WONG YICK MAN, FRANCIS v. STAR TELECOM INTERNATIONAL HOLDING LTD.

HCA6174/1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.6174 OF 1997

(Transferred from Labour Tribunal Claim No. LT2130 of 1997)

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J U D G M E N T

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1. The plaintiff's claim against the defendant is for damages sustained in consequence of the defendant's alleged wrongful termination of his contract of employment.

2. By the contract of employment dated 26 July 1996 ("the Contract"), the defendant agreed to employ the plaintiff as Managing Director and Chief Executive Officer of the defendant upon the terms and conditions set out in the Contract, including, inter alia, the following :

"5.1 The remuneration of the [plaintiff] shall be:

(a) a fixed salary at the rate of HK$2,500,000 per annum, divisible into 12 monthly payments of HK$208,333, payable in arrears;

....5.3 The fixed salary shall be increased to HK$3,000,000 per annum on January 1, 1997. Thereafter, it shall be reviewed and revised annually with the approval of the Board.

6. STOCK ENTITLEMENTS

The [plaintiff[, at the sole and absolute discretion of the Board, may participate in any employee stock option plan adopted by the Group on the terms and conditions nominated by the Board. Upon commencement of employment the Company will offer stock option for 5,500,000 shares to the [plaintiff].

....

8.

.... The [plaintiff]'s employment hereunder may be determined at any time after the expiration of the initial period of twenty-four (24) months by either of the parties hereto giving to the other not less than six (6) months prior written notice provided that the Company may after the initial period elect to terminate the Employee's employment hereunder forthwith upon payment to the [plaintiff] of not less than six (6) month's Base Salary in lieu of notice."

3. The plaintiff's case as pleaded is that the defendant, wrongfully and in repudiatory breach of the express and/or implied terms of the Contract, by its letter dated 9 January 1997 handed to the plaintiff at a board meeting of the defendant on that day, wrongfully terminated the plaintiff's employment, and purported to dismiss the plaintiff without notice and with immediate effect, before the initial period of 24 months had expired, and without the six months' written notice thereafter, without any payment or benefit other than salary accrued due and payable as at 9 January 1997. Further, by a notice from the defendant's directors dated 10 January 1997, the defendant purported to remove the plaintiff as a director of the defendant.

4. By his solicitors' letter dated 10 January 1997, the plaintiff accepted the said repudiatory breaches.

5. The plaintiff's claim is for damages in the total sum of HK$12,047,829, comprising :

(1) a claim for HK$6,166,666 in respect of salary for the remaining period of the Contract and the notice period, namely, 24 2/3 months at $3,000,000 per year;

(2) the value of the stock options in the sum of $6,641,800; and

(3) holiday pay in the sum of $64,363.

6. The defendant alleges that it was entitled to summarily dismiss the plaintiff on 9 January 1997. The letter of that date by which it purported to do so reads as follows :

"Dear Sir,

Re: Notice of Termination of Your Employment with

Star Telecom International Holding Limited (the 'Company')

Pursuant to Clause 8.03 of your contract of employment with the Company dated 26th July 1996 (the 'Employment Contract') and upon resolution of the Board of Directors of the Company passed at the meeting held on 9th January 1997, we hereby serve you notice to terminate the Employment Contract with the Company with immediate effect.

After careful consideration, the Board of Directors resolved that you have committed, inter alia, the following serious 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."

7. Mr Chan concedes that there was no evidence to support the allegation in relation to Mr Mico Chung, and the defendant no longer relies thereon as part of the grounds which entitled it to summarily dismiss the plaintiff.

8. In order to properly evaluate the conduct of the plaintiff which the defendant alleges entitled it to summarily dismiss him, it is necessary to understand the full context in which it occurred, and the background leading up to it.

9. Before he took up employment with the defendant, the plaintiff had, on 1 March 1995, set up a telecommunication consulting company, FW & Associates Limited ("FWA"). The plaintiff met Mr Nelson Wong Kam Fu ("Nelson Wong") in July 1995, who was the Managing Director and Chief Executive Officer of the defendant at the time, in addition to being its major shareholder (Nelson Wong and his wife controlled approximately 50.5% of the shares of the defendant). They developed a working relationship, and the plaintiff's company was engaged by the defendant to provide consultancy services in relation to certain specific projects. Between July 1995 and 1 August 1996 their working relationship became close, and Nelson Wong suggested that the plaintiff should join the defendant as its Chief Executive Officer. Over the months they discussed the basic terms upon which the plaintiff would do so, and towards the end of July 1996, at a dinner meeting, they signed an employment contract, the terms of which the plaintiff had drafted, at Nelson Wong's request.

10. The plaintiff testified that it was a key term of the Contract from his point of view that his appointment would be for a minimum term of two years, during which it could not be terminated except for serious misconduct, or other offences as specifically defined in the Contract. It was on this basis that he agreed to close his own consulting practice, FWA, which was doing well at that time. It was, therefore, a significant career decision for him to join the defendant, and he would not have done so without the two-year minimum term of employment being specifically provided for in his contract of employment. He did not make any immediate substantial financial gain by joining the defendant, though he did intend to benefit financially from the stock options which were offered to him as part of his remuneration package.

11. The plaintiff further testified that at the time he joined the defendant, he and Nelson Wong had an excellent working relationship, and that Nelson Wong had agreed to give him complete autonomy in running the defendant.

12. The defendant was in financial difficulties due to high gearing and decrease of the income from its core paging business. It was one of the plaintiff's foremost tasks to raise funds by executing the joint venture proposals which he had helped to develop while FWA was acting as the defendant's consultant. In October 1996, when they were finalizing the sale of a part of the defendant's equity interest in Star Digital Limited ("SDL") to the International Wireless Company ("IWC"), the defendant's auditors suggested that, in order to facilitate the closing of the deal, it was necessary for Nelson Wong and his wife to exercise the approximately 50,000,000 warrants of the defendant which they held between them, each of which conferred rights to subscribe for shares of the defendant at a subscription price of $3.10 per share, such rights expiring at the close of business on 31 December 1996.

13. Nelson Wong and his wife consequently entered into a deed of undertaking with the defendant on 15 October 1996, which provided, inter alia, as follows :

"WHEREAS

(1) The Covenators [sic] are husband and wife and are both directors of the Company and as at the date hereof the Covenantors together own approximately 50.2% of the shares of HK$0.1 each in the issued share capital of the Company (the 'Shares') and also together own 50,749,.744 warrants of the Company each conferring rights to subscribe for $3.10 in cash for the Shares (the 'Warrants') at a subscription price of $3.10 per Share which rights shall expire at the close of the business on 31st December, 1996.

(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."

14. By a supplemental deed of undertaking dated 25 November 1996, Nelson Wong and his wife waived the condition in the original deed that they could not be required to exercise the warrants if the closing price of the share was less than HK$1.8275 per share; and finally, by a second supplemental deed of undertaking dated 17 December 1996, the period of 14 days following receipt of a notice from the defendant within which Nelson Wong and his wife undertook to subscribe for the shares, was reduced to 10 days.

15. One of the methods by which the defendant addressed its cashflow problems was to raise a HK$20 million uncommitted revolving credit facility from the Sumitomo Trust & Banking Co. Ltd ("Sumitomo"). On 26 November 1996, the defendant entered into a deed of undertaking with Sumitomo which referred to the undertakings which had been given by Nelson Wong and his wife to exercise their warrants when required to do so by the board of the defendant, and stated it as a condition precedent to Sumitomo granting any further credit under the facility, that the defendant enter into this deed to ensure that the defendant would deposit with Sumitomo a sum of at least HK$20 million, being part of the monies to be received by the borrower from Nelson Wong and his wife exercising their share warrants; and the defendant irrevocably and unconditionally undertook : to notify the bank in writing as soon as the majority of the board of directors of the defendant had requested Nelson Wong and his wife to exercise their warrants; and immediately upon payment by Nelson Wong and his wife for the shares, to deposit from the proceeds thereof a sum of at least HK$20 million with the bank.

16. On the same day the plaintiff and five other directors of the defendant entered into a further deed of undertaking with Sumitomo, as a condition precedent to Sumitomo providing a $20 million term loan facility to the defendant, in terms of which the directors jointly and severally undertook to convene a meeting of the board of directors of the defendant as soon as practicable, but in any event not later than 14 days before 31 December 1996; and to procure that a majority of the directors at the meeting shall vote and resolve to exercise the defendant's right under the undertaking of 15 October 1996 to demand that Mr and Mrs Wong exercise their warrants; and to do everything necessary to ensure that the undertaking becomes immediately exercisable by the defendant, and that the defendant received the full payment for the subscription of the shares in cash on or before the repayment date. This undertaking was signed by the plaintiff and five other directors of the defendant.

17. On 12 December 1996, Sumitomo faxed a letter to the defendant, for the attention of Mr Alfred Shao, General Manager, in the following terms :

"Re: HKD20 Million Uncommitted Revolving Credit Facility & HKD20 Million Term Loan

As the Final Maturity Date of the HKD20 Million Term Loan (Facility Letter dated November 26, 1996) is approaching, we would like to remind you the following 2 procedures:

- Pursuant to point 1 of the Undertaking of majority of Shareholders (as attached) dated November 26, 1996, the board of directors of your company have to request Mr. Wong Kam Fu and Ms. Chu Wai Fun on or before December 17, 1996 to exercise their warrants as per the undertaking to your company dated October 15, 1996. You shall notify us immediately after the board of directors raised such request.

- Pursuant to Point 3 of the said Undertaking, the exercise of warrants by Mr Wong Kam Fu and Ms. Chu Wai Fun have to take place on or before the Final Maturity Date of the Term Loan (i.e. December 20, 1996).

We would be most grateful if you could keep us updated with any significant progress in the above matter. ...."

18. The plaintiff further testified that following certain developments in November 1996 which had impacted negatively upon the defendant's public image, by early December 1996 it had become apparent that the defendant was experiencing increasing difficulty in raising additional finance or obtaining bank loans. A major syndicated loan repayment in the sum of HK$40 million was due on 20 December 1996, and the defendant urgently needed to raise cash. The plaintiff invited an investment adviser, Wheelock NatWest, to review the defendant's situation and give advice on how to raise funds.

19. The plaintiff said that on 12 December, he, Maurice Ngai (Company Secretary) and Alfred Shao (General Manager) were all aware of the undertaking that had been given to Sumitomo, and the need to give notice to Mr and Mrs Wong to exercise their warrants. They decided to call a board meeting for the following day to discuss and deal with the matter. On the morning of 13 December, the plaintiff instructed Maurice Ngai to contact the defendant's legal adviser, C.Y. Lee, to draft the notice to be presented to Mr and Mrs Wong to put before the board meeting. Directors were telephoned on that same morning, and a meeting was held in the Board Room of the defendant at about 4 p.m. They discussed the options which were available to the defendant, and specifically whether or not the defendant should serve the notice on Mr and Mrs Wong requiring them to exercise the warrants.

20. The plaintiff further testified that Francis Yeung, the representative of Wheelock NatWest, informed the board that the board and each individual member had fiduciary duties to its shareholders, and that maintaining liquidity formed part of such duties; while Maurice Ngai made it clear during the meeting that it was the board's collective duty to issue the notice as a step to maintain liquidity and to avoid a technical insolvency situation which would occur if the notice were not issued.

21. The plaintiff said that Nelson Wong was present while the subject was thoroughly discussed, and it was made clear to the meeting that he did not want to exercise his warrants and did not want the board to issue the notice to him. It was during this meeting that it became apparent for the first time that Nelson Wong did not have the cash to enable him to exercise the warrants without first raising the cash. After a thorough discussion, the consensus of the board was that the notice had to be formally issued immediately in order to comply with the 14-day notice period, keeping in mind that the board could still cancel the notice in the event that alternative funding became available, and that other funding options should, in the meantime, be actively explored. According to the plaintiff, Nelson Wong then walked out of the meeting, and he followed him shortly thereafter to discuss with him alone the need for the board to serve him with the notice. After the discussion, he signed the notice and handed it to Nelson Wong, and asked him to sign and return it by way of acknowledgement. Nelson Wong said that he would need to think about it, and was quite upset. The plaintiff testified that he believed that serving the notice on Nelson Wong was within his authority and was the only way to ensure that Nelson Wong would exercise his warrants.

22. The notice is in the following terms :

"To: Mr. Wong Kam Fu and Ms. Chu Wai Fun

Whereas :

(A) .... [This refers to the details of the Deed of Undertaking given by Mr Wong and his wife in favour of the defendant dated 15 October 1996.]

(B) The directors of the Company met on 13th December, 1996 and resolved that a notice to the Covenantors be served requesting the Covenantors to exercise all the Warrants owned by the Covenantors.

NOW NOTICE IS HEREBY GIVEN to the Covenantors to exercise all the Warrants owned by the Covenantors pursuant to the Deeds of Undertaking on or before 20th December, 1996."

It was signed by the plaintiff on behalf of the defendant company, dated 13 December 1996, with an endorsement underneath :

"Agreed to the contents of the above notice and agreed to exercise all the Warrants owned by us on or before 20th December, 1996 despite any stipulation to the contrary (if any) in the Deeds of Undertaking by :-

______________	______________
WONG KAM FU	CHU WAI FUN"

Relevant documents after 13 December

23. The records of the defendant show that a notice of meeting dated 14 December 1996 was issued stating that an urgent meeting of the board of directors will be held on 14 December 1996, and the first item on the agenda is :

"To consider the issuance of the notice to exercise the Warrants owned by Mr. Wong Kam Fu and Ms Chu Wai Fun pursuant to the Undertakings dated 15th October, 1996 and 25th November, 1996."

24. A further notice dated 16 December 1996 reads :

"Further to our notice dated 14th December, 1996, .... the board of director meeting is rescheduled on 16th December, 1996 at 4:30 p.m. .... with the following additional agenda :-

1 To appoint Wheelock NatWest Corporate Finance Limited as the financial adviser to the Board .... in respect of the up-to-date cash flow position, in particular in relation to the undertakings by Mr Wong Kam Fu and Mrs Chu Wai Fun to exercise their warrants in the Company."

It should be recalled that the second supplemental deed of undertaking was executed by Mr and Mrs Wong on 17 December 1996, in terms of which the undertaking in the original deed to subscribe for the shares within 14 days of receipt of a notice from the defendant was amended to 10 days.

A further notice dated 17 December 1996 reads :

"NOTICE is hereby given that in view of cash flow problem to the Group, it was resolved at the board meeting held on 17th December, 1996 at 8:00 a.m. ....

1. To appoint Wheelock NatWest Corporate Finance Limited as the Company's Financial advisers ....

2. A regular of the full Board Meeting to be held everyday's morning at 8:00 a.m. to monitor the progress of any matters/plans relating to cash flow of the Company until further notices.

3. A board meeting will be held ..... on 17th December, 1996 at 5:00 p.m. to update the progress of the proposed plan (if any) and in particular make necessary enquiry into the progress of the work done by South China Capital Ltd. who had been appointed as the financial advisors in procurement of the Company's finance."

25. It should be noted that Maurice Ngai, whose job it was to issue and sign all the notices of the board meetings, was emphatic in his testimony that the initial part of this notice had been wrongly drafted, since there had been no board meeting on 17 December prior to the issue of this notice, and there had been no resolution to appoint Wheelock NatWest as the defendant's financial advisers (this latter point was confirmed by the plaintiff in his testimony) : the document was intended to simply give notice of a board meeting to be held on 17 December 1996 to discuss all three of the agenda items set out therein.

26. Paragraphs 4.2, 6.1 and 6.2 of the minutes of a meeting of the board held on 18 December 1996 reads :

"4.2 All directors also were aware that even there were any such committed offers to the Company, which become an additional source of fund, the directors other than Mr Wong Kam Fu and Ms Chu Wai Fun had to satisfy themselves whether it was in the best interest of the Company to justify no issuance of the notice to Mr Wong and Ms Chu to exercise their warrants pursuant to the Undertaking dated 15th October, 1996 to the Company.

....

6.1 IT WAS RESOLVED THAT according to the discussed action plan, a Board Meeting will be convened on 20th December, 1996 at 12:00 noon to appoint the Company's financial advisors (if any) and to effect any of alternative plans to resolve the Company's cash flow (including notice to Mr Wong Kam Fu and Ms Chu Wai fun requesting exercise of their warrants.)

6.2 The board reminded Mr Wong Kam Fu, who was present in the Meeting to have his lawyer to represent him and Ms Chu Wai Fun at the board meeting on 20th December, 1996."

27. The minutes of the meeting of the board held on 20 December 1996 recorded that Mr and Mrs Wong had notified the board that they had, on 20 December 1996, exercised in full all the warrants beneficially owned by them, and further had borrowed HK$180 million from China Strategic Holdings Limited ("CSH"), a large part of which had been utilized to exercise the warrants.

28. The plaintiff had in the meantime been authorized by the board on 18 December 1996 to pursue a deal that he was working on to sell the defendant's interest in P. Plus Communications Limited to Pacific Electric Wire & Cable ("PEWC"), and to travel to Taipei to finalize the details of the agreements and to take a deposit of HK$20 million on the transaction. The plaintiff testified that he strongly believed that this deal was the solution to the defendant's problems, since it would raise funds for the defendant of approximately HK$160 million. He travelled to Taiwan on 19 December 1996 and successfully negotiated it. The plaintiff attended the board meeting on 20 December 1996 in the full expectation that the board would authorize him to "sign-off" on the deal with PEWC, and was shocked to be told by Nelson Wong in the meeting to forget that deal since the defendant was now receiving a HK$150 million cash injection as a result of the voluntary exercise of his and his wife's warrants, with the help of a loan which he had obtained from CSH.

29. The plaintiff testified that the working relationship between himself and Nelson Wong deteriorated from that point onwards. It became clear to him in the succeeding days that Nelson Wong was bypassing him, and working directly with Alfred Shao in the defendant's dealings with CSH. At Nelson Wong's suggestion, CSH staff members started to work within the defendant's offices, and attended a board meeting of the defendant on 30 December 1996 for the first time. These CSH staff members would deal directly with Alfred Shao or Maurice Ngai when they attended the defendant's offices, and totally bypassed the plaintiff. The plaintiff was not happy about the CSH staff members being exposed to confidential information within the defendant's offices, and taking part in the board meetings and purporting to advise the defendant on certain aspects of its business. The plaintiff attempted, inter alia, to talk to Mr Frederick Sum of CSH in an attempt to open up some constructive dialogue with CSH, but found that Frederick Sum did not wish to cooperate with him.

The Christine Cheung incident

30. On 7 January 1997, the defendant's accounting department passed to him a purchase requisition form to requisition the payment of HK$500,000 to South China Securities Ltd ("South China"), being a "fee for procurement of finance". The plaintiff knew that in terms of the agreement which had been concluded with South China, in the event that South China was not successful in procuring funds for the defendant, the defendant would be liable to pay South China's executives' time costs spent in the procurement, which were not expected to exceed HK$100,000, together with all costs and expenses reasonably incurred by South China. Since South China had indeed been unsuccessful in procuring any funds for the defendant, the plaintiff considered that it was entitled to be paid a fee of HK$100,000 in terms of the agreement; he accordingly rejected the purchase requisition form requisitioning a payment of HK$500,000. He also explained the situation to Nelson Wong and Alfred Shao. Nelson Wong's response was simply to ask Alfred Shao to countersign the cheque for HK$500,000.

31. On the same day, the plaintiff telephoned Christine Cheung, the Managing Director of South China, to advise her of his views, and he asked her to revise the bill which had been presented by South China. (Prior to this, all of the plaintiff's dealings with South China had been with Dan Hui.) Christine Cheung said she would speak to Dan Hui about it, and a little while later, she called back and said that the amount (of HK$500,000) had been approved by Nelson Wong. The plaintiff told her that Nelson Wong may have misunderstood the position as he had not read the agreement which had been concluded between the defendant and South China. He demanded that Christine Cheung amend the bill for his approval. She then asked him who the boss was, whereupon the plaintiff told her that as he was the Chief Executive Officer of the defendant, he was in charge. She said she would speak to Nelson Wong about it. Nelson Wong later called the plaintiff in to ask him about the matter, and when the plaintiff repeated his views on the matter, Nelson Wong said that the defendant should simply pay the $500,000 in any event. The plaintiff reiterated that the defendant should not pay more than $100,000, to which South China was entitled in terms of the agreement.

The Frederick Sum incident

32. On 8 January, the plaintiff called Mr Frederick Sum of CSH again, and demanded an explanation as to why he would not co-operate with him. Mr Sum was unfriendly, and the plaintiff became so frustrated that he used foul language towards him, namely "Fuck your mother" (the conversation was in Cantonese).

33. On 9 January, the board voted to terminate the plaintiff's employment. After the vote, Nelson Wong approached the plaintiff in tears and attempted to salvage their relationship; he urged the plaintiff to resign and offered him six months' salary. The plaintiff refused to resign as he said he had done nothing wrong, whereupon he was handed the letter terminating his services.

The giving of the notice to Mr Nelson Wong Kam Fu on 13 December 1996

34. This has always been the main ground upon which the defendant relied to summarily dismiss the plaintiff. The defendant pleaded the matter as follows, after referring to the undertaking given by Mr and Mrs Wong to exercise their warrants if required by the board of the defendant to do so.

"On or about 13th December 1997, the plaintiff, without the knowledge or consent of the Board misrepresented to Mr Wong Kam Fu that the Board had already made a resolution requiring Mr and Mrs Wong to exercise the warrants in accordance with the deed and the Supplemental Deed and presented the document to Mr Wong for the signatures of Mr and Mrs Wong for the purpose of exercising the warrants as aforesaid. In truth and in fact, the Board had never made any request to Mr or Mrs Wong for them to exercise such warrants pursuant to the Deed of Undertaking and Supplemental Deed or otherwise and the conduct of the plaintiff as aforesaid is dishonest and contrary to his duties to the defendant as set out in paragraphs 3 and 4 above."

35. Paragraph 3 of the Amended Defence refers to the plaintiff's express duties as set out in Clause 4 of the contract of employment, while paragraph 4 pleads his implied duties :

"4. Furthermore by reason of his position as the Managing Director/Chief Executive Officer of the Defendant, the Plaintiff owes the Defendant the following implied duties :-

a. to serve the Defendant with good faith and fidelity;

b. to behave in an honest, upright and faithful manner in all his dealings with the board of the Defendant including its Founder, Chairman and majority shareholder, Mr. Wong Kam Fu, and any of its members;

c. to faithfully co-operate with all members of the board of the Defendant including the Chairman and any of its members;

d. not to do anything which may damage or harm the image of the Defendant including the image of Mr. Wong Kam Fu in his capacity as the Founder, Chairman and majority shareholder of the Defendant."

36. I have described above the plaintiff's testimony as to the events of 13 December.

37. Mr Francis Yeung, the plaintiff's witness, was employed by Wheelock NatWest at the time, which company had been instructed to act as an independent financial adviser to the defendant in relation to the IWC transaction. He recalled attending a board meeting of the defendant around mid-December 1996, in which he briefly discussed the options available to the defendant to sort out its financial difficulties, including the option of serving a notice upon Nelson Wong requiring him to exercise his warrants of the defendant. His evidence in chief was to the effect that he "believed" that he explained to the board that even though Nelson Wong was their "boss", they had a duty to act in the best interests of the defendant- whereupon Nelson Wong became upset with him and began to blame both him and C.Y. Lee for not advising him in relation to his legal obligations prior to his signing the deed of undertaking. This did not sit comfortably with his oral evidence that he clearly remembered that Nelson Wong had only joined this meeting in the middle of it, and his evidence under cross-examination that when he talked to the meeting about these matters and advised them that they should issue a notice to Nelson Wong, Nelson Wong was not present, and had only joined the meeting after these matters had been discussed. He had no recollection whether Nelson Wong had left the meeting at any time, and whether the plaintiff had followed him out.

38. Nelson Wong testified that he and his wife had executed the deed of undertaking of 15 October 1996 at the plaintiff's suggestion, as a means to satisfy the banks as to the defendant's ability to repay any loans that they advanced, and only after the plaintiff had assured him that he would solve the cashflow problems of the defendant without calling upon Nelson Wong and his wife to exercise their warrants.

39. On 13 December the plaintiff had come to his room, told him that the board had passed a resolution calling upon him and his wife to exercise their warrants, and handed him the notice which he misrepresented was issued pursuant to a resolution of the board. He insisted that he had not attended a board meeting on that morning, and when he had subsequently made his own enquiries with the other directors, they confirmed that no board meeting had been held and no resolution had been passed. His evidence was hopelessly contradictory when he was persistently questioned about whether or not he had signed the notice at any time after the plaintiff had served it upon him. He had eventually cut up and disposed of the notice.

40. He made no bones in his testimony about his resentment that the plaintiff had prevailed upon him - the Chairman and major shareholder of the defendant - to enter into the deed of undertaking to the defendant, when the main reason that the plaintiff had been employed was to find outside investors to invest in the defendant, which, if he had accomplished it, would have removed the necessity for Nelson Wong and his wife to exercise their warrants in the defendant.

41. Following the plaintiff's misrepresentation on 13 December, he felt that the plaintiff could not be trusted, nor relied upon to resolve the financial problems of the defendant.

42. He confirmed that it would have caused grave financial difficulties to exercise the warrants at the time, since he and his wife did not have the necessary cash.

43. Mr Yim Sang, who was a director of the defendant at the time, testified that he had no recollection of attending any meeting of the directors of the defendant on 13 December, nor of being asked by anybody to attend such a meeting.

44. Mr Maurice Ngai, who was the Company Secretary of the defendant at the time, was also unable to recall a meeting on 13 December, though he made it clear that he could not say that such a meeting had not been held. As Company Secretary, it was his function to issue notices of all board meetings and prepare minutes of such meetings : no such records existed in relation to any meeting on 13 December, although there were quite frequent occasions when directors held informal meetings at which matters of concern to the company would be discussed, without any notice having been issued or minutes prepared.

45. 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.

46. 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.

47. At some stage after Nelson Wong had left the meeting, the plaintiff sought him out and served the notice on him - which had been drafted by C.Y. Lee earlier that morning, and signed by the plaintiff on behalf of the defendant. Precisely where this encounter took place, whether in Nelson Wong's office or elsewhere, as also the full terms of the conversation that took place between them, have not been established, however I find as a probability that the plaintiff did tell Nelson Wong that the board had resolved that a notice be served requiring him and his wife to exercise their warrants. Nelson Wong was upset on being handed the notice, and said that he needed time to think about it. The plaintiff did not suggest that he (the plaintiff) had returned thereafter to continue the informal meeting which he had left.

48. 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.

49. 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.

50. 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.

51. The due passing of a resolution and issuing of a notice by the defendant's board of directors requiring Nelson Wong and his wife to exercise their warrants was a matter of considerable importance, and numerous ramifications. Most importantly, it was a matter of importance to the defendant because, unless it was subsequently countermanded, it represented the means by which the defendant intended to raise the capital which it urgently needed to meet its looming debt-repayment obligations, no other source of finance having been obtained or secured at that stage. It was a matter of importance to the plaintiff and the other directors in fulfillment of their personal undertakings to Sumitomo on 25 November 1995. It was a matter of great importance to Nelson Wong, since, unless countermanded, it required him and his wife to make a payment of some $157 million in fulfillment of their obligation to subscribe to shares of the defendant under the warrants, at a time when it was disadvantageous for them to do so, since the warrants obliged them to subscribe for the shares at a price of $3.10 per share, while the market value of the shares at that time was approximately $2.70 per share.

52. In all these circumstances, and bearing in mind that the undertaking which had been given by Nelson Wong and his wife was to exercise their warrants if required to do so "by resolution of the board of directors of the company", the misrepresentation by the plaintiff to Nelson Wong, to the effect that the directors of the defendant had resolved that such a notice be served upon them, was in my view a serious matter. I have no doubt that it constituted an act of serious misconduct, in the sense used in employment law, by the plaintiff towards Nelson Wong as Chairman and major shareholder of the defendant. The issue, however, is whether it constituted an act of misconduct towards the plaintiff's employer, namely the defendant. (It is important to keep in mind the separate legal personality of the defendant from that of its Chairman and major shareholder Nelson Wong. Indeed, the question of whether the defendant should require Nelson Wong to exercise his warrants graphically illustrated the different interests at stake of the defendant on the one hand, and Nelson Wong on the other.)

53. I have concluded that the plaintiff's actions on 13 December did constitute an act of serious misconduct vis-à-vis the defendant. As I have already indicated, the issue of whether the board should formally require Nelson Wong and his wife to exercise their warrants was one of considerable importance to the defendant, bearing in mind that as at 13 December the notice was required to be served by close of business on 17 December (since the supplemental deed of undertaking, which shortened the period of notice required to be given, had not yet been entered into). It was only by a formal resolution of the board of directors of the defendant that Nelson Wong and his wife could be obliged to exercise their warrants : it should have been abundantly clear to the plaintiff that a mere consensus in an informal meeting could not suffice to that end. The situation at the time appeared to be that the board members, while they were of the view that it would be in the defendant's best interests to require Nelson Wong and his wife to exercise their warrants, were reluctant to formally require them to do so in view of the financial embarrassment that this would have caused the Wongs at that time.

54. The misrepresentation by the plaintiff to Nelson Wong to the effect that the directors of the defendant had thus resolved on 13 December 1996, had major implications not only for Nelson Wong and his wife, but also for the defendant. If Nelson Wong and his wife had duly signed the notice, and proceeded to exercise the warrants on the understanding that the notice had been duly given to him and his wife, it would arguably have been open to them to subsequently resile and take appropriate steps to recover from the defendant any monies which had been paid, once it was established that the directors of the company had not in fact formally resolved that the notice be issued. The deadline for requiring Nelson Wong and his wife to exercise their warrants would no doubt have expired by then, and they could not thereafter have been obliged by resolution of the board to exercise their warrants.

55. In serving the notice on Nelson Wong on 13 December, the plaintiff was purporting to act on behalf of the board of directors of the defendant, under the authority of a resolution of the board, when he knew that no such resolution had in fact been passed by the board. In my view this constituted an act of misconduct which was sufficiently serious to justify the summary termination of his contract of employment.

The plaintiff's "misrepresentation" to Christine Cheung

56. The defendant's complaint in this respect is pleaded in the following terms :

"On or about 7 January 1997, the plaintiff misrepresented to one Christine Cheung ... of South China Limited that Mr Wong Kam Fu was no longer the boss of the defendant but the plaintiff himself was the boss. Such misrepresentation damaged the image and reputation of Mr Wong as the Founder, Chairman and majority shareholder of the defendant and thereby damaged the reputation of the defendant."

57. The plaintiff's relationship with Nelson Wong had deteriorated badly by 7 January 1997. This gave rise to an extremely awkward situation, since the plaintiff was still the Managing Director and Chief Executive Officer of the defendant, responsible for running its day to day affairs, while Nelson Wong was still the Chairman of the company, and obviously occupied a position of considerable influence as the founder, and, until his exercise of his warrants on 20 December 1996, the major shareholder of the company. It is a moot point whether plaintiff or Wong was entitled to be described as the "boss" of the company. As far as the stand-off between them concerning the payment to South China was concerned, the plaintiff's attitude and frustration were understandable, since the terms of the agreement which had been concluded between the two companies appeared to fully support him. He believed he was acting in the best interests of the defendant in refusing to authorize the payment of $500,000 to South China, and in demanding of Christine Cheung that she altered the bill presented to the defendant to accord with the parties' agreement. She in turn was placed in an awkward position, in light of the fact that Nelson Wong, the Chairman of the defendant, had authorized the payment of $500,000 to South China, and since the plaintiff was insisting that only $100,000 was payable and that South China should amend its bill accordingly, it was understandable that she asked the plaintiff, in the circumstances, who was the boss of the defendant - in other words should she comply with the plaintiff's wishes or Nelson Wong's wishes?

58. In these circumstances, the plaintiff's reply to her that as the Chief Executive Officer of the defendant, he was the boss and, impliedly, that his decision on the matter would therefore prevail, was inevitably a 'put-down' of Nelson Wong as Chairman. However that in itself did not constitute it as misconduct, in my view. The more serious aspect of it was that it was calculated to damage the reputation of the defendant, by so publicly exposing the conflict within the most senior ranks of the defendant's board. The plaintiff could have handled the situation with far greater skill and tact. In the interests of the defendant he should have told Christine Cheung that he would come back to her later, and in the meantime gone to see Nelson Wong and attempted to resolve the matter amicably, in a way that would have enabled the defendant to present a united front to South China.

59. In my view, the plaintiff's conduct in this incident can properly be characterized as a substantial act of misconduct towards the defendant. Although it would probably not in itself have caused the defendant to summarily dismiss him, it was nevertheless an act of misconduct which the defendant was entitled to take into account in conjunction with the events of 13 December in deciding to summarily terminate his employment.

Foul language to Frederick Sum

60. The defendant's case in this respect is that by abusing Mr Sum with foul language for no reason, the plaintiff lowered the esteem and image of the defendant as a listed company in Hong Kong.

61. The plaintiff's frustration with the situation which had developed with CSH employees coming into the defendant's offices, uninvited and unauthorized by him, was entirely understandable, particularly since such staff members were bypassing him and liaising directly with Alfred Shao and Nelson Wong. This situation was symptomatic of the dysfunctionality which was increasingly affecting the management of the defendant.

62. When the plaintiff phoned Mr Sum to demand an explanation, it is not surprising that he felt frustrated and angry on finding that Sum was unfriendly and unco-operative towards him. He should not however have used foul language towards Mr Sum; particularly at a time when the defendant was involved in negotiations with CSH that were important to the defendant, and since he was acting at the time in his capacity as Chief Executive Officer of the defendant, his conduct was unbefitting that position and was calculated to tend to "lower the esteem and image of the defendant as a listed company in Hong Kong". Although this was a comparatively minor incident in itself, it was also one which the defendant was entitled to take into account and weigh in the balance, in conjunction with the other matters complained of, in deciding to summarily terminate the plaintiff's employment.

63. I have not overlooked the fact that prior to the issue of the notice of termination to the plaintiff on 9 January 1997, no formal complaint had been made by Nelson Wong or anybody else of the plaintiff's conduct on 13 December 1996, nor in relation to the Frederick Sum or Christine Cheung incidents. On the face of it, this might suggest that the defendant was not seriously aggrieved by the plaintiff's conduct in question. This matter also must be examined in its context of the full surrounding circumstances.

64. It is clear from the detailed affirmation evidence that during the whole of December 1996 and up to 9 January 1997, the directors of the defendant, and in particular the plaintiff as Chief Executive Officer and Nelson Wong as Chairman, were heavily involved in a flurry of activities in attempting to secure short term finance for the defendant. I have earlier summarized the further developments which took place throughout December and leading up to 9 January 1997, which culminated in the resolution of the board on 9 January to terminate the plaintiff's employment with the defendant, and the service of notice upon him to that effect.

65. In these circumstances, it was in my view legitimate for the defendant to hold back from taking action in respect of the plaintiff's conduct complained of until 9 January 1997, when in the light of the further developments which had taken place since 13 December 1996, it was decided to summarily terminate his employment.

The law

66. Section 9 of the Employment Ordinance, Cap.57, provides, inter alia, as follows :

"9. An employer may terminate a contract of employment without notice or payment in lieu -

(a) if an employee, in relation to his employment -

...

(ii) misconducts himself such conduct being inconsistent with the due and faithful discharge of his duties;

(iii) is guilty of fraud or dishonesty; or

...

(b) on any other ground on which he would be entitled to terminate the contract without notice at common law."

67. Mr Carolan, who presented the plaintiff's case skilfully and persuasively, submitted that the defendant had wholly failed to discharge the burden upon it of proving that there were grounds for the summary dismissal of the plaintiff. None of the misconduct relied upon by the defendant, he submitted, could be characterized as so serious that it constituted a repudiation of the plaintiff's contract of employment. He referred me to various authorities, both in England and Hong Kong, to illustrate the point. My attention was drawn, inter alia, to the words of Lord Evershed MR in Laws v. The London Chronicle (Indicator Newspapers) Ltd [1959] 1 WLR 698 at 701 :

"... I do, however, think (following the passages which I have already cited) that one act of disobedience or misconduct can justify dismissal only if it is of a nature which goes to show (in effect) that the servant is repudiating the contract, or one of its essential conditions; ..."

68. In my view, the plaintiff, in particular by his conduct on 13 December 1996 was in effect repudiating the essential condition of his contract of service that he performed his duties with honesty and good faith, such that, following the further incidents of misconduct thereafter which proved to be the final straws which "broke the camel's back", the defendant was entitled, on 9 January 1997, to summarily terminate the plaintiff's employment.

69. The authorities show that there is no fixed category of the types or degree of misconduct which will justify summary dismissal. Nor is it necessary for the conduct to qualify as dishonest in order to justify summary dismissal.

70. In Sinclair v. Neighbour [1966] 3 AER 988, the manager of a betting shop openly, but without his employer's knowledge, took ￡15 out of the till, put in an I.O.U. for the money and used the money to place a bet of his own elsewhere. On the next day he repaid the ￡15. The manager knew that, if he had asked his employer for permission to borrow the money from the till for this purpose, the employer would have refused it. Later on the same day the employer discovered what had happened, and dismissed the manager forthwith without notice. Sellers LJ observed at 989C-D :

"... but I do not think that it matters whether the conduct is to be described as dishonest misconduct or not. Views might differ. It was sufficient for the employer if he could, in all the circumstances, regard what the employee did as being something which was seriously inconsistent - incompatible - with his duty as the manager in the business in which he was engaged."

See also Davies LJ at 990E :

"The judge ought to have gone on, in my judgment, to consider whether, even falling short of the label of 'dishonesty', it was nevertheless conduct of such a grave and weighty character as to amount to a breach of the confidential relationship between master and servant, such as would render the servant unfit for continuance in the master's employment and give the master the right to discharge him immediately. On the facts of this case the employee's conduct clearly fell within that latter category; and I have no doubt at all the employer was therefore entitled to dismiss him."

71. In my view, the plaintiff's conduct, in particular on 13 December 1996, and the deception which was inherent in it, was incompatible with his duties as Managing Director and Chief Executive Officer of the defendant, and was such a breach of the good faith which the defendant was entitled to expect of him in discharging his duties, that it was calculated to undermine the relationship of confidence which should exist between master and servant.

72. The plaintiff's conduct complained of was, in my view, inconsistent with the due and faithful discharge of his duties, and constituted sufficiently serious misconduct that the defendant was entitled to terminate his contract of employment without notice or payment in lieu, in terms of both section 9 of the Ordinance and the common law.

73. I am conscious of the fact that summary dismissal is a very serious step for any employer to take against an employee, that in the words of Yeung J in Tsang Tak Chi v. China Wall Ltd [1999] 1 HKC 366, it is the "capital punishment" of Employment Law in that if the dismissal was justified, the employee will be deprived of all the protection otherwise provided by the Employment Ordinance.

74. The plaintiff's claims for damages and consequential relief are premised upon a finding that he was wrongfully dismissed by the defendant. Since I have found that the defendant was entitled to summarily terminate his contract of employment on 9 January 1997, the plaintiff's claims are all dismissed.

75. I make an order nisi that the plaintiff is to pay the defendant's costs of these proceedings.