CHEUNG SHUET LEE v. BIRKART-EAST WEST FREIGHT LTD.

HCA 315/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 315 OF 1999

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J U D G M E N T

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Background:

1. The plaintiff is a certified public accountant. She joined the defendant company on 22 October 1990 as an account manager and was seconded to the defendant's associated company in Taipei in the following month. Upon her resignation in May 1992, she was offered employment in the defendant's Hong Kong office as Regional Assistant Manager where she worked until March 1993. She joined Lane Crawford Limited in July 1993 where she worked until the defendant's then managing director, Mr Oechsner, invited her to return to the defendant company as its Financial Controller, which she did on March 1994. The parties signed a written contract which provided for three months written notice of termination.

2. In 1995 Mr Mahncke replaced Mr Oechsner as managing director. Following some dispute with the plaintiff, Mr Mahncke gave her three months' notice of termination. The termination was to take effect on 30 November 1998. The plaintiff claims that during the notice period on 9 October 1998 she reached a settlement agreement with Mr Mahncke under which the defendant was to pay her $609,098 by two equal instalments as compensation for termination of her employment. The first instalment was duly paid.

3. The plaintiff now claims for the second instalment which she says the defendant has agreed to pay her as part of the settlement agreement of 9 October 1998. The defendant denies that there was such an agreement and if there was it was only entered into in reliance on the plaintiff's misrepresentation as to her entitlement under the Employment Ordinance and laws of Hong Kong. The defendant also counterclaimed for overpayment. The issues are therefore:

(1) whether the plaintiff and Mr Mahncke on behalf of the defendant have entered into a settlement agreement pursuant to which the plaintiff was to be paid $609,098 as compensation for termination of her employment; and

(2) if yes, whether the defendant entered into the agreement as a result of the plaintiff's misrepresentation of her entitlement under the Employment Ordinance and laws of Hong Kong.

Credibility:

4. On the face, this is a simple and straightforward case with documents in favour of the plaintiff. Except for the existence of the settlement agreement, the factual background stated above is not in dispute. The plaintiff and Mr Mahncke differ as to details of the events since 30 September 1998 leading to the alleged agreement and thereafter until 26 November 1998 when the plaintiff was summarily dismissed. Though these are collateral matters, they have a significant bearing in the present dispute, the resolution of which casts light on the truth that transpired between the parties.

5. Having considered the totality of the evidence and the demeanour of the plaintiff and Mr Mahncke, I form the view that the plaintiff is a very sophisticated person. She carefully planned her every move and documented everything that is to her favour. She even managed to obtain Mr Mahncke's signature on a letter confirming payment of $344,000 to her as compensation for loss of office. She painted a picture that Mr Mahncke freely entered into the settlement agreement without being pushed into. She carefully planned and documented what she did and tailored her evidence.

6. On the other hand, Mr Mahncke impressed me as an easy going elderly person whose mind has no room for fine details. He is a rather careless person. Probably because of that his evidence is not very precise. I attribute no dishonesty on his part. He readily trusted the plaintiff as the company's Financial Controller and was unwary of the trap that the plaintiff had set for him. He readily signed anything that she asked him to, including the letter confirming payment of $344,000 to the plaintiff as compensation for loss of office. He departed from his witness statement making his evidence less damaging to the plaintiff's case. But I do not consider that as impugning on his honesty. I consider him a more credible witness than the plaintiff.

THE FACTS:

The setting:

7. In 1998, the defendant's business suffered a loss. At a management meeting in July Mr Mahncke requested all department heads, including the plaintiff, to reduce their overheads by 20%. The plaintiff did not like the idea of staff reduction in her department, which was implicit in Mr Mahncke's directive. She wrote back to Mr Mahncke on 15 July 1998 explaining that her department was a cost centre and not a profit centre and resisted the idea of staff reduction in her department which was the only means to reduce its overhead. She listed out all the steps she had taken in the past four years which helped to reduce cost of the company. She then made suggestions in cost reduction in other operations of the company such as suspending the training programme for four German trainees, or relocating them to cheaper service apartments or bargaining for cheaper rentals in respect of their accommodation. She also suggested cancelling the staff annual dinner, replacing Coopers & Lybrand as their auditor by a cheaper local accounting firm and not to provide entertainment or gifts to customers.

8. Obviously Mr Mahncke was not happy with her response. He had a meeting with the plaintiff on 4 August 1998 and gave her a list of 14 items, five of which were instructions, eight were criticisms of her performance and attitude while the last was a clear directive to reduce personnel count of the accounts department by two as of 1 September 1998. Mr Mahncke went through the criticisms with her one by one and pointed to her areas where she could improve. The atmosphere was not tense but certainly not as casual as the plaintiff asks me to believe. In fact, the plaintiff took the criticisms very seriously and responded with a rather insolent and fully loaded five page letter dated 7 August 1998. The parties did not engage in further exchanges until 22 August 1998, presumably because of the then on-going internal audit inspection by the defendant's head office auditors.

9. After the internal auditors left, Mr Mahncke had a meeting with the plaintiff. He took the plaintiff's letter of 7 August 1998 as a challenge to his professionalism. He asked if the plaintiff intended to continue working for the defendant, to which she replied in the affirmative. The parties differ as to whether the meeting concluded with that conversation or whether as the plaintiff alleges that Mr Mahncke gave her a week's time to think about the matter and to discuss again on 31 August 1998.

10. Sometime after 5 p.m. on 31 August 1998, Mr Mahncke went to the plaintiff's office and told her that her performance during the week had not improved. Mr Mahncke was referring to his e-mail instruction to the plaintiff to prepare a budget of his travelling expenses for 1999, in response to which the plaintiff wrote back giving him the air fare rates and asking him to make an estimate of his expenses for air fares and hotel charges. When Mr Mahncke asked her to make an estimate she replied that she could not do so without Mr Mahncke giving her the hotel rates and durations of his stay. Mr Mahncke was not pleased and said that as she was showing no improvement he was going to serve her a notice of termination. He added that the notice would not take effect if she would improve and stressed to her that the content of the notice should be kept confidential and should not be divulged to other staff members. On 1 September 1998 when she returned to her office she found the notice on her desk. The last paragraph of that notice reads:

"Hope that during the next few weeks the attitude, approach to problems and subsequently performance will improve, so that this termination notice will not become effective."

No issue is taken as to whether the notice is a valid notice, though in my view, it is at least arguable that it is not because of lack of certainty.

11. The above factual background is not in dispute. There are some differences between the evidence of the plaintiff and Mr Mahncke as to minor details. Those differences are immaterial and are probably due to failure in recollection rather than deliberate dishonesty. They do not affect my assessment of the credibility of either of the witnesses or my finding of facts on the crucial issues.

30 September 1998: The first computation:

12. According to the plaintiff, on 30 September 1998 Mr Mahncke went to the plaintiff's office in the morning and accused her of having made up her mind to leave as she had been talking to some senior managers about leaving. Hence he confirmed to her that her contract would be terminated on 30 November 1998. She then asked about her compensation and Mr Mahncke replied that he had to consult his solicitors but in the end told her to submit her computation. Then Mr Mahncke left. Just before noon, the plaintiff showed Mr Mahncke her computation. Mr Mahncke disagree with an item of $181,125 under the head of "sacking not based on concrete grounds" and told her to delete that item because she was dismissed for cause. He then gave her back the computation.

13. Save that he had no recollection of seeing the computation and denied having said he would seek legal advice from his solicitors, Mr Mahncke did not dispute about the events on 30 September 1998. Under cross-examination, he admitted having had some discussion about requiring the plaintiff to take her leave during the notice period. As shown in the second computation which he signed, there was express reference to this issue. Thus it is apparent that the plaintiff had shown Mr Mahncke the computation of 30 September 1998 and that they had discussed about the plaintiff taking her leave during the notice period. While I accept that Mr Mahncke's memory have failed him, that does not impugn upon his honesty.

14. Mr Mahncke denied having said he would consult his solicitors. As the matter then stood, it was a simple case of termination by notice. The parties had a written contract providing for notice period. Adequate notice was given. There was no question of payment of wages in lieu of notice. The defendant must have hired and fired many employees before and had the necessary staff, including the plaintiff to handle such matters. Mr Mahncke clearly knew that the plaintiff was dismissed on notice and there was no need to make any gratuitous payment and told the plaintiff to delete the item "sacking not based on concrete grounds". There was no need to seek legal advice for a matter of such a routine nature. It was reasonable to trust the plaintiff in her position as the Financial Controller to prepare a proper computation in respect of what was due to her. In my view, this little episode is a concoction by the plaintiff in setting the stage for 9 October 1998 when she presented her second computation - so that she could say in her evidence that Mr Mahncke did not ask if the computation represented her legal entitlement and that she did not feel obliged to explain the computation as Mahncke had said he would consult his solicitors. I reject the plaintiff's evidence.

9 October 1998: The second computation:

15. According to Mr Mahncke at about 5 p.m. on 9 October 1998, the plaintiff went to his office and gave him a letter saying that unless something was agreed about her compensation she would not be able to prepare the budget for 1999. When Mr Mahncke told her that she had to prepare the budget, she said she would not be in a position to do so unless the question of her compensation was settled as it was a significant amount for her. Mr Mahncke was quite occupied and was not in a position to discuss compensation with the plaintiff as he had just returned from a business trip in Taiwan the night before and was due to go to Singapore on 11 October 1998. Mr Mahncke gave her back the letter and told her to prepare her computation.

16. According to the plaintiff, it was Mr Mahncke who went to her office at about 5 p.m. for no discernable reasons. Then she started the conversation about her compensation which concluded with Mr Mahncke asking her to prepare the computation.

17. Mr Hingorani submitted this is another attempt by the plaintiff to twist the facts to suit the picture she wants to paint - that she did not push Mr Mahncke to deal with the question of her compensation on a late Friday afternoon. The plaintiff could offer no reason why Mr Mahncke would for no discernable reason go to her office. They were not in friendly terms then and had no business to discuss. Mr Mahncke had just returned from a business trip in Taiwan the night before and was due to go to Singapore on 11 October 1998. He was quite occupied and would not have been in any rush to resolve the question of compensation two months in advance. I accept Mr Mahncke's account, which I consider more credible in the circumstances.

18. Then the plaintiff returned at 5:30 p.m. and resubmitted her computation, now for $609,098 after making some adjustments and deleting the item under "sacking not based on concrete grounds" which Mr Mahncke objected to on 30 September 1998. The computation included among other things, an amount of $344,138 as compensation for loss of office. Mr Mahncke went through the computation, ticking some of the items as he went along. He only verified her monthly salary with her and queried about her outstanding leave balance. Then he changed the payment terms to two instalments and signed on the computation. At the plaintiff's request, Mr Mahncke signed a letter prepared by the plaintiff confirming payment of $344,000 as compensation for loss of office so that the compensation would not be subject to salaries tax.

19. The above evidence relating to the second meeting at 5:30 p.m. is not in dispute, except for the following very crucial issue. Mr Mahncke said that he had asked the plaintiff if the computation represented her entitlement and she replied in the affirmative. The plaintiff said neither did Mr Mahncke ask that question nor did she explain the calculation because when submitting her earlier computation Mr Mahncke said he would consult his solicitors. Therefore she thought she was in no position to give any advice.

20. Mr Harris attacked Mr Mahncke's credibility because of his departure from his witness statement as well as from the pleading in which he made specific allegations that the plaintiff requested compensation over and above her entitlement under Hong Kong labour law and he refused because of her unsatisfactory performance. Suffice it is to say in relation to Mr Harris' criticism, Mr Mahncke had not been cross examined on the discrepancy. He could have exaggerated in his statement, or deliberately changed his evidence, or his memory failed him while he was in the witness box. If he had not been cross examined on the discrepancy, it would not be reasonable to draw any adverse criticism on his credibility. This is particularly so in the present case as Mr Mahncke's evidence is more favourable to the plaintiff than what he said in his witness statement. Put it in another way, discrediting Mr Mahncke would not help to strengthen the plaintiff's case. If Mr Mahncke had been cross examined on his statement, he could have given a satisfactory explanation for the discrepancy, or could have reverted back to his statement in which he said he refused the plaintiff's request for payment over and above her entitlement. This would then strengthen Mr Mahncke's evidence that he had in fact asked about her entitlement and put it beyond doubt that the parties were talking about the plaintiff's contractual and statutory entitlement. I do not think Mr Harris' criticism of Mr Mahncke's evidence could advance the plaintiff's case further. Whatever view I form, I am bound by his evidence given in court, which is more favourable to the plaintiff's case.

21. Another deviation is that Mr Mahncke said in his statement that he asked the plaintiff whether the computation was calculated in accordance with the labour law of Hong Kong and not whether the computation was what she was entitled. I do not think this minor deviation affects his credibility, though it certainly affects the quality of his evidence. I take all these discrepancies into account in assessing his credibility. But having regard to the totality of the evidence and for reasons as explained in relation to the event on 30 September 1998, I reject the plaintiff's evidence that Mr Mahncke had not asked if the computation represented her legal entitlement and that she had not confirmed that it was. I accept Mr Mahncke's account as more credible.

22. Mr Harris argued that Mr Mahncke's evidence about the representation was imprecise and rambling and at the highest the evidence amounted to no more than that the amount of $609,890 was what the plaintiff was entitled to and not what is pleaded in the defence, i.e. what the plaintiff was entitled under the Hong Kong law. In my view, the representation must be looked at in the context of the surrounding circumstances. The plaintiff demanded to have her compensation determined otherwise she would not be in a position to prepare the budget. Mr Mahncke submitted to that demand and asked for the computation. Apart from Mr Mahncke asking the plaintiff if the computation represented her entitlement, there was no discussion about paying her more than her legal entitlement. There is no evidence that Mr Mahncke agreed to pay her beyond what was her contractual or statutory entitlement. He was not asking whether the amount listed in the computation was what the plaintiff wanted as a condition for preparing the budget. In the circumstances, the word "entitlement" that Mr Mahncke used and as understood by the plaintiff must mean entitlement in accordance with some recognisable standard. Such standard could not be anything else but the terms of the employment contract or the provisions under the Employment Ordinance, which together could reasonably be described as her entitlement under the Hong Kong law in the wide sense. Further, as the plaintiff was not entitled to any compensation under the terms of her contract, the only other entitlement would be under the provisions of the Employment Ordinance, which is clearly her entitlement under Hong Kong law in the narrow sense. I find the representation when taken in its proper context is precise enough.

23. The plaintiff cited the termination of a manager, Mr Peter Lee who had been given three months' salary after termination, as an example that Mr Mahncke was in the habit of paying employees more than their legal entitlement as a reason for including in her computation compensation over and above that provided for in the Employment Ordinance. However, even on her own evidence as revealed in cross-examination and by the documents, Mr Mahncke had given her Mr Lee's termination letter, which showed that Mr Lee was given three month's notice while on leave. He was paid during the notice period which was treated as his annual leave as well. Thus Mr Lee was paid no more than what he would have received during those three months while under notice. In fact both Mr Lee's case as well as her own show that Mr Mahncke was not as generous with money as she said she thought he was. He wrote off Mr Lee's leave as part of the notice period. In her case, Mr Mahncke attempted albeit unsuccessfully to set off her leave as part of the notice period as well. The plaintiff was the Financial Controller. She knew the terms of Mr Lee's termination and arranged for payment of his salary during the notice period. She reported Mr Lee's salaries tax return. She knew that Mr Mahncke had not paid Mr Lee anything over and above the Employment Ordinance. Hence her computation was not made as a result of her belief that Mr Mahncke was in the habit of paying more but, for reasons as will become apparent, her deliberate act of dishonesty.

26 November 1998: The third computation and termination:

24. In the meantime on 9 November 1998, Ms Eileen Pang was employed as the plaintiff's replacement. She took over the plaintiff's office on 19 November 1998, while the plaintiff was made to sit at a desk outside her former office. Ms Pang was then asked by the plaintiff to sign the November payroll authorising payment of the second instalment of $304,549 to the plaintiff. Ms Pang thought the amount far exceeded the plaintiff's entitlement under the Employment Ordinance and contacted Mr Mahncke, who was then in Long Beach, for clarification.

25. When Mr Mahncke returned on 26 November 1998, he called the plaintiff into the conference and accused her of cheating him as he had never promised to pay her more than the employment law. Much of what then followed is in dispute.

26. According to the plaintiff, she replied to Mr Mahncke's accusation saying that he never said he would only pay her according to the employment law. She accused Mr Mahncke of going back on his agreement after the smooth hand over. Mr Mahncke then gave her an hour to recalculate her entitlement in accordance with the law. The plaintiff returned to her seat and prepared the computation, while telephoning her friends and the Labour Department for advice. She then gave Mr Mahncke the computation of 26 November 1998. After checking against some model answer, Mr Mahncke asked her to sign but she refused. Then she was told to leave the defendant company, which she did.

27. According to Mr Mahncke, when he told the plaintiff that she lied about her entitlement, the plaintiff blushed and looked embarrassed. She never argued with him about the settlement agreement but went out to prepare another computation as she was told. Later the plaintiff gave him the third computation and asked Mr Mahncke to sign. In this computation the amount of $344,138 for compensation for loss of office was replaced by an amount of $71,250 as severance payment. The total amount stated on the computation due to the plaintiff was $31,711. Mr Mahncke took the computation to consult Ms Pang and was advised by Ms Pang that the employer's contribution to the provident fund should have been deducted from the severance payment. After making his handwritten adjustment on the computation which then showed an overpayment of $25,531 due to the defendant, Mr Mahncke approached the plaintiff and asked her to sign. As the plaintiff refused to sign on his revised computation, Mr Mahncke became angry and dismissed her forthwith for dishonesty. Mr Mahncke's evidence is corroborated by Ms Pang who saw Mr Mahncke talking to the plaintiff with the revised computation in his hand.

28. Mr Hingorani put to the plaintiff that in fact she was prepared to accept the amount of $31,711 stated on the third computation as the computation was typed on a format with space for inserting cheque number, Mr Mahncke's signature in approval and the plaintiff's signature in receipt. The plaintiff disagreed and explained that the space did not signify anything as the computation was typed using the template in respect of the computation of a former colleague, Miss Clara Chan. Having compared the computation in respect of Miss Clara Chan with the third computation, I do not think the two computations could have come from the same template. The two formats are noticeably different. In the computation in respect of Miss Clara Chan, the heading and the name of the defendant company were typed in capital letters and the computation also contains a description of the employee, such as her name, identity card number, date of joining the company and last day of service, etc. The position for filling in the cheque number is also different. The computation in respect of Ms Clara Chan also identifies the name of the person who prepared the computation. The formats at the end of the two computations are so significantly different that the two documents could not have originated from the same template. In particular, in putting down her name below the words "Received by" or in replacing Clara Chan's name by hers required a conscious decision by the plaintiff. She would not have done so if she was not desirous of accepting the $31,711 calculated in that computation. I reject the plaintiff's explanation as incredible.

29. Another explanation she offered for the mistake was the pressure of time as she had to consult others and make telephone calls. She has shown ability in preparing her earlier computations quickly. As the Financial Controller, she has experience in this type of computation and had according to her evidence prepared computations in respect of other colleagues including Miss Clara Chan. The computation is simply an application of some simple formulae for which an hour is more than enough, even allowing for her seeking telephone consultation. I do not find that explanation credible.

30. Mr Hingorani also attacked her honesty in preparing the third computation. Being the Financial Controller and experienced in personnel and accounting matters, the plaintiff ought to know that she was not entitled to severance payment as there was no question of redundancy. Even back on 31 August 1998, she knew why her employment was terminated, if not for cause at least because of her differences with Mr Mahncke. She knew in October 1998 that the company advertised for her replacement as she signed the relevant accounting documents. Any suspicion she might have that she was redundant must have been dispelled by 9 November 1998 when Ms Pang arrived as her replacement and certainly by 19 November 1998 when Ms Pang took over her office. Yet when preparing the third computation, she still claimed severance payment in the amount of $71,250. A second element of dishonesty is that she ought to know that the employer's contribution to provident fund should be deducted from the severance payment, even if she were entitled to severance payment. This reflects not only her dishonesty in preparing the third computation, but also suggests she has dishonestly inflated her entitlement when preparing the earlier two computations. This also casts doubt on her credibility generally.

31. I am therefore driven to the conclusion that the plaintiff's account is not credible and I accept Mr Mahncke's account. I find that the plaintiff took advantage of the fact that Mr Mahncke was very pre-occupied on 9 October 1998. She presented him a letter demanding compensation to be approved under the threat that otherwise she would not prepare the budget for 1999. She did not explain to Mr Mahncke about the computation, not because Mr Mahncke had earlier said he would consult his solicitors, but because she wanted to pass off the computation as if it were her legal entitlement. When Mr Mahncke asked if the computation was in accordance with her entitlement, she dishonestly confirmed, and therefore misrepresented, that it was. There was no negotiation or bargaining whatever about payment over and above her entitlement. Mr Mahncke signed on the computation, honestly thinking that it represented the plaintiff's entitlement in accordance with the laws of Hong Kong. When confronted on 26 November 1998 about her second computation, the plaintiff did not raise the question of the settlement agreement. She then prepared the third computation with space for filling in the cheque number and her signature in receipt, which shows that she was willing to accept the amount of $31,711 as shown in that computation as the amount due to her. But even that computation was dishonestly inflated as she was not entitled to any severance payment and even if she were she should have deducted from the severance payment the employer's contribution. I accept Mr Mahncke's evidence that the plaintiff asked for his signature in approval of the third computation. I find in preparing the third computation she was setting yet another trap for Mr Mahncke to fall into by inflating her entitlement. That was what she had been doing with her earlier two computations. Despite the sympathy I have about her dismissal, I find her credibility wholly destroyed by the event on 26 November 1998.

Whether there was an agreement to pay $609,098:

32. The plaintiff's claim is based on what she calls the settlement agreement made on 9 October 1998 as witnessed by Mr Mahncke's signature on the second computation and as evinced by payment to her of the first instalment at the end of October. The plaintiff said by that agreement the defendant through Mr Mahncke agreed to pay her $609,098 as a result of termination of her employment and how payment was to be made. The package included among other legal entitlements which are not in dispute such as salaries, pro-rata year-end payment, payment in lieu of annual leave, an amount of $344,138 as compensation for loss of office, which the defendant objected to. It was not clear even from the plaintiff's own evidence what this large sum of compensation was for, how the amount was negotiated and came to be agreed.

33. While not disputing that Mr Mahncke on behalf of the defendant signed or approved the second computation, Mr Hingorani submitted that the plaintiff's case is formulated on a false premises that Mr Mahncke's approval on the computation represents an agreement enforceable in law independently of the original contract of employment. He submitted that there was neither an intention to enter into any agreement to pay her more than her contractual and statutory entitlement nor any consideration to support the promise, if there was such an agreement.

34. On the facts as I have found them, the plaintiff and Mr Mahncke never discussed about compensation over and above the plaintiff's legal entitlement. Even according to the plaintiff's case, she never demanded compensation over and above her entitlements according to her contract or according to the Employment Ordinance. She was silent. Mr Mahncke had all along insisted to pay no more than what the plaintiff was legally entitled and had never intended to pay her any gratuitous amount. Indeed Mr Mahncke wanted to pay her less. He deleted the item called "sacking not based on concrete grounds" and attempted to write off her annual leave balance as part of her notice period. He had a host of reasons for dismissing the plaintiff. That apart, he dismissed her by giving her the requisite notice. There is no reason why the defendant has to pay her more. The parties were not negotiating for compensation over and above the plaintiff's legal entitlement. That issue was never in the mind of Mr Mahncke.

35. What the plaintiff did was to set a trap for the unwary and easy going Mr Mahncke to walk into. Mr Mahncke was so unwary that he even signed a letter prepared by the plaintiff confirming payment of $344,000 as compensation for loss of office so as to reduce the plaintiff's salaries tax liability. The plaintiff planned her move carefully and raised the matter when Mr Mahncke was pre-occupied with his business trip. On her own evidence, she applied pressure tactic. She presented the computation, dressed up with some formulae but without explanation. When asked by Mr Mahncke, she dishonestly confirmed that the computation was made in accordance with her legal entitlement, which in fact was not. It was on that basis Mr Mahncke appended his signature.

36. The material part of the computation is as follows

"With reference to Mr Mahncke's notice of termination given to Ms Cheryl Cheung on 31-8-98, Ms Cheryl Cheung's last day will be on 30-11-98 and the compensation are listed below.

It is proposed to have the settlement made in two payments.

....(computations)

Compensation for loss of office

Severance pay
Annual package/12 X years of service
(HK$62,100 X 14/12 X 4.75	344,138

....(computations)

Prepared by	Approved by:
(signed)
Cheryl Cheung	Hans-E Mahncke"

It is worthy to note at the end of the computation are the words "Prepared by" and "Approved by", followed by a space for signature. The item which now forms the subject matter of this litigation is headed "compensation for loss of office - severance pay", below which is a formula showing how the amount was calculated.

37. On the facts as I have found and after reading the second computation as it is, I have no difficulties in accepting Mr Hingorani's submission that Mr Mahncke's signature on the second computation does not constitute or evince an agreement. Looking at the format of the computation, it is like a payment voucher, approving, as the document says, the computation and authorising payment. If at all anything was agreed it would be as Mr Hingorani submitted an agreement to pay the plaintiff earlier by two instalments before payment would be due on her last day of work. That is a benefit that would set the plaintiff's mind at ease so that she could prepare the budget. This was perhaps the extent to which Mr Mahncke succumbed to the plaintiff's pressure.

38. On the fact of the case, certainly Mr Mahncke relied on the plaintiff's affirmative reply and acted on it by approving the computation. Mr Mahncke, as I have found him, is man who has no mind for details and was even careless. It was 5:30 p.m. on a Friday when he was in a hurry, having just returned from Taiwan and was preparing for another trip to Singapore. He was faced with a threat, or as the plaintiff described a pressure tactic, to submit to the plaintiff's demand or the plaintiff would not prepare the budget. On the other hand, the plaintiff was the defendant's Financial Controller. It was reasonable for Mr Mahncke to place reliance on her professionalism and honesty. She prepared the computation and represented to Mr Mahncke as her entitlement upon termination. There was no explanation about what the compensation was. In the circumstances, I have no doubt that Mr Mahncke relied on the representation and acted upon it.

39. In conclusion, I find that when Mr Mahncke signed on the computation of 9 October 1998 he was approving what the Financial Controller prepared and represented to him as the plaintiff's entitlement under her employment contract and the relevant provisions of the Employment Ordinance. The question of paying her over and above her contractual entitlement was never raised and certainly had never been in the mind of Mr Mahncke. There was no meeting of the minds about entering into a separate agreement to pay the plaintiff more than her contractual or statutory entitlements, let alone no consideration to support the promise to pay her this huge amount of $344,138. The computation was presented to Mr Mahncke as if it were the plaintiff's entitlement under her contract and the Employment Ordinance. That is not the case. As there was no contract to pay the plaintiff over and above her contractual and statutory entitlement, Mr Mahncke's approval is a mis-approval which the defendant is entitled to revoke upon discovery of the mistake or even at will.

Consideration:

40. The above conclusion is sufficient to dismiss the plaintiff's claim. On my finding that the parties had not entered into the so called "settlement agreement", it is superfluous to consider Mr Hingorani's alternative submission that the agreement was not supported by any consideration. I shall nevertheless deal with this issue as the lack of consideration would strengthen the defence that there was no intention to enter into the so called "settlement agreement" as alleged.

41. The plaintiff's entitlement upon termination was governed by the terms of her contract of employment and the Employment Ordinance. Clause 8 of the contract provided that either party may terminate the contract by giving the other party three months notice or wages in lieu of notice. In addition, where certain conditions are satisfied, the Employment Ordinance provides for severance payment and long service payment. In the plaintiff's case, as she was not dismissed by reason of redundancy and as she had not been employed for the qualifying period, she was not entitled to either of these payments. Thus upon termination of her employment, she was only entitled to three months notice or three months wages in lieu of notice. She had been given the adequate notice and was not entitled to any monetary compensation under her contract of employment or the Employment Ordinance.

42. In her evidence, the plaintiff asserted that her cooperation in achieving a smooth hand over and her preparation of the budget had been beneficial to the defendant. She made it quite plan that due to the urgency of the budget, she applied pressure tactics on Mr Mahncke and reached an agreement as to how much she was to receive as a result of the termination of her employment and how payment of this sum was to be made. The benefit accruing to the defendant was that the budget would be prepared properly. It is not in dispute that preparation of the budget was part of the plaintiff's duty as the Financial Controller. She had prepared budgets for the previous years. Indeed even on her evidence, when Mr Mahncke came to her office on 9 October 1998, she was actually preparing the budget. She said the work would take a week or two. She was due to leave on 30 November 1998. There was ample time for her to accomplish that task which it was her duty to complete. If need be, she had to work overtime to complete it in time as she was obliged to under the terms of her contract of employment which provided that her salary included an element of remuneration for extra working hours and efforts beyond the normal working hours. Performing what she was obliged to do under her contract of employment cannot be good consideration to support a promise to pay her over and above that of her contractual entitlement.

43. Similarly, her cooperation in achieving a smooth hand over cannot be good consideration. A contract of employment is built on a fiduciary relationship. An employee is duty bound to discharge his duty with due diligence and reasonable dispatch to the last minute of his employment even while he is under notice of termination. The plaintiff would be in breach of her duty by being obstructive or un-cooperative. There is nothing to suggest by being cooperative she had performed over and above that which she was contractually bound to do. Hence her cooperation in securing a smooth hand over cannot, in my view, be good consideration.

44. In recognition of the weakness of her case the plaintiff has attempted to supply consideration by asserting in her statement that she had received more than her legal entitlement in January 1998 in order to suggest that she had in some way been invaluable to the defendant. However, it became abundantly clear that the additional payment she received was her additional 13th and 14th month's salary which she was contractually entitled to.

45. Mr Harris relied upon the plaintiff's undertaking or preparation of the budget and cooperation in a smooth handover as consideration for the settlement agreement. He referred to Williams v Roffey Bros & Nicholls (Contractors) Ltd, [1989] 1 QB 1. In that case, the plaintiff entered into a sub-contract to carry out carpentry work with the defendants who were the main contractors. The plaintiff got into financial difficulty because the sub-contract price was too low for him to operate satisfactorily at a profit. Lest the plaintiff's failure would result in the defendants having to pay penalty under the main contract, the defendants agreed to pay the plaintiff an additional sum if the plaintiff would complete the carpentry work on time. After reviewing the authorities and referring to the Privy Council decision in Pao On v Lau Yiu Long, [1980] AC 614, Glidewell LJ extended the principle that a promise to perform or the performance of a pre-existing contractual obligation to a third party can be valid consideration to the situation between the contracting parties and held at 14:

"Accordingly, following the view of the majority in Ward by Byham [1956] 1 WLR 496 and of the whole court in Williams v Williams [1957] 1 WLR 148 and that of the Privy Council in Pao On [1980] AC 614 the present state of the law on this subject can be expressed in the following proposition: (i) if A has entered into a contract with B to do work for, or to supply goods or services to, B in return for payment by B; and (ii) at some stage before A has completely performed his obligations under the contract B has reason to doubt whether A will, or will be able to, complete his side of the bargain; and (iii) B thereupon promises A an additional payment in return for A's promise to perform his contractual obligations on time; and (iv) as a result of giving his promise, B obtains in practice a benefit, or obviates a disbenefit; and (v) B's promise is not given as a result of economic duress or fraud on the part of A; then (vi) the benefit to B is capable of being consideration for B's promise, so that the promise will be legally binding."

46. In my view, the plaintiff's case falls outside the above principle. If there were any agreement to pay the plaintiff over and above her legal entitlements, it was the result of duress, namely her refusal to perform her obligation while her employment subsisted. In Williams v Roffey Bros Ltd. the main contractors obviated the risk of having to pay penalty because of the sub-contractor's non-performance of his sub-contract. This is a practical benefit over and above the profits which the main contractor could have reaped from the performance of the sub-contract by the sub-contractor. In the present case, there was no practical benefit going to the defendant apart from the performance of her obligation or disbenefit to be obviated. For the above reasons, the plaintiff's preparation of the budget and her cooperation in achieving a smooth handover cannot, in my view, be good consideration for a promise to pay her over and above her contractual and statutory entitlements.

Misrepresentation:

47. As I have found the defendant has not entered into any settlement agreement with the plaintiff, it is unnecessary for me to consider the defendant's alternative defence of misrepresentation. The defendant has not entered into the contract as alleged and there was no contract to be rescinded.

Conclusion:

48. Having found the defendant has not entered into the settlement agreement as alleged, the plaintiff's claim for the second instalment under that agreement must be dismissed. The overpayment of $49,015 must be returned to the defendant under the principle of unjust enrichment. Accordingly, I dismiss the plaintiff's claim and allow the defendant's counterclaim in the amount of $49,015 together with interest at judgment rate with effect from 14 February 1999 and costs, to be taxed if not agreed.