CACV1123/2000 WONG YICK MAN, FRANCIS v. STAR TELECOM INTERNATIONAL HOLDING LTD. - LawHero
CACV1123/2000
上訴法庭（民事）Mayo VP, Rogers VP and Stone J4/9/2001
CACV1123/2000
CACV 1123/2000
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF APPEAL
CIVIL APPEAL NO. 1123 OF 2000
(ON APPEAL FROM HCA 6174 OF 1997)
________________
BETWEEN
WONG YICK MAN, FRANCIS Plaintiff
and
STAR TELECOM INTERNATIONAL
HOLDING LIMITED Defendant
________________
Before: Hon Mayo VP, Rogers VP and Stone J in Court
Date of Hearing: 26 July 2001
Date of Judgment: 5 September 2001
________________
JUDGMENT
_______________
Hon Mayo VP:
1. This is an appeal from a judgment of Deputy High Court Judge
Whaley when he dismissed the plaintiff’s claim for wrongful dismissal.
2. The plaintiff had been employed by the defendant as its Managing
Director and Chief Executive Officer.
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3. Mr and Mrs Nelson Wong owned slightly in excess of 50% in the
share capital of the defendant which is a publicly listed company.
4. Prior to his employment with the defendant the plaintiff had
operated his own company. This company provided consultancy services in
the telecommunications field. He had undertaken work for Mr Nelson Wong
who at that time had been the Chief Executive Officer of the defendant.
5. The relationship had been harmonious and Mr Nelson Wong had
invited the plaintiff to join the defendant. One of his main functions was to be
raising funds for the defendant.
6. One of the consequences of the plaintiff accepting employment
with the defendant was that he had to discontinue operating his own company.
7. It was partly for this reason that it was provided in the plaintiff ’s
contract of employment that his employment was to be for at least 2 years and
that he should have various stock options.
8. Effectively the plaintiff’s employment could only be terminated by
the defendant if he was found to be guilty of serious misconduct.
9. Shortly after he joined the defendant it encountered financial
difficulties. One of the suggestions made by the defendant’s auditors was that
Mr and Mrs Nelson Wong should agree to exercise warrants for 50,000,000
shares in the defendant which entitled them to subscribe for shares in the
defendant at $3.10 per share. The rights expired on 31 December 1996.
10. On 15 October 1996 the Wongs entered into a deed of undertaking
under which they were bound to exercise the warrants. In his judgment the
Judge set out the material terms of the deed:
“WHEREAS
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(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.
(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.”
11. Two supplemental deeds were subsequently entered into by the
Wongs under which the Wongs were absolved from the requirement to subscribe
for the shares if the share price was less than HK$1.8275 per share.
12. One of the avenues which was pursued to alleviate the financial
problems which were being encountered was to apply to the Sumitomo Trust
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and Banking Co. Ltd (“Sumitomo”) for a HK$20 million uncommitted
revolving credit facility.
13. Sumitomo were anxious that the Wongs should exercise their
warrants and subscribe for the shares. They required an undertaking to this
effect and also required the directors of the defendant to do everything within
their power to demand that the Wongs did comply with their undertaking and
that the proceeds of the shares subscription should be held by them.
14. The defendant continued to experience financial difficulty. In
particular a major syndicated loan of HK$40 million was due on 20 December
1996.
15. The purpose of setting out this background is to demonstrate that in
December 1996 the defendant was experiencing very considerable problems
and that one of the critical features underlying these difficulties was the
question as to whether the Wongs would exercise their warrants. One of the
measures taken by the plaintiff to endeavour to overcome these difficulties was
to engage the services of Wheelock NatWest as investment advisers. Their
representative was a Mr Francis Yeung.
16. On 12 December Sumitomo wrote to the defendant in these 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.
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- 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. ....”
17. Up to this point there is very little controversy in relation to the
cases being advanced by the parties. It is now necessary to consider in broad
outline the respective contentions being advanced concerning the question
whether the plaintiff was guilty of serious misconduct such as to justify the
defendant summarily dismissing him.
18. It was the plaintiff’s case that following the receipt of the faxed
letter of 12 December a decision was made to convene a directors’ meeting to
review the situation. The meeting was held at 4:00 p.m. on 13 December. It
was attended by the directors including Mr Nelson Wong. It was also attended
by the company secretary Mr Maurice Ngai, the General Manager Mr Alfred
Shao, Mr Francis Yeung of Wheelock NatWest, and Mr C.Y. Lee the Company’s
Solicitor. He had been instructed to draft a form of notice to be signed by the
Wongs. It was in this form:
“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.
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(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’”
19. According to the plaintiff there was discussion at the meeting as to
whether the directors would require the Wongs to exercise the warrants.
20. It transpired that Nelson Wong was reluctant to do this.
21. One reason for this was that he did not have the financial
wherewithal to do so.
22. The plaintiff said that the consensus view of the meeting was that
the directors would require the Wongs to exercise the warrants.
23. Mr Nelson Wong expressed his displeasure at this and left the
room. The plaintiff followed him shortly after this. He had a discussion with
him and signed the notice and asked Mr Nelson Wong to do likewise. He was
reluctant to do so and refused to sign the notice immediately.
24. According to the board minutes of 20 December, the Wongs
notified the meeting that they had exercised the warrants and had borrowed
HK$180 million from China Strategic Holdings Ltd (“CSH”) a large part of
which had been utilized in the exercise of the warrants.
25. Immediately prior to this the plaintiff had been negotiating with a
Taiwan party for the sale of some of the defendant’s assets. On 20 December
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when he returned from Taiwan he was instructed not to proceed with the
transaction on account of the funds which had been raised from CSH.
26. Representatives from CSH moved into the defendant’s offices in
accordance with the terms of the agreement which had been concluded. The
plaintiff said that he was being bypassed and this led to considerable tension.
This was also of relevance in connection with one of the other complaints which
is made by the defendant that the plaintiff used foul language when speaking to
Mr Frederick Sum, one of CSH’s representatives.
27. It was during this period that the other complaint which is being
pursued by the defendant occurred. It is alleged that the plaintiff represented
to another person Miss Christine Cheung that he was the boss of the defendant
company. This arose in connection with a discussion as to whether it was the
plaintiff or Mr Nelson Wong who had the ultimate authority to sanction a
disputed payment.
28. On 9 January 1997 the plaintiff received the letter notifying him
that his services were being dispensed with.
29. The defence case was that the meeting on 13 December had never
taken place and that the plaintiff had misrepresented the position to Mr Nelson
Wong when he had requested him to sign the notice in relation to the exercise of
the warrants. The complaint which was made was that the plaintiff had
represented that the board had passed a resolution requiring the Wongs to
exercise the warrants when no such resolution had in fact been passed by the
board. It was further claimed that the plaintiff had been guilty of deception
and thus had acted dishonestly.
30. The way that the defence case was presented was that it was
manifest from the agreement with Sumitomo that what was required was a
formal resolution of the directors requiring that the warrants be exercised and
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that for this purpose a board meeting had to be formally convened. It was
contended that the meeting on 13 December had not been formally convened
and that the plaintiff was fully aware of this.
31. In support of this contention reference was made to subsequent
board meetings from which it could undoubtedly be inferred that the question of
the passing of this resolution remained outstanding and unresolved.
32. The point which was emphasized by Ms Eu SC for the defendant
was that the plaintiff acknowledged in his evidence that he was aware of the
difference between what he described as a consensus of the directors and a
resolution of the board of directors. In this connection it was significant that
the notice which the plaintiff was asking Nelson Wong to sign referred to a
resolution of the directors.
33. Generally speaking the Judge appears to have preferred the
evidence of the plaintiff to that of the defendant. He summarized his findings
on the evidence at p. 21 of his judgment:
“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 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
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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 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 sign the notice to the effect that they agreed its contents
and agreed to exercise their warrants on or before 20 December 1996.”
34. On the basis of these findings of fact the Judge went on to conclude
that the plaintiff had indeed been guilty of misconduct such as to justify the
defendant taking the action it did in terminating the plaintiff’s employment.
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35. The first question which has to be considered is whether on the
evidence which was accepted by the Judge it was open to him to find that the
plaintiff had misrepresented the position to Mr Nelson Wong.
36. Although Mr Nelson Wong had denied that there had been any
directors meeting on the afternoon of 13 December the Judge found that there
had been a meeting and that Mr Nelson Wong had attended at it.
37. There had been discussion at the meeting of the financial affairs of
the defendant and of the necessity for the Wongs to exercise their warrants. It
also has to be borne in mind that there was evidence that the meeting had before
it the notice which had been drafted by Mr Lee the solicitor which needed to be
signed by the Wongs to satisfy the requirements laid down by Sumitomo.
38. The Judge accepted that there had been a consensus at the meeting
that the directors should require the Wongs to sign the notice. The Judge also
appears to have accepted that Mr Nelson Wong was very unhappy that the
directors had reached this consensus and that it was at this stage that Mr Nelson
Wong left the meeting.
39. The plaintiff gave evidence that shortly after this he followed
Mr Nelson Wong and that the critical meeting then took place. It appears from
the transcript of the plaintiff’s evidence that essentially the meeting broke up
after Mr Nelson Wong’s departure. Nothing transpired which would account
for there being anything to delay the plaintiff in going to seek out Mr Nelson
Wong.
40. A further point can be made that the plaintiff was not
cross-examined on this. It is in no way inconsistent with the Judge’s findings
to proceed on the assumption that the passage of time which elapsed between
Mr Nelson Wong walking out of the meeting and the plaintiff following him
was of short duration.
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41. What all of this leads to is that it is virtually inconceivable that
Mr Nelson Wong could have believed that there was any possibility that the
directors had passed what has been described as a formal resolution requiring
the Wongs to exercise the warrants subsequent to his leaving the room.
42. When this is considered in conjunction with the fact that
Mr Nelson Wong would have been familiar with the contents of the draft notice
which had been prepared by Mr Lee one is led to the inevitable conclusion that
Mr Nelson Wong was in possession of all of the information which was
available to the plaintiff.
43. That being the case there can be no question of the plaintiff having
been guilty of any misrepresentation.
44. What needs to be considered is where the Judge went wrong. It is
not difficult to find this.
45. In the judgment the Judge attaches great weight to the distinction
which he appears to think there is between the consensus which is reached at a
board meeting and a so called formal resolution of a Board of Directors of a
company.
46. In practical terms there is no such distinction. It is by no means
unusual for Directors of Companies to conduct their business on a
semi-informal basis. When reaching a decision even of an important nature,
they may not solemnly cast votes and style the result as a resolution.
47. Authority for this proposition can be found in the commentary in
Chap. 8 paragraph 307 of Vol. 2 of Palmer’s Company Law, Sweet & Maxwell:
“Resolutions of directors
8.307 At board meetings, the directors exercise their powers by
resolutions which are passed in the manner laid down in the
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articles or agreed upon by them under powers given them by
the articles. They decide usually by a majority of votes of
those present (see article 88). Proxies are sometimes
admitted. The chairman is usually given a casting vote by or
under the articles (see article 88); at common law he has no
such vote.
It is not, however, essential for the validity of a director’s
resolution that the determination should be embodied in a
formal resolution, and the minutes in recording it often, in fact,
enter only the substance, e.g. ‘a contract with A B for the
supply of … was submitted and approved.’ It is, however,
necessary to enter minutes of all directors’ proceedings in a
book kept for the purpose.”
48. The Judge when weighing the gravity of what he considered was
the plaintiff’s misrepresentation went on to ponder the dire consequences which
might ensue to the detriment of the defendant consequential upon all of this.
49. As can be seen from the passage cited from Palmer the Judge’s
fears were unfounded.
50. The result of the Judge’s misapprehension concerning the true legal
position led him into error. This is particularly the case when it is borne in
mind that the defendant had a heavy burden to discharge when it was attempting
to establish that the plaintiff had been guilty of misconduct such as to justify it
taking the action it did in terminating his contract of service for cause.
51. Passing reference has been made earlier to the two other instances
of misconduct which were relied upon by the defendant in its pleaded case. It
is not necessary to comment on these. Once it is determined that the plaintiff
was not guilty of misleading Mr Nelson Wong the other complaints pale into
insignificance. They certainly would not of themselves begin to constitute
grounds for dismissing the plaintiff.
52. It should perhaps be added that when consideration is also given to
the parlous state of the defendant’s affairs as at 13 December there is every
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reason to suppose from all of the evidence which appears to have been accepted
by the Judge that the plaintiff was doing everything in his power to further the
interests of the defendant in a very difficult situation.
53. It should also be said that the overall circumstances of the
plaintiff’s dismissal were highly suspicious.
54. Although according to Mr Nelson Wong’s evidence he had been
gravely wronged by the plaintiff he was permitted to continue to discharge his
duties until 9 January when he was dismissed. No satisfactory explanation
was forthcoming for this.
55. For the reasons I have given it is my view that this appeal should
be allowed and the plaintiff’s claim should succeed. His damages should be
assessed by a master.
Hon Rogers VP:
56. This is an appeal from a judgment of Deputy Judge Whaley given
on 8 November 2000. The action concerned a claim by the plaintiff in respect
of his dismissal by the defendant on 9 January 1997.
Background
57. Prior to his employment by the defendant, the plaintiff had his own
consulting company, FW & Associates Limited, he had set that up in March
1995. His evidence was that it had been successful. During the period from
July 1995 to August 1996 the plaintiff had met Mr Nelson Wong on several
occasions. Mr Nelson Wong was the founder, chairman and major shareholder
of the defendant. At that stage Mr Nelson Wong was also the managing
director.
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58. There is no dispute between the parties that Mr Nelson Wong asked
the plaintiff to join the defendant as the managing director and chief executive
officer. This entailed the plaintiff giving up his own successful business. As
a result the agreement between the plaintiff and the defendant provided for a
substantial remuneration package. That package included a salary starting at
the rate of HK$2.5 million per year and increasing on 1 January 1997 to HK$3
million per year. The plaintiff was also entitled to participate in any
employee’s stock option plan. At the commencement of his employment he
was offered stock options of 5.5 million shares on favourable terms. The
contract was for a two-year minimum term.
59. It would seem that, initially, the plaintiff had a good working
relationship with Nelson Wong. However, the defendant had financial
difficulties. Its income from the paging business was dropping and it had high
borrowings. Indeed, when the plaintiff was engaged it was with a view to his
assisting the defendant in raising money. It is unnecessary to refer to the steps
taken by the plaintiff in doing that but it would appear from his witness
statement, which was taken as his evidence-in-chief, that a number of steps
were taken after the plaintiff joined the defendant, which substantially improved
the defendant’s financial position.
60. As recorded at page 6 of the judgment, in October 1996, the
defendant’s auditors suggested that Nelson Wong and his wife should exercise
their rights in respect of warrants which they held. This would ease the
defendant’s cashflow and enable the sale of one of the defendant’s investments.
As a result, Mr Nelson Wong and his wife executed a deed whereby they
covenanted with the defendant that they would exercise their rights in respect of
all or some of the warrants, which they owned, and subscribe for shares “if so
deemed necessary and sufficient to meet the cashflow of the Company by
resolution of the board of directors of the Company within 14 days upon receipt
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of a notice from the Company to that effect at any time but at least 14 days
before 31 December 1996.”
61. This undertaking was subject to the proviso that the company was
able to revoke that requirement. Although the original deed in October 1996
provided that Nelson Wong and his wife would not be required to exercise their
rights under the warrants if the closing price were less than $1.8275 per share
that was waived in a supplemental deed which was dated 25 November 1996.
62. This commitment in respect of the warrants was obviously part of a
series of transactions. On 26 November 1996, the defendant executed a deed
of undertaking with the Sumitomo Trust & Banking Co. Ltd (“Sumitomo
Bank”) which referred to the warrants held by Nelson Wong and his wife and
the undertaking of 15 October. The defendant undertook to the Sumitomo
Bank that they would use the proceeds, arising from Nelson Wong and his
wife’s exercise of their warrant options, to pay the Sumitomo Bank. There
was a further deed, the same day, which was executed by the plaintiff and five
directors. They undertook that they would procure that there would be a board
resolution which would require Nelson Wong and his wife to exercise their
rights under the warrants. Such resolution had to be passed at least 14 days
before 31 December 1996.
63. On 12 December 1996, Sumitomo faxed a letter to the defendant
reminding the directors of their undertaking to procure the board resolution at
least by 17 December.
13 December 1996
64. Although Miss Eu SC, on behalf of the defendant, sought to argue
that there was little dispute about the events of 13 December 1996, there
appears to have been considerable dispute. It was the plaintiff’s case that there
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had been a meeting of directors on 13 December 1996. At that meeting there
had been tabled a document. That document was addressed to Nelson Wong
and his wife. It referred to the deeds of undertaking of 15 October and
25 November. It then included: “the directors of the Company met on
13 December, 1996 and resolved that a notice to” Nelson Wong and his wife “be
served requesting” them “to exercise all the warrants owned by” them. The
notice concluded that it was a notice to Mr Nelson Wong and his wife to
exercise the warrants on or before 20 December 1996. Underneath the place
for the signature of a director of the defendant were the words “Agreed to the
contents of the above notice and agreed to exercise all the warrants owned by us
on or before 20 December 1996 despite any stipulation to the contrary (if any)
in the Deeds of Undertaking by: Wong Kam Fu and Chu Wai Fun.”
65. It was the plaintiff’s evidence that a number of directors were
present at that meeting including Nelson Wong. Whilst the plaintiff conceded
that there was no resolution or vote taken at the meeting with regard to whether
the defendant would authorise the service of that notice on Nelson Wong and his
wife, it was his evidence that there was consensus at the meeting that that
should be done. The plaintiff’s evidence is clear that Nelson Wong was
evidently unhappy with that consensus and left the meeting only to be followed
by the plaintiff himself. The plaintiff said that the meeting was interrupted
when Nelson Wong walked out. The plaintiff said under cross-examination
that the time between Nelson Wong walking out and the time when he followed
him was very short. The plaintiff said that he went to Mr Wong’s room and
gave him the document which had been tabled at the meeting.
66. On the defendant’s side evidence was sought to be led to suggest
that no meeting had taken place. The judge’s finding was, however, that there
was an informal meeting of directors. The judge went on to hold 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
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their warrants in terms of their undertaking to the defendant. He further went
on to hold that Nelson Wong had left the meeting. He held that at some stage
after he had left the meeting the plaintiff sought him out and served the notice
on him. The judge said that he found “as a probability” that the plaintiff did
tell Nelson Wong that the board had resolved that a notice should be served
requiring him and his wife to exercise their warrants.
67. It is unnecessary to recount the various events which took place
following 13 December. These are set out in the judgment below and it is
necessary only to refer to a few of the matters.
68. Very shortly after the events of 13 December the plaintiff had been
involved in, what he considered, were successful negotiations to sell the
defendant’s interest in P. Plus Communications Limited to a company in
Taiwan. At the last minute on 20 December 1996 he was told by Nelson Wong
in a board meeting to forget the deal since the defendant would now be
receiving $150 million as a result of the exercise by Nelson Wong and his wife’s
warrants with the help of a loan which he had obtained from China Strategic
Holdings Limited, (“CSH”).
69. Apparently, thereafter, the relationship between the plaintiff and
Nelson Wong began to deteriorate. Staff of CSH began to appear in the
defendant’s offices. They attended board meetings but ignored the plaintiff.
When the plaintiff rang a Mr Frederick Sum on 8 January and asked for an
explanation as to why he would not cooperate with the plaintiff, Mr Sum was
unfriendly. The plaintiff became so frustrated that he swore. It might be
added that the words used were not an uncommon expletive.
70. One further matter requires to be mentioned and that is an event
when the plaintiff questioned an invoice which was for $500,000 which had
been raised by South China Securities Limited. The plaintiff’s view, and there
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is no suggestion that his view in this regard was anything other than accurate,
was that the invoice should have been no more than $100,000. Eventually,
when he was told that Nelson Wong had approved the amount of $500,000 and
was questioned as to who was in charge of the company, he said that he was
chief executive officer of the defendant and was a boss.
The termination of the plaintiff’s employment
71. On 9 January the plaintiff was handed a letter which read 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 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.”
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72. Before turning to the issues arising on this appeal, it should be
mentioned that Nelson Wong sold his majority interest in the defendant to CSH.
Precisely when that happened was not established. In cross-examination
Nelson Wong gave the impression, at least from reading the transcript, that he
was not forthcoming, to put the matter at its lowest. It is perhaps, interesting
that when he was asked about the dates, at first he said that he had sold some of
his shares to China Strategic Holdings in 1996. When pressed further on it he
said “Well, it seems to me that the first transaction was in the form of a loan for
which the lender had the right to purchase the shares in my company.” That
would be consistent with what was contained in the plaintiff’s witness statement
that Nelson Wong had secured a loan with CSH on terms which eventually led
to CSH taking over the defendant.
The judgment below
73. The judge considered that the passing of a resolution requiring
Nelson Wong and his wife to exercise their rights under the warrants was a
matter of considerable importance. He held, as I have already indicated, that
there was a consensus amongst the persons present at the meeting that Nelson
Wong and his wife should have to exercise those rights. He also held on the
balance of probabilities that the plaintiff had told Nelson Wong that the board
had so resolved. The judge considered that it was important that there should
be a formal resolution of the board requiring the exercise of the warrants.
74. The judge considered that there were two representations made to
Nelson Wong. The first was in writing, namely, the notice which the plaintiff
took from the meeting and gave Nelson Wong. That indicated that there had
been a board resolution. The second was a representation which had been
made orally when the plaintiff gave Nelson Wong the notice. The judge said,
at page 24 of the judgment, that this misrepresentation constituted serious
misconduct towards Nelson Wong as the chairman and major shareholder.
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75. The judge then went on to consider the question vis-a-vis the
company. His conclusion was that, because Nelson Wong and his wife could
only be required to exercise the rights under their warrants by a board
resolution, they might be able to resile from that exercise if they had been
induced to act by reason of a misrepresentation. In conclusion the judge said:
“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.”
This appeal
76. As Miss Eu SC, on behalf of the defendant, pointed out, the focus
of the first ground upon which the plaintiff’s employment was terminated was
not any misrepresentation to Nelson Wong. The first ground in the letter of
9 January was that the plaintiff had acted without due authorisation of the board
of directors in issuing the notice to Mr Wong and his wife to exercise the
warrants.
77. If consideration is given to the first ground, the following facts
appear to me to be important. In the first place the dealings of the defendant
and Nelson Wong had from October through to 13 December been on the basis
that Nelson Wong and his wife had given a life line to the company by
executing the deeds undertaking to exercise their rights under the warrants. It
was quite clear that the six directors who had signed the undertaking in favour
of the Sumitomo Bank had committed themselves to requiring Nelson Wong
and his wife to act accordingly. By the morning of 13 December it was clear
that the Sumitomo Bank was insisting that they should so act. Prior to the
meeting on 13 December the document which was said to contain the
misrepresentation that there had been a board resolution was ready and
- 21 -
available to those who attended the meeting. That included Nelson Wong.
There was a consensus at the meeting that Nelson Wong should exercise his
rights under the warrants. Put quite simply, as regards this case, the plaintiff
was, in my view justified in taking that consensus to be sufficient authorisation
for him to ask Mr Wong to sign the document. Those at the meeting were
agreed and Mr Wong had been there.
78. Looking at the matter from the point of view as to whether there
had been a misrepresentation, the matter is no different. Given the time scale
of Nelson Wong leaving the meeting and the plaintiff following him and giving
him the document to sign, Nelson Wong could not have been under any
misapprehension that a formal resolution had not been passed, but he knew, full
well, that it was the consensus of the meeting that his rights under the warrants
should be exercised. There was, in those circumstances, no misrepresentation
to Nelson Wong in the document itself. Similarly the plaintiff, in presenting
Nelson Wong with the document and referring to the fact, as Nelson Wong
obviously knew, that there was consensus amongst the board members present
that the rights under the warrants would have to be exercised, again made no
misrepresentation. Even if the document constituted a misstatement, Nelson
Wong certainly knew what had happened at the meeting from his own
knowledge. There was no possibility of his being deceived either by the
document or by anything said by the plaintiff.
79. In those circumstances, the suggestion that Nelson Wong and his
wife could have set aside the transaction if they exercised their rights was, in
my view, fallacious.
80. It was sought to be suggested on the basis of a short part of the
cross-examination of the plaintiff that the members of the board present at the
meeting on 13 December had resiled from their consensus. That passage read:
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“Q. So was the consensus reached before or after Mr Wong walked
out?
A. The consensus was reached right about the time when Wong
detected that and felt that, you know, basically that, you know,
that was an agreement. So he chose to walk out.
Q. Wasn’t it important at that time to at least ask, ‘Does everybody
agree to this?’ Wasn’t that important for you to, as a chairman,
to at least ask this question?
A. Yes, it was important.
Q. Did you do it?
A. I did not do it. The atmosphere was everybody was astounded.
Q. Astounded, yes.
A. Dumb-mouthed.
Q. Dumb-mouthed, dumbfounded. Yes, what else?
A. Exactly, they were very – they were very scared. They were
loyal to Mr Wong.
Q. Scared, yes.
A. So nobody wanted to do anything.
Q. Nobody wanted to do anything.
A. The meeting broke up.
Q. Slowly, please.
R. Yes.
Q. Nobody wanted to do anything. The meeting then broke up.
A. Yes.”
81. In my view that does not establish a ground for suggesting that the
consensus no longer existed. It simply reflects the fact that the meeting was
stunned by Nelson Wong’s action. He had agreed to enter the deeds, he had
committed himself to exercising the rights under the warrants when called upon
to do so, but he was now adopting a completely different attitude.
82. Turning to the narrow point as to whether the plaintiff was acting
without due authorisation of the board when he gave Nelson Wong the notice
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and asked him to sign it, in my view that is clearly not so. As the judge
acknowledged the plaintiff considered, as almost certainly was the case at the
time, he was acting in the best interests of the company; he had the consensus of
the board members who were present on 13 December. In my view, he did not
act improperly. Nelson Wong knew exactly what had happened. Nelson
Wong was clearly not deceived. If Nelson Wong had wished there to be a
board meeting, to be called by written notices to all the board members, and
there to be a vote taken, he could have insisted on it. In the circumstances
which prevailed on 13 December, he knew that it was futile.
Other grounds for dismissal
83. There remains the 2 further grounds contained in the letter of the
9 January, as being reasons for the plaintiff’s dismissal. I should state at the
outset that, in my view, the defendant’s persistence in relying on these
2 grounds demonstrates an imbalance in approach almost sufficient to question
the motives for putting them forward.
84. The conversation with Ms Christine Cheung wherein the plaintiff
requested a reduction of the fee note, seems to have been entirely justified.
Indeed, no explanation has been offered as to how South China Securities
Limited should have charged so much. The plaintiff was, at the time, the
Managing Director and Chief Executive Officer. It was certainly his job to see
that the company was not overcharged, in this case, seemingly, to the tune of
$400,000. Indeed, that would have been an amount that would have warranted
his personal attention. It would seem that it was probably Nelson Wong who
had arranged that South China Securities would be able to put their charges at
that level. It is said that by telling Ms Cheung that he was the “boss” or a
“boss”, the plaintiff revealed to the outside world that there was dissension
within the company. I can only say that this ground of complaint appears to
- 24 -
me to be contrived. The party that was responsible was the party that had been
sanctioning and encouraging overcharging.
85. Turning to the complaint in respect of the foul language, it should
be noted that there was no evidence in respect of anything said to Mico Chung.
The fact of the matter is that it was known from the meeting of 20 December
that CSH had been financing Nelson Wong. Since that time, CSH personnel
had been present at the defendant’s offices and been involving themselves in the
defendant’s affairs. It appears that CSH was probably undertaking some sort
of due diligence exercise. Mico Chung and Frederic Sum were permitted to
attend board meetings as their representative. There is a great deal of material
in the plaintiff’s witness statement, which shows that CSH personnel were
ignoring and, indeed, belittling the plaintiff. None of that was cross-examined
to. The plaintiff said that he telephoned Sum and asked for an explanation as
to why he would not co-operate with the plaintiff. The plaintiff said in his
statement and confirmed in cross-examination that it was out of frustration or
anger at Sum’s attitude that he swore. To my mind, given the provocation that
the plaintiff was subjected to and given the fact that Mr Sum was co-operating
in the treatment of a managing director and chief executive officer in such a
disdainful way, he should have expected such might be the plaintiff’s reaction.
It might not have been the most dignified of statements, but on the other hand
the plaintiff was not teaching at a Sunday school. The business world can, no
doubt, be a bit rough. But for the defendant to suggest that this incident
merited instant dismissal is ridiculous. Neither can I see how it could be
suggested that it was a matter which would weigh in any balance.
Hon Stone J :
86. I have had the advantage of reading in draft the judgments of
Mayo VP and Rogers VP. I gratefully adopt the recitation of the facts in those
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judgments, wherein the detailed background of this unfortunate dispute is set
out.
87. I agree that this appeal must be allowed.
88. In his careful judgment, the judge below addressed the particular
grounds of complaint resulting in the plaintiff’s dismissal by the defendant.
Regrettably I differ fundamentally from the view taken by the learned judge as
to the validity of these complaints as constituting grounds for summary
dismissal. To the contrary. On the evidence in this case I am unable to see
how the defendant could be regarded as being entitled summarily to terminate
the plaintiff’s employment on 9 January 1997.
89. Of the three grounds underpinning the defendant’s decision so to
terminate, in my view only the first ground involving the events of
13 December 1996 — I shall call it ‘the misrepresentation ground’ — merits
attention.
90. The second ground (the plaintiff’s refusal to authorize a payment of
$500,000 to South China, leading to the assertion that the plaintiff was the
‘boss’ and alleged consequential damage to the defendant’s reputation), and the
third ground (involving the use of a salacious, albeit not unfamiliar, Cantonese
imprecation to Mr Frederick Shum) do not add up to very much. The learned
judge below recognized this, observing that the second ground “probably would
not in itself have caused the defendant to summarily dismiss him”, whilst the
third complaint was labelled “a comparatively minor incident in itself”.
Nevertheless, the judge took the view that when placed together with the events
of 13 December, these also were “acts of misconduct” which the defendant was
entitled “to take into account and weigh in the balance”.
91. I do not consider that this is justified. Rogers VP has observed
that reliance on these grounds demonstrates “an imbalance in approach” almost
- 26 -
sufficient to question the motive for reliance thereon. I would go further. In
my view reliance on these two grounds borders on the risible, and smacks of an
exercise in barrel scraping aimed at justifying the immediate dismissal of a CEO
who by that stage appears to have become surplus to the requirements of the
defendant’s new owners.
92. Miss Eu SC, who attractively argued a difficult brief in responding
to this appeal, clearly recognized that the battlefield essentially devolved upon
the validity of the first ground, the misrepresentation ground, which in any
event was the issue which occupied the bulk of the trial court’s attention.
93. In finding that service of the notice on Nelson Wong on
13 December constituted an act of misconduct “sufficiently serious to justify
summary termination”, the learned judge specifically accepted that there had
been a “mere consensus” of the board in informal meeting, but in so finding in
my view he placed a disproportionate emphasis upon the absence of a formal
resolution. Significantly, also, the judge failed to focus upon whether, on the
evidence before him, there could have been an operative misrepresentation of
the type alleged by Mr Nelson Wong.
94. This in fact was Mr Bunting SC’s first main point. He submitted
that on the facts there was “a level playing field of knowledge”, and that on the
evidence as accepted by the judge Mr Nelson Wong clearly must have known
as much about relevant events of that morning as the plaintiff. In my view this
submission is amply justified on the evidence.
95. Mr Nelson Wong’s version of events, which was rejected by the
judge, seems to have been economical with the truth, given that in his witness
statement (which stood as his evidence-in-chief) he omitted to place himself at
the meeting on 13 December at all, or to make reference to his abrupt departure
therefrom after the consensus of directors present was in favour of the exercise
- 27 -
of the warrants held by himself and his wife, whilst in terms of his oral evidence
he is recorded by the judge as having “insisted that he had not attended a board
meeting on that morning”. The judge clearly did not accept this. He
specifically found that Mr Wong was present “for a part of that meeting”, and
that “at some stage” after Mr Wong had left the meeting the plaintiff had sought
him out and served the notice on him. In fact, it is clear from extracts of the
evidence read to us by Mr Bunting that the plaintiff had followed Nelson Wong
from the room in short order — “It was pretty, pretty close” — and that all he
had done was to sign the pre-prepared document which had been tabled at the
meeting and hand it over to Mr Wong.
96. The learned judge did not refer to this particular part of the
evidence, but it seems highly unlikely that he intended to reject it, and had he
done so there would have been no evidential basis for so doing. Accordingly I
am unable to accept Miss Eu’s submission that, when looked at overall, there
was not a great deal of difference evidentially between the respective accounts
of the plaintiff and that of Nelson Wong, nor do I accept the suggestion that a
sufficient period had elapsed prior to the plaintiff following Mr Wong from the
meeting possibly to permit the passage of a Board resolution. In my view
Mr Bunting was correct in his argument that there could have been no realistic
possibility that a formal resolution had been put and voted on between the time
Nelson Wong left the meeting and when the plaintiff himself left it, as indeed
was confirmed by the plaintiff in his evidence.
97. In the circumstances it seems to me not greatly to matter whether
(as was found by the judge) the plaintiff also had made an oral representation
which mirrored the language of paragraph (B) of the notice, which is couched in
terms of the directors having “resolved” that a notice to the Covenantors be
served requesting exercise of the warrants. I say this because I accept the
submission that, at this point, not only did Mr Nelson Wong know as much as
- 28 -
the plaintiff about what had gone on, but that in the situation then prevailing it
was inherently improbable that the plaintiff would or could have intended to
deceive Mr Wong as the defendant has alleged.
98. The issue of what the plaintiff did or did not intend brings me to
Mr Bunting’s second major point. It is this. Not only did the learned judge
fail to make any finding about what the plaintiff understood himself to have
been representing, but his finding of misrepresentation, and hence of the
dishonesty justifying summary termination, was based upon a representation
that there had been a formal Board resolution, not a representation that the
Board had agreed. Whereas in fact, said Mr Bunting, the representation was
not false — the Board indeed had so agreed — and all the indications are that
the plaintiff treated the representation as being in accordance with the true facts.
99. I am inclined to accept this analysis. It may well be that in failing
to consider the inherent probabilities as to what the representation meant, and
had been understood by the plaintiff to mean, the learned judge did so on the
assumption that the meaning of the representation was that a formal resolution
had been passed. As a matter of law it is not essential for the validity of any
resolution that such should be formally embodied, and specifically having found
the existence of consensus at the meeting, in my view the judge greatly
overstated the consequence of the absence of such formality. As to the
plaintiff’s concession as to the factual inaccuracy of the notice, a factor which
clearly weighed upon the judge, Mr Bunting made the point that on a proper
reading of his evidence the concession actually made was that there had been no
formal resolution as such, and that in so conceding the plaintiff was not
departing from his case that he was acting within his authority on the strength of
the consensus reached between the directors at the 13 December meeting.
I agree.
- 29 -
100. Looked at in the round, therefore, in my judgment the finding of
the judge below as to the existence of a dishonest representation sufficiently
serious to merit summary dismissal cannot be permitted to stand. The
“inherent deception” found by the judge to underpin the plaintiff’s conduct is
not established. To the contrary. The preponderance of the evidence is that
the plaintiff was doing no more than that which he felt he was required, and
indeed authorized, so to do.
101. Two additional matters serve to reinforce this conclusion. First, it
was the plaintiff’s evidence, which was not rejected, that Mr Nelson Wong’s
refusal to accept the notice as given to him on 13 December necessitated the
convening of further board meetings to deal with the matter, and indeed there
seems never to have been any question of Nelson Wong actually having acted
upon the plaintiff’s alleged misrepresentation. Second, a powerful litmus test
as to the real state of affairs lies in the fact (as the learned judge recognized) that
prior to the issue of the termination letter of 9 January 1997 no complaint had
been made by Nelson Wong or by anyone else as to the 13 December incident
or subsequent events. It strikes me that the learned judge’s observation that
“on the face of it, this might suggest that the defendant was not seriously
aggrieved by the defendant’s conduct in question” was absolutely correct,
although he proceeded to qualify this by stating that in the particular
circumstances — “the flurry of activities” — it was legitimate for the defendant
to hold back from taking action until 9 January. I do not think that this is so.
The irony of this particular case is that, far from meriting summary dismissal as
the result of the matters complained of, the plaintiff appears to have been
attempting to act in the best interests of the company of which then he was
CEO.
102. In my view the Order of the learned judge below should be set
aside, and judgment should be entered against the defendant in favour of the
plaintiff on his action for wrongful dismissal, together with an order for the
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costs of the action to date, such costs to be taxed if not agreed. The issue of
damages should be remitted for assessment. Naturally, the costs of this appeal
should follow the event.
Hon Mayo VP:
103. The appeal is accordingly allowed. Judgment is entered for the
Plaintiff. Damages will be assessed by a Master. We make an order nisi that
the plaintiff will have the costs of this appeal and the costs of the hearing below.
(Simon Mayo) (Anthony Rogers) (William Stone)
Vice-President Vice-President Judge of the
Court of First Instance
Mr Michael Bunting SC and Mr Thomas Au, instructed by Messrs
Denton Wilde Sapte for the plaintiff
Miss Audrey Eu, SC and Mr Louis K.Y. Chan, instructed by Messrs
Preston Gates & Ellis for the defendant
WONG YICK MAN, FRANCIS v. STAR TELECOM INTERNATIONAL HOLDING LTD.
CACV 1123/2000
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF APPEAL
CIVIL APPEAL NO. 1123 OF 2000
(ON APPEAL FROM HCA 6174 OF 1997)
________________
BETWEEN
WONG YICK MAN, FRANCIS Plaintiff
and
STAR TELECOM INTERNATIONAL
HOLDING LIMITED Defendant
________________
Before: Hon Mayo VP, Rogers VP and Stone J in Court
Date of Hearing: 26 July 2001
Date of Judgment: 5 September 2001
________________
JUDGMENT
_______________
Hon Mayo VP:
1. This is an appeal from a judgment of Deputy High Court Judge
Whaley when he dismissed the plaintiff’s claim for wrongful dismissal.
2. The plaintiff had been employed by the defendant as its Managing
Director and Chief Executive Officer.
- 2 -
3. Mr and Mrs Nelson Wong owned slightly in excess of 50% in the
share capital of the defendant which is a publicly listed company.
4. Prior to his employment with the defendant the plaintiff had
operated his own company. This company provided consultancy services in
the telecommunications field. He had undertaken work for Mr Nelson Wong
who at that time had been the Chief Executive Officer of the defendant.
5. The relationship had been harmonious and Mr Nelson Wong had
invited the plaintiff to join the defendant. One of his main functions was to be
raising funds for the defendant.
6. One of the consequences of the plaintiff accepting employment
with the defendant was that he had to discontinue operating his own company.
7. It was partly for this reason that it was provided in the plaintiff ’s
contract of employment that his employment was to be for at least 2 years and
that he should have various stock options.
8. Effectively the plaintiff’s employment could only be terminated by
the defendant if he was found to be guilty of serious misconduct.
9. Shortly after he joined the defendant it encountered financial
difficulties. One of the suggestions made by the defendant’s auditors was that
Mr and Mrs Nelson Wong should agree to exercise warrants for 50,000,000
shares in the defendant which entitled them to subscribe for shares in the
defendant at $3.10 per share. The rights expired on 31 December 1996.
10. On 15 October 1996 the Wongs entered into a deed of undertaking
under which they were bound to exercise the warrants. In his judgment the
Judge set out the material terms of the deed:
“WHEREAS
- 3 -
(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.
(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.”
11. Two supplemental deeds were subsequently entered into by the
Wongs under which the Wongs were absolved from the requirement to subscribe
for the shares if the share price was less than HK$1.8275 per share.
12. One of the avenues which was pursued to alleviate the financial
problems which were being encountered was to apply to the Sumitomo Trust
- 4 -
and Banking Co. Ltd (“Sumitomo”) for a HK$20 million uncommitted
revolving credit facility.
13. Sumitomo were anxious that the Wongs should exercise their
warrants and subscribe for the shares. They required an undertaking to this
effect and also required the directors of the defendant to do everything within
their power to demand that the Wongs did comply with their undertaking and
that the proceeds of the shares subscription should be held by them.
14. The defendant continued to experience financial difficulty. In
particular a major syndicated loan of HK$40 million was due on 20 December
1996.
15. The purpose of setting out this background is to demonstrate that in
December 1996 the defendant was experiencing very considerable problems
and that one of the critical features underlying these difficulties was the
question as to whether the Wongs would exercise their warrants. One of the
measures taken by the plaintiff to endeavour to overcome these difficulties was
to engage the services of Wheelock NatWest as investment advisers. Their
representative was a Mr Francis Yeung.
16. On 12 December Sumitomo wrote to the defendant in these 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.
- 5 -
- 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. ....”
17. Up to this point there is very little controversy in relation to the
cases being advanced by the parties. It is now necessary to consider in broad
outline the respective contentions being advanced concerning the question
whether the plaintiff was guilty of serious misconduct such as to justify the
defendant summarily dismissing him.
18. It was the plaintiff’s case that following the receipt of the faxed
letter of 12 December a decision was made to convene a directors’ meeting to
review the situation. The meeting was held at 4:00 p.m. on 13 December. It
was attended by the directors including Mr Nelson Wong. It was also attended
by the company secretary Mr Maurice Ngai, the General Manager Mr Alfred
Shao, Mr Francis Yeung of Wheelock NatWest, and Mr C.Y. Lee the Company’s
Solicitor. He had been instructed to draft a form of notice to be signed by the
Wongs. It was in this form:
“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.
- 6 -
(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’”
19. According to the plaintiff there was discussion at the meeting as to
whether the directors would require the Wongs to exercise the warrants.
20. It transpired that Nelson Wong was reluctant to do this.
21. One reason for this was that he did not have the financial
wherewithal to do so.
22. The plaintiff said that the consensus view of the meeting was that
the directors would require the Wongs to exercise the warrants.
23. Mr Nelson Wong expressed his displeasure at this and left the
room. The plaintiff followed him shortly after this. He had a discussion with
him and signed the notice and asked Mr Nelson Wong to do likewise. He was
reluctant to do so and refused to sign the notice immediately.
24. According to the board minutes of 20 December, the Wongs
notified the meeting that they had exercised the warrants and had borrowed
HK$180 million from China Strategic Holdings Ltd (“CSH”) a large part of
which had been utilized in the exercise of the warrants.
25. Immediately prior to this the plaintiff had been negotiating with a
Taiwan party for the sale of some of the defendant’s assets. On 20 December
- 7 -
when he returned from Taiwan he was instructed not to proceed with the
transaction on account of the funds which had been raised from CSH.
26. Representatives from CSH moved into the defendant’s offices in
accordance with the terms of the agreement which had been concluded. The
plaintiff said that he was being bypassed and this led to considerable tension.
This was also of relevance in connection with one of the other complaints which
is made by the defendant that the plaintiff used foul language when speaking to
Mr Frederick Sum, one of CSH’s representatives.
27. It was during this period that the other complaint which is being
pursued by the defendant occurred. It is alleged that the plaintiff represented
to another person Miss Christine Cheung that he was the boss of the defendant
company. This arose in connection with a discussion as to whether it was the
plaintiff or Mr Nelson Wong who had the ultimate authority to sanction a
disputed payment.
28. On 9 January 1997 the plaintiff received the letter notifying him
that his services were being dispensed with.
29. The defence case was that the meeting on 13 December had never
taken place and that the plaintiff had misrepresented the position to Mr Nelson
Wong when he had requested him to sign the notice in relation to the exercise of
the warrants. The complaint which was made was that the plaintiff had
represented that the board had passed a resolution requiring the Wongs to
exercise the warrants when no such resolution had in fact been passed by the
board. It was further claimed that the plaintiff had been guilty of deception
and thus had acted dishonestly.
30. The way that the defence case was presented was that it was
manifest from the agreement with Sumitomo that what was required was a
formal resolution of the directors requiring that the warrants be exercised and
- 8 -
that for this purpose a board meeting had to be formally convened. It was
contended that the meeting on 13 December had not been formally convened
and that the plaintiff was fully aware of this.
31. In support of this contention reference was made to subsequent
board meetings from which it could undoubtedly be inferred that the question of
the passing of this resolution remained outstanding and unresolved.
32. The point which was emphasized by Ms Eu SC for the defendant
was that the plaintiff acknowledged in his evidence that he was aware of the
difference between what he described as a consensus of the directors and a
resolution of the board of directors. In this connection it was significant that
the notice which the plaintiff was asking Nelson Wong to sign referred to a
resolution of the directors.
33. Generally speaking the Judge appears to have preferred the
evidence of the plaintiff to that of the defendant. He summarized his findings
on the evidence at p. 21 of his judgment:
“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 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
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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 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 sign the notice to the effect that they agreed its contents
and agreed to exercise their warrants on or before 20 December 1996.”
34. On the basis of these findings of fact the Judge went on to conclude
that the plaintiff had indeed been guilty of misconduct such as to justify the
defendant taking the action it did in terminating the plaintiff’s employment.
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35. The first question which has to be considered is whether on the
evidence which was accepted by the Judge it was open to him to find that the
plaintiff had misrepresented the position to Mr Nelson Wong.
36. Although Mr Nelson Wong had denied that there had been any
directors meeting on the afternoon of 13 December the Judge found that there
had been a meeting and that Mr Nelson Wong had attended at it.
37. There had been discussion at the meeting of the financial affairs of
the defendant and of the necessity for the Wongs to exercise their warrants. It
also has to be borne in mind that there was evidence that the meeting had before
it the notice which had been drafted by Mr Lee the solicitor which needed to be
signed by the Wongs to satisfy the requirements laid down by Sumitomo.
38. The Judge accepted that there had been a consensus at the meeting
that the directors should require the Wongs to sign the notice. The Judge also
appears to have accepted that Mr Nelson Wong was very unhappy that the
directors had reached this consensus and that it was at this stage that Mr Nelson
Wong left the meeting.
39. The plaintiff gave evidence that shortly after this he followed
Mr Nelson Wong and that the critical meeting then took place. It appears from
the transcript of the plaintiff’s evidence that essentially the meeting broke up
after Mr Nelson Wong’s departure. Nothing transpired which would account
for there being anything to delay the plaintiff in going to seek out Mr Nelson
Wong.
40. A further point can be made that the plaintiff was not
cross-examined on this. It is in no way inconsistent with the Judge’s findings
to proceed on the assumption that the passage of time which elapsed between
Mr Nelson Wong walking out of the meeting and the plaintiff following him
was of short duration.
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41. What all of this leads to is that it is virtually inconceivable that
Mr Nelson Wong could have believed that there was any possibility that the
directors had passed what has been described as a formal resolution requiring
the Wongs to exercise the warrants subsequent to his leaving the room.
42. When this is considered in conjunction with the fact that
Mr Nelson Wong would have been familiar with the contents of the draft notice
which had been prepared by Mr Lee one is led to the inevitable conclusion that
Mr Nelson Wong was in possession of all of the information which was
available to the plaintiff.
43. That being the case there can be no question of the plaintiff having
been guilty of any misrepresentation.
44. What needs to be considered is where the Judge went wrong. It is
not difficult to find this.
45. In the judgment the Judge attaches great weight to the distinction
which he appears to think there is between the consensus which is reached at a
board meeting and a so called formal resolution of a Board of Directors of a
company.
46. In practical terms there is no such distinction. It is by no means
unusual for Directors of Companies to conduct their business on a
semi-informal basis. When reaching a decision even of an important nature,
they may not solemnly cast votes and style the result as a resolution.
47. Authority for this proposition can be found in the commentary in
Chap. 8 paragraph 307 of Vol. 2 of Palmer’s Company Law, Sweet & Maxwell:
“Resolutions of directors
8.307 At board meetings, the directors exercise their powers by
resolutions which are passed in the manner laid down in the
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articles or agreed upon by them under powers given them by
the articles. They decide usually by a majority of votes of
those present (see article 88). Proxies are sometimes
admitted. The chairman is usually given a casting vote by or
under the articles (see article 88); at common law he has no
such vote.
It is not, however, essential for the validity of a director’s
resolution that the determination should be embodied in a
formal resolution, and the minutes in recording it often, in fact,
enter only the substance, e.g. ‘a contract with A B for the
supply of … was submitted and approved.’ It is, however,
necessary to enter minutes of all directors’ proceedings in a
book kept for the purpose.”
48. The Judge when weighing the gravity of what he considered was
the plaintiff’s misrepresentation went on to ponder the dire consequences which
might ensue to the detriment of the defendant consequential upon all of this.
49. As can be seen from the passage cited from Palmer the Judge’s
fears were unfounded.
50. The result of the Judge’s misapprehension concerning the true legal
position led him into error. This is particularly the case when it is borne in
mind that the defendant had a heavy burden to discharge when it was attempting
to establish that the plaintiff had been guilty of misconduct such as to justify it
taking the action it did in terminating his contract of service for cause.
51. Passing reference has been made earlier to the two other instances
of misconduct which were relied upon by the defendant in its pleaded case. It
is not necessary to comment on these. Once it is determined that the plaintiff
was not guilty of misleading Mr Nelson Wong the other complaints pale into
insignificance. They certainly would not of themselves begin to constitute
grounds for dismissing the plaintiff.
52. It should perhaps be added that when consideration is also given to
the parlous state of the defendant’s affairs as at 13 December there is every
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reason to suppose from all of the evidence which appears to have been accepted
by the Judge that the plaintiff was doing everything in his power to further the
interests of the defendant in a very difficult situation.
53. It should also be said that the overall circumstances of the
plaintiff’s dismissal were highly suspicious.
54. Although according to Mr Nelson Wong’s evidence he had been
gravely wronged by the plaintiff he was permitted to continue to discharge his
duties until 9 January when he was dismissed. No satisfactory explanation
was forthcoming for this.
55. For the reasons I have given it is my view that this appeal should
be allowed and the plaintiff’s claim should succeed. His damages should be
assessed by a master.
Hon Rogers VP:
56. This is an appeal from a judgment of Deputy Judge Whaley given
on 8 November 2000. The action concerned a claim by the plaintiff in respect
of his dismissal by the defendant on 9 January 1997.
Background
57. Prior to his employment by the defendant, the plaintiff had his own
consulting company, FW & Associates Limited, he had set that up in March
1995. His evidence was that it had been successful. During the period from
July 1995 to August 1996 the plaintiff had met Mr Nelson Wong on several
occasions. Mr Nelson Wong was the founder, chairman and major shareholder
of the defendant. At that stage Mr Nelson Wong was also the managing
director.
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58. There is no dispute between the parties that Mr Nelson Wong asked
the plaintiff to join the defendant as the managing director and chief executive
officer. This entailed the plaintiff giving up his own successful business. As
a result the agreement between the plaintiff and the defendant provided for a
substantial remuneration package. That package included a salary starting at
the rate of HK$2.5 million per year and increasing on 1 January 1997 to HK$3
million per year. The plaintiff was also entitled to participate in any
employee’s stock option plan. At the commencement of his employment he
was offered stock options of 5.5 million shares on favourable terms. The
contract was for a two-year minimum term.
59. It would seem that, initially, the plaintiff had a good working
relationship with Nelson Wong. However, the defendant had financial
difficulties. Its income from the paging business was dropping and it had high
borrowings. Indeed, when the plaintiff was engaged it was with a view to his
assisting the defendant in raising money. It is unnecessary to refer to the steps
taken by the plaintiff in doing that but it would appear from his witness
statement, which was taken as his evidence-in-chief, that a number of steps
were taken after the plaintiff joined the defendant, which substantially improved
the defendant’s financial position.
60. As recorded at page 6 of the judgment, in October 1996, the
defendant’s auditors suggested that Nelson Wong and his wife should exercise
their rights in respect of warrants which they held. This would ease the
defendant’s cashflow and enable the sale of one of the defendant’s investments.
As a result, Mr Nelson Wong and his wife executed a deed whereby they
covenanted with the defendant that they would exercise their rights in respect of
all or some of the warrants, which they owned, and subscribe for shares “if so
deemed necessary and sufficient to meet the cashflow of the Company by
resolution of the board of directors of the Company within 14 days upon receipt
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of a notice from the Company to that effect at any time but at least 14 days
before 31 December 1996.”
61. This undertaking was subject to the proviso that the company was
able to revoke that requirement. Although the original deed in October 1996
provided that Nelson Wong and his wife would not be required to exercise their
rights under the warrants if the closing price were less than $1.8275 per share
that was waived in a supplemental deed which was dated 25 November 1996.
62. This commitment in respect of the warrants was obviously part of a
series of transactions. On 26 November 1996, the defendant executed a deed
of undertaking with the Sumitomo Trust & Banking Co. Ltd (“Sumitomo
Bank”) which referred to the warrants held by Nelson Wong and his wife and
the undertaking of 15 October. The defendant undertook to the Sumitomo
Bank that they would use the proceeds, arising from Nelson Wong and his
wife’s exercise of their warrant options, to pay the Sumitomo Bank. There
was a further deed, the same day, which was executed by the plaintiff and five
directors. They undertook that they would procure that there would be a board
resolution which would require Nelson Wong and his wife to exercise their
rights under the warrants. Such resolution had to be passed at least 14 days
before 31 December 1996.
63. On 12 December 1996, Sumitomo faxed a letter to the defendant
reminding the directors of their undertaking to procure the board resolution at
least by 17 December.
13 December 1996
64. Although Miss Eu SC, on behalf of the defendant, sought to argue
that there was little dispute about the events of 13 December 1996, there
appears to have been considerable dispute. It was the plaintiff’s case that there
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had been a meeting of directors on 13 December 1996. At that meeting there
had been tabled a document. That document was addressed to Nelson Wong
and his wife. It referred to the deeds of undertaking of 15 October and
25 November. It then included: “the directors of the Company met on
13 December, 1996 and resolved that a notice to” Nelson Wong and his wife “be
served requesting” them “to exercise all the warrants owned by” them. The
notice concluded that it was a notice to Mr Nelson Wong and his wife to
exercise the warrants on or before 20 December 1996. Underneath the place
for the signature of a director of the defendant were the words “Agreed to the
contents of the above notice and agreed to exercise all the warrants owned by us
on or before 20 December 1996 despite any stipulation to the contrary (if any)
in the Deeds of Undertaking by: Wong Kam Fu and Chu Wai Fun.”
65. It was the plaintiff’s evidence that a number of directors were
present at that meeting including Nelson Wong. Whilst the plaintiff conceded
that there was no resolution or vote taken at the meeting with regard to whether
the defendant would authorise the service of that notice on Nelson Wong and his
wife, it was his evidence that there was consensus at the meeting that that
should be done. The plaintiff’s evidence is clear that Nelson Wong was
evidently unhappy with that consensus and left the meeting only to be followed
by the plaintiff himself. The plaintiff said that the meeting was interrupted
when Nelson Wong walked out. The plaintiff said under cross-examination
that the time between Nelson Wong walking out and the time when he followed
him was very short. The plaintiff said that he went to Mr Wong’s room and
gave him the document which had been tabled at the meeting.
66. On the defendant’s side evidence was sought to be led to suggest
that no meeting had taken place. The judge’s finding was, however, that there
was an informal meeting of directors. The judge went on to hold 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
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their warrants in terms of their undertaking to the defendant. He further went
on to hold that Nelson Wong had left the meeting. He held that at some stage
after he had left the meeting the plaintiff sought him out and served the notice
on him. The judge said that he found “as a probability” that the plaintiff did
tell Nelson Wong that the board had resolved that a notice should be served
requiring him and his wife to exercise their warrants.
67. It is unnecessary to recount the various events which took place
following 13 December. These are set out in the judgment below and it is
necessary only to refer to a few of the matters.
68. Very shortly after the events of 13 December the plaintiff had been
involved in, what he considered, were successful negotiations to sell the
defendant’s interest in P. Plus Communications Limited to a company in
Taiwan. At the last minute on 20 December 1996 he was told by Nelson Wong
in a board meeting to forget the deal since the defendant would now be
receiving $150 million as a result of the exercise by Nelson Wong and his wife’s
warrants with the help of a loan which he had obtained from China Strategic
Holdings Limited, (“CSH”).
69. Apparently, thereafter, the relationship between the plaintiff and
Nelson Wong began to deteriorate. Staff of CSH began to appear in the
defendant’s offices. They attended board meetings but ignored the plaintiff.
When the plaintiff rang a Mr Frederick Sum on 8 January and asked for an
explanation as to why he would not cooperate with the plaintiff, Mr Sum was
unfriendly. The plaintiff became so frustrated that he swore. It might be
added that the words used were not an uncommon expletive.
70. One further matter requires to be mentioned and that is an event
when the plaintiff questioned an invoice which was for $500,000 which had
been raised by South China Securities Limited. The plaintiff’s view, and there
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is no suggestion that his view in this regard was anything other than accurate,
was that the invoice should have been no more than $100,000. Eventually,
when he was told that Nelson Wong had approved the amount of $500,000 and
was questioned as to who was in charge of the company, he said that he was
chief executive officer of the defendant and was a boss.
The termination of the plaintiff’s employment
71. On 9 January the plaintiff was handed a letter which read 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 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.”
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72. Before turning to the issues arising on this appeal, it should be
mentioned that Nelson Wong sold his majority interest in the defendant to CSH.
Precisely when that happened was not established. In cross-examination
Nelson Wong gave the impression, at least from reading the transcript, that he
was not forthcoming, to put the matter at its lowest. It is perhaps, interesting
that when he was asked about the dates, at first he said that he had sold some of
his shares to China Strategic Holdings in 1996. When pressed further on it he
said “Well, it seems to me that the first transaction was in the form of a loan for
which the lender had the right to purchase the shares in my company.” That
would be consistent with what was contained in the plaintiff’s witness statement
that Nelson Wong had secured a loan with CSH on terms which eventually led
to CSH taking over the defendant.
The judgment below
73. The judge considered that the passing of a resolution requiring
Nelson Wong and his wife to exercise their rights under the warrants was a
matter of considerable importance. He held, as I have already indicated, that
there was a consensus amongst the persons present at the meeting that Nelson
Wong and his wife should have to exercise those rights. He also held on the
balance of probabilities that the plaintiff had told Nelson Wong that the board
had so resolved. The judge considered that it was important that there should
be a formal resolution of the board requiring the exercise of the warrants.
74. The judge considered that there were two representations made to
Nelson Wong. The first was in writing, namely, the notice which the plaintiff
took from the meeting and gave Nelson Wong. That indicated that there had
been a board resolution. The second was a representation which had been
made orally when the plaintiff gave Nelson Wong the notice. The judge said,
at page 24 of the judgment, that this misrepresentation constituted serious
misconduct towards Nelson Wong as the chairman and major shareholder.
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75. The judge then went on to consider the question vis-a-vis the
company. His conclusion was that, because Nelson Wong and his wife could
only be required to exercise the rights under their warrants by a board
resolution, they might be able to resile from that exercise if they had been
induced to act by reason of a misrepresentation. In conclusion the judge said:
“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.”
This appeal
76. As Miss Eu SC, on behalf of the defendant, pointed out, the focus
of the first ground upon which the plaintiff’s employment was terminated was
not any misrepresentation to Nelson Wong. The first ground in the letter of
9 January was that the plaintiff had acted without due authorisation of the board
of directors in issuing the notice to Mr Wong and his wife to exercise the
warrants.
77. If consideration is given to the first ground, the following facts
appear to me to be important. In the first place the dealings of the defendant
and Nelson Wong had from October through to 13 December been on the basis
that Nelson Wong and his wife had given a life line to the company by
executing the deeds undertaking to exercise their rights under the warrants. It
was quite clear that the six directors who had signed the undertaking in favour
of the Sumitomo Bank had committed themselves to requiring Nelson Wong
and his wife to act accordingly. By the morning of 13 December it was clear
that the Sumitomo Bank was insisting that they should so act. Prior to the
meeting on 13 December the document which was said to contain the
misrepresentation that there had been a board resolution was ready and
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available to those who attended the meeting. That included Nelson Wong.
There was a consensus at the meeting that Nelson Wong should exercise his
rights under the warrants. Put quite simply, as regards this case, the plaintiff
was, in my view justified in taking that consensus to be sufficient authorisation
for him to ask Mr Wong to sign the document. Those at the meeting were
agreed and Mr Wong had been there.
78. Looking at the matter from the point of view as to whether there
had been a misrepresentation, the matter is no different. Given the time scale
of Nelson Wong leaving the meeting and the plaintiff following him and giving
him the document to sign, Nelson Wong could not have been under any
misapprehension that a formal resolution had not been passed, but he knew, full
well, that it was the consensus of the meeting that his rights under the warrants
should be exercised. There was, in those circumstances, no misrepresentation
to Nelson Wong in the document itself. Similarly the plaintiff, in presenting
Nelson Wong with the document and referring to the fact, as Nelson Wong
obviously knew, that there was consensus amongst the board members present
that the rights under the warrants would have to be exercised, again made no
misrepresentation. Even if the document constituted a misstatement, Nelson
Wong certainly knew what had happened at the meeting from his own
knowledge. There was no possibility of his being deceived either by the
document or by anything said by the plaintiff.
79. In those circumstances, the suggestion that Nelson Wong and his
wife could have set aside the transaction if they exercised their rights was, in
my view, fallacious.
80. It was sought to be suggested on the basis of a short part of the
cross-examination of the plaintiff that the members of the board present at the
meeting on 13 December had resiled from their consensus. That passage read:
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“Q. So was the consensus reached before or after Mr Wong walked
out?
A. The consensus was reached right about the time when Wong
detected that and felt that, you know, basically that, you know,
that was an agreement. So he chose to walk out.
Q. Wasn’t it important at that time to at least ask, ‘Does everybody
agree to this?’ Wasn’t that important for you to, as a chairman,
to at least ask this question?
A. Yes, it was important.
Q. Did you do it?
A. I did not do it. The atmosphere was everybody was astounded.
Q. Astounded, yes.
A. Dumb-mouthed.
Q. Dumb-mouthed, dumbfounded. Yes, what else?
A. Exactly, they were very – they were very scared. They were
loyal to Mr Wong.
Q. Scared, yes.
A. So nobody wanted to do anything.
Q. Nobody wanted to do anything.
A. The meeting broke up.
Q. Slowly, please.
R. Yes.
Q. Nobody wanted to do anything. The meeting then broke up.
A. Yes.”
81. In my view that does not establish a ground for suggesting that the
consensus no longer existed. It simply reflects the fact that the meeting was
stunned by Nelson Wong’s action. He had agreed to enter the deeds, he had
committed himself to exercising the rights under the warrants when called upon
to do so, but he was now adopting a completely different attitude.
82. Turning to the narrow point as to whether the plaintiff was acting
without due authorisation of the board when he gave Nelson Wong the notice
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and asked him to sign it, in my view that is clearly not so. As the judge
acknowledged the plaintiff considered, as almost certainly was the case at the
time, he was acting in the best interests of the company; he had the consensus of
the board members who were present on 13 December. In my view, he did not
act improperly. Nelson Wong knew exactly what had happened. Nelson
Wong was clearly not deceived. If Nelson Wong had wished there to be a
board meeting, to be called by written notices to all the board members, and
there to be a vote taken, he could have insisted on it. In the circumstances
which prevailed on 13 December, he knew that it was futile.
Other grounds for dismissal
83. There remains the 2 further grounds contained in the letter of the
9 January, as being reasons for the plaintiff’s dismissal. I should state at the
outset that, in my view, the defendant’s persistence in relying on these
2 grounds demonstrates an imbalance in approach almost sufficient to question
the motives for putting them forward.
84. The conversation with Ms Christine Cheung wherein the plaintiff
requested a reduction of the fee note, seems to have been entirely justified.
Indeed, no explanation has been offered as to how South China Securities
Limited should have charged so much. The plaintiff was, at the time, the
Managing Director and Chief Executive Officer. It was certainly his job to see
that the company was not overcharged, in this case, seemingly, to the tune of
$400,000. Indeed, that would have been an amount that would have warranted
his personal attention. It would seem that it was probably Nelson Wong who
had arranged that South China Securities would be able to put their charges at
that level. It is said that by telling Ms Cheung that he was the “boss” or a
“boss”, the plaintiff revealed to the outside world that there was dissension
within the company. I can only say that this ground of complaint appears to
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me to be contrived. The party that was responsible was the party that had been
sanctioning and encouraging overcharging.
85. Turning to the complaint in respect of the foul language, it should
be noted that there was no evidence in respect of anything said to Mico Chung.
The fact of the matter is that it was known from the meeting of 20 December
that CSH had been financing Nelson Wong. Since that time, CSH personnel
had been present at the defendant’s offices and been involving themselves in the
defendant’s affairs. It appears that CSH was probably undertaking some sort
of due diligence exercise. Mico Chung and Frederic Sum were permitted to
attend board meetings as their representative. There is a great deal of material
in the plaintiff’s witness statement, which shows that CSH personnel were
ignoring and, indeed, belittling the plaintiff. None of that was cross-examined
to. The plaintiff said that he telephoned Sum and asked for an explanation as
to why he would not co-operate with the plaintiff. The plaintiff said in his
statement and confirmed in cross-examination that it was out of frustration or
anger at Sum’s attitude that he swore. To my mind, given the provocation that
the plaintiff was subjected to and given the fact that Mr Sum was co-operating
in the treatment of a managing director and chief executive officer in such a
disdainful way, he should have expected such might be the plaintiff’s reaction.
It might not have been the most dignified of statements, but on the other hand
the plaintiff was not teaching at a Sunday school. The business world can, no
doubt, be a bit rough. But for the defendant to suggest that this incident
merited instant dismissal is ridiculous. Neither can I see how it could be
suggested that it was a matter which would weigh in any balance.
Hon Stone J :
86. I have had the advantage of reading in draft the judgments of
Mayo VP and Rogers VP. I gratefully adopt the recitation of the facts in those
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judgments, wherein the detailed background of this unfortunate dispute is set
out.
87. I agree that this appeal must be allowed.
88. In his careful judgment, the judge below addressed the particular
grounds of complaint resulting in the plaintiff’s dismissal by the defendant.
Regrettably I differ fundamentally from the view taken by the learned judge as
to the validity of these complaints as constituting grounds for summary
dismissal. To the contrary. On the evidence in this case I am unable to see
how the defendant could be regarded as being entitled summarily to terminate
the plaintiff’s employment on 9 January 1997.
89. Of the three grounds underpinning the defendant’s decision so to
terminate, in my view only the first ground involving the events of
13 December 1996 — I shall call it ‘the misrepresentation ground’ — merits
attention.
90. The second ground (the plaintiff’s refusal to authorize a payment of
$500,000 to South China, leading to the assertion that the plaintiff was the
‘boss’ and alleged consequential damage to the defendant’s reputation), and the
third ground (involving the use of a salacious, albeit not unfamiliar, Cantonese
imprecation to Mr Frederick Shum) do not add up to very much. The learned
judge below recognized this, observing that the second ground “probably would
not in itself have caused the defendant to summarily dismiss him”, whilst the
third complaint was labelled “a comparatively minor incident in itself”.
Nevertheless, the judge took the view that when placed together with the events
of 13 December, these also were “acts of misconduct” which the defendant was
entitled “to take into account and weigh in the balance”.
91. I do not consider that this is justified. Rogers VP has observed
that reliance on these grounds demonstrates “an imbalance in approach” almost
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sufficient to question the motive for reliance thereon. I would go further. In
my view reliance on these two grounds borders on the risible, and smacks of an
exercise in barrel scraping aimed at justifying the immediate dismissal of a CEO
who by that stage appears to have become surplus to the requirements of the
defendant’s new owners.
92. Miss Eu SC, who attractively argued a difficult brief in responding
to this appeal, clearly recognized that the battlefield essentially devolved upon
the validity of the first ground, the misrepresentation ground, which in any
event was the issue which occupied the bulk of the trial court’s attention.
93. In finding that service of the notice on Nelson Wong on
13 December constituted an act of misconduct “sufficiently serious to justify
summary termination”, the learned judge specifically accepted that there had
been a “mere consensus” of the board in informal meeting, but in so finding in
my view he placed a disproportionate emphasis upon the absence of a formal
resolution. Significantly, also, the judge failed to focus upon whether, on the
evidence before him, there could have been an operative misrepresentation of
the type alleged by Mr Nelson Wong.
94. This in fact was Mr Bunting SC’s first main point. He submitted
that on the facts there was “a level playing field of knowledge”, and that on the
evidence as accepted by the judge Mr Nelson Wong clearly must have known
as much about relevant events of that morning as the plaintiff. In my view this
submission is amply justified on the evidence.
95. Mr Nelson Wong’s version of events, which was rejected by the
judge, seems to have been economical with the truth, given that in his witness
statement (which stood as his evidence-in-chief) he omitted to place himself at
the meeting on 13 December at all, or to make reference to his abrupt departure
therefrom after the consensus of directors present was in favour of the exercise
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of the warrants held by himself and his wife, whilst in terms of his oral evidence
he is recorded by the judge as having “insisted that he had not attended a board
meeting on that morning”. The judge clearly did not accept this. He
specifically found that Mr Wong was present “for a part of that meeting”, and
that “at some stage” after Mr Wong had left the meeting the plaintiff had sought
him out and served the notice on him. In fact, it is clear from extracts of the
evidence read to us by Mr Bunting that the plaintiff had followed Nelson Wong
from the room in short order — “It was pretty, pretty close” — and that all he
had done was to sign the pre-prepared document which had been tabled at the
meeting and hand it over to Mr Wong.
96. The learned judge did not refer to this particular part of the
evidence, but it seems highly unlikely that he intended to reject it, and had he
done so there would have been no evidential basis for so doing. Accordingly I
am unable to accept Miss Eu’s submission that, when looked at overall, there
was not a great deal of difference evidentially between the respective accounts
of the plaintiff and that of Nelson Wong, nor do I accept the suggestion that a
sufficient period had elapsed prior to the plaintiff following Mr Wong from the
meeting possibly to permit the passage of a Board resolution. In my view
Mr Bunting was correct in his argument that there could have been no realistic
possibility that a formal resolution had been put and voted on between the time
Nelson Wong left the meeting and when the plaintiff himself left it, as indeed
was confirmed by the plaintiff in his evidence.
97. In the circumstances it seems to me not greatly to matter whether
(as was found by the judge) the plaintiff also had made an oral representation
which mirrored the language of paragraph (B) of the notice, which is couched in
terms of the directors having “resolved” that a notice to the Covenantors be
served requesting exercise of the warrants. I say this because I accept the
submission that, at this point, not only did Mr Nelson Wong know as much as
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the plaintiff about what had gone on, but that in the situation then prevailing it
was inherently improbable that the plaintiff would or could have intended to
deceive Mr Wong as the defendant has alleged.
98. The issue of what the plaintiff did or did not intend brings me to
Mr Bunting’s second major point. It is this. Not only did the learned judge
fail to make any finding about what the plaintiff understood himself to have
been representing, but his finding of misrepresentation, and hence of the
dishonesty justifying summary termination, was based upon a representation
that there had been a formal Board resolution, not a representation that the
Board had agreed. Whereas in fact, said Mr Bunting, the representation was
not false — the Board indeed had so agreed — and all the indications are that
the plaintiff treated the representation as being in accordance with the true facts.
99. I am inclined to accept this analysis. It may well be that in failing
to consider the inherent probabilities as to what the representation meant, and
had been understood by the plaintiff to mean, the learned judge did so on the
assumption that the meaning of the representation was that a formal resolution
had been passed. As a matter of law it is not essential for the validity of any
resolution that such should be formally embodied, and specifically having found
the existence of consensus at the meeting, in my view the judge greatly
overstated the consequence of the absence of such formality. As to the
plaintiff’s concession as to the factual inaccuracy of the notice, a factor which
clearly weighed upon the judge, Mr Bunting made the point that on a proper
reading of his evidence the concession actually made was that there had been no
formal resolution as such, and that in so conceding the plaintiff was not
departing from his case that he was acting within his authority on the strength of
the consensus reached between the directors at the 13 December meeting.
I agree.
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100. Looked at in the round, therefore, in my judgment the finding of
the judge below as to the existence of a dishonest representation sufficiently
serious to merit summary dismissal cannot be permitted to stand. The
“inherent deception” found by the judge to underpin the plaintiff’s conduct is
not established. To the contrary. The preponderance of the evidence is that
the plaintiff was doing no more than that which he felt he was required, and
indeed authorized, so to do.
101. Two additional matters serve to reinforce this conclusion. First, it
was the plaintiff’s evidence, which was not rejected, that Mr Nelson Wong’s
refusal to accept the notice as given to him on 13 December necessitated the
convening of further board meetings to deal with the matter, and indeed there
seems never to have been any question of Nelson Wong actually having acted
upon the plaintiff’s alleged misrepresentation. Second, a powerful litmus test
as to the real state of affairs lies in the fact (as the learned judge recognized) that
prior to the issue of the termination letter of 9 January 1997 no complaint had
been made by Nelson Wong or by anyone else as to the 13 December incident
or subsequent events. It strikes me that the learned judge’s observation that
“on the face of it, this might suggest that the defendant was not seriously
aggrieved by the defendant’s conduct in question” was absolutely correct,
although he proceeded to qualify this by stating that in the particular
circumstances — “the flurry of activities” — it was legitimate for the defendant
to hold back from taking action until 9 January. I do not think that this is so.
The irony of this particular case is that, far from meriting summary dismissal as
the result of the matters complained of, the plaintiff appears to have been
attempting to act in the best interests of the company of which then he was
CEO.
102. In my view the Order of the learned judge below should be set
aside, and judgment should be entered against the defendant in favour of the
plaintiff on his action for wrongful dismissal, together with an order for the
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costs of the action to date, such costs to be taxed if not agreed. The issue of
damages should be remitted for assessment. Naturally, the costs of this appeal
should follow the event.
Hon Mayo VP:
103. The appeal is accordingly allowed. Judgment is entered for the
Plaintiff. Damages will be assessed by a Master. We make an order nisi that
the plaintiff will have the costs of this appeal and the costs of the hearing below.
(Simon Mayo) (Anthony Rogers) (William Stone)
Vice-President Vice-President Judge of the
Court of First Instance
Mr Michael Bunting SC and Mr Thomas Au, instructed by Messrs
Denton Wilde Sapte for the plaintiff
Miss Audrey Eu, SC and Mr Louis K.Y. Chan, instructed by Messrs
Preston Gates & Ellis for the defendant