ANTHONY MACKAY v. CHI-X ASIA PACIFIC HOLDINGS LTD

HCA 776/2021

[2024] HKCFI 2901

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 776 OF 2021

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J U D G M E N T

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I.  INTRODUCTION

1.  In a perfect world, agreements would all be reduced into writing so that, if there should ever be disagreement, it should be relatively straightforward to ascertain the terms reached by the parties. Unfortunately, in the real world, this is not always possible and does not always happen. Instead, agreements or understandings which are meant to be binding are often concluded orally, but not recorded in written form, usually because the parties are eager to move on to the next stage in their business relationship. This case concerns the latter situation in the context of an employment agreement.

2.  An executive commences work for a company on a “my word is my bond” or handshake basis. Because of urgency, the executive begins work immediately, despite the terms of a written contract of employment having yet to be fully negotiated among the parties and their lawyers. At an early stage of their business relationship, the parties fall out. The company contends that the executive’s working style does not suit its needs and terminates the executive’s employment. The executive claims that there was a legally binding oral agreement, reached prior to the commencement of work, that the company would accord certain benefits regardless of the termination of the executive’s employment. The executive stresses that one would not have started working for the company unless those benefits had been orally assured beforehand. The company denies the alleged entitlements. In support, the company points out that the executive’s written employment contract, signed after the executive started working for the company, says nothing about the executive’s purported benefits.

3.  There will typically be scant record of what was said between the parties prior to the executive starting to work for the company. The executive might not be able to pinpoint the exact moment when supposed benefits were agreed, as opposed to having been merely discussed or understood as something that the executive would be entitled to “in principle,” subject to further negotiation among the parties’ lawyers to work out details. The executive nonetheless insists that there was a definitive agreement on core entitlements. The company disagrees. It is one side’s word against the other and the main issue which the court must decide is which version of events to accept. The court’s inquiry in such situations is fact-sensitive, involving the assessment of the parties’ competing accounts against the background of contemporaneous documents and the balance of probability.

4.  JC Flowers & Co (JCF), a private equity firm based in New York acquired assets (the Chi-X Assets) from Nomura and Instinet. The Chi-X Assets included Chi-X Australia Pty Limited (Chi-X Australia) and Chi-X Japan Limited (Chi-X Japan), To implement the acquisition, JCF incorporated Chi-X Holdings Limited (CXH) and the defendant (Chi-X AP) (a subsidiary of CXH) to operate as special purpose vehicles to hold the Chi-X Assets. The acquisition was accomplished with the assistance of the plaintiff Mr Mackay. At the time of the acquisition, on the strength of Mr Mackay’s previous experience with Nomura and Instinet, JCF believed that it was important to have Mr Mackay on board to develop Chi-X AP’s business. Talks between JCF officers and Mr Mackay ensued. Mr Mackay claims that, on or about 28 February 2016, he reached an oral agreement with Chi-X AP, acting through Mr Thierry Porte (JCF’s vice-chairperson) and Mr Peter Yordan (a JCF managing director), whereby Mr Mackay would be employed as Chief Executive Officer (CEO) at Chi-X AP with an annual salary of US$500,000 and certain core entitlements. Those core entitlements (according to Mr Mackay) included participation in a Long-Term Investment Plan (LTIP) and a guaranteed first-year bonus of US$500,000 regardless of whether Mr Mackay’s employment at Chi-X AP was terminated before the conclusion of his first year.

5.  On 1 March 2016 Mr Mackay started working for Chi-X AP even though the terms of a written employment contract were still under negotiation among Mr Mackay, Chi-X AP, and their lawyers. An Employment Contract between Chi-X AP and Mr Mackay was eventually signed on 11 July 2016. The Employment Contract was backdated to 1 March 2016 to reflect the fact that Mr Mackay commenced working for Chi-X AP on that date. However, Chi-X AP failed to report Mr Mackay’s employment to the Inland Revenue Department (IRD) within the 3 months required by law. Following discussions between the parties, it was agreed that to remedy the anomaly Mr Mackay would sign an amended Employment Contract. This was done on 1 September 2016. Apart from its execution date and the stipulation that Mr Mackay’s employment with Chi-X AP commenced on 1 April 2016, the amended Employment Contract was the same as the original Employment Contract. Neither the original nor the amended Employment Contract provided for a guaranteed first year bonus of US$500,000. Instead, they stated that Mr Mackay would be entitled to the payment of an annual bonus “based on his performance and the profitability of the Company and the Group for each financial year ended 31^st March”. The original and amended Employment Contracts further stipulated that “the payment of any such bonus and the amount thereof will be determined by the Board in its absolute discretion” and any bonus “shall not be made conditional upon the Executive continuing to be employed on the date of payment of the bonus”.

6.  Simultaneously, negotiations over the terms of an LTIP for senior employees of Chi-X AP (including Mr Mackay) were ongoing among the parties and their lawyers (Robertsons for Chi-X AP, Tanner de Witt for Mr Mackay, and Pinsent Mason for the senior employees of Chi-X AP). Those negotiations culminated in a meeting between Mr Mackay and Mr Yordan in Hong Kong on 1 September 2016, the day on which the amended Employment Contract was signed. At the meeting, Mr Mackay was presented with the latest draft LTIP terms. Mr Mackay was told that he would be entitled to 1,645,649 shares under the LTIP scheme. He was asked to sign his agreement to the LTIP scheme. But Mr Mackay did not do so, instead saying that he would first “need to check the numbers”. Although he never signed on to the LTIP, Mr Mackay says that he orally communicated his acceptance of the 1,645,649 LTIP share allocation to Mr Yordan on the day after the meeting. As a result, Mr Mackay contends that, pursuant to the terms of the draft LTIP scheme that he was shown, 56.5% of his LTIP share entitlement vested in him between 2 September 2016 and the date when Chi-X AP ended his employment.

7.  The relationship between JCF and Mr Mackay quickly went sour. There was a clash in views on how Chi-X AP should be run. Alarmed that Chi-X AP was experiencing significant losses, JCF believed that it was imperative to impose rigorous cost controls and concentrate Chi-X AP’s efforts on the Japanese and Australian markets. Mr Mackay had grander plans and thought that JCF needed to inject significantly more cash into Chi-X AP to turn it into a profitable business. The clash led Chi-X AP to terminate Mr Mackay’s employment by letter dated 11 November 2016. Thereafter, pursuant to the amended Employment Contract, Mr Mackay went on garden leave until 10 May 2017.

8.  In these proceedings, Mr Mackay claims the following from Chi-X AP:

(1)  remuneration for work done in March 2016 and interest for late payment of salary,

(2)  outstanding Occupational Retirement Scheme Ordinance (ORSO) payments,

(3)  outstanding Mandatory Provident Fund (MPF) payments,

(4)  unpaid annual leave,

(5)  reimbursement of Pinsent Mason fees and DotCod expenses,

(6)  a guaranteed bonus of US$500,000, and

(7)  unpaid entitlement under the LTIP scheme presented to him on 1 September 2016.

Mr Mackay’s claims for items (1) through (5) arise out of the original or amended Employment Contract. The claims for items (6) and (7) arise out of the oral contract which Mr Mackay says that he reached with Mr Porte and Mr Yordan by 28 February 2016.

II.  DISCUSSION

A.  Claims arising out of the Employment Contract

A.1  Remuneration for work in March 2016 and interest for late payments of salary

9.  The issue is when Mr Mackay’s employment commenced.

10.  Inland Revenue Ordinance (Cap.112) section 52(4) provides that an employer must give notice in writing to the IRD of a person’s employment “not later than 3 months after the date of commencement of such employment”. Mr Mackay started his employment with Chi-X AP on 1 March 2016 pursuant to the original Employment Contract. Chi-X AP therefore ought to have (but did not) inform the IRD of Mr Mackay’s employment no later than 1 June 2016. To rectify the omission, it was agreed between Chi-X AP and Mr Mackay that the original Employment Contract would be replaced with the amended Employment Contract stipulating 1 April 2016 as the starting date for Mr Mackay’s employment. This workaround left unresolved the question of what to do with Mr Mackay’s remuneration for the month of March 2016. There were suggestions about (1) converting what was due to Mr Mackay for March 2016 into equity in CXH or (2) treating Mr Mackay as having been Chi-X AP’s consultant in March 2016. Nothing resulted from either suggestion. There was no conversion of the remuneration into equity and no consultation agreement for March 2016 was ever executed.

11.  In my view, regardless of what the amended Employment Contract stated, the reality is that Mr Mackay started working at Chi-X AP as an employee from 1 March 2016. He must consequently be entitled to remuneration for his work in that month. Chi-AP is therefore liable for one month’s salary (US$41,666.67) plus interest thereon.

12.  As for interest on late salary payments, Mr Mackay calculates this at US$23,974.83. Chi-X AP pleads no positive case against this figure. I accordingly accept that US$23,974.83 is due to Mr Mackay as interest on late salary payments.

A.2  Outstanding ORSO contribution

13.  By clause 7 of the original and amended Employment Contracts, Chi-X AP was to contribute an amount equal to 10% of the basic salary paid to Mr Mackay into an ORSO scheme. The dispute arises because Chi-X AP has not made an ORSO contribution in respect of Mr Mackay’s remuneration for March 2016. Mr Mackay thus claims an ORSO contribution in the amount of US$4,166.67. Given my determination in [11] above, Mr Mackay must be entitled to an ORSO contribution for March 2016.

A.3  Outstanding MPF payments

14.  Chi-X APP failed to make any MPF contribution during Mr Mackay’s employment. The question is whether Mr Mackay has a personal cause of action against Chi-X AP for the unpaid contributions. Mr Mackay claims MPF contributions totalling $21,000.

15.  Under Mandatory Provident Funds Scheme Ordinance (Cap. 485) section 45G(1):

“[a] person who has sustained financial loss that is attributable ... (b) to the failure of another person to perform a duty ... imposed on that other person by or under this Ordinance ... is entitled, by proceedings brought in a court of competent jurisdiction, to recover from that other person the amount of that loss as damages.”

16.  Mr Mackay claims the unpaid MPF contributions by reference to the latter provision. To succeed, he needs to show that he has suffered financial loss from the failure by Chi-X AP as employer to pay MPF contributions. According to Mr Mackay, Chi-X AP’s failure to pay contributions has caused him financial loss by depriving him of the benefit of the amounts that Chi-X AP ought to have paid.

17.  I am not persuaded that Mr Mackay is entitled to this head of claim. If section 45G(1) was intended to enable an employee automatically to sue an employer for unpaid MPF contributions without more, one would have expected the provision to state so directly. Instead, the provision requires an employee to show that (1) he or she has sustained financial loss and (2) such loss is attributable to the employer’s failure to pay contribution. In support of his claim, Mr Mackay is not relying on anything apart from the bare fact that MPF contributions have not been paid. He has not adduced evidence of (a) the MPF scheme to which Chi-X AP’s contributions would have been made or (b) the quantum of profits which such scheme would have made over a relevant period if the requisite contributions had been made. Because the value of an MPF scheme will fluctuate over time, the mere fact that an employer has not paid contributions over some period will not necessarily mean that an employee has suffered financial loss or damage in the amount of the unpaid MPF contributions. In the absence of the requisite evidence, I am unable to accept Mr Mackay’s claim.

A.4  Unpaid annual leave

18.  Clause 9 of the original and amended Employment Contracts provides:

“9.1 In addition to the general public holidays (excluding Sundays), the Executive shall be entitled to 30 working days' paid annual leave (inclusive of statutory annual leave) for each calendar year, which will be the leave year.

9.2 Annual leave is to be taken at times mutually agreed in advance with the Board.

9.3 Annual leave may not be carried forward from one leave year to the next for a period of more than 90 days unless agreed in writing by the Board. No payment in lieu will be paid for annual leave not taken.”

19.  Mr Mackay says that he never took annual leave during his employment with Chi-X AP. I accept this. There is no evidence of Mr Mackay having taken any leave while employed by Chi-X AP.

20.  Mr Mackay claims pay in lieu of annual leave for his time at Chi-X AP. He says the pay in lieu amounts to US$4,109.59 (3 days’ leave) for March 2016; US$31,616.44 (23 days’ leave) for the period from April to December 2016; and US$15,068.49 (11 days’ leave) for the period from January to May 2017. He received US$14,636.89 from Chi-X AP on 21 June 2017 as payment in lieu for 2017. But this leaves a shortfall for 2017 (Mr Mackay contends) of US$431.60 (that is, US$15,068.41 minus US$14,636.89). For 2016, US$35,616.44 (26 days’ leave) is said to be outstanding.

21.  There are two issues under this claim.

22.  First, the shortfall of US$431.60 for 2017 arises because Mr Mackay calculated his figure of US$15,068.49 on the premise of 11 days leave. In contrast, Chi-X AP based its payment of US$14,636.89 on 10.68 days leave. Mr Mackay in fact also obtained a figure of 10.68 days leave, but he rounded this up to 11 days for the purposes of calculating payment in lieu. No justification is given for rounding the 10.68 to 11 days in the calculation of payment in lieu. Employment Ordinance (Cap.57) (EO) section 41AB(3)(b)(ii) [1] provides for the rounding up of a fraction of a day to a whole day in the situation where an employee takes leave as a matter of fact. But the section does not say that, when calculating payment in lieu of leave, an employee can similarly round up a fraction of a day. Accordingly, I am unable to allow the claimed shortfall of US$431.60.

23.  Second, on the payment in lieu of annual leave for 2016, the question is the validity of the last sentence of Clause 9.3 to the effect that “[n]o payment in lieu will be paid for annual leave not taken”. Mr Michael Lok (counsel for Mr Mackay) submits that the sentence is void by reason of EO sections 41AB(3)(b)(ii) and 70[2]. Mr Lok argues that, because Clause 9.3 restricts an employee’s right to carry statutory annual leave forward, it contravenes EO section 41AB(3)(b)(ii) and should be treated as void by EO section 70. I disagree. Statutory annual leave in Hong Kong is significantly less than 90 days. Clause 9.3 entitles an employee to carry forward up to 90 days annual leave from one leave year to the next. In those premises, it is difficult to see how Clause 9.3 prevents the carrying forward of statutory annual leave in contravention of EO section 41AB(3)(b)(iii). In my view, Clause 9.3 is valid.

A.5  Reimbursement of Pinsent Mason fees and DotCod expenses

24.  Mr Mackay seeks reimbursement of fees paid by him to Pinsent Mason on behalf of the employees of Chi-X AP and for meal expenses at DotCod (a restaurant) incurred by him while working on behalf of Chi-X AP. The total claimed is $56,033. The expenses seem reasonable. The amounts have not been queried by Chi-X AP which is accordingly liable to reimburse the same pursuant to Clause 11 of Mr Mackay’s original or amended Employment Contract.

B.  Claims arising out of the alleged oral contract

B.1  Guaranteed bonus of US$500,000

25.  The crux of this claim is whether by 28 February 2016 Mr Mackay and Chi-X AP (acting through by Mr Porte and Mr Yordan) had orally agreed that Mr Mackay would be entitled to a bonus of US$500,000 at the end of his first year, regardless of whether Mr Mackay’s employment was terminated beforehand. I am not satisfied that there was such an agreement.

26.  Mr Lok submits that Mr Porte accepted in cross-examination that there was an oral agreement on a guaranteed bonus. Mr Lok relies on the following passage:

“Q: Now, going back to this email, would you agree with me that the plaintiff at this stage was just asking for the minimum parameters, which means a minimum of US$500,000 as bonus?

A: We did finally land on that, yes.

COURT: When you say "finally land on that", when did you finally land on that?

A: It must have been a few months after that, I would say.

COURT: After that?

A: Yes.

COURT: Referring to this --

A: This is January, so possibly by February.

MR LOK: Thank you.”

27.  Mr Lok stresses that the context of his cross-examination was an email dated 20 January 2016 in which Mr Mackay wrote to Mr Porte:

“I’m not asking for [a bonus of] $3m – you know from my earlier notes that I well know the business cannot support that. What I’m saying is that $0-500 is wrong as well. The proposal for the ratchet is to provide the upside of performance is delivered.

The market may have moved, but I was put on that $3m number by Ed Nicoll/John Fay after the SLP deal because they knew what I did to get the value to where it got to. Nomura agreed to keep me on that because they made more than 5X on Chi-X Europe. I also got $5m of Nomura stock and some of the $3m was in stock as well. The stock fell 90% so I know the ups and downs of the game.

Tal was getting $1m bonus and is walking away with $5-10m from his equity. I’m not coming from that pay-out and I’m putting my skin in the game from scratch. I’ve replied that I can put in 50% more cash than first indicated.

The business needs a CEO so if you were to hire from the market you would need a competitive package which. The reason my former bosses are willing to back this is they have seen me work. They know the PE business as well. They set my comp under those conditions.

We are not far apart, but the basics do have to be right.”

28.  Mr Lok suggests that, seen in the context of the 20 January 2016 email, Mr Porte’s answer conceded that the parties had agreed that Mr Mackay would receive a guaranteed US$500,000 bonus at the end of his first year.

29.  But, in my view, all that Mr Porte accepted was that: (1) in January 2016 Mr Mackay asked for a minimum bonus of US$500,000 and (2) in February 2016 the parties had “finally landed” on an understanding that, if there was to be a bonus, it would be for at least that amount. I do not understand Mr Porte as accepting that a bonus of US$500,000 was guaranteed to Mr Mackay in his first year, come what may and regardless of Chi-X AP’s performance. If a guaranteed bonus of US$500,000 had been agreed, it is remarkable that none of the term sheets of Mr Mackay’s remuneration package produced before he commenced work on 1 March 2016 refer to a guaranteed bonus in his first year. Instead, the term sheets provided to Mr Mackay refer to his bonus as being “based on Remco [Remuneration Committee] determination based on development of business” or “based on Remco determination based on development of business and net free cash flow in sufficient surplus”.

30.  The principal difficulty with Mr Mackay’s case of an oral agreement for a guaranteed bonus is that no document passing between himself and Mr Porte or Mr Yordan, before or after the start of his employment on 1 March 2016, refers to such an agreement or understanding having been reached. By contrast, what appears in the original and amended Employment Contract contradicts Mr Mackay’s position. Following detailed discussion among the parties and their lawyers, before and after 1 March 2016, the latter contracts simply stated in their Clause 6.3:

“In addition to the salary specified in clause 6.1, the Executive shall be entitled to payment of a bonus based on his performance and the profitability of the Company and the Group for each financial year ended 31^st March. The payment of any such bonus and the amount thereof will be determined by the Board in its absolute discretion. Any bonus awarded shall be paid in full, without deduction or set off and shall not be made conditional upon the Executive continuing to be employed on the date of payment of the bonus or no notice of termination of employment having been given. Bonus will be paid in full no later than 31^st May in each year.”

What was agreed in Clause 6.3 is consistent with what was sketched out in respect of a bonus in the term sheets mentioned in [29] above.

31.  Mr Mackay suggests that Clause 6.3 is similarly consistent with his case, because the oral understanding that he alleges solely concerned his first year of employment. By contrast, Clause 6.3 was intended to apply to his entire employment, which had been expected to continue for several years. However, I find it remarkable that, at no point did anyone, including Mackay, see fit to include the words “Save for the first year of employment for which period the payment of a bonus has been guaranteed” at the start of the second sentence of Clause 6.3. This could easily have been done. Clause 6.3 is instead categorical in its terms: “The payment of any such bonus will be determined by the Board in its absolute discretion”. Mr Mackay says that, in his experience, guaranteed bonus agreements are typically concluded orally and not reduced into writing. But, by itself, that observation is a neutral factor. Given the documentary evidence in this case, the observation does not make it more likely that there was an agreement of the sort for which Mr Mackay contends.

32.  Mr Mackay asserts that, since he had received a US$3 million bonus from his previous work with Nomura and Instinet, he would not have agreed to become CEO at Chi-X AP without the promise of a guaranteed bonus of at least US$500,000. However, the evidence suggests that Mr Mackay was persuaded to come on board as CEO of Chi-X AP by the key aspects identified in the term sheets provided to him by Mr Porte and Mr Yordan, including an annual salary of US$500,000 and participation in an LTIP. There is also the fact that Mr Mackay would receive a finder’s fee of US$250,000 if he could successfully bring about the acquisition of the Chi-X assets by JCF. Given his prior experience at Nomura and Instinet, Mr Mackay’s willingness to take the helm at Chi-X AP would have made the acquisition more attractive to JCF and the conclusion of the deal with Nomura more likely.

33.  I am fortified in my thinking by Mr Mackay’s pleading on his supposedly guaranteed bonus. As Ms Frances Lok SC for Chi-X AP has pointed out, that pleading has morphed over time. In his original Statement of Claim dated 20 May 2021, Mr Mackay merely averred that, in or around 28 February 2016, there was an oral agreement that Mr Mackay “would be eligible to receive an annual cash bonus of up to US$500,000 per annum, paid, at the discretion of the board with consideration to the established payout ratios of the Defendant's subsidiaries, after the financial year end”. It was not until the Re-Amended Statement of Claim dated 7 February 2024, that Mr Mackay’s case was changed to plead that Mr Mackay “shall receive a cash bonus of US$500,000 for his first year of employment” and only “in subsequent years of employment” would Mr Mackay “be eligible to receive an annual cash bonus of up to US$500,000 per annum paid, at the discretion of the board with consideration to the established payout ratios of the Defendant's subsidiaries, after the financial year end”. The pleading was further embellished in the Re-Re-Amended Statement of Claim dated 3 September 2024 with the addition of the following sentence: “It was agreed that the amount of bonus reflects [Chi-X AP’s] recognition of [Mr Mackay’s] efforts and contributions in the Acquisition. including [Mr Mackay’s] successful introduction of the sale of Chi-X Assets to JCF as well as [Mr Mackay’s] efforts in securing the Acquisition Terms”. If it had been obvious to Mr Mackay that a guaranteed bonus of US$500,000 had been orally agreed by 28 February 2016, one would have expected his original Statement of Claim to have so stated outright.

34.  Mr Lok submits as an alternative case that, if there was no guaranteed bonus, Chi-X AP nonetheless breached Clause 6.3 of the original and amended Employment Contract by failing to award a bonus to Mr Mackay. Mr Lok argues that, in refusing any bonus to Mr Mackay, Chi-X AP’s board failed to exercise its discretion under Clause 6.3 in accordance with its common law duty of rationally and good faith (Braganza v BP Shipping Ltd [2015] 1 WLR 1661). More specifically, Mr Lok says that Chi-X AP’s board failed to consider the following factors:

(1)  Mr Mackay’s salary was low relative to the rest of the industry and hence the bonus was important to him.

(2)  Industry practice is for senior management to receive substantial amounts as bonus.

(3)  The fact that Chi-X AP had not made a profit at the time of Mr Mackay’s departure should not be a significant factor in the award of bonus. Chi-X AP’s poor financial position at the time should not be attributed to Mr Mackay.

(4)  Mr Mackay had assisted Chi-X AP to acquire the Chi-X Assets.

(5)  Mr Mackay was not summarily dismissed.

(6)  Mr Mackay had used his own resources to fund Chi-X AP’s business when Chi-X AP had no bank account or ready access to cash.

(7)  Mr Mackay had provided valuable services as CEO.

(8)  A nil bonus would represent that Mr Mackay’s performance was so deficient that it did not merit recognition. Such representation would be unjustified and insulting.

Mr Lok submits that, in light of the foregoing factors, I should find that Mr Mackay merited a discretionary bonus of at least US$500,000.

35.  The court must be circumspect in reviewing a board’s exercise of discretion not to grant a bonus. The court should not readily substitute what a board thought to be reasonable with what the court believes to be reasonable. In assessing Mr Mackay’s alternative case on entitlement to a discretionary bonus:

“the right test is one of irrationality or perversity ... i.e. that no reasonable employer would have exercised his discretion in this way.... In reaching its conclusion, what the court does is thus not to substitute its own view, but to ask the question whether any reasonable employer could have come to such a conclusion. (Burton J in Clark v Nomura International plc [2000] IRLR 766, at [47]).”

I am unable to conclude that the Chi-X AP board’s refusal to award a bonus was somehow irrational, perverse or lacking in bona fides.

36.  By the express words of Clause 6.3, in deciding whether to award a bonus to Mr Mackay, Chi-X AP’s board had to consider his performance as well as the profitability of the Company and the Group over the financial year. Prior to the acquisition of the Chi-X Assets, it had been thought that the US$8.9 million cash which Nomura had left with Chi-X Japan and Chi-X Australia could be transferred to Chi-X AP for use as working capital. By mid-March 2016, it became apparent that, due to regulatory requirements, the transfers from Chi-X Japan and Chi-X Australia could not be effected. This led to financial difficulties for Chi-X AP. Mr Porte consequently wrote to Mr Mackay on 16 October 2016 that Chi-X AP was “in crisis and we have limited cash . . . we cannot simply spend our investors' money on operating costs when we have not fixed key fundamental issues in our business".

37.  Mr Mackay was fired shortly thereafter because, in Mr Porte’s view, “Tony [Mackay] did not seem to get the point as to why he was not given a limitless budget to effect [certain] hires” and “Peter [Yordan] and I were astonished by Tony's attitude towards the cash crisis, as it seemed that he was persistent in proceeding with hiring without considering the financial realities faced by [Chi-X AP] during that period”. According to Mr Porte, “it became clear to Peter and I that Tony had no real idea about keeping costs under control and that he was, therefore, not suitable for the job”.

38.  Given those perceptions of Chi-X AP’s then financial predicament and Mr Mackay’s lack of suitability to handle the situation, it is difficult to see how Chi-X AP can be faulted for not awarding any bonus. Mr Mackay argues that Chi-X AP had enormous potential, and the actual problem was that JCF was starving the company of funds. Mr Mackay is entitled to his opinion which may be reasonably held by him. The point is that it cannot be said that the perception of Chi-X AP’s profitability at the relevant time was so wrong that no board of directors could have rationally reached a similar view. The allegation of a breach of Chi-X AP’s Braganza obligation of good faith is therefore not made out.

39.  Mr Mackay’s claim for a bonus of US$500,000 fails.

B.2  Unpaid LTIP entitlement

40.  Mr Mackay’s LTIP entitlement hinges on whether he orally agreed to the LTIP scheme which was put to him on 1 September 2016. He did not sign the LTIP participation schedule presented to him at the time. He instead said he wanted to check the figures. The dispute is whether he orally agreed (as Mr Mackay alleges) to join the LTIP in a phone call to Mr Yordan on or about 2 September 2016.

41.  I am unable to accept that Mr Mackay had orally signified his acceptance of the LTIP schedule by 2 September 2016 or any other date prior to the termination of his employment by Chi-X AP in November 2016.

42.  On 1 September 2016, Mr Mackay met with Mr Yordan at Robertsons Hong Kong office. Mr Lambert of Robertsons printed out the latest form of the draft LTIP. This had previously been circulated by Robertsons in an email dated 22 June 2016. Mr Lambert wrote out the number of shares (1,656,649 shares) to be allocated to Mr Mackay in a personalised schedule to the draft LTIP. Mr Yordan then asked Mr Mackay to sign the schedule. Mr Mackay did not sign, saying that he first wanted to check the numbers.

43.  Subsequently, Mr Yordan sent two emails dated 1 September 2016. The first email (timed at 12.38 pm) showed how it was intended that the LTIP pool would be allocated among Chi-X AP’s senior management. For instance, Mr Mackay would be allocated 20% of the pool, while the new Chief Financial Officer (CFO) would receive 10%, Mr John Fides of Chi-X Australia and Mr Makato Nagahori of Chi-X Japan would receive 15% each, and Mr Man Chun Tse (the Chief Technology Officer based in Hong Kong) would receive 10%. The second email (timed at 12.40 pm) contained a breakdown showing how Mr Mackay’s allocation of 1,656,649 shares had been calculated. The breakdown indicated that the figure of 1,656,649 shares was 20% of the 8,283,246 total shares to be issued to Chi-X AP’s management. According to Mr Mackay, having received the foregoing emails, he orally confirmed his acceptance of the 1,656,649 shares allocation to Mr Yordan by 2 September 2016.

44.  My difficulty with Mr Mackay’s evidence is that, on 7 September 2016, Mr Yordan emailed Mr Mackay: Do you have a proposed LTIP split you can send me? I want to get that finished off.” Mr Mackay emailed back: “I will finish it on the weekend”. On 12 September 2016, Mr Mackay emailed Mr Yordan:

“I'm about to send you the LTIP allocation as well as the correspondence that I believe included the 22.5%. The “model/split” that you were working off was from a February model where I was making different allocations for tranche 1 and 2 - the idea being some of the managers had bigger tranche 2 allocations on the basis that they would be the ones that would help deliver the extraordinary returns.”

In referring to the 22.5%, Mr Mackay’s 12 September email appears to be resurrecting and re-negotiating how many LTIP shares should be allocated to him, 22.5% rather than merely 20% of the LTIP pool. On 14 September 2016, Mr Lambert (Chi-X AP’s lawyer) emailed Mr Federico Donnett of Tanner de Witt (Mr Mackay’s solicitors): “On a separate note, did Tony confirm the amount of LTIP shares for the purposes of the schedule to the LTIP plan? When he was in our offices he did say that he was going to double check that the number was correct.” On 6 October 2016, Mr Tim Drew of Tanner de Witt emailed Mr Lambert: “I am still awaiting to hear back from Tony regarding the number of LTIP shares to be granted and will follow up with him again now.”

45.  The foregoing correspondence suggests to me that, far from agreeing the allocation of 20% shares (that is, 1,656,649 shares), Mr Mackay was still seeking a larger share (22.5%) of the LTIP pool. When I asked Mr Mackay about his 12 September email, Mr Mackay’s evidence was as follows:

“COURT: Before you do that, just looking at 4051, at the top there, you say, "I'm about to send you the LTIP allocation as well as the correspondence that I believe included the 22.5 per cent."

A: Mm-hmm.

COURT: I thought by this time we had agreed 20 per cent. Why are we talking 22.5 per cent?

A: So, what I'm referring to there was an early February model, where I was talking about the different things and I was asking for more than 20 per cent, I was asking for 22.5 per cent. But they came back to me and said, "You are only entitled to 20 per cent." So, what I'm referring to there, I think it says the model was a February model, not the final model that we worked to.

COURT: That's what you say in the next sentence but if you had superseded this, it's already all agreed at 20 per cent by this time, 12 September, why are you still sending something that refers to the 22.5 per cent?

A: Because we were looking at how the allocations had changed between February and September, when we were going to the final, you know, allocation of shares. So, as I said, the last model that we worked off on that was back in February, and then the model and the numbers that we were dealing with here were slightly different. So, I was trying to show how the allocations had changed.

COURT: What was the point of looking back? Why not look forward?

A: It was a question of how we decided who are the important people. So it was not for my allocation, it was the rest of the team. This was nothing to do with my allocation which was decided. It was about how do I allocate all the shares to in the rest of the company, in the rest of the 100 per cent pool.

COURT: All right. ”

46.  I do not think that Mr Mackay satisfactorily answered my question. If (as Mr Mackay asserted) as at 2 September 2016 he had orally agreed with Mr Yordan to a 20% share allocation, why was he still referring to 22.5% on 12 September? How exactly was the allocation of shares to the rest of the company relevant to his share, if he had already accepted 20%? On the other hand, the shares of the rest of company would be affected, if he were seeking a larger share of 22.5%.

47.  The 12 September email coupled with the correspondence between Mr Lambert of Robertsons on the one side and Mr Donnett and Mr Drew of Tanner de Witt on the other, supports the conclusion that, as at 2 September 2016, Mr Mackay had not accepted the proposed allocation of 20% or 1,656,649 shares. In the witness box, Mr Mackay suggested that the lawyers were simply unaware that he had agreed his 20% allocation of 1,656,649 shares with Mr Yordan, because neither Mr Yordan nor he had bothered to tell their respective solicitors of such agreement. Mr Mackay said that the lawyers had not been informed, because there was no need to tell them. There was no need to inform the lawyers (Mr Mackay explained in the witness box) because no further amendments were needed to his personalised LTIP schedule as he had accepted the same completely. Mr Mackay stated that, rather than wasting further time on the matter, Mr Yordan and he had moved on to consider (1) the appropriate LTIP allocations for the rest of Chi-X AP’s senior management and (2) how much Mr Mackay should co-invest in Chi-X AP to have “skin in the game”.

48.  I find Mr Mackay’s explanation to be implausible. It is surprising that neither party informed their solicitors that there had been agreement on an allocation of 1.656,649 shares to Mr Mackay, if there had been such an agreement. On the balance of probability, it is more likely that the lawyers were not so informed because there was no agreement. Indeed, if there had been agreement as alleged, one would have expected Mr Mackay to have signed his personalised LTIP schedule. That was never done.

49.  For those reasons, I cannot conclude that Mr Mackay agreed to the LTIP entitlement put to him by Chi-X AP. Mr Mackay never having agreed to the LTIP entitlement prior to leaving Chi-X AP, I do not see how it can be said that the proposed 1,656,649 shares vested in him on 1 March 2016 (the first day of his employment) or any other later date on the basis of an LTIP entitlement that he never approved.

50.  I am prepared to accept that, by late February 2016, Mr Porte and Mr Yordan on behalf of Chi-X AP had agreed that, as part of his employment at Chi-X AP, Mr Mackay would be entitled to participate in an LTIP scheme. Such agreement without more would have been too inchoate and vague to be workable on its own. Extensive negotiation on the precise mechanism and detailed terms of the LTIP scheme was needed. Such negotiation took place after 1 March 2016 when Mr Mackay commenced his employment. General terms of the LTIP scheme were settled on or about 22 June 2016. See Mr Lambert’s email to Mr Drew of that date. In good faith, Chi-X AP put forward a personalised LTIP scheduled premised on such LTIP scheme to Mr Mackay for signature on 1 September 2016. But Mr Mackay appears not to have accepted the allocation of 20% under that scheme and seems to have held out for a larger share (22.5%) of the LTIP pool. Consequently, there was no concluded agreement on Mr Mackay’s LTIP entitlement, as the size of Mr Mackay’s share could affect the size of the pool available to other senior personnel. Mr Lok argues that there must at least have been an agreement that Mr Mackay would have a minimum 20% LTIP entitlement. However, I am unable to conclude on the evidence that there was a concluded agreement on a minimum of 20%.

51.  Mr Mackay’s claim for unpaid LTIP entitlement fails.

52.  I add three footnotes.

53.  First, in considering Mr Mackay’s LTIP entitlement, I should not be taken to have accepted that Chi-X AP has been properly sued for such entitlement. If the draft LTIP had been agreed, the counterparties to the resulting contract would have been CXH and JCF Ill Chi-X Holdings SARL. It seems to me that the latter two companies should have been the entities sued for failure to pay any entitlement.

54.  Second, Clause 10 (“Termination of Employment”) of the latest draft LTIP shown to Mr Mackay in September 2016 stipulates:

“10.2 If the termination of the Participant's employment shall have resulted from death, retirement at legal retirement age or Incapacitation of the Participant, then, in all such cases, the Participant shall be deemed a “Good Leaver”. In all other cases of termination of employment, the Participant shall be deemed an "Intermediate Leaver" save that if the employment of the Participant is terminated for Cause he shall be deemed to be a “Bad Leaver”. An Intermediate Leaver shall be either a “Terminated Intermediate Leaver” -- if the employment of the Participant is terminated by the Company otherwise than for Cause -- or a “Resigning Intermediate Leaver” if the Participant resigns from his employment (not involving constructive dismissal).

...

10.5 In addition to the foregoing, within the Post Termination Period, the Company shall also have the right to require that the Participant transfer his Participant's Shares not forfeited pursuant to the foregoing provisions to such person(s) as the Company directs at the Fair Value of such Award Shares and Bonus Shares (and Co Invest Shares in the case of Bad Leavers only) and in each case:

(a) the payment to be made by the Company to the Participant shall be referred to as an “Exit Payment”;

(b) the rights so exercised by the Company shall be referred to as the “Buy Back Rights”; and

(c) the Participant shall be required, upon termination of employment to forthwith execute all documents required by the Company to effect the foregoing forfeiture of unvested Award Shares (where applicable) and transfer of Participant's Shares, notwithstanding that the Exit Payment has not then been paid and, should the Participant fail to execute the same, then the Company shall be entitled to exercise its powers pursuant to Clause 6.4 to execute the same.

And, for the purposes of this Clause 10.5, the “Post Termination Period” shall be:

(i) Six (6) months after the relevant Participant’s termination of employment in the case of a Good Leaver and a Terminated Intermediate Leaver; and

(ii) Twelve (12) months after the relevant Participant’s termination of employment in all other cases.”

55.  Had I found that (1) shares had vested in Mr Mackay pursuant to the draft LTIP and (2) Chi-X AP was the proper party to sue for the value of such shares, I would have held (as Ms Lok has submitted) that, in all probability upon Mr Mackay’s termination, CHX would have exercised its right under Clause 10.5 to buy back Mr Mackay’ shares with an Exit Payment. The Fair Value of the shares for the purposes of the Exit Payment is likely to have been zero or even negative. Mr Lok argues that the Fair Value should be assessed by reference to the acquisition price for the Chi-X Assets by JCF. But this ignores the discovery, shortly after the acquisition of the Chi-X Assets by JCF, that the US$8.9 million held by CX Japan and CX Australia could not be transferred to Chi-X AP for use as working capital. On the assumption that Mr Mackay may be regarded as a Good Leaver and a Terminated Intermediate Leaver, the Exit Payment would reflect Chi-X AP’s financial circumstances within the six months after the termination of his employment. Given Chi-X AP’s financial predicament around then (see [36] above), a prospective buyer at the time would have had to inject substantial cash into Chi-X AP to turn it around. This circumstance indicates that the company’s Fair Value within the relevant Post Termination Period would have been zero or even negative.

56.  Mr Mackay pleads that there was an oral “common understanding” reached with Mr Yordan that Clause 10.5 would not be invoked against employees who resigned and not against employees whose employment was terminated by Chi-X AP. That allegation was introduced by way of the Amended Reply on 17 September 2024. The alleged “common understanding” is vague and lacking in particularity. I am unable to accept it.

57.  Third, for completeness, I record here the subsequent history of the LTIP scheme as implemented by Chi-X AP following Mr Mackay’s departure.

58.  The draft LTIP terms presented to Mr Mackay were amended, approved and adopted by CXH’s board on 30 March 2017. The LTIP terms were further amended, approved and adopted by CXH’s board on 17 August 2018. The latter revision clarified an uncertainty in respect of the valuation of the Exit Payment for various classes of leavers. Further, the entitlement of LTIP participants under the revised LTIP Terms was subject to their payment of the price set out in the Revised LTIP Terms to CXH.

59.  On 24 March 2021, JCF announced that it had agreed to sell Chi-X AP to CBOE. A share purchase agreement (SPA) was executed between JCF III as seller, CBOE Worldwide as buyer, and CBOE as buyer parent company on that day. Under the SPA, the non-voting ordinary LTIP shares were to be repurchased, redeemed or cancelled prior to sale closing, thereby terminating the LTIP. Concomitantly, JCF III issued share buyback letters to all participants of the revised LTIP. Participants were told that JCF III intended to enter into an agreement for the sale of all issued and outstanding CXH shares. The purchase price of the shares would comprise an upfront consideration and a deferred amount payable within 48 months after closing. The deferred amount was contingent on CXH’s performance as at agreed milestones. Participants were informed that, based on the revised LTIP terms and the estimated amount of the Initial Purchase Price, the existing LTIP shares would not be entitled to any of the upfront consideration. But if deferred consideration was earned as result of CXH achieving the milestones stipulated in the SPA, the LTIP participants might be entitled to a share in the deferred payments. CXH proposed to buy back all revised LTIP shares at a nominal value (that is, the price that a participant had paid for their revised LTIP shares). In return for agreement to CXH’s share buyback, the LTIP shareholders would be entitled to participate in the deferred consideration paid pursuant to the SPA.

60.  All 30 participants in the revised LTIP scheme agreed to the proposed share buyback.

61.  On 7 May 2021, CXH’s board resolved to transfer all revised LTIP shares to JCF III. On 17 May 2021, the instruments of transfer and bought and sold notes for the share buyback were executed. The documents were stamped by the IRD in Hong Kong on 3 June 2021. A table specifying the maximum amount of the deferred consideration that each LTIP participant would be entitled to was also prepared. On 1 July 2021, JCF III transferred all classes of shares (including the revised LTIP Shares) to CBOE Worldwide.

62.  Four employees left Chi-X AP before the closing of the 2021 Sale. Their shares were not re-acquired by CXH on their departure. This was because in CXH’s view the four employees had materially contributed to Chi-X AP and deserved any future upside. The four were thus permitted to hold on to their shares after they left Chi-X AP. Their LTIP shares were acquired ahead of closing along with the LTIP shares of existing employees.

III.  CONCLUSION

63.  By reason of the foregoing, Mr Mackay’s claims for (1) remuneration for work done in March 2016, (2) interest on late payments of salary, (3) the outstanding ORSO contribution for March 2016, and (4) reimbursement of Pinsent Mason fees and DotCod expenses succeed. Mr Mackay’s other claims, including for a bonus of US$500,000 and LTIP entitlement, are dismissed.

64.  I shall now hear counsel on interest, costs and any outstanding matters.