JOHN CHIN AH CHAI v. KOFFMAN SECURITIES LTD.

HCA 11835/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 11835 OF 1999

(TRANSFERRED FROM LABOUR TRIBUNAL CLAIM
NO. LBTC 2267/1999)

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J U D G M E N T

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1. This is a claim for liquidated damages for loss suffered by the plaintiff as the former employee of the defendant under their contract of employment arising from the defendant's wrongful termination of the contract.

History

2. The defendant is a company registered and carrying on its business in Hong Kong. It is one of a number of wholly owned subsidiaries of Koffman Financial Group Limited (KFG) providing a wide range of financial services. The defendant from 1997 has operated as the brokerage arm. Since February 1997 it has been a member of the Hong Kong Stock Exchange (HKSE), and is authorised to trade in securities under licence granted by the Securities and Futures Commission (SFC).

3. Towards the end of 1997 the CEO of KFG and a director of the defendant called Raymond Lai (Mr Lai) was casting around for a suitable candidate for the position of managing director of the defendant. He approached the plaintiff; they negotiated and the upshot was a contract of employment in the form of a letter dated 1 January 1998 written by the defendant to the plaintiff and countersigned by him as an acceptance of its terms.

4. Clauses 1, 2, 3, 4, 5, 7(a), 8 and 14 are pertinent to these proceedings and I now record them verbatim :

"1. Employment Period

Your employment period of three (3) years with the Company will commence on the 1st day of January 1998 and expire on the 31st day of December 2000 (both days inclusive).

2. Term

Your employment with the Company shall be for an indefinite period, subject to termination by either part at any time by giving to the other party not less than three (3) months notice in writing and shall be accompanied by payment of full salary for the whole of the unfinished contract period as full and final settlement to rescind this employment contract.

3. Salary

During your employment with the Company, you shall receive a salary of HK$150,000,00 per calendar month, such salary to accrue on a day to day basis and to be payable monthly in arrears on the last working day of each calendar month.

4. Scope/Responsibilities

You shall be given full authority in running the Company in Hong Kong in the day-to-day business. You shall also work in full consultation with the Executive Committee of the Company for Group Policies and Credit matters.

During the employment period, the Annual Profit & Loss Budget (Appendix I) and any related bonus or profit sharing schemes for 1998 as approved by the Board of Directors will be subject to review and revision at the end of the first 2 years.

5. 13th Month, Incentive and Performance Bonuses

During your employment, you will receive an additional one month's salary at or around the Chinese New Year in each year by way of the 13th Month Bonus, subject to your continuing to be employed by the Company at the time. In the first year of your employment, this will be a pro-rated amount calculated from the Commencement Date.

You will be paid a further guaranteed incentive bonus of HK$550,000.00 on reaching the above-mentioned Annual Profit & Loss Budget for 1998. The approved Annual Profit & Loss Budget is attached to this letter as Appendix I.

You will have the discretion to pay a Performance Bonus to yourself and staff of the Company at a suggested rate of ten per cent (10%) of the balance after deducting twenty per cent (20%) to thirty per cent (30%) return on Equity as outlined in the approved Annual Profit & Loss Budget for 1998.

6. Holidays

(a) In addition to the usual public holidays, you will be entitled to sixteen and half working days' holiday in each calendar year, to be taken at a time agreed with the Board of Directors of the Company.

7. Air fare for your holidays

The Company shall reimburse you and members of your immediate family, presently your son, return airfare between Hong Kong and Singapore or the equivalent amount to another destination of your choice once a year during your holidays.

14. Termination

Notwithstanding anything hereinbefore contained, your employment hereunder may be terminated by the Company without notice or payment in lieu of notice :

(a) if you wilfully disobey a lawful and reasonable order of the Company or are guilty of any gross default or misconduct in connection with or affecting the business of the Company; or

(b) in the event of any breach or non-observance by you of any of the stipulations herein contained which is detriment to the Company's interest; or

(c) if you are guilty of fraud, dishonesty or any criminal offence; or

(d) if you become bankrupt or make any arrangement or composition with your creditors or become of unsound mind; or

(e) if you act in such a way to entitle the Company to terminate your employment without notice at common law."

5. By letter of 24 March 1999, the defendant gave notice to the plaintiff terminating the contract forthwith, with payment of his salary pro rata to that date.

The Claim

6. The plaintiff claims the termination was wrongful and in breach of clause 2 of the contract in that he was not given three months' notice in writing and not paid his full salary for the whole of the unfinished contract period. His claim is for a liquidated sum of $3,617,181.49 made up as follows :

Salaries for unfinished contract from 25th March 1999 to December 2000 at the rate of HK$150,000.00 per month	HK$3,183,870.97
13th months' bonus for 1999 and 2000	HK$300,000.00
Unused annual leave for 1999 (2.5 days x HK$1,950,000.00/365)	HK$13,356.16
Unused annual leave for 2000 (16.5 days x HK$1,950,000.00/365)	HK$88,150.68
Return airfare tickets for the plaintiff and his family for 1999	HK$15,901.84
Return airfare tickets for the plaintiff and his family for 2000	HK$15,901.84
Total :	HK$3,617,181.49 =============

Alternatively, he asks for damages to be assessed. He also claims interest and costs.

The Defence

7. The defendant denies that it was in breach when it terminated the contract, claiming the right to do so under clause 14 of the contract and or in the alternative clause 9 of the Employment Ordinance Cap. 57 (EO), and that there is no money due. Alternatively, if clause 2 is to be invoked, then it must first be rectified. The defendant's intentions at the signing of it was that the party seeking to terminate the contract before completion of the contract period had to give 3 months' notice or pay 3 months' salary in lieu of notice. Clause 2 in its written form is a mistake.

8. There was pleaded an alternative defence that if clause 2 stands as written, the remuneration payable is not a genuine pre-estimate of damages but is a penalty, and thus not enforceable. During the course of the trial Mr Tze for the defendant abandoned that alternative defence.

The Issues

9. Arising out of the pleadings these are :

(1) Was the defendant entitled to dismiss the plaintiff summarily?

(2) If not, are the parties bound by the written provisions of clause 2 or by a rectified version of clause 2?

(3) If the former, is the plaintiff entitled to the liquidated damages claimed?

10. To answer these questions it is necessary to go to the evidence to resolve material disputes of fact.

The Evidence

11. There were, in all, 3 witnesses; the plaintiff, Mr Lai and a C K Luk (Mr Luk) described as the financial controller of the defendant. Each had made, filed and exchanged witness statements treated as evidence in chief.

12. The plaintiff was called first. His evidence is that Mr Lai approached him in late 1997 because of his reputation and previous experience in brokerage. When they were negotiating the terms there was serious and careful discussion. This was particularly so with those finally incorporated into clause 2, because they represented a departure from a typical form of contract used by KFG and its subsidiaries. The provisions for compensation in the event that the contract be terminated by the other party represented the difficulty he would likely face in obtaining alternative employment in harsh market conditions. And if he were to choose to go the cost to be borne by him would be compensation to the defendant for the consequent upheaval. It was not discussed, not proposed, not agreed and not understood that the compensation for early termination was to be limited to 3 months' salary.

13. As to his duties; he understood that as managing director of a fledgling company it was to be his responsibility to bring turnover up above profitable margins whilst maintaining strict controls and avoiding unnecessary risks. He expected to be required to increase his sales staff, oversee the hiring of suitable candidates, monitor their performance, motivate them and, where necessary, rein them in.

14. What was not discussed or contemplated by either side at the negotiating table was that he should be appointed a dealings' director. He said in his experience this was not necessarily an additional role for a managing director. He had held the post in a previous position when he was a deputy managing director. In any event the matter was not considered because the defendant already had its quota of two dealings' directors.

15. The budget attached at appendix I was arrived at after he and Mr Lai, to adopt his words, had crunched the numbers.

16. When the negotiations were more or less complete Mr Lai referred them to a Mr Johnny Yu (Mr Yu) who is a director of KFG and shareholder of its parent company who provided input before the terms were finally settled and approved in the form of a job offer by the defendant's board.

17. The plaintiff began working on schedule from 1 January 1998. He regarded his first year as a successful one. The staff grew from 4 to 23. They opened two branch offices in Yuen Long and Central. He played a significant role in vetting and approving or rejecting candidates. Turnover increased dramatically. So did gross profits. The defendant's market ranking went from 337 in 1997 to 99 by the end of the 1998. His duties included constant supervision of his sales staff to ensure that credit limits and other controls were not exceeded. This in fact was a careful balancing act; an overly cautious approach would result in lost business and reduced turnover and profitability. He believed he maintained a proper balance. All memos to his staff and in particular those warning that credit terms had been exceeded were copied to his immediate superior Mr Lai. He had no cause to believe that his performance was not satisfactory. Certainly there were no complaints from the board or Mr Lai or Mr Yu or from any other superior.

18. Without warning, a month or so into the job, the leading dealings' director gave notice and resigned. The second dealings' director took over his role. On the basis that he would occupy a backup, subsidiary role, the plaintiff offered his services as the second dealings' director to save the defendant the expense of having to employ a replacement. He denied that this was to comply with a provision, express or implied, of his contract.

19. During the course of the year there were various staff changes mooted amongst KFG and its subsidiaries. Several approaches were made to the plaintiff to vary the terms of his employment, the most significant of which was that he transfer to KFG. He turned this and all other attempts to vary the terms of his contract down. He was content with the position he held and the terms he had negotiated. By and large the alternative terms were less attractive; particularly that he would lose his fixed salary and be paid a commission. His secretary was caught in a salary down-grade. She was offered $15,000 per month having hitherto been on $20,000. He thereafter paid her $3,000 from his own salary to keep her there. He found these constant attempts to change his terms of service as unnerving, distressing and disruptive, and was finally moved to write an e-mail to his superiors, expressing his displeasure, on 2 February 1999. The result of that was that Mr Yu came to see him, shook him by the hand and said: " Lets forget about it." But that, in the event, was not to be; by the next month he had been fired.

20. I now come to that part of the plaintiff's evidence in which he sought to answer those attacks on his performance raised in the pleadings and the evidence upon which the defence relies to justify his summary dismissal. These I list as follows :

(1) The plaintiff's stated intention to resign from his post of dealings' director. On 10 March 1999 the plaintiff sent an e-mail to Mr Lai that he proposed to resign as a dealings' director. This brought a response from Mr Lai which I repeat verbatim :

"Private and Confidential

To: John Chin
cc: Johnny Yu

From: Raymond C Lai

Date: 11th March 1999

Re: Dealing Directorship

This refers to our Friday meeting and your memo of yesterday. Your unilateral decision to resign as Dealing Director of Koffman Securities Ltd is unacceptable to the Company. In your capacity as the Managing Director of a security company, you have to act as a dealing director to do your job effectively. If you carry out your decision it clearly will be in breach of your contract and the commitments you have made in taking up employment with the Company."

21. The plaintiff responded by e-mail the following day denying that to resign would be in breach of the contract. In evidence he said he came to his decision because the defendant was, in his view and against his advice, undertaking overly risky positions in order to enhance its turnover and profitability as to cause him concern; if things were to go wrong, as dealings' director he would bear the brunt of the wrath of HKSE and SFC. Furthermore he wanted to devote all his time and energy towards fulfilling his responsibilities as managing director. He reiterated that there was no contractual obligation, express or understood, and no convention that as managing director he was required to hold the post of dealings' director. In the event, whilst not withdrawing his notice of intention to resign from that post, he did not in the face of the opposition put it into effect before he was terminated.

(2) Following the plaintiff having submitted notice of his intention to resign from the post of dealings' director, he refused to sign documents that could only be executed by a dealings' director.

22. In evidence he said there were two such occasions. The first was an application to HKSE to register a staff member as a sales representative because he believed it contained some irregularities. He wanted these explained or rectified before he was prepared to put his own signature to it. He made known his position but there was no satisfactory response. The second instrument he did not sign because by then he had formed the view that with his resignation pending it would no longer be right to sign in his capacity as a dealings' director. Besides, the defendant had another dealings' director that it could call upon.

(3) The defendant under the plaintiff's stewardship performed poorly in the market, failing to achieve more than 50% of the sales target figures that he the plaintiff had forecast in the proposed budget from 1998, incorporated into his contract as appendix I.

23. In evidence he said that what in fact was earned was a figure of $16.9m against a budget forecast of $21.5m, which came to 78.6% of the target. This was achieved in what turned out to be a difficult year for all brokers, particularly those which, like the defendant, did not enjoy business from HKMA. When taken to the monthly figures he did acknowledge that there was a reduction toward the end of 1998 lasting until early 1999. But this was a typical, seasonal feature of stock trading as fund managers tended to wind down before the end of each year, and then in the new year wait until trends had emerged. So the fluctuation in the monthly figures of the defendant was not out of the ordinary and did not reflect adversely on his performance, or that of the defendant.

(4) The plaintiff failed to monitor the activities of two particular salesmen under his supervision which gave rise to issues. A customer of one complained that funds she had invested had been misappropriated. The other oversaw a transaction which had all the hallmarks of money laundering. A so-called customer of one refused to meet an alleged debt due of in excess of $200,000.00 claiming that documents opening an account in his name were invalid as his signature had been forged. And both of the salesman were in charge of a number of 'dodgy' accounts held by customers who frequently answered calls for funds by handing out cheques which bounced on presentment.

24. In evidence the plaintiff said he supervised the trading activities of all sales staff with care and was most particular about drawing to the attention of those responsible trading irregularities, and where the defendant's position was put at commercial risk. He produced an abundance of e-mails supporting his claim that he was constantly monitoring, supervising, and alerting staff to positions where limits had been exceeded and were unsafe. These were all copied to senior personnel.

25. As to those issues specifically referred to he said as a matter of perspective they represented a tiny fraction of otherwise incident-free trading. The volume of trade overall made it impossible to vet every transaction. But systems were in place so that if a problem developed it was brought to his notice and he initiated a full and immediate enquiry until it was resolved. So it was in the captioned cases. Dealing with these, he said that the customer who complained of misappropriation withdrew her allegation. The so-called money laundering was, as he was satisfied, not that at all. The case of forgery put up by the customer in debt was patently full of holes; he established the customer had his own reasons to hide his relationship with the defendant. The dodgy accounts were all small with almost nil impact and all came to be settled. But he admonished the salesmen and directed that there be no trading until the debts were met. He was also in the process of tightening up procedures to reduce the likelihood of bouncing cheques; this was interrupted by his termination.

(5) The plaintiff failed to recruit sales persons.

26. In evidence he reiterated the growth in staff under his managing directorship and the rise in ranking achieved by the defendant during the period. And at no time was he criticised or warned that he must increase the staff yet further.

(6) The plaintiff refused to submit weekly performance reports, and monthly management account reports.

27. In evidence he said that a memo to this end was circulated amongst all the companies in the Koffman group on 11 February 1999 coming from Messrs Yu and Lai, the relevant extract of which I reproduce in part :

"RE: DELEGATION OF DUTIES IN THE YEAR 1999

WEEKLY REPORTS

Starting from the date of this memo, each and every company as listed should arrange their own weekly meetings with precise minutes taken by a delegated staff of their own company. Such weekly status report should be delivered to the PA of Mr Yu (Ms Carrie Cheung) each Friday by 12:00 noon.

MONTHLY REPORTS

Each and every company should prepare Monthly Management Account Reports for submission to Mr Yu and /or Mr Raymond Lai. These reports should include: Profit and Loss, Balance Sheet, Income & Expenditure, a comparison column with the Yearly Budget and a list of all kinds of Aged Payables and Aged Receivables as shown below : ...."

28. As director he complied, conducting the first on 24 February and thereafter until terminated. He produced copies of examples of these reports. There was no complaint, or any reference made, that he was not carrying out the instruction.

(7) The plaintiff refused to prepare an acceptable sales budget for 1999.

29. In evidence he said that the figures he put forward were in prospect of another difficult year, and displayed, as he thought, a proper balance between robust sales techniques and prudent management. In the event the proposals were rejected by Mr Lai who wanted to pursue a more optimistic approach. He revised upwards the forecasts, invoking what in the plaintiff's view was an unacceptable level of commercial risk. But he recognized Mr Lai's seniority and agreed to adopt his figures, however with reservation, to protect his integrity. This was to his mind hardly a 'refusal to prepare an acceptable sales budget.'

30. The plaintiff said that at no stage prior to 11 March 1999 had senior management ever questioned his performance as managing director or otherwise stated his position in the defendant was at risk. There was, properly, constant communication through the chain of command as issues were identified and dealt with. But never was he given any warning either directly or otherwise that he personally was not carrying out his duties as contracted, was not achieving goals. In his own mind there would have been no cause.

31. The amount he is claiming he has calculated under the contract. The amount of air fares equates with the economy class tickets he purchased for the family for 1998. His figures have not been challenged.

32. I come now to the defence case, beginning with Mr Lai's evidence, although he was called second.

33. Whilst he gave his evidence in Cantonese, he said he was fluent in English, written and spoken. He has had a number of years in the field of securities' trading, including employment with Merrill Lynch, Solomon Bros. and the investment wing of Standard Chartered. Mr Yu has a similar history.

34. He confirmed that it was he who undertook on behalf of the defendant the pre-contract negotiations with the plaintiff, with Mr Yu getting involved in the latter stages. He said he understood, now, the words and the meaning of clause 2, but at the time of signing he was under the impression it meant that if the contract was terminated before its due date there had to be 3 months' notice or 3 months' payment of salary in lieu. He said the plaintiff represented to him that that was the true meaning and intent and he accepted that. And Mr Yu shared his views as far as he was aware.

35. He agreed the final draft was prepared by the defendant, signed as an offer by Mr Yu and submitted to the plaintiff for approval and acceptance.

36. As part of the pre-contract discussions the plaintiff was told that he was to assume the position of dealings' director. But it was not provided for in the contract because not all his duties were set down, and because his being so appointed had to be applied for. The dealings' director whose post he was to take up, Samson Kwan, was released once the plaintiff's employment was settled.

37. Referring to the plaintiff's claim that under his command the defendant's staff increased dramatically, he said this was due almost entirely to the opening of the branch offices at Yuen Long and Central, which operations, including the recruiting of staff, were carried out without any input from the plaintiff at all.

38. He acknowledged that the plaintiff was invited to agree to an amendment to his contract terms which was part of an overall cost cutting exercise; he was not singled out for it as it affected all staff throughout the Koffman Group. He conceded it was an attempt to reduce the defendant's outlay to him for wages. But the plaintiff's refusal to relinquish his existing contract was respected and was not a reason for his summary dismissal.

39. I come now to how and why that decision came to be reached.

(1) the plaintiff's proposal to resign from the post of dealings' director was a unilateral, unacceptable decision on his part, contrary to his contractual obligations. His e-mail of 11 March said as much; in addition he held discussions with the plaintiff. But the plaintiff would not change his mind. However he did concede that as at the date he was dismissed the plaintiff had not, in fact, resigned as dealings' director.

(2) Following that time the defendant refused to carry out certain of his functions as dealings' director, in that on two occasions he declined to sign certain documents, conduct not denied by the plaintiff and already mentioned in his evidence. When it was put to Mr Lai that the plaintiff said he would not sign the application to HKSE, not because he outright refused but because of certain irregularities that he wanted removed or explained, he agreed. And when it was put to him there was another dealings' director who could handle these matters equally well he also agreed. And he conceded that he did not know of any other instance where the plaintiff had not carried out his function as a dealings' director, and that it would be wrong to say that he had quit discharging all the duties of the post.

(3) In his witness statement Mr Lai said that the sales figures were only 50% of the plaintiff's budget and target; the plaintiff was responsible for this 'appalling' result. He explained that he arrived at this percentage by relying on an internally prepared report which stated that only $11.421m had been earned and not the $21.5m forecast. Taken to the audited accounts from which the plaintiff claimed support that nearly 80% of the target had been earned, he said that this calculation included a significant amount of earnings that were unrelated to the sales team and could not be included. He disagreed when it was put to him that the budget forecast was designed to cover all income earned. He did accept that it was a forecast, and that he and the plaintiff came up with it together.

Taken to a memo he wrote to the plaintiff of 1 February 1999, part of which I reproduce as follows :

"To: John Chin

cc:	Stephen Lam (fax 2851-0013)
	Reason See (fax 2578-4233)
	England Yau (fax 2470-7761)
	Johnny Yu
	C.K. Luk

From: Raymond C. Lai

Date: 1st February 1999

Re: Sales Forecast for KSL for Jan - Dec 1999

Given the difficult market conditions and the problems that tended to accompany startups, the Firm had acknowledged the results of last year.

But the forecast for 1999 is unacceptable. In some areas, the projection is lower than what was achieved in the previous year."

40. He said the first paragraph was intended to show that market conditions had brought about less than satisfactory results. But he was not prepared to say that market forces beyond the defendant's control were responsible, or otherwise retract his comments that the 1998 results were poor and reflected on the plaintiff's performance. On the other hand, he agreed with the following sentiment, extracted from the plaintiff's letter of 8 February 1999, written by him to the Chairman of the Exchange Fund Investment Ltd :

".......... As you will probably know, 1998 has been a very difficult year for most stockbrokers operating in HK and we are no exception especially when we do not have the fortune of enjoying some of HKMA's business."

(4) On the issue of inadequate monitoring of the salesmen under the plaintiff's supervision he related the incidents already referred to in the plaintiff's evidence and said these were difficulties that should not have been permitted to arise, and would not have had the plaintiff undertaken proper management of his staff. He accepted, however, that the defendant traded a few hundred times daily in the usual course and agreed it would not be possible for the managing director to keep tabs on every transaction, having rather to rely on the integrity and good faith of its brokers. He also agreed that when alerted to the incidents in question the plaintiff did immediately investigate. And he also accepted that all but one of the problem matters had been resolved, and that the remaining one was a debt recovery. This being the customer who claimed his signature had been forged, he said he suspected at the time and believes now that that is a lie.

(5) On the subject of staff recruitment he said the plaintiff's function was to recruit sales executives and that he failed to do so beyond his own team at head office, numbering four. He could claim no entitlement to those appointed to run the branch offices.

(6) On the subject of weekly performance reports and monthly management accounts reports he said in his witness statement that the plaintiff failed to comply with the directive issued, parts of which I have already reproduced.

(7) On the issue of the sales budget for 1999, he said that the plaintiff's version of $9.6m was "totally unacceptable ... and against the defendant's policies". But he agreed these differences were a matter of opinion, whilst not agreeing that his was an aggressive marketing approach with high risk against the plaintiff's more conservative attitude. He said rather his opinion was close to a realistic appraisal of the market. But when it was put to him that the plaintiff's response to his counter proposals was to say that he would try his best to meet his forecast, he agreed that he did respond in that way.

41. Prior to the decision to terminate the plaintiff he said he had complained to him about his performance; that the turnover achieved by the defendant had markedly deviated from his budget; that he was not properly supervising his salesmen. It was therefore wrong for the plaintiff to say that he had not been forewarned of his unsatisfactory record in these crucial areas. However he did accept that in any business activity problems invariably arose and that warranted discussions and exchanges of views amongst senior management which might fall short of criticisms of systems and of an individual's performance.

42. The decision to terminate followed meetings held on 10 and 12 March 1999 between himself and Mr Yu and these were noted in a file note of 15 March 1999 which I reproduce :

"KOFFMAN FINANCIAL GROUP LTD.

File Note on John Chin's Employment Termination

Date: 15th March, 1999

Meetings were held between Raymond Lai and Johnny Yu on March 10, 1999 and March 12, 1999 respectively to discuss John Chin's Employment with Koffman Securities Ltd. After much deliberation and careful consideration, we have reached the conclusion to terminate his employment based mainly on the following reasons.

1) He has submitted a uncompromising request to resign as Dealing Director of Koffman Securities Ltd., citing work pressure as his main reason.

2) He has expressed his wish to refrain from any sales activities to concentrate on just general administration work, which is not an acceptable arrangement to the Company.

3) He has consistently fallen way behind his sales forecasts and projections.

4) He has failed to reduce or effectively control the overall costs of his departments under management.

5) He has failed to exercise proper supervision over the risk control of his salesmen, especially with regard to client accounts, especially with unpaid balances and returned cheques.

6) He has not been able to recruit salespersons to increase the business of the firm.

7) Despite repeated instructions, he has not submitted weekly performance reports."

43. He said it was, in fact, Mr Yu who made the decision to dismiss the plaintiff.

44. I come now to the evidence of Mr Luk. He described his role in the defendant as looking after the financial position of the defendant including the daily transfer of funds, settlement with the clearing house, segregating of customers' money, collection of debts, handling margin calls and reviewing daily financial returns. He went on to say that it was part of his function to oversee the operations of the two branch offices reporting, where necessary, not to the plaintiff but to Mr Yu. An example of this was when he referred the suspected money laundering incident direct to Mr Yu.

45. He attributed the defendant's growth in the market in 1998 to the results achieved by the branch offices in whose activities the plaintiff had played little part. He conceded however that the branches were not separate entities from the defendant of which the plaintiff was managing director.

46. Taken to the abundance of emails sent by the plaintiff to alert staff where positions were exposed or credit terms exceeded he said that where they concerned branch accounts he ignored them, on instructions of Messrs Lai and Yu, because : "We have our own way of dealing with risk management," and : "We respected his kindness. But we have our own way of risk management." I should say here that when asked, repeatedly, whether the plaintiff was performing his duty of supervision or acting out of kindness he gave no direct answer, but said : "We respected what he did. It was not wrong for him to remind us".

47. I interpose here that this evidence was contrary to that on the point from Mr Lai. Mr Lai said there was no distinction between branch office and head office activity, and that the plaintiff as managing director was in overall control. And when it was put to Mr Lai that he had instructed Mr Luk to ignore the plaintiff's e-mails where they related to branch transactions he responded : "No, absolutely not".

48. I return to Mr Luk's evidence.

49. He confirmed that the plaintiff was the author of a document titled "Credit Procedures and Risk Management of Koffman Securities Ltd.", dated February 1998, in which he laid down the ground rules intended to be binding on all of the defendant's transactions and to be observed by all staff. He conceded that prior to that there had been no such system and no guidelines.

50. He said again that the figures achieved by the defendant were largely through performances of the branch offices. However when taken to a set of accounts prepared internally he said they revealed that the income earned by the team at head office was the best overall, whilst querying the reliability of those accounts.

51. I revert again to Mr Lai's evidence. Mr Lai conceded that head office had achieved the best result overall.

52. Mr Luk went on to agree that it was usual in securities' dealing that trade in the months of December, January and February was typically down as fund managers closed off their books for the year and then waited for trends to emerge before beginning again in the new year. And he agreed that e-mails and memos coming from the plaintiff was evidence that he was continuing to engage in cost cutting exercises and monitoring performance on a daily basis up to the time of his departure.

53. He said it would be wrong to say the plaintiff habitually neglected his duties as managing director, and wrong to say he was guilty of gross misconduct and default in relation to the defendant's business.

54. On the issue of Samson Kwan's resignation he said he did not know the full details, beyond that he had formally tendered his resignation on 10 March 1998. Whether he had decided or a decision had been made for him prior to that date, he did not know.

55. Taken to an example of what, when giving his evidence, the plaintiff said was a weekly performance report, prepared in compliance with the instruction of 11 February 1999, he agreed that it was, indeed, a weekly performance report.

56. He also confirmed that he as finance controller shared with the plaintiff the preparation of the monthly management accounts report referred to in the same instruction. But when taken to what the plaintiff had said was an example of this he was not able to confirm or deny that it was one.

57. Asked about the account whose holder said it was not his because his signature on the application form had been forged, he confirmed that he had received cheques from this customer in response to margin calls including one for $200,000.00 dishonoured on presentment. He agreed that the customer's claim of forgery was curious in the light of that activity. He confirmed that the defendant was treating this as a debt for recovery; the writ has issued and the hearing is set down for May 2001.

58. He was asked if, to the best of his knowledge, the plaintiff ever deliberately refused to obey orders given him by senior management. His response : "To the best of my knowledge, no."

Burden of Proof

59. This is the plaintiff's claim. But as it is the defendant claiming the right to dismiss him summarily and, in the alternative, that the contract requires rectification, the burden falls upon the defendant to prove its case. In the event that it cannot then the burden shifts to the plaintiff to prove his liquidated loss.

Findings of Fact

60. I find it quite impossible to believe that Messrs Lai and Yu, with their combined wealth of experience, could have been duped into believing that clause 2 of the contract, typed in plain English, meant something entirely different. It may well be that they jointly and severally failed to put their minds to its consequences, but that is entirely different. As it was there were ongoing discussions, several drafts, no suggestions of pressure or undue influence or subterfuge; the final contract was engrossed by the defendant and was there to be checked and considered before being signed by Mr Yu on its behalf as an offer. The defendant has fallen short by the proverbial country mile of proving clause 2 was a mistake.

61. I accept the plaintiff's account that in the pre-contract negotiations it was never stipulated he should take the part of the dealings' director and that it was an implied term of the contract that he do so. I am satisfied that were it to have been a term the parties in their caution would have incorporated it expressly. Nor am I satisfied that there exists a convention that a managing director of a stock broking company shall take the post of a dealings' director. The manner in which Samson Kwan came to leave is a pointer. There is nothing in his written tender of resignation to suggest he was ousted from his post involuntarily to make way for the plaintiff.

62. I come now to deal with those matters upon which the defendant grounds its right to have dismissed the defendant summarily.

(1) The plaintiff not being contractually bound to be a dealings' director was not in potential breach of the contract when he gave notice of his intended resignation from the post, nor would he have been in breach had he actually resigned.

(2) The plaintiff's explanation not to endorse the HKSE application because he was concerned about an irregularity in the form was well founded and justified. He was not, as I find, on such solid ground when he declined to sign another document because his pending resignation might amount to a conflict of interest. On the other hand, it could hardly have been a major disruption, with another dealings' director available to perform the function. Neither Mr Lai nor Mr Luk could point to any other default by the plaintiff in the carrying out of his responsibilities as a dealings' director.

(3) It is beyond dispute that the defendant did not reach the targets that Mr Lai and the plaintiff settled on when the contract was signed. But that was not a contractual obligation; it seems it was added to provide a reference for a performance bonus. Whatever was the percentage of the target of $21.5m that was actually achieved, and that depends on an interpretation of the accounts, I am satisfied there was no expressed dissatisfaction until well after the figures were available, namely not before the file note compiled on 15 March 1999. And that was counter to Mr Lai's e-mail of 1 February 1999. Adopting the ordinary meaning of the words, I find, whatever he now says he meant, that he was satisfied with the 1998 results "given the difficult market conditions."

63. I accept that the defendant's final results could not be regarded as less than satisfactory, much less "appalling" as Mr Lai had attested. It follows as its managing director, the plaintiff could not be censured for the results.

(4) I am satisfied the plaintiff did monitor the activities of all the sales personnel at all material times. It was evident that adherence to the rules coupled with managed risk control were for the plaintiff essential ingredients in a successful operation. His booklet put out in February 1998 and daily e-mails were excellent illustrations of this. Of the specific instances referred to I am satisfied that he investigated these to the fullest extent necessary when alerted to potential difficulties. And of those matters then raised only one, the suit for recovery of the $200,000.00 plus, alone remains unresolved, with a hearing now fixed. The defence of forgery would seem to be easily refuted and judgement likely.

(5) I am not satisfied that it has been established that the plaintiff failed to hire a sufficiency of sales staff. I do not accept the words of Mr Luk that the branches were separate and distinct and not under the plaintiff's overall control. As managing director he played a central role in setting up the branches and recruiting staff. I reject, as arrant nonsense, that his e-mailed warnings of unwarranted exposure were, under orders, ignored and treated as nothing more than acts of kindness. The staff increased, in percentage terms, dramatically, and it cannot be said that the plaintiff did not play a significant part. Hardly surprisingly, there is no sign of his having been warned or censured about that throughout his term of office.

(6) The plaintiff as I am satisfied did comply with instructions to produce weekly performance reports. The documents he produced are self evidence of this compliance.

(7) The allegation that the plaintiff refused to prepare an acceptable sales budget for 1999 is patently untrue from the evidence of the defendant's own witness, Mr Lai. What happened was that the figures he put forward in good faith were, to Mr Lai, unacceptably low. Invoking his seniority Mr Lai had them revised. The plaintiff accepted the revision whilst expressing reservation. And he responded he would do his best; Mr Lai said as much. As I find this is not a refusal to prepare an acceptable sale budget.

64. I have dealt with all the allegations of misconduct or failure to perform made by the defendant. There is, as I find, no foundation in any of them. To the contrary, I am satisfied that the plaintiff performed his duties as managing director of the defendant in complete compliance with his contractual obligations to the end result that the defendant prospered in difficult times. Until the decision was made to dismiss him there was no occasion when he was warned of any conduct or omission which might put his tenure at risk. That does not surprise me; on the evidence there was no justification.

The Outcome

65. The defendant has not proved it was entitled under clause 14 of the contract or by invoking section 9 EO (whose terms are similar to those of clause 14) summarily to dismiss the plaintiff.

66. The defendant has not proved that clause 2 should be rectified or is otherwise not binding on the parties.

67. That leaves the plaintiff's claim.

68. Clause 2 comes into play. The defendant was duty bound to give 3 months' notice in writing to the plaintiff but failed to do so; he was terminated on the day of notice being 24 March 1999. That involves section 8A EO, which provides that where notice of termination is required to be given, but is not, the employee shall be entitled to a sum equal to the amount of wages he would have been paid for such period. Applying the definition of 'wages' under the EO I find that includes 3 months' salary and a pro rata calculation for that year's fixed bonus, holiday and proved air fares. Returning then to clause 2 of the contract, the plaintiff is entitled to his salary for the remainder of the term, namely, from 25 July 1999 to 31 December 2000.

Accordingly I am satisfied the plaintiff has identified the following amounts to which he is entitled :

3 months wages in lieu of notice:

Salary	$450,000.00
Pro rata 13 months' bonus	$37,500.00
Pro rata air fares	$3,975.46
Pro rata leave	--------	$491,475.46
Salary 25.6.99 to 31.12.00 (1 year 189 days)		$2,732,054.79
		$3,223,530.25 ==========

69. He also seeks interest. I see no reason why this should be withheld.

70. There remains the issue of costs which subject to being nisi at first instance, shall follow the event.

Judgment

71. There shall be judgment in favour of the plaintiff in the sum of $3,223,530.25 together with interest thereon at the judgment rate from 25 March 1999 to the date of this judgment and thereafter at the judgment rate until payment.

72. The defendant's counterclaim is dismissed.

73. Costs are to the plaintiff taxed if not agreed.