BRUCE GORDON HUT v. SPECIAL ASSETS LTD

HCA 2668/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2668 OF 2002

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J U D G M E N T

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The claim and the counterclaim

1.  This is a claim by the Plaintiff against the Defendant (now in voluntary liquidation) for breach of a contract of employment (“the Contract”) made between them in January 1999 whereby the Plaintiff was employed as an Investment Manager of the Defendant.  There is a letter dated 14^th January 1999 addressed by the Defendant to the Plaintiff (“the Appointment Letter”) setting out various terms of the Plaintiff's employment which was counter-signed by the Plaintiff.  It is quite clear that at least the term relating to the base salary under “Remuneration” in the Appointment Letter had not been adhered to by the parties in carrying out the Contract.  The Plaintiff alleges that there were other oral agreements or oral terms agreed between him and Mr. Robert L. Meyer (“Mr. Meyer”), the Chairman and Managing Director of the Defendant, which were arrived at also on 14^th January 1999 on which his claims are based.

2.  There were originally proceedings in the Labour Tribunal and there were other issues between the parties.  Eventually, there remained three heads of claim by the Plaintiff against the Defendant relating to : -

(i) the Plaintiff's salary in 1999;

(ii) the Plaintiff's entitlement to bonus and

(iii) the Plaintiff's loss based on his entitlement to options to purchase shares in the Defendant.

3.  On the other side, the Defendant counterclaims against the Plaintiff for reimbursement of expenses resulting from the Plaintiff's utilization of the resources and staff of the Defendant and of the Plaintiff's own work time during his employment by the Defendant during the period between February and April 2001.

The Plaintiff

4.  The Plaintiff is a relatively young man.  He has made a written Amended Witness Statement in the present case which is 108 pages long.  He says that he graduated Cum Laude with an honours B.A. in Economics from Claremont McKenna College and that he is a distinguished scholar.  He has given a description of the reputation of the college.  He says that his senior thesis was intituled “Modern Day Graham: The Value Growth Phenomenon” and that its basic idea was that one could outperform the market by investing very selectively in high quality growth companies on a long term horizon.  He says that Professor Gary Smith praised his thesis to the sky.  He also took advanced MBA courses with Professor Peter Drucker at the Peter F. Drucker Graduate Management Institute at the Claremont Graduate School.  He has not claimed that he was awarded an MBA degree.

5.  He says that, prior to working in Hong Kong, he worked for a well-known money manager in New York by the name of W. P. Stewart & Co. Ltd..

6.  In July 1997, Credit Lyonnais Securities Asia (“CLSA”), employed him as a regional analyst.  He was not really happy with the job and he left CLSA in late May 1998.

7.  He says that he got a number of job offers.  Eventually, he decided to take up a job with the Defendant.  More of this below.

The Defendant

8.  The Defendant is a company incorporated in the Cayman Islands.  It had at all material times until about 2002 carried on various businesses including : -

(i) investment management, namely, managing its sole investment fund by the name of “Special Assets Pacific L. P.” (“the Old Fund”) which was subsequently renamed to “Special Assets LTC Fund L. P.” (“the LTC Fund”);

(ii) property investment (purchase, renovation and leasing) and

(iii) nutraceuticals – business of dietary supplement.

9.  The Defendant went into voluntary liquidation on 17^th April 2002.  Mr. Meyer has been the Liquidator of the Defendant.

10.  At the end of 2000, there were about 17 staff members of the Defendant.  They included the following : -

(i)      Mr. Meyer, its Chairman and Managing Director, who had been responsible for the overall management of the Defendant.

(ii)     Mr. Dennis Z. Goquingco (“Mr. Goquingco”) who was the only other executive director of the Defendant.  He was based in the Philippines and was in constant contact with Mr. Meyer.

(iii)    Mr. Dennis Lai (“Mr. Lai”) who was an Investment Manager.

(iv)    Ms. Linda Csellak (“Ms. Csellak”) who was another Investment Manager.  She resigned from the Defendant in September 1999.

(v)     Mr. Sidney Ho (“Mr. Ho”), the Chief Financial Officer of the Defendant.

(vi)    Mr. Dickens Wong (“Mr. Wong”), who was the Director of Information of the Defendant.  He was responsible for the computer, information and communications operations of the Defendant.

(vii)   Ms. Ida Yue (“Ms. Yue”), the Executive Administrator of the Defendant who was married to Mr. Wong.

(viii)  Mrs. Nandini Sengupta (“Mrs. Sengupta”) who was a Research Assistant of the Defendant whose main responsibility was the filing and organizing of annual reports of publicly-listed companies in Asia.

Mr Meyer

11.  Mr. Meyer is a law graduate with a doctorate degree from Columbia University in New York.  He was admitted to the Bars of the States of New York, Georgia and Florida.  He worked for the international law firm, Coudert Brothers, in New York and in Hong Kong between 1976 and 1981.  He has lived in Hong Kong continuously since 1978.  In 1981, he left his practice of law to become a co-founder and executive director of the First Pacific Group of Companies.  Whilst working in that Group, he was a director of numerous publicly-listed companies and private companies, including a U. S. bank and a U. S. regulated bank holding company.  In 1987, he was appointed by the Hong Kong Government to act as a director of the then Hong Kong Futures Exchange in order to help to rescue that Exchange after the stock market crash in October 1987.  He held that position until 1989.  He was a registered financial adviser in good standing with the Hong Kong Securities and Futures Commission between 1985 and 2001 when he retired as such.

The background and events leading up to the employment of the Plaintiff

12.  Mr. Meyer founded the Old Fund in 1994.  In 1998, the Old Fund was being managed by the Defendant as its sole investment fund with the principal investors being Mr. Meyer, his family, companies under his control and something like 70 investment clients.  The Old Fund invested mainly in Asian stocks on a long-term basis.  Mr. Lai and Ms. Csellak, being the two Investment Managers, had played a very active part in the management of the Old Fund.

13.  As a result of the market crash in late 1997, the outlook for the Defendant and the Old Fund became quite dim in 1998.  There were withdrawals from the Old Fund and practically no new investors.  The Defendant was suffering a loss continuously.

14.  The Plaintiff and Mr. Meyer first met each other in about May or June 1998.  Mr. Meyer was impressed with the similarity of the stock picking choices between them and by the Plaintiff's apparent willingness also to invest in markets at a time when they were out of favour and when the stock prices were low.  At that time, the Plaintiff was aged only 23 years and had just left or was about to leave his employment with CLSA.

15.  There followed a number of meetings between the Plaintiff  and Mr. Meyer subsequently during which the Plaintiff made clear his objective of setting up a long term fund with concentration on a relatively small number of companies in Asia.  The Plaintiff also revealed that he had substantial contacts who were willing investors.

16.  Eventually, both Mr. Meyer and the Plaintiff were extremely interested in seeing the Plaintiff being employed by the Defendant as an Investment Manager with a view to setting up a long term fund.

17.  The next step for Mr. Meyer was to persuade the relevant persons in the Defendant to agree to the proposed employment of the Plaintiff.  It is common ground that there was strong internal resistance to the same, especially by Mr. Lai and Ms. Csellak.  The latter even threatened to resign if the Plaintiff was taken on board.

18.  Eventually, the Plaintiff was employed by the Defendant and the Appointment Letter was signed between Mr. Meyer and the Plaintiff.

The appointment letter

19.  The relevant parts of the Appointment Letter read as follows : -

“Dear Bruce,

I refer to our discussion of last month and it is with great pleasure that, on behalf of Special Assets Limited (“SAL”), I offer you the following position with our Company : -

Position :	Investment Manager
Duties :	(1) Analysis, making and monitoring of investments in public quoted companies in the Asian Region in a new investment fund to be called Special Assets LTC Fund L.P. (“SALTC”). (2) Creation and establishment as well as marketing of SALTC outside Hong Kong in the USA and Europe. (3) General executive and management duties assisting and reporting to the Managing Director.
Remuneration :	(1) Base salary of HK$20,000.00 per month on a 13-month basis.  An annual review will take place in January of each year. (2) Housing reimbursement of HK$10,000 per month upon production of the relevant tenancy documents. (3) Holiday passage allowance totalling HK$12,000 per annum. (4) Participation in the SAL Staff Annual Bonus Pool. (5) Participation in the SAL Staff Share Option Plan.
Hours :	Normal office hours are 9:00 a.m. to 6:00 p.m. Monday to Friday, and 9:00 a.m. to 1:00 p.m. Saturday, but as pressure of business demands, you may be required to work hours in excess of this.
Annual Leave : ….……………………………………………………
Staff Medical Plan : ……………………………………………….…
Life & AccidentInsurance: ………….………………………………
Probationary Period:	The first three months of your employment will be on a probationary basis.
Notice Period :	After the first month of your employment, this contract may be terminated by either side giving one calendar month's written notice.
Confidentiality: ……………………………….….…………….…
Medical Examination : ………………………………………………
Starting Date  :	Upon issuance of your Hong Kong employment visa.
This Agreement is subject to Hong Kong law and the exclusive jurisdiction of the courts of Hong Kong.
Employment is subject to the policies of the Company as may be promulgated from time to time, the main terms and conditions of which are set out above.”

Events since the employment of the Plaintiff

20.  The Plaintiff, being a foreign citizen, required a work visa from the Immigration Department before he could take up employment with his new employer, the Defendant.  An application was made to the Immigration Department by the Plaintiff almost immediately after 14^th January 1999 on the basis of the Appointment Letter.  The Plaintiff was granted a work visa on 10^th March 1999 and started working for the Defendant immediately.

21.  Although the original intention was for the Defendant to start a totally new fund to be managed by the Plaintiff, it was later decided that the Old Fund would be converted into a long term concentrated fund.  The procedure was carried through to achieve such a result.  The Old Fund was accordingly converted into the LTC Fund as from 1^st January 2000.

22.  The conversion of the Old Fund into the LTC Fund still did not assist the Defendant much.  As a result, a decision was made to liquidate the Defendant and the LTC Fund.  In October 2000, Mr. Meyer informed all the staff of the Defendant that the Defendant would go into voluntary liquidation and cease business at the end of March 2001.

23.  On 30^th March 2001, the Defendant gave one month's written notice to terminate the employment of all staff members, including the Plaintiff.

24.  In the meantime, the LTC Fund was being terminated and the Plaintiff carried out the process of starting his new fund.

25.  On 17^th April 2002 the Defendant passed a resolution to go into voluntary liquidation.  Mr. Meyer ceased to be the Chairman and Managing Director of the Defendant and became its liquidator.

The case of the Plaintiff

26.  The case of the Plaintiff can be summarized as follows : -

(i) Mr. Meyer was extremely anxious to employ the Plaintiff and therefore orally agreed on 14^th January 1999 to employ the Plaintiff on terms which were highly favourable to the Plaintiff but which were not expressed in the body of the Appointment Letter.

(ii) Such terms were orally agreed between the Plaintiff and Mr. Meyer at about the same time as the signing of the Appointment Letter.  Such terms will be dealt with below.

(iii) Because such orally-agreed terms were very favourable to the Plaintiff and because of the very strong internal resistance against the employment of the Plaintiff faced by Mr. Meyer, Mr. Meyer did not disclose to anyone in the Defendant that he had agreed such terms with the Plaintiff.

The oral terms alleged by the Defendant

27.  For present purposes, the relevant oral terms alleged by the Plaintiff to have been agreed with Mr. Meyer on 14^th January 1999 relate to :-

(i) his entitlement to share option;

(ii) his entitlement to bonus and

(iii) his conditional entitlement to salary for 1999.

I shall set out below how the claims based on such alleged oral terms are formulated by the Plaintiff.

The alleged terms regarding the share option

28.  In paragraph 5 of the Amended Statement of Claim filed on 12^th April 2005, the Plaintiff pleads his case as follows : -

“The part that was made orally was agreed between the Plaintiff and Robert Meyer for the Defendant on or about 14 January 1999.  Gist of the oral agreement is as follows : -

(a) The Defendant would grant an option to the Plaintiff to subscribe for the shares of the Defendant on the basis that one option would subscribe for one share.  The amount of option would be equal to the sum calculated from the following formula : -

(b) 5 years of salary at HK$40,000 per month / 0.8 (the lower of either the closing share price of the Defendant at the end of 1998 or the net asset value of the Defendant as at its last audited report prior to 14 January 1999)

The figure of HK$40,000 was chosen because the Defendant agreed that the salary of the Plaintiff would be at least HK$40,000 per month after the Plaintiff commenced managing a fund.

[N.B. There is no sub-paragraph (b).]

(c) As at the end of 1998, the closing share price of the Defendant was HK$0.08.  Accordingly, the amount of option that should be granted to the Plaintiff on 14 January 1999 should be 40,625,000, calculated as follows : -

40,000 x 13 x 5 / (0.8 x 0.08) = 40,625,000

The strike price would be 80% of the share price of the Defendant at the end of 1998.  All of the options would be exercisable immediately after termination from employment for a period of 5 years.”

[For the sake of convenience, only the final wording of the amended pleading has been set out here and will be set out below.]

29.  In paragraphs 14 and 15 of the Amended Statement of Claim, the Plaintiff pleads his loss and damage in relation to the alleged share option as follows : -

“14.     In breach of the Contract, the Defendant has never issued the promised share options to the Plaintiff.  In or about May 2001, the Defendant issued to the Plaintiff 5,462,185 options to subscribe for the shares of the Defendant with the strike price at HK$0.0952.  The Plaintiff did not exercise the option because the quantity and the strike price is not correct and the Plaintiff felt he would forgo his opportunity to claim the correct amount of stock options due if he had exercised the share options.

15.    The options that were promised to be granted to the Plaintiff at the beginning of employment had their strike prices lowered by HK$0.04 when the Defendant paid out a four cent dividend at the end of April 2001.  Had the promised option been granted to the Plaintiff, he would have the opportunity to exercise the option after termination of employment when the shares were trading at HK$0.105 (if dividend is counted) or HK$0.065 (if dividend is not counted).  On selling the shares obtained from exercising the options, the Plaintiff would have made HK$1,665,625 or HK$0.041 per share for the 40,625,000 shares of the Defendant.

(0.105-0.04 - (0.064-0.04)) x 40,625,000 = HK$1,665,625”

30.  The Plaintiff therefore claims the sum of $1,665,625- under this head of alleged share option.

THE ALLEGED TERMS REGARDING THE BONUS

31.  In paragraph 5 (d) of the Amended Statement of Claim, it is pleaded as follows : -

“(d) The Defendant agreed that starting in 1999, a minimum of 5% of the increase in the net asset value of the Defendant would be injected to the bonus pool for the benefit of the employees of the Defendant.  The Defendant told the Plaintiff that he would be able to get at least 20% of the bonus pool.  The bonus would be payable at the beginning of the following year.  In or about November 1999, the Defendant reiterated to the Plaintiff that he would get 20% of the bonus pool.  The Defendant also agreed with the Plaintiff that for year 1999, the Defendant would inject 15% (instead of a minimum of 5%) of the increase in the net asset value of the Defendant into the bonus pool.”

32.  In paragraph 16 of the Amended Statement of Claim, it is pleaded as follows : -

“16. Comparing with the financial year ended on December 31, 1998 for the financial year ended on December 31, 1999, there was an increase in the net asset value of the Defendant by US$10.6 million.  The Defendant is liable to pay the sum of US$318,000 to the Plaintiff after the annual accounts have been audited which would normally take place around the middle of March of each year.  The sum of US$318,000 is calculated as follows : -

US10,600,000 x 0.2 x 0.15 = US$318,000”

33.  The Plaintiff therefore claims the sum of US$318,000- under this head of alleged bonus.

THE ALLEGED TERM REGARDING THE 1999 SALARY

34.  It is pleaded in paragraph 6 of the Amended Statement of Claim as follows : -

“6. On or about the date the Contract was signed, the parties entered into another agreement whereby it was agreed that the Plaintiff would waive his salary for the period from 10 March 1999 up until a new investment fund commenced operations, which commencement shall not be later than 31 December 1999.  This salary waiver was conditional on the Plaintiff being allowed to run a Long-Term horizon fund for the Defendant for at least 6 years.”

35.  Hence, whilst the Plaintiff admits that he had agreed to waive his salary for 1999, he alleges that such waiver was on the condition as pleaded.

36.  In paragraphs 9 and 17 of the Amended Statement of Claim, the Plaintiff claims arrears of wages in the sum of $327,920.55 for the period between 10^th March and 31^st December 1999.

THE CASE OF THE DEFENDANT ON THE PLAINTIFF'S CLAIM

37.  The Case of the Defendant can be summarized as follows :-

(i)      There was no oral agreement between Mr. Meyer and the Plaintiff regarding the Plaintiff's entitlement to share option and bonus as alleged by the Plaintiff.

(ii)     The Plaintiff's entitlement to the same was exactly the same as other staff members of the Defendant.

(iii)    The Plaintiff did agree to waive his salary of $40,000- per month for 1999 and such waiver was unconditional.

FINDINGS BY THE COURT

38.  I have considered all the evidence given by the Plaintiff, Mr. Meyer and the other former staff of the Defendant given in court and all the documentary evidence placed before the court.  I have no hesitation in accepting the evidence of Mr. Meyer and his colleagues and in rejecting the evidence of the Plaintiff on the material aspects.

39.  I find as a fact that there was no oral agreement between the Plaintiff and Mr. Meyer regarding the Plaintiff's entitlement to share option and bonus as alleged by the Plaintiff.  I further find as a fact that there was no condition attached to the Plaintiff's waiver of his salary in 1999.

40.  I shall analyse the evidence below.  In doing so, I attach a lot of importance to the contemporaneous documentary evidence which is more often than not most telling.

41.  According to Mr. Meyer, the outlook for the Defendant was so dim that, in or about the summer of 1998 and periodically thereafter, he and Mr. Goquingco had discussed the possible liquidation of the Defendant.  Mr. Goquingco confirmed this in his evidence.

42.  The Plaintiff's case is that, because he had shown himself to be such a brilliant investor and that he had so many potential substantial investors on hand, Mr. Meyer was extremely keen to employ him on terms very favourable to him and further that Mr. Meyer was prepared to hide such terms from his co-directors and colleagues.

43.  On the other hand, Mr. Meyer's evidence is that, given the ability of the Plaintiff and the contacts which he said he had, Mr. Meyer was prepared to arrange for the Defendant to employ him at very little cost and with practically no downside to the Defendant.  This is all recorded in the contemporaneous documents.

44.  In relation to the contemporaneous documents, it is to be noted that it is common ground that in the early part of 2001 the Defendant facilitated the Plaintiff in setting up his new fund and provided him with access to all its computer records and documents.  The Defendant's entire database was made available to the Plaintiff.  Thus, a lot of the documents produced in evidence have in fact come from discovery by the Plaintiff.  In other words, if there had been anything in the contemporaneous records and documents of the Defendant which would tend to support the Plaintiff's case, he would have known about and had access to them.  I take the view that that was an act of generosity on the part of the Defendant.  It also tends to signify that Mr. Meyer did not think that he had anything to hide.

45.  In an internal memorandum dated 30^th November 1998 from Mr. Meyer to, inter alios, Mr. Goquinco, Mr. Lai and Ms. Csellak, he began by saying :

“I have received a proposal from Bruce Hut that I think deserves serious consideration, offering us an additional fund arm with little to no downside risk.”

He then set out the gist of Plaintiff's proposals and, at paragraph (5), he said :

 “(5)    Bruce is willing to personally pay for the fund's start up costs (which he estimates will be about US$20,000) and to work at no salary at the outset (6 to 12 months), relying solely on a “bonus”.  Ultimately, Bruce would be compensated by the same SAL “system” of salary, share options and bonus points as the rest of us and would own no general partnership stake.”

46.  A number of points can be noted regarding the said paragraph (5) of the internal memorandum : -

(i)      The Plaintiff was obviously very keen to work for the Defendant, so that he could have an opportunity of realizing his dream of starting and managing a long term concentrated fund, to the extent that he was willing to pay for the fund's start up costs.  (It is common ground that the Defendant in fact never demanded that the Plaintiff should pay such start up cost.)

(ii)     The Plaintiff was willing to forgo his salary for 6 to 12 months.  This again tends to show that he was very keen to work for the Defendant.  There was no mention that such waiver of salary was conditional upon the Plaintiff being allowed to manage the fund for at least 6 years.  This also tends to show that the Plaintiff knew that the Defendant was in financial difficulty.

(iii)     It was stated clearly by Mr. Meyer that the Plaintiff would be compensated by the same system of salary, share options and bonus points “as the rest of us” and would own no general partnership stake.

(iv)     The internal memorandum was produced before the strong internal resistance were expressed in the responses by Mr. Meyer's colleagues in December 1998.

(v)     If the Plaintiff had really been so desperately needed by Mr. Meyer, he would not even have had to agree to waive his salary for 6 – 12 months and agree to pay the start up costs of the fund.

47.  In paragraphs 62 and 63 of his Amended Witness Statement, the Plaintiff admitted that at the end of November or early December 1998 Mr. Meyer did fax, email or courier the said internal memorandum of 30^th November 1998 to keep him informed as to how Mr. Meyer would pitch the case for employing the Plaintiff.  He said he probably just skimmed the first page.  The said paragraph (5) was of course on the second page.

48.  I do not accept that the Plaintiff being so keen to work for the Defendant would only have just skimmed the first page.  He must have been eager to know exactly how Mr. Meyer was advancing the case for him.

49.  Furthermore, the Plaintiff has only alleged that the oral agreements were arrived at on or about 14^th January 1999.  Nowhere has he said that those oral agreements had already been reached by 30^th November 1998.

50.  If, as I accept, Mr. Meyer had set out in the said paragraph (5) of the internal memorandum the true situation, I cannot see, nor has the Plaintiff suggested, any reason why by 14^th January 1999 Mr. Meyer should have shifted from the position expressed therein by offering more favourable terms to the Plaintiff.

51.  On the balance of probabilities, I do not accept that somebody with the background of Mr. Meyer would deceive his long-time colleagues just in order to employ a person aged 23 years with not much of a work track record, no matter how talented he believed such person to be.  In light of the financial situation of the Defendant, I also do not believe that it was likely that Mr. Meyer would have held out much hope that the Defendant and any fund managed by it could last as long as six years.  Furthermore, having heard all the witnesses for the Defence and considered their written Witness Statements, I have formed the opinion that they in fact worked as a rather closely-knit community in the Defendant.  This is demonstrated by the fact that Mr. Meyer himself elected to cease to receive compensation from the Defendant as from 1^st January 2001 in order to help the Defendant and is acting as the liquidator of the Defendant without remuneration.  The alleged impropriety on the part of Mr. Meyer and the consequences would be out of proportion with the possible advantages to be gained by employing the Plaintiff.

52.  I accept what Mr. Meyer has said in paragraph 16 of his Witness Statement to the effect that the internal memorandum dated 30^th November 1998 was written after Mr. Meyer and the Plaintiff had had a discussion about the Plaintiff being employed on a trainee-type basis until he gained sufficient experience.  Further, the Plaintiff would use the Defendant's office and business facilities to learn various aspects of conducting business and managing a fund.  I further accept Mr. Meyer's evidence that it was the Plaintiff who suggested that he would receive no salary until the new fund had been established (the 6 – 12 month period stated in internal memorandum being an estimate) and that he would pay US$20,000- towards the start up costs of the new fund.

53.  I now examine the subsequent conduct of the Plaintiff and the subsequent documentary evidence to see whether there is any support for the Plaintiff's case.

54.  The Plaintiff seeks to argue that the Appointment Letter was different in material terms from those of other staff members, thus indicating that the terms applicable to him were indeed different.  I accept the evidence of Mr. Meyer, Mr. Ho and Ms. Yue that the difference in terms which existed can be explained by the fact that the Appointment Letter was compiled in a hurry for the purpose of helping the Plaintiff to make an application to the Immigration Department for a work visa the very next day, 15^th January 1999.

55.  Further, I do not attach any significance to the praises of the Plaintiff contained in the letter dated 15^th January 1999 from the Defendant to the Immigration Department.  Obviously, it would be in the interest of both the Plaintiff and the Defendant to put such a slant on the ability and experience of the Plaintiff as to persuade the Immigration Department to grant a work visa to the Plaintiff.

56.  Mr. Ho on behalf of the Defendant issued a memorandum dated 17^th February 2000 (“the Bonus Memorandum”) to all staff members of the Defendant in Hong Kong regarding staff bonus for 1999.  The Bonus Memorandum was in fact disclosed by the Plaintiff as item 40 on his List of Documents.

57.  The relevant parts of the Bonus Memorandum read as follows : -

“Kindly note that, after a careful consideration by the Board, we have decided to pay to all Hong Kong and Philippine staff a cash bonus equal to the individual staff's one and one half (1-1/2) month basic salary.

While the NAV of the group has increased substantially from US$19.4 million to US$30.0 million (before bonus accrual) during 1999, most of the increase (US$8 approximately) was due to writing up our share investments in Pharmalink International Limited to their year end value of US$220 per share.  This investment is still in the early stage of its development and we therefore think that it is immature to pay a bonus on the NAV gain on this investment.  In fact, the group suffered an operating loss of US$297,000 (before bonus accrual) for 1999.

In view of the hard work put forth by all our staff during 1999, we have decided to remunerate them with a concessionary cash bonus as discussed above instead of the regular bonus point scheme.  We will review our financial position again next year end to determine whether we should revert to the bonus point scheme or whether we should adopt some other justifiable methods.”

58.  The Plaintiff's case on bonus is as pleaded in paragraph 5 (d) of the Amended Statement of Claim quoted above and as repeated in paragraph 22 (g) (iii) of his Amended Witness Statement.

59.  During cross-examination, the Plaintiff put the figure of bonus for himself for 1999 at “HK$500,000-, could possibly be millions of HK dollars”.  The Monthly Report of the Operating Results of the Defendant for the month of December 1999 was dated 29^th February 2000.  It contained all the data which the Plaintiff would have required to calculate the amount of bonus that he claimed he was entitled to.

60.  By the Bonus Memorandum, the Plaintiff was informed in effect that his bonus for 1999 was equivalent to only 1½ months' basic salary, i.e., $60,000- for him.

61.  The Plaintiff also received and accepted the sum of $60,000- as his bonus by bank transfer.  He did not protest or even query anyone in the Defendant about it.

62.  In paragraph 101 (28) of his Amended Witness Statement, he said that he was not bothered or worried and thought that the bonus would be paid later when the Defendant had more money from its investments.  In cross-examination, he said that he had not noticed the words “instead of the regular bonus point scheme”.

63.  I simply find such evidence of the Plaintiff to be incredible and unacceptable.  It contradicts the Plaintiff's claim of the bonus scheme allegedly promised to him by Mr. Meyer.

64.  The same considerations apply to the Monthly Reports of the Operating Results of the Defendant (“the Monthly Reports”).

65.  With the exception of a few months, a set of the Monthly Reports between February 1996 and August 2000 are contained in Main Bundle 4.  They are all documents disclosed and produced by the Plaintiff.  They are also referred to extensively in his Amended Witness Statement.

66.  Each of the Monthly Reports contains : -

(i)      financial highlights of the Defendant including its monthly NAV (net asset value);

(ii)     accruals for the Staff Bonus Points Scheme since March 1996 (under the broad heading of “Expense”) and

(iii)    the number of options issued and granted (under the broad heading of “Liabilities”).

67.  In particular, the following information can be extracted from the Monthly Reports : -

(i)      For the purpose of bonus point accruals, no percentage higher than 5% has ever been recorded;

(ii)     In the Report for the month of December 1999 dated 29^th February 2000, it is written :

“Staff Bonus Points Scheme Accrual

A cash bonus totalling US$102,596 was paid in 1999 instead of the staff bonus points scheme, thus resulting in a reversal of US$261,223 from the account previously provided.”

This reversal was done in conjunction with what is stated in the Bonus Memorandum.  Indeed, this is made clear at page 2 of the Report where it is written :

“ Expense

The staff bonus points accrual was reversed by US$261,223 due to the Board's decision to pay a concessionary cash bonus equivalent to 1-1/2 months salary (excluding Robert L. Meyer and Dennis Z. Goquingco who received no bonus) totalling US$102,596 to all the group staff (excluding Directors) in lieu of the cash and shares which would have been required under the staff bonus points system”.

68.  On the evidence, the Plaintiff must have been aware of what was written in that Monthly Report at the time because the end of the year Monthly Report would be vital for the purpose of calculating his bonus.

69.  What is the Plaintiff's evidence?  In paragraph 101 (16) of his Amended Witness Statement, he says : -

“(16)   Under the obligatory bonus point scheme, Robert Meyer promised me 15% of the rise in Net Asset Value of the company in any calendar year would be paid to a bonus pool for distribution to the employees of Special Assets.  (when the employment agreement was signed, it was agreed 5% of the increase in net assets value of Special Assets would go to the bonus pool, towards the end of 1999, Special Assets agreed the amount in the bonus pool would be increased from 5% to 15%.  Furthermore, Robert Meyer agreed before I started working for Special Assets that I would get 20% of this bonus pool.  The bonus would be payable at the beginning of the following year.  He again restated this when I talked to him at the end of 1999 because he was delighted with my work at Special Assets after I had made Special Assets a sum of money by recommending investment in Unilever Indonesia …………………………………………………”

In sub-paragraph (23) of the same paragraph, he further says : -

“(23)   Special Assets decided to give me their sole fund to convert into the New Fund because of my excellent performance and lots of promise.  At the very end of November or most likely in December 1999 Robert Meyer pulled me aside and told he was very happy with my performance.  He said he was delighted I was in the company instead of Linda Csellak and told me that they had decided they were going to increase the bonus points scheme to 15% of the increase in net asset value of Special Assets and that even though he and Dennis Goquingco might participate in the scheme, they promised me that I would get at least 20% of the pool and I definitely deserved it considering the work I was doing.  He told me they had already told Linda Csellak and possibly other people that they were going to increase the bonus points scheme to this much and want me to know this as they knew I had taken a financial hit waiting for Special Assets to decide to purchase Unilever Indonesia.  (Doc 84 PSL) are emails discussing this Unilever situation and showing how I waited for Special Assets as Unilever's price kept rising.”

70.  The Plaintiff did not raise any protest or query with Mr. Meyer or Mr. Ho or anybody else in the Defendant.

71.  The Plaintiff's evidence simply does not sit well with the contemporaneous documentary evidence which was available to him.  I reject the Plaintiff's evidence.

72.  I now come to what I regard as the most telling point in the evidence.

73.  By a letter dated 26^th April 2001, Mr. Meyer wrote to the Plaintiff in the following terms : -

 “Re : Final Employment Compensation

Dear Bruce,

As discussed with and agreed by you, your employment with Special Assets Limited will be terminated with effect from May 1, 2001.

Accordingly, I have enclosed a cheque for HK$93,333.33 with represents your final employment compensation up to the date of employment termination.  The calculation is as follows :

	HK$
Additional 2 months salary compensation	80,000.00
Prorated 13th month pay	13,333.33
Total final compensation	93,333.33

Enclosed please find a worksheet which shows the calculation of your final compensation.

…………………………………………………………………”

74.  Not having received any response from the Plaintiff, Mr. Meyer then sent an email dated 27^th April 2001 to the Plaintiff the relevant parts of which read as follows : -

“Dear Bruce,

Below is how I propose to settle all compensation issues between you and SAL.  Please note that this e-mail is sent to you WITHOUT PREJUDICE, meaning that SAL reserves all its rights in this matter.  Also, I have only generally discussed what is below with Dennis Z. Goquingco and reserve the right to include any points he may have which are not mentioned below :

1. Share Options.  You were hired in January, 1999.  Although your letter of employment noted that you would be paid HK$20,000 per month, this was stated for HK visa purposes and our agreement was that you would not receive compensation during 1999.  In January, 2000 your monthly compensation of HK$40,000 per month commenced.  I recall that this figure of HK$40,000 per month was to be used for the issuance of your SAL options under SAL's program in January, 1999.  My apologies that this was overlooked and the share options have not been issued to you to date.  We shall remedy this as per below.

Under the SAL share option plan each new employee is granted options over SAL shares having a value of one year's base salary (i.e. HK$40,000 x 13 months = HK$520,000 in your case).  The option plan prices the option exercise price at a 15% discount to the fully diluted net asset value per share of SAL as at the end of the preceding six month period.  In your case the NAV calculation would be that of December 31, 1998.  SAL's annual accounts show the fully diluted NAV per SAL share as HK11.2 cents as at December 31, 1998.  A fifteen per cent discount to HK11.2 cents would result in an exercise price of HK9.52 cents per SAL share (HK11.2 cents x 85%).  Accordingly, you should have been issued in January, 1998 5,462,185 SAL share options priced at HK9.52 cents per share (HK$520,000 divided by HK9.52 cents = 5,462,185 SAL share options).

The 5,462,185 share options should be considered as having been granted as of your employment date (i.e. January 14, 1999) and normally vest in three equal yearly tranches commencing one year, two years and three years after your initial date of employment.  However, under the circumstances of the voluntary winding up of SAL, I am willing to stipulate that all your options have now vested.

The SAL options normally would expire on December 31, 2004.  However, by a Resolution in writing of the SAL Board dated 24^th April, 2001, the SAL share options were extended to the later of : (i) the existing expiration date or (ii) the date of liquidation of the Company.  This was enacted to benefit SAL share option holders in the off chance that the liquidation of SAL might occur later than December 31, 2004 – which is not likely.

As for price adjustment of the SAL options, a second Resolution in writing dated April 24^th, 2001 of the SAL Board provided that the exercise price of SAL options be adjusted on a dollar for dollar basis or cent for cent basis in respect of any and all liquidating dividends whether paid in cash or in kind (specie) made after January 1, 2001.  On April 26, 2001, SAL paid its first liquidating dividend equal to HK4 cents per share.  Therefore, the exercise price of your 5,462,185 SAL share options now has been reduced by HK4 cents per share to HK5.2 cents per share from HK9.2 cents per share.

It is my intention to send a letter soon to all SAL option holders advising them of the number of SAL share options held and their adjusted exercise price.  SAL will also send to SAL option holders in future the semi-annual and annual SAL accounts as well as news of any other developments which could affect their SAL share options or their value.

2.  Bonus Points Scheme For 1999.  This was a discretionary compensation program which was determined by the Board of Directors of SAL.  I will not outline the whole program here.  Suffice it to say that it provided for a certain number of bonus points to be allocated by the SAL Board based on : (i) individual, (ii) team and (iii) SAL-as-a-whole performance.  A cash award would be made with half of it being paid in cash and the other half to be used by the SAL staff member to buy SAL shares at the cheaper of the market price of SAL shares or a 15% discount to the SAL NAV at the end of the year.  The SAL shares, once bought, were not owned outright, but vested in three equal annual installments following the date of their purchase by the SAL staff member.

For 1999, the Board of Directors decided not to implement the Bonus Points Scheme because, while SAL's NAV had increased substantially, this was almost entirely due to the huge increase in the value of the Pharmalink International Limited shares as measured at the end of the year.  The Board was not confident that this NAV, based largely on PIL shares owned, could be sustained.  (In fact it has not been sustained.  Pharmalink's true value is quite notional at present).  Also, SAL had a net loss in its P&L accounts for 1999, so any award of cash under the Bonus Points Scheme would have substantially increased the reported loss at the expense of SAL's shareholders unfairly benefiting staff.  As an alternative, the Board, in its discretion, decided to pay an additional 1-1/2 months bonus to all SAL staff members in lieu of the Bonus Points Scheme.  Our records show that you were paid this bonus in the amount of HK$60,000 at the end of February, 2000.

This issue is closed and will not be reopened.

……………………………………………………………………

6.  Final Employee Compensation of HK$93,333.  Assuming that all of the above can be agreed, SAL would plan to pay to you your additional two months salary compensation of HK$80,000.  This is not required by law.  By law SAL will pay to you your pro-rated thirteenth month payment for 2001 equal to HK$13,333.33.  Please remember that we paid your full salary during the three and a half month period, October 16, 2000 to the end of January, 2001, when you stated to me that you had resumed full “competency” while you were ill.  This was a paid sick leave of 3-1/2 months (more than 15 weeks).  This was more than was required by the Hong Kong Employment Ordinance, which required SAL to pay for 2 sick days per each month worked.  By October, 2000, you had been employed by SAL for 21 months, giving rise to a paid sick leave entitlement under the law of 42 days (six weeks).

……………………………………………………………………

Bruce, please carefully consider the above.  Assuming that the above is acceptable, I will put together a simple memorandum of our agreement on for you and SAL to sign so that we can settle up financially and both move forward.”

75.  The email could not have been in clearer terms regarding the Plaintiff's entitlement to bonus, share option and salary.

76.  According to Mr. Meyer, there was no response by the Plaintiff to the said email until the Plaintiff's letter dated 5^th December 2001 raising broadly his present claim.

77.  In paragraphs 193 – 199 of his Amended Witness Statement, the Plaintiff refers to a conversation between him and Mr. Meyer at the end of April 2001.  He however has not dealt with the said email at all, although in paragraphs 196 – 197 he refers to his discussion with Mr. Meyer about his stock options and bonus points.

78.  In his oral evidence, the Plaintiff did not claim that he raised the subject of the said email with Mr. Meyer at any time before his letter of 5^th December 2001.

79.  I accept Mr. Meyer's evidence that the Plaintiff never raised any objection to the contents of the said email until his letter of 5^th December 2001.  I take the view that if the Plaintiff's claims about the bonus, share option and salary for 1999 were genuine, he could not have waited 7 months before protesting and raising a claim.  Furthermore, even if the Plaintiff had alleged that he protested orally to Mr. Meyer after 27^th April 2001, such an allegation would be highly dubious.  The Plaintiff has shown himself to be an     accomplished writer.  One would have expected him to deal with the points made by Mr. Meyer in the said email in detail and in writing as soon as possible if they did not represent the true position.

80.  Accordingly, I dismiss the Plaintiff's claim.

MISCELLANEOUS POINTS

81.  I now deal with some miscellaneous points raised by the parties.

The Employment Ordinance

82.  First, I deal with the point made by Mr. Coleman, leading Counsel for the Plaintiff, under the Employment Ordinance Cap. 57 (“the Ordinance”).   Section 11 AA of the Ordinance provides as follows : -

“11AA. Presumption

(1) It shall be presumed that an annual payment or annual bonus is not of a gratuitous nature and is not payable only at the discretion of the employer unless there is a written term or condition in the contract of employment to the contrary.”

83.  Mr. Coleman argues that even if the Plaintiff is not believed on his allegation of an oral agreement with Mr. Meyer on the bonus, section 11AA of the Ordinance is still applicable.  The Court must operate the bonus scheme of the Defendant by looking at all the circumstances and assessing a correct amount of bonus for the Plaintiff.  He submits that the Court should take into account the increase in NAV and should grant to the Plaintiff 20% of the bonus pool of the Defendant, “as this is essentially uncontroversial”.

84.  In support of his propositions, Mr. Coleman has referred to a number of cases : -

Wood v. Jardine Fleming Holdings Ltd. [2001] 2HKC 735

Horkulak v. Cantor Fitzgerald International [2004] IRLR 942 and

Wong v. Colgate (HCLA 77/2001 unreported decision of Deputy High Court Judge Lam dated 11/3/02)

85.  With respect to Mr. Coleman, I find his argument not easily understandable.  To begin with, I do not understand why he says in paragraph 210 of his Closing Submission that the question of 20% of the bonus pool is “essentially uncontroversial.”  It was very much in controversy and I have found against the Plaintiff on the basis that I do not believe that Mr. Meyer promised him that he would be entitled to 20% of the bonus pool.

86.  Before I deal with the authorities cited by Mr. Coleman, I should set out my view of the relevant statutory regime under the Ordinance.

87.  Section 11AA is within Part II A of the Ordinance which is intituled “End of Year Payment”.  Section 11A is the interpretation section for Part II A.  It defines the expression “end of year payment” as follows : -

“11.  Interpretation

In this Part, unless the context otherwise requires –

“end of year payment” (年終酬金) means any annual payment (whether described as “thirteenth month payment”, “fourteenth month payment”, “double pay”, “end of year bonus” or otherwise) or annual bonus of a contractual nature, but does not include any annual payment or any annual bonus, or any proportion thereof, which is of a gratuitous nature or which is payable only at the discretion of the employer;”

(emphasis added)

Thus, an “end of year payment” by definition must be contractual in nature.  It is classified into two broad categories, namely, “annual payment” and “annual bonus”.

88.  Read in the context of Part II A of the Ordinance, section 11AA(1) really performs the function of making clear what exactly are meant by an “annual payment” or “annual bonus” within the definition of “end of year payment” in section 11A.  In short, an “annual payment” or “annual bonus” will not be within the meaning of an “end of year payment” as defined in section 11A if there is a written term or condition in the contract of employment that it is gratuitous in nature or that it is payable only at the discretion of the employer.  Thus, section 11AA(1) has the effect of assisting in identifying the nature of an “annual payment” or “annual bonus” under a contract of employment and determining whether the provisions of various other sections in the Ordinance have application to such an “annual payment” or “annual bonus”.  It does not have the effect of interfering with the true construction of a contractual term between an employer and an employee, unless there is a term to the effect that the annual payment or annual bonus is gratuitous in nature or that it is payable only at the discretion of the employer and such term or condition is not in writing.  In such case, section 11AA(1) will render such term or condition not in writing ineffective.

89.  I now refer to the other provisions in the Ordinance.

90.  Section 11B of the Ordinance provides : -

 “11B.  Application of Part IIA

(1)  Subject to any agreement to the contrary and to subsection (2), this Part shall apply to an employee employed under a continuous contract if an end of year payment is payable by the employer to that employee by virtue of a term or condition (whether written or oral, express or implied) of the contract of employment.

(2)  In the case of an employee to whom this Part applies, any term or condition of the contract of employment which purports to prevent the payment under section 11F of a proportion of the end of year payment shall be void.”

(emphasis added)

This section does have the effect of interfering with the operation of a contractual term provided that the contractual term relates to an “end of year payment” within the meaning of that expression under section 11A as clarified by section 11AA(1).

91.  Section 11C of the Ordinance provides as follows : -

“11C.  Payment period

The payment period in respect of which an end of year payment is payable under this Part shall be –

(a)     the payment period specified in that behalf in the contract of employment; or

(b)     if a payment period is not so specified, a lunar year.”

(emphasis added)

This section defines the payment period for an “end of year payment” within the meaning of that expression under section 11A as clarified by section 11AA(1) in the event that the contract of employment is silent on the payment period.

92.  Section 11D of the Ordinance provides as follows : -

 “11D.  Amount of end of year payment

An end of year payment payable to an employee to whom this Part applies who has been employed by the same employer for the whole of a payment period shall be –

(a) the end of year payment specified in that behalf in the contract of employment; or

(b) if an end of year payment is not so specified, a sum equivalent to a full month's wages of the employee.”

This section specifies the amount of an “end of year payment” within the meaning of that expression under section 11A as clarified by section 11AA(1), i.e., either the contractual amount or one full month's wage.

93.  Reading section 11D together with the definition of “end of year payment” under section 11A and with section 11AA(1), I believe that their combined effect (broadly speaking) is to create three separate categories of cases : -

(i) If the contract (whether oral or in writing) simply says that the employee is entitled to an annual payment or annual bonus in addition to his salary but the amount of the annual payment or annual bonus is not specified, then the employee is entitled to one full month's salary.  (This is by the operation of section 11D(b)).

(ii) If the contract in writing only says that the employee may be paid an annual payment or annual bonus but he has no contractual entitlement to the same and the same is payable completely at the discretion of the employer, then the employee has no contractual right to be paid anything if the employer decides not to pay him.  (This is by the ordinary rule in the law of contract which is not modified by section 11AA(1).)

(iii)    If the contract (whether oral or in writing) says that the employee shall be entitled to an annual payment or annual bonus but the amount of the same shall be determined by the employer completely at its discretion, then the employee cannot challenge the amount determined by the employer to be paid to him unless he can rely on some other principle of law to challenge the same.  (This is by the ordinary rule in the law of contract which is not modified by section 11AA(1).)

[In setting out the abovementioned three categories, I have ignored the situation where there is a contract partly oral and partly in writing.]

94.  Section 11E of the Ordinance makes provisions for the time when an “end of year payment” becomes due to an employee and has the effect of modifying the time specified in the contract in certain circumstances.

95.  Section 11F of the Ordinance makes provisions for proportional payment of an “end of year payment” to an employee provided certain requirements are satisfied.

96.  Just to complete the picture, there are provisions under section 2(2) and (2A) of the Ordinance relating to “overtime pay” which make reference to “an end of year payment under Part II A”.

97.  In the present case, the relevant contractual provision in the Appointment Letter reads as follows : -

“Remuneration : (4) Participation in the SAL Staff Annual Bonus Pool.”

I have already found against the Plaintiff on his allegation that there was an oral agreement between him and Mr. Meyer on the question of bonus.  There is no other provision in the Appointment Letter or any other document to explain how the “SAL Staff Annual Bonus Pool” was operated.

98.  Mr. Meyer explains in paragraphs 47 – 50 of his Witness Statement how it was operated and how the relevant decision was made.  He says : -

 “47. Payments under the Bonus Plan were made at the complete discretion of the Defendant's Board of Directors.  The Bonus Plan generally operated as follows : -

(a) At the beginning of each year, the Defendant's Board of Directors (Mr. Goquingco and I at the time) would decide the number of “bonus points” to be allocated to each employee based on each particular employee's performance during the preceding year.

(b) Towards the end of the year, the Defendant's Board of Directors would allocate a percentage of the increase in the Defendant's net asset value (“NAV”) (between 0% and 5%) to the “bonus pool” which would be distributed to the Defendant's employees in accordance with their bonus points.

(c) The percentage of the increase in the Defendant's NAV which would be allocated to the bonus pool would be determined at the end of each year by Mr. Goquingco and me taking into account the Defendant's overall performance, including the amount of the increase (or decrease) in the Defendant's NAV (as shown in the Defendant's balance sheet) and the size of the Defendant's profit (or loss) (as shown in the Defendant's profit and loss statement).

(d) Sometimes at the end of the year, employees who had performed particularly well would be given further bonus points which had not yet been allocated.

(e) At the end of the year, each employee's bonus would be calculated by dividing the employee's bonus points by the total bonus points allocated and then multiplying that figure with the total bonus pool.  The bonus would then be paid 50% in cash and the remaining 50% would be used to purchase shares in the Defendant (which would vest 1/3, 1/3 and 1/3 over a three year period).

48.    It was entirely within the discretion of the Defendant's Executive Directors : -

(a) whether or not to apply the Bonus Plan in each year;

(b) whether to amend or change the Bonus Plan;

(c) whether to allocate some, all or none of the bonus points involved; and

(d) to select the percentage of the increase in the Defendant's NAV to be allocated to the bonus pool (which was always between 0% and 5%).

49.    In early 1999, Mr. Goquingco and I decided to suspend the Bonus Plan because the Defendant had been suffering losses since 1997 and was continuing to suffer losses each year.  As a result, the Defendant did not send letters to the Defendant's employees at the beginning of the year 1999, as was done in previous years to award points to the Defendant's employees.  At the end of 1999, the Defendant's profit and loss statement showed a loss of US$328,000 (although there was a substantial gain in the Defendant's NAV as explained below).  After 1999 no points were awarded to the Defendant's employees under the Bonus Plan.

50.     In February 2000, Mr. Goquingco and I decided after considering a number of bonus calculation alternatives put forward by Mr. Sidney Ho, the Chief Financial Officer, to award a cash bonus of one and one half month's wages to all of the Defendant's employees (including the Plaintiff).  This bonus of HK$60,000 was paid to the Plaintiff in February 2000 and was based on one and one half month's of the Plaintiff's salary as at January 2000.  Other than the Plaintiff, none of the Defendant's other employees complained or made any claim about the Defendant's decision to suspend the Bonus Plan.  Many employees did not expect any bonus given that the Defendant was, and had been, losing money since 1997.”

99.  In the said email of 27^th April 2001 to the Plaintiff, Mr. Meyer also set out similar but less detailed information.  (See paragraph 74 above).  I accept Mr. Meyer's evidence of how the Bonus Pool was operated and how the relevant decision was made.

100.  I am prepared to assume that the present case comes within category (iii) of the three categories set out in paragraph 93 above.  The question is whether the Plaintiff can challenge the exercise of discretion by the Defendant relating to the award of bonus to its staff, including the Plaintiff.

101.  In the Wood case, the first of the three cases relied on by Mr. Coleman, there was no issue about section 11AA(1) of the Ordinance.  The reason as explained by Mr. Coleman was that at the material time that section had not come into existence yet.  In that case, the contract of employment expressly provided that the employee had no contractual entitlement to a bonus but that the employer would at its discretion pay one.  The amount (if any) would depend on the financial results of the employer and the performance of the employee.  Deputy Judge Woolley held : -

(i)      The employee's contract stated in no uncertain terms that the employee had no contractual right to a bonus and that payment was at the employer's discretion.

(ii)     Although the employee could challenge the exercise of the discretion by the employer, the court would be reluctant to interfere with the exercise of a clearly stated discretion, unless it was such that the discretion was exercised irrationally or perversely.

(iii)    The test was subjective.

(iv)    The Court could not see any valid reason for challenging the exercise of the discretion of the employer and the employee's claim was dismissed.

The learned Deputy Judge said :

(i)      at page 742 F – I

“However, even where there is a clear discretion which the employer may exercise whether or not to pay a bonus, and as to the amount of such bonus, there is some authority to the effect that this discretion must not be exercised irrationally or perversely, although it may be exercised unreasonably.  In Clark v Nomura International plc [2000] IRLR 766, Burton J had this to say in respect of the court's restrictions on the exercise of such discretion, at p 744 :

I do not consider it is right that there be simply a contractual obligation on an employer to act reasonably in the exercise of his discretion, which would suggest that the court can simply substitute its own view for that of the employer.  My conclusion is that the right test is one of irrationality or perversity (of which caprice or capriciousness would be a good example) ie that no reasonable employer would have exercised his discretion in this way.

This takes the line of reasoning of the earlier cases, which held that there was no right at all to bring an action where the contract involved a discretion, a step further, and sets limits, albeit very wide limits, on that discretion.  Where an employer goes beyond those limits, and only then, may the court interfere.  I will accordingly look at the events surrounding the plaintiff's employment during 1997, and the circumstances of her dismissal in November of that year.  In doing so, I emphasize that it is not for the purpose of establishing whether her dismissal was unreasonable or not, or even perverse, but to see whether there are any grounds to say that the decision not to pay a bonus was so irrational that no reasonable employer would have exercised his discretion this way, and by employer, I mean an employer in the field in which the plaintiff worked.”

(ii)     at page 746 F – H

“The test must be subjective, and in particular, in the world of corporate finance in which the parties operated, and the culture of high performance meriting high incomes, there is no evidence here to support a case of such irrationality which would be necessary to bring this into that category of cases where discretionary decisions can be questioned.  It follows from the above that I find that I am unable to say that the circumstances here are such that no reasonable employer would have exercised his discretion in the way that the defendant has done here, and the plaintiff's claim to that effect must fail.”

102.  At this point, assuming in favour of the Plaintiff that the exercise of the discretion in awarding bonus to staff by the Defendant can be open to challenge, when one applies the tests set out by the learned Deputy Judge above, I cannot see any ground for saying that such exercise of discretion was irrational or perverse.

103.  The second case relied on by Mr. Coleman, Horkulak, was a case in England where the employee was contractually entitled to a bonus at the discretion of the employer.  The judge at first instance reviewed all the circumstances and awarded damages to the employee on claims including that based on the employer's failure to give a bonus.  The same principles as those enunciated in the Wood case were reiterated by the Court of Appeal.  The Court referred to a number of authorities including Clark v. Nomura International plc which was relied on by Deputy Judge Woolley.  At paragraph 41 of the judgment, the Court cited from Burton J. in the Nomura case as follows : -

“Burton J then dealt with the task of the court in assessing damages in a case of this kind before him :

‘Of course, if and when the court concludes that the employer was in breach of contract then it will be necessary to reach a conclusion, on the balance of probabilities, as to what would have occurred had the employer complied with its contractual obligations, or as Timothy Walker J put it in Clark v BET plc, assess, without unrealistic assumptions, what position the employee would have been in had the employer performed its obligation.  That will involve the court in assessing the employee's bonus, on the basis of the evidence before it, and thus to that extent putting itself in the position of the employer; but it will only do it if it is first satisfied, on the higher test, not that the employer acted unreasonably, but that no reasonable employer would have reached the conclusion it did acting in accordance with its contractual obligations, and the assessment of the bonus then of course is by way of an award of damages' (paragraph 40 pp. 774 – 775)

At paragraph 51 of the judgment, the Court said :

“Grounds 2 and 3 – measure of damages/level of award

The judge having found in favour of the claimant in this respect, his second task was to assess the amount of the bonus likely to have been paid, bearing in mind the flexibility afforded by the contractual language.  Thus the exercise would not permit the judge simply to substitute his own view of what would have been a reasonable payment for the employer to make, but required him to put himself in the shoes of those making the decision, and consider what decision, acting rationally, and not arbitrarily or perversely, they would have reached as to the amount to be paid.  We would reject the argument of Mr Bear, that the absence of specific contractual criteria left the defendants free to operate with ‘carte blanche', in deciding whether or not to award a bonus.  The judge was correct to embark upon his examination taking account of the criteria which Mr Amaitis stated would have been adopted by the defendants and which were listed by the judge at paragraph 91 of his judgment.”

104.  It is therefore quite clear that the Court has to put itself in the shoes of the employer to see whether the discretion was correctly exercised or whether the exercise of the discretion was open to attack on the ground that it was irrational or perverse in light of all the evidence.

105.  In the present case, there is no pleading by the Plaintiff along the lines of Mr. Coleman's present argument which he advanced for the first time in his closing submission.  The witnesses for the Defence, especially Mr. Meyer, were hardly asked about the exercise of the discretion to pay a bonus of 1½ months' salary for 1999 or any other bonus to all the staff.  In the circumstances, I also do not think that it is open to Mr. Coleman to advance his present argument of an award of bonus based on an exercise of the discretion by the Court.  The Court simply has no material on which it can base any decision to grant a discretionary bonus.

106.  I do not think that the third case cited by Mr. Coleman really assists.

107.  In short, I find against the Plaintiff on the point based on section 11AA(1) of the Ordinance both on the basis that it is not open to the Plaintiff to argue the same now and that, on the evidence before the Court, I am not in a position to say that the exercise of the discretion by the Defendant on bonus to staff was so irrational or perverse that it should be set aside.

Consideration for the Alleged Promise in November 1999

108.  In paragraph 5(d) of the Amended Statement of Claim, the Plaintiff has pleaded an agreement between him and Mr. Meyer regarding the injection of 15% (instead of a minimum of 5%) of the increase in the NAV of the Defendant into the bonus pool.  (See paragraph 31 above.)

109.  The Defendant has raised the point that, even if there had been such an agreement, the same was not supported by consideration moving from the Plaintiff.

110.  I have already found against the Plaintiff on the existence of such an alleged oral agreement.

111.  In case I am wrong in this respect, I find that such alleged oral agreement was in any event not supported by consideration moving from the Plaintiff and therefore not binding on the Defendant.

The Demeanour of the Witnesses

112.  Since Mr. Coleman has raised the point of demeanour of the witnesses, I should deal with it.

113.  I find Mr. Meyer and all the other witnesses for the Defence to be straight forward and honest.  I accept their evidence in toto.

114.  On the other hand, rather than agreeing with Mr. Coleman that Mr. Meyer was evasive, I find the Plaintiff to be evasive.  I reject his evidence on the material aspects.

THE DEFENDANT'S COUNTERCLIAM

115.  The Defendant alleges that there was an oral agreement between Mr. Meyer and the Plaintiff in early February 2001 to the following effect (as pleaded in paragraph 22 of the Re-Amended Defence and Counterclaim) : -

“(a) the Plaintiff may continue work on establishing the Plaintiff's own fund management business using the Defendant's offices and business facilities while the Plaintiff was still an employee of the Defendant;

(b) the Plaintiff may use the services of Mrs. Nandini Sengupta (“Mrs. Sengupta”), who was a Research Assistant employed by the Defendant, to assist the Plaintiff in establishing the Plaintiff's fund management business; and

(c) the Plaintiff would reimburse the Defendant the proportion of the Plaintiff's wages received from the Defendant in February, March and April 2001 in respect of the Plaintiff's time spent on establishing the Plaintiff's own fund management business and for all of Mrs. Sengupta's wages for February, March and April 2001.”

116.  I accept the evidence of Mr. Meyer and Mrs. Sengupta.  I find as a fact that there was such an oral agreement between Mr. Meyer and the Plaintiff and that the Plaintiff has been in breach of the same by not reimbursing the Defendant in accordance with the terms thereof.

117.  I assess damages for the breach of this agreement as follows : -

(i) $42,579- representing Mrs. Sengupta's salary paid to her by the Defendant for the period between February and April 2001 inclusive.

(ii) $60,000- being half of the Plaintiff's salary received from the Defendant for the same period.

118.  I therefore give judgment for the Defendant on its counterclaim in the sum of $102,579- with interest thereon at the judgment rate from 1^st May 2001 until the date of judgment.

CONCLUSION

119.  In the result : -

(i) the Plaintiff's claim is dismissed;

(ii) there will be judgment for the Defendant on its counterclaim in the sum of $102,579- with interest thereon at the judgment rate from 1^st May 2001 until the date of judgment;

(iii) I make an order nisi that the Plaintiff do pay to the Defendant the costs of this action, including the Defendant's counterclaim, such costs to be taxed on a party and party basis, if not agreed.