintiff did
not suggest that he (the plaintiff) had returned thereafter to continue the
informal meeting which he had left.
It is difficult to understand what precisely motivated the
plaintiff to act as he did. He testified that he believed that he was acting
within his authority in serving the notice on Nelson Wong as he did, and
that this was the only way to ensure that Nelson Wong would exercise his
warrants. I accept that the plaintiff believed that it was in the best
- 23 -
interests of the defendant that Nelson Wong and his wife should be given
notice, before the deadline expired on 17 December, to exercise their
warrants in terms of their undertakings. This was also the advice which
had been given by Francis Yeung of Wheelock NatWest, and was a view
shared by the other board members. It is also important to recall that the
plaintiff and five other directors had, on 25 November 1996, entered into a
formal deed of undertaking with Sumitomo, undertaking that they would,
as soon as practicable, convene a meeting of the board, and procure that a
majority of the directors present would vote and resolve to exercise the
defendant’s right to require Nelson Wong and his wife to exercise their
warrants. By its fax on the afternoon of 12 December, Sumitomo had
reminded them of the board’s obligation to request Nelson Wong and his
wife, before 17 December, to exercise their warrants in terms of their
undertaking on or before 20 December 1996.
It remains a mystery why, given that there was a consensus at
the meeting on 13 December that it was in the interests of the defendant
that a notice should be issued to Nelson Wong and his wife, the plaintiff
did not take the next logical step and see to it that the matter was put to a
vote and a resolution passed to that effect.
The plaintiff concedes that the notice was factually inaccurate
and untrue in stating that the directors of the defendant had met and
resolved that a notice be served requesting Nelson Wong and his wife to
exercise their warrants. Far from alerting Nelson Wong to this fact, the
plaintiff repeated the misrepresentation orally. All the indications point to
the fact that the plaintiff intended that Nelson Wong and his wife should
- 24 -
sign the notice to the effect that they agreed its contents and agreed to
exercise their warrants on or before 20 December 1996.
The due passing of a resolution and issuing of a notice by the
defendant’s board of directors requiring Nelson Wong and his wife to
exercise their warrants was a matter of considerable importance, and
numerous ramifications. Most importantly, it was a matter of importance
to the defendant because, unless it was subsequently countermanded, it
represented the means by which the defendant intended to raise the capital
which it urgently needed to meet its looming debt-repayment obligations,
no other source of finance having been obtained or secured at that stage.
It was a matter of importance to the plaintiff and the other directors in
fulfillment of their personal undertakings to Sumitomo on 25 November
1995. It was a matter of great importance to Nelson Wong, since, unless
countermanded, it required him and his wife to make a payment of some
$157 million in fulfillment of their obligation to subscribe to shares of the
defendant under the warrants, at a time when it was disadvantageous for
them to do so, since the warrants obliged them to subscribe for the shares
at a price of $3.10 per share, while the market value of the shares at that
time was approximately $2.70 per share.
In all these circumstances, and bearing in mind that the
undertaking which had been given by Nelson Wong and his wife was to
exercise their warrants if required to do so “by resolution of the board of
directors of the company”, the misrepresentation by the plaintiff to
Nelson Wong, to the effect that the directors of the defendant had resolved
that such a notice be served upon them, was in my view a serious matter.
I have no doubt that it constituted an act of serious misconduct, in the
- 25 -
sense used in employment law, by the plaintiff towards Nelson Wong as
Chairman and major shareholder of the defendant. The issue, however, is
whether it constituted an act of misconduct towards the plaintiff’s
employer, namely the defendant. (It is important to keep in mind the
separate legal personality of the defendant from that of its Chairman and
major shareholder Nelson Wong. Indeed, the question of whether the
defendant should require Nelson Wong to exercise his warrants graphically
illustrated the different interests at stake of the defendant on the one hand,
and Nelson Wong on the other.)
I have concluded that the plaintiff’s actions on 13 December
did constitute an act of serious misconduct vis-à-vis the defendant. As I
have already indicated, the issue of whether the board should formally
require Nelson Wong and his wife to exercise their warrants was one of
considerable importance to the defendant, bearing in mind that as at
13 December the notice was required to be served by close of business on
17 December (since the supplemental deed of undertaking, which
shortened the period of notice required to be given, had not yet been
entered into). It was only by a formal resolution of the board of directors
of the defendant that Nelson Wong and his wife could be obliged to
exercise their warrants : it should have been abundantly clear to the
plaintiff that a mere consensus in an informal meeting could not suffice to
that end. The situation at the time appeared to be that the board members,
while they were of the view that it would be in the defendant’s best
interests to require Nelson Wong and his wife to exercise their warrants,
were reluctant to formally require them to do so in view of the financial
embarrassment that this would have caused the Wongs at that time.
- 26 -
The misrepresentation by the plaintiff to Nelson Wong to the
effect that the directors of the defendant had thus resolved on 13 December
1996, had major implications not only for Nelson Wong and his wife, but
also for the defendant. If Nelson Wong and his wife had duly signed the
notice, and proceeded to exercise the warrants on the understanding that
the notice had been duly given to him and his wife, it would arguably have
been open to them to subsequently resile and take appropriate steps to
recover from the defendant any monies which had been paid, once it was
established that the directors of the company had not in fact formally
resolved that the notice be issued. The deadline for requiring
Nelson Wong and his wife to exercise their warrants would no doubt have
expired by then, and they could not thereafter have been obliged by
resolution of the board to exercise their warrants.
In serving the notice on Nelson Wong on 13 December, the
plaintiff was purporting to act on behalf of the board of directors of the
defendant, under the authority of a resolution of the board, when he knew
that no such resolution had in fact been passed by the board. In my view
this constituted an act of misconduct which was sufficiently serious to
justify the summary termination of his contract of employment.
The plaintiff’s “misrepresentation” to Christine Cheung
The defendant’s complaint in this respect is pleaded in the
following terms :
“On or about 7 January 1997, the plaintiff misrepresented to one
Christine Cheung ... of South China Limited that
Mr Wong Kam Fu was no longer the boss of the defendant but
the plaintiff himself was the boss. Such misrepresentation
damaged the image and reputation of Mr Wong as the Founder,
- 27 -
Chairman and majority shareholder of the defendant and thereby
damaged the reputation of the defendant.”
The plaintiff’s relationship with Nelson Wong had
deteriorated badly by 7 January 1997. This gave rise to an extremely
awkward situation, since the plaintiff was still the Managing Director and
Chief Executive Officer of the defendant, responsible for running its day to
day affairs, while Nelson Wong was still the Chairman of the company,
and obviously occupied a position of considerable influence as the founder,
and, until his exercise of his warrants on 20 December 1996, the major
shareholder of the company. It is a moot point whether plaintiff or Wong
was entitled to be described as the “boss” of the company. As far as the
stand-off between them concerning the payment to South China was
concerned, the plaintiff’s attitude and frustration were understandable,
since the terms of the agreement which had been concluded between the
two companies appeared to fully support him. He believed he was acting
in the best interests of the defendant in refusing to authorize the payment
of $500,000 to South China, and in demanding of Christine Cheung that
she altered the bill presented to the defendant to accord with the parties’
agreement. She in turn was placed in an awkward position, in light of the
fact that Nelson Wong, the Chairman of the defendant, had authorized the
payment of $500,000 to South China, and since the plaintiff was insisting
that only $100,000 was payable and that South China should amend its bill
accordingly, it was understandable that she asked the plaintiff, in the
circumstances, who was the boss of the defendant — in other words should
she comply with the plaintiff’s wishes or Nelson Wong’s wishes?
In these circumstances, the plaintiff’s reply to her that as the
Chief Executive Officer of the defendant, he was the boss and, impliedly,
- 28 -
that his decision on the matter would therefore prevail, was inevitably a
‘put-down’ of Nelson Wong as Chairman. However that in itself did not
constitute it as misconduct, in my view. The more serious aspect of it
was that it was calculated to damage the reputation of the defendant, by so
publicly exposing the conflict within the most senior ranks of the
defendant’s board. The plaintiff could have handled the situation with far
greater skill and tact. In the interests of the defendant he should have told
Christine Cheung that he would come back to her later, and in the
meantime gone to see Nelson Wong and attempted to resolve the matter
amicably, in a way that would have enabled the defendant to present a
united front to South China.
In my view, the plaintiff’s conduct in this incident can
properly be characterized as a substantial act of misconduct towards the
defendant. Although it would probably not in itself have caused the
defendant to summarily dismiss him, it was nevertheless an act of
misconduct which the defendant was entitled to take into account in
conjunction with the events of 13 December in deciding to summarily
terminate his employment.
Foul language to Frederick Sum
The defendant’s case in this respect is that by abusing Mr Sum
with foul language for no reason, the plaintiff lowered the esteem and
image of the defendant as a listed company in Hong Kong.
The plaintiff’s frustration with the situation which had
developed with CSH employees coming into the defendant’s offices,
uninvited and unauthorized by him, was entirely understandable,
- 29 -
particularly since such staff members were bypassing him and liaising
directly with Alfred Shao and Nelson Wong. This situation was
symptomatic of the dysfunctionality which was increasingly affecting the
management of the defendant.
When the plaintiff phoned Mr Sum to demand an explanation,
it is not surprising that he felt frustrated and angry on finding that Sum was
unfriendly and unco-operative towards him. He should not however have
used foul language towards Mr Sum; particularly at a time when the
defendant was involved in negotiations with CSH that were important to
the defendant, and since he was acting at the time in his capacity as Chief
Executive Officer of the defendant, his conduct was unbefitting that
position and was calculated to tend to “lower the esteem and image of the
defendant as a listed company in Hong Kong”. Although this was a
comparatively minor incident in itself, it was also one which the defendant
was entitled to take into account and weigh in the balance, in conjunction
with the other matters complained of, in deciding to summarily terminate
the plaintiff’s employment.
I have not overlooked the fact that prior to the issue of the
notice of termination to the plaintiff on 9 January 1997, no formal
complaint had been made by Nelson Wong or anybody else of the
plaintiff’s conduct on 13 December 1996, nor in relation to the
Frederick Sum or Christine Cheung incidents. On the face of it, this
might suggest that the defendant was not seriously aggrieved by the
plaintiff’s conduct in question. This matter also must be examined in its
context of the full surrounding circumstances.
- 30 -
It is clear from the detailed affirmation evidence that during
the whole of December 1996 and up to 9 January 1997, the directors of the
defendant, and in particular the plaintiff as Chief Executive Officer and
Nelson Wong as Chairman, were heavily involved in a flurry of activities
in attempting to secure short term finance for the defendant. I have
earlier summarized the further developments which took place throughout
December and leading up to 9 January 1997, which culminated in the
resolution of the board on 9 January to terminate the plaintiff’s
employment with the defendant, and the service of notice upon him to that
effect.
In these circumstances, it was in my view legitimate for the
defendant to hold back from taking action in respect of the plaintiff’s
conduct complained of until 9 January 1997, when in the light of the
further developments which had taken place since 13 December 1996, it
was decided to summarily terminate his employment.
The law
Section 9 of the Employment Ordinance, Cap.57, provides,
inter alia, as follows :
“9. An employer may terminate a contract of employment
without notice or payment in lieu —
(a) if an employee, in relation to his employment —
...
(ii) misconducts himself such conduct being
inconsistent with the due and faithful discharge
of his duties;
(iii) is guilty of fraud or dishonesty; or
- 31 -
...
(b) on any other ground on which he would be entitled to
terminate the contract without notice at common
law.”
Mr Carolan, who presented the plaintiff’s case skilfully and
persuasively, submitted that the defendant had wholly failed to discharge
the burden upon it of proving that there were grounds for the summary
dismissal of the plaintiff. None of the misconduct relied upon by the
defendant, he submitted, could be characterized as so serious that it
constituted a repudiation of the plaintiff’s contract of employment. He
referred me to various authorities, both in England and Hong Kong, to
illustrate the point. My attention was drawn, inter alia, to the words of
Lord Evershed MR in Laws v. The London Chronicle (Indicator
Newspapers) Ltd [1959] 1 WLR 698 at 701 :
“... I do, however, think (following the passages which I have
already cited) that one act of disobedience or misconduct can
justify dismissal only if it is of a nature which goes to show (in
effect) that the servant is repudiating the contract, or one of its
essential conditions; ...”
In my view, the plaintiff, in particular by his conduct on
13 December 1996 was in effect repudiating the essential condition of his
contract of service that he performed his duties with honesty and good
faith, such that, following the further incidents of misconduct thereafter
which proved to be the final straws which “broke the camel’s back”, the
defendant was entitled, on 9 January 1997, to summarily terminate the
plaintiff’s employment.
- 32 -
The authorities show that there is no fixed category of the
types or degree of misconduct which will justify summary dismissal. Nor
is it necessary for the conduct to qualify as dishonest in order to justify
summary dismissal.
In Sinclair v. Neighbour [1966] 3 AER 988, the manager of a
betting shop openly, but without his employer’s knowledge, took £15 out
of the till, put in an I.O.U. for the money and used the money to place a bet
of his own elsewhere. On the next day he repaid the £15. The manager
knew that, if he had asked his employer for permission to borrow the
money from the till for this purpose, the employer would have refused it.
Later on the same day the employer discovered what had happened, and
dismissed the manager forthwith without notice. Sellers LJ observed at
989C-D :
“... but I do not think that it matters whether the conduct is to be
described as dishonest misconduct or not. Views might differ.
It was sufficient for the employer if he could, in all the
circumstances, regard what the employee did as being something
which was seriously inconsistent — incompatible — with his
duty as the manager in the business in which he was engaged.”
See also Davies LJ at 990E :
“The judge ought to have gone on, in my judgment, to consider
whether, even falling short of the label of ‘dishonesty’, it was
nevertheless conduct of such a grave and weighty character as to
amount to a breach of the confidential relationship between
master and servant, such as would render the servant unfit for
continuance in the master’s employment and give the master the
right to discharge him immediately. On the facts of this case
the employee’s conduct clearly fell within that latter category;
and I have no doubt at all the employer was therefore entitled to
dismiss him.”
- 33 -
In my view, the plaintiff’s conduct, in particular on
13 December 1996, and the deception which was inherent in it, was
incompatible with his duties as Managing Director and Chief Executive
Officer of the defendant, and was such a breach of the good faith which the
defendant was entitled to expect of him in discharging his duties, that it
was calculated to undermine the relationship of confidence which should
exist between master and servant.
The plaintiff’s conduct complained of was, in my view,
inconsistent with the due and faithful discharge of his duties, and
constituted sufficiently serious misconduct that the defendant was entitled
to terminate his contract of employment without notice or payment in lieu,
in terms of both section 9 of the Ordinance and the common law.
I am conscious of the fact that summary dismissal is a very
serious step for any employer to take against an employee, that in the
words of Yeung J in Tsang Tak Chi v. China Wall Ltd [1999] 1 HKC 366, it
is the “capital punishment” of Employment Law in that if the dismissal
was justified, the employee will be deprived of all the protection otherwise
provided by the Employment Ordinance.
The plaintiff’s claims for damages and consequential relief are
premised upon a finding that he was wrongfully dismissed by the
defendant. Since I have found that the defendant was entitled to
summarily terminate his contract of employment on 9 January 1997, the
plaintiff’s claims are all dismissed.
- 34 -
I make an order nisi that the plaintiff is to pay the defendant’s
costs of these proceedings.
(B.W.K. Whaley)
Deputy High Court Judge
Mr Paul Carolan, instructed by Messrs Denton Wilde Spate,
for the Plaintiff
Mr Louis K.Y. Chan, instructed by Messrs Preston Gates & Ellis,
for the Defendant
WONG YICK MAN, FRANCIS v. STAR TELECOM INTERNATIONAL HOLDING LTD.
HCA6174/1997
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO.6174 OF 1997
(Transferred from Labour Tribunal Claim No. LT2130 of 1997)
-------------------------
BETWEEN
WONG YICK MAN, FRANCIS Plaintiff
and
STAR TELECOM INTERNATIONAL Defendant
HOLDING LIMITED
-------------------
Before : Deputy High Court Judge Whaley in Court
Dates of Hearing : 23-25, 27 October 2000
Date of Judgment : 8 November 2000
----------------------
JUDGMENT
----------------------
The plaintiff’s claim against the defendant is for damages
sustained in consequence of the defendant’s alleged wrongful termination
of his contract of employment.
By the contract of employment dated 26 July 1996 (“the
Contract”), the defendant agreed to employ the plaintiff as Managing
Director and Chief Executive Officer of the defendant upon the terms and
conditions set out in the Contract, including, inter alia, the following :
- 2 -
“5.1 The remuneration of the [plaintiff] shall be:
(a) a fixed salary at the rate of HK$2,500,000 per annum,
divisible into 12 monthly payments of HK$208,333,
payable in arrears;
….
5.3 The fixed salary shall be increased to HK$3,000,000 per
annum on January 1, 1997. Thereafter, it shall be
reviewed and revised annually with the approval of the
Board.
6. STOCK ENTITLEMENTS
The [plaintiff[, at the sole and absolute discretion of the
Board, may participate in any employee stock option plan
adopted by the Group on the terms and conditions
nominated by the Board. Upon commencement of
employment the Company will offer stock option for
5,500,000 shares to the [plaintiff].
….
8.
…. The [plaintiff]’s employment hereunder may be determined
at any time after the expiration of the initial period of
twenty-four (24) months by either of the parties hereto
giving to the other not less than six (6) months prior written
notice provided that the Company may after the initial
period elect to terminate the Employee’s employment
hereunder forthwith upon payment to the [plaintiff] of not
less than six (6) month’s Base Salary in lieu of notice.”
The plaintiff’s case as pleaded is that the defendant,
wrongfully and in repudiatory breach of the express and/or implied terms
of the Contract, by its letter dated 9 January 1997 handed to the plaintiff at
a board meeting of the defendant on that day, wrongfully terminated the
plaintiff’s employment, and purported to dismiss the plaintiff without
notice and with immediate effect, before the initial period of 24 months
had expired, and without the six months’ written notice thereafter, without
any payment or benefit other than salary accrued due and payable as at
- 3 -
9 January 1997. Further, by a notice from the defendant’s directors dated
10 January 1997, the defendant purported to remove the plaintiff as a
director of the defendant.
By his solicitors’ letter dated 10 January 1997, the plaintiff
accepted the said repudiatory breaches.
The plaintiff’s claim is for damages in the total sum of
HK$12,047,829, comprising :
(1) a claim for HK$6,166,666 in respect of salary for the
remaining period of the Contract and the notice period,
namely, 24 2/3 months at $3,000,000 per year;
(2) the value of the stock options in the sum of $6,641,800; and
(3) holiday pay in the sum of $64,363.
The defendant alleges that it was entitled to summarily
dismiss the plaintiff on 9 January 1997. The letter of that date by which it
purported to do so reads as follows :
“Dear Sir,
Re: Notice of Termination of Your Employment with
Star Telecom International Holding Limited (the ‘Company’)
Pursuant to Clause 8.03 of your contract of employment with the
Company dated 26th July 1996 (the ‘Employment Contract’) and
upon resolution of the Board of Directors of the Company passed
at the meeting held on 9th January 1997, we hereby serve you
notice to terminate the Employment Contract with the Company
with immediate effect.
After careful consideration, the Board of Directors resolved that
you have committed, inter alia, the following serious
- 4 -
misconducts which are detrimental to the interests of the
Company and its subsidiaries and associates (the ‘Group’):
1. acting without due authorization of the Board of Directors in
issuing the notice to exercise all the warrants owned by Mr Wong
Kam Fu and Ms Chu Wai Fun on 13th December 1996;
2. misrepresenting to Ms Christine Cheung of South China
Securities Limited that Mr Wong Kam Fu was no longer the
‘boss’ of the Company on 7th January 1997;
3. using abusive and hostile language during telephone
conversation with Mr. Mico Chung and Frederick Sum of China
Strategic Holdings Limited on 8th January 1997 which tend to
lower the esteem and image of the Group as a public company.
In the circumstances, the Board of Directors resolved that your
Employment Contract be and is hereby terminated with
immediate effect without any payment or benefit whatsoever
other than salary actually accrued due and payable in respect of
your service up to date of this letter.”
Mr Chan concedes that there was no evidence to support the
allegation in relation to Mr Mico Chung, and the defendant no longer relies
thereon as part of the grounds which entitled it to summarily dismiss the
plaintiff.
In order to properly evaluate the conduct of the plaintiff which
the defendant alleges entitled it to summarily dismiss him, it is necessary
to understand the full context in which it occurred, and the background
leading up to it.
Before he took up employment with the defendant, the
plaintiff had, on 1 March 1995, set up a telecommunication consulting
company, FW & Associates Limited (“FWA”). The plaintiff met
Mr Nelson Wong Kam Fu (“Nelson Wong”) in July 1995, who was the
Managing Director and Chief Executive Officer of the defendant at the
- 5 -
time, in addition to being its major shareholder (Nelson Wong and his wife
controlled approximately 50.5% of the shares of the defendant). They
developed a working relationship, and the plaintiff’s company was
engaged by the defendant to provide consultancy services in relation to
certain specific projects. Between July 1995 and 1 August 1996 their
working relationship became close, and Nelson Wong suggested that the
plaintiff should join the defendant as its Chief Executive Officer. Over
the months they discussed the basic terms upon which the plaintiff would
do so, and towards the end of July 1996, at a dinner meeting, they signed
an employment contract, the terms of which the plaintiff had drafted, at
Nelson Wong’s request.
The plaintiff testified that it was a key term of the Contract
from his point of view that his appointment would be for a minimum term
of two years, during which it could not be terminated except for serious
misconduct, or other offences as specifically defined in the Contract. It
was on this basis that he agreed to close his own consulting practice, FWA,
which was doing well at that time. It was, therefore, a significant career
decision for him to join the defendant, and he would not have done so
without the two-year minimum term of employment being specifically
provided for in his contract of employment. He did not make any
immediate substantial financial gain by joining the defendant, though he
did intend to benefit financially from the stock options which were offered
to him as part of his remuneration package.
The plaintiff further testified that at the time he joined the
defendant, he and Nelson Wong had an excellent working relationship, and
- 6 -
that Nelson Wong had agreed to give him complete autonomy in running
the defendant.
The defendant was in financial difficulties due to high gearing
and decrease of the income from its core paging business. It was one of
the plaintiff’s foremost tasks to raise funds by executing the joint venture
proposals which he had helped to develop while FWA was acting as the
defendant’s consultant. In October 1996, when they were finalizing the
sale of a part of the defendant’s equity interest in Star Digital Limited
(“SDL”) to the International Wireless Company (“IWC”), the defendant’s
auditors suggested that, in order to facilitate the closing of the deal, it was
necessary for Nelson Wong and his wife to exercise the approximately
50,000,000 warrants of the defendant which they held between them, each
of which conferred rights to subscribe for shares of the defendant at a
subscription price of $3.10 per share, such rights expiring at the close of
business on 31 December 1996.
Nelson Wong and his wife consequently entered into a deed of
undertaking with the defendant on 15 October 1996, which provided, inter
alia, as follows :
“WHEREAS
(1) The Covenators [sic] are husband and wife and are both
directors of the Company and as at the date hereof the
Covenantors together own approximately 50.2% of the
shares of HK$0.1 each in the issued share capital of the
Company (the ‘Shares’) and also together own 50,749,.744
warrants of the Company each conferring rights to
subscribe for $3.10 in cash for the Shares (the ‘Warrants’)
at a subscription price of $3.10 per Share which rights shall
expire at the close of the business on 31st December, 1996.
- 7 -
(2) The Covenantors and the Company are of the view that the
Company needs cash to discharge its various obligations for
period from the date hereof to December, 1997. And the
Covenantors are both optimistic about the prospect of the
Company and are desirous of exercising some or all
Warrants owned by the Covenantors as at the date hereof.
NOW THIS DEED WITNESSETH as follows :-
1. The Covenantors hereby covenant with the Company and
irrevocably undertake to exercise the rights of all the
Warrants owned by the Covenantors (or any number of the
Warrants as the directors may deem fit .…) to subscribe for
the shares if so deemed necessary and sufficient to meet the
cash flow of the Company by resolution of the board of
directors of the Company within 14 days upon receipt of a
notice from the Company to that effect ….
2. Notwithstanding any stipulation to the contrary in this Deed
of Undertaking, the Covenantors shall not be obliged to
exercise any Warrant if the closing price of the share quoted
on The Stock Exchange of Hong Kong .… is lower than
HK$1.8275 per share ….
3. The Covenantors shall abstain from voting in any
resolution or decision in respect of any matter referred to in
Article 1 above in and meeting of the board of directors.”
By a supplemental deed of undertaking dated 25 November
1996, Nelson Wong and his wife waived the condition in the original deed
that they could not be required to exercise the warrants if the closing price
of the share was less than HK$1.8275 per share; and finally, by a second
supplemental deed of undertaking dated 17 December 1996, the period of
14 days following receipt of a notice from the defendant within which
Nelson Wong and his wife undertook to subscribe for the shares, was
reduced to 10 days.
One of the methods by which the defendant addressed its
cashflow problems was to raise a HK$20 million uncommitted revolving
credit facility from the Sumitomo Trust & Banking Co. Ltd (“Sumitomo”).
- 8 -
On 26 November 1996, the defendant entered into a deed of undertaking
with Sumitomo which referred to the undertakings which had been given
by Nelson Wong and his wife to exercise their warrants when required to
do so by the board of the defendant, and stated it as a condition precedent
to Sumitomo granting any further credit under the facility, that the
defendant enter into this deed to ensure that the defendant would deposit
with Sumitomo a sum of at least HK$20 million, being part of the monies
to be received by the borrower from Nelson Wong and his wife exercising
their share warrants; and the defendant irrevocably and unconditionally
undertook : to notify the bank in writing as soon as the majority of the
board of directors of the defendant had requested Nelson Wong and his
wife to exercise their warrants; and immediately upon payment by
Nelson Wong and his wife for the shares, to deposit from the proceeds
thereof a sum of at least HK$20 million with the bank.
On the same day the plaintiff and five other directors of the
defendant entered into a further deed of undertaking with Sumitomo, as a
condition precedent to Sumitomo providing a $20 million term loan
facility to the defendant, in terms of which the directors jointly and
severally undertook to convene a meeting of the board of directors of the
defendant as soon as practicable, but in any event not later than 14 days
before 31 December 1996; and to procure that a majority of the directors at
the meeting shall vote and resolve to exercise the defendant’s right under
the undertaking of 15 October 1996 to demand that Mr and Mrs Wong
exercise their warrants; and to do everything necessary to ensure that the
undertaking becomes immediately exercisable by the defendant, and that
the defendant received the full payment for the subscription of the shares
- 9 -
in cash on or before the repayment date. This undertaking was signed by
the plaintiff and five other directors of the defendant.
On 12 December 1996, Sumitomo faxed a letter to the
defendant, for the attention of Mr Alfred Shao, General Manager, in the
following terms :
“Re: HKD20 Million Uncommitted Revolving Credit Facility &
HKD20 Million Term Loan
As the Final Maturity Date of the HKD20 Million Term Loan
(Facility Letter dated November 26, 1996) is approaching, we
would like to remind you the following 2 procedures:
- Pursuant to point 1 of the Undertaking of majority of
Shareholders (as attached) dated November 26, 1996,
the board of directors of your company have to request
Mr. Wong Kam Fu and Ms. Chu Wai Fun on or before
December 17, 1996 to exercise their warrants as per the
undertaking to your company dated October 15, 1996.
You shall notify us immediately after the board of
directors raised such request.
- Pursuant to Point 3 of the said Undertaking, the exercise
of warrants by Mr Wong Kam Fu and Ms. Chu Wai Fun
have to take place on or before the Final Maturity Date
of the Term Loan (i.e. December 20, 1996).
We would be most grateful if you could keep us updated with
any significant progress in the above matter. ….”
The plaintiff further testified that following certain
developments in November 1996 which had impacted negatively upon the
defendant’s public image, by early December 1996 it had become apparent
that the defendant was experiencing increasing difficulty in raising
additional finance or obtaining bank loans. A major syndicated loan
repayment in the sum of HK$40 million was due on 20 December 1996,
and the defendant urgently needed to raise cash. The plaintiff invited an
- 10 -
investment adviser, Wheelock NatWest, to review the defendant’s situation
and give advice on how to raise funds.
The plaintiff said that on 12 December, he, Maurice Ngai
(Company Secretary) and Alfred Shao (General Manager) were all aware
of the undertaking that had been given to Sumitomo, and the need to give
notice to Mr and Mrs Wong to exercise their warrants. They decided to
call a board meeting for the following day to discuss and deal with the
matter. On the morning of 13 December, the plaintiff instructed
Maurice Ngai to contact the defendant’s legal adviser, C.Y. Lee, to draft
the notice to be presented to Mr and Mrs Wong to put before the board
meeting. Directors were telephoned on that same morning, and a meeting
was held in the Board Room of the defendant at about 4 p.m. They
discussed the options which were available to the defendant, and
specifically whether or not the defendant should serve the notice on
Mr and Mrs Wong requiring them to exercise the warrants.
The plaintiff further testified that Francis Yeung, the
representative of Wheelock NatWest, informed the board that the board
and each individual member had fiduciary duties to its shareholders, and
that maintaining liquidity formed part of such duties; while Maurice Ngai
made it clear during the meeting that it was the board’s collective duty to
issue the notice as a step to maintain liquidity and to avoid a technical
insolvency situation which would occur if the notice were not issued.
The plaintiff said that Nelson Wong was present while the
subject was thoroughly discussed, and it was made clear to the meeting
that he did not want to exercise his warrants and did not want the board to
- 11 -
issue the notice to him. It was during this meeting that it became
apparent for the first time that Nelson Wong did not have the cash to
enable him to exercise the warrants without first raising the cash. After a
thorough discussion, the consensus of the board was that the notice had to
be formally issued immediately in order to comply with the 14-day notice
period, keeping in mind that the board could still cancel the notice in the
event that alternative funding became available, and that other funding
options should, in the meantime, be actively explored. According to the
plaintiff, Nelson Wong then walked out of the meeting, and he followed
him shortly thereafter to discuss with him alone the need for the board to
serve him with the notice. After the discussion, he signed the notice and
handed it to Nelson Wong, and asked him to sign and return it by way of
acknowledgement. Nelson Wong said that he would need to think about
it, and was quite upset. The plaintiff testified that he believed that serving
the notice on Nelson Wong was within his authority and was the only way
to ensure that Nelson Wong would exercise his warrants.
The notice is in the following terms :
“To: Mr. Wong Kam Fu
and Ms. Chu Wai Fun
Whereas :
(A) …. [This refers to the details of the Deed of Undertaking
given by Mr Wong and his wife in favour of the defendant
dated 15 October 1996.]
(B) The directors of the Company met on 13th December, 1996
and resolved that a notice to the Covenantors be served
requesting the Covenantors to exercise all the Warrants
owned by the Covenantors.
NOW NOTICE IS HEREBY GIVEN to the Covenantors to
exercise all the Warrants owned by the Covenantors pursuant to
the Deeds of Undertaking on or before 20th December, 1996.”
- 12 -
It was signed by the plaintiff on behalf of the defendant company, dated
13 December 1996, with an endorsement underneath :
“ Agreed to the contents of the above notice and agreed to
exercise all the Warrants owned by us on or before
20th December, 1996 despite any stipulation to the contrary (if
any) in the Deeds of Undertaking by :-
WONG KAM FU CHU WAI FUN”
Relevant documents after 13 December
The records of the defendant show that a notice of meeting
dated 14 December 1996 was issued stating that an urgent meeting of the
board of directors will be held on 14 December 1996, and the first item on
the agenda is :
“To consider the issuance of the notice to exercise the Warrants
owned by Mr. Wong Kam Fu and Ms Chu Wai Fun pursuant to
the Undertakings dated 15th October, 1996 and 25th November,
1996.”
A further notice dated 16 December 1996 reads :
“Further to our notice dated 14th December, 1996, …. the board
of director meeting is rescheduled on 16th December, 1996 at
4:30 p.m. …. with the following additional agenda :-
1 To appoint Wheelock NatWest Corporate Finance Limited
as the financial adviser to the Board …. in respect of the
up-to-date cash flow position, in particular in relation to the
undertakings by Mr Wong Kam Fu and Mrs Chu Wai Fun
to exercise their warrants in the Company.”
It should be recalled that the second supplemental deed of undertaking was
executed by Mr and Mrs Wong on 17 December 1996, in terms of which
- 13 -
the undertaking in the original deed to subscribe for the shares within
14 days of receipt of a notice from the defendant was amended to 10 days.
A further notice dated 17 December 1996 reads :
“NOTICE is hereby given that in view of cash flow problem to
the Group, it was resolved at the board meeting held on
17th December, 1996 at 8:00 a.m. ….
1. To appoint Wheelock NatWest Corporate Finance Limited
as the Company’s Financial advisers ….
2. A regular of the full Board Meeting to be held everyday’s
morning at 8:00 a.m. to monitor the progress of any
matters/plans relating to cash flow of the Company until
further notices.
3. A board meeting will be held ….. on 17th December, 1996
at 5:00 p.m. to update the progress of the proposed plan (if
any) and in particular make necessary enquiry into the
progress of the work done by South China Capital Ltd. who
had been appointed as the financial advisors in procurement
of the Company’s finance.”
It should be noted that Maurice Ngai, whose job it was to
issue and sign all the notices of the board meetings, was emphatic in his
testimony that the initial part of this notice had been wrongly drafted, since
there had been no board meeting on 17 December prior to the issue of this
notice, and there had been no resolution to appoint Wheelock NatWest as
the defendant’s financial advisers (this latter point was confirmed by the
plaintiff in his testimony) : the document was intended to simply give
notice of a board meeting to be held on 17 December 1996 to discuss all
three of the agenda items set out therein.
Paragraphs 4.2, 6.1 and 6.2 of the minutes of a meeting of the
board held on 18 December 1996 reads :
- 14 -
“4.2 All directors also were aware that even there were any such
committed offers to the Company, which become an
additional source of fund, the directors other than Mr Wong
Kam Fu and Ms Chu Wai Fun had to satisfy themselves
whether it was in the best interest of the Company to justify
no issuance of the notice to Mr Wong and Ms Chu to
exercise their warrants pursuant to the Undertaking dated
15th October, 1996 to the Company.
….
6.1 IT WAS RESOLVED THAT according to the discussed
action plan, a Board Meeting will be convened on 20 th
December, 1996 at 12:00 noon to appoint the Company’s
financial advisors (if any) and to effect any of alternative
plans to resolve the Company’s cash flow (including notice
to Mr Wong Kam Fu and Ms Chu Wai fun requesting
exercise of their warrants.)
6.2 The board reminded Mr Wong Kam Fu, who was present in
the Meeting to have his lawyer to represent him and
Ms Chu Wai Fun at the board meeting on 20th December,
1996.”
The minutes of the meeting of the board held on 20 December
1996 recorded that Mr and Mrs Wong had notified the board that they had,
on 20 December 1996, exercised in full all the warrants beneficially owned
by them, and further had borrowed HK$180 million from China Strategic
Holdings Limited (“CSH”), a large part of which had been utilized to
exercise the warrants.
The plaintiff had in the meantime been authorized by the
board on 18 December 1996 to pursue a deal that he was working on to
sell the defendant’s interest in P. Plus Communications Limited to Pacific
Electric Wire & Cable (“PEWC”), and to travel to Taipei to finalize the
details of the agreements and to take a deposit of HK$20 million on the
transaction. The plaintiff testified that he strongly believed that this deal
was the solution to the defendant’s problems, since it would raise funds for
- 15 -
the defendant of approximately HK$160 million. He travelled to Taiwan
on 19 December 1996 and successfully negotiated it. The plaintiff
attended the board meeting on 20 December 1996 in the full expectation
that the board would authorize him to “sign-off” on the deal with PEWC,
and was shocked to be told by Nelson Wong in the meeting to forget that
deal since the defendant was now receiving a HK$150 million cash
injection as a result of the voluntary exercise of his and his wife’s warrants,
with the help of a loan which he had obtained from CSH.
The plaintiff testified that the working relationship between
himself and Nelson Wong deteriorated from that point onwards. It
became clear to him in the succeeding days that Nelson Wong was
bypassing him, and working directly with Alfred Shao in the defendant’s
dealings with CSH. At Nelson Wong’s suggestion, CSH staff members
started to work within the defendant’s offices, and attended a board
meeting of the defendant on 30 December 1996 for the first time. These
CSH staff members would deal directly with Alfred Shao or Maurice Ngai
when they attended the defendant’s offices, and totally bypassed the
plaintiff. The plaintiff was not happy about the CSH staff members being
exposed to confidential information within the defendant’s offices, and
taking part in the board meetings and purporting to advise the defendant on
certain aspects of its business. The plaintiff attempted, inter alia, to talk
to Mr Frederick Sum of CSH in an attempt to open up some constructive
dialogue with CSH, but found that Frederick Sum did not wish to
cooperate with him.
- 16 -
The Christine Cheung incident
On 7 January 1997, the defendant’s accounting department
passed to him a purchase requisition form to requisition the payment of
HK$500,000 to South China Securities Ltd (“South China”), being a “fee
for procurement of finance”. The plaintiff knew that in terms of the
agreement which had been concluded with South China, in the event that
South China was not successful in procuring funds for the defendant, the
defendant would be liable to pay South China’s executives’ time costs
spent in the procurement, which were not expected to exceed HK$100,000,
together with all costs and expenses reasonably incurred by South China.
Since South China had indeed been unsuccessful in procuring any funds
for the defendant, the plaintiff considered that it was entitled to be paid a
fee of HK$100,000 in terms of the agreement; he accordingly rejected the
purchase requisition form requisitioning a payment of HK$500,000. He
also explained the situation to Nelson Wong and Alfred Shao.
Nelson Wong’s response was simply to ask Alfred Shao to countersign the
cheque for HK$500,000.
On the same day, the plaintiff telephoned Christine Cheung,
the Managing Director of South China, to advise her of his views, and he
asked her to revise the bill which had been presented by South China.
(Prior to this, all of the plaintiff’s dealings with South China had been with
Dan Hui.) Christine Cheung said she would speak to Dan Hui about it,
and a little while later, she called back and said that the amount (of
HK$500,000) had been approved by Nelson Wong. The plaintiff told her
that Nelson Wong may have misunderstood the position as he had not read
the agreement which had been concluded between the defendant and South
China. He demanded that Christine Cheung amend the bill for his
- 17 -
approval. She then asked him who the boss was, whereupon the plaintiff
told her that as he was the Chief Executive Officer of the defendant, he
was in charge. She said she would speak to Nelson Wong about it.
Nelson Wong later called the plaintiff in to ask him about the matter, and
when the plaintiff repeated his views on the matter, Nelson Wong said that
the defendant should simply pay the $500,000 in any event. The plaintiff
reiterated that the defendant should not pay more than $100,000, to which
South China was entitled in terms of the agreement.
The Frederick Sum incident
On 8 January, the plaintiff called Mr Frederick Sum of CSH
again, and demanded an explanation as to why he would not co-operate
with him. Mr Sum was unfriendly, and the plaintiff became so frustrated
that he used foul language towards him, namely “Fuck your mother” (the
conversation was in Cantonese).
On 9 January, the board voted to terminate the plaintiff’s
employment. After the vote, Nelson Wong approached the plaintiff in
tears and attempted to salvage their relationship; he urged the plaintiff to
resign and offered him six months’ salary. The plaintiff refused to resign
as he said he had done nothing wrong, whereupon he was handed the letter
terminating his services.
The giving of the notice to Mr Nelson Wong Kam Fu on 13 December 1996
This has always been the main ground upon which the
defendant relied to summarily dismiss the plaintiff. The defendant
pleaded the matter as follows, after referring to the undertaking given by
- 18 -
Mr and Mrs Wong to exercise their warrants if required by the board of the
defendant to do so.
“On or about 13th December 1997, the plaintiff, without the
knowledge or consent of the Board misrepresented to
Mr Wong Kam Fu that the Board had already made a resolution
requiring Mr and Mrs Wong to exercise the warrants in
accordance with the deed and the Supplemental Deed and
presented the document to Mr Wong for the signatures of Mr and
Mrs Wong for the purpose of exercising the warrants as aforesaid.
In truth and in fact, the Board had never made any request to Mr
or Mrs Wong for them to exercise such warrants pursuant to the
Deed of Undertaking and Supplemental Deed or otherwise and
the conduct of the plaintiff as aforesaid is dishonest and contrary
to his duties to the defendant as set out in paragraphs 3 and 4
above.”
Paragraph 3 of the Amended Defence refers to the plaintiff’s
express duties as set out in Clause 4 of the contract of employment, while
paragraph 4 pleads his implied duties :
“4. Furthermore by reason of his position as the Managing
Director/Chief Executive Officer of the Defendant, the
Plaintiff owes the Defendant the following implied
duties :-
a. to serve the Defendant with good faith and fidelity;
b. to behave in an honest, upright and faithful manner in
all his dealings with the board of the Defendant
including its Founder, Chairman and majority
shareholder, Mr. Wong Kam Fu, and any of its
members;
c. to faithfully co-operate with all members of the board
of the Defendant including the Chairman and any of its
members;
d. not to do anything which may damage or harm the
image of the Defendant including the image of
Mr. Wong Kam Fu in his capacity as the Founder,
Chairman and majority shareholder of the Defendant.”
- 19 -
I have described above the plaintiff’s testimony as to the
events of 13 December.
Mr Francis Yeung, the plaintiff’s witness, was employed by
Wheelock NatWest at the time, which company had been instructed to act
as an independent financial adviser to the defendant in relation to the IWC
transaction. He recalled attending a board meeting of the defendant
around mid-December 1996, in which he briefly discussed the options
available to the defendant to sort out its financial difficulties, including the
option of serving a notice upon Nelson Wong requiring him to exercise his
warrants of the defendant. His evidence in chief was to the effect that he
“believed” that he explained to the board that even though Nelson Wong
was their “boss”, they had a duty to act in the best interests of the
defendant— whereupon Nelson Wong became upset with him and began to
blame both him and C.Y. Lee for not advising him in relation to his legal
obligations prior to his signing the deed of undertaking. This did not sit
comfortably with his oral evidence that he clearly remembered that
Nelson Wong had only joined this meeting in the middle of it, and his
evidence under cross-examination that when he talked to the meeting about
these matters and advised them that they should issue a notice to
Nelson Wong, Nelson Wong was not present, and had only joined the
meeting after these matters had been discussed. He had no recollection
whether Nelson Wong had left the meeting at any time, and whether the
plaintiff had followed him out.
Nelson Wong testified that he and his wife had executed the
deed of undertaking of 15 October 1996 at the plaintiff’s suggestion, as a
means to satisfy the banks as to the defendant’s ability to repay any loans
- 20 -
that they advanced, and only after the plaintiff had assured him that he
would solve the cashflow problems of the defendant without calling upon
Nelson Wong and his wife to exercise their warrants.
On 13 December the plaintiff had come to his room, told him
that the board had passed a resolution calling upon him and his wife to
exercise their warrants, and handed him the notice which he
misrepresented was issued pursuant to a resolution of the board. He
insisted that he had not attended a board meeting on that morning, and
when he had subsequently made his own enquiries with the other directors,
they confirmed that no board meeting had been held and no resolution had
been passed. His evidence was hopelessly contradictory when he was
persistently questioned about whether or not he had signed the notice at
any time after the plaintiff had served it upon him. He had eventually cut
up and disposed of the notice.
He made no bones in his testimony about his resentment that
the plaintiff had prevailed upon him — the Chairman and major
shareholder of the defendant — to enter into the deed of undertaking to the
defendant, when the main reason that the plaintiff had been employed was
to find outside investors to invest in the defendant, which, if he had
accomplished it, would have removed the necessity for Nelson Wong and
his wife to exercise their warrants in the defendant.
Following the plaintiff’s misrepresentation on 13 December,
he felt that the plaintiff could not be trusted, nor relied upon to resolve the
financial problems of the defendant.
- 21 -
He confirmed that it would have caused grave financial
difficulties to exercise the warrants at the time, since he and his wife did
not have the necessary cash.
Mr Yim Sang, who was a director of the defendant at the time,
testified that he had no recollection of attending any meeting of the
directors of the defendant on 13 December, nor of being asked by anybody
to attend such a meeting.
Mr Maurice Ngai, who was the Company Secretary of the
defendant at the time, was also unable to recall a meeting on 13 December,
though he made it clear that he could not say that such a meeting had not
been held. As Company Secretary, it was his function to issue notices of
all board meetings and prepare minutes of such meetings : no such records
existed in relation to any meeting on 13 December, although there were
quite frequent occasions when directors held informal meetings at which
matters of concern to the company would be discussed, without any notice
having been issued or minutes prepared.
The demeanour of the plaintiff as a witness was generally
favourable; however several aspects of the events relating to 13 December
have not been satisfactorily explained, and remain something of a mystery.
I had no reason to believe, from their demeanour, that any of the witnesses
were lying.
On all of the evidence I find on the probabilities that there
was an informal meeting of directors of the defendant on 13 December at
which the plaintiff was present, and during which the cashflow problems
- 22 -
of the defendant, and the question whether a notice should be issued
requiring Nelson Wong and his wife to exercise their warrants, were
discussed. It appears that Nelson Wong was present for a part of that
meeting. I accept the plaintiff’s evidence that there was a consensus at
the meeting that it was in the interests of the defendant that a notice should
be issued to Nelson Wong and his wife requiring them to exercise their
warrants in terms of their undertaking to the defendant. There is no
dispute that the matter was never put to a vote, and no resolution was
passed.
At some stage after Nelson Wong had left the meeting, the
plaintiff sought him out and served the notice on him — which had been
drafted by C.Y. Lee earlier that morning, and signed by the plaintiff on
behalf of the defendant. Precisely where this encounter took place,
whether in Nelson Wong’s office or elsewhere, as also the full terms of the
conversation that took place between them, have not been established,
however I find as a probability that the plaintiff did tell Nelson Wong that
the board had resolved that a notice be served requiring him and his wife to
exercise their warrants. Nelson Wong was upset on being handed the
notice, and said that he needed time to think about it. The plaintiff did
not suggest that he (the plaintiff) had returned thereafter to continue the
informal meeting which he had left.
It is difficult to understand what precisely motivated the
plaintiff to act as he did. He testified that he believed that he was acting
within his authority in serving the notice on Nelson Wong as he did, and
that this was the only way to ensure that Nelson Wong would exercise his
warrants. I accept that the plaintiff believed that it was in the best
- 23 -
interests of the defendant that Nelson Wong and his wife should be given
notice, before the deadline expired on 17 December, to exercise their
warrants in terms of their undertakings. This was also the advice which
had been given by Francis Yeung of Wheelock NatWest, and was a view
shared by the other board members. It is also important to recall that the
plaintiff and five other directors had, on 25 November 1996, entered into a
formal deed of undertaking with Sumitomo, undertaking that they would,
as soon as practicable, convene a meeting of the board, and procure that a
majority of the directors present would vote and resolve to exercise the
defendant’s right to require Nelson Wong and his wife to exercise their
warrants. By its fax on the afternoon of 12 December, Sumitomo had
reminded them of the board’s obligation to request Nelson Wong and his
wife, before 17 December, to exercise their warrants in terms of their
undertaking on or before 20 December 1996.
It remains a mystery why, given that there was a consensus at
the meeting on 13 December that it was in the interests of the defendant
that a notice should be issued to Nelson Wong and his wife, the plaintiff
did not take the next logical step and see to it that the matter was put to a
vote and a resolution passed to that effect.
The plaintiff concedes that the notice was factually inaccurate
and untrue in stating that the directors of the defendant had met and
resolved that a notice be served requesting Nelson Wong and his wife to
exercise their warrants. Far from alerting Nelson Wong to this fact, the
plaintiff repeated the misrepresentation orally. All the indications point to
the fact that the plaintiff intended that Nelson Wong and his wife should
- 24 -
sign the notice to the effect that they agreed its contents and agreed to
exercise their warrants on or before 20 December 1996.
The due passing of a resolution and issuing of a notice by the
defendant’s board of directors requiring Nelson Wong and his wife to
exercise their warrants was a matter of considerable importance, and
numerous ramifications. Most importantly, it was a matter of importance
to the defendant because, unless it was subsequently countermanded, it
represented the means by which the defendant intended to raise the capital
which it urgently needed to meet its looming debt-repayment obligations,
no other source of finance having been obtained or secured at that stage.
It was a matter of importance to the plaintiff and the other directors in
fulfillment of their personal undertakings to Sumitomo on 25 November
1995. It was a matter of great importance to Nelson Wong, since, unless
countermanded, it required him and his wife to make a payment of some
$157 million in fulfillment of their obligation to subscribe to shares of the
defendant under the warrants, at a time when it was disadvantageous for
them to do so, since the warrants obliged them to subscribe for the shares
at a price of $3.10 per share, while the market value of the shares at that
time was approximately $2.70 per share.
In all these circumstances, and bearing in mind that the
undertaking which had been given by Nelson Wong and his wife was to
exercise their warrants if required to do so “by resolution of the board of
directors of the company”, the misrepresentation by the plaintiff to
Nelson Wong, to the effect that the directors of the defendant had resolved
that such a notice be served upon them, was in my view a serious matter.
I have no doubt that it constituted an act of serious misconduct, in the
- 25 -
sense used in employment law, by the plaintiff towards Nelson Wong as
Chairman and major shareholder of the defendant. The issue, however, is
whether it constituted an act of misconduct towards the plaintiff’s
employer, namely the defendant. (It is important to keep in mind the
separate legal personality of the defendant from that of its Chairman and
major shareholder Nelson Wong. Indeed, the question of whether the
defendant should require Nelson Wong to exercise his warrants graphically
illustrated the different interests at stake of the defendant on the one hand,
and Nelson Wong on the other.)
I have concluded that the plaintiff’s actions on 13 December
did constitute an act of serious misconduct vis-à-vis the defendant. As I
have already indicated, the issue of whether the board should formally
require Nelson Wong and his wife to exercise their warrants was one of
considerable importance to the defendant, bearing in mind that as at
13 December the notice was required to be served by close of business on
17 December (since the supplemental deed of undertaking, which
shortened the period of notice required to be given, had not yet been
entered into). It was only by a formal resolution of the board of directors
of the defendant that Nelson Wong and his wife could be obliged to
exercise their warrants : it should have been abundantly clear to the
plaintiff that a mere consensus in an informal meeting could not suffice to
that end. The situation at the time appeared to be that the board members,
while they were of the view that it would be in the defendant’s best
interests to require Nelson Wong and his wife to exercise their warrants,
were reluctant to formally require them to do so in view of the financial
embarrassment that this would have caused the Wongs at that time.
- 26 -
The misrepresentation by the plaintiff to Nelson Wong to the
effect that the directors of the defendant had thus resolved on 13 December
1996, had major implications not only for Nelson Wong and his wife, but
also for the defendant. If Nelson Wong and his wife had duly signed the
notice, and proceeded to exercise the warrants on the understanding that
the notice had been duly given to him and his wife, it would arguably have
been open to them to subsequently resile and take appropriate steps to
recover from the defendant any monies which had been paid, once it was
established that the directors of the company had not in fact formally
resolved that the notice be issued. The deadline for requiring
Nelson Wong and his wife to exercise their warrants would no doubt have
expired by then, and they could not thereafter have been obliged by
resolution of the board to exercise their warrants.
In serving the notice on Nelson Wong on 13 December, the
plaintiff was purporting to act on behalf of the board of directors of the
defendant, under the authority of a resolution of the board, when he knew
that no such resolution had in fact been passed by the board. In my view
this constituted an act of misconduct which was sufficiently serious to
justify the summary termination of his contract of employment.
The plaintiff’s “misrepresentation” to Christine Cheung
The defendant’s complaint in this respect is pleaded in the
following terms :
“On or about 7 January 1997, the plaintiff misrepresented to one
Christine Cheung ... of South China Limited that
Mr Wong Kam Fu was no longer the boss of the defendant but
the plaintiff himself was the boss. Such misrepresentation
damaged the image and reputation of Mr Wong as the Founder,
- 27 -
Chairman and majority shareholder of the defendant and thereby
damaged the reputation of the defendant.”
The plaintiff’s relationship with Nelson Wong had
deteriorated badly by 7 January 1997. This gave rise to an extremely
awkward situation, since the plaintiff was still the Managing Director and
Chief Executive Officer of the defendant, responsible for running its day to
day affairs, while Nelson Wong was still the Chairman of the company,
and obviously occupied a position of considerable influence as the founder,
and, until his exercise of his warrants on 20 December 1996, the major
shareholder of the company. It is a moot point whether plaintiff or Wong
was entitled to be described as the “boss” of the company. As far as the
stand-off between them concerning the payment to South China was
concerned, the plaintiff’s attitude and frustration were understandable,
since the terms of the agreement which had been concluded between the
two companies appeared to fully support him. He believed he was acting
in the best interests of the defendant in refusing to authorize the payment
of $500,000 to South China, and in demanding of Christine Cheung that
she altered the bill presented to the defendant to accord with the parties’
agreement. She in turn was placed in an awkward position, in light of the
fact that Nelson Wong, the Chairman of the defendant, had authorized the
payment of $500,000 to South China, and since the plaintiff was insisting
that only $100,000 was payable and that South China should amend its bill
accordingly, it was understandable that she asked the plaintiff, in the
circumstances, who was the boss of the defendant — in other words should
she comply with the plaintiff’s wishes or Nelson Wong’s wishes?
In these circumstances, the plaintiff’s reply to her that as the
Chief Executive Officer of the defendant, he was the boss and, impliedly,
- 28 -
that his decision on the matter would therefore prevail, was inevitably a
‘put-down’ of Nelson Wong as Chairman. However that in itself did not
constitute it as misconduct, in my view. The more serious aspect of it
was that it was calculated to damage the reputation of the defendant, by so
publicly exposing the conflict within the most senior ranks of the
defendant’s board. The plaintiff could have handled the situation with far
greater skill and tact. In the interests of the defendant he should have told
Christine Cheung that he would come back to her later, and in the
meantime gone to see Nelson Wong and attempted to resolve the matter
amicably, in a way that would have enabled the defendant to present a
united front to South China.
In my view, the plaintiff’s conduct in this incident can
properly be characterized as a substantial act of misconduct towards the
defendant. Although it would probably not in itself have caused the
defendant to summarily dismiss him, it was nevertheless an act of
misconduct which the defendant was entitled to take into account in
conjunction with the events of 13 December in deciding to summarily
terminate his employment.
Foul language to Frederick Sum
The defendant’s case in this respect is that by abusing Mr Sum
with foul language for no reason, the plaintiff lowered the esteem and
image of the defendant as a listed company in Hong Kong.
The plaintiff’s frustration with the situation which had
developed with CSH employees coming into the defendant’s offices,
uninvited and unauthorized by him, was entirely understandable,
- 29 -
particularly since such staff members were bypassing him and liaising
directly with Alfred Shao and Nelson Wong. This situation was
symptomatic of the dysfunctionality which was increasingly affecting the
management of the defendant.
When the plaintiff phoned Mr Sum to demand an explanation,
it is not surprising that he felt frustrated and angry on finding that Sum was
unfriendly and unco-operative towards him. He should not however have
used foul language towards Mr Sum; particularly at a time when the
defendant was involved in negotiations with CSH that were important to
the defendant, and since he was acting at the time in his capacity as Chief
Executive Officer of the defendant, his conduct was unbefitting that
position and was calculated to tend to “lower the esteem and image of the
defendant as a listed company in Hong Kong”. Although this was a
comparatively minor incident in itself, it was also one which the defendant
was entitled to take into account and weigh in the balance, in conjunction
with the other matters complained of, in deciding to summarily terminate
the plaintiff’s employment.
I have not overlooked the fact that prior to the issue of the
notice of termination to the plaintiff on 9 January 1997, no formal
complaint had been made by Nelson Wong or anybody else of the
plaintiff’s conduct on 13 December 1996, nor in relation to the
Frederick Sum or Christine Cheung incidents. On the face of it, this
might suggest that the defendant was not seriously aggrieved by the
plaintiff’s conduct in question. This matter also must be examined in its
context of the full surrounding circumstances.
- 30 -
It is clear from the detailed affirmation evidence that during
the whole of December 1996 and up to 9 January 1997, the directors of the
defendant, and in particular the plaintiff as Chief Executive Officer and
Nelson Wong as Chairman, were heavily involved in a flurry of activities
in attempting to secure short term finance for the defendant. I have
earlier summarized the further developments which took place throughout
December and leading up to 9 January 1997, which culminated in the
resolution of the board on 9 January to terminate the plaintiff’s
employment with the defendant, and the service of notice upon him to that
effect.
In these circumstances, it was in my view legitimate for the
defendant to hold back from taking action in respect of the plaintiff’s
conduct complained of until 9 January 1997, when in the light of the
further developments which had taken place since 13 December 1996, it
was decided to summarily terminate his employment.
The law
Section 9 of the Employment Ordinance, Cap.57, provides,
inter alia, as follows :
“9. An employer may terminate a contract of employment
without notice or payment in lieu —
(a) if an employee, in relation to his employment —
...
(ii) misconducts himself such conduct being
inconsistent with the due and faithful discharge
of his duties;
(iii) is guilty of fraud or dishonesty; or
- 31 -
...
(b) on any other ground on which he would be entitled to
terminate the contract without notice at common
law.”
Mr Carolan, who presented the plaintiff’s case skilfully and
persuasively, submitted that the defendant had wholly failed to discharge
the burden upon it of proving that there were grounds for the summary
dismissal of the plaintiff. None of the misconduct relied upon by the
defendant, he submitted, could be characterized as so serious that it
constituted a repudiation of the plaintiff’s contract of employment. He
referred me to various authorities, both in England and Hong Kong, to
illustrate the point. My attention was drawn, inter alia, to the words of
Lord Evershed MR in Laws v. The London Chronicle (Indicator
Newspapers) Ltd [1959] 1 WLR 698 at 701 :
“... I do, however, think (following the passages which I have
already cited) that one act of disobedience or misconduct can
justify dismissal only if it is of a nature which goes to show (in
effect) that the servant is repudiating the contract, or one of its
essential conditions; ...”
In my view, the plaintiff, in particular by his conduct on
13 December 1996 was in effect repudiating the essential condition of his
contract of service that he performed his duties with honesty and good
faith, such that, following the further incidents of misconduct thereafter
which proved to be the final straws which “broke the camel’s back”, the
defendant was entitled, on 9 January 1997, to summarily terminate the
plaintiff’s employment.
- 32 -
The authorities show that there is no fixed category of the
types or degree of misconduct which will justify summary dismissal. Nor
is it necessary for the conduct to qualify as dishonest in order to justify
summary dismissal.
In Sinclair v. Neighbour [1966] 3 AER 988, the manager of a
betting shop openly, but without his employer’s knowledge, took £15 out
of the till, put in an I.O.U. for the money and used the money to place a bet
of his own elsewhere. On the next day he repaid the £15. The manager
knew that, if he had asked his employer for permission to borrow the
money from the till for this purpose, the employer would have refused it.
Later on the same day the employer discovered what had happened, and
dismissed the manager forthwith without notice. Sellers LJ observed at
989C-D :
“... but I do not think that it matters whether the conduct is to be
described as dishonest misconduct or not. Views might differ.
It was sufficient for the employer if he could, in all the
circumstances, regard what the employee did as being something
which was seriously inconsistent — incompatible — with his
duty as the manager in the business in which he was engaged.”
See also Davies LJ at 990E :
“The judge ought to have gone on, in my judgment, to consider
whether, even falling short of the label of ‘dishonesty’, it was
nevertheless conduct of such a grave and weighty character as to
amount to a breach of the confidential relationship between
master and servant, such as would render the servant unfit for
continuance in the master’s employment and give the master the
right to discharge him immediately. On the facts of this case
the employee’s conduct clearly fell within that latter category;
and I have no doubt at all the employer was therefore entitled to
dismiss him.”
- 33 -
In my view, the plaintiff’s conduct, in particular on
13 December 1996, and the deception which was inherent in it, was
incompatible with his duties as Managing Director and Chief Executive
Officer of the defendant, and was such a breach of the good faith which the
defendant was entitled to expect of him in discharging his duties, that it
was calculated to undermine the relationship of confidence which should
exist between master and servant.
The plaintiff’s conduct complained of was, in my view,
inconsistent with the due and faithful discharge of his duties, and
constituted sufficiently serious misconduct that the defendant was entitled
to terminate his contract of employment without notice or payment in lieu,
in terms of both section 9 of the Ordinance and the common law.
I am conscious of the fact that summary dismissal is a very
serious step for any employer to take against an employee, that in the
words of Yeung J in Tsang Tak Chi v. China Wall Ltd [1999] 1 HKC 366, it
is the “capital punishment” of Employment Law in that if the dismissal
was justified, the employee will be deprived of all the protection otherwise
provided by the Employment Ordinance.
The plaintiff’s claims for damages and consequential relief are
premised upon a finding that he was wrongfully dismissed by the
defendant. Since I have found that the defendant was entitled to
summarily terminate his contract of employment on 9 January 1997, the
plaintiff’s claims are all dismissed.
- 34 -
I make an order nisi that the plaintiff is to pay the defendant’s
costs of these proceedings.
(B.W.K. Whaley)
Deputy High Court Judge
Mr Paul Carolan, instructed by Messrs Denton Wilde Spate,
for the Plaintiff
Mr Louis K.Y. Chan, instructed by Messrs Preston Gates & Ellis,
for the Defendant