TADJUDIN SUNNY v. BANK OF AMERICA, NATIONAL ASSOCIATION

HCA 322/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 322 OF 2008

(Transferred from LBTC 5551 of 2007)

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J U D G M E N T

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INTRODUCTION

Introduction

1. This is an action for breach of contract of employment.  The Plaintiff, Tadjudin, commenced her employment with Bank of America (the “Bank”), as an analyst at the level of vice president on 5 June 2000.  Her contract of employment provided that either party may terminate the employment by given a minimum of one month’s notice in writing or by paying one month’s salary in lieu of notice.   The contract also provided that the Plaintiff was eligible to be considered for a bonus under the Bank’s performance incentive programme, subject to her being in employment with the Bank at the time the Bank came to decide upon and pay bonuses under the programme.  The Plaintiff received generous bonuses for the years from 2000 through to 2006. On 28 August 2007, the Bank terminated the Plaintiff’s employment by giving her a month’s salary in lieu of notice, without any bonus or pro-rata bonus for 2007.

2. The Plaintiff commenced proceedings in the Labour Tribunal against the Bank for breach of contract and in the District Court in DCEO 4 of 2009 for sex discrimination under the Sex Discrimination Ordinance, Cap 480 (“SDO”).  Her claim in the Labour Tribunal was transferred to the High Court under the present action.  Her claim under the SDO was stayed pending the outcome of these proceedings.

The parties’ claims and defence

3. In this action, the Plaintiff claims:

(1)   damages for wrongful termination of employment by the Bank with the intention of depriving her of the performance bonus for 2007; and

(2)   damages for perverse, irrational and mala fide evaluations of her performance bonuses for 2005, 2006 and 2007.

4. Her claims are based on the following terms implied into her contract of employment at common law:

(1)   The Bank shall not exercise its right to terminate her employment by giving one month’s notice or by paying one month’s salary in lieu of notice in order to avoid her being eligible for the performance incentive programme (the “implied term of anti-avoidance”).

(2)   The Bank should not implement its performance evaluations in respect of the Plaintiff in an irrational, perverse or arbitrary manner that was not bona fide.

(3)   The Bank should not administer its performance incentive programme in respect of the Plaintiff in an irrational, perverse or arbitrary manner or in a manner that was not bona fide.

(4)   The Bank should not act in a manner contrary to the implied term of mutual trust and confidence between an employer and employee (the “implied term of mutual trust and confidence”).

The first three implied terms have been expressly pleaded, but not the fourth.  The fourth implied term was raised in the Plaintiff’s opening submission, which was then extensively argued in her closing submission.

5. The Bank disputes the existence of the first implied term.  It accepts the second and third implied terms but disputes it was in breach.  It takes great exception to the fourth implied term being argued and strongly objects to any issue being raised on this implied term, which remains un-pleaded by the close of the Plaintiff’s case.

The un-pleaded implied term of mutual trust and confidence

6. The implied term of mutual trust and confidence was not pleaded and, despite objection, remains un-pleaded by the close of the Plaintiff’s case.  The Plaintiff’s position is that it is trite that while points of law may be pleaded, it is not required to be pleaded under Order 18 rule 11 of the Rules of the High Court (“RHC”).  Mr Harris SC, leading counsel for the Plaintiff, submits that the implied term of mutual trust and confidence is hardly a controversial principle of law and is described in the Encyclopedia of Employment Law[1] as the cornerstone of all contracts of employment.  He therefore argues that in circumstances where the Plaintiff has pleaded the full terms of her employment contract, which she has, and absence any requirement to plead matters of law under the RHC, there is no need to specifically plead this implied term which is so widely accepted as affecting all contracts of employment.

7. The Bank’s objection is that by introducing the implied term of mutual trust and confidence with the two ‘sub-category’ un-pleaded implied terms under it, the Plaintiff is introducing an entirely new and different case from that which was pleaded and thus should not be allowed.  As a matter of law, the duty of mutual trust and confidence between an employer and his employee is nowadays implied into every contract of employment.  The existence of this implied term in a contract of employment was affirmed by the House of Lords in Mahmud v Bank of Credit and Commerce International SA (in compulsory liquidation)[2]. See also Johnson v Unisys Ltd[3]; and Eastwood v Magnox Electric plc[4]. Pausing here, I would agree with Mr Harris SC that there is no need to plead such a well established principle of law for the purpose of advancing the Plaintiff’s pleaded case, such as the existence of the implied terms which were pleaded.

8. However, that is not what the Plaintiff seeks to achieve.  The Plaintiff pleaded three implied terms.  In the opening submission, the Plaintiff contends that the fourth implied term is free standing and distinct from the other three which were pleaded.  In his closing submission, Mr Harris SC is not seeking to argue that the court should allow the Plaintiff to rely on the implied duty of trust and confidence for the purpose of implying the terms which have been pleaded, but contends two separate ‘sub-category’ implied terms implied under the duty of mutual trust and confidence which have not been pleaded, namely:

(i)   an employer must not exercise a power to dismiss unconscionably and without reasonable cause and contrary to the legitimate expectations of the employee; and

(ii)   must not exercise a power to dismiss to deprive an employee of a contractual benefit which results in the unreasonable forfeit of such a benefit.

9. These two ‘sub-category’ implied terms are indeed free standing and separate from the three pleaded implied terms.  They are directed at the Plaintiff’s claim for the 2007 bonus, which is covered by the first implied term.  The Plaintiff’s case under the first implied term is a very narrow one, ie that the Bank dismissed her with the subjective intention of avoiding payment of the 2007 bonus.  That is the pleaded case which the Bank is required to meet under the statement of claim.  However, the scope of these two ‘sub-category’ implied terms sought to be introduced under the pretext of a well recognised duty of mutual trust and confidence is much wider.  They expand the Plaintiff’s case from subjective intention of the Bank to avoid payment to objective unconscionable dismissal, lack of reasonable cause of dismissal, legitimate expectation of the Plaintiff, and the mere fact of unreasonable forfeit of the bonus.  Clearly, the Plaintiff is introducing a very different case.

10. Mr Harris SC argues that as the implied term of mutual trust and confidence is a trite legal principle of law which need not be pleaded the Bank can hardly complain about being surprised or ambushed.  Had he not included the two ‘sub-category’ implied terms, I would agree.  However, it is Mr Harris SC’s submission that the two ‘sub-category’ implied terms are included under the umbrella of the implied term of mutual trust and confidence.  The obligations under these ‘sub-category’ implied terms are not, as yet, established legal principles.  They are just implied terms suggested by Cabrelli in his article, Discretion, Power and the Rationalisation of Implied Terms in Industrial Law Journal[5] to give an employee anti avoidance protection against express terms in a contract of employment which provide for certain conditional payments, the condition being that the employee is still in the employment of his employer at the time of payment.  As submitted by Mr Huggins SC, leading counsel for the Bank, the purpose of Cabrelli’s article is to submit that the existing law should be conceptualized, rationalized and developed by reference to the implied term of mutual trust and confidence.  The article is one in which an academic is proposing a development in the law which would depart from the approach in the United Kingdom authorities, such as Clark v Nomura International Plc[6] and Horkulak v Cantor Fitzgerald International[7] and has followed another author, Brodie[8] in querying the suitability of the tests of irrationality in Clark v Nomura and Horkulak because the irrationality test poses an extremely heavy burden on an employee to satisfy.  Both Brodie and Cabrelli disagree with the approach of Mummery LJ in Keen v Commerzbank AG[9].  These ‘sub-category’ implied terms are not established legal principles yet.  Indeed, it is Cabrelli’s suggestion that they should be pleaded and tested in court. 

11. As Chief Justice Ma said in Kwok Chin Wing v 21 Holdings Limited & Another[10], issues must be properly pleaded unless for some reason the pleadings have assumed a less significant role in the proceedings.  The Chief Justice said:

“It should by now really be quite unnecessary to issue yet another reminder on the rationale behind pleadings. The basic objective is fairly and precisely to inform the other party or parties in the litigation of the stance of the pleading party (in other words, that party’s case) so that proper preparation is made possible, and to ensure that time and effort are not expended unnecessarily on other issues … It is the pleadings that will define the issues in a trial and dictate the course of proceedings both before and at trial. Where witnesses are involved, it will be the pleaded issues that define the scope of the evidence, and not the other way round. In other words, it will not be acceptable for unpleaded issues to be raised out of the evidence which is to be or has been adduced …

… It is simply not permissible for an issue to be raised in this way: one does not sift through the evidence adduced in a trial in the hope that something was said that can conceivably found a cause of action. Issues, I would reiterate, must be properly pleaded unless for some reason the pleadings have assumed a less significant role in the proceedings …

The purpose of pleadings, in clearly and unambiguously setting out the true extent and nature of a dispute not just for the benefit of the parties but also for the Court in managing and trying cases, remains important under our system of civil justice. The retention of the old rules as to pleading as well as the introduction of new provisions over four years ago under the Civil Justice Reform, reinforce this.”[11]

12. The same principle applies to contractual terms to be implied from legal duties as matter of law.  A party may not, on the pretext of legal argument, be allowed to wander into un-pleaded arena, leaving his opponent pondering what case he has to meet and catching him unprepared.   While the existence of the duty or implied term of mutual trust and confidence is trite law which need not be pleaded, the issue raised by such legal principle must be pleaded.  The existence of the two ‘sub-category’ implied terms allegedly included under its umbrella is not established legal principle.  They are facts which must be pleaded.  They are wider in scope than that which was pleaded.  Had they been pleaded, the Bank would have marshalled a separate set of legal arguments, adduced other evidence and cross-examined on a different basis and presented its case differently.  It would be grossly unfair and prejudicial to the Bank to allow the two ‘sub-category’ implied terms to be raised at this stage.  The Plaintiff deliberately chose not to amend her statement of claim to properly raise and plead the two ‘sub-category’ implied terms.  It is only appropriate that she should not be allowed to rely on them. That said, as the duty of mutual trust and confidence is a trite principle, the above conclusion in no way preclude the Plaintiff from arguing that the pleaded terms have been implied into her contract of employment with the Bank by reason of this legal principle, though not pleaded.

Sex discrimination issue

13. The Plaintiff made a myriad of allegations, including one of sex discrimination.  She commenced separate proceedings in the District Court against the Bank seeking redress for treating her less favourably than it would treat a man and for discriminating against her in relation to her employment because she is a female.  She repeated her claims for sex discrimination in her pleadings and in her witness statements in this action.  Her plea is that she was given unreasonable treatment due to a discriminatory state of affairs within the office against female employees. 

14. While the Bank is desirous to have the sex discrimination claims dealt with together in this action once and for all, Mr Huggins SC queries if this court has jurisdiction to hear the Plaintiff’s complaints of sex discrimination, given that section 76 of the SDO requires any claims of sex discrimination under that Ordinance be brought in the District Court and that jurisdiction cannot, as matter of law, be conferred by consent. 

15. The Plaintiff’s position, as explained by Mr Harris SC, is that the allegations of sex discrimination were background only and may go to the rationality or otherwise of the Bank’s regime at any given time.  He is not inviting the court to rule or make any finding on sex discrimination but asks the court to factor it in insofar as it relates to the attitude of the Bank.  With respect, I agree with Mr Huggins SC that this is a bizarre position for the Plaintiff to adopt.  If this court is not to make any finding on sex discrimination, I am unable to see how to factor it in when deciding the rationality or otherwise of what the Plaintiff calls the Bank’s regime or assessment of bonuses for the various years complained of.

16. As analyzed above, the contractual cause of action in this action are whether the Bank was in breach of the implied term not to terminate the Plaintiff’s employment to avoid paying her a bonus in 2007; and whether the Bank’s administration of its performance incentive programme and performance evaluation for the years 2005 and 2006 were irrational, perverse and in bad faith and in breach of any implied term in relation to the decision after the Plaintiff was dismissed not to award a performance bonus in relation to the year 2007.  I do not find it necessary to make a determination on the jurisdictional issue as the issue of sex discrimination is irrelevant.  I therefore decline to factor that in my finding of rationality of the Bank’s scheme or assessment of the Plaintiff’s bonuses.  In any event, the evidence does not begin to establish the Plaintiff’s allegations of sex discrimination and no suggestion of sex discrimination of any kind was put to any of the Bank’s witnesses.

The issues

17. The issues raised in this action are:

(1)  what is the nature of the bonus under the performance incentive programme;

(2)  whether a term that the Bank shall not exercise its right to terminate the Plaintiff’s employment by giving one months notice or by paying one month’s salary in lieu of notice in order to avoid her being eligible for the performance incentive programme is implied into the Plaintiff’s contract of employment with the Bank;

(3)  whether the assessment of the Plaintiff’s bonuses in 2005 and 2006 were irrational, perverse, arbitrary or assessed in bad faith such that no reasonable employer could have arrived at such amounts;

(4)  whether the Bank terminated the Plaintiff’s employment in August 2007 in order to avoid her being eligible for a performance bonus; and

(5)  if the Bank was in breach of contract in any of the above aspects, the quantum of damages payable to the Plaintiff.

Except the second issue, which is a mixed issue of law and fact, the other issues are issues of fact.

THE IMPLIED TERM OF ANTI-AVOIDANCE

The applicable principle

18. The Bank accepts the second and third implied terms.  Thus, having excluded the fourth implied term, or more precisely the two ‘sub-category’ implied terms under it, what is left in dispute is the first implied term.  The principles under which a term may be implied into a contract have been set out in BP Refinery (Westernport) Pty Ltd v President, Councillors and Ratepayers of the Shire of Hastings[12]. A term may only be implied into a contract, if:

(1)   it is reasonable and equitable;

(2)   it is necessary to give business efficacy to the contract, so that no term will be implied if the contract is effective without it;

(3)   it is so obvious that ‘it goes without saying’;

(4)   it is capable of clear expression; and

(5)   it does not contradict any express term of the contract.

As with construction of an express term, the content of a term to be implied depends on the factual matrix at the time of making of the contract.

19. The Bank’s objections to the first implied term are that it is inconsistent with an express term of the letter of employment; inconsistent with the employer’s statutory right to terminate under sections 6 and 7 of the Employment Ordinance (Cap 57); and that the duty under this implied term should not be implied into the employment agreement at all because the legislature had enacted a comprehensive system of employment protection in Part VIA of the Employment Ordinance, it is not open to the common law to legislate into legislated area.  The Bank’s arguments are based on the House of Lords decision in Johnson v Unisys Ltd[13].

The relevant terms in the letter of employment

20. By a written letter of appointment dated 19 April 2000, the Plaintiff was employed by the Bank as a vice president in its Distress Debt Trading Group (“ISSG”) at an initial monthly salary of HK$74,519 per month with a year-end bonus equivalent to one month’s salary and a monthly housing allowance of HK$40,000. 

21. Under clause 3 of the letter of employment, upon successful completion of the probationary period, either party may terminate the employment by giving a minimum of one month’s notice in writing or by paying one month’s salary in lieu of notice.

22. Clause 1 of letter of employment states that the Plaintiff was entitled to a performance bonus under the Bank’s performance incentive programme.  That clause provides:

“You will be eligible for consideration under the Bank’s performance incentive programme and it will subject to you being employed by the Bank at the time of payment.”

The performance bonus under this clause is the subject matter of the Plaintiff’s bonus claims in this action.

The performance incentive programme

23. By reason of clause 1 of the employment letter, eligibility to be considered for the performance incentive programme is an express term of the Plaintiff’s employment.  Generally, the Bank’s employees are informed of their individual bonus payments in January after approval of the Bank’s board of directors.  The Bank maintains a culture of secrecy regarding the bonus awarded to its employees.  The employees have no knowledge about the bonus awarded to their colleagues.  The Plaintiff received substantial bonuses throughout her employment with the Bank.

24. One of the expressed purposes of the programme is to compete for business and talent.  The programme was administered through a continuous performance evaluation process as outlined in the Bank’s “Pay for Performance” presentation. The presentation consists of fourteen pages. It explains what is pay for performance and the philosophy behind it; what total compensation, ie remuneration package, comprises; how an employee’s performance is evaluated; and how the bonus is assessed.  The followings are some salient features of the programme:

(1)  the Bank is committed to a pay for performance environment in which an employee’s performance is a key consideration in determining his remuneration package;

(2)  remuneration consists of: base salary; cash incentives, ie bonus; and equity;

(3)  an express philosophy of the programme is that the Bank rewards the highest performers with the greatest rewards through basic salary, incentives, equity and rewards and recognition;

(4)  managers should aggressively compensate high performing employees;

(5)  the guiding principles for compensation are: reward the highest performers with the greatest reward; pay relates directly to performance; and awards are highly differentiated based on performance;

(6)  the focus is on the results the employee achieved against his specific goals;

(7)  performance is assessed on two criteria: (a) results measured against the plan - the “What”; and (b) leadership behaviour - the “How”; each criterion is rated as “Exceeds”, “Meets”, and “Does Not Meet”; and

(8)  total compensation is market-informed and driven by final results of the Bank and line of business as well as the employee’s performance results.

25. According to this “Pay for Performance” presentation, the Bank expressly commits itself to a pay for performance environment and promotes a performance-based culture.  This commitment is reflected in an email issued in January 2006 by Sydney Brown of senior management instructing the Bank’s department heads across the world, including Ken Schneier and Scott Gordon who were heads of the ISSG from late 2004 to early 2007, to deliver the bonus numbers for 2005 performance year to employees by providing references to “the compensation to revenue levels” and the ratio for the Bank’s competitors and stating that the Bank “are among the highest paying companies on the street”.  The email includes various attachments, fact sheets and “talking points” totalling 27 pages.  In his email dated 3 June 2006 to the Plaintiff, Ken Schneier said:

“We will bend over backwards to ensure that recognition and comp are properly allocated.”

Thus the Bank’s commitment to pay for performance could not have been over-stated.  

26. The Bank’s commitment to pay for performance environment is also felt by its employees.  When complaining about the size of his bonus for the year 2004, John Liptak, the Plaintiff’s manager who was instrumental to her dismissal, cited “a general payout ratio philosophy for people in [their] type of work”.  Ken Schneier and Scott Gordon did not disagree.  Ken Schneier even confirmed that “for analysts, profit and loss generated by an analyst’s credits is a useful tool”.  He also mentioned what he called “multiple touch” factor.  The “Pay for Performance” presentation also referred to other factors such as compensation to revenue level in the industry and the individual’s “What” and “How” rating.  But, there is an undisputed correlation between the size of the bonus and profit contributed by the individual.

27. From this incentive programme, it can be seen that the major part of an employee’s remuneration package is composed of performance bonus and equity which are rewards for performance, a principle to which the Bank expressly commits itself.  While there is no simple formula for determining the amount of bonus, it is largely linked to profit contribution of the individual employee, his line of business and the Bank as a whole and the compensation data in the market.  For a performing employee, the performance bonus is very substantial.  The base salary constitutes a lesser fraction of his remuneration package. 

28. On the fact, the Plaintiff had all along been paid very substantial bonuses.  Table 1 below shows her profits contribution, her bonus, the bonus/profit contribution percentage (“bonus percentage”), her annual salary, and bonus to salary ratio.  The denomination is in US currency. Her annual salary for 2000 and 2006 are calculated on the basis of thirteen months’ basic monthly salary of HK$74,519 and HK$84,730 respectively plus a monthly housing allowance of HK$40,000, converted into US currency.  No information is available for her salary for the other years.  For illustration purpose, it is assumed that the Plaintiff’s annual salary for 2001 was same as that for 2000 and her salary for 2002 to 2005 was the average between her salary for 2001 and 2006 as the data for those years are not available.  The data for 2000 are not typical as the Plaintiff did not work for the full year. 

Table 1 – Profit, bonus and salary ratios

	2000	2001	2002	2003	2004	2005	2006
Profits (US$)	No less than 6m		2.35m	5.00m	3.90m	8.03m	7.23m
Bonus (US$)	90,000	425,000	287,000	450,000	640,000	615,000	550,000
Bonus/ profit	7.8%	7.8%	12.21%	9.00%	16.41%	7.66%	7.61%
Annual salary (US$)*	185,737	191,738	Data not available, assessed to be 194,246 being the average for 2001 and 2006				202,755
Bonus/ annual salary	48.46%	221.66%	147.75%	231.67%	329.48%	316.61%	271.26%

* On the basis of 13 months’ salary plus housing allowance of HK$480,000 per annum

29. It can be seen from Table 1 that the Plaintiff’s bonus for 2001 was more than double her annual basic salary.  Though the data for her basic salary for 2002 through to 2006 are not available, it would not be far wrong to say that her bonuses for those years were between two to three and half times her annual salary, a very substantial part of her total remuneration package.  In this remuneration package, the base salary is the ‘sauce’, the performance bonus is the ‘meat’.

The nature of the bonus under the performance incentive programme

30. It would be convenient to deal with a disputed issue as to the nature of the performance bonus under the performance incentive programme.  Mr Harris SC argues that the performance bonus is based on performance.  An employee banks in her credits every day of the year.  At the end of the year, his bonus is assessed.  It is based on performance in a way which invariably produced predictable results through the application of known principles and practices.  Mr Harris SC is careful not to use the word “contractual” lest the performance bonus would be caught under Part VIA of the Employment Ordinance, under the provisions of which the Plaintiff’s claim was time barred.  He calls it non-discretionary as opposed to discretionary.

31. The Bank’s case is that bonus is wholly discretionary, not gratuitous and not contractual.  An employee has no entitlement to the bonus but only to be considered for the bonus if he is still in employment at the time when the bonus comes to be paid.  Mr Huggins SC submits that there is a world of difference between a legal entitlement on the one hand and an expectation or eligibility for consideration on the other.  Though it is more likely that employees would be more motivated by a contractual bonus than a mere hope of a discretionary payment which the employer could choose in its discretion not to pay, it is not an inherent and necessary condition of the employer/employee relationship that the performance bonus would be a right and not merely a hope or expectation. There are sound commercial reasons for an employer to provide discretionary benefits, including bonuses, rather than guaranteed ones, particularly in the financial sector.

32. Having regard to the letter of employment, the Employees Handbook and the “Pay for Performance” presentation, I think the bonus to be paid under the programme is not contractual like salary, which is expressly provided by the employment agreement.  There is no expressed amount to be paid or formula on which it is to be assessed.  The programme is administered by the Bank.  The principles governing the administration of the programme and evaluation of an employee’s performance are determined by the Bank.  They are set out in the “Pay for Performance” presentation.  There is no dispute that whether to award a bonus and the amount to award is discretionary.  Given the Bank’s expressed commitment to pay for performance, the very comprehensive programme of performance evaluation and assessment of bonus, and the significant ratio the performance bonus has to bear on the total remuneration package, the discretion is not an unfettered one.  It is not wholly discretionary as Mr Huggins SC submits.  The discretion has to be exercised in a serious and bona fide manner.  Like the court’s discretion which has to be exercised in accordance with established legal principles, the Bank’s discretion in awarding or not awarding as well as determining the amount of the bonus has to be exercised in accordance with the principles set out in the programme.  The discretion is not to be exercised in an irrational, perverse or arbitrary manner that is not bona fide.  Thus, the nature of the bonus is discretionary, not contractual or gratuitous. 

33. However, the eligibility to be considered under the programme is contractual, being expressly provided by clause 1 of the letter of employment.  If there was any breach of an implied term which resulted in the Plaintiff being rendered ineligible to be considered under the programme, she is entitled to such damages as will put her in the same position as if she had been considered under the performance incentive programme and awarded the bonus which would have been paid to her in accordance with the principles of the programme. 

Content of the implied anti avoidance term

34. While clause 1 of the letter of employment expressly provides that the Plaintiff is eligible for consideration for an award of the bonus under the Bank’s performance incentive programme subject to her being employed by the Bank at the time of payment, clause 3 gives the Bank the right to terminate her employment without the need for justification by giving a month’s notice in writing or by payment in lieu.  Thus, unless the first implied term pleaded was implied into the employment agreement, the Plaintiff’s eligibility to be considered under the performance incentive programme is illusory and could be easily taken away by the Bank exercising its right to termination under clause 3, even if she was utterly without fault.

35. The ISSG, operated in a highly competitive environment in which performance bonus was a major part of the employee’s total remuneration package.  It is the ‘meat’ of his remuneration package, being between two to three and half times his annual base salary plus allowance.  The bonus is not gratuitous.  It has to be earned by performance.  The employee earns by banking in ‘credits’ for profit earned for the Bank to be paid out to him on bonus day.  An employee therefore has a reasonable expectation to receive his bonus at the end of the year.  That must also be the common understanding or expectation of the employee and the employer because one express purpose of the performance incentive programme is to compete for talent so as to better enable the Bank to compete for business in the market.  It gives an employee the incentive to perform so as to maximise profit for the Bank by linking the performance of the individual employee to the amount of the bonus payment.  No talent would stay if he is under the constant fear that his employer would deprive him of the fruits of his effort by terminating him before the date of payment of the bonus.  Without that the assurance given by the implied term, the purpose of the programme would be defeated.  The Bank would be unable to retain talent and profit would suffer.  That would be contrary to the interest of the Bank.  Not only is the implied term not inconsistent with clause 3, it supplements the express terms, without which the employment agreement would have no business efficacy.

36. Furthermore, an employer/employee relationship is built on mutual trust and confidence.  There is no dispute that the obligation of mutual trust and confidence is implied into any contract of employment.  An employer is under an implied duty to deal with his employees fairly and in good faith.  Thus, if at the time the Plaintiff was entering into the employment agreement with the Bank she had asked,

“What about my bonus if I am dismissed through no fault of my own during the year, by notice or payment in lieu?”

An officious bystander knowing of the performance incentive programme and clause 1 and clause 3 of the letter of employment would have readily responded saying:

“Surely your employer will act in good faith. It goes without saying that he won’t do that to deprive you of your bonus unless he has good reasons to terminate your employment.”

Such an answer certainly covers the implied anti-avoidance term.  The implied term is obvious and ‘it goes without saying’.  It is also capable of clear expression.  It may even be wide enough to cover the un-pleaded ‘sub-category’ implied terms.

37. Mr Huggins SC objects to the implied term on the ground that it is inconsistent with the express term in clause 3 of the letter of employment.  Clause 3 gives the Bank not merely a power to terminate but a lawful right to terminate at any time by notice or payment in lieu with or without identifying any reason or cause.  He argues that it would be inconsistent to say in one breath that there was an express lawful right to terminate in this manner, that such termination was lawfully valid and effective; and in the next breath to say that to terminate in this manner would be wrongful, if done with an unfair intention to prevent the Plaintiff from fulfilling the express contractual condition for consideration for the 2007 bonus.  He refers me to the first instance judgment in Thomas Vincent v South China Morning Post Publishers Ltd[14]in which Deputy High Court Judge Muttrie held that the implied duty of mutual trust and confidence could not prevent the employer from terminating the employment of the employee in accordance with an express term in the contract allowing either party to terminate by giving one month’s notice.

38. With respect, this approach of mechanically comparing the implied term with express term is inappropriate in construing a contract of employment.  Each contract has to be construed in its proper factual context.  The factual context of that case is different from that of the present case (see paragraph 45 below).  Mr Huggins SC’s argument loses sight of the employer’s overarching obligation implied by law as an incident of the contract of employment.  An employer has a duty imposed by law to deal with his employee in good faith.  Under that duty, he may not exercise his express contractual rights so as to destroy or seriously damage this relationship of trust and confidence.  To say the minimum, he may not exercise his right to terminate employment by giving notice or payment in lieu with the intention to avoid paying the employee the performance bonus.  Similar arguments had been considered by Lord Steyn in Johnson v Unisys[15]. Although that was a dissenting judgment on the issue of legislative intent, Lord Steyn’s finding that a similar term as the one sought to be implied did not conflict with express term of termination by notice remains valid.  In Johnson v Unisys, counsel for the employer relying on the notice provision argued that the obligation of mutual trust and confidence could not be implied into the contract as it conflicted with express terms of the contract.  Lord Steyn disagreed and held that the duty could co-exist with the express term.  He said at paragraph 24:

“His argument approached the matter as if one was dealing with the question whether a term can be implied in fact in the light of the express terms of the contract.  This submission loses sight of the particular nature of the implied obligation of mutual trust and confidence.  It is not a term implied in fact. It is an overarching obligation implied by law as an incident of the contract of employment.  It can also be described as a legal duty imposed by law: Treitel, The Law of Contract, p 190. It requires at least express words or a necessary implication to displace it or to cut down its scope.  Prima facie it must be read consistently with the express terms of the contract. This emerges from the seminal judgment of Sir Nicolas Browne-Wilkinson V-C in Imperial Group Pension Trust Ltd v Imperial Tobacco Ltd [1991]1 WLR 589.  It related to an employer’s express contractual right to refuse amendments under a pension scheme.  The Vice-Chancellor held that the employer’s express rights were subject to the implied obligation that they should not be exercised so as to destroy or seriously damage the relationship of trust and confidence between the company and its employees and former employees. The employer’s blanket refusal was unlawful. The decision did not involve trust law and the employer was not treated as a fiduciary.  It was decided on principles of contract law.  Sir Nicolas Browne-Wilkinson V-C described the implied obligation of trust and confidence as “the implied obligation of good faith”.  It could also be described as an employer’s obligation of fair dealing.  In the same way an employer’s express right to transfer an employee may be qualified by the obligation of mutual trust and confidence : see United Bank Ltd v Akhtar [1989] IRLR 507, Sweet & Maxwell’s Encyclopaedia of Employment Law, vol 1, paras 1.5101 and 1.5107.  The interaction of the implied obligation of trust and confidence and express terms of the contract can be compared with the relationship between duties of good faith or fair dealing with the express terms of notice in a contract.  They can live together.  In any event, the argument of counsel for the employers misses the real point.  The notice provision in the contract is valid and effective.  Nobody suggests the contrary. On the other hand, the employer may become liable in damages if he acts in breach of the independent implied obligation by dismissing the employee in a harsh and humiliating manner.  There is no conflict between the express and implied terms.  I would therefore dismiss this argument.”

39. Lord Hoffmann did not disagree with the above proposition.  He said at paragraphs 42 and 43:

“42. My Lords, in the face of this express provision that Unisys was entitled to terminate Mr Johnson’s employment on four weeks’ notice without any reason, I think it is very difficult to imply a term that the company should not do so except for some good cause and after giving him a reasonable opportunity to demonstrate that no such cause existed.

43.   On the other hand, I do not say that there is nothing which, consistently with such an express term, judicial creativity could do to provide a remedy in a case like this.  In Wallace v United Grain Growers Ltd 152 DLR (4^th) 1, 44-48, McLachlin J (in a minority judgment) said that the courts could imply an obligation to exercise the power of dismissal in good faith.  That did not mean that the employer could not dismiss without cause.  The contract entitled him to do so.  But in so doing, he should be honest with the employee and refrain from untruthful, unfair or insensitive conduct.  He should recognise that an employee losing his or her job was exceptionally vulnerable and behave accordingly.  For breach of this implied obligation, McLachlin J would have awarded the employee, who had been dismissed in brutal circumstances, damages for mental distress and loss of reputation and prestige.”

While saying it would be very difficult to imply such a term in the light of the express termination provision, Lord Hoffmann did not rule out such a possibility in an appropriate case.  In Canada, it was held that the courts could imply an obligation to exercise the power of dismissal only in good faith.

40. In the circumstances of the Plaintiff’s employment agreement, in particular, the structure of the remuneration package, the Bank’s commitment to pay for performance, and the lack of efficacy without the implied term, I think the implied term pleaded may reasonably be implied into the employment agreement and there is no inconsistency between it and clause 3 of the letter of employment.

41. Furthermore, Mr Huggins SC’s argument had been disposed of by the Court of Appeal in Tadjudin v Bank of America National Association[16] when allowing the Plaintiff’s appeal against an order to strike out this implied term.  Stone J said at paragraph 58:

“58. Second, although it was submitted by the defendant that an implied term must not contradict other express terms in a contract, and in the present case, it is said that the implied term contended for by the plaintiff is inconsistent with the express right of termination set out in clause 3 of the Employment Agreement, this argument of the defendant is met by the response of the plaintiff that the plaintiff does not dispute the defendant’s right to terminate her employment by notice under clause 3, or the validity of that dismissal. The anti-avoidance term only protects against tactics calculated to avoid the payment of the performance bonus. In that sense therefore it is not inconsistent with or contradicts the express term in clause 3. In this respect, therefore, the present case can be distinguished from Johnson v Unisys where the implied term contended for was said to be protective of the employee’s interest in remaining employed.

59. Furthermore, as was said in the judgment in Takacs’ case, in which there was in the contract an express provision allowing the employers to terminate the contract at any time on four weeks’ notice, at page 419 :

“I accept the claimant’s submission that the alleged implied term could co-exist with the express termination provision in the contract and that the present circumstances are distinguishable from Johnson v Unisys. It is further, in my view, distinguishable from Reda v Flag because in that case there was a clear and unambiguous express right to terminate the contract at any time without cause. There is, I conclude, a real prospect of successfully arguing that such an implied term would supplement, rather than be inconsistent with, the express terms of the contract …” ”

42. Mr Huggins SC argues that in that appeal the Court of Appeal was considering an appeal against striking out the implied term and decided that it was inappropriate to strike out the plea in what is a “developing area of law” without first establishing the full factual matrix at trial.  Hence, he submits that the above dicta are not binding on me.

43. I respectfully disagree.  In the above dicta, the Court of Appeal was precisely determining this narrow issue, whether the term, assuming it is to be implied, is inconsistent with the express terms.  If it is inconsistent, the pleading should be struck out.  Only if it is not inconsistent that the issue should proceed to trial to have the disputed matters resolved and a finding to be made whether the term is to be implied. Stone J also referred to Takacs v Barclays Services Jersey Ltd[17], although that was only a case of striking out pleading by a master.  In that case, Master Fontaine reached the same conclusion that a similar implied term could co-exist with express termination provision in the contract.  I have made adequate finding of fact to enable me to find that the pleaded term may be implied into the Plaintiff’s employment agreement.  I respectfully agree with and adopt the dicta of Stone J, which in any event is also binding on me.  For similar reasons as stated by the Court of Appeal, I consider the implied anti-avoidance term not inconsistent with the express term in the employment agreement.

44. As for Thomas Vincent v SCMP, the argument was whether the implied obligation of mutual trust and confidence required consultation and warning before dismissal.  It was on that basis that the court held that that obligation could not prevent the termination in accordance with an express term.  The obligation implied in that case is different from that in the present case.  Whether the implied obligation could co-exist with the express term had not been argued.  In any event, that decision is not binding on me and cannot stand well in the light of the dicta of Stone J quoted above.  I prefer to follow the decision of the Court of Appeal.

45. Mr Huggins SC submits that it could not be sensibly argued that the express term in clause 1 as to the bonus and clause 3 as to termination should be construed together so as to prevent an employer, who decides that the conduct of an employee is such that he is not working well with his team mates or whose conduct and attitude is not conducive to the smooth operation of the business, from exercising a right to terminate by notice or payment in lieu.  I do not think the effect of the implied term pleaded goes that far.  The implied term as pleaded is very narrow.  It only prevents the Bank from terminating the employment with the intention to avoid paying bonus. It does not prevent the Bank from terminating for reasons other than to avoid paying the bonus, such as those suggested by Mr Huggins SC.

Inconsistency with statutory right under sections 6 and 7

46. Mr Huggins SC argues that sections 6 and 7 of the Employment Ordinance give an employer an unqualified and free standing right to terminate the employment of his employee by notice or payment in lieu.  But, the effect of the term sought to be implied would render it wrongful for the Bank to terminate prior to the time for consideration and payment of any bonus, if done with an intention to deprive the Plaintiff of the bonus. It must follow that the implied term would effectively disentitle the Bank as employer from doing lawfully and rightfully that which the express terms of the employment agreement and sections 6 and 7 say it is entitled to do.  He therefore submits that such a term could not be implied into the employment agreement as it is inconsistent with sections 6 and 7.

47. Mr Huggins SC refers me to the case of Sun Zhongguo v BOC Group Ltd[18] in support of his proposition that sections 6 and 7 confer upon the employer an unrestricted statutory right to dismiss upon the following of the requisite procedure, and that there should be no implied term which undermines that clear statutory right.  He says that Sun Zhongguo was followed by other judges in the court of first instance, such as Yung Mei Chun Jessi v Merrill Lynch (Asia Pacific)[19] and Kwan Hung Sang Francis v HK Exchanges and Clearing Ltd[20].

48. With the greatest respect, I am unable to read Sun Zhongguo in the way counsel does.  In that case, the contract of employment provided four methods of termination, including giving six months’ notice and payment in lieu.  The plaintiff’s employment was terminated partially by notice and payment in lieu in respect of the balance of the notice period.  The plaintiff argued that under an implied term he was entitled to work out the entire notice period and be paid all allowances and benefits he would be entitled had he worked out the entire notice period so that he could earn the allowances and benefits.  In rejecting that argument, the learned Recorder said[21]:

“12.   … The Plaintiff's contention in effect was that there should be terms implied in the agreement which abrogated the defendant’s rights under section 7 of the Employment Ordinance.  It is trite law that terms could not be implied into a contract simply because they are reasonable and no terms could be implied if it is against an express term of the contract. In the present case, although the power to terminate under sections 6 & 7 of the Employment Ordinance is not an express term of the employment contract, yet the rights given are nevertheless rights which the defendant would be entitled to enjoy unless they are taken away by the terms of the agreement. It is difficult to see why as a matter of business efficacy, there must be a term to exclude the Defendant’s statutory rights under sections 6 & 7, nor could I see any reason for saying that as a matter of unexpressed common intention, there must be a term that the defendant is not to exercise the rights given to it as employer under the two sections.”

 (My emphasis underlined)

49. Two points ought to be noted.  First, while recognising the employer’s statutory right to terminate under sections 6 and 7, the learned Recorder unequivocally acknowledged that that right could be taken away by the terms of the agreement.  That is far from saying that it is a sacrosanct right which no terms of a contract of employment could undermine.  Second, the learned Recorder then went on to explore the pleaded implied term.  He held that such a term could not be implied because of lack of business efficacy or because it was not the parties’ unexpressed common intention, ie that such a term is not so obvious that ‘it goes without saying’.  Elsewhere, the learned Recorder said that an implied term could not exclude the statutory power to terminate under sections 6 and 7 of the Employment Ordinance.  But that was said in the above context that a term which had no business efficacy and was not the unexpressed common intention of the parties could not be implied to abrogate a statutory right.  Nowhere did the learned Recorder express the view that an implied term may not exclude a statutory right or have the effect of suspending it.  I agree with the learned Recorder in the way I read his judgment, but not the way Mr Huggins SC reads it.

50. Nor do I think the other two cases quoted by Mr Huggins SC support the alleged principle in Sun Zhongguo.  In Yung Mei Chun Jessi v Merrill Lynch (Asia Pacific), the applicant’s contract of employment provided for a notice period of seven days and an undertaking that she would not, for a period of three months from the date the notice (the “restricted period”), solicit the account of any of the employer’s clients whom she had serviced.  The applicant’s employment was terminated with seven days’ wages in lieu of notice.  She claimed wages for the restricted period and underpayment due to currency exchange difference.  Her claim was dismissed by the Labour Tribunal and she sought leave to appeal from the Court of First Instance.  One of her arguments was about the reason for her dismissal.  It was in that context that Deputy High Court Judge Au-Yeung, as she then was, sought to rely on Sun Zhongguo.  She said at paragraphs15-16:

“15. … It was to cover up its wrongdoings that the defendant terminated the employment and made up excuses for the termination.

16. The applicant was dismissed by payment of wages in lieu of notice, which an employer had a right to do under sections 6 and 7 of the Employment Ordinance and could do so even if he did it for an ulterior motive. When exercising the statutory right to terminate, neither party was required to give reasons for termination. See Sun Zhongguo v. BOC Group [2003] 2 HKC 239, Recorder Edward Chan SC. There was therefore no need to investigate the reasons for termination. There was also nothing to correlate the contents of the report to the alleged oral agreements.”

(My emphasis underlined)

It was not a case of conflict between an implied term and statutory right of dismissal. Sun Zhongguo was relied on as authority for the proposition that there was no need to give reasons for termination under sections 6 and 7.

51. In Kwan Hung Sang Francis v HK Exchanges and Clearing Ltd[22], the plaintiff’s contract of employment provided for termination by four months’ notice or payment in lieu.  On 3 March 2004, he accepted the terms of a forced resignation and reserved his rights.  Then, he turned around and alleged that he was constructively dismissed.  One of his grounds of claim was that but for the dismissal his employer would have followed the procedure for disciplinary action under the terms of his employment which would result in no finding of any cause of complaint against him and such process would have taken over twelve months to completion by which time he would have been entitled to some option benefits.  At the hearing, the plaintiff’s counsel confirmed not to take the point that the employer failed to follow the procedure for disciplinary action.  It was in that context that Deputy High Court Judge Au-Yeung, as she then was, said that the statutory right to termination could not be cut down by an implied term in the contract.  To the extent that is a statement of law, it was not argued but conceded; and in any event obiter.

52. The learned deputy judge then went on to hold, relying on Sun Zhongguo, that that was so even if the employer had acted for an ulterior motive. On my analysis, the issue of law decided in Sun Zhongguo is that the statutory right could be taken away by the terms of the contract, though on the facts of that case, a term to that effect was incapable of being implied into the contract.  Insofar as the learned deputy judge was relying on Sun Zhongguo as the authority for the proposition that the statutory right to termination could not be cut down by the terms of the contract, she was, with respect, misled.

53. In my view, the right given by sections 6 or 7 is not mandatory but permissive.  It does not require every contract of employment to be terminated by notice or payment in lieu.  Nor does it keep alive any contract which has not been terminated in accordance with sections 6 or 7.  The statutory right to terminate by notice may unilaterally or by agreement be waived by the party to whom it is conferred against whom the obligation is owed.  Notice may be waived and the parties may also be mutually discharged from the contract by mutual agreement.  A convenient example is the form of notice.  Section 6(1) provides that a party may terminate the contract of employment by giving notice to the other party, orally or in writing, of his intention to do so.  The parties may by agreement cut down the statutory right by waiving the right to give oral notice by agreeing that notice shall be in writing and that oral notice shall be ineffective.  An employer may also unilaterally waive his right to terminate by giving oral notice by providing in the contract that termination by the employer shall be by written notice only whereas an employee may terminate by giving oral or written notice.  Given the principle of freedom of contract, I agree with Recorder Chan SC that the statutory right to termination by notice could be taken away by the terms of the contract of employment, express or implied.

54. Accordingly, it was open to the parties to agree that the Bank shall not exercise its right to terminate the Plaintiff’s employment by giving notice or payment in lieu, whether in accordance with the letter of employment or pursuant to the statutory right under sections 6 and 7.  If such a term was not made an express term of the employment agreement, it may be implied.

Whether such an implied duty is excluded by the protection under Part VIA

55. It is Mr Huggins SC’s submission that having regard to sections 6 and 7, which give parties to an employment contract an unqualified right to terminate by notice or payment in lieu, and Part VIA of the Employment Ordinance, which provides certain statutory protection to employees who are thus dismissed, it is to be inferred that the legislature did not intend to provide remedies flowing from the manner in which an employee is dismissed, and/or for dismissal with an underlying intention to avoid an employee being considered for a bonus.  The legislature’s intention is that an employee would only be protected if the underlying intention was to extinguish or reduce a right, benefit or protection conferred upon the employee by the Employment Ordinance itself.  The protection under Part VIA is exhaustive.  If the Plaintiff’s case is that her right to the 2007 bonus was such a right or benefit, she could and should have availed herself of the protection of Part VIA within the statutory limitation period.  She did not do so and, in any event, such a claim is now time-barred.  If her right to the 2007 bonus was not such a right, she has no remedy.  The remedy available to her is limited by Part VIA.

56. The basis for the inference drawn by Mr Huggins SC is derived from the House of Lords decision in Johnson v Unisys.  In that case, the House of Lords, by a four to one majority (Lords Bingham, Nicholls, Hoffmann and Millett – with Lord Steyn dissenting on this point), held that an implied term that the employer would not, without reasonable and proper cause, conduct itself in a manner calculated and likely to destroy or seriously damage the relationship of trust and confidence between the employer and employee did not exist because the evident intention of the Parliament manifested in Part X of the Employment Rights Act 1996 was that such claims had to go through specialist tribunals and that the remedies were limited by legislature.  The rationale for this principle is that in legislating for employment protection, the legislature has struck a balance between the conflicting interests of employers and employees and it is not for the court to legislate or upset this balance through development of the common.  At paragraph 37 of Johnson v Unisys, Lord Hoffmann said:

“37. … judges, in developing the law, must have regard to the policies expressed by Parliament in legislation. Employment law requires a balancing of the interests of employers and employees, with proper regard not only to the individual dignity and worth of the employees but also to the general economic interest. Subject to observance of fundamental human rights, the point at which this balance should be struck is a matter for democratic decision. The development of the common law by the judges plays a subsidiary role. Their traditional function is to adapt and modernise the common law. But such developments must be consistent with legislative policy as expressed in statutes. The courts may proceed in harmony with Parliament but there should be no discord.”

57. Thus, Mr Huggins SC argues, likewise in the light of the express statutory regime in Part VIA of the Employment Ordinance, which provides for limited protection and relief to employees whose employers terminate their employment with an intention to extinguish or reduce any right, benefit or protection conferred by the Employment Ordinance or payment under the employee’s contract, there is no room for any contractual common law implied term as contended for by the Plaintiff.  He quotes sections 32A, 32K, 32M, 32N and 32O in Part VIA.  The legislature has carried out that exercise of balancing the interests of employers and employees with proper regard not only to the individual dignity and worth of the employees but also to the general economic interest in Hong Kong.  It is inappropriate for the court to imply any prohibition against any other forms of “unfair”, “unjust” or “unreasonable” dismissal.  It is not for the judiciary to say that the legislature has not gone far enough or has provided inadequate protection in relation to unfair or unreasonable dismissals and to substitute its own view as to what would be socially just and fair balance of the relevant interest.  He quotes the following dicta of Lord Nicholls in Eastwood v Magnox Electric plc[23] in paragraph 13 in support of the above proposition:

“It is not for the courts to extend further a common law implied term when this would depart significantly from the balance set by the legislature. To treat the statutory code as prescribing a floor and not a ceiling would do just that.”

Lord Nicholls said further in paragraph 14:

“I recognise that, by establishing a statutory code for unfair dismissal, Parliament did not evince an intention to circumscribe an employee’s rights in respect of wrongful dismissal. But Parliament has occupied the field relating to unfair dismissal. It is not for the courts now to expand a common law principle into the same field and produce an inconsistent outcome.”

58. Mr Huggins SC also refers to Lord Hoffmann’s dicta in paragraph 58 of Johnson v Unisys which is to the same effect:

“For the judiciary to construct a general common law remedy for unfair circumstances attending dismissal would be to go contrary to the evident intention of Parliament that there should be such a remedy but that it should be limited in application and extent.”

59. These are very powerful dicta from the highest court in the United Kingdom, which certainly commands my respect. Mr Huggins SC submits that it is no answer to these dicta to say that the statutory regime under Part VIA of the Employment Ordinance is not as extensive or comprehensive as that in the United Kingdom.  The difference is only a matter of degree.  The principle is the same, namely that the legislature in each jurisdiction has decided upon what relief should be given in the employment field in relation to unfair dismissals and in particular in cases where an employer dismisses with an underlying intention to reduce or extinguish an employee’s right or benefits.  In Hong Kong, the deliberate choice was made to limit protection to cases where the underlying intention is to reduce or extinguish an employee’s rights, benefits or protection conferred by the Employment Ordinance, and not otherwise.

60. I would agree with that submission, if I am comparing like with like.  But, I cannot lose sight of the fact that in the United Kingdom, the Employment Rights Act 1996 provides a very comprehensive statutory regime of employment protection against “unfair dismissal” which is far more extensive than Part VIA of our Employment Ordinance.  The interest which is protected by the United Kingdom regime is one against unfair dismissal, whereas the interest protected by our regime under Part VIA is at best an interest against “dismissal to save costs”, for want of a better description.  The marked difference between the two regimes can be demonstrated by comparing section 98 of the Employment Rights Act 1996 with section 32A of the Employment Ordinance.

61. Section 98 of the Employment Rights Act 1996 provides :

“(1) In determining for the purposes of this Part whether the dismissal of an employee is fair or unfair, it is for the employer to show–

(a) the reason (or, if more than one, the principal reason) for the dismissal, and

(b) that it is either a reason falling within subsection (2) or some other substantial reason of a kind such as to justify the dismissal of an employee holding the position which the employee held.

(2) A reason falls within this subsection if it–

(a) relates to the capability or qualifications of the employee for performing work of the kind which he was employed by the employer to do,

(b) relates to the conduct of the employee,

(c) is that the employee was redundant, or

(d) is that the employee could not continue to work in the position which he held without contravention (either on his part or on that of his employer) of a duty or restriction imposed by or under an enactment.

(3) In subsection (2)(a)–

(a) ‘capability’, in relation to an employee, means his capability assessed by reference to skill, aptitude, health or any other physical or mental quality, and

(b) ‘qualifications’, in relation to an employee, means any degree, diploma or other academic, technical or professional qualification relevant to the position which he held.

(4) Where the employer has fulfilled the requirements of subsection (1), the determination of the question whether the dismissal is fair or unfair (having regard to the reason shown by the employer)–

(a) depends on whether in the circumstances (including the size and administrative resources of the employer’s undertaking) the employer acted reasonably or unreasonably in treating it as a sufficient reason for dismissing the employee, and

(b)  shall be determined in accordance with equity and the substantial merits of the case.”

62. The United Kingdom regime offers a two-stage protection. First, under section 98(1), the employer bears the burden of showing that the dismissal was for one of the four reasons falling within section 98(2) or a substantial reason.  Second, if the employer fulfilled the requirements of section 98(1), the court shall determine whether the dismissal was fair or unfair having regard to the reason shown by the employer and the circumstances set out in section 98(4).

63. By way of contrast, the protection given under Part VIA is very narrow.  It only protects against dismissal for reason of saving costs.  The relevant provisions are section 32A, 32K, 32L, 32M and 32O.  These sections provide:

“32A(1) An employee may be granted remedies against his employer under this Part–

(a) where he has been employed under a continuous contract for a period of not less than 24 months ending with the relevant date and he is dismissed by the employer because the employer intends to extinguish or reduce any right, benefit or protection conferred or to be conferred upon the employee by this Ordinance;

…

(2) For the purposes of subsection (1)(a), an employee who has been dismissed by the employer shall, unless a valid reason is shown for that dismissal within the meaning of section 32K, be taken to have been so dismissed because the employer intends to extinguish or reduce any right, benefit or protection conferred or to be conferred upon the employee by this Ordinance.

(3) …”

“32K For the purposes of this Part, it shall be a valid reason for the employer to show that the dismissal of the employee or the variation of the terms of the contract of employment with the employee was by the reason of–

(a) the conduct of the employee;

(b) the capability or qualifications of the employee for performing work of the kind which he was employed by the employer to do;

(c) the redundancy of the employee or other genuine operational requirements of the business of the employer;

(d) the fact that the employee or the employer or both of them would, in relation to the employment, be in contravention of the law, if the employee were to continue in the employment of the employer or, were to so continue without that variation of the terms of his contract of employment; or

(e) any other reason of substance, which, in the opinion of the court or the Labour Tribunal, was sufficient cause to warrant the dismissal of the employee or the variation of the terms of that contract of employment.”

“32L(1) On a claim for remedies under this Part, in determining whether or not an employer has shown that he has a valid reason for the dismissal of an employee or for the variation of the terms of the contract of employment with an employee within the meaning of section 32K,the court or the Labour Tribunal shall take into consideration the circumstances of the claim.

(2)  Without affecting the generality of subsection (1), the circumstances of a claim include the length of time that the employee has been employed under that contract of employment with the employer as compared to the length of qualifying service required for the right, benefit or protection conferred or to be conferred upon the employee by this Ordinance which is capable of being extinguished or reduced by means of the dismissal or the variation of the terms of the contract of employment.”

“32M(1) On a claim for remedies under this Part if the court or Labour Tribunal finds that the employer has not shown a valid reason as specified under section 32K,the employer is deemed to intend to extinguish or reduce any right, benefit or protection conferred or to be conferred upon the employee by this Ordinance and the dismissal or the variation is deemed to be unreasonable and the court or Labour Tribunal may make an order under section 32N or an award of terminal payments under section 32O. ”

“32O(1) Subject to section 32M, if no order for reinstatement or re‑engagement ismade under section 32N, the court or Labour Tribunal may make an award of terminal payments to be payable by the employer to the employee as it considers just and appropriate in the circumstances.

(2) Terminal payments under this section refer to the statutory entitlements under this Ordinance that the employee has not been paid and that the employee is entitled to upon the termination of the contract of employment, or that he might reasonably be expected to be entitled to upon the termination of the contract of employment had he been allowed to continue with his original employment or original terms of the contract of employment to attain the minimum qualifying length of service required for the entitlements under this Ordinance.

(3) Subject to subsection (4), terminal payments include–

…

(c) any end of year payment payable under Part IIA;

…

(e) any severance payment payable under Part VA or any long service payment payable under Part VB;

…

(i) any other payments due to the employee under this Ordinance and under his contract of employment.

(4) Notwithstanding that the employee has not attained the qualifying length of service required for the entitlements under this Ordinance, the court or Labour Tribunal may make an award for terminal payments under subsection (1) or (5) which shall be reckoned according to the actual length of time that the employee has been employed under that contract of employment with the employer.

(5) …”

64. Even by a cursory reading, one can readily appreciate that the local regime is very limited and very different from the United Kingdom’s.  First, it offers a much narrower protection, namely one against dismissal with intent to extinguish or reduce any right, benefit or protection conferred or to be conferred upon the employee by this Ordinance. It is not protection against the wider concept of “unfairness” in the dismissal.  That apart, the scope of protection is also very limited.  It only protects the right, benefit or protection conferred or to be conferred upon the employee by the Ordinance and not other rights conferred by the contract but not by the Ordinance.  The right or benefit to be considered for the award of performance bonus under the performance incentive scheme is not a right conferred by the Ordinance but by the employment agreement.  Thus there is no question about the Plaintiff’s right being time-barred under the Employment Ordinance.  Second, it offers a shallower one-stage protection.  While section 32A(2) presumes that a qualified employee is dismissed with the intent to extinguish or reduce right, benefit or protection, the burden of proving otherwise is discharged upon the employer successfully showing that the dismissal was for one of the five reasons set out in section 32K.  Those five reasons are similar to those under the United Kingdom regime.  But the employer’s burden just stops there.  Once the reasons are established, he does not have to go on to prove that the dismissal was reasonable, let alone fair: see Thomas Vincent and South China Morning Post Publishers Ltd[24]. 

65. The two regimes are not comparable.  In Hong Kong, the field in respect of unfair dismissal is far from being occupied.  The legislature had not really balance all or most of the interests of the employer and the employee when enacting Part VIA.  In view of the very narrow protection under the local regime, it could not have been the legislature’s intention that the statutory remedy under Part VIA is exhaustive and the courts are prohibited from allowing the common law to develop in the area of employment protection.

66. Mr Huggins SC argues that although the Hong Kong legislature chose to provide limited relief by creating a statutory presumption that any dismissal will be presumed to be for the improper intention or illegitimate purpose of depriving the employee of statutory benefits, it is no answer to say the Hong Kong legislation is not designed to target unfair dismissals because the word ‘unfair’ is not used in the Employment Ordinance. That, he says, is a point of form only and the courts in Hong Kong, such as Reyes J in John Simpson Warham & Ors v Cathay Pacific Airways[25] and Deputy Judge Lam, as he then was, in Karchoud, Leila Bent Mohamed v The ITIC Fund of HK[26] held that Part VIA protects against unfair dismissal.  As I have said, the protection under Part VIA is just against one aspect of unfair dismissal, namely, to save the employer’s costs.  From a comparison of the two regimes above, I do not think the absence of the word ‘unfair’ in Part VIA is merely a point of form.  It is a form of substance.  I am unable to read the two cases quoted by Mr Huggins SC as referring to the kind of unfair dismissal under the United Kingdom regime.  Even if the protection under Part VIA is a form of protection against unfair dismissal, it is a very minimal protection.

67. The United Kingdom legislation provides a very extensive and comprehensive regime in protection against unfair dismissal. That balance under the United Kingdom regime is one which was struck by the legislature after considering the socio-economic environment in the United Kingdom, which has no bearing to Hong Kong.  It can fairly be said that the United Kingdom legislature has occupied the field relating to unfair dismissal.  In Hong Kong, the protection given by Part VIA is so minimal that it could not be said that the legislature has occupied the field relating to unfair dismissal, such that the common law should not be allowed to develop in that arena.  The field in respect of unfair dismissal is far from being occupied.  The absence of legislation in this area is precisely the reason why the court should not hesitate to exercise judicial creativity to develop the law by implying a suitable term into the contract of employment to maintain a fair balance of the interests of the employer and those of the employee.  In maintaining that fair balance, the court should keep pace with the changes in employment terms in the employment market, particularly as in this case in how the remuneration package is structured.  There is no reason why in the near absence of statutory employment protection, the development of the common law should not be allowed to take its course. 

Conclusion

68. In conclusion, the term sought to be implied, ie not to terminate the Plaintiff’s employment by notice or payment in lieu in order to avoid her being eligible for consideration under the performance incentive programme, is reasonable, equitable, necessary to give business efficacy to the employment agreement, and capable of clear expression.  It is not inconsistent with the express terms.  It is not inconsistent with sections 6 and 7 and is not prevented by Part VIA of the Employment Ordinance.  It is therefore implied into the Plaintiff’s employment agreement with the Bank.

69. For similar reasons, the two sub-category implied terms, not to exercise the power of dismissal unconscionably, without reasonable cause and contrary to legitimate expectations and not to dismiss to deprive an employee of a contractual benefit which results in the unreasonable forfeit of such a benefit, could probably be implied.  But those implied terms will not be considered due to lack of pleading.

THE 2005 BONUS

Introduction

70. The Plaintiff received a “Meets” rating for her “What” and her “How” for 2005.  She was awarded a bonus of US$615,000.  As a result of the commencement of these and other proceedings and subsequent discovery, the Plaintiff came to realize that her bonuses for 2005 and 2006 were far lower than those awarded to her then colleague and manager, John Liptak, considering the profit she and John Liptak respectively brought to the Bank.  She claims damages for perverse, irrational and mala fide evaluations in relation to her performance bonuses for the years. 

71. Her claim is brought on the basis that in transferring the distress debt assets of Asia Pulp and Paper Group in Indonesia (“APP Indonesia”) from John Liptak’s Portfolio to hers, John Liptak and Ken Schneier intended to dump the loss in those assets on her; and when she found out about the hidden loss in those assets and pointed that out to Ken Schneier, Ken Schneier downgraded her performance evaluation rating from “Exceeds” to “Meets” in relation to her “What” in retaliation.  The Plaintiff also seems to rely on the fact that John Liptak was paid more as evidence in support of her allegation of irrationality and perversity in relation to her bonuses for 2005 and 2006.

72. The legal basis of her claim is that the Bank as employer is under a duty not to administer its performance incentive programme and implement its performance evaluations in respect of the Plaintiff in an irrational, perverse or arbitrary manner that was not bona fide.  The Bank does not dispute that these duties were owed to the Plaintiff by reason of the second and third pleaded implied terms which were implied into the Plaintiff’s employment agreement. The Bank argues that the burden of showing irrationality is a very high one, and disputes the factual basis of perversity, irrationality, and mala fide alleged by the Plaintiff.

The applicable principles in impugning a discretion: irrationality

73. The subject matter of the claim is the performance bonus awarded under the performance incentive programme.  The award is discretionary.  The discretion is not absolute but qualified in that it has to be exercised in accordance with the principles stated in the programme. 

74. The principles governing the challenge of the exercise of such discretion have been conveniently summarized by Mummery LJ in Keen v Commerzbank AG[27] as follow:

“First and foremost, the bank has a very wide contractual discretion. Mr Keen has to show that the discretion has been exercised irrationally. It cannot be said that the decisions of the bank on bonuses for 2003 and 2004 are irrational on their face. The burden of establishing that no rational bank in the City would have paid him a bonus of less than his line manager recommended is a very high one. It would require an overwhelming case to persuade the court to find that the level of a discretionary bonus payment was irrational or perverse in an area where so much must depend on the discretionary judgment of the bank in fluctuating market and labour conditions.”

75. In Clark v Nomura International Plc[28], Burton J said:

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

76. In CCSU v Minister for the Civil Service[29], Lord Diplock called “irrationality” as “Wednesbury unreasonableness” and defined it as follows:

“By “irrationality” I mean what can by now be succinctly referred to as “Wednesbury unreasonableness” (Associated Provincial Picture Houses Ltd v Wednesbury Corporation [1948] 1 KB 223). It applies to a decision which is so outrageous in its defiance of logic or of accepted moral standards that no sensible person who had applied his mind to the question to be decided could have arrived at it.”

77. The discretion is the employer’s.  It is for the employer to decide whether to pay a bonus and, if so, the amount.  The court must not embark on a microscopic re-examination of all evidence base on which the employer exercised his decision to decide if it was reasonable to exercise the discretion in the way the employer did.  It is not the function of the court to usurp the employer’s exercise of his discretion.  The court is not entitled to substitute itself for the employer.  It would be insufficient for the employee to establish that the employer has acted unreasonably.  He has to show that no reasonable employer in the same field would have exercised his discretion in that way or that the employer has acted irrationally.  The burden of showing irrationality is a very high one. The employee has to show that the decision is Wednesbury unreasonable, so outrageous in its defiance of logic that no sensible person who had applied his mind to the question to be decided could have arrived at it. 

78. If the contract of employment provides specifically that the discretion is to be exercised depending on some identified single factor, then the employer has an obligation to assess the bonus dependent upon that factor only and is not entitled to consider other factors.  In such a case, it would be less difficult to impugn the employer’s decision.  In this case, assessment of performance under the programmne is dependent on a number of factors.  It includes not merely the individual’s contribution to profit (the “What”) but also other distinct factors relating to conduct, attitude, leadership qualities and teamwork (the “How”).  Even in respect of an individual’s contribution to profit, that contribution is the result of multiple touches.  What weight to be given to each factor is solely a matter for the employer.  The court is entitled to assume that an employer must judge by reference to his own best interests what factors to consider and what weight to be attached to such factors in considering whether to pay a bonus and, if so, the amount.  It is not for the court to determine what should or should not have been important to a commercial entity.  The court can only take a global view of all the factors and apply the test of irrationality.

79. If a decision is tainted or motivated by bad faith, the court may view the exercise of a discretion with some circumspection.  Malice, or bad faith, which is less than malice, has an impact on the decision making process. While the test of irrationality remains subjective and the burden of proof is very high, if a decision is impugned on the ground of malice or bad faith, it would be easier to show irrationality.   

The background

80. Bank of America is a banking institution incorporated in the United States.  One of its functional units was the Distress Debt Trading Group which traded in distress debts.  The group was subsequently renamed as International Special Situations Group (“ISSG”).  ISSG business was divided into three regions: Asia which was based in Hong Kong, Europe which was based in London and Latin America which was based in New York. 

81. Between 2000 and 2004, Peter Young was the head of the ISSG.  He was based in London.  He recruited the Plaintiff and was the Plaintiff’s manager. 

82. From 2004 to 2007, Ken Schneier and Scott Gordon together succeeded Peter Young as co-heads responsible for management of ISSG. They were both based in New York. Ken Schneier was mainly responsible for the Hong Kong Desk of ISSG.

83. In February 2007, ISSG was combined with the United States Special Situations Group of the Bank to be run as a single business unit under the name of Global Special Situations Group (“GSSG”).  Peter Santry became the head of the GSSG.  He took over the management of the Hong Kong Desk of ISSG from Ken Schneier.

84. Distressed debts are essentially debts, non-performing loans or securities of companies or government entities that are already in default, under bankruptcy protection, in distress and heading towards such a condition.  The ISSG or GSSG purchased them at a great discount reflecting their risk-adjusted value, held them while the company was restructuring, and then sell them after the securities have appreciated.  The Bank provided capital for ISSG or GSSG operations.  The capital available to invest in a particular country was determined by the Risks Department of the Bank and was referred to as the “country limit”. 

85. The Plaintiff is an Indonesian.  She was living in her home country in Indonesia, when she joined the Bank as an analyst at the level of vice-president in the Distressed Debt Trading Group on 5 June 2000. She started working in the Bank’s Jakarta office until 3 July 2000 when she was transferred to work in Hong Kong.  She was recruited by Peter Young and initially worked under him until 2004 when Ken Schneier took over the Hong Kong Desk of ISSG.  In May 2001, John Liptak joined the Hong Kong Desk.  Since 2005, the Plaintiff’s relations with John Liptak became very rough.  In February 2007, ISSG merged to become GSSG with Peter Santry as head of the GSSG and with John Liptak replacing Ken Schneier as the Plaintiff’s immediate manager.  In that capacity, he brought about the Plaintiff’s dismissal in August 2007.

86. The Plaintiff’s duties included identifying investment opportunities, performing analysis and valuation of distressed debt assets and investing in the same on behalf of the Bank, as well as managing the assets on an ongoing basis and performing certain administrative work related to the assets in the portfolio which she was responsible for.  The Plaintiff’s geographical area of responsibility was principally Indonesia, which was assigned a low country limit.  Naturally, a lower country limit affected the profit generated by the analyst.  However, the Plaintiff generated good profit throughout her employment as shown in Table 1.

87. John Liptak joined the ISSG team of the Bank in May 2001.  Unknown to the Plaintiff, probably at least until discovery in these proceedings, John Liptak was Peter Young’s first choice.  It was because John Liptak was not available that the Plaintiff was offered the job.  John Liptak was formerly an analyst from ING Barings Securities Hong Kong. He was offered expatriate terms and joined at the level of principal, which was one level higher than vice-president.  During the material times, there were between four to seven members in the team including Harumi Hiyamuta, Elizabeth Loh and David Sbarro.

88. In late 2004, sometime after Ken Schneier and Scott Gordon took over the Hong Kong Desk of ISSG from Peter Young, they were instructed by senior management of the Bank to appoint a Head of Desk in Hong Kong responsible for supervision and control of the day-to-day activities of the Hong Kong Desk.  The purpose of the appointment was to delegate some of the management responsibilities to the region. 

89. In January 2005 John Liptak was appointed the Head of the Hong Kong Desk of ISSG.  The appointment was not a promotion but a change in title with added responsibility. There was some misapprehension within the team about his position as Head of the Desk.  On 3 November 2005, Ken Schneier issued an email to the team announcing John Liptak’s responsibilities, which included supervision, control and administration of operations, and receipt and maintenance of information regarding all projects being conducted by of ISSG Asia. 

90. It was during the above period, ie in September 2005, that John Liptak transferred the distress assets of APP Indonesia under his portfolio to the Plaintiff.  This transfer, the Plaintiff says, set the scene for a retaliatory downgrade by Ken Schneier of her performance evaluation resulting in a reduction in the size of her 2005 bonus.

91. During that same period, the Plaintiff had a dispute with John Liptak for not including her in a meeting with Tom White of senior management from New York on the occasion of his visit to Hong Kong. 

92. On 18 November 2005, Ken Schneier gave the Plaintiff an “Exceeds” rating for her “What” and a “Meets” rating for her “How” in her 2005 year-end performance evaluation.  But on 22 November 2005, he reduced her “What” rating from “Exceeds” to “Meets”.

93. On 1 February 2006, John Liptak and Harumi Hiyamuta were promoted from principal to managing director.

94. The relations between the Plaintiff and John Liptak had not been good, particularly since John Liptak’s appointment as Head of Desk.  The discord arose out of the Plaintiff’s belief that John Liptak took away her deals and her contacts and she expressed reluctance to loop John Liptak in for her projects, including Project Media. The Plaintiff also made serious but false accusation against John Wacker and John O’Toole, both from the Legal Department of the Bank, for assisting John Liptak in taking away her deal by sending a confidentiality agreement to John Liptak (the “Wacker Incident”). She was forced by Ken Schneier to tender an apology.

95. The Plaintiff was given an overall “Meets” rating for her “What” and an overall “Does Not Meet” rating for her “How” in her 2006 year-end performance evaluation.

96. Following a re-organisation, the ISSG became part of the GSSG.  Peter Santry took over the Hong Kong Desk from Ken Schneier.  John Liptak became the Plaintiff’s immediate manager in place of Ken Schneier. Peter Santry was informed of the discord between the Plaintiff and John Liptak. He had a meeting with the Plaintiff during his visit to Hong Kong in April 2007 with a view to resolve the situation.  But as a result of his discussion with John Liptak, Peter Santry decided to issue an official warning.

97. On 29 June 2007, John Liptak on behalf of the Bank issued an official warning letter to the Plaintiff listing out her unacceptable behaviour and enclosing a Performance Improvement Plan (the “PIP”) setting out specific goals which the Plaintiff was required to meet.  The warning letter stated that if the Plaintiff failed to make immediate improvement as specified in the plan, the Bank would take further disciplinary actions including summary dismissal. 

98. John Liptak considered the Plaintiff did not meet the specific goals required in the PIP.  On 14 August 2007, he reported the Plaintiff’s performance under the PIP to Peter Santry.  Peter Santry then decided to offer the Plaintiff the option to resign voluntarily or the Bank might elect to terminate her employment.

99. On 20 August 2007, John Liptak conducted an interview with the Plaintiff about her performance of the PIP and told her that she failed to comply fully with the improvement goals set out in the plan.  He offered her the option to take the rest of the week off and decide if she wanted to resign voluntarily.  The Plaintiff refused.  On 28 August 2007, the Bank issued a written notice to terminate the Plaintiff’s employment with effect from 28 August 2007.

Credibility of witnesses

100. The legal issues of the Plaintiff’s claims having been disposed of, what remains are mainly disputes of fact.  The evidence in this case comprises mainly of the testimony of the Plaintiff and the defence witnesses, contemporaneous emails and other contemporaneous documents.  Inherent probability and consistency of a witness testimony with contemporaneous documents remains the most reliable test of a witness’ credibility.

101. The Plaintiff gave testimony but called no other witnesses.  She is protective and selective in her evidence, which was probably prompted more by her paranoid interpretation of events than dishonesty. 

102. The Bank called John Liptak, Harumi Hiyamuta, David Sbarro and other officers from its Human Resources Department. 

103. John Liptak had left the employment of the Bank and may be regarded as a non-interested.  Despite that, he impressed me as an unreliable witness and selective in his evidence.  He was patently evasive in his evidence about the APP Indonesia incident.  He impressed me being decidedly dishonest with the Plaintiff at the time he transferred the distress assets of APP Indonesia to the Plaintiff and with the court in his testimony.  He also impressed me as acting maliciously in invoking the PIP and in his conduct of the PIP.  These findings are dealt with in greater detail in my analysis of his evidence.  Though other aspects of his evidence are corroborated by contemporaneous documents, I do not consider him a credible witness.

104. Harumi Hiyamuta was a salesperson at managing director level. She had retired and should be regarded as a non-interested witness.  However, she impressed me as decidedly biased in favour of John Liptak and against the Plaintiff.  I do not believe in her evidence.

105. David Sbarro is a current employee of the Bank attached to Japan.  He worked with the Plaintiff during the last year of her employment. For reason as given in my analysis of the evidence, he was not a reliable witness.  I give little weight to his evidence. 

106. The main factual dispute is between the Plaintiff’s and John Liptak’s testimony.  As between them, it would not be difficult to find out where the truth lies by testing their evidence against contemporaneous emails and documents and applying the test of inherent probability. 

107. The evidence of the officers of the Human Resources Department is mainly formal in nature.  Their evidence is not in serious dispute.  I have no difficulties accepting their evidence.

Performance evaluation and rating

108. One of the factors taken into account in awarding bonus is performance evaluation.  Evaluations are done twice a year, once in mid-year and again at year-end.  Evaluation begins with the employee submitting a performance and development plan (“PDP”) to his manager.  After evaluation, the manager would discuss the evaluation with the employee and then forward the performance evaluation to the Human Resources Department for record.   

109. Performance evaluation would ultimately result in performance rating in relation to two dimensions, results against plan or the “What” and the behaviour or the “How”.  Employees are rated on a three-­point scale: “Exceeds”, “Meets” and “Does Not Meet”.

110. “Exceeds” in relation to the “What” means consistently demonstrates outstanding accomplishment in all major areas of responsibility; results are consistently above those of others who hold positions of comparable scope and responsibility; and exceptional performer who exceeds specific goals and achieves break through results.  In relation to the “How”, it means consistently demonstrates outstanding skill level in leadership or other role-specific competencies; performs above others who hold positions of comparable scope and responsibility and is seen as a role model.

111. “Meets” in relation to the “What” means meets performance expectations and achieves strong results based on stated specific goals.  In relation to the “How”, it means demonstrates strong leadership or other role-specific competencies.

112. “Does Not Meet” in relation to the “What” means results do not fully meet expectations in key areas of responsibility and does not achieve stated specific goals.  In relation to the “How”, it means does not adequately demonstrate leadership or other role-specific competencies required to perform effectively in the job.  An evaluation at this rating means a need for improvement is evident.  Management discourages award of bonus to any employee given a “Does Not Meet” for the “How”.

113. The Bank practises the “20/70/10 policy” set out in the “Pay for Performance” presentation.  Under this policy, 20% of the staff in a team would be given an “Exceeds” rating, 70% would be given a “Meets” rating, and no more than 10% would be given a “Does Not Meet” rating.  While management would strictly limit “Exceeds” rating to 20%, it would not strictly force managers to rate 10% of his staff as “Does Not Meet”.

114. The ratings in the two dimensions of “What” and “How” result in nine different combinations of “Exceeds”, “Meets” and “Does Not Meet”. An employee awarded a “Does Not Meet” for his “What” and “How” is unlikely to receive any salary increase, bonus or equity. 

Not informed of evaluation in 2005

115. The Plaintiff complains that she had not receive her mid-year and year-end performance evaluations for 2005 which Ken Schneier completed on 10 August 2005 and 18 November 2005 respectively.  She only received them in December 2007 during the Labour Tribunal proceedings.  She was not aware of the downgrading until discovery of the documents in those proceedings and in DCEO 4 of 2009.  She seemingly suggests that the irregularities showed that Ken Schneier had something to hide in respect of her evaluations.  Mr Huggins SC submits that the contemporaneous documents show that Ken Schneier had problems with the PDP forms at the time and asked the Human Resources Department to incorporate the reviews in the form for him and hence neglected sending a copy to the Plaintiff.

116. Whatever might have been the reason for the Plaintiff not receiving a copy of the evaluations, there is no dispute that Ken Schneier did send the mid-year review and the year-end review to the Human Resources Department on 10 August 2005 and 18 November 2005 respectively, and did downgrade the Plaintiff’s evaluation on 22 November 2005.  The evaluation and downgrading were actually made at the material time and not concocted for the purpose of these proceedings. 

117. Furthermore, there are contemporaneous emails from Ken Schneier to senior members of the Human Resources Department referring to his discussion with the Plaintiff on 18 July 2005 and 18 November 2005 respectively about her mid-year and final performance evaluations.  There is also an email dated 18 November 2005 from Ken Schneier asking if the Plaintiff would be available for discussion about her year-end evaluation and the Plaintiff confirmed that she would be available that evening.  Under cross-examination, the Plaintiff admitted there was such discussion though she could not remember some of the contents.  Thus, there can be no dispute that the Plaintiff had been informed of her two performance evaluations, though not the downgrading (see paragraphs 135 to 142 below).  The material issue is whether the downgrading was irrational and retaliatory.  The Plaintiff’s complaint that she had not received a copy of her performance evaluations is irrelevant.

Comparison with John Liptak

118. It seems that the Plaintiff is relying on the fact that John Liptak was paid more bonus than she as evidence in support of her allegation of irrationality and perversity in relation to her bonus payments in 2005 and 2006. 

119. It must be borne in mind that the bonus is a discretionary one and the issue is whether the bonus awarded to the Plaintiff was irrationally low and not whether the award to another member was irrationally high.  Thus, the fact that one, not all or most, members of the team was paid irrationally more than the Plaintiff does not even begin to show irrationality or perversity in respect of the decision relating to the bonus awarded to the Plaintiff.  In this respect, irrationality can only be shown if the Plaintiff did not receive what everyone else received in accordance with the principles of the performance incentive programme consistently applied.  There is no evidence that the Plaintiff singularly received an irrationally low bonus compared with most or all members of ISSG.  For this reason alone, this basis of her claim must fail.  Nevertheless, I shall take a quick look at her comparison with John Liptak. 

120. There is no dispute that John Liptak was valued more highly than the Plaintiff.  Peter Young was head-hunting for him.  It was when John Liptak was unable to take up the employment that the employment was offered to the Plaintiff at vice-president level.  Eleven months later, John Liptak was employed at principal level, which was one level higher than the Plaintiff.  He was given more responsibility, wider geographical area of responsibility, more country limits and higher targets. Presumably, these were commensurate with his level of appointment, qualification and relevant experience.

121. Hereunder is a table showing the profit of ISSG, the Plaintiff’s and John Liptak’s financial targets, contribution to the profit in US dollars and expressed as a percentage of ISSG Asia’s profit, their bonuses in US dollars and expressed as a percentage of their profit contributions.

Table 2 – Plaintiff’s bonus versus John Liptak’s bonus

		2002	2003	2004	2005	2006	6/2007
ISSG Asia’s profit  (US$)		34.70 m	35.15 m	40.86 m	27.39 m	-1.36 m	2.53 m
Liptak	Financial target	5 m	10 m	10-15 m	20 m	Overall 30 m	Overall  18 m
	Contribution (US$)	8.11 m	16.16 m	29.27 m	19.67 m	-1.36 m	7.64 m
	Contribution/ ISSG’s profit	23.37%	45.97%	71.63%	71.81%	↓↓↓	301.98%
	Bonus (US$)	500,000	1,000,000	1,275,000	1,400,000	1,000,000	350,000
	Bonus/ Contribution	6.17%	6.19%	4.36%	7.12%	-	4.58%
Plaintiff	Financial target	3 m	5 m	3-5 m	10 m	5-10 m	5-10 m
	Contribution (US$)	2.35 m	5 m	3.9 m	8.03 m	7.23 m	6.06 m
	Contribution/ ISSG’s profit	6.77%	14.22%	9.54%	29.32%	↑↑↑	239.53%
	Bonus (US$)	287,000	450,000	640,000	615,000	550,000	-
	Bonus/ Contribution	12.21%	9.00%	16.41%	7.66%	7.61%	-

From 2006 onwards, John Liptak was given an overall target for the entire ISSG Asia Desk.

122. Table 2 speaks for itself.  John Liptak consistently yielded higher results than the Plaintiff except for 2006.  He incurred heavy loss which wiped out the profit made by the Plaintiff with the result that ISSG incurred a loss for 2006.  However, the Bank excused him as it took the view that that was a bad year and ISSG could have suffered more loss but for John Liptak.  I shall return to this when dealing with the Plaintiff’s complaint about the 2006 bonus.  Throughout the years, the differences in the quantum of bonuses paid to John Liptak and the Plaintiff were substantial but not patently or wholly disproportionate.  While John Liptak was paid very roughly twice the amount of bonuses paid to the Plaintiff, his profit figures, save for 2006, were consistently more than twice the Plaintiff’s profit figures. In terms of bonus percentage, John Liptak was treated less favourably than the Plaintiff. 

123. There is a suggestion by the Plaintiff that her profit figures were suppressed by John Liptak deliberately keeping down her country limit for Indonesia, to which area she says most of her work was limited or confined.  There was a complex and highly centralized process of setting country limits which was beyond manipulation by John Liptak.  The limit was set by the Risks Department of the Bank depending on its assessment of the risk factor of the particular country.  Presumably, the Bank assigned the Plaintiff responsibility for Indonesia because of her familiarity with the country.  Another possible reason for not assigning the Plaintiff with more country limit could be the Bank’s assessment of her qualification and experience as reflected by her appointment at vice-president level.  These are management decisions for the Bank.  The court will not question, examine or substitute its own view for the Bank’s.

124. Furthermore, there are other factors to be considered under the performance incentive programme such as the “How” and “What” ratings, leadership and other responsibility.  Since 2005, John Liptak was appointed Head of Desk with more administrative responsibility.  While an employee’s performance in terms of his contribution to the profit of ISSG has a bearing on the quantum of the bonus to be awarded, there is no strict correlation and the Bank does not adopt a formulaic approach in determining the quantum of the bonus.  All in all, the disparity between the Plaintiff’s and John Liptak’s bonus figures cannot be said to provide any basis for an allegation of irrationality or perversity.

Loss dumping

125. John Liptak had been responsible for the distress assets of APP Indonesia for some years.  There is no dispute that the assets had been over-marked and the position had a potential loss of some US$500,000 in 2005.  There can also be no dispute that both John Liptak and Ken Schneier had been informed of the problem with those assets by Sensu Serpen via her email dated 14 September 2005.  The problem was that the assets were purchased under a trade confirmation which included SACE guarantees which guarantee the repayment of 85% of the principal and interest due, but Sensu Serpen discovered that 85% of the traded portion as specified in the confirmation was not so covered. 

126. Sensu Serpen’s email was sent to John Liptak and Ken Schneier directly.  Under cross-examination, John Liptak said he did not recall seeing this email or sharing the email chain with Ken Schneier.  His answer must be viewed against the fact that just nine days ago, he received the email from Sensu Serpen and knew that the APP Indonesia position had a serious potential loss arising out of the problem of the guarantees.  He could not honestly say that he did not know the distress assets in APP Indonesia he transferred to the Plaintiff was not carrying a potential risk of heavy loss.  He knew this is an important issue in this trial which he had to deal with in his evidence.  To say that he could not recall Sensu Serpens’ email and other questions asked of him in relation to this issue is just convenient non-sense.  He had much to hide from the Plaintiff then as he had to hide before me now.  He never impressed me as a credible witness.  I reject most of his evidence.

127. When asked about the problem as identified in Sensu Serpen’s email, John Liptak’s simple answer was it was just a recurrent event arising from the difference in opinion between analysts.  It does not take a banking expert to say that distressed assets which are guaranteed have, at least, a guaranteed value, whereas if the assets are not guaranteed their value may be subject to differences in opinion between analysts.  Without going into details, the simple fact is that the assets in question were purchased on the basis that they were 85% guaranteed when they were not.  That is a fundamental problem with the assets.  John Liptak’s evidence that this is a recurrent event is contradicted flatly by James Cook of the Bank’s Collateral Operation Team who said that such mis-marking seldom occurred.  James Cook also marked down the assets by approximately US$500,000 which tallied with the Plaintiff’s assessment.  John Liptak was trying to conceal a fundamental problem of the assets as difference in valuation between analysts.  He was not being straight forward with his evidence.  He was not telling the truth.  He was trying to conceal the fact that the assets he transferred to the Plaintiff carried a potential loss.

128. Sensu Serpen’s email was not known to the Plaintiff at the time.  She only came to know about it through discovery.  The following is a reconstruction of the events in the light of Sensu Serpen’s email.

129. About nine days after John Liptak received Sensu Serpen’s email, he asked the Plaintiff to agree to the transfer of the distress assets of APP Indonesia from his portfolio to hers and the Plaintiff agreed.  A few days later, Ken Schneier confirmed that with the Plaintiff face to face. According to John Liptak, the idea of the transfer was Ken Schneier’s and not his.  As the transfer was confirmed by Ken Schneier, it really matters not who suggested the transfer.  The issue is whether there was knowing loss dumping on which retaliatory downgrading could be inferred.  I find that both John Liptak and Ken Schneier knew that the distress assets of APP Indonesia carried a potential loss before transferring them to the Plaintiff.

130. When transferring those assets to the Plaintiff, John Liptak only gave her two supporting documents, one was an outdated research report he wrote while he was still working with ING Barings Securities Hong Kong some years ago and the other was an appendix of the restructuring agreement.  Information was clearly wanting.  Despite repeated requests, John Liptak declined providing information about the assets sought by the Plaintiff. Eventually, the Plaintiff sent him an email on 10 October 2005 with a copy to Ken Schneier and Harumi Hiyamuta.  In the face of the questions asked by the Plaintiff, John Liptak dodged the questions and replied that he would talk to Ken Schneier.  Then on 11 October 2005, John Liptak wrote to Ken Schneier, not the Plaintiff, that he could not provide the information sought by the Plaintiff and suggested to sell the position.  Ken Schneier agreed but suggested an alternative of letting the Plaintiff pick up the assets as a new credit.

131. On 13 October 2005, Ken Schneier wrote to the Plaintiff:

“I thought APP would be a good thing for you and now it just becomes another headache for me. Please just take it and do it. You will not be held responsible for any shortcomings in the file. We may sell what we have to have a clean slate. Please get the info you feel is necessary to do it right now. I cannot stand the constant friction out there.”

132. Eventually, the Plaintiff figured out what was odd about these assets from the usage report.  On 22 November 2005, she wrote to Ken Schneier with copies to Sensu Serpen, John Liptak and Eric Clause, revealing the problem:

“As you may be aware, I have been sorting out our APP PIOC’s exposure in the past few weeks. We finally figured out one of the items which has been looking very odd. Please look at Row 268~272 in the usage report. These items are registered claims through Royal Bank of Scotland but they still show the old facility names. After some digging, Sensu finally realised that we have overpaid for these items from Intesa by a few hundred thousands and based on my rough estimate, the difference from the cost as per the usage report is US$524K if I price Pindo blend at 40 cents.

I have requested Royal Bank of Scotland to give us the final numbers so that we can book this correctly in the usage report.  Once they come back to us, our back office should be able to correct them and we should mark it down.”

133. Ken Schneier responded promptly saying that he would like to discuss further.  Then in less than four hours, he sent the Plaintiff an email stating that he had instructed John Liptak and Sensu Serpen to follow up with the booking and Unicredito issues and confirming that the for going forward purposes, the trade history is with John Liptak and Sensu Serpen. 

134. Both John Liptak and Ken Schneier knew about the problem with the distress assets of APP Indonesia before they decided to transfer them to the Plaintiff.  Most probably, John Liptak had wanted to loss dump on the Plaintiff.  Trusting John Liptak as the Head of the Desk, Ken Schneier might have granted his blessing without appreciating the significance. As a result of the Plaintiff’s press for information, John Liptak knew there could be no easy way out.  He suggested to sell the position.  It was not sold because Ken Schneier thought there was no downside to let the Plaintiff carry on anew.  Thus, by the time of Ken Schneier’s email dated 13 October 2005, John Liptak aborted his attempt.  He got rid of the position, bearing the loss.  The Plaintiff took it up anew.  This was further confirmed by Ken Schneier’s email dated 22 November 2005.  Furthermore, James Cook confirmed that the profit and loss of the distress assets of APP Indonesia was attributed to John Liptak.  There was plainly no loss dumping.  Thus, the transfer of the distress assets of APP Indonesia to the Plaintiff’s portfolio had no effect on her profit figures. There is no basis for any claim for loss of bonus due to loss dumping.  However, the incident exposed John Liptak’s mala fide which dented his incredibility. 

Downgrading

135. The above incident also sets the scene for the Plaintiff’s complaint of retaliatory downgrading.  The Plaintiff reported the mistake about the valuation of the distress assets of APP Indonesia to Ken Schneier by email at 7.01 pm on 22 November 2005, with a copy to Eric Clause (see paragraph 132 above for the content of that email).  Ken Schneier responded within an hour and half that he would like to discuss the matter further.  At 10:56 pm, Ken Schneier confirmed that the trade history was the responsibility of John Liptak and Sensu Serpen. That was a reconfirmation of the position in his email dated 13 October 2005.  Then, about an hour later, at 12:05 am the next day, Ken Schneier sent an email to Sydney Brown downgrading the Plaintiff’s performance rating in the “What” from “Exceeds” which he awarded her four days earlier to “Meets”.  She was the only ISSG member downgraded that day. 

136. Based on the above chronology, the Plaintiff alleges that the downgrading was made in retaliation of her exposing the hidden loss in the distress assets of APP Indonesia.  The incident might have created some hard feeling in Ken Schneier, a “headache” as he called it in his email dated 13 October 2005.  Ken Schneier might have felt offended by the Plaintiff’s exposing John Liptak’s and/or Sensu Serpen’s mistake which adversely reflected on him as the person in overall charge.

137. Ken Schneier was not called to explain the reason for the downgrading.  He declined not to come to Hong Kong to testify because of his health.  Mr Huggins SC explains that the downgrading was a recalibration in accordance with the “20/70/10 policy” (see paragraph 113 above). He suggests that on 18 November 2005 Ken Schneier gave the Plaintiff an “Exceeds” rating for her “What” based on his estimation that she would turn in more than US$7 million profit.  Then, on 21 November 2005, Ken Schneier received the profit and loss reports and spreadsheet of 2005 up to 31 October 2005 showing the Plaintiff’s profit up to 31 October 2005 was just some US$3.2 million and seven out of nine members had outperformed her.  The Plaintiff’s target was US$10 million, but her contribution was at the highest US$8 million.  As “Exceeds” rating should be reserved to 20% of the members of the team, upon seeing those figures, Mr Huggins SC suggests it was perfectly reasonable and rational under the policy for Ken Schneier to reduce the Plaintiff’s rating from “Exceeds” to “Meets”.

138. Mr Harris SC argues that the Plaintiff was the only person downgraded on 23 November 2005 and that between 22 November 2005 and 14 January 2006 no one else in ISSG was downgraded, suggesting that the Plaintiff’s downgrading was the result of retaliation. This inference based on timing is a very tenuous one.  As the evidence shows, on 14 January 2006, Ken Schneier was required by Robin Maxwell to downgrade nine more members from “Exceeds” to “Meets” in compliance with the “20/70/10 policy”.  John Liptak was also downgraded as a result.  As the final figures show, the Plaintiff was surpassed by nine others.  Even if she had not been downgraded on 22 November 2005, she would have been downgraded as result of this exercise.  This shows that Ken Schneier’s choice on 22 November 2005 was obviously rational and the Plaintiff’s downgrading inevitable.  That the Plaintiff was the only person downgraded on 22 November 2005 is neither here nor there. 

139. Mr Harris SC argues that the evidence which surfaced at trial shows that reports and spreadsheet were for the purpose of preparing for a presentation and the Bank’s Human Resources Department staff who gave evidence could not ascertain whether the reports reflect September 2005 or October 2005 numbers.  I do not think all these make much difference. 

140. On an objective view, even assuming that Ken Schneier was in favour with John Liptak, there was no reason why he should retaliate against the Plaintiff.  The mistake was presumably made by Sensu Serpen. According to the Plaintiff, it was Sensu Serpen who eventually discovered the mistake, although that was as a result of the Plaintiff’s persistent press for information.  According to the Plaintiff, her report was put in a neutral and subtle manner and not accusatory.  There was all the more reason to commend the Plaintiff than to retaliate against her.  If there was any reason to retaliate, the target should be Sensu Serpen, but there is no evidence that she was retaliated.  I think the inference suggested by the Plaintiff is too far-fetched.

141. There is no plea that this “20/70/20 policy” is irrational.  In fact, the Plaintiff’s own evidence is that the policy was rational.  There is no need for me to make a finding one way or another, but I am inclined to think it is not irrational.  Even if the policy is irrational, it is not for the court to put itself in the shoes of the management to decide what policy to apply.  If the policy, albeit irrational, is consistently applied, then the decision which is the product of the consistent application of the policy cannot be impugned as irrational.

142. Even though Ken Schneier was not called to testify, the evidence speaks for itself.  The Plaintiff’s downgrade accords with her target and profit contribution.  If she was not downgraded on 23 November 2005, she would have been downgraded along with others later in accordance with the “20/70/10 policy”.  Her downgrading was, in any event, inevitable.  The loss dumping theory could not stand.  There is no basis to suggest bad faith on the part of Ken Schneier or the Bank.  The policy was consistently applied under this discretionary performance incentive programme.  Whatever was the reason for the downgrading, it was well justified according to the Plaintiff’s target and profit contribution and the “20/70/10 policy”.

Conclusion

143. For the above reasons, there is no basis for the Plaintiff’s allegation of retaliatory downgrading of her performance evaluation.  The 2005 bonus award made as a result of the performance evaluation could not be impugned as irrational.  This claim must be dismissed.

THE 2006 BONUS

Introduction

144. The Plaintiff received a “Meets” rating for her “What” and a “Does Not Meet” rating for her “How” for 2006.  She was awarded a bonus of US$550,000 for 2006.  The basis of her claims is that her bonus was irrationally low when compared with the bonus awarded to John Liptak in the light of their respective profit contribution; the ratings in her performance evaluation for 2006 were irrational being recommended by John Liptak out of malice or bad faith and wrongly accepted by Ken Schneier.  More specifically, she ought not to have been awarded a “Does Not Meet” rating for her “How”.  In addition, she ought to have been given an “Exceeds” rating for her “What”, as she made a profit of US$7.23 million while the Desk made an overall loss of US$1.36 million.  Had the performance evaluation been conducted in good faith, she would have been given an “Exceeds” rating for her “What” and a “Meets” rating for her “How”.  That would have an impact on the size of the bonus awarded.

The background

145. The Plaintiff joined the Bank in June 2000 at vice principal level and John Liptak joined eleven months later at principal level, ie one level above the Plaintiff.  In January 2005, John Liptak was appointed Head of Desk.  That was not a promotion.  Initially, there was some confusion or misunderstand within the Desk about his role.  In November 2005, Ken Schneier issued an email setting out John Liptak’s duties and responsibilities, which effectively put it beyond doubt that John Liptak was in charge of the team.  In February 2006, John Liptak was promoted from the level of principal to managing director.

146. ISSG had a bad year in 2006.  John Liptak set an overall target of US$30 million for the Asia Desk, but the Desk ended the year with a loss of US$1.36 million.  However, the Plaintiff had a shining performance making a profit of US$7.23 million.  John Liptak, who incurred personal loss and loss for the entire Desk, was awarded a bonus of US$1 million.  But the Plaintiff was only awarded US$550,000 for her shining performance.

The Plaintiff’s conduct and behavior in 2005

147. There were about seven members in the Asia Desk of ISSG.  The Plaintiff got on well with Elizabeth Loh, but was not sociable with the other members of the Desk.  She was rude to Harumi Hiyamuta and had frictions with John Liptak, particularly since his appointment as Head of Desk in early 2005. Ken Schneir regarded her work highly but criticized her for lack of teamwork. He considered her behaviour a problem which affected the effectiveness of the Desk.

148. The following are some notable incidents between the Plaintiff and her colleagues in the Desk in 2005.  As there is no complaint by the Plaintiff about her “How” rating in 2005, these incidents are not dealt with in relation to her claim for 2005 bonus, but are mentioned here as part of the background leading to her claim for 2006 bonus.

149. Before John Liptak was appointed Head of Desk, the Plaintiff used to work independently of him.  She sought approval for her deals from Ken Schneier.  However, since his appointment as Head of Desk, John Liptak adopted a different approach.  He insisted on teamwork and required all members of the team to loop him in in respect of all their deals and for him to allocate the deals according to ability and availability of the members. Presumably, because of the pay for performance culture promoted by the Bank, the Plaintiff was protective of her deals and contacts and harboured an apprehension that John Liptak was snatching her deals and contact from her. Both John Liptak and Ken Schneier were of the view that the Plaintiff’s contacts belonged to the Bank and considered the Plaintiff was taking a proprietary view of her credit, not willing to share her contacts and not a team player.  Her attitude caused constant frictions between her and John Liptak. 

150. In May 2005, when Ken Schneier asked the Plaintiff to consult John Liptak on the Bangkok Mass Transit System deal as he was the principal analyst on Thai credits, the Plaintiff took a proprietary view of the credit and resisted the instruction insisting to do it herself.  On 11 July 2005, she even stated that the transaction should be called off if she was not the person doing it. Ken Schneier had to assure the Plaintiff that if she helped develop a deal, her co-operation would be noticed and paid for.

151. In the Plaintiff’s mid-year performance evaluation, Ken Schneier made the following comment:

“Sunny [the Plaintiff] does have a flaw: although she has been a very good soldier for Peter and for me, she has strenuously resisted other leadership in Asia, particular that of John Liptak, who now heads the desk. She takes a proprietary view of her credits and countries and does not share information or opportunities well with her Asian colleagues.”

On 18 July 2005, Ken Schneier told the Plaintiff the above shortcoming when discussing her mid-year performance evaluation.  He also reported the same by email to the Human Resources Department.  The Plaintiff denied having had such a discussion. There was no conceivable reason why Ken Schneier would have made up that conversation when writing to the Human Resources Department (see paragraphs 115 to 117 above).

152. In August 2005, the Plaintiff was reluctant to involve John Liptak in the Project Walker deal and expressed her animosity and reluctance by writing:

“As I said I don’t have good experience with John in the past four years. I just wish he was a more solid player. I always value and listen to good advice and that’s how I learned to do different types of projects. But he never added an ounce of value to the team. Too bad that we have different opinions on him.”

Eventually, on 4 August 2005, though agreeing to involve John Liptak, she showed her grudge to Ken Schneier in an email saying:

“I will try to work with him just to show you some respect and nothing else. It is no minor adjustment trying to work with someone who tried to set me up for failure many times in the past. You owe me.”

153. After the above incident was the transfer of the distress assets of APP Indonesia which took place between September and November 2005 (see paragraphs 125 to 134) 

154. In October 2005, Tom White of senior management from New York visited Hong Kong.  He set up a meeting with John Liptak and Harumi Hiyamuta, but excluded the Plaintiff.  When the Plaintiff learned about it, she became very upset.  She had an outburst when confronting Harumi Hiyamuta and blamed John Liptak for not including her in the meeting.  John Liptak then asked Tom White to include the Plaintiff in the meeting saying there was an issue with the Plaintiff.  In the end, the Plaintiff was invited to attend part of the meeting briefly, and then Tom White continued the meeting with John Liptak and Harumi Hiyamuta in the Plaintiff’s absence.  Her conduct attracted some adverse comments from Tom White as being anti-social and paranoid.  Ken Schneier spent an hour counseling the Plaintiff afterwards.

155. In her year-end performance evaluation, Ken Schneier noted the Plaintiff’s friction with John Liptak and considered the friction impaired the effectiveness of the Desk, but hoped the situation had been resolved.  He commented the Plaintiff as follows:

“The downside mentioned at mid-year continued into the 3^rd quarter, friction with John Liptak, our Head of desk in Hong Kong. This came to a head in October and has since settled down and, I hope, has been resolved. While in effect, though, this friction impaired the ability of our Hong Kong group to operate effectively as a team.”

(see paragraph 151 about the mid-year performance evaluation)

Despite the above incidents, the Plaintiff did not receive too adverse a comment in her performance evaluation.  The year ended with a “Meet” rating for her “What” and for her “How” in her performance evaluation.

The Plaintiff’s conduct and behavior in 2006

156. Despite the counselling by Ken Schneier, the Plaintiff’s friction with John Liptak continued into 2006.  She took a proprietary view of her deals and contacts and was skeptical of John Liptak snatching away her deals.

157. In February 2006, the Plaintiff refused to loop John Liptak in the conference call relating to the Project Media deal.  Ken Schneier had to plead with her saying:

“John is responsible for knowing what goes on there. He is not snatching any deals away. His job is increasingly to be focused on how well the region does, not himself, which means encouraging ad helping you, not undercutting you. This is your deal. Do not be paranoid.”

In her email of 23 February 2006 to Ken Schneier, she agreed to update John Liptak on the deal but insisted not to involve him.  She wrote:

“John’s modus operandi is to snatch deals away in the conference call and please don’t deny that you have not witnessed it yourself. … I can update John on the deal but getting him involved in this conf call is way too much.”

Ken Schneier was exasperated and replied:

“For you to do well, you will have to work as part of the team. For John to do well, the team must work together and everyone must be successful. I will not allow you to lose your deals. Let’s get over this once and for all. I was criticized at the end of the year for not being able to manage our business, and I won’t have it happen again. Let’s get together, please.”

The Plaintiff further pressed on suggesting she was prepared to drop the deal to protect the bank if she felt John Liptak would add negative value to it.  Ken Schneier was obviously very exasperated and wrote:

“Just keep John in the loop, that’s all. You’re doing a great job. He may not even tune in.”

In the end, that deal fell through.

158. The proprietary view taken by the Plaintiff of her contacts was amply demonstrated in the Jain Irrigation System convertible bond deal.  But, the Plaintiff says this is another instance of John Liptak snatching a deal from her and that Ken Schneier made an about turn in favour of John Liptak.  I therefore go into some details about this deal. 

159. In April 2006, the Plaintiff sourced a potential deal from Morgan Stanley relating to Jain Irrigation System, a publicly listed company in India.  She directly raised with Ken Schneier and Scott Gordon recommending to buy the bond without seeking Risks Department approval.  To that Ken Schneier responded:

“I do not think this is non-standard, so please take a look. Please keep John and Dhiraj in the loop.”

The Plaintiff took the reply as assignment of the deal to her, which was obviously not.

160. When John Liptak saw the email, he assigned the deal to Dhiraj Dave and told the Plaintiff to send him and Dhiraj Dave the information.  Dhiraj Dave was a newly recruited Indian analyst.  In response, the Plaintiff wrote:

“Excuse me. This is my deal. Pls go and find your own deals.”

161. Ken Schneier had to intervene and wrote to the Plaintiff telling her unequivocally that all deals that came to the bank were the Bank’s deals and that it was for John Liptak to coordinate project allocations.  Ken Schneier wrote:

“All deals that come to us are the bank’s deals. We have an Indian analyst new to us whose experience we will use in Indian projects, together with relationship that give rise to the projects. It is John’s responsibility to coordinate project allocations. Let’s not have a repeat of last year’s bulls**t.”

162. The Plaintiff retorted:

“I have made it very clear that I have been doing all these deals out of my own initiatives and contacts and I am not doing it for anyone who sits around in the office, waiting for other people to drop the deals on their laps. You have also explicitly promised in one of your emails that you won’t let John snatch away my deals. I am doing all these based on this promise. Otherwise, I prefer to spend my time elsewhere.

If Dhiraj wants to help me, he is more than welcomed but this will be my project.”

163. Ken Schneier wrote back:

“I have made it very clear that this is a team. We will use resources in the best way for the team and we will reward everyone’s contributions. I have no problem with your involvement in this deal, as you have shown initiative and skill in these new issues, but Dhiraj must have eyes on the transaction for obvious reasons and John must be in the loop.”

164. The Plaintiff probably misread Ken Schneier’s email as approval for her to head the project and wrote:

“Okay. Now it now makes more sense.

(1)I will keep John in the loop just because he needs to be aware for the administrative reasons. John, next time pls do not ask me to forward the information so that you can take over the deal. Pls spend time to look for deals elsewhere. Our profit in Asia is very bad and we need you to be more active.

(2)I will ask Dhiraj to help me out – which is my intention anyway. …”

Then Ken Schneier wrote back to the Plaintiff and told her that the arrangement she proposed was not going to work and asked her to call him.  Presumably the Plaintiff did call and Ken Schneier corrected her of her misapprehension.   

165. On the following day, Ken Schneier wrote to the team, including the Plaintiff, saying that there were material issues about the organization of the team, allocation of assignments and teamwork.  He made it clear that projects will not be assigned on either a free-for-all or first-come basis; members of the team are not competing among themselves; that John Liptak as Head of Desk will remain initially responsible for allocating projects that do not fit into someone’s clear mandate; and that the key criteria for assignments were skill set, regional knowledge, available time and relationships involved. In respect of the Jain Irrigation System convertible bond deal, he promised the Plaintiff a non-exclusive credit if the deal got done.  By this time, the Plaintiff must have known that she must work as part of the team and that John Liptak as Head of Desk was responsible for allocating projects. 

166. In June 2006, the Plaintiff had another outburst which spilt over to the Bank’s Legal Department.  She was shown a potential investment opportunity relating to a coal producer in Indonesia, the Indo Coal Transaction and was about to enter into a confidentiality agreement in order to be given access to confidential information relating to the deal.  While she was on sick leave after undergoing a surgery, she sent a draft confidentiality agreement to John Wacker of the Legal Department for review.  At the same time, John Liptak learned of the opportunity and received a copy of the confidentiality agreement. Not knowing that the Plaintiff had been pursuing this deal, he sent an email to the Plaintiff to pass on information to her and sent the confidentiality agreement to John Wacker to review.   Thus, John Wacker put John Liptak on the loop relating to this deal.  Upon knowing this, the Plaintiff had an angry outburst.  In a number of subsequent emails to John Wacker and John O’Toole, the general counsel for Asia, she accused John Wacker of taking advantage of her situation to assist John Liptak to secure the deal.   

167. On 2 June 2006, Ken Schneier had to counsel the Plaintiff via a lengthy telephone conversation about her unwillingness to conform to group policies and keeping management including John Liptak in the loop.  He also demanded the Plaintiff to apologize to John Wacker and John O’Toole, which she duly did.  In his email to Scott Gordon and John Liptak dated 3 June 2006, he reported his conversation with the Plaintiff which contained strong terms disapproving her behaviour with a warning that it will not be tolerated.  He wrote:

“… her unwillingness to conform to group policies, keep management including John in the loop on all projects and cooperate with the group as a whole, as well as her occasionally erratic and self-promoting behavior, have crossed the line too many times. Her correspondence criticizing inside counsel John Wacker for working with John Liptak to complete a confidentiality agreement for a Sunny-initiated deal, while Sunny was out on a short medical leave, was the last straw. This interchange necessitated an apology on our part to John Wacker and his boss.

I explained to Sunny that behaviors reluctantly overlooked in the past can no longer be overlooked… She cannot show ideas to me and end-run the rest of our group.

… For some reason, real or imagined, she fears that projects or relationships developed by her will be taken away and she will lose credit or compensation.  I assured her, as I have done with everyone in our business, that there is absolutely no purpose or plan to deprive anyone of credits or compensation for ideas generated or work done. We will bend over backwards to ensure that recognition and comp are properly allocated.  Sunny’s attempts to withhold information and to avoid established reporting lines are, in fact, hurting her and not helping.” 

However, no written warning was given to the Plaintiff nor was that email copied to her.  The Plaintiff denied that she was unwilling to conform to group policies or was occasionally erratic and self-promoting.  She did not remember if Ken Schneier had warned her that her behaviour would no longer be overlooked.  Though Ken Schneier was not called to testify, I have no reason to doubt his statement in the email. 

168. In her evidence in chief, the Plaintiff stood by her allegation that John Wacker was assisting John Liptak to secure the deal from her and said that her apology was procured under the threat of dismissal.  She sought to justify her allegation by accusing John Wacker of manually altering the date and time on his computer so as to give his emails the appearance that John Liptak had approached him about the confidentiality agreement before she did.  However, under cross-examination, it was shown that she was honestly mistaken.  At the request of Mr Huggins SC, the Plaintiff unreservedly apologized to John Wacker.  This incident suggests that she was indeed paranoid. 

169. In her mid-year performance evaluation, Ken Schneier gave the Plaintiff an overall “Meets” rating for her “How”, and an overall “Meets” rating for her “What”, though that included a “Does Not Meet” rating for a specific goal.  He was aware of the personality clash between the Plaintiff and John Liptak, but was optimistic that it would be rectified.  He identified the Plaintiff’s problem as lack of teamwork, cooperation and sharing with members of her team.  He commented as follows:

“Within the team, however, there have been continuing conflicts from time to time, which have occasionally spread beyond the team to involve support partners, such as legal. At the heart of this is a personality clash between Sunny and John Liptak, our Head of Desk in Hong Kong, whose origin is unclear. I have discussed this problem with Sunny and John on several occasions and made clear to Sunny that teamwork, cooperation and sharing is at least as important as production in ISSG and have established clear guidelines for correcting these problems. I believe some progress has been made to this end in recent months and that the problem is on track to being fully rectified, but we will re-evaluate at the end of this year.”

But the Plaintiff was not given a copy of the performance evaluation.  She only received a copy in the course of the proceedings in the Labour Tribunal.  According to the Bank, performance evaluation reviews may be conducted by telephone.

170. John Liptak complained that between 31 August and 2 September 2006, the Plaintiff went to visit Hengtong Guanghua, a space drug company in Xi An in the People’s Republic of China, without first informing him.  He further complained that the Plaintiff assigned the deal to herself by providing an account of her visit and including it in her daily report to everyone on 4 September 2006.  According to the Plaintiff, Ken Schneier had asked her to look at the deal.  She had sent John Liptak an email as early as 3 August 2006 about the project and another email dated 17 August 2006 reporting on the same company.  John Liptak’s criticism of the Plaintiff is demonstrably wrong. 

171. Shortly after that, in November 2006, John Liptak raised with Ken Schneier the issue about the Plaintiff’s performance (paragraphs 205 and 206 below).

172. In December 2006, the Plaintiff sourced the UOB Thai deal.  Not realizing the reality of her situation, she sent an email to Ken Schneier expressing her desire to work on the UOB Thai deal herself, otherwise she would turn it down.  She wrote to Ken Schneier:

“UOB mentioned a private Thai deal whose name is not disclosed yet. They plan to make us exclusive and we can dictate the terms. As it is an important relationship to me personally plus I have the experience in structuring deals, I would like to do it myself. Otherwise I’d rather pass and wait for the next one. I hope you agree with me.”

It all went well with the first three sentences.  Her desire to handle that deal was readily understandable.  Besides being another attempt to bypass John Liptak and refusing to acknowledge his leadership, management obviously found it unacceptable that she should be sacrificing the interest of the Bank if she would not be assigned the deal.

173. To conclude, the Plaintiff still held a proprietary view of her deals, refuse to show teamwork and her behaviour towards John Liptak remained confrontational.

Year-end performance evaluation – “How”

174. On 4 December 2006, Ken Schneier completed the Plaintiff’s year-end performance evaluation.  He gave her a “Does Not Meet” rating for “How”.  In the evaluation, Ken Schneier commented as follows:

“On the other hand, Sunny has demonstrated an extreme protectiveness of her contacts/relationships and has operated as an independent party, separate from the rest of the ISSG’s distressed team. She has been unwilling to share information, except with management in NY, and has refused more than once to recognize John Liptak in his role as Head of Desk in Asia, with responsibility for overseeing and allocating credit assignment. Her protectiveness resulted in friction with members of our in-house legal support team and a generally polarized environment on the Hong Kong desk. This is particularly damaging as both our team in Asia and other desks with whom we are expected to work, grow and expand. While Sunny’s skills and results have been very good, her attitudes towards teammates and others in Hong Kong nearly overwhelm her good works. It will be critical for Sunny to overcome these shortcomings in early 2007 to remain a part of the team.”

175. The Plaintiff complains that she was only given a copy of the evaluation on 10 January 2007 and that Ken Schneier had forwarded the evaluation to Human Resources Department before discussing with her.  According to Ken Schneier’s own note and email to John Liptak dated 6 January 2007, he had a discussion with the Plaintiff on 5 January 2007 about her performance, which he hoped she would take to heart as it was in her interest and the Bank’s that they made it work.  Before that discussion, John Liptak had written to Ken Schneier via an email dated 13 December 2006 setting out the key changes he wanted to see in the Plaintiff, which obviously formed an important part of Ken Schneier’s conversion with the Plaintiff. The content of that conversation is summarised in Ken Schneier’s email to John Liptak, copied to Rajeev Syal and Judy Wai as follows:

“… I explained the upcoming reorg in ISSG and the uncertainties involved, but that it was likely that your role would expand. I told her … her attitudes toward the team and others in the bank have been poor. I told her we would like to keep her and that she has the potential to expand her productivity in the Bank, but that she needs to promptly make the following changes (1) post you and me on all projects when first initiated and allow them to be allocated by you; (2) be more open with all on the desk as to her relationships, for back up and other reasons; (3) acknowledge that relationships with customers and customer employees are [the Bank’s] relationships and not personal ones; and (4) consult our desk and others (e.g. Will Clay) re trading levels for any liquid credits to be traded, … I encouraged her to not be paranoid … Most important, I told her she needs to take down the wall between her and the others on the desk and to affirmatively approach you and Harumi, in particular, to join the team effort …

… she seemed to understand that she had no choice but to conform to your requirements and mine …

I will send her the PDP you have seen, which will now contain no surprises.”

The Plaintiff does not dispute she had a conversation with Ken Schneier on 5 January 2007, but said she did not remember having been informed about the changes expected of her.  The Plaintiff was being protective.  There was no reason why Ken Schneier would have so written if he had not indeed discussed her performance with her.  His oral message might be less direct and more subtle.  He might even have avoided telling her about the “Does Not Meet” rating, which was not mentioned in the email.  But upon receipt of the copy of the performance evaluation with a “Does Not Meet” rating in the “How”, there could be no misunderstanding about the “threat” and what she had to improve to remain in employment.  Though the discussion took place after Ken Schneier had forwarded the performance evaluation to Human Resources Department, such procedural breach was immaterial.  The real issue is whether the evaluation was bona fide made in that there were facts on which Ken Schneier based his opinion.

176. The Plaintiff also complains that the performance evaluation was drafted by John Liptak which was adopted by Ken Schneier.  However, from Ken Schneier’s email quoted above, it appears that Ken Schneier had drafted the performance evaluation and shown it to John Liptak and was then sending him the final copy by his email.  The question is also whether there were facts on which Ken Schneier based his opinion. 

177. The comments are supported by incidents described in the previous subsection.  They are consistent with the comments in the mid-year performance evaluation.  In essence, the Bank considered the Plaintiff lacked teamwork, refused to share her contacts, adopted a proprietary view of her deals and repeatedly refused to acknowledge John Liptak as Head of Desk.  In the light of those incidents and the comments, it was open to Ken Schneier to give the Plaintiff a “Does Not Meet” rating for her “How”.  That decision could not be attacked as irrational.  In any event, it is a decision which the court is not entitled to substitute its own opinion for the Bank’s.

Year-end performance evaluation – “What”

178. The Plaintiff was given a “Meets” rating for her “What” in the year-end performance evaluation.  She argues that as she made a profit of US$7.23 million while the Desk as a whole incurred a loss of US$1.36 million, she should have been awarded an “Exceeds” rating for her “What”.  

179. The Plaintiff’s argument is superficially attractive only.  Under the performance incentive programme, her performance should be measured against her target and not against the performance of John Liptak, or any other colleague or the Desk as a whole.  She overlooked the fact that her target was US$5 to US$10 million.  Her “Meets” rating for “What” is nothing but justified.

Comparison with John Liptak

180. The major thrust of the Plaintiff’s case about her 2006 bonus is that despite she made profit of US$7.23 million and John Liptak incurred loss of US$1.36 million for the entire Desk, she was only awarded US$550,000 while John Liptak was awarded US$1 million.

181. As I have said, the issue is whether the bonus awarded to the Plaintiff was irrationally low and not whether the award to another member was irrationally high.  The fact that one, not all or most, members of the team was paid irrationally more than the Plaintiff does not even begin to show irrationality or perversity in respect of the decision relating to the bonus to the Plaintiff.  There is no evidence that the Plaintiff singularly received an irrationally low bonus compared with most or all members of ISSG. For this reason alone, this basis of her claim must fail.  Besides, the Bank took the view that 2006 was a particularly bad year and the Bank could have suffered more loss but for John Liptak’s effort.  The Bank gave credit to John Liptak’s managerial responsibilities as Head of Desk.  Despite the loss, the Bank also valued John Liptak highly and even had plans to expand his role, which was implemented a few months later.  The Bank might consider a sizeable bonus required to retain his service.  These were management decisions which this court is not entitled to substitute its own for the Bank’s.  So far as the award of the Plaintiff’s bonus is concerned, it could not be impugned on the ground of comparison with the bonus awarded to John Liptak.

Conclusion

182. The bonus awarded to the Plaintiff in 2006 could not be impugned as irrational.  The Plaintiff’s claim under this head is dismissed.

THE 2007 BONUS

Introduction

183. The Plaintiff’s claim in respect of the 2007 bonus is that she was dismissed in breach of the Bank’s implied obligation not to exercise its right to terminate her employment by giving one month’s notice or payment in lieu in order to avoid her being eligible for consideration under the performance incentive programme.  Her case is that having become her direct manager in February 2007, John Liptak orchestrated her termination.  He had no cause to invoke the PIP process.  The specific goals under the PIP were designed in such a way as to fail her.  He deliberately picked on her daily work with intention to fail her.  Despite that she achieved the specific goals, John Liptak terminated her on the pretext that she failed the PIP.  Had she not been so terminated, she would have been entitled to be considered for the performance incentive programme and awarded a bonus for 2007.  She claims damages equivalent to the amount of the bonus which she would have been awarded.

184. The Bank’s case is that such an obligation was not implied into the employment agreement; and, if it was, the Bank was not in breach as the Plaintiff was dismissed by reason of her conduct.  Having found that the obligation was implied into the Plaintiff’s employment agreement, the remaining issue is whether the Bank was in breach of the implied anti-avoidance term.

The issues

185. The burden of proving the Bank’s breach of the implied anti-avoidance term rests on the Plaintiff.  The Bank does not have to prove anything.  The Plaintiff has to prove that she was dismissed with the intention of avoiding her being eligible for consideration under the performance incentive programme.  The Plaintiff’s pleaded case is very narrow. The intention pleaded is very specific.  There is no evidence of such an express intention.  The Plaintiff’s case rests entirely on inference. 

186. The express reason given by the Bank for the termination was the Plaintiff’s conduct.  It is not the Bank’s case that the conduct was such as to justify summary dismissal.  Indeed, by giving notice or payment in lieu to terminate her employment, the Bank is precluded from relying on that conduct to justify summary dismissal.  The Bank is relying on that conduct to justify invoking the PIP process under the terms of the Plaintiff’s employment agreement and the bona fides of its intention.  In accordance with the PIP process, if the Plaintiff failed to meet the improvement goals, she would be dismissed by notice or payment in lieu.  But, if there was no cause to justify invoking the PIP process, or if there was no justification in failing the Plaintiff in the PIP process, the inference may be drawn that the reason for the termination was not genuine.

187. As intention is subjective, the test for the Bank’s intention is not reasonableness but genuineness, ie a genuine reason for her termination or a genuine belief that it had a valid reason, even though the reason was not substantiated.  The reason needs not be such as would be sufficient to justify summary dismissal and may even be far from that.  It needs not be one which commends to a reasonable man and may even be irrational, provided it is genuine and one which is sufficient to negative the intention to avoid her being eligible for consideration under the performance incentive programme.  A genuine belief in such a reason, although not substantiated, is sufficient to negative the intention pleaded by the Plaintiff.  Of course, the further the reason moves away from the realm of reasonableness to irrationality, the easier it is for the inference to be drawn that the reason given by the Bank was not genuinely held.  From that inference the further inference may be drawn that the Plaintiff was terminated with the intention to avoid her being eligible for consideration under the performance incentive programme. 

188. According to Wang Wei Wei of Human Resources Department, the PIP is implemented with the intention of helping employees to improve; and the Bank expects the PIP to bring about significant long term improvement.  If there is improvement or compliance with the PIP, the employee would have an expectation that his employment would continue.  She said in cross-examination:

“Ideally, we would hope the employee turns around and improves so that would be a positive outcome. But if the employee does not improve significantly and demonstrate that he or she can sustain the improvement, then it could be the end of the process. But there is the intention of helping employees to improve.”

189. John Liptak took a different approach.  He took the view that as the Plaintiff had more than enough time to get on as a team, she had used up the goodwill of the Bank.  Hence, he considered that the improvement or compliance had to be absolute.  It had to be either 100 percent or nothing, ie termination.

190. Wang Wei Wei’s opinion must represent the will of the Bank on human resource matters.  The purpose of the PIP is to help an employee to improve and to remain in employment.  By invoking the PIP process instead of immediately exercising its right to terminate by reason of her behaviour, it must be the Bank’s intention that if the Plaintiff made significant immediate improvement as specified in the specific goals under the PIP which was likely to be permanent, not short term for the purpose of meeting the specific goals, the Bank would not exercise the right to dismiss her by notice or payment in lieu.  If the Bank dismissed the Plaintiff despite significant improvement which was likely to be of long term, it would not be the genuine exercise of the Bank’s will.  The reason given for such dismissal was not genuine.  In assessing the performance of an employee under the PIP, the test is whether he has shown such significant improvement since the PIP process which is likely to be of long term.  The focus is on significant improvement of the employee.  His past conduct which invoked the PIP process falls into the background and is only relevant for the purpose of measuring the employee’s improvement. John Liptak’s 100 percent or nothing approach was inappropriate and badly coloured his review of the Plaintiff’s performance under the PIP.

191. Thus, the issues under this head of claim are: (1) whether, having regard to the Plaintiff’s performance under the PIP, the reason given for the termination was genuine; and if it is not, (2) whether the inference that the dismissal was made with the intention to avoid her being eligible for consideration under the performance incentive programme.  The first issue in turn depends on whether the Plaintiff has failed to show significant improvement.  If the reason was genuine, it negatives the intention of avoidance.

The Plaintiff’s conduct in 2007 – before the PIP

192. The Plaintiff did not start 2007 with a good note.  On 5 January 2007, Ken Schneier discussed the performance evaluation with her and told her the areas where improvements were required.  On 10 January 2007, she received the year-end performance evaluation for 2006 showing a “Does Not Meet” rating for her “How”.  That was the first time in her employment with the Bank that she received such a poor rating.  She was seriously worried.  As both she and John Liptak said, if one had to receive such a rating, one would rather suffer that in the “What” than in the “How”.  The performance evaluation contained serious criticisms of her lack of teamwork, refusal to recognize John Liptak as Head of Desk with responsibility for overseeing and allocating credit assignments, and her friction with members of the Legal Department.  It contains a stern warning that she had to “overcome those shortcomings in early 2007 to remain a part of the team.”  She had been warned in her mid-year performance evaluation that her conduct in the past will no longer be overlooked and that she had to change if she wanted to remain in the team.  More importantly, she was told by Ken Schneier that he would no longer be her manager and that John Liptak’s role would expand.  She knew she could no longer be confrontational towards John Liptak as her immediate manager.  She realised she had to submit to reality. 

193. As foreshadowed by Ken Schneir, John Liptak’s role expanded and became the Plaintiff’s immediate manager in February 2007. According to the Plaintiff, since 2007 there was nothing that she did without first seeking John Liptak’s approval, she shared her contacts and information with her team members and that she was not confrontational towards John Liptak or any members of the team.  I now test what she said against the evidence of the Bank’s witnesses.

194. There is no dispute that the Plaintiff produced more daily reports than did John Liptak.  There was not even one minor incident between her and John Liptak since January 2007.  John Liptak could point to no more than three incidents of misbehavior on the part of the Plaintiff before he instituted the PIP process, namely, the China Tire deal, the Mongolia deal and the Bemax Resources deal.

195. The Plaintiff admitted that she looked at the China Tire deal and declined it without first asking John Liptak.  Her explanation is that as of 9 January 2007, she had received approval from Ken Schneier for all the deals that ISSG wanted to do.  She turned the Mongolia deal down as it was not within ISSG mandate.  There is nothing in the evidence to suggest that John Liptak had informed the Plaintiff that he wanted to proceed with that deal.  There is no dispute that the deal was not within ISSG mandate.  In the circumstances, there could be no justifiable criticism for the Plaintiff turning down that deal without first informing John Liptak, otherwise the Head of Desk would be bombarded with numerous deals that she had no interest to proceed. 

196. As for the Mongolia deal, all that John Liptak could point to was the fact that he discovered from the daily reports that the Plaintiff was talking with ING Barings Securities Hong Kong about that deal.  There is no evidence to contradict the Plaintiff’s assertion that prior to 9 January 2007 she had obtained Ken Schneier’s approval to follow up that deal.

197. There was another trivial incident in May 2007 in which John Liptak answered a telephone call from Johnson Chan of Morgan Stanley on behalf of the Plaintiff while she was in the People’s Republic of China looking at the Harbin Electric deal.  Johnson Chan asked if he could send John Liptak the information about a potential deal, the Bemax deal, which had been shown to the Plaintiff.  John Liptak replied in the affirmative.  Thereafter, the Plaintiff heard no more from Johnson Chan.  She then called up Johnson Chan to ask what had happened and told him that the information about the deal should be sent to her and not to John Liptak.  Mr Huggins SC argues that the Plaintiff was undercutting John Liptak’s authority.  I respectfully think that is taking the incident too far.  What happened was that an employee had been attending to a deal and while she was away her boss picked up her call and covered for her. Then when she returned, she followed up what she had been doing and told the other side to deal with her and not to trouble her boss.  Taking a detached view of the incident, the Plaintiff was just dutifully following up what she did.  There was no substance in John Liptak’s complaint and no basis for counsel to submit that the Plaintiff was undercutting John Liptak’s authority.

198. John Liptak suggested in his evidence that the Plaintiff had been rude to Johnson Chan when she called back which led Johnson Chan to apologize to him.  I reject that evidence in its entirety.  First, it is totally contrary to Harumi Hiyamuta’s evidence that the Plaintiff was extremely courteous to her clients.  There was no reason to be rude to Johnson Chan as she had to maintain a good relation with him to obtain more deals from Morgan Stanley in future.  Second, John Liptak’s allegation does not sit well with the Plaintiff’s behavior since January 2007.  She acknowledged the need for teamwork, that deals were property of the Bank and that John Liptak had sole authority to assign deals.  She said she was not concerned about John Liptak taking away her deals.  What she was worried was John Liptak not assigning deals to her.  Given the stern warning from Ken Schneier and the reality that John Liptak was her immediate manager, I do not believe that the Plaintiff would behave in that way to provoke him. Third, John Liptak has proved himself to be an incredible; witness and for reasons as I shall give in the later part of this judgment, I find that he was acting maliciously towards the Plaintiff.  I reject his evidence and find that there is no substance in this complaint. 

199. The Plaintiff’s behaviour in respect of those three incidents may not even be described as unprofessional, let alone confrontational.  John Liptak’s complaints are frivolous and suggest he was short of evidence of misconduct against the Plaintiff.

200. Next, I turn to the evidence of Harumi Hiyamuta.  She had retired from the Bank and should be regarded as an independent witness.  She corroborated John Liptak’s evidence about the Plaintiff’s general reluctance in disclosing her contacts in other shops to John Liptak in 2005 and 2006.  I have no difficulties accepting that part of her evidence.  It was well documented. Then, in a broad brush manner and without particulars, she said the Plaintiff’s attitude towards John Liptak remained largely the same in 2007 and she did not discern any improvement in her work relationship with John Liptak.  The sole basis of her allegation is Ken Schneier’s email of 9 January 2007.  The basis of her allegation is obviously flawed as that email was relating the Plaintiff’s conduct in 2006.  Harumi Hiyamuta could offer no particulars to support her allegation that the Plaintiff’s attitude remained unchanged.  Indeed, since 2005 she started spending more time in China and her commitment in China was further increased after Elizabeth Loh left in early 2006.  She was so busily involved in trips to China that she did not seem to have read the Plaintiff’s daily reports carefully and made up a false accusation that the Plaintiff went to a roadshow in relation to the Hengtong Guanghua deal when what the Plaintiff did was to watch a virtual roadshow on her computer in the office.  I do not think she had a full appreciation of the Plaintiff’s conduct since 2007.  Besides, her allegation about the Plaintiff’s conduct in 2007 is not documented and contrary to my finding that there was no confrontation between the Plaintiff and John Liptak in 2007.

201. As her interpretation of the Plaintiff’s email of 2 August 2007 shows, Harumi Hiyamuta impressed me as decidedly biased in support of John Liptak in building a case against the Plaintiff (see paragraphs 229 to 232 below).  She even supplemented what John Liptak did not say himself.  She was ready to make assumption against the Plaintiff presumably because of the Plaintiff’s conduct before 2007.  I give little weight to her evidence about the Plaintiff’s behavior in 2007.

202. Lastly, I turn to the evidence of David Sbarro.  He joined the team in August 2006 and worked with the Plaintiff during her last twelve months with the Bank.  He considered the Plaintiff hard working, dedicated and committed in her work.  He said that the Plaintiff got on well with him and was more than happy to share her information and contacts with him.  He sat between John Liptak and the Plaintiff.  He noticed open exchanges and frictions between the Plaintiff and John Liptak.  The exchanges were awkward and often led to an uncomfortable mood on the desk.  The awkward mood stemmed from John Liptak asking the Plaintiff for information about her credits.  Most of the time, John Liptak was met with curt responses and yelling from the Plaintiff.  When the conversation became heated, John Liptak stopped the conversation to maintain a professional atmosphere on the desk.  He said that the Plaintiff’s friction amplified towards mid 2007.  He also noticed friction between the Plaintiff and Harumi Hiyamuta and saw the Plaintiff yelling at Harumi Hiyamuta. 

203. While what he said about the Plaintiff’s behavior in 2006 is undoubtedly true, what he said about the Plaintiff’s behavior in 2007 is inconsistent with incontrovertible evidence, for example, that John Liptak could point to no confrontation between him and the Plaintiff.  His evidence about the Plaintiff yelling at Harumi Hiyamuta is flatly contradicted by Harumi Hiyamuta herself who said that the Plaintiff had no major frictions with her and they worked smoothly together.  His evidence about the Plaintiff’s friction with John Liptak amplified towards mid 2007 is absolutely beyond belief.  Even John Liptak could not point to any confrontation or incident other than the three unjustified complaints.  The Plaintiff was submissive since early 2007.  She was as tame as a lamb in June 2007 when she was subjected to the PIP process.  That piece of evidence cast real doubt on the reliability of his evidence.  David Sbarro’s statement is very short and lacking in particularities.  It was written by him on 18 May 2011 when he probably had no clear recollection of what happened four years ago.  If he was not dishonestly concocting evidence to support the Bank’s case, he must have been coloured by the Plaintiff’s conduct before 2007 and failed to notice the change since 2007.  I reject his evidence about the Plaintiff’s conduct in 2007 entirely. 

204. There was absolutely no major incident or friction between the Plaintiff and John Liptak since January 2007.  The three incidents complained of by John Liptak are frivolous and not substantiated.  Her behaviour towards John Liptak and Harumi Hiyamuta was no longer confrontational.  Her behaviour towards David Sbarro had always been good and helpful.  On the totality of evidence, I am fully satisfied that the Plaintiff’s conduct was substantially improved since January 2007.  Presumably, that was the result of Ken Schneier’s counseling, a “Does Not Meet” rating, the warnings conveyed by the mid-year performance evaluation and the year-end evaluation, her appreciation of the reality that John Liptak was her immediate manager and that Ken Schneier would no longer be there to protect her.  As Ken Schneier noted in his email of 6 January 2007, the Plaintiff’s reaction to his counselling was calm and logical and she understood she had no choice.  The Plaintiff was seriously worried about her future in the Bank and understood she had no choice but to comply.  It is incredible that given all these circumstances the Plaintiff would still behave in a confrontational manner towards her direct manager.  

The background leading to the Performance Improvement Plan process

205. Going back a little earlier, on 27 October 2006, John Liptak raised the issues of the Plaintiff’s attitude with Ken Schneier.  As a result, Ken Schneier wrote to Rajeev Syal and Judy Wai of the Bank’s Human Resources Department to seek their assistance on how to remedy the situation.  In his email dated 28 November 2006, Ken Schneier wrote:

“I am sending this note … The object is to request Judy to discuss with John Liptak and with Sunny Tadjudin some issues that have arisen regarding Sunny’s performance, outlined below.

…

Despite her good work, Sunny has had a chronic problem integrating with the other members of our group, participating as a member of the team and sharing ideas and expertise … Sunny never accepted John’s role and has consistently failed to report to him, update him on her projects and discuss new ideas so they could be properly allocated within ISSG according to skills and availability. She has become increasingly protective of her contacts and projects, refusing to acknowledge that these are Bank asserts, not personal ones. Despite personal direction from me to share her ideas and other team members and to meet regularly with John regarding her projects, she has refused to do so and has stated that she will not do so. As our business in Asia has grown, Sunny’s protectiveness, secretiveness and isolation from other members of our team has, if anything grown worse and has been noticed, to our detriment, by support partners and other businesses in the region. On occasion she has been verbally abusive of team members and support partners, accusing them of interfering with or attempting to steal her business opportunities and contacts.

While we would be delighted to retain Sunny within ISSG for her analytical and related talents, her isolation, virtual insubordination and unwillingness to participate as a member of our team effort have become insupportable.  Your help in attempting to remedy this problem would be most welcome.  …”

The Plaintiff said that email was deliberately issued to document her.  Even if it was, the contents were incontrovertible.  Ken Schneier had mentioned in June 2006 that the John Wacker incident was the last straw and that her “behaviours reluctantly overlooked in the past can no longer be overlooked”.  It seems by this time, Ken Schneier considered the Plaintiff’s behaviour could no longer be overlooked.  But, from the tone of his email, it is obvious that what Ken Schneier requested was assistance to remedy the problem and not to get rid of the Plaintiff.  Indeed, he was keen to retain the Plaintiff.  He was not seeking advice on terminating the Plaintiff’s employment.

206. Following a re-organisation, the ISSG became part of the GSSG.  Peter Santry took over the Hong Kong Desk from Ken Schneier.  He was informed of the discord between the Plaintiff and John Liptak. He had a meeting with the Plaintiff during his visit to Hong Kong in April 2007 with a view to resolve the situation.  After the meeting, Peter Santry invited Ken Schneier’s and John Liptak’s comment on his draft note to be sent to the Plaintiff.  John Liptak thought the tone of the draft too soft and disagreed with Ken Schneier that it would be desirable for the Plaintiff to stay.  It is obvious that John Liptak’s intention was to terminate the Plaintiff’s employment.  In his own words under cross-examination, “time has come for a parting of the ways”.  He said that the Plaintiff’s behaviour had an undesirable effect on the team as a whole and exposed the Bank to serious credit risks because of her proprietary view of her contacts, her refusal to disclose her contacts and provide information, her desire to control the process from start to finish without keeping anyone in the loop.  As result of John Liptak’s objection, Peter Santry decided to make the warning official and take the matter to the Human Resources Department to determine the next step.  It should be noted that even by that stage, John Liptak could not point to any, not even minor, incident in 2007 other than the China Tire incident, the Mongolia deal and the Bemax Resources deal to support his allegations of misconduct against the Plaintiff, which on my finding are all not substantiated.  He was relying on the Plaintiff’s conduct in 2006 to urge Peter Santry into invoking the PIP process.  With the blessing of Peter Santry, John Liptak approached the Human Resources Department and commenced the PIP process.

The Performance Improvement Plan

207. On 29 June 2007, John Liptak, on behalf of the Bank, and in the presence of Emily Cheung of Human Resources Department issued an official warning letter to the Plaintiff.  The warning letter set out the Plaintiff’s conduct which the Bank considered unacceptable and which had been brought to her attention in the various discussions since eighteen months ago, including:

(a)   consistently failing to report to John Liptak as her manager;

(b)   being extremely protective of her contacts/relationships and projects;

(c)   being unwilling to share information and expertise with the Asia team;

(d)   refusing to update John Liptak on her projects and discuss new ideas so that they could be properly allocated within the ISSG group according to skills and availability; and

(e)   being verbally abusive of team members and support partners, accusing them of interfering with or attempting to steal her business opportunities or contacts.

There is no doubt that these behaviours of the Plaintiff were adequately made out on the evidence, but they are all related to the Plaintiff’s conduct before 2007.

208. A PIP was attached to the warning letter setting out a list of specific goals which the Plaintiff was required to perform. These goals included:

(a)   immediately turn over all accounts, contacts and details by 3 July 2007 to John Liptak by email, with detailed status write-ups of each of the accounts and projects by email to John Liptak by 4 July 2007;

(b)   immediately start sharing information with associates and management in a more efficient and timely way, including weekly summaries on her projects/credits given to John Liptak via email, with copies to Harumi Hiyamuta as head of sales for Asia on any correspondence sent to members of the ISSG sales team;

(c)   immediately start conducting herself in a professional manner which includes not directing verbal or emotional outbursts at associates or management; and

(d)   arriving in at the office by 9 am.

In the letter, John Liptak also prohibited the Plaintiff from talking to any of her contacts and stated that he would assign her to other non-client-contact duties.

209. It was expressly stated in the warning letter that if the Plaintiff failed to make such immediate improvement as specified in the PIP, the Bank would take further disciplinary actions which could include summary dismissal in accordance with the relevant provisions of the Employment Ordinance.

The dismissal of the Plaintiff

210. The Plaintiff was given four weeks to perform the PIP.  That period expired on 27 July 2007.  On 14 August 2007, John Liptak sent a draft PIP Review to Peter Santry suggesting that the Plaintiff did not meet the goals set out for her in some areas.  He then had a telephone discussion with Peter Santry and concluded that enough opportunities had been given to the Plaintiff to change her behaviour but she did not meet the goals set for her.  It was agreed that John Liptak would go over the PIP Review with the Plaintiff and offer her the option to resign voluntarily or to have her employment terminated by the Bank.  On 17 August 2007, John Liptak completed the final PIP Review. 

211. On 20 August 2007, John Liptak together with Emily Cheung interviewed the Plaintiff.  He went through the PIP Review with her and told her that she failed to comply fully with the requirements set out in the PIP.  He gave her the option to take the rest of the week off and decide if she wanted to resign voluntarily or, if not, the Bank would start the termination process.  The Plaintiff refused to accept either option.  On 28 August 2007, the Bank issued a letter to the Plaintiff to terminate her employment with effect from 28 August 2008 by giving her one month’s wages in lieu of notice.

The Plaintiff’s performance of the PIP

212. It is Mr Huggins SC’s submission that the court should not attempt to form a view, let alone substitute its own view, as to whether what the Plaintiff provided was what John Liptak required.  He argues that was an issue within what might best be described as the “margin of appreciation” of the Bank.  While I agree that the court cannot be expected to enter into a microscopic examination of that issue in what is a pretty specialized field, that does not mean John Liptak’s or the Bank’s decision as to whether the employee has met the specific goals under the PIP is conclusive and beyond review by the court.  Whether the employee has met the goals is a question of fact and not a matter of the employer’s discretion.  It is a matter capable of objective analysis.  In respect of technical issues, the court will respect the employer’s “margin of appreciation”.  But, in respect of non-technical issues, the court’s fact finding powers are unfettered.

213. In respect of goal (a), turning over all account contacts and write-ups, the Plaintiff provided John Liptak account contact information and write-ups of her projects.  According to the PIP Review, the Plaintiff met this goal.  In the PIP Review, John Liptak reported as follows:

“Results: Sunny did provide account contact information and write ups on her projects.”

However, at trial John Liptak raised the complaint that the information was only provided just before the deadline and the Plaintiff was doing the bare minimum. 

214. A deadline is a deadline for both the party setting it and the party required to comply.  Providing the information just before the deadline is nevertheless good compliance.  No particulars were given about what were the inadequacies by providing the bare minimum.  Compliance with this goal required substantial work.  The Plaintiff had four days to turn over all account contacts and five days to finish all write-ups.  The time schedule was really tight.  There was no complaint of any inadequacies in the PIP Review.  The PIP Review is a contemporaneous document which deserves great weight.  On the evidence, there is no dispute that the Plaintiff handed over all her accounts to Harumi Hiyamuta.  If there were any inadequacies, there was no reason why John Liptak would not have so remarked in the PIP Review in just a few words.  I find John Liptak’s evidence about inadequacies is a recent concoction made in a desperate attempt to justify his PIP Review.  The absence of substance in John Liptak’s complaint says it all.  He was being oppressive, fault finding and looking for pretext to fail the Plaintiff in her performance of the PIP.  It reflects a lack of bona fides in his conduct of the PIP Review. I find him an unreliable witness.  I find this specific goal complied with. 

215. In respect of goal (b), sharing information, John Liptak’s complaint is that the Plaintiff still did not communicate fully with him in a timely manner on certain items, such as writing up of comparables, with information coming in late via email after she had left for the day and did not provide the weekly update on her projects as requested.  In the PIP Review, John Liptak remarked as follows:

“Results: Information flow has improved from Sunny but she has still not communicated fully with myself in a timely manner on certain items with information coming in late – via email, after she has left for the day. In addition, Sunny has not provided the weekly update on her projects as requested.”

In summary, the complaints are that information relating to certain items was provided late and after the Plaintiff had left the office; and that she did not provide weekly updates on her projects.

216. On the dead line, 4 July 2007, the Plaintiff tendered her work to John Liptak.  As John Liptak’s complaint was mainly directed at the Plaintiff’s compliance in respect of his requests relating to the Harbin Electric deal, I shall focus on that deal in the email chain. The Plaintiff wrote at 12:08 pm:

“I refer to the performance goals …

My portfolio is divided into two categories: new issues and distressed debt.

For new issues, I have prepared memos for approval and I am resending them again to you. In addition, I have updated the financials quarterly if they are available. I am pleased to inform that all of them are performing as planned and I do not have any significant updates since our purchase. Therefore, please do not feel that I have not been updating you on new developments because there is simply none. …, Harbin Electric and … are all performing well or according to plan. This is a remarkable feat so I hope you feel pleased as well.

For distressed, …

The only credit that I have not updated is Garuda. I have not been able to focus on it since returning from the creditor meeting for obvious reasons.

In addition, as I already mentioned, I have filed all available information in blue folders in reverse chronological order. They are situated right to my desk. Please feel free to pick up the files if you want to know more details such as hard copies of financial statements, loan rollover notices, general correspondence, etc. I also file some analysts’ report in the folders.

In any event, if you are not comfortable with any of the credits and/or the information we have, I would understand it as most of them were purchased last year.  I would recommend to sell so that we have a consistent approach on our portfolio and also reduce the misunderstanding that there is no information sharing.”

At 6:24 pm John Liptak replied:

“…

Also, you need to provide comp[arable]s for all the new issues you done – we need to know how this credits stand next to their peer groups. I can’t see if that is attached, if not you need to get that done.

You also need to provide an equity model, one that you have done yourself for [H]arbin so we have a better understanding of where this story is going.

As far as the ones you say have [been] performing for years we need more updates [than] that.  We need projections on performance and what levels we would buy and sell the debt.”

The Plaintiff replied at 6:50 pm:

“I will see what I can do with your further info request. To be honest, I am not sophisticated in my modelling. For any credit I looked at, I used a lot of non quantitative factors and so far it has worked. But I will try to use your approach going forward.”

217. On 19 July 2007, the Plaintiff reverted to John Liptak about comparables for the Harbin Electric deal.  She wrote at 9:12 am:

“I refer to your request to receive comp[arable]s for all new issues. These are … , please see my email correspondence with Harumi which you have been copied. I have not asked Harumi about Harbin Electric and Perfect Sky because I understand they are very unique in the industry and I think the investment houses will have trouble providing comp[arable]s. However, I will send the email anyway. For Infrastructure Capital, you have approved this yourself. … Please let me know what angle you are looking at Infrastructure Capital.”

John Liptak replied at 9:25 am:

“So we are clear – we need the analyst to maintain the comp[arable]s for the credits they follow, especially in H[igh] Y[ield] names, this includes financial comp[arable]s. All that is included is price information in this email – which I had already had seen. Please provide the financial comp[arable]s which are requested.”

The Plaintiff replied at 9:39 am:

“Thank you for your email. Instead of sending emails back and forth, could you provide me with the format of the financial comp[arable]s, perhaps from other analysts which have done the job satisfactorily? I will be happy to find the information. Please also note that most of the comp[arable]s will be outside my coverage so we need to get the info from the investment houses which maintain such database. Please recall that when I did Lakewood, a Thai steel company, I looked at Megasteel which you cover and you questioned me why I would read Megasteel reports. I would like to avoid such misunderstanding in the future.”

At 10:52 am, the Plaintiff provided comparables for Perfect Sky and wrote:

“Attached is the comp[arable]s for Perfect Sky. It was provided by DBS and I have updated with the latest numbers available from Bloomberg.

If you do not have the standard format ready, I will use this one for other issuers as well.”

218. The tone of the Plaintiff’s emails was submissive.  Her response was prompt.  These show that she was ready and willing to please and to comply.  Obviously, she was desperate to retain her employment.  This was not the conduct of someone who was confrontational or disrespectful.  Requisitions could be easily made, but compliance was burdensome, particularly in view of the tight time schedule.  She was late only in respect of information of certain items.  She did provide the information.  John Liptak complained that she provided the information by email after she had left the office.  Another way to look at that is that the Plaintiff was so desperate that completed her work even after office hours at home.  If she was late, she was only marginally late, having missed the office hours.  To complain that she provided the information out of office is frivolous.  This complaint provides a peep hole into John Liptak’s mind.  He was fault finding and very mean.  Having viewed some of the emails, I find that a lot of information had been provided. In substance, she performed.  The Plaintiff should reasonably be excused for not meeting deadline which was too tight, if not unreasonable.  In any event, there was substantial compliance and should be acceptable according to standard of Wang Wei Wei.

219. As for the alleged failure in providing weekly updates on her project, John Liptak did not provide particulars.  The Bank relied on Harumi Hiyamuta’s evidence that she was shown certain documents by the Bank’s solicitors, namely items D137, D138, D144, D145, and D147, and she did not see any weekly summaries on the Plaintiff’s projects from those items.  D137 is the email chain of 19 July 2007.  D138 is the Plaintiff’s email providing financial projections of Harbin Electric.  D144 is an email chain about John Liptak’s request for information relating to Harbin Electric deal which I shall deal with later.  D145 and D147 are the Plaintiff’s emails providing comparables for some of her projects.  These are some of the emails which did not contain weekly summaries. 

220. According to the Plaintiff, since commencement of the PIP process, she had sent out fifty five emails updating her projects over the course of six weeks.  She attended weekly calls and provided her weekly updates.  I have viewed many of those emails. They include daily reports, comparables and correspondences.  They contain updates, but no weekly summaries or weekly updates of the kind requested by John Liptak.  I consider she failed to meet this specific goal.

221. I now turn to John Liptak’s specific complaints in respect of the Harbin Electric deal.  On 18 July 2007, he requested for the name and contact of the investment bank that did the deal.  To that request, the Plaintiff responded within eight minutes as follows:

“Merrill Lynch, Harumi now talks to them.”

Both John Liptak and Harumi Hiyamuta considered that answer inadequate and a defiance of John Liptak’s position as her manager.  The Plaintiff only provided the name of the investment bank but not the name of the person whom she contacted in that bank.  By that answer, she was telling John Liptak to ask Harumi Hiyamuta who may have more update information.  In easier times, that answer would have been acceptable, though by no means a good one.  The Plaintiff’s explanation is that as the account had been handed over to Harumi Hiyamuta and she was instructed not to contact the client, she did not have the up-to-date information of the contact person.  Hence, she referred John Liptak to Harumi Hiyamuta.  At the time, John Liptak did not raise any complaint about that answer.  Presumably, he considered the answer acceptable.  If he had considered otherwise, he would have followed up as he did in relation to the next requisition below.  This complaint carries the hallmark of recent concoction. The Plaintiff admitted her answer was inadequate.  But I would not go that far as to find it a defiance of authority.

222. The next day, 19 July 2007, John Liptak asked for the resale registration statements.  He wrote:

“Please provide me a copy of the resale registration statements, which you should have, for the warrants/shares. If you don’t have it, let me know and I will get it from Merrill.”

To that request, the Plaintiff referred him to her earlier email. She wrote:

“Please refer to my email dated 1 June 2007. These files comprise the whole package that I received. If you do not see what you need, please feel free to contact any relevant parties.”

Effectively, she sent the whole package to John Liptak and asked him to look for it himself.  She could have done better.  If she did not have the documents, she should have simply said so.  John Liptak wrote back:

“This is not what we are asking for – which should have been part of the [due diligence] work. Harumi and I will go back to Merrill.”

According to the Plaintiff, she thought John Liptak was querying the propriety of the transaction because of her lack of due diligence investigation and was not pursuing the statements as John Liptak said he would go back to Merrill Lynch.  The Plaintiff replied:

“Please feel free to contact Merrill Lynch for any documents relating to Harbin.

We bought Harbin last year and I have received proper approval from Ken for the purchase. If the procedure has changed, please make the new procedure available to me. I now understand that you need the model, comp[arables], checkings with other market players for new credits. I have not done any deal without those elements since. If there is anything more you need, please let me know.

In the event that you are not comfortable with any of the position purchased last year, I will repeat that I strongly recommend that we sell them so that we maintain your standard on all of our position.  We have made profits on all of the names.”

223. Mr Huggins SC argues that even in the face of the PIP, the Plaintiff was still confrontational and refused to assist John Liptak to look for the requested statements.  With respect, that is an unfair comment.  The series of emails have to be read in their proper context.  The emails show that the Plaintiff was submissive.  She provided what she thought was required of her.  She misunderstood the purpose of John Liptak’s request and thought he was querying the adequacy of her due diligence investigation. Perhaps, that was because John Liptak was moving the goal posts.  She did not know if there were the registration statements.  In any event, the question about the registration statements was closed as John Liptak said he would turn to Merrill Lynch.  Hence, in the first sentence of her last email quoted above, she told John Liptak to ask Merrill Lynch for the documents.  That was the best she could do as she was prohibited from contacting her clients.

224. Mr Huggins SC refers to the following answers of the Plaintiff under cross-examination and criticises her as being the un-reformed “old Sunny”: 

 “Q:  When you looked at the package, did you then send this to him?  What do we see here?  Is this what you’re referring to when you say, “These files comprised the whole package that I received”?

A: Yes, I believe so.  I send it by PDF and of course I did not send a hard copy.

Q: You didn’t look through even this bundle to see –

A: No, I did not.

Q: - to see whether it had what he was looking for?

A: No, I did not.

Q: Why not? Just look yourself.

A: You know, at that point of time I wasn’t really interested in looking at – you know, you can say legal document; this is all too much for me.

…

Q: You were under a warning letter.  You should have known perfectly well that if your boss asks you to do something, you would do it.  If he asks you for something, you would get it if you can.  Did you not appreciate that?

A: I did not do anything unusual as per my normal activities.

Q: Yes, the same old Sunny; the same “you do it yourself”.

A: No, this – if he has asked any other analyst he may have gotten the same reply, because this is purely not an analyst or a trader’s job.

…

Q: You said it’s not for you to go looking for the documents he’s seeking?

A: I frankly do not think that was Mr Liptak’s job.  The appropriate things for him to do or for Ms Hiyamuta to do is to forward the entire document to our in-house counsel and see whether we have complete documentation.  It’s not for anyone at the desk to review these documents.”

225. With respect, I think that is a distorted interpretation of the Plaintiff’s evidence.  What the Plaintiff said was that she did what she was required to do as an analyst.  She said that the registration statements were legal documents which were the responsibility of the Legal Department and not the analyst’s or trader’s; and, if asked, any other analyst would have given the same answer.  John Liptak did not dispute that.  The real gist of his complaint is that he thought the Plaintiff had those statements but was uncooperative in not turning them over to him. However, the fact is that she did not have those statements and right at the start John Liptak was happy to ask Merrill Lynch if she did not have the statements. Presumably, nothing important turned on the Plaintiff’s inability to turn over the statements.  In any event, that was one failure only out of many requisitions John Liptak had raised and it was not at all a very serious failure.  John Liptak was only picking on the Plaintiff and exaggerating the incident as a fatal failure under the PIP. 

226. Lastly, John Liptak complained that the Plaintiff failed to provide comparables within the requested timeframe.  He said that as high yield bonds would trade relative to other credits inside the market, comparables are required for the purpose of comparing the valuation of the assets held against other assets in the market.  Mr Huggins SC submits that the comparables provided by the Plaintiff were brief and sketchy and there was no analysis or analytical input.  That is based on Harumi Hiyamuta’s evidence. But, on the other hand, the email chain quoted in paragraph 217 shows that the Plaintiff did provide comparables and asked for the format John Liptak required so that she could conform tio his standard.  But John Liptak did not respond.  In the absence of any standard format provided by John Liptak, she sent him comparables for Perfect Sky and said she would adopt that format.  There was no objection from John Liptak.  It would be unfair for Harumi Hiyamuta to say that the Plaintiff’s comparables were inadequate, if John Liptak did not give her the format.  For all the comparables that John Liptak asked, he could only complain about the ones in respect of Harbin Electric project.  It must be assumed that the Plaintiff met his requirements in respect of comparables for all her other projects, albeit late.  Given the size of the task, such failure must be regarded as de minimis.

227. In respect of the Harbin Electric deal, John Liptak’s complaint was that the Plaintiff just relied on Harumi Hiyamuta’s conversation with the arranger and told him that there were no comparables.  He did not say why that was unacceptable.  On the fact, all comparables were provided by investment houses, brokers and banks.  In her email issued at 9:12 am on 19 July 2007, the Plaintiff had already informed John Liptak that Harbin Electric was unique and investment houses would have trouble providing comparables.  The Plaintiff nevertheless said she would enquire from the investment houses.  When she reported what Harumi Hiyamuta told her, John Liptak did not insist that she should somehow find a way to find those comparables.  Now, the Bank relies on Harumi Hiyamuta’s assertion that an analyst was not supposed to be just dependent on the brokers; and if the brokers have no comparables, an analyst would have to ‘somehow’ find a way to find those comparables.  Harumi Hiyamuta was vague as to what that means.  This duty is something which John Liptak himself did not assert.  He did not tell the Plaintiff to ‘somehow’ find some comparables.  I have doubts in the reliability of Harumi Hiyamuta’s evidence.  She impressed me as regurgitating from prepared speech which is not contained in her witness statement.  I cannot help feeling uncomfortable why she would make that assertion which John Liptak did not find it necessary to make it himself. 

228. In his PIP Review, John Liptak only vaguely said that the Plaintiff did not fully comply but without referring to this complaint or any other particulars.  This is the only specific complaint John Liptak could make in respect of the Plaintiff’s failure to meet goal (b).  The totality of evidence impressed me that John Liptak was trying hard to retrospectively justify a vague assertion of lack of full compliance by picking on the Plaintiff’s failure to provide comparables for just one project out of the comparables for all the projects that she provided.  Even if the Plaintiff were at fault in failing to ‘somehow’ find comparables for this unique deal, that was one failure only out of many projects which she was able to produce on a tight schedule.  Despite the few inadequacies, the Plaintiff should fairly be considered as having substantially achieved this goal.

229. In respect of goal (c), stopping verbal abuses and emotional outbursts, John Liptak confirmed that there were no verbal or emotional outbursts from the Plaintiff.  His complaint is that her attitude was still confrontational at times.  The Bank only relied on the following email from the Plaintiff dated 2 August 2007 as evidence that she was still confrontational and unwilling to work under the leadership of John Liptak. 

230. Before looking at that email, it would be useful to outline the context in which that email was written.  After turning over her accounts and contacts with other shops to John Liptak, John Liptak transferred them to Harumi Hiyamuta.  The Plaintiff was required to make telephone calls introducing Harumi Hiyamuta to her accounts one by one as if she was handing over her job.  Then, the deals which were subsequently referred to the Plaintiff from those accounts were all turned down, while the Plaintiff was still doing research on them.  At the time, the performance of team was deteriorating.  In particular, John Liptak’s portfolio was melting down.  It was in that context that the Plaintiff wrote to Harumi Hiyamuta on 2 August 2007 pleading her not to reject deals when she had shown interest to work on it in view of the deteriorating performance of the ISSG.  In that email, she wrote:

“I would like to highlight an issue that I have since I was asked to hand over my relationships with major investment banks to you one month ago. The purpose of this message is not to put blame on you and I completely understand if you did not make such decisions.

On two occasions that I am aware of, you have declined the deals – which I have openly expressed interest to explore further – without informing me and only after I asked then you told me a decision has been made between you and John Liptak that we will not pursue the deals. On the first deal shown by Merrill Lynch， you have eventually obtained the information which I took a look and quickly declined myself. On the second deal shown by BNP-Paribas, you have said today that you told BNP-Paribas that we are not interested before I had the chance to look at the deal.

I have been covering the Indonesian market since I joined in 2000 and may I remind you that I initiated the high yield/leverage loan product for the ISSG group in 2005. I have a successive 7 years’ track record of profitability without major losses. Given this background, I would appreciate that if you could give me some credit that I have a good sense in making the preliminary judgment on which deals will work and which wil not. After all, I will be the one who spend a lot of time doing the groundwork and if I did not manage to get the approval, it will be mostly my time to waste.

I also would like to highlight that during the distressed era, everybody made money and almost all other market players made the most from Indonesia. For whatever reason, this was not the case for us and it did not matter a lot at that time since we were extremely profitable. However, the market has become very sophisticated and we are unfortunately no longer profitable. If we want to turn back to our past glorious days, we must be nimble about the business opportunities in the market. It requires the well touted teamwork that Bank of America is looking for.

If there is any misunderstanding, please let me know by email.  I apologize for my straightforward manner but there is no point beating around the bush given the dire state we are in.”

Harumi Hiyamuta considered that a rude complaint.  The impression she formed was that, notwithstanding the various warnings, the Plaintiff was still saying that she should be the one to have a look at the deal first.  In other words, the Plaintiff was still taking a proprietary view of her deals.  She said that the Plaintiff still believed that she had better sense in deciding which deal was worth pursuing and her “good sense in making the preliminary judgment on which deals will work and which deal will not” should prevail over the consensus of two managing directors, herself and John Liptak, in turning down deals that came through her relationship.

231. I have quoted the email in full.  I consider Harumi Hiyamuta gave a very tainted interpretation of that email.  The Plaintiff referred to the two deals.  She fairly admitted that the first one was not worth pursuing.  She ‘complained’ to use the words of Harumi Hiyamuta that the second deal was turned down before she had a chance to look at it. She then pledged her credit and expertise in Indonesian deals by reason of her familiarity with the region which was where she came from.  It was against that background that she pleaded for a chance for her to give her views on the deal before a decision was made to turn it down.  She was offering to share information.  In the penultimate paragraph, she was offering her teamwork to make the ISSG as profitable as before.  She was not saying that the two deals were her property or was assigning them to herself.  She was by no means challenging John Liptak’s leadership in the team and his prerogative in assigning deals.  She was offering her views and expertise to Harumi Hiyamuta so that she or John Liptak could make use of before making a decision one way or the other.  She had reasonable grounds to do so because Indonesia was her geographical area of responsibility and her expertise.  That was far from protesting that her manager was making decisions without involving her or that her views were superior to that of two managing directors.  She was offering cooperation and teamwork. She was rectifying the inadequacy complained of her in item (d) of the warning letter, namely, refusing to discuss new ideas; and was exerting herself by sharing information in meeting goal (b).  In the final paragraph, she apologised for being straightforward.  I can see sincerity in her email.  Harumi Hiyamuta is manifestly biased against the Plaintiff.  This badly damaged her credibility and the reliability of her evidence.

232. As Harris SC rightly points out, this is the Bank’s weak attempt to show that the Plaintiff was still confrontational in the face of a completely submissive employee desperate to retain her employment. This is a desperate attempt to justify an allegation of confrontational behaviour when there was none. 

233. In respect of goal (d), John Liptak complains that the Plaintiff took a day’s vacation leave on 20 July 2007 without prior notifying him or Harumi Hiyamuta.  There is no dispute that prior to taking her leave, the Plaintiff had instructed the team secretary, Cecilia Yeung, to mark her day off on the team’s electronic calendar.  It is all a matter of office practice.  I think it goes without saying that while taking leave is a matter of right under the employment agreement, granting leave is a matter of discretion of the employer and subject to exigency of the employer’s requirement.  In that connection, prior consultation or application is usually required.  According to Harumi Hiyamuta, while the practice is ISSG was very fluid, the basic is to, at least, tell John Liptak.  This is what she said in cross-examination:

“… I think in normal circumstances, I may ask John or my other colleagues that if it’s okay, I’m going to be out of the office on that particular day, or I just want to tell them first. Maybe not every individual, but at least tell John. If I see nobody has any problem with that, what I had done is then notify our desk secretary and I ask her to input the system about the absence of leave.”

234. According to the Plaintiff so long as her absence was adequately covered, it was the usual practice to take leave by marking the electronic calendar.  By having her absence covered, it must necessarily mean having informed someone to take care of her work during her absence.  This might well be the case under the set up of the ISSG with analysts having their respective geographical areas of responsibility and working round the clock to match New York time.  This was especially so under the leadership of Ken Schneier when analysts worked rather autonomously and management was remote in New York. With a Head of Desk in Hong Kong, there was no reason not to, at least, tell John Liptak of her leave beforehand.  It was the Plaintiff’s evidence that at the PIP Review interview, John Liptak let her off on that count upon her explanation that she had worked overtime.  Obviously, John Liptak did not take a very serious view of that breach.  The breach was a very trivial neglect and did not occasion any serious consequences for ISSG.  Against a background of loose supervision and all the circumstances, it would not have justified summary dismissal and would not have, by itself alone, rendered an otherwise substantial performance of the PIP a failure.

235. In conclusion, all that the Plaintiff failed were (1) failing to provide weekly summaries of her projects and comparables in respect of only one unique project in respect of which no comparables were available from the investment houses; and (2) one minor neglect in properly applying for leave.  Against the very serious accusations in the PIP and the very onerous specific goals, these shortfalls cannot be described as anything but insubstantial which should fairly be excused.  John Liptak failed the Plaintiff by applying his ‘100 percent or nothing’ standard.  That was inappropriate.  The test should be an objective one of significant improvement. The Plaintiff actually mended her ways substantially since early January 2007. She complied with virtually all the requirements under the PIP.  What particularly required of her was the turning over of all her accounts and contacts which she did.  She was made to do that under humiliating circumstances, being required by Harumi Hiyamuta to make introductory calls to her contacts.  I consider the Plaintiff has passed that test by a comfortable margin.  A termination on the ground of her failing the PIP could not have been a genuine reason.

Bona fides or otherwise of the initiation of the PIP process

236. The Plaintiff harboured a theory that John Liptak brought about her termination because he could not stand a female outperforming him while he suffered heavy loss.  She made some assertions that female employees were treated less favourably than male.  But I do not think the evidence goes that far as to support a case of gender discrimination.  In any event, that is not the focal point in these proceedings.  There are, however, evidence that since 2006 John Liptak’s portfolio suffered severe losses.  His personal loss in 2006 wiped out all the profits made by the Plaintiff, resulting in an overall loss for the team.  He also suffered heavy loss in 2007.  But for the Plaintiff’s profit of US$6.06 million, the team would have again ended up in red.  That does not cast a favourable light on John Liptak as Head of Desk.  But I would not go that far as to say that gender discrimination and the Plaintiff’s performance were the reasons for her dismissal. 

237. There is no dispute that the relations between the Plaintiff and John Liptak had been rough since 2005 which carried on into 2006.  That condition was most probably caused by the Plaintiff taking a proprietary view of her deals and contacts.  That attitude had been connived by Ken Schneier.  That attitude could be easily understood in a performance driven environment, though contacts obtained in the course of employment must be regarded as the property of the employer.  When John Liptak became the Head of Desk, he took a different approach.  He emphasised more on teamwork and insisted that an analyst’s contacts belonged to the employer.  His policy was that an analyst who sourced a deal would not necessarily be assigned the deal, and assignment should be made on the basis of ability and availability.  All that made business sense from management point of view.  It would also work in a performance driven environment, if properly and fairly administered and credit given to the analyst who sourced the deal.  John Liptak criticised the Plaintiff for lack of teamwork and for being protective of her contacts, while the Plaintiff was troubled that by sharing her contacts her contribution would not be adequately acknowledged.  That was what caused the conflict between the Plaintiff and John Liptak since 2005 through to 2006.

238. It seems that since Ken Schneier’s counselling of the Plaintiff on 5 January 2007, the wall between the Plaintiff and John Liptak had been torn down.  She knew she could no longer be confrontational towards John Liptak as her immediate manager.  She realised she had to submit herself to reality.  She tried to mend her ways.  As I find it, she was no longer confrontational since January 2007.  She was ready to share her contacts.  Harumi Hiyamuta confirmed that the Plaintiff generated more daily reports, more than John Liptak did.  She also confirmed that she had no major friction with the Plaintiff and they worked well together.  David Sbarro said that all along the Plaintiff was helpful and willing to share her contacts and information. 

239. Obviously, the Plaintiff’s improvement was not good enough for John Liptak.  When he became the Head of GSSG Asia in February 2007 after the reorganisation, he started steps to get rid of the Plaintiff.  He had a brief discussion with Peter Santry and then wrote to him on 14 February 2007 requesting further action against the Plaintiff, saying:

“While there have been a number of discussion with Sunny to bring back into the fold, to date we have seen little progress.”

Pausing here, what was the situation between January and February 2007 which provoked the issue of this email?  Unlike the situation in 2005 and 2006 in which the Plaintiff’s conduct was documented, there was absolutely nothing that John Liptak could point a finger at the Plaintiff, except the China Tire deal, the Mongolia deal and the Bemax Resources deal.  For reasons as already explained, those complaints were frivolous. The Plaintiff had mended her ways. She was already in the fold.  However, John Liptak misled Peter Santry into thinking that the Plaintiff’s situation was unacceptable and unsustainable. 

240. Then, in April 2007, Peter Santry visited Hong Kong and had a meeting with the Plaintiff.  Presumably, that meeting ended in a good note because Peter Santry drafted an email to the Plaintiff in rather encouraging and complimenting tone, saying that he wanted her behaviour to change.  But that email was not sent after discussion with John Liptak and Ken Schneier.  The reason for Peter Santry’s change of course was John Liptak’s email of 27 April 2007.  In that email, John Liptak wrote:

“I think the tone of the note and to an extent the scope is too soft. As Ken points out we have been down this path with her on numerous occasions with little to no effect. I disagree with Ken that it would be desirable for her to stay – in her current state, she has an undesirable effect on the team as a whole and as pointed out below we have some serious credit risk at stake.

…

Even after Ken had his last round of talks with Sunny at the start of the year and she was put on notice with HR that she had to fully come into line, we in Asia have seen little improvement in her communication or attitude.  She still has not provided any of the contacts at the various shops she speaks with, tho asked on several occasions to do so.  In addition, when asked about HY deals coming to market that the desk has interest in, she has failed to provide information to the desk that has been given to her by other shops.”

Pausing here, what was the situation between January and April 2007?  John Liptak had no complaint but the China Tire deal, the Mongolia deal and the Bemax Resources deal which were not substantiated.  No other misconduct had been documented.  Though John Liptak said Ken Schneier had pointed out the past counselling had no effect, on the contrary it was Ken Schneier’s opinion that his counselling on 5 January 2007 was effective, that the Plaintiff’s reaction was very calm and logical and she understood she had no choice but to comply. The objective fact is that the Plaintiff did comply.  I cannot emphasise more strongly than that the confrontation in 2005 and 2006 was never repeated in 2007.  John Liptak could point to no confrontations in 2007.  He was the only one to say Peter Santry’s draft note was too soft.  Ken Schneier did not. Indeed, Ken Schneier recommended the Plaintiff to stay.  He had been the Plaintiff’s manager for four years up to February 2007.  His opinion must carry more weight.

241. Then, John Liptak went on and wrote:

“With regards to the risk on the book that Sunny is responsible for- neither myself or Harumi are aware (to any reasonable extent) what our strategy is on these names with regards to what our strategy is on these names with regards to what we want to do – i.e. when we would like to add, sell, what key events we should be looking out for, etc. This comes from Sunny’s general resistance to letting anyone in Asia know what she is doing. From a simple risk management standpoint, the two senior people on the desk shouldn’t be put in that position.”

While the Plaintiff had been protective of her deals and contacts, this is the first time when allegations of this sort relating to risk surfaced.  Again, there is no documentation.  I am surprised that for serious allegation of this nature, John Liptak as Head of Desk would not have made written demands for information.  On the objective fact, the Plaintiff never had problem with her portfolio.  She consistently made profit and for six and half years straight.  It was John Liptak who was the risk problem for his team.  For two consecutive years, his portfolio suffered serious loss which wiped out the profit contribution of the Plaintiff.  He subsequently received a “Does Not Meet” rating in his performance evaluation for 2007 and a record low bonus of US$350,000.  I think he was exaggerating or even misrepresenting the situation to put pressure on Peter Santry to take action against the Plaintiff.

242. John Liptak went on and wrote:

“With regards to the development of the HY business I do feel Sunny has done a good job developing the initial contacts via salespeople at the various HY shops in the regions.  However her attitude of “these are mine” regarding these contacts has not allowed us to leverage off this business to any extent.  In addition, her desire to control the process from start to finish without anyone else in Asia in the loop has put the desk at risk with regards to market movements.  As discussed with Ken and mentioned to you, while Sunny was pushing for these HY investments she never even checked with our HY trader (Will Clay) to get any market color on the deals or the market in general, instead depending (it appeared to me) on the salesperson who showed us the deal for this vital information. 

…”

For similar reasons, I have reservation about the veracity of his allegations.  Even if they were true, they only related to the Plaintiff’s conduct before 2007.

243. In the end, as result of John Liptak’s email and discussion, in June 2007 Peter Santry authorised the issue of the warning letter and the PIP.  On the objective facts, I find the Plaintiff had made significant improvement on her conduct as result of Ken Schneier’s counselling on 5 January 2007.  Much of what John Liptak said about the Plaintiff is untrue or at least does not reflect the situation in 2007.  Those allegations were said to mislead Peter Santry into authorising the PIP process when there was no basis to do so.  I have no difficulty in drawing the inference that John Liptak did so as a vendetta for the Plaintiff’s conduct in 2005 and 2006.  I would not go that far as to infer that he did so because of gender discrimination or because the Plaintiff outperformed him. The PIP process was clearly instituted with malice.

244. That was how John Liptak manipulated Peter Santry.  With the blessing from Peter Santry, he started pushing the Human Resources Department to execute his plan to terminate the Plaintiff.  He sought advice from Tommy Fung and Emily Cheung on how to make a case to get rid of the Plaintiff.  On 27 June 2007, he wrote to Todd Shaw of Human Resources asking to initiate the process to terminate the Plaintiff.  On 28 June 2007, Emily Cheung followed up and gave a PIP template to John Liptak.  After receiving the draft performance goal from John Liptak, Emily Cheung asked:

“One thing you have to consider is that if Sunny fulfill all three objectives, i.e. deliver the client details to you and behave herself, are you happy to help her in long run?”

John Liptak replied instantly,

“I think we would all be happier if she left, so if you have any ideas to make this work to that end let us know.”

It is obvious that it was John Liptak’s express intention to have the Plaintiff terminated regardless of her performance under the PIP.  This is the clearest evidence from John Liptak’s own mouth that the PIP was not going to be conducted in good faith but was a pretext to terminate the Plaintiff’s employment.  I have to treat his evidence regarding the Plaintiff’s conduct in 2007 with extreme caution.

245. I ask rhetorically, what has the Plaintiff done between January and June 2007 to deserve the PIP other than her significant improvement?  This is what John Liptak said in cross-examination:

“Q. … I suggest to you, … right at the outset, that you think the time has come for a parting of the ways?

A. As I stated earlier, I thought a time had come for parting of the ways, based on the exchange of emails I had with Ken and Peter Santry, sometime in mid to end of first quarter 2007.

Q. Was there any specific incident that triggered your position in relation to the issuing of a warning letter and the performance improvement plan that you were told you had to follow through human resources?

A. I don’t think there was any specific thing. It’s kind of, you know, which one drop of water breaks the dam? We continued to have issues with Sunny going into – you know, by this time in 2007. So regardless of the multiple warnings she had – I can’t remember if there was one instance that just, you know, finally was like, “This is it.” But I thought by early 2007, we had already approached that point, if not passed it.”

Thus, John Liptak confirmed that the Plaintiff had done nothing in 2007 to trigger the PIP process. It was only he who decided in February 2007 that time had come for a parting of the ways. The basis for his decision was the emails he had with Ken Schneier and Peter Santry. I have analysed those emails. They were about the Plaintiff’s conduct before 2007. As her manager for 2006, Ken Schneier did not consider it appropriate to terminate the Plaintiff because of her conduct in 2006 and thought it appropriate to allow her to stay. Peter Santry was initially in favour of giving the Plaintiff a chance. Only John Liptak was adamant that the Plaintiff should be terminated. On my analysis, he misled Peter Santry about the Plaintiff’s conduct in 2007 and pressurised him into initiating the PIP process with threat about the Plaintiff’s risk potential. It is amply clear that John Liptak initiated the PIP process without valid grounds and was determined to bring about the termination of the Plaintiff regardless of her performance of the PIP. He did so as a vendetta for the Plaintiff’s conduct in 2005 and 2006.

Bona fides or otherwise in the conduct of the PIP process

246. The PIP process was manifestly not conducted in good faith.  First, the improvement goals were obviously and excessively wide. The Plaintiff was prohibited from talking to any of her contacts and was assigned to non-client-contact duties.  This had nothing to do with her unacceptable conduct stated in the warning letter.  Compliance with this goal would not bring about any improvement on her conduct either.  This goal was not meant to test the Plaintiff or to remedy her conduct, but to punish.  It took her out of the field and prevented her from making deals and performing.

247. Second, not only was the Plaintiff made to turn over all her accounts and contacts, she was required to prepare write-ups of all her projects and to make introductory calls to her contacts to introduce Harumi Hiyamuta to her clients and contacts.  Turning over her accounts and contacts may be reasonably regarded as rectifying her protectiveness and secretiveness.  But, turning over accounts, making introductory calls and prohibiting her from talking to her contacts were equivalent to handing over her job.  She was not asked to improve, but to hand over her job.  That specific goal speaks the mind of John Liptak, that he would fail her regardless. That was why he required her to handover her job.

248. Third, John Liptak set an absolute standard of 100 percent or nothing, when according to Wang Wei Wei significant improvement of a long term nature is what is required of the employee.  He set the rule with intention to fail the Plaintiff rather than to remedy her inadequacy.  As indicated in his email to Emily Cheung, he wanted the Plaintiff to leave and asked Emily Cheung to find ways “to make this work to that end”.  

249. Fourth, John Liptak distanced himself from the drafting of the PIP.  Under cross-examination, he said he did not recall who drafted the PIP.  According to the email chain between Emily Cheung and John Liptak on 28 June 2007 quoted in paragraph 244 above, Emily Cheung gave a template to John Liptak for the purpose of drafting the PIP. John Liptak replied instantly:

“I will work on this first thing in the morning and give you a call.”

On the following day, ie 29 June 2007, he interviewed the Plaintiff and gave her the warning letter and the specific goals.  He was the only person actively pushing for the PIP process.  He tried hard to pressurise Peter Santry to authorise the process.  He sought assistance from Human Resources to find a way to “make this work”. He received the PIP template the night before and promised to work on it.  Who else but he could have been the one to draft the PIP?  Yet, he had the audacity to say on oath that he could not recall who drafted it.  He must be impliedly saying it was not him so as to give the impression that the PIP process was carried out in an independent and fair manner by the Human Resources Department.  The only reasonable inference to be drawn from his distancing himself from the drafting of the PIP is that he was trying to conceal his malicious intention of terminating the Plaintiff regardless of how she performed under the PIP.

250. As analysed above, the Plaintiff had substantially met the specific goals.  She made significant improvement which is likely to be of the long term.  Despite that, John Liptak failed her in the PIP.  Obviously, the PIP process was invoked by John Liptak not for its proper purpose of remedying the conduct of the Plaintiff but to pave the way for her exit and smooth transfer of the accounts she was responsible for.  The PIP was not instituted and conducted in good faith, nor was the conclusion of the PIP Review.  As submitted by Mr Harris SC, the PIP process was nothing but a charade orchestrated by John Liptak to bring about the Plaintiff’s termination. Malice is written absolutely on the face of the PIP Review.

The intention to avoid the Plaintiff from being eligible for consideration under the performance incentive programme

251. On the objective fact, the Plaintiff’s conduct substantially improved in 2007.  Despite the harsh terms of the PIP, the Plaintiff substantially performed and should be regarded as having passed.  Thus, the Bank failed to show that she was terminated by reason of her conduct.  The reason given for her termination was not genuine.  Peter Santry was manipulated by John Liptak into authorising the Plaintiff’s termination, on behalf of the Bank.  John Liptak’s malice is therefore attributed to the Bank.

252. On the very narrow pleading of the statement of claim, the Plaintiff bears the burden of proving that the Bank terminated her employment with the intention to avoid her being eligible for the performance incentive programme.  There is no evidence of such express intention.  The Plaintiff relies on inference.  She successfully rebutted the reason offered by the Bank.  It is common knowledge that the Plaintiff would be deprived of the 2007 bonus if she was terminated prior to the bonus payment date.  That was known to John Liptak, Peter Santry and the Bank.  Mr Harris SC therefore argues that in doing whatever he could to bring about the Plaintiff’s termination, John Liptak’s, and therefore the Bank’s, intention was to avoid paying the Plaintiff the performance bonus which she would have been paid had she continued her employment to payment date.  His argument seems to have equated knowledge of consequence with intention.

253. Mr Huggins SC argues that the Plaintiff must either establish the pleaded motive to deprive her of a 2007 performance bonus or fail in her claim for wrongful termination based on the alleged implied term.  He submits that it is not enough for her to say that her termination had the inevitable and foreseeable incidental effect or consequence of depriving her of eligibility for consideration for the performance bonus.  Any termination prior to the year end of 2007 for any of the valid reasons under section 32K of the Employment Ordinance or indeed any reason wholly impregnable at common law would have had that same incidental effect of removing her from any consideration of a performance bonus for 2007.  He stressed the significant and material distinction between (a) specific intention and (b) incidental effect.  He submits that where the employer can show that he had a valid reason under section 32K of the Employment Ordinance or a reason which is on any view wholly unobjectionable at common law, nevertheless if the employer knew that the inevitable consequence would be that the employee would be deprived of a performance bonus for that year, then he had an intention to avoid paying a bonus was opportunistic and exploitative and therefore wrongful.

254. These are very forceful arguments which I would have found irresistible but for one reason.  These arguments are premised on the Bank successfully showing it had a valid reason for termination, but on the fact, it had not.  On the contrary, the Plaintiff has shown that the reason tendered by the Bank was not genuine but was made up by John Liptak out of malice.  If the Bank can establish a valid reason for termination, then it cannot be taken to have intended the natural or foreseeable consequences of the termination. But, if the Bank cannot show a valid reason, what is left is a concealment of the true reason for termination which is open to inferences to be drawn from the circumstances.  If the Plaintiff could go a step further to show that her termination was brought about by malice, it is all the easier for adverse inference to be drawn, including all the negative foreseeable consequences that termination may bring. 

255. This proposition is not difficult to understand.  Take the case of an employer who dismissed his employee knowing that if the employee stayed in employment he would have to pay the employee certain employment benefit in the foreseeable future.  If he dismissed the employee, not for cause or the employee’s unacceptable conduct or redundancy, but for absolutely no reason or no genuine reason at all, can it not reasonably be said that he dismissed the employee to avoid paying him the benefit?  If he conceals the reason for the dismissal, would it not make it easier for adverse inference to be drawn?  The fact that the employee had been providing useful and profitable service would give further force to the inference.  The nearer it is to the date of payment of the benefit, the stronger is the inference of the intention to avoid the payment.  If the dismissal was actuated by malice, the inference to be drawn is all the stronger.  It is all a matter of common sense.

256. What inference to be drawn depends on the surrounding circumstances.  The inference to be drawn is highly fact sensitive.  I accept the Bank’s case that from 2005 through to 2006 the Plaintiff had not been a good team player, was not willing to share contacts, and was confrontational to John Liptak as Head of Desk.  But, I find as a fact and for good reasons, which I am not going to repeat, that the Plaintiff substantially improved her conduct since Ken Schneier’s counselling on 5 January 2007 and that there was absolutely no basis for John Liptak to complain about the Plaintiff’s conduct in 2007 and to initiate the PIP process.  I find as a fact that the PIP process was instituted not for its proper purpose but was conducted in bad faith with intention to fail the Plaintiff regardless of her performance.  I find as a fact that the Plaintiff should have, on an objective view, passed the PIP.  The reason given by the Bank or John Liptak for the Plaintiff’s dismissal could not be a genuine reason.  The PIP was just a pretext to bring about her termination and the smooth transfer of her accounts.  On the other hand, the Plaintiff was a performing employee, consistently making good profits for six and half years straight!  By the time of the termination, two-thirds of the year lapsed with the Plaintiff having made significant profit contribution.  John Liptak and the Bank must have foreseen that she would be awarded substantial bonus for 2007. 

257. From John Liptak’s malice and his concealing the true reason of the Plaintiff’s dismissal, the inference may reasonably be drawn that John Liptak, and therefore the Bank, intended all the foreseeable consequences that termination would bring, including depriving the Plaintiff of her eligibility of being considered for the performance incentive programme.  That intention, along with John Liptak’s intention to get rid of the Plaintiff, must be one of the dominant intentions or purposes of the dismissal.  It may be argued that a prestigious bank as Bank of America would not do anything so mean or so lacking in commercial sense as to dismiss a performing employee to avoid paying her bonus.  I have no doubt that was not the intention of Peter Santry or the Bank’s senior management.  But John Liptak’s intention must be attributed to the Bank.  That was what the Bank did through the hands of John Liptak and with his intention. 

258. Mr Huggins SC argues the Plaintiff’s theory that she was targeted and ultimately dismissed on what she says were spurious grounds because John Liptak was jealous and concerned about her outperforming him and wanted to get rid of her for her contacts is inconsistent and materially different from an intention to avoid paying her a performance bonus. The Plaintiff’s theory is inconsistent with an intention to avoid paying her a bonus, but that cannot prevent the inference of such intention from being drawn from the surrounding circumstances including concealing the true reason for termination of a performing employee with malice.  In any event, it is not the Bank’s case that the reason for the Plaintiff’s dismissal was that John Liptak was jealous and concerned about being outperformed.

259. In conclusion, I draw as the only reasonable inference that one of the dominant intentions of the Bank in terminating the Plaintiff’s employment was to avoid her being eligible for consideration under the performance incentive programme for 2007.  While Mr Harris SC opened the Plaintiff’s case on the basis that that was the sole intention, in my view, for the Plaintiff to succeed, what is needed is to prove that intention was one of the dominant intentions.  It needs not be the sole intention.

Quantum

260. Damages have to be both properly pleaded and proved.  The Plaintiff bears the burden proving damages[30].  The Plaintiff only pleaded that she was awarded 16.6% of her profit in the years 2002 to 2004 and hence she should get 16.6% of her profit figures by way of damages for the years 2005 through to 2007. 

261. While it is understandable why the Plaintiff excluded the figures for 2005 and 2006 which are the subject matter of her claim, Mr Huggins SC criticises her unexplained reason for excluding the figures of 7.8% for 2000 and 2001.  But his real and more substantive criticism is that the Plaintiff’s formulaic percentage basis of calculation of this discretionary bonus is entirely contrary to the incontrovertible evidence relating to the performance incentive programme.

262. Mr Huggins SC submits that there is no evidence to support the Plaintiff’s plea that the Bank adopted a formulaic approach in assessing bonus and that such a formulaic approach is against commercial common sense.  Accordingly, the Plaintiff’s quantum claim for 2007 bonus must fail.  There is indeed nothing to support the Plaintiff’s pleaded case of a formulaic approach in assessing bonus.  A glance at Table 2 shows that the bonuses she was awarded in 2000 to 2006 varied widely between 7.61% and 16.41% of her profit contribution.  As submitted by Mr Huggins SC, she was plainly not given bonuses based on any formula remotely resembling the percentage formula she is now contending for.  Furthermore, it is Tommy Fung’s unchallenged evidence that the Bank does not adopt a formulaic approach in awarding the bonus.  He said:

“…the Bank does not adopt a ‘formulaic’ approach in awarding discretionary bonus and has no formula whatsoever for determining the amount of the discretionary bonus to be awarded to each employee. Such discretionary bonus is not a commission, it is not determined by reference to a percentage of the revenue or profit generated by an employee or by the line of business to which the employee belongs.”

263. Though the Plaintiff’s pleaded basis for assessment of the bonus collapsed, that does not necessarily mean the Plaintiff’s claim must fail or that she is only entitled to nominal damages.  The inadequacy of the pleading does not prevent the court from doing what it can to assess damages on the basis of the available evidence.  While a defendant is under no duty to help the claimant to perfect his pleading and is entitled to see the claimant’s pleaded case collapse, he only have himself to blame by not pleading his positive case, if he has one, and not providing proper discovery, in the event that the claimant succeeds in proving liability.  If there are other factors which the court should have taken into account but has not and made an assessment to his detriment, the defendant, just as the claimant, would only have himself to blame for not pleading those factors.  Similarly, if the defendant fails to provide sufficient discovery, the court may make assumptions.  The defendant will also have himself to blame if the assumptions work out to his detriment.  I say this because there are data, such as the bonuses received by other employees of ISSG or GSSG which the Bank should have disclosed but did not and which the Bank resisted on the ground of irrelevance to the question of liability but failed to disclose in relation to quantum.  I shall proceed with my assessment without those data.

264. The bonus in question is a discretionary bonus. The English Court of Appeal in Horkulak provided useful guidance on how such discretionary bonus is to be assessed.  Basically, the size of the bonus depends on how the employer would within the terms of the bonus programme have exercised his discretion.  If in breach of his duty the employer failed to exercise the discretion or exercised it in a capricious or arbitrary manner, the court will put itself in the employer’s shoes and consider what decision, acting rationally and not arbitrarily or perversely, the employer would have reached as to the amount of the bonus to be paid[31]. In assessing the amount, due weight must be given to the range of criteria which may be properly taken into account[32]. These include the following useful criteria suggested by Potter LJ:

(a)   the purpose of the bonus scheme;

(b)   the claimant’s expectation;

(c)   a comparison of the claimant’s position with the overall remuneration package; and

(d)   the range of salary and bonus payments being paid to employees who were of the same title and status as the claimant, not only as an indication that bonuses were being paid in the years concerned, but to see whether he was in the right ball park when assessing what might have been paid to the claimant.

265. The features of the performance incentive programme are described in paragraph 24 above.  Essentially, it adopts a pay for performance philosophy.  The programme emphasises on rewarding the highest performers with the greatest reward through base salary, equity and incentives bonus.  Its express guiding principles are reward the highest performers with the greatest reward; pay relates directly to performance; and awards are highly differentiated based on performance.  It focuses on the results the employee achieved against his performance goal.  Performance is assessed on two criteria: the “What” and the “How”.  Total compensation is market-informed and driven by final results of the Bank, the employee’s line of business as well as the performance results of the employee.  Thus, at the heart of this programme is performance, which is measured by the employee’s rating in his “What” and “How”.  The single and most important factor to consider is the employee’s result or profit.  Two other subsidiary factors are the Bank’s own result and the result of the employee’s line of business.  While the Bank does not adopt a formulaic approach, as profit is the single and most important factor under the programme, bonus percentage best reflects the end product of the employer’s exercise of discretion and provides the best quantitative data for assessing the likely bonus to be awarded to the Plaintiff for 2007.  The employee’s ratings in his “How” as well as ISSG’s and the Bank’s results are qualitative data. 

266. The bonus awards of the previous years will assist the court in finding out how the Bank exercised its discretion.  The bonuses awarded in the more proximate years would provide a more reliable guide.  In assessing the Plaintiff’s bonus for 2007, I shall use the bonuses awarded in 2005 and 2006 as reference, now that I have dismissed the Plaintiff’s challenges to those awards. 

267. In 2005, the Plaintiff was awarded a “Meets” rating for her “What” and for her “How”.  She was awarded a bonus of US$615,000 against her profit contribution of US$8.03 million and ISSG’s result of US$27.39 million.  Her bonus was equal to 7.66% of her profit contribution and 2.25% of ISSG’s result.  I assume 2005 to be a typical year, with two “Meets” for the Plaintiff and overall good profit for ISSG. 

268. In 2006, the Plaintiff was awarded a “Meets” rating for her “What” and a “Does Not Meet” rating for her “How”.  She was awarded a bonus of US$550,000 against her profit contribution of US$7.23 million and ISSG’s result of a loss of US$1.36 million.  Her bonus was equal to 7.61% of her profit contribution.  Her bonus bears no meaningful comparison with ISSG’s result as ISSG suffered an overall loss. Understandably, the Bank would have to cut down the size of the bonus because of the result of ISSG.  Another negative factor for the Plaintiff is her “Does Not Meet” rating.  A positive factor is her shining performance which she achieved though at the middle of her financial target.  The overall effect was a bonus of 7.61% which was 0.05% marginally lower than the year before.  That shows the Plaintiff’s performance carried greater weight in determining the size of her bonus than her poor performance under the “How”.  She was probably only marginally penalised for her “Does Not Meet” rating for her “How”.

269. In 2007, no mid-year performance evaluation was made in respect of the Plaintiff.  She made US$6.06 million profit for the first five months of that year.  At that rate, she would have made a profit of US$14.54 million by the end of the year.  That would be in line with what she told John Liptak and Peter Santry in her email of 13 February 2007 that she projected the total profit of her portfolio at US$10.7 million plus a realised profit of US$2 million.  Her financial target was US$5-10 million.  Her postulated result would have far exceeded her target.  Against her target and the overall loss suffered by ISSG, she would have been awarded an “Exceeds” rating for her “What”.  Though John Liptak invoked the PIP process, on my finding the Plaintiff’s conduct had much improved.  As she was awarded a “Meets” rating for her “How” despite her rather confrontational attitude in 2005, she would surely have been awarded a “Meets” rating for her “How” in 2007 in the light of her improvement. 

270. For 2007, John Liptak made substantial loss and as result ISSG only made an overall profit of US$2.53 million.  The bonus percentages for 2002 to 2004 were very high.  This is probably because the ISSG made huge profit of up to US$40 million and could afford to be very generous.  The profit of GSSG was very low in 2007.  The bonus percentages for those years may not provide suitable reference.  The bonus percentage for 2006 is also not an appropriate comparable because of the significant difference in the “What” and “How” ratings.  I shall therefore take 2005 as a typical year as reference for the purpose of assessing the Plaintiff’s bonus for 2007.  The Plaintiff performed better with a postulated “Exceeds” rating for her “What”, but the ISSG overall performed poorly making only a small profit, which was wholly contributed by the Plaintiff.  Given the Bank’s pay for performance philosophy, the Plaintiff would have been awarded a higher bonus percentage than what she was awarded in 2005 in view of her outstanding performance.  On the other hand, the Bank must have been less generous with its award in view of the small profit made by ISSG as a whole.  Allowing for such a reduction, I think on a proper exercise of its discretion, the Bank would have awarded the Plaintiff a bonus of between 7.66% and 9.00% of her profit contribution, ie between US$464,196 and US$545,400.  

271. The above assessment is principally based on the criteria of the performance incentive programme.  I now turn to consider the other criteria suggested by Potter LJ in Horkulak.  The Plaintiff certainly has an expectation that she would be paid a bonus.  She claimed 16.6% of her profit contribution.  The highest bonus percentage she received was 16.41% in 2004 at a time when the ISSG made huge profit of US$40.86 million.  That probably explained the high bonus percentage.  Since then, the bonus percentage was reduced to about 7.6% with the reduction in profit of ISSG.  In my view, a claim of a bonus percentage at 16.6% is grossly excessive and not supported by the overall profit of GSSG in 2007.

272. The Plaintiff’s total remuneration package at the time of her dismissal was US$202,755 per annum, ie US$135,170 for eight months up to the month of termination.  A bonus of US$464,196 and US$545,400 would be equivalent to 343.42% and 403.49% of the Plaintiff’s remuneration package for the same period.  Such a bonus falls slightly outside the range of about 330% of what she had been receiving prior to termination, but may be justified because of her postulated result.

273. Mr Huggins SC submits that the Plaintiff has not adduced evidence of the range of salary and bonus payments being paid to her former colleagues who were of the same title and status as hers for the purpose of checking what bonus would be in the right ball park when assessing the bonus which might have been paid to her.  These data are exclusively known to the Bank.  If the Bank does not plead that the bonus percentage claimed is excessive and out of line with that given to the then current employees and does not adduce relevant evidence, I shall assume that such evidence has insignificant impact in assessing the Plaintiff’s bonus.

274. There is also nothing to suggest that a team member’s bonus should be capped by the bonus awarded to the Head of Desk or that the total bonus pay-out should be subject to a certain amount or percentage of the team’s overall profit.  If there was such a policy, the Bank have not pleaded or adduced evidence.  I shall assume there was no such policy and make my assessment without considering that factor. 

275. Having so considered the criteria under the performance incentive programme and the other factors as suggested by Potter LJ in Horkulak, I consider a bonus within the range of US$464,196 and US$545,400 would have been awarded to the Plaintiff for her performance had she not been dismissed before payment date.  As the result of ISSG had not been particularly good, I consider the Bank would have on a proper exercise of its discretion awarded the Plaintiff a bonus of US$500,000.  Such a bonus would have a bonus percentage of 8.25%, which is higher than the Plaintiff’s rate in 2005 and 2006.  It is well justified by reason of her profit contribution and her postulated “Exceeds” rating for her “What”.  It is equivalent to 369.90% of the Plaintiff’s remuneration package for the year of her dismissal, which is marginally outside the range of what she had been receiving prior to the dismissal, but justifiably so.  Accordingly, I assess the Plaintiff’s damages in the sum of US$500,000 and award her damages in the sum of HK$3,900,000 at the official exchange rate of HK$7.8 per US dollar.

CONCLUSION

276. In conclusion, I dismiss the Plaintiff’s claim for damages for underpayment of her bonuses for the year 2005 and 2006, but allow her claim for damages for loss of bonus for the year 2007, which I assess at HK$3,900,000.

277. The Plaintiff is successful in respect of one only of her three claims.  She may not be entitled to all of her costs.  Her claims for bonus for 2005 and 2006 were quite unmeritorious. However, the evidence relating to those claims provides the background facts which are necessary for proving her claim for 2007 bonus.  Her claim for 2007 bonus involves substantial arguments on the law, in respect of which she is successful.  Having regard to all these factors, I consider her costs should be reduced by 15%.  Accordingly, I make a costs order nisi that the Defendant shall pay the Plaintiff 85% of her costs.

278. Lastly, I thank Mr Harris SC and Mr Huggins SC and their respective legal teams for their exhaustive research into this developing area of the law and for their very enlightening arguments.  I also thank their solicitors for their thorough preparation of evidence and trial bundles.  I deeply apologise for the time taken in my deliberation and I thank the parties for their patience.