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

CACV 1123/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 1123 OF 2000

(ON APPEAL FROM HCA 6174 OF 1997)

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J U D G M E N T

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Hon Mayo VP:

1. This is an appeal from a judgment of Deputy High Court Judge Whaley when he dismissed the plaintiff's claim for wrongful dismissal.

2. The plaintiff had been employed by the defendant as its Managing Director and Chief Executive Officer.

3. Mr and Mrs Nelson Wong owned slightly in excess of 50% in the share capital of the defendant which is a publicly listed company.

4. Prior to his employment with the defendant the plaintiff had operated his own company. This company provided consultancy services in the telecommunications field. He had undertaken work for Mr Nelson Wong who at that time had been the Chief Executive Officer of the defendant.

5. The relationship had been harmonious and Mr Nelson Wong had invited the plaintiff to join the defendant. One of his main functions was to be raising funds for the defendant.

6. One of the consequences of the plaintiff accepting employment with the defendant was that he had to discontinue operating his own company.

7. It was partly for this reason that it was provided in the plaintiff's contract of employment that his employment was to be for at least 2 years and that he should have various stock options.

8. Effectively the plaintiff's employment could only be terminated by the defendant if he was found to be guilty of serious misconduct.

9. Shortly after he joined the defendant it encountered financial difficulties. One of the suggestions made by the defendant's auditors was that Mr and Mrs Nelson Wong should agree to exercise warrants for 50,000,000 shares in the defendant which entitled them to subscribe for shares in the defendant at $3.10 per share. The rights expired on 31 December 1996.

10. On 15 October 1996 the Wongs entered into a deed of undertaking under which they were bound to exercise the warrants. In his judgment the Judge set out the material terms of the deed:

"WHEREAS

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

(2) The Covenantors and the Company are of the view that the Company needs cash to discharge its various obligations for period from the date hereof to December, 1997. And the Covenantors are both optimistic about the prospect of the Company and are desirous of exercising some or all Warrants owned by the Covenantors as at the date hereof.

NOW THIS DEED WITNESSETH as follows :-

1. The Covenantors hereby covenant with the Company and irrevocably undertake to exercise the rights of all the Warrants owned by the Covenantors (or any number of the Warrants as the directors may deem fit .... ) to subscribe for the shares if so deemed necessary and sufficient to meet the cash flow of the Company by resolution of the board of directors of the Company within 14 days upon receipt of a notice from the Company to that effect ....

2. Notwithstanding any stipulation to the contrary in this Deed of Undertaking, the Covenantors shall not be obliged to exercise any Warrant if the closing price of the share quoted on The Stock Exchange of Hong Kong .... is lower than HK$1.8275 per share ....

3. The Covenantors shall abstain from voting in any resolution or decision in respect of any matter referred to in Article 1 above in and meeting of the board of directors."

11. Two supplemental deeds were subsequently entered into by the Wongs under which the Wongs were absolved from the requirement to subscribe for the shares if the share price was less than HK$1.8275 per share.

12. One of the avenues which was pursued to alleviate the financial problems which were being encountered was to apply to the Sumitomo Trust and Banking Co. Ltd ("Sumitomo") for a HK$20 million uncommitted revolving credit facility.

13. Sumitomo were anxious that the Wongs should exercise their warrants and subscribe for the shares. They required an undertaking to this effect and also required the directors of the defendant to do everything within their power to demand that the Wongs did comply with their undertaking and that the proceeds of the shares subscription should be held by them.

14. The defendant continued to experience financial difficulty. In particular a major syndicated loan of HK$40 million was due on 20 December 1996.

15. The purpose of setting out this background is to demonstrate that in December 1996 the defendant was experiencing very considerable problems and that one of the critical features underlying these difficulties was the question as to whether the Wongs would exercise their warrants. One of the measures taken by the plaintiff to endeavour to overcome these difficulties was to engage the services of Wheelock NatWest as investment advisers. Their representative was a Mr Francis Yeung.

16. On 12 December Sumitomo wrote to the defendant in these terms:

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

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

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

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

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

17. Up to this point there is very little controversy in relation to the cases being advanced by the parties. It is now necessary to consider in broad outline the respective contentions being advanced concerning the question whether the plaintiff was guilty of serious misconduct such as to justify the defendant summarily dismissing him.

18. It was the plaintiff's case that following the receipt of the faxed letter of 12 December a decision was made to convene a directors' meeting to review the situation. The meeting was held at 4:00 p.m. on 13 December. It was attended by the directors including Mr Nelson Wong. It was also attended by the company secretary Mr Maurice Ngai, the General Manager Mr Alfred Shao, Mr Francis Yeung of Wheelock NatWest, and Mr C.Y. Lee the Company's Solicitor. He had been instructed to draft a form of notice to be signed by the Wongs. It was in this form:

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

Whereas :

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

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

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

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

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

_______________	______________
WONG KAM FU	CHU WAI FUN'"

19. According to the plaintiff there was discussion at the meeting as to whether the directors would require the Wongs to exercise the warrants.

20. It transpired that Nelson Wong was reluctant to do this.

21. One reason for this was that he did not have the financial wherewithal to do so.

22. The plaintiff said that the consensus view of the meeting was that the directors would require the Wongs to exercise the warrants.

23. Mr Nelson Wong expressed his displeasure at this and left the room. The plaintiff followed him shortly after this. He had a discussion with him and signed the notice and asked Mr Nelson Wong to do likewise. He was reluctant to do so and refused to sign the notice immediately.

24. According to the board minutes of 20 December, the Wongs notified the meeting that they had exercised the warrants and had borrowed HK$180 million from China Strategic Holdings Ltd ("CSH") a large part of which had been utilized in the exercise of the warrants.

25. Immediately prior to this the plaintiff had been negotiating with a Taiwan party for the sale of some of the defendant's assets. On 20 December when he returned from Taiwan he was instructed not to proceed with the transaction on account of the funds which had been raised from CSH.

26. Representatives from CSH moved into the defendant's offices in accordance with the terms of the agreement which had been concluded. The plaintiff said that he was being bypassed and this led to considerable tension. This was also of relevance in connection with one of the other complaints which is made by the defendant that the plaintiff used foul language when speaking to Mr Frederick Sum, one of CSH's representatives.

27. It was during this period that the other complaint which is being pursued by the defendant occurred. It is alleged that the plaintiff represented to another person Miss Christine Cheung that he was the boss of the defendant company. This arose in connection with a discussion as to whether it was the plaintiff or Mr Nelson Wong who had the ultimate authority to sanction a disputed payment.

28. On 9 January 1997 the plaintiff received the letter notifying him that his services were being dispensed with.

29. The defence case was that the meeting on 13 December had never taken place and that the plaintiff had misrepresented the position to Mr Nelson Wong when he had requested him to sign the notice in relation to the exercise of the warrants. The complaint which was made was that the plaintiff had represented that the board had passed a resolution requiring the Wongs to exercise the warrants when no such resolution had in fact been passed by the board. It was further claimed that the plaintiff had been guilty of deception and thus had acted dishonestly.

30. The way that the defence case was presented was that it was manifest from the agreement with Sumitomo that what was required was a formal resolution of the directors requiring that the warrants be exercised and that for this purpose a board meeting had to be formally convened. It was contended that the meeting on 13 December had not been formally convened and that the plaintiff was fully aware of this.

31. In support of this contention reference was made to subsequent board meetings from which it could undoubtedly be inferred that the question of the passing of this resolution remained outstanding and unresolved.

32. The point which was emphasized by Ms Eu SC for the defendant was that the plaintiff acknowledged in his evidence that he was aware of the difference between what he described as a consensus of the directors and a resolution of the board of directors. In this connection it was significant that the notice which the plaintiff was asking Nelson Wong to sign referred to a resolution of the directors.

33. Generally speaking the Judge appears to have preferred the evidence of the plaintiff to that of the defendant. He summarized his findings on the evidence at p. 21 of his judgment:

"The demeanour of the plaintiff as a witness was generally favourable; however several aspects of the events relating to 13 December have not been satisfactorily explained, and remain something of a mystery. I had no reason to believe, from their demeanour, that any of the witnesses were lying.

On all of the evidence I find on the probabilities that there was an informal meeting of directors of the defendant on 13 December at which the plaintiff was present, and during which the cashflow problems of the defendant, and the question whether a notice should be issued requiring Nelson Wong and his wife to exercise their warrants, were discussed. It appears that Nelson Wong was present for a part of that meeting. I accept the plaintiff's evidence that there was a consensus at the meeting that it was in the interests of the defendant that a notice should be issued to Nelson Wong and his wife requiring them to exercise their warrants in terms of their undertaking to the defendant. There is no dispute that the matter was never put to a vote, and no resolution was passed.

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

It is difficult to understand what precisely motivated the plaintiff to act as he did. He testified that he believed that he was acting within his authority in serving the notice on Nelson Wong as he did, and that this was the only way to ensure that Nelson Wong would exercise his warrants. I accept that the plaintiff believed that it was in the best interests of the defendant that Nelson Wong and his wife should be given notice, before the deadline expired on 17 December, to exercise their warrants in terms of their undertakings. This was also the advice which had been given by Francis Yeung of Wheelock NatWest, and was a view shared by the other board members. It is also important to recall that the plaintiff and five other directors had, on 25 November 1996, entered into a formal deed of undertaking with Sumitomo, undertaking that they would, as soon as practicable, convene a meeting of the board, and procure that a majority of the directors present would vote and resolve to exercise the defendant's right to require Nelson Wong and his wife to exercise their warrants. By its fax on the afternoon of 12 December, Sumitomo had reminded them of the board's obligation to request Nelson Wong and his wife, before 17 December, to exercise their warrants in terms of their undertaking on or before 20 December 1996.

It remains a mystery why, given that there was a consensus at the meeting on 13 December that it was in the interests of the defendant that a notice should be issued to Nelson Wong and his wife, the plaintiff did not take the next logical step and see to it that the matter was put to a vote and a resolution passed to that effect.

The plaintiff concedes that the notice was factually inaccurate and untrue in stating that the directors of the defendant had met and resolved that a notice be served requesting Nelson Wong and his wife to exercise their warrants. Far from alerting Nelson Wong to this fact, the plaintiff repeated the misrepresentation orally. All the indications point to the fact that the plaintiff intended that Nelson Wong and his wife should sign the notice to the effect that they agreed its contents and agreed to exercise their warrants on or before 20 December 1996."

34. On the basis of these findings of fact the Judge went on to conclude that the plaintiff had indeed been guilty of misconduct such as to justify the defendant taking the action it did in terminating the plaintiff's employment.

35. The first question which has to be considered is whether on the evidence which was accepted by the Judge it was open to him to find that the plaintiff had misrepresented the position to Mr Nelson Wong.

36. Although Mr Nelson Wong had denied that there had been any directors meeting on the afternoon of 13 December the Judge found that there had been a meeting and that Mr Nelson Wong had attended at it.

37. There had been discussion at the meeting of the financial affairs of the defendant and of the necessity for the Wongs to exercise their warrants. It also has to be borne in mind that there was evidence that the meeting had before it the notice which had been drafted by Mr Lee the solicitor which needed to be signed by the Wongs to satisfy the requirements laid down by Sumitomo.

38. The Judge accepted that there had been a consensus at the meeting that the directors should require the Wongs to sign the notice. The Judge also appears to have accepted that Mr Nelson Wong was very unhappy that the directors had reached this consensus and that it was at this stage that Mr Nelson Wong left the meeting.

39. The plaintiff gave evidence that shortly after this he followed Mr Nelson Wong and that the critical meeting then took place. It appears from the transcript of the plaintiff's evidence that essentially the meeting broke up after Mr Nelson Wong's departure. Nothing transpired which would account for there being anything to delay the plaintiff in going to seek out Mr Nelson Wong.

40. A further point can be made that the plaintiff was not cross-examined on this. It is in no way inconsistent with the Judge's findings to proceed on the assumption that the passage of time which elapsed between Mr Nelson Wong walking out of the meeting and the plaintiff following him was of short duration.

41. What all of this leads to is that it is virtually inconceivable that Mr Nelson Wong could have believed that there was any possibility that the directors had passed what has been described as a formal resolution requiring the Wongs to exercise the warrants subsequent to his leaving the room.

42. When this is considered in conjunction with the fact that Mr Nelson Wong would have been familiar with the contents of the draft notice which had been prepared by Mr Lee one is led to the inevitable conclusion that Mr Nelson Wong was in possession of all of the information which was available to the plaintiff.

43. That being the case there can be no question of the plaintiff having been guilty of any misrepresentation.

44. What needs to be considered is where the Judge went wrong. It is not difficult to find this.

45. In the judgment the Judge attaches great weight to the distinction which he appears to think there is between the consensus which is reached at a board meeting and a so called formal resolution of a Board of Directors of a company.

46. In practical terms there is no such distinction. It is by no means unusual for Directors of Companies to conduct their business on a semi-informal basis. When reaching a decision even of an important nature, they may not solemnly cast votes and style the result as a resolution.

47. Authority for this proposition can be found in the commentary in Chap. 8 paragraph 307 of Vol. 2 of Palmer's Company Law, Sweet & Maxwell:

"Resolutions of directors

8.307 At board meetings, the directors exercise their powers by resolutions which are passed in the manner laid down in the articles or agreed upon by them under powers given them by the articles. They decide usually by a majority of votes of those present (see article 88). Proxies are sometimes admitted. The chairman is usually given a casting vote by or under the articles (see article 88); at common law he has no such vote.

It is not, however, essential for the validity of a director's resolution that the determination should be embodied in a formal resolution, and the minutes in recording it often, in fact, enter only the substance, e.g. 'a contract with A B for the supply of ... was submitted and approved.' It is, however, necessary to enter minutes of all directors' proceedings in a book kept for the purpose."

48. The Judge when weighing the gravity of what he considered was the plaintiff's misrepresentation went on to ponder the dire consequences which might ensue to the detriment of the defendant consequential upon all of this.

49. As can be seen from the passage cited from Palmer the Judge's fears were unfounded.

50. The result of the Judge's misapprehension concerning the true legal position led him into error. This is particularly the case when it is borne in mind that the defendant had a heavy burden to discharge when it was attempting to establish that the plaintiff had been guilty of misconduct such as to justify it taking the action it did in terminating his contract of service for cause.

51. Passing reference has been made earlier to the two other instances of misconduct which were relied upon by the defendant in its pleaded case. It is not necessary to comment on these. Once it is determined that the plaintiff was not guilty of misleading Mr Nelson Wong the other complaints pale into insignificance. They certainly would not of themselves begin to constitute grounds for dismissing the plaintiff.

52. It should perhaps be added that when consideration is also given to the parlous state of the defendant's affairs as at 13 December there is every reason to suppose from all of the evidence which appears to have been accepted by the Judge that the plaintiff was doing everything in his power to further the interests of the defendant in a very difficult situation.

53. It should also be said that the overall circumstances of the plaintiff's dismissal were highly suspicious.

54. Although according to Mr Nelson Wong's evidence he had been gravely wronged by the plaintiff he was permitted to continue to discharge his duties until 9 January when he was dismissed. No satisfactory explanation was forthcoming for this.

55. For the reasons I have given it is my view that this appeal should be allowed and the plaintiff's claim should succeed. His damages should be assessed by a master.

Hon Rogers VP:

56. This is an appeal from a judgment of Deputy Judge Whaley given on 8 November 2000. The action concerned a claim by the plaintiff in respect of his dismissal by the defendant on 9 January 1997.

Background

57. Prior to his employment by the defendant, the plaintiff had his own consulting company, FW & Associates Limited, he had set that up in March 1995. His evidence was that it had been successful. During the period from July 1995 to August 1996 the plaintiff had met Mr Nelson Wong on several occasions. Mr Nelson Wong was the founder, chairman and major shareholder of the defendant. At that stage Mr Nelson Wong was also the managing director.

58. There is no dispute between the parties that Mr Nelson Wong asked the plaintiff to join the defendant as the managing director and chief executive officer. This entailed the plaintiff giving up his own successful business. As a result the agreement between the plaintiff and the defendant provided for a substantial remuneration package. That package included a salary starting at the rate of HK$2.5 million per year and increasing on 1 January 1997 to HK$3 million per year. The plaintiff was also entitled to participate in any employee's stock option plan. At the commencement of his employment he was offered stock options of 5.5 million shares on favourable terms. The contract was for a two-year minimum term.

59. It would seem that, initially, the plaintiff had a good working relationship with Nelson Wong. However, the defendant had financial difficulties. Its income from the paging business was dropping and it had high borrowings. Indeed, when the plaintiff was engaged it was with a view to his assisting the defendant in raising money. It is unnecessary to refer to the steps taken by the plaintiff in doing that but it would appear from his witness statement, which was taken as his evidence-in-chief, that a number of steps were taken after the plaintiff joined the defendant, which substantially improved the defendant's financial position.

60. As recorded at page 6 of the judgment, in October 1996, the defendant's auditors suggested that Nelson Wong and his wife should exercise their rights in respect of warrants which they held. This would ease the defendant's cashflow and enable the sale of one of the defendant's investments. As a result, Mr Nelson Wong and his wife executed a deed whereby they covenanted with the defendant that they would exercise their rights in respect of all or some of the warrants, which they owned, and subscribe for shares "if so deemed necessary and sufficient to meet the cashflow of the Company by resolution of the board of directors of the Company within 14 days upon receipt of a notice from the Company to that effect at any time but at least 14 days before 31 December 1996."

61. This undertaking was subject to the proviso that the company was able to revoke that requirement. Although the original deed in October 1996 provided that Nelson Wong and his wife would not be required to exercise their rights under the warrants if the closing price were less than $1.8275 per share that was waived in a supplemental deed which was dated 25 November 1996.

62. This commitment in respect of the warrants was obviously part of a series of transactions. On 26 November 1996, the defendant executed a deed of undertaking with the Sumitomo Trust & Banking Co. Ltd ("Sumitomo Bank") which referred to the warrants held by Nelson Wong and his wife and the undertaking of 15 October. The defendant undertook to the Sumitomo Bank that they would use the proceeds, arising from Nelson Wong and his wife's exercise of their warrant options, to pay the Sumitomo Bank. There was a further deed, the same day, which was executed by the plaintiff and five directors. They undertook that they would procure that there would be a board resolution which would require Nelson Wong and his wife to exercise their rights under the warrants. Such resolution had to be passed at least 14 days before 31 December 1996.

63. On 12 December 1996, Sumitomo faxed a letter to the defendant reminding the directors of their undertaking to procure the board resolution at least by 17 December.

13 December 1996

64. Although Miss Eu SC, on behalf of the defendant, sought to argue that there was little dispute about the events of 13 December 1996, there appears to have been considerable dispute. It was the plaintiff's case that there had been a meeting of directors on 13 December 1996. At that meeting there had been tabled a document. That document was addressed to Nelson Wong and his wife. It referred to the deeds of undertaking of 15 October and 25 November. It then included: "the directors of the Company met on 13 December, 1996 and resolved that a notice to" Nelson Wong and his wife "be served requesting" them "to exercise all the warrants owned by" them. The notice concluded that it was a notice to Mr Nelson Wong and his wife to exercise the warrants on or before 20 December 1996. Underneath the place for the signature of a director of the defendant were the words "Agreed to the contents of the above notice and agreed to exercise all the warrants owned by us on or before 20 December 1996 despite any stipulation to the contrary (if any) in the Deeds of Undertaking by: Wong Kam Fu and Chu Wai Fun."

65. It was the plaintiff's evidence that a number of directors were present at that meeting including Nelson Wong. Whilst the plaintiff conceded that there was no resolution or vote taken at the meeting with regard to whether the defendant would authorise the service of that notice on Nelson Wong and his wife, it was his evidence that there was consensus at the meeting that that should be done. The plaintiff's evidence is clear that Nelson Wong was evidently unhappy with that consensus and left the meeting only to be followed by the plaintiff himself. The plaintiff said that the meeting was interrupted when Nelson Wong walked out. The plaintiff said under cross-examination that the time between Nelson Wong walking out and the time when he followed him was very short. The plaintiff said that he went to Mr Wong's room and gave him the document which had been tabled at the meeting.

66. On the defendant's side evidence was sought to be led to suggest that no meeting had taken place. The judge's finding was, however, that there was an informal meeting of directors. The judge went on to hold that there was a consensus at the meeting that it was in the interests of the defendant that a notice should be issued to Nelson Wong and his wife requiring them to exercise their warrants in terms of their undertaking to the defendant. He further went on to hold that Nelson Wong had left the meeting. He held that at some stage after he had left the meeting the plaintiff sought him out and served the notice on him. The judge said that he found "as a probability" that the plaintiff did tell Nelson Wong that the board had resolved that a notice should be served requiring him and his wife to exercise their warrants.

67. It is unnecessary to recount the various events which took place following 13 December. These are set out in the judgment below and it is necessary only to refer to a few of the matters.

68. Very shortly after the events of 13 December the plaintiff had been involved in, what he considered, were successful negotiations to sell the defendant's interest in P. Plus Communications Limited to a company in Taiwan. At the last minute on 20 December 1996 he was told by Nelson Wong in a board meeting to forget the deal since the defendant would now be receiving $150 million as a result of the exercise by Nelson Wong and his wife's warrants with the help of a loan which he had obtained from China Strategic Holdings Limited, ("CSH").

69. Apparently, thereafter, the relationship between the plaintiff and Nelson Wong began to deteriorate. Staff of CSH began to appear in the defendant's offices. They attended board meetings but ignored the plaintiff. When the plaintiff rang a Mr Frederick Sum on 8 January and asked for an explanation as to why he would not cooperate with the plaintiff, Mr Sum was unfriendly. The plaintiff became so frustrated that he swore. It might be added that the words used were not an uncommon expletive.

70. One further matter requires to be mentioned and that is an event when the plaintiff questioned an invoice which was for $500,000 which had been raised by South China Securities Limited. The plaintiff's view, and there is no suggestion that his view in this regard was anything other than accurate, was that the invoice should have been no more than $100,000. Eventually, when he was told that Nelson Wong had approved the amount of $500,000 and was questioned as to who was in charge of the company, he said that he was chief executive officer of the defendant and was a boss.

The termination of the plaintiff's employment

71. On 9 January the plaintiff was handed a letter which read as follows:

"Dear Sir,

Re: Notice of Termination of Your Employment with
Star Telecom International Holding Limited (the 'Company')

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

After careful consideration, the Board of Directors resolved that you have committed, inter alia, the following serious misconducts which are detrimental to the interests of the Company and its subsidiaries and associates (the 'Group'):

1. acting without due authorization of the Board of Directors in issuing the notice to exercise all the warrants owned by Mr Wong Kam Fu and Ms Chu Wai Fun on 13th December 1996;

2. misrepresenting to Ms Christine Cheung of South China Securities Limited that Mr Wong Kam Fu was no longer the 'boss' of the Company on 7th January 1997;

3. using abusive and hostile language during telephone conversation with Mr. Mico Chung and Frederick Sum of China Strategic Holdings Limited on 8th January 1997 which tend to lower the esteem and image of the Group as a public company.

In the circumstances, the Board of Directors resolved that your Employment Contract be and is hereby terminated with immediate effect without any payment or benefit whatsoever other than salary actually accrued due and payable in respect of your service up to date of this letter."

72. Before turning to the issues arising on this appeal, it should be mentioned that Nelson Wong sold his majority interest in the defendant to CSH. Precisely when that happened was not established. In cross-examination Nelson Wong gave the impression, at least from reading the transcript, that he was not forthcoming, to put the matter at its lowest. It is perhaps, interesting that when he was asked about the dates, at first he said that he had sold some of his shares to China Strategic Holdings in 1996. When pressed further on it he said "Well, it seems to me that the first transaction was in the form of a loan for which the lender had the right to purchase the shares in my company." That would be consistent with what was contained in the plaintiff's witness statement that Nelson Wong had secured a loan with CSH on terms which eventually led to CSH taking over the defendant.

The judgment below

73. The judge considered that the passing of a resolution requiring Nelson Wong and his wife to exercise their rights under the warrants was a matter of considerable importance. He held, as I have already indicated, that there was a consensus amongst the persons present at the meeting that Nelson Wong and his wife should have to exercise those rights. He also held on the balance of probabilities that the plaintiff had told Nelson Wong that the board had so resolved. The judge considered that it was important that there should be a formal resolution of the board requiring the exercise of the warrants.

74. The judge considered that there were two representations made to Nelson Wong. The first was in writing, namely, the notice which the plaintiff took from the meeting and gave Nelson Wong. That indicated that there had been a board resolution. The second was a representation which had been made orally when the plaintiff gave Nelson Wong the notice. The judge said, at page 24 of the judgment, that this misrepresentation constituted serious misconduct towards Nelson Wong as the chairman and major shareholder.

75. The judge then went on to consider the question vis-a-vis the company. His conclusion was that, because Nelson Wong and his wife could only be required to exercise the rights under their warrants by a board resolution, they might be able to resile from that exercise if they had been induced to act by reason of a misrepresentation. In conclusion the judge said:

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

This appeal

76. As Miss Eu SC, on behalf of the defendant, pointed out, the focus of the first ground upon which the plaintiff's employment was terminated was not any misrepresentation to Nelson Wong. The first ground in the letter of 9 January was that the plaintiff had acted without due authorisation of the board of directors in issuing the notice to Mr Wong and his wife to exercise the warrants.

77. If consideration is given to the first ground, the following facts appear to me to be important. In the first place the dealings of the defendant and Nelson Wong had from October through to 13 December been on the basis that Nelson Wong and his wife had given a life line to the company by executing the deeds undertaking to exercise their rights under the warrants. It was quite clear that the six directors who had signed the undertaking in favour of the Sumitomo Bank had committed themselves to requiring Nelson Wong and his wife to act accordingly. By the morning of 13 December it was clear that the Sumitomo Bank was insisting that they should so act. Prior to the meeting on 13 December the document which was said to contain the misrepresentation that there had been a board resolution was ready and available to those who attended the meeting. That included Nelson Wong. There was a consensus at the meeting that Nelson Wong should exercise his rights under the warrants. Put quite simply, as regards this case, the plaintiff was, in my view justified in taking that consensus to be sufficient authorisation for him to ask Mr Wong to sign the document. Those at the meeting were agreed and Mr Wong had been there.

78. Looking at the matter from the point of view as to whether there had been a misrepresentation, the matter is no different. Given the time scale of Nelson Wong leaving the meeting and the plaintiff following him and giving him the document to sign, Nelson Wong could not have been under any misapprehension that a formal resolution had not been passed, but he knew, full well, that it was the consensus of the meeting that his rights under the warrants should be exercised. There was, in those circumstances, no misrepresentation to Nelson Wong in the document itself. Similarly the plaintiff, in presenting Nelson Wong with the document and referring to the fact, as Nelson Wong obviously knew, that there was consensus amongst the board members present that the rights under the warrants would have to be exercised, again made no misrepresentation. Even if the document constituted a misstatement, Nelson Wong certainly knew what had happened at the meeting from his own knowledge. There was no possibility of his being deceived either by the document or by anything said by the plaintiff.

79. In those circumstances, the suggestion that Nelson Wong and his wife could have set aside the transaction if they exercised their rights was, in my view, fallacious.

80. It was sought to be suggested on the basis of a short part of the cross-examination of the plaintiff that the members of the board present at the meeting on 13 December had resiled from their consensus. That passage read:

"Q. So was the consensus reached before or after Mr Wong walked out?

A. The consensus was reached right about the time when Wong detected that and felt that, you know, basically that, you know, that was an agreement. So he chose to walk out.

Q. Wasn't it important at that time to at least ask, 'Does everybody agree to this?' Wasn't that important for you to, as a chairman, to at least ask this question?

A. Yes, it was important.

Q. Did you do it?

A. I did not do it. The atmosphere was everybody was astounded.

Q. Astounded, yes.

A. Dumb-mouthed.

Q. Dumb-mouthed, dumbfounded. Yes, what else?

A. Exactly, they were very - they were very scared. They were loyal to Mr Wong.

Q. Scared, yes.

A. So nobody wanted to do anything.

Q. Nobody wanted to do anything.

A. The meeting broke up.

Q. Slowly, please.

R. Yes.

Q. Nobody wanted to do anything. The meeting then broke up.

A. Yes."

81. In my view that does not establish a ground for suggesting that the consensus no longer existed. It simply reflects the fact that the meeting was stunned by Nelson Wong's action. He had agreed to enter the deeds, he had committed himself to exercising the rights under the warrants when called upon to do so, but he was now adopting a completely different attitude.

82. Turning to the narrow point as to whether the plaintiff was acting without due authorisation of the board when he gave Nelson Wong the notice and asked him to sign it, in my view that is clearly not so. As the judge acknowledged the plaintiff considered, as almost certainly was the case at the time, he was acting in the best interests of the company; he had the consensus of the board members who were present on 13 December. In my view, he did not act improperly. Nelson Wong knew exactly what had happened. Nelson Wong was clearly not deceived. If Nelson Wong had wished there to be a board meeting, to be called by written notices to all the board members, and there to be a vote taken, he could have insisted on it. In the circumstances which prevailed on 13 December, he knew that it was futile.

Other grounds for dismissal

83. There remains the 2 further grounds contained in the letter of the 9 January, as being reasons for the plaintiff's dismissal. I should state at the outset that, in my view, the defendant's persistence in relying on these 2 grounds demonstrates an imbalance in approach almost sufficient to question the motives for putting them forward.

84. The conversation with Ms Christine Cheung wherein the plaintiff requested a reduction of the fee note, seems to have been entirely justified. Indeed, no explanation has been offered as to how South China Securities Limited should have charged so much. The plaintiff was, at the time, the Managing Director and Chief Executive Officer. It was certainly his job to see that the company was not overcharged, in this case, seemingly, to the tune of $400,000. Indeed, that would have been an amount that would have warranted his personal attention. It would seem that it was probably Nelson Wong who had arranged that South China Securities would be able to put their charges at that level. It is said that by telling Ms Cheung that he was the "boss" or a "boss", the plaintiff revealed to the outside world that there was dissension within the company. I can only say that this ground of complaint appears to me to be contrived. The party that was responsible was the party that had been sanctioning and encouraging overcharging.

85. Turning to the complaint in respect of the foul language, it should be noted that there was no evidence in respect of anything said to Mico Chung. The fact of the matter is that it was known from the meeting of 20 December that CSH had been financing Nelson Wong. Since that time, CSH personnel had been present at the defendant's offices and been involving themselves in the defendant's affairs. It appears that CSH was probably undertaking some sort of due diligence exercise. Mico Chung and Frederic Sum were permitted to attend board meetings as their representative. There is a great deal of material in the plaintiff's witness statement, which shows that CSH personnel were ignoring and, indeed, belittling the plaintiff. None of that was cross-examined to. The plaintiff said that he telephoned Sum and asked for an explanation as to why he would not co-operate with the plaintiff. The plaintiff said in his statement and confirmed in cross-examination that it was out of frustration or anger at Sum's attitude that he swore. To my mind, given the provocation that the plaintiff was subjected to and given the fact that Mr Sum was co-operating in the treatment of a managing director and chief executive officer in such a disdainful way, he should have expected such might be the plaintiff's reaction. It might not have been the most dignified of statements, but on the other hand the plaintiff was not teaching at a Sunday school. The business world can, no doubt, be a bit rough. But for the defendant to suggest that this incident merited instant dismissal is ridiculous. Neither can I see how it could be suggested that it was a matter which would weigh in any balance.

Hon Stone J :

86. I have had the advantage of reading in draft the judgments of Mayo VP and Rogers VP. I gratefully adopt the recitation of the facts in those judgments, wherein the detailed background of this unfortunate dispute is set out.

87. I agree that this appeal must be allowed.

88. In his careful judgment, the judge below addressed the particular grounds of complaint resulting in the plaintiff's dismissal by the defendant. Regrettably I differ fundamentally from the view taken by the learned judge as to the validity of these complaints as constituting grounds for summary dismissal. To the contrary. On the evidence in this case I am unable to see how the defendant could be regarded as being entitled summarily to terminate the plaintiff's employment on 9 January 1997.

89. Of the three grounds underpinning the defendant's decision so to terminate, in my view only the first ground involving the events of 13 December 1996 - I shall call it 'the misrepresentation ground' - merits attention.

90. The second ground (the plaintiff's refusal to authorize a payment of $500,000 to South China, leading to the assertion that the plaintiff was the 'boss' and alleged consequential damage to the defendant's reputation), and the third ground (involving the use of a salacious, albeit not unfamiliar, Cantonese imprecation to Mr Frederick Shum) do not add up to very much. The learned judge below recognized this, observing that the second ground "probably would not in itself have caused the defendant to summarily dismiss him", whilst the third complaint was labelled "a comparatively minor incident in itself". Nevertheless, the judge took the view that when placed together with the events of 13 December, these also were "acts of misconduct" which the defendant was entitled "to take into account and weigh in the balance".

91. I do not consider that this is justified. Rogers VP has observed that reliance on these grounds demonstrates "an imbalance in approach" almost sufficient to question the motive for reliance thereon. I would go further. In my view reliance on these two grounds borders on the risible, and smacks of an exercise in barrel scraping aimed at justifying the immediate dismissal of a CEO who by that stage appears to have become surplus to the requirements of the defendant's new owners.

92. Miss Eu SC, who attractively argued a difficult brief in responding to this appeal, clearly recognized that the battlefield essentially devolved upon the validity of the first ground, the misrepresentation ground, which in any event was the issue which occupied the bulk of the trial court's attention.

93. In finding that service of the notice on Nelson Wong on 13 December constituted an act of misconduct "sufficiently serious to justify summary termination", the learned judge specifically accepted that there had been a "mere consensus" of the board in informal meeting, but in so finding in my view he placed a disproportionate emphasis upon the absence of a formal resolution. Significantly, also, the judge failed to focus upon whether, on the evidence before him, there could have been an operative misrepresentation of the type alleged by Mr Nelson Wong.

94. This in fact was Mr Bunting SC's first main point. He submitted that on the facts there was "a level playing field of knowledge", and that on the evidence as accepted by the judge Mr Nelson Wong clearly must have known as much about relevant events of that morning as the plaintiff. In my view this submission is amply justified on the evidence.

95. Mr Nelson Wong's version of events, which was rejected by the judge, seems to have been economical with the truth, given that in his witness statement (which stood as his evidence-in-chief) he omitted to place himself at the meeting on 13 December at all, or to make reference to his abrupt departure therefrom after the consensus of directors present was in favour of the exercise of the warrants held by himself and his wife, whilst in terms of his oral evidence he is recorded by the judge as having "insisted that he had not attended a board meeting on that morning". The judge clearly did not accept this. He specifically found that Mr Wong was present "for a part of that meeting", and that "at some stage" after Mr Wong had left the meeting the plaintiff had sought him out and served the notice on him. In fact, it is clear from extracts of the evidence read to us by Mr Bunting that the plaintiff had followed Nelson Wong from the room in short order - "It was pretty, pretty close" - and that all he had done was to sign the pre-prepared document which had been tabled at the meeting and hand it over to Mr Wong.

96. The learned judge did not refer to this particular part of the evidence, but it seems highly unlikely that he intended to reject it, and had he done so there would have been no evidential basis for so doing. Accordingly I am unable to accept Miss Eu's submission that, when looked at overall, there was not a great deal of difference evidentially between the respective accounts of the plaintiff and that of Nelson Wong, nor do I accept the suggestion that a sufficient period had elapsed prior to the plaintiff following Mr Wong from the meeting possibly to permit the passage of a Board resolution. In my view Mr Bunting was correct in his argument that there could have been no realistic possibility that a formal resolution had been put and voted on between the time Nelson Wong left the meeting and when the plaintiff himself left it, as indeed was confirmed by the plaintiff in his evidence.

97. In the circumstances it seems to me not greatly to matter whether (as was found by the judge) the plaintiff also had made an oral representation which mirrored the language of paragraph (B) of the notice, which is couched in terms of the directors having "resolved" that a notice to the Covenantors be served requesting exercise of the warrants. I say this because I accept the submission that, at this point, not only did Mr Nelson Wong know as much as the plaintiff about what had gone on, but that in the situation then prevailing it was inherently improbable that the plaintiff would or could have intended to deceive Mr Wong as the defendant has alleged.

98. The issue of what the plaintiff did or did not intend brings me to Mr Bunting's second major point. It is this. Not only did the learned judge fail to make any finding about what the plaintiff understood himself to have been representing, but his finding of misrepresentation, and hence of the dishonesty justifying summary termination, was based upon a representation that there had been a formal Board resolution, not a representation that the Board had agreed. Whereas in fact, said Mr Bunting, the representation was not false - the Board indeed had so agreed - and all the indications are that the plaintiff treated the representation as being in accordance with the true facts.

99. I am inclined to accept this analysis. It may well be that in failing to consider the inherent probabilities as to what the representation meant, and had been understood by the plaintiff to mean, the learned judge did so on the assumption that the meaning of the representation was that a formal resolution had been passed. As a matter of law it is not essential for the validity of any resolution that such should be formally embodied, and specifically having found the existence of consensus at the meeting, in my view the judge greatly overstated the consequence of the absence of such formality. As to the plaintiff's concession as to the factual inaccuracy of the notice, a factor which clearly weighed upon the judge, Mr Bunting made the point that on a proper reading of his evidence the concession actually made was that there had been no formal resolution as such, and that in so conceding the plaintiff was not departing from his case that he was acting within his authority on the strength of the consensus reached between the directors at the 13 December meeting. I agree.

100. Looked at in the round, therefore, in my judgment the finding of the judge below as to the existence of a dishonest representation sufficiently serious to merit summary dismissal cannot be permitted to stand. The "inherent deception" found by the judge to underpin the plaintiff's conduct is not established. To the contrary. The preponderance of the evidence is that the plaintiff was doing no more than that which he felt he was required, and indeed authorized, so to do.

101. Two additional matters serve to reinforce this conclusion. First, it was the plaintiff's evidence, which was not rejected, that Mr Nelson Wong's refusal to accept the notice as given to him on 13 December necessitated the convening of further board meetings to deal with the matter, and indeed there seems never to have been any question of Nelson Wong actually having acted upon the plaintiff's alleged misrepresentation. Second, a powerful litmus test as to the real state of affairs lies in the fact (as the learned judge recognized) that prior to the issue of the termination letter of 9 January 1997 no complaint had been made by Nelson Wong or by anyone else as to the 13 December incident or subsequent events. It strikes me that the learned judge's observation that "on the face of it, this might suggest that the defendant was not seriously aggrieved by the defendant's conduct in question" was absolutely correct, although he proceeded to qualify this by stating that in the particular circumstances - "the flurry of activities" - it was legitimate for the defendant to hold back from taking action until 9 January. I do not think that this is so. The irony of this particular case is that, far from meriting summary dismissal as the result of the matters complained of, the plaintiff appears to have been attempting to act in the best interests of the company of which then he was CEO.

102. In my view the Order of the learned judge below should be set aside, and judgment should be entered against the defendant in favour of the plaintiff on his action for wrongful dismissal, together with an order for the costs of the action to date, such costs to be taxed if not agreed. The issue of damages should be remitted for assessment. Naturally, the costs of this appeal should follow the event.

Hon Mayo VP:

103. The appeal is accordingly allowed. Judgment is entered for the Plaintiff. Damages will be assessed by a Master. We make an order nisi that the plaintiff will have the costs of this appeal and the costs of the hearing below.