SECRETARY FOR JUSTICE v. CHAN TAT KI AND ANOTHER

DCCJ 3786/2008 &
DCCJ 1543/2010
(Consolidated)

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINSTRATIVE REGION

CIVIL ACTION NO. 3786 OF 2008

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BETWEEN

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(Consolidated pursuant to the Order of Registrar R. LAI dated 1 June 2010)

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JUDGMENT

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I. Introduction

1.  These proceedings were brought in the name of the Secretary for Justice for and on behalf of the Controller of the Government Flying Service (“GFS”).  The GFS is a department of the Government and its duties include providing flying services for, inter alia, search and rescue, air ambulance, fire fighting and providing assistance in law enforcement. 

2.  The 1^st defendant was a former cadet pilot of the GFS appointed on 15 September 2005.  His appointment was made pursuant to the terms of an offer letter dated 15 September 2005 (“Offer Letter”). Prior to the commencement of his employment, he executed an undertaking on 26 September 2005 (“Undertaking”).  In addition, the 2^nd defendant (1^st defendant’s mother) executed a guarantee on the same day (“Guarantee”). The plaintiff’s case is that pursuant to terms of the aforesaid documents, the 1^st and 2^nd defendants agreed to refund the Government a proportionate amount of the expenditure incurred in connection with the training to be provided to the 1^st defendant as cadet pilot should his conduct and performance be found to be unsatisfactory by the Controller of the GFS resulting in his termination.

3.  The 1^st defendant commenced employment with the GFS thereafter and a considerable amount of money was expended on his training and related expenses.  However, the GFS alleged that his conduct and performance were found to be unsatisfactory and his appointment as cadet pilot was terminated on 27 October 2007.

4.  These proceedings were brought to recover a portion of the training expenditure in the sum of HK$790,902.70 from the 1^st and 2^nd defendants.  The defendants in turn allege that the Undertaking and Guarantee were executed as a result of misrepresentation made by a representative of the plaintiff.  By way of counterclaim, the sought declarations that the Undertaking and the Guarantee be rescinded or set aside.

II. Background

5.  I shall first set out the relevant background which can be divided into 3 phases: (i) the events prior to the execution of the Undertaking and Guarantee; (ii) the 1^st defendant’s training and employment with the GFS; and (iii) events after his termination. Save as otherwise indicated, the events summarised in this section are not in dispute.  I have attempted to set them out in some detail in order to understand the issues which are in dispute.

(A) Events prior to the execution of the Undertaking and Guarantee

6.  In September 2005, the 1^st defendant was a final year student studying for a Master of Architecture degree at the University of Hong Kong.  It has always been the 1^st defendant’s ambition to be a pilot and this motivated him to give up his intended career as an architect and he applied to be a cadet pilot with the GFS.

7.  The competition for the job was very keen.  There were over 2,000 applicants and the GFS decided to retain only 4 of them.  The 1^st defendant was one of the successful candidates.

8.  Before he received the Offer Letter dated 15 September 2005, the 1^st defendant together with the 3 other successful candidates were invited to visit the headquarter of the GFS.  They were introduced to a Ms  Yu Po Yee who was the Departmental Secretary of the GFS.

9.  By the Offer Letter dated 15 September 2005, the 1^st defendant was offered employment as a cadet pilot in the GFS on probationary terms for a fixed period of three years.  The Offer Letter contained, inter alia, the following terms:

“Besides, your appointment on probationary terms may be terminated at any time during the appointment by the Government by giving one month’s notice or one month’s salary in lieu of notice, without resources [sic] to disciplinary procedure and without any reason being given.

If your conduct or performance during the probationary period is, in the opinion of the Controller, Government Flying Service, or such other person as may be responsible for the organization, however designated in the future, unsatisfactory, or if you leave the GFS or its successor in title before completing the probationary period or before completing seven years of post-confirmation service, or should you fail to take up appointment as a Pilot II, or should you be dismissed or removed from the appointment in consequence of unsatisfactory performance or misconduct before completing seven years of post confirmation service, you are required to refund and repay immediately on demand to the Government of the [HKSAR] an amount (in relation to the total costs of expenditure on training) proportionate to the unpaid portion of the three-year probationary and seven-year post-confirmation periods of service calculated on the basis of the expenditure incurred by the Government of the [HKSAR] on your behalf in connection with the training provided to you during the three years probationary period, currently at $1.7106M Hong Kong dollars, as detailed in the attached sheet.  You should be aware that the figure of HK$1.7106M is an estimate and may be subject to change. You and your guarantor will be invited to GFS to sign the undertaking.  We will inform you of the arrangement separately.” 

10.  The Offer Letter was signed by the 1^st defendant on 21 September 2005.  He indicated that he understood the provisions of the Offer Letter and can assume duty on 12 October 2005.

11.  In addition to the Offer Letter, the Undertaking was signed by the 1^st defendant on 26 September 2005. The Undertaking provides that if the 1^st defendant’s “performance or conduct during the probationary period is unsatisfactory in the opinion of the Controller”, he was obliged to “refund and repay immediately on demand” the expenditure incurred by the Government “in connection with the training provided during the probationary period”.  “Unsatisfactory performance or conduct” includes “failure to meet the required standard of the training school and resulting in the termination of training by the Government Flying Service”.  “Training” is defined to include “any induction course or academic training or programme of study or practical or operational training or experience or any combination thereof provided during the probationary period required to make [the 1^st defendant] eligible for consideration for appointment to the rank of Pilot II”.  The Undertaking also set out other events which would trigger the repayment of the training expenses including but not limited to the following circumstances: the failure to sit for any prescribed examination; failure to return to Hong Kong as required by the Government; and leaving the GFS before completion of seven years of service after the completion of training.  The estimated training expenses of HK$1.7106M was also referred to in the Undertaking.

12.  On the same date, the Guarantee was executed by the 2^nd defendant.  The conditions triggering the repayment of the expenses expended on the training of the 1^st defendant also included the “unsatisfactory performance or conduct” of the 1^st defendant “in the opinion of the Controller”.

(B) Training and employment with the GFS

13.  The 1^st defendant commenced training in October 2005.  During his probationary period, he was sent to Florida for a Commercial Pilot’s Licence (CPL) Course which commenced in November 2005 and was completed on 8 December 2006.  He then returned to Hong Kong and underwent Crew Resource Management Training in December 2006.  He was then sent to undergo training for Multi-Engine Instrument Rating (Helicopter) with Helicopter Services Limited (“HSL”) in the United Kingdom commencing 3 January 2007.

14.  Upon completion of the aforesaid courses, the 1^st defendant obtained his Commercial Pilot’s Licence (Helicopter) and returned to Hong Kong to resume his duty with the GFS on 21 February 2007.  He undertook further training with a view to qualify as an operational pilot in the GFS.

15.  In the meantime, the GFS was apparently unhappy with the 1^st defendant’s conduct and performance and began to issue warning letters to him.  This began by a letter dated 19 July 2006 where it was alleged that he was giving out information through the internet to members of the public about matters concerning the GFS cadet pilot recruitment exercise.  It was said that he had admitted to this during an interview with Captain Erik Young on 5 July 2006. The letter went on to state that this reflects badly on his judgment and his integrity as a pilot and he was seriously warned.

16.  Upon the 1^st defendant’s return to Hong Kong, he was informed that his performance was not satisfactory.  In the letter from the Controller dated 27 March 2007, reference was made to an interview on 21 February 2007 with Captain Trevor Marshall (Chief Training and Standards Officer) where the 1^st defendant was informed that a training programme had been designed to help him improve his personal discipline.  The letter also referred to the arrangements that were made for him to attend the Probationary Inspectors Course at the Police College between 2 and 20 April 2007 as part of the training programme.  It was said that the course would provide him with an insight into the disciplined service life, and the team work and personal discipline it requires.  It was also said that arrangements were being made for him to be enrolled for an Outward Bound Course which would also help him to build up a sense of responsibility and self-discipline.  The 1^st defendant was also informed by the letter that within the GFS, he was posted to the Air Command and Control Center (“ACCC”).

17.  By a letter dated 3 May 2007 from the Controller to the 1^st defendant, he received further warning of his performance.  The letter states, inter alia, as follows:

“I refer to your latest performance appraisal for the period from 12.10.2006 to 11.4.2007. Your overall performance and individual aspects of performance including ‘Knowledge of Work’, ‘Organization of Work’, ‘’Efficiency’ and ‘Drive and Determination’ were graded ‘Moderate’. In the aspect of ‘Judgement’, you received a ‘Less than adequate’ grade.

You were also reported as being poor in discipline and, inattentive and disinterested in class during the Instrument Rating training course.

Although you showed some improvement in the subsequent Super Puma groundschool, you must make your best effort to sustain the improvement and overcome the shortcomings as mentioned above.  You will be placed under close supervision and a report for the period from 12.4.2007 to 11.10.2007 will be called to review your performance.  You should seek advice and guidance from your supervisors wherever necessary.”

18.  By a letter dated 17 September 2007 from the Controller to the 1^st defendant, it was indicated that on account of his performance during the probationary period, it was the Controller’s intention to terminate his service as cadet pilot.  In the letter, the Controller set out the following matters in support of his decision:

(1)   The 1^st defendant’s performance during overseas training was described as “not without flaw”.  He was said to be “somewhat causal in his demeanour and presentation”.

(2)   The incident where he allegedly shared sensitive information concerning the GFS via the internet.

(3)   During his training with the HSL in the UK, it was reported that his attitude towards training did not meet the standard required by the GFS.  He arrived late for his briefings for pre-scheduled flights on two occasions without a good reason.  The training school observed that despite his obvious ability, he seldom worked to his full capacity.

(4)   He was found to have fallen asleep in a rescue flight on 29 December 2006 where he was supposed to be performing the duty as an observer looking for survivors.

(5)   There were some improvements after the training at the Police College in April 2007 and the Outward Bound Course in July 2007.  However, he subsequently failed to meet the required standards of performance of a GFS co-pilot and did not volunteer for observation flights in which he could enhance his operating experience and knowledge.  He completed 57.88 flying hours on the Super Puma as compared with a course average of 42.39 but he still did not meet the requirements for a Level 1 co-pilot which was the lowest and absolute minimum operational standard at the GFS.

(6)   He failed to meet the requisite standard in his second Level 1 Role Check on 4 August 2007 which is the standard assessment for cadet pilots.  Because of his fluctuating standard of performance, he was asked to undergo a review course consisting of five Level 1 training flights with Captain West Wu.  However, his performance in the review flights were inconsistent.  His pre-flight preparation was poor.  There were no detailed routes or flight planning or in-depth study for other en-route navigational elements.  Despite the debriefings after each flight, the deficiencies still occurred repeatedly in subsequent flights.  His aircraft handling skill was considered below average and the in-flight communication was weak.

(7)   Up to the last review flight, he was still unable to work with the Flight Management System comfortably and competently despite the fact that he was made aware of the need to familiarise himself with the system.  

(8)   The GFS was of the view that he did not have the required attitude and self-discipline to enable him to meet the required standard of a safe and competent GFS co-pilot.  His major shortfalls in 2 critical areas, namely self-discipline and initiative have prevented him from consistently performing to a level at which he can become a useful member of a GFS aircrew or in an operational flight.  A decision was made to terminate his service under Civil Service Regulation 186 and he was asked to make any representation in respect of his case by 24 September 2007.

19.  In his representation dated 24 September 2007, the 1^st defendant referred to the following matters:

(1)   He suggested that at the initial stage of his training, he found that his performance was easily affected by his emotional status.  He therefore tried to relax himself but failed to strike a balance between relaxing himself and appearing disciplined.  This is why he sometimes appeared causal and even inattentive and disinterested.

(2)   As an example, he referred to the incident at the HSL where he was asked if he was ready for the training flight.  He replied by saying that “Yes? Of course!  It’s going to be easy.” He said so because he wanted to “bring a relaxed environment and boost [his] confidence”.  He said he regretted having made those remarks because it gave the impression that he was disinterested and not willing to work to his full capacity.

(3)   He understood that it was a “wrongful act” to share sensitive information and he deeply regretted about it.  He also said he never did this again after the incident in question.

(4)   He was sorry that he was late on 2 occasions during his training at the HSL and said it was because of a serious railway signal failure which caused one and a half hour delay and a traffic jam. 

(5)   He also apologised for falling asleep during one of the long range “SAR” mission and blamed it on his inexperience and did not suggest a break even though he was tired.

(6)   He failed to demonstrate his ability because he was under a high level of stress, especially during check rides.  He did not volunteer to observe all available flights because he tried to divide his time between observing flights, local map studies, technological documents studies and obtaining opinions and knowledge from other pilots. 

(7)   He spent the whole evening studying the training route and tried to cover as much as possible.  His failure was not because of his reluctance to study but because he did not have the experience level. 

(8)   He was very tense and practically stopped all his personal life and devoted most of his private time for study and preparation.  He was suffering from “insomnia and anorexia” and his health deteriorated.  

20.  Despite the 1st defendant’s representation, his termination was confirmed by a letter dated 26 October 2007.  In the letter he was reminded that as he would be leaving the GFS before completing the probationary period, he was required to refund and repay immediately, on demand of the Government, an amount proportionate to the unexpired portion of the contractual minimum period of service calculated on the basis of expenditure incurred by the Government on his training pursuant to the Undertaking.

(C) Events after his termination

21.  On 7 November 2007, the 1^st defendant was informed by a letter from the Controller that the total expenditure was HK$1,016,481.20.  He was required to refund HK$809,121.26.  After deducting the monies due to him from the Government, the net amount payable by him was HK$790,902.70.  A demand note was enclosed with the letter for the 1^st defendant’s settlement.

22.  By a letter dated 18 November 2007 from the 1^st defendant to the Controller, he requested for a waiver of monies due.  In support of the request, he suggested that he had worked hard to improve himself; he had given up his career as an architect to join the GFS; that no aviation company was interested in recruiting him; and that there was deterioration in his health following the termination.  He also suggested that his mother who was the guarantor was a “jobless old woman” and her health was affected by the demand for repayment.  Finally, he also claimed that it was beyond their ability to repay the amount of money demanded by the Government.

23.  The request for waiver was refused and this was communicated to the 1^st defendant by a letter from the GFS dated 9 January 2008.  Instead, he was reminded that there is a mechanism for him to apply for payment by instalments.  This letter was followed by a reminder dated 28 February 2008 from the GFS.

24.  The 1^st defendant wrote again on 10 March 2008. This is an important letter as this was his first attempt in setting out his case against the Government.  The letter consists of 13 pages and they contain, inter alia, the following allegations:

(1)   He alleged that the terms of the Offer Letter and the Undertaking were unfair and unconscionable in many material respects. The terms were to GFS’s advantage.                             

(2)   Both he and his mother were misled by Ms Pauline Tang (the Deputy Departmental Secretary of the GFS) when they were asked to sign the Undertaking.  I shall return this aspect later.

(3)   The allegation in respect of his unsatisfactory performance and attitude were incorrect and inaccurate.  They were subjective and biased.  He pointed to: (i) his ground school exam result and the positive comments in his appraisal report; (ii) the positive comments from instructors at the Hong Kong Police Training College and the Outward Bound Course; and (iii) the fact that he took time out of his busy schedule to help out in the GFS Open Day on 18 November 2007 and was given a letter of commendation.

(4)   The allegation that he shared sensitive information on the internet about the GFS was also unfair because the information concerned the recruitment process of the previous year and he acquired them before joining the GFS.  He also pointed out that Captain Trevor Marshall had also disclosed information about the recruitment process to him and a fellow pilot when they were receiving training in Florida.

(5)   The GFS was in breach of the Personal Data (Privacy) Ordinance by disclosing his personal data to his father who called the GFS in November 2007.

(6)   He also sought to explain why he fell asleep during the long-range, search-and-rescue mission on 29 December 2006 and suggested that 3 of the 4 rear-crew members had fallen asleep.  

(7)   He accused the GFS of applying double standards in respect of the criticism of his failure to attend pre-flight briefings punctually when he was being trained in the U.K.  He suggested that there was no rule requiring him to reside at the living quarters in the training school and he was scheduled to return early in the morning by train when there was a signal failure.  He referred to the different treatment of another cadet pilot who left town for social activities and got herself involved in a major traffic accident whilst receiving training in Florida.  He claimed that he was being treated unfairly because the other cadet pilot did not receive any warning for causing weeks of delay to the training schedule.

(8)   He did not receive a fair assessment for the Level 1 Proficiency Check and his use of the Flight Management System.

(9)   The fact that no claim was made against other employees for training expenses.    

25.  As stated above, the 1^st defendant attempted to set out his case in respect of allegation of misrepresentation in the aforesaid letter.  The relevant part of the letter states is as follows:

“When I received the offer letter from the GFS dated 15 Sep 2005, I noticed the “training liabilities” provision which looked rather strange and complicated to me at that time, yet the figure of HK$1.7106M caught my attention and concern. Therefore I phoned Ms Pauline Tang, the Deputy Departmental Secretary of GFS at that time, and made inquiries concerning that particular provision in the offer letter. I asked Ms Tang whether I was, as I understood from the plain reading of the said provision, liable to pay the “training liabilities” if the termination of service was initiated by the GFS. She did not give a clear answer and suggested giving detailed explanations to me in person on the said provision before signing the employment contract and the undertaking.

On 12 Oct 2005, my mother and I met Ms Tang at the GFS Office and inquired about the precise meaning and actual arrangement concerning the “training liabilities” again. Ms Tang answered that GFS would definitely claim for payment of the “training liabilities” if I resigned on my own accord to look for other job opportunities. (Quote: 如果你自己辭職另謀高就既話咁我地GFS就一定會追你錢!) Not feeling comfortable with her explanation, my mother and I showed hesitation in signing the contract and expressed our concern about the possible unfair liabilities that may be imposed on us in case of termination of service initiated by the GFS against my will, as the provision literally transpired. Ms Tang then explained and assured us that such eventually would not happen. (Quote: 政府訓練你又點止用咁少錢丫？放心啦，冇事既!) It was only with this explanation and assurance that my mother and I felt that we could set out mind at ease and that the said provision was only meant by GFS to prevent employees from initiatively leaving GFS after receiving GFS training…”

26.  The matter was subsequently referred to the Department of Justice and a letter of demand was sent to the 1^st defendant on 6 June 2008. 

27.  By a letter dated 18 June 2008, the 2^nd defendant replied to the Department of Justice.  In addition to referring to the personal circumstances of herself and her son, the description of the misrepresentation made by Ms Pauline Tang was largely consistent with what the 1^st defendant said in his letter of 10 March 2008.   

III.  Pleaded Case

28.  The plaintiff’s case is straightforward. Reliance was placed on the relevant terms of the Offer Letter, the Undertaking and the Guarantee set out above in order to establish the liabilities of the 1^st and 2^nd defendants.

29.  In the Defence and Counterclaim, it is alleged that the execution of the Undertaking and the Guarantee was procured by the “implied and/or fraudulent misrepresentation and/or non-disclosure of material information” by the GFS and the GFS’s agent, Ms Pauline Tang.  In particular, it is alleged that:

(1)   During a telephone conversation between the 1^st defendant and Ms Tang in mid-September 2005, she failed to disclose material information or adequately respond to the 1^st defendant’s queries regarding, inter alia, (a) the turnover rate; and (b) information about the GFS’s enforcement of the relevant provisions under the Undertaking in the past.

(2)   In response to the 1^st defendant’s repeated questionings at the appointment on 26 September 2005 in the GFS’s office, Ms Pauline Tang orally represented to the defendants that paragraphs 2 to 4 of the Undertaking will not be enforced and/or relied on.  She further said that according to the record, the said provisions have never been enforced against any cadet pilot after their service was terminated by the GFS during the prescribed period.  It is said that she made the representations either fraudulently knowing that it was false or recklessly not caring whether it was true or false.

30.  By way of counterclaim, the 1^st and 2^nd defendants sought declarations to the effect that the Undertaking and the Guarantee be rescinded/set aside as having been procured by the misrepresentations of the plaintiff.

31.  Although the defendants also alleged in the Defence and Counterclaim that the Undertaking and the Guarantee were unconscionable and therefore not binding, it was confirmed by Ms Wong (counsel for the defendants) in her Closing Submissions that these points are not being pursued.  The only issues before me concern the allegations of fraudulent misrepresentation. In particular, the relevant issues are:

(1)   Whether the condition triggering the liability to repay in the Offer Letter, the Undertaking and the Guarantee had materialised; and

(2)   Whether the 1^st and 2^nd defendants were induced to sign the Undertaking and the Guarantee as a result of fraudulent misrepresentation.

IV.  Evidence from various witnesses

32.  The plaintiff called two witnesses. They were Ms Pauline Tang who allegedly misled the 1^st and 2^nd defendants and Ms Iris Wong who took up the position from Ms Tang on 9 May 2007.

Plaintiff’s witnesses

(a)   Pauline Tang

33.  Ms Tang’s evidence was straightforward. She met both the 1^st and 2^nd defendants on 26 September 2005 and she was the one who explained to the defendants the reason for requiring the Undertaking.  She cannot recall any telephone conversation between herself and the 1^st defendant prior to the meeting.   At the meeting, she went through the content of the Undertaking and the Guarantee with them.  She cannot recall any specific comment or questions raised by the defendants on the contents of the 2 documents.  Understandably, she cannot recall every word which she said but she would usually congratulate the successful applicants and wish them the best of luck with their overseas training. She was certain that she had never assured them that the provisions of the Undertaking would not be enforced against any cadet pilot whose services was terminated by the GFS or any other statement to that effect.

(b)   Iris Wong

34.  Ms Wong took over the job of Ms Tang on 9 May 2007 and was in charge of the case against the 1^st and 2^nd defendants since then.  She emphasised that the Government has to invest a very substantial amount of money in training a cadet pilot and the need to protect the Government’s interest by requiring cadet pilots to provide the Undertaking.  As she was not involved in the training of the 1^st defendant, she did not have first-hand knowledge of his performance but she explained GFS’s position from the records available.

Defendants’ witnesses

(a)   lThe 1^st Defendant

35.  The 1^st defendant gave evidence on his decision to apply to the GFS and described being a cadet pilot with the GFS as his dream job.  However, when he received the Offer Letter from the GFS, he found the terms in relation to the refund of training expenses unreasonable.  He therefore located the telephone number of Ms Yu whom he thought was the Departmental Secretary of the GFS and wanted to speak to her. He eventually got a call from Ms Pauline Tang instead who said she was responsible for recruitment. 

36.  He asked Ms Tang whether he will have to refund the training expenses if he really wanted to continue his employment with the GFS but the GFS insisted on terminating his employment.  He also asked if the GFS will demand for repayment if he cannot continue his employment for health reasons.  Ms Tang told him not to worry and said the GFS would consider the matter on a case by case basis.  He claimed that although he was keen on taking up the job, he would not have accepted the offer if he was informed by Ms Tang in the said telephone conversation that the relevant terms would be enforced.

37.  On 26 September 2005, he turned up at the headquarter of the GFS with his mother.  When asked whether the training expenses were repayable if his employment was terminated by the GFS against his will, Ms Tang allegedly said that the amount is definitely repayable if: (i) the 1^st defendant resigns on his own volition; (ii) he deliberately fails to turn up at his assessment(s) during training and thereby failing the assessment; and (iii) if he fails to turn up at work habitually.  She also said the Government uses a lot of resources in training cadet pilots and assured him that they have never demanded repayment in the situations described by the 1^st defendant.

38.  He claimed that if the answer from Ms Tang was that the relevant terms in the Undertaking/Guarantee would be strictly enforced, he would not have taken up the offer.

39.  He then went on to describe incidents supporting his satisfactory performance during training.  He claimed that he obtained the highest score in his class when he received his training in the United States and that his assessor said he was one of the best he had seen recently.  He also received positive comments from the Outward Bound School. 

40.  In support of his case on the alleged representation made by Ms Tang, he gave a call to Jeremy Lok on 22 January 2008.  Jeremy Lok was a fellow cadet pilot who was also terminated by the GFS before the completion of training.  He claimed that Jeremy Lok had also asked similar questions on the repayment of training expenses and got the same answer as he did from Ms Tang.  Although Jeremy Lok was not called as a witness, the 1^st defendant’s telephone conversation with Jeremy Lok was recorded and a transcript of the conversation was produced by the defendants.  

41.  After his termination by the GFS, his parents wanted him to complete his studies as an architect but he insisted on finding a job as a pilot.  He was subsequently retained as a helicopter pilot by a company in Shenzhen.  In March 2008, he was employed by Cathay Pacific as a Second Officer.

(b)    2^nd Defendant

42.  The 2^nd defendant’s evidence was largely consistent with that of the 1^st defendant.  In particular, she adopted the evidence given by the 1^st defendant in respect of what Ms Pauline Tang said at the meeting on 26 September 2005.

V.    Discussion

Whether the condition triggering the liability to repay in the Offer Letter, the Undertaking and the Guarantee had materialised

43.  The Offer Letter, the Undertaking and the Guarantee all provide that the 1^st defendant can be dismissed if his conduct and performance during the probationary period is considered unsatisfactory “in the opinion of the Controller”.  Under the Undertaking and the Guarantee, “Unsatisfactory performance or conduct” includes “failure to meet the required standard of the training school”.

44.  The aforesaid documents conferred a discretion on the Controller of the GFS to decided whether the performance of the 1^st defendant was considered to be “unsatisfactory”.  In this regard, my attention was directed at Abu Dhabi National Tucker Co. v. Product Star Shipping (“The Product Star”) (No. 2) [1993] 1 Lloyd’s Rep 397 at 404 (col. 1) where Leggatt LJ said:

“Where A and B contract with each other to confer a discretion on A, that does not render B subject to A’s uninhibited whim. In my judgment, the authorities show that not only must the discretion be exercised honestly and in good faith, but, having regard to the provisions of the contract by which it is conferred, it must not be exercised arbitrarily, capriciously or unreasonably. That entails a proper consideration of the matter after making any necessary inquiries. To these principles, little is added by the concept of fairness; it does no more than describe the result achieved by their application”

45.  In Paragon Finance plc v. Nash [2002] 1 WLR 685 at 702, Dyson LJ was of the view that the word “unreasonably” in Leggat LJ’s judgment must be understood in a sense analogous to unreasonably in the Wednesbury sense as in Associated Provincial Picture Houses Ltd v. Wednesbury Corpn [1948] 1 KB 223. 

46.  In Société Générale Bank  & Trust Hong Kong Branch v. Mike Panjawani (HCA 725/2009, unreported, 25 November 2010), To J. agreed with the statement of principle contained in the judgment of Leggatt LJ but went on to comment at paragraph 50 that the Court must have regard to the contractual provision conferring the discretion in question.  It is said that if on a true construction of the contract, an absolute unfettered discretion was intended, it is not for the court to fetter what the parties have reached on their own bargain. 

47.  It is accepted by Ms Sit for the plaintiff that the burden is on the plaintiff to establish that the discretion of the Controller was exercised in good faith.  She went on to submit that the plaintiff had adduced sufficient evidence to discharge that burden.

48.  It was submitted on behalf of the defendants that the 1^st defendant’s actual performance and conduct at the GFS are highly relevant and it is for the plaintiff to establish that: (i) the 1^st defendant has failed to meet the required standard of the training school; and (ii) that the failure to meet the required standard of the training school caused a termination by the GFS.  Although the GFS’s decision and the reasons for terminating the 1^st defendant were summarized in the correspondence referred to in the judgment, the individuals with personal knowledge of the 1^st defendant’s performance were not called as witnesses and the documents recording the 1^st defendant’s performance, including the technical pilot information file for cadets were not disclosed in these proceedings.  The defendants also pointed to the fact that there was no rebuttal or denial of what is contained in the 1^st defendant’s letter dated 10 March 2008 which contain responses to most of the allegations regarding unsatisfactory performance and conduct.  It was submitted that it would be extremely dangerous for the Court to rely on the disputed matters contained in the correspondence to conclude that the discretion of the Controller was exercised honestly and in good faith and that the plaintiff had failed to discharge the burden in doing so.

49.  I disagree with the defendants’ submissions.  This is not a case where the employer is required to prove that a dismissal was justified.  The issue here is whether the discretion of the Controller was exercised “honestly and reasonably”.  As accepted by the defendants, the relevant provisions gave the Controller of the GFS a discretion as to whether the 1^st defendant had failed to meet the standard of the training school.  Whilst the burden is on the plaintiff to establish that the ultimate decision was made in good faith, the Court is not required to assess the performance of the 1^st defendant afresh and to decide whether the 1^st defendant’s performance met the standard of the training school.  This is a matter for the Controller. The question for the Court is whether the decision to terminate the 1^st defendant was made honestly and in good faith.

50.  I am of the view that it is clearly demonstrated in the correspondence before the Court that the Controller’s decision was one made with proper basis and could not be criticized as irrational or perverse.  For example, it is common ground that the 1^st defendant had failed in the first and second attempts of his Level I Proficiency Check.  Even if one is to accept the explanations provided belatedly by the 1^st defendant in his letter of 10 March 2008, the decision of the Controller cannot be described as arbitrary, capricious or unreasonable and I find that the plaintiff had more than adequately discharged the burden in the present case.

51.  Having concluded that the Controller has exercised his discretion honestly and in good faith, there is no basis for me to challenge the exercise of discretion of the Controller. There is no need for me to find whether the explanations provided in the 10 March 2008 are genuine or justified.  However, I should add that I would have no hesitation in rejecting most of them if I was required to do so. 

Fraudulent misrepresentation

52.  The issue is whether Ms Pauline Tang made the misrepresentation as alleged.  This is one of the main issues in this case.  I approach the matter from 3 perspectives: (i) testimony of the witnesses; (ii) contemporaneous documents; and (iii) inherent probability. 

53.  Firstly, the relevant issue is a matter of fact which turns on what was said or not said at a meeting.  My assessment of the credibility of the witnesses is of vital importance.

54.  The evidence given by Ms Tang was clear and straightforward.  Although she cannot recall the exact words used in her conversations with the 1^st and 2^nd defendants, she firmly rejected the suggestion that she made the representations as alleged. 

55.  In contrast, the 1^st defendant’s evidence was unsatisfactory in a number of respects.  By way of example:

(1)   As summarised above, he claimed that he was troubled by the prospect of having to repay the training expenses when he received the Offer Letter dated 15 September 2005.  As a result, he approached Ms Yu and eventually got hold of Ms Tang.  There was never any suggestion that Ms Tang made any representation on the enforceability of the terms contained in the Offer Letter in their telephone conversation.  However, the Offer Letter was signed and returned to the GFS prior to the meeting on 25 September 2005. The documents signed by the 1^st defendant clearly indicated that he read and understood the provisions contained in the Offer Letter and agreed to abide by them.  When cross-examined, the 1^st defendant confirmed that he had no difficulty in understanding the terms and the intended effect of the Offer Letter.  Although he expected detailed explanations to be provided by Ms Tang later at the meeting at the GFS headquarter, he did not provide any satisfactory explanation as to why he signed the Offer Letter when he was still troubled by the terms in question.

(2)   On his first day of work at GFS, Ms Yu also explained the terms of the Undertaking and its effect.  The 1^st defendant acknowledged that she did not explain under what circumstances the government would refrain from enforcing the Guarantee.  The 1^st defendant was cross-examined on why he did not draw to Ms Yu’s attention what Ms Pauline Tang allegedly said.  He claimed that Pauline Tang represented the government and he thought Ms Yu’s speech was a formality.  I find the 1^st defendant’s explanation incredible.  Had Ms Pauline Tang really made the alleged misrepresentation, one would have thought that the 1^st defendant would have wasted no time in securing Ms Yu’s confirmation.

(3)   In paragraph 9(ii) of the Defence & Counterclaim, the alleged misrepresentation made by Ms Tang was that she “orally represented to the defendants that paragraphs 2 to 4 of the Undertaking will not be enforced and/or relied on.  She further allegedly said that according to the record, the said provisions have never been enforced against any cadet pilots after their service was terminated by the GFS during the prescribed period.”  This is in contrast with what is contained in paragraph 10 of the 1^st plaintiff’s Witness Statement dated 22 November 2009. The contents are summarized in paragraph 37 above.  When cross-examined, the 1^st defendant acknowledged that there is a difference between the two versions and suggested that the pleaded case is not accurate. 

(4)   When cross-examined on the omission of reference to the alleged misrepresentation in his letter of 18 November 2007, he claimed that he was asked by Captain Erik Young to write the letter in that manner.  However, in his letter of 10 March 2008, he claimed that the 18 November 2007 letter was written on the advice of Mr Kennedy Wong (Senior Aircrewman Officer of GFS).  In addition, it is also apparent from the transcript of his conversation with Jeremy Lok that he said he did not want to contact Captain Young because he did not want to embarrass him.  He later claimed that he had consulted Captain Young and he wrote the letter in that manner because he thought he should not say anything to upset GFS.  His explanation was convoluted and difficult to believe.

56.  In respect of the 2^nd defendant, she religiously adhered to the alleged misrepresentation set out in her witness statement and had very little to add.  On the whole, I prefer the testimony of the plaintiff’s witnesses in respect of the alleged representation. 

57.  I should add that I attach no weight to what was said by Jeremy Lok to the 1^st defendant about the representations allegedly made to him by Pauline Tang before he signed the relevant agreements.  What Jeremy Lok managed to recall is not entirely clear. In addition, the assertions made by him were never tested by cross-examination as he is not a witness.

58.  In terms of contemporaneous documents, I have already referred to the letter from the 1^st defendant to GFS dated 18 November 2007 where the alleged misrepresentation was not recorded. The alleged misrepresentation was not recorded in writing until 10 March 2008, i.e. some six months after GFS indicated that the 1^st defendant was going to be terminated for performance-related reasons. 

59.  Finally, I have also considered the inherent probability of Ms Tang making the alleged misrepresentation in the circumstances of this case.  It is common ground that the Government uses a lot of resources for the training of cadet pilots and it obviously wants to protect its financial position. Although the chosen candidates obviously performed satisfactorily during the selection process, there was no lack of applicants for this attractive job. There were in fact a number of candidates on a wait-list who could replace the 1^st defendant if he declined to accept the appointment.  It is difficult to imagine that the Deputy Departmental Secretary would want to limit the effect of the relevant terms of the Undertaking and/or the Guarantee immediately before the 1^st and 2^nd defendants were asked to sign these documents.  This is particularly so when there is little incentive for them to do so.  I find the suggestion of the defendants inherently improbable in light of the circumstances of this case.

60.  To sum up, I prefer the evidence of Ms Tang over that of the defendants’ and I find against them in respect of the alleged misrepresentation. 

The effect of the Offer Letter

61.  In any event, it is not disputed that the 1^st defendant signed the Offer Letter on 21 September 2005, i.e. 5 days prior to the alleged misrepresentation on 26 September 2005.  The meeting on 26 September 2005 was arranged after the GFS received the signed Offer Letter.  The 1^st defendant attempted to justify this by asserting that his telephone conversation with Ms Pauline Tang took place before he signed and returned the Offer Letter. 

62.  Even assuming that Ms Pauline Tang did say what the 1^st defendant alleged in their telephone conversation, the 1^st defendant had confirmed that he received no definite answer concerning his questions.  However, he was perfectly content to accept the terms of the Offer Letter.  There is no suggestion that the Offer Letter was also procured by misrepresentation but there is an argument on whether the terms therein are binding.

63.  It is submitted on the defendants’ behalf that the Offer Letter “might not” reflect the true intention of the parties at the material time.  Ms Wong submitted that it would be difficult to believe that the Government or the GFS would consider itself bound by the terms of the Offer Letter if the defendants did not subsequently attend the GFS office to sign the Undertaking and the Guarantee.  What I understand the defendants to be submitting is that the terms of the Offer Letter were not binding unless the Undertaking and the Guarantee were also signed.

64.  Whilst the Offer Letter did refer to the fact that the 1^st defendant and his guarantor would be invited to GFS to sign the Undertaking, it does not impose any obligation on the 1^st defendant to procure the Guarantee or sign the Undertaking.

65.  I see no basis to support the submission that the terms of the Offer Letter are somehow not binding unless the Guarantee and the Undertaken were executed subsequently.  The terms of the Offer Letter were clear and unambiguous.  On the face of the Offer Letter, there was equally no basis for the GFS to refuse to honour the terms therein if the defendants refused to enter into the Guarantee or the Undertaking. 

The counterclaim

66.  In view of the above, the defendants’ counterclaim must fail.

Order

67.  Judgment is entered in favour of the plaintiff against the 1^st and 2^nd defendants in the sum of HK$790,902.76 together with interest thereon at 1% above HSBC prime rate from the date of writ until today.  Interest from today runs at the judgment rate until full payment. 

68.  The counterclaim is dismissed.

69.  There is no reason why costs should not follow the event.  I therefore make an order nisi that the plaintiff shall have the costs of the consolidated action, including the counterclaim and any costs reserved.  Costs shall be taxed if not agreed, with certificate for counsel.

70.  In the absence of any application to vary within 14 days, this costs order shall become absolute.