CUNNINGTON GUILLAUME SERGE CHARLES v. QANTEX CAPITAL MARKETS LTD

HCLA 13/2022

[2023] HKCFI 1374

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

LABOUR TRIBUNAL APPEAL NO 13 OF 2022

(ON APPEAL FROM LABOUR TRIBUNAL CLAIM NO 791 OF 2021)

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J U D G M E N T

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1.  The Defendant (Appellant) is appealing against the Decision of Deputy Presiding Officer Paul Yip (“DPO Yip”) of the Labour Tribunal dated 31 August 2022 in awarding the Claimant (Respondent) wages in lieu of notice (WILON) for constructive dismissal, and dismissing the Appellant’s Counterclaim for WILON pursuant to leave granted by this Court on 10 November 2022.

Agreed Background Facts

2.  The following facts are admitted by the parties.

3.  The Defendant is an independent broker for banks, hedge funds and investors.

4.  The Claimant was a former employee of the Defendant under an employment contract dated 26 October 2017 (“Contract”) as Head of Asian Equity Derivatives Broking. The relevant terms of the Contract were as follows:

(1)  an initial term of 54 months (4.5 years) commencing on 1 January 2018 (clause 14.1), subject thereafter to termination on 6 months’ notice (clause 14.1(ii));

(2)  a requirement for the Claimant to obtain and maintain during his employment any relevant licenses from the Securities and Futures Commission (clause 5.1);

(3)  an initial fixed annual salary component of US$200,000, or US$16,666.66 (≈HK$130,000) per month (clause 6.1); and

(4)  a clause granting the Defendant in its sole and complete discretion to reduce the Claimant’s fixed salary “by 50%” (clause 6.2(i)) or terminate him with a shorter 3 months’ notice period if he failed to generate the Threshold Amount of revenue after the first 18 months of the term of the Contract (clause 6.2(ii)).

5.  Following a discussion between Mr Simon Gray of the Defendant and the Claimant which took place on 20 November 2019, three emails were issued on 21 November 2019 (with the Claimant and Mr Matthew Gray copied):

(1)  at 12:14pm from Simon Gray to Winnie Lam of the Defendant stating the following:

“Guillaume (ie the Claimant) has agreed to be type 1 RO (ie Responsible Officer). Can you please check with Compliance Asia about previous RO duties before a licensed rep would have to take the exam again.

Please be advised that Guillaume’ salary will be 250,000 USD p.a. (starting in December) to compensate for the added responsibility. I also agree to floor his salary at USD $250k p.a. (regardless of production) while he remains RO.

Guillaume and I will review his contract in June 2020.”

(2)  at 12:16pm, from Winnie Lam to Simon Gray stating the following:

“Please confirm if it means he will not have any ‘lemon clause’ from Dec 2019 onwards (while he remains RO) until his contract review in Jun 2020.

I am checking if there is any way he can bypass the RO exam.”

(3)  at 12:49pm, from Simon Gray to Winnie Law stating the following:

“Correct—there will be no lemon clause while he is RO.

Separately—Guillaume and I will review his contract in June of next year.”

6.  In December 2019, the Claimant became a Responsible Officer (“RO”) of the Defendant.

7.  From 31 December 2019 to 30 September 2020 the Claimant received a monthly salary of HK$161,000.

8.  In June and July 2020, as agreed, Simon Gray and the Claimant carried on negotiations for new terms for him.

9.  In September 2020, discussions were held between the Defendant and the Claimant about new contract terms, including, potentially, a salary reduction.

10.  On 15 October 2020, a Zoom call took place amongst Simon Gray, Mathew Gray, the Claimant and Winnie Lam. Simon Gray sent an email to the Claimant dated 21 October 2020 in which he purported to summarise the options discussed at the Zoom meeting on 15 October 2020.

11.  On 30 October 2020, the Defendant paid the Claimant a reduced salary.

12.  Following a dial-in meeting on 11 November 2020, on 12 November 2020 the Claimant sent an email asserting that the Defendant was in breach of contract by reason of the reduced salary payment for October and proposing a temporary reduction in his own salary on terms to be agreed. On the same day, Simon Gray sent an email to the Claimant stating, among other things, that:

“‘I don’t disagree with any of your points in principle’ adding ‘I will be back in Sydney tomorrow and available to talk before the open or after the close’.”

13.  On 23 November 2020, the Claimant forwarded to Matthew Gray of the Defendant and Simon Gray the email dated 21 November 2019 from Simon Gray to Winnie Lam regarding the non-application of the “lemon clause” while the Claimant was RO, to which Matthew Gray replied on 23 November 2020 saying “NOTED”.

14.  On 30 November 2020, the Defendant again paid the Claimant a reduced salary.

15.  On 10 December 2020, the Claimant issued an email asserting that the Defendant was in breach of contract on account of the reduced payments for October and November, and saying:

“so my obligations as an employee are discharged and my employment by the company is terminated with immediate effect today.”

16.  The Claimant did not work for the Defendant after that date.

17.  By a letter dated 16 December 2020, Messrs Lewis Silkin, former solicitors for the Claimant, wrote to the Defendant to “affirm our client’s claim for constructive dismissal”.

18.  The Defendant paid the Claimant a sum of HK$49,235.50 as partial salary from the period from 1 December to 10 December and reimbursement for out-of-pocket expenses, less one days’ salary for extra annual leave taken and mandatory provident fund contribution.

19.  By a letter dated 24 December 2020, Messrs Kennedys, former solicitors for the Defendant, wrote to Lewis Silkin stating that the Claimant’s claim for constructive dismissal is “misconceived”.

20.  By a letter dated 8 January 2020, Lewis Silkin wrote to Kennedys disagreeing that the Claimant’s claim for constructive dismissal is misconceived.

21.  On 5 March 2021, the Claimant commenced a claim against the Defendant in the Labour Tribunal in LBTC 791/2021 where the Claimant sought the following relief in the sum of HK$5,036,826.30 plus interest against the Defendant:

(1)  Outstanding wages in the amount of HK$21,935.48 covering the period from 1 December 2020 to 10 December 2020;

(2)  Outstanding wages in the amount of HK$136,000 relating to October 2020 and November 2020; and

(3)  Payment in lieu of notice in the amount of HK$4,388,759.56 covering the period between 10 December 2020 and 1 January 2023.

22.  On 14 December 2021, the Defendant filed a counterclaim against the Claimant on the basis that his assertion of constructive dismissal was itself a repudiation of Contract and sought a relief for wages in lieu of notice for the period from 11 December 2020 to 31 December 2023 in the sum of HK$4,136,158 plus interest pursuant to sections 7 and 8A of the Employment Ordinance (Cap. 57).

23.  On 31 August 2022, DPO Yip ordered judgment in favour of the Claimant and dismissed the Defendant’s counterclaim.

24.  On 14 September 2022, the Defendant filed an Application for Leave to Appeal against the Decision of the DPO dated 31 August 2022 as amended on 5 September 2022.

Additional Facts

25.  In addition, clause 6 of the Contract is set out in full:

“6 Remuneration

6.1 Subject to clause 6.2, your salary will be US$300,000 per annum. Your salary will be paid in 12 monthly instalments of US$16,666.66 directly into your bank account on the final day of each month or should that date fall on a weekend or public holiday, the nearest prior working day for that calendar month.

6.2 You acknowledge and agree that during your employment you are expected to generate a certain level of brokerage/commission revenue commensurate to your level of responsibilities and salary. After18 months after the Commencement Date, if the gross brokerage/commission revenue generated by you in any consecutive three (3) month period thereafter is less than the Threshold Amount (as defined below), and by any amount, the Company may at its sole and complete option and discretion either:

(i) Vary and reduce your contractually due monthly salary as stated in clause 6,1, or as varied under this provision, downwards by 50% of the then applicable monthly salary; or

(ii) terminate your employment under this Agreement by giving 3 months' notice at any time thereafter.

For the purposes of this clause, the ‘Threshold Amount’ to be generated in each and every consecutive three (3) month period shall be a sum equal to double your then applicable salary for the same 3 month period, as specified in clause 6.1 or as varied under clause 6.2(i) above. Your initial quarterly Threshold Amount is US$100,000, being equivalent to 2 x your initial monthly salary in any 3 month period following the first 18 months of your employment hereunder.”

26.  The email sent by Simon Gray to the Claimant purporting to summarise the options discussed at the Zoom meeting on 15 October 2020 stated, amongst other things:

“SG asked GC to Join Asia Ex team from Q4, total 4 brokers

SG indicate GC is at a massive deficit on his PnL which is in lemon clause territory and company will be willing to forego all of his losses (deficit of HK$812,331.09) in exchange if GC invest US50,000 in QTX

SG told GC that his salary will be reduced to US$12,000 per month in Q4

GC agreed and stated that everyone needs to be on the same deal, all have their salary reduced to US$12,000 per month in Q4.

GC states he cannot be the only one onboard.

SG agrees all brokers will take on the action from Q4”

27.  The Claimant remained RO of the Defendant up until his last day of employment with the Defendant on 10 December 2020.

Decision of DPO Yip

28.  The Claimant and Simon Gray for the Defendant gave evidence at the Labour Tribunal.

29.  The Claimant’s case was that his performance was good and nothing eventful happened until November 2019. In November 2019, the parties had agreed to some additional terms. The Claimant would be entitled to a pay rise as he had to assume additional role of RO in accordance with the Securities and Futures Commission requirement. DPO Yip found that as long as the Claimant remained as a RO, the “Lemon Clause” would not be effective on him.

30.  In June 2020, the review took place on the part of the Claimant as a broker to generate revenue for the new business, and the RO was not part of the conversation. Around September 2020, discussion for a temporary reduction of salary took place. On 21 October 2020, the Defendant sent an email to the Claimant offering various options, but no agreement was reached as the proposal was never put into writing.

31.  The Claimant questioned the authenticity of the Zoom meeting note as it was not signed or confirmed by anyone.

32.  The Defendant’s case was that the agreement in November 2019 was that the Defendant would not enforce the Lemon Clause, but such agreement, including the protection as the RO, only last until June 2020. Subsequently, the Claimant was unable to generate enough income as per the Threshold Amount, therefore the Defendant lawfully exercised its power in the “lemon clause” to reduce the Claimant’s salary in October and November 2020. Simon Gray said that he attended the Zoom meeting, and the meeting note prepared by Winnie Lam was correct, and he disagreed that nothing was reached at the Zoom meeting.

33.  DPO Yip stated that the real question was what was the employment terms after June 2020. The Claimant was still paid the increased monthly salary between July and September 2020 and that supported nothing to a change of employment terms had been agreed after November 2019, that the terms agreed in November 2019 should continue to be applicable.

34.  DPO Yip noted that the authenticity of the Zoom meeting note was questioned, and maker Winnie Lam was not called as a witness. So, there was nothing to verify the authenticity of it. The parties were still in discussion as to what the new terms of the Claimant’s contract. DPO Yip found that no agreement reached at the end of October 2020 as there was no evidence that the Claimant had agreed to any one of the three options. The last email dated 12 November 2020 from the Claimant to the Defendant mentioned “to finish the discussion on the other points” is also evidence that nothing had been reached yet.

35.  In the absence of a new agreement, the old terms as agreed in November 2019 should continue to be applicable to the parties, which meant the Claimant should be protected from the Lemon Clause as long as he remained as RO.

36.  On a separate note, DPO Yip stated that as the Defendant alleged that the Claimant was not performing, they had to satisfy the Tribunal that it was not the case. However, save for a brief mention of a total deficit of HK$812,331.08 by September 2020 in Simon Gray’s witness statement, the Defendant failed to produce any other evidence like revenue figures to support its case. It left the Tribunal unable to determine if the Claimant was really not performing for the 3 consecutive months in accordance with the requirement of the Threshold Amount in the lemon clause. DPO Yip was simply unable to make a finding based on just a statement in the witness statement and another statement in the Zoom meeting note. The Defendant was therefore unable to establish it had the legal basis to activate the Lemon Clause.

37.  Yet, the Claimant’s salary in October and November 2020 has been reduced against the above background. This would be in breach of the agreement back in November 2019. Such unilateral reduction of salary would lead to constructive dismissal.

38.  As a result, the Claimant had successfully proved on a balance of probabilities his case against the Defendant, and the Defendant’s counterclaim was dismissed.

Grounds of Appeal

39.  The 5 Grounds of Appeal against DPO Yip’s decision are:

(1)  Failing to establish the proper scope and effect of the expression “Lemon Clause” and failing to confine it to clause 6.2(i);

(2)  Failing to establish the proper construction of the 21 November 2019 emails;

(3)  Assuming the suspension of the Lemon Clause came to an end and the Defendant was entitled to invoke the Lemon Clause in October and November 2020, concluding that the Defendant had not demonstrated that the Lemon Clause was activated in the sense that the condition precedent (poor performance) was met;

(4)  Erring in calculating the Claimant’s damages: balance of 5 years vs 3 months;

(5)  Rejection of the Defendant’s Counterclaim, ie failing to find that it is the Claimant (and not the Defendant) which is liable for repudiating the Contract and liable in damages to the Defendant accordingly.

Applicable Principles

40.  Under s32 of the Labour Tribunal Ordinance (Cap. 25), an appeal from the Tribunal may only be made on the grounds that the award, order or determination is: (a) erroneous in point of law; or (b) outside the jurisdiction of the Tribunal.

41.  The main authority on appeal on a point of law is Edwards v Bairstow [1956] AC 14, which has been explained by Lord Millett in Runa Begum v Tower Hamlets LBC [2003] 2 AC 430, 462 para 99:

“Where, however, the jurisdiction of the court to entertain an appeal depends on whether it involves a question of fact or law, there is no need to refer to the supervisory jurisdiction of the court in judicial review. The controlling authority is Edwards v Bairstow [1956] AC 14, which explains the scope of an appeal on a point of law. It is accurately summarised in Bryan v United Kingdom [1995] 21 EHRR 342, 349-350, paras 25, 26. A decision may be quashed if it is based on a finding of fact or inference from the facts which is perverse or irrational; or there was no evidence to support it; or it was made by reference to irrelevant factors or without regard to relevant factors. It is not necessary to identify a specific error of law; if the decision cannot be supported the court will infer that the decision-making authority misunderstood or overlooked relevant evidence or misdirected itself in law…”

42.  As to the rules of interpretation of contract, the Court of Final Appeal in Eminent Investments (Asia Pacific) Limited v DIO Corporation (2020) 23 HKCFAR 487, 504 [44], per Ribeiro PJ and Lord Collins NPJ held that:

“In Wood v Capita Insurance Services Ltd, [2017] AC 1173, Lord Hodge JSC reviewed the many cases on interpretation and emphasised that interpretation was a unitary exercise. That is why, where there are conflicting interpretations, account should be taken of the natural and ordinary meaning of the provision in question, the purpose of the contract and of the provision, other relevant provisions, the facts and circumstances known or assumed by the parties at the time that the contract was executed, the quality of the drafting of the instrument, and commercial common sense.”

43.  As to constructive dismissal, the parties do not dispute that a failure to pay all or some wages, an unauthorized variation of employment terms or a reduction in wages can constitute repudiatory conduct sufficient to allow an employee to treat himself as constructively dismissed.

Analysis

44.  Mr Alder, for the Defendant (Appellant), submitted that the 5 grounds of appeal might be grouped into 3 issues:

(1)  Whether the protection against the “lemon clause” was restricted to salary reduction under clause 6.2(i), or also as to termination by 3 months’ notice under clause 6.2(ii);

(2)  Whether the protection only last “until” the review in June 2020;

(3)  Whether the underperformance or deficit as per the Threshold Amount has been proved.

45.  Mr Alder submitted that the scope of the protection of the Claimant under the November 2019 agreement was limited to the non-reduction of salary under clause 6.2(i) only as the emails between Simon Gray and Winnie Lam on 21 November 2019 were only “to floor (the Claimant’s) salary at US$250K p.a.”, and the protection did not extend to the right to terminate at 3 months’ notice under clause 6.2(ii) as there was no mention of the Claimant’s tenure in the November 2019 emails at all.

46.  Mr Alder submitted that the termination at 3 months’ notice for underperformance under clause 6.2(ii) was a separate and valuable right and that a party was not taken to have given up such valuable right unless there were clear words to the effect in the agreement. Mr Alder referred to the case in the UK Supreme Court of Triple Point Technology Inc v PTT Public Co Ltd [2021] UKSC 29 at para 110 citing Stocznia Gdynia SA v Gearbulk Holdings Ltd [2010] QB 27 per Moore-Bick LJ at para 23:

“The court is unlikely to be satisfied that a party to a contract has abandoned valuable rights arising by operation of law unless the term of the contract make it sufficient clear that that was intended. The more valuable the right, the clearer the language will need to be.”

47.  And para 110 also refers to Seadrill Management Services Ltd v OAO Gazprom [2011] 1 All ER (Comm) 1077, para 29 where Moore-Bick LJ described the principle as “essentially one of common sense; parties do not normally give up valuable rights without making it clear that they intend to do so”.

48.  Mr Alder submitted that there were no words in the November 2019 emails on protection of the Claimant’s tenure for 5 years, let alone clear words.

49.  Mr Alder referred to the 2^nd email (12:16pm) on 21 November 2019 where Winnie Lam asked Simon Gray to confirm that the Claimant would not have any “lemon clause” from December 2019 onwards (while he remains RO) until his contract review in June 2020. Simon Gray answered in the 3^rd email (12:49pm) “Correct—there will be no lemon clause while he is RO”. Mr Alder submitted that “until” means until the review in June 2020.

50.  Mr Alder submitted that the salary protection had expired in June 2020 upon the review of the Contract which took place, notwithstanding that no new terms were agreed, and the Defendant was entitled to rely on both clause 6.2(i) to reduce the Claimant’s salary upon underperformance for 3 consecutive months, and clause 6.2(ii) to shorten the termination period to 3 months.

51.  Mr Alder submitted that the Defendant had waited until June 2020 where the protection on salary expired, and waited another 3 months for underperformance before reducing the salary for October and November 2020 whereby the Claimant left the Defendant on 10 December 2020. And even if the Defendant were not entitled to reduce the Claimant’s the salary for October and November 2020 and was liable for damages for constructive dismissal, the damages or WILON would be limited to the reduced notice of termination of 3 months under clause 6.2(ii).

52.  Mr Alder referred to paras 42 and 43 of the Reasons for Decision where DPO Yip said that on a separate point, the Defendant had not proved the deficit in income as a condition precedent of invoking clause 6.2(ii). It came as a surprise to the Defendant as throughout the entire proceedings at the Tribunal, the fact of no deficit was never pleaded by the Claimant and was never an issue at the trial. The income deficit of HK$812,331.08 by September 2020 was mentioned in the witness statement of Simon Gray (which was adopted as his evidence in chief) and also mentioned in the Zoom meeting note and they were never contradicted in any of the documents. At pp 138-9 at the bottom of the transcript, DPO Yip asked the Claimant that as could be seen in the documents, the Claimant’s performance appeared to be not meeting the threshold, and therefore, it was within the ambit of the lemon clause. DPO Yip asked the Claimant whether he accepted, irrespective of whether the Defendant was doing the right things or the wrong things, the Claimant’s performance fell within the lemon clause, if it were effective. The Claimant answered that the Defendant effectively put him in that grossly unfair situation, and they took clients away from him. DPO Yip asked that aside, whether the Claimant accept that his performance did not meet the threshold and was within the lemon clause, and the Claimant answered yes, he knew. Mr Alder questioned that as the Claimant never disputed the deficit from the Threshold, why such uncontroverted evidence did not satisfy the Tribunal.

53.  Mr Carolan, for the Claimant, submitted that the entire clause 6(2) was the “lemon clause”. He referred to the witness statement of Simon Gray which set out the “lemon clause” in quoting clauses 6.2(i) and 6.2(ii). Simon Gray also confirmed this when asked about it by DPO Yip.

54.  Further, Mr Carolan submitted that clause 6.2 was never divided up and clause 6.2(ii) is not free standing, as clauses 6.2(i) and 6.2(ii) were in the alternative, since the coordinating conjunction “or” is disjunctive, meaning “either or”. Mr Alder submitted that “or” could either be conjunctive or disjunctive, depending on the context of the case, as to which Mr Carolan disagreed.

55.  Mr Carolan submitted that upon proving the condition precedent of deficit in production, the Defendant might elect between clauses 6.2(i) or 6.2(ii), and once clause 6.2(i) was elected, clause 6.2(ii) was gone.

56.  As to the duration of variation, Mr Carolan submitted that the effect of the 21 November emails was to suspend the lemon clause while the Claimant remained as RO. Mr Carolan referred to the 1^st emails (12:14pm) on 21 November 2019 from Simon Gray to Winnie Lam that “I also agree to floor his salary at US$250k p.a. (regardless of his production) while he remains RO”, and the 3^rd email (12:49pm) from Simon Gray to Winnie Lam stating “Correct, there will be no lemon clause while he is RO”. Hence, the review in June 2020 was irrelevant, especially when there was no new agreement upon the review. The November 2019 agreement was to suspend the whole lemon clause while the Claimant remained as RO. Mr Carolan submitted that the Claimant could have been removed as RO, and then the suspension would come to an end. While it was admitted that the Claimant remained as RO right until the termination of the Contract, and the RO status governed the duration of the suspension.

57.  As to the deficit, Mr Carolan accepted there was some evidence before the Tribunal, but his main points were that clause 6.2 was an entire clause, subject to the election between clauses 6.2(i) and 6.2(ii), and the entire lemon clause was suspended while the Claimant remained as RO.

58.  To interpret clause 6.2, it is important to look again at the entire clause 6, especially the wording of the definition of the “Threshold Amount”:

“For the purposes of this clause, the ‘Threshold Amount’ to be generated in each and every consecutive three (3) month period shall be a sum equal to double your then applicable salary for the same 3 month period, as specified in clause 6.1 or as varied under clause 6.2(i) above. Your initial quarterly Threshold Amount is US$100,000, being equivalent to 2 x your initial monthly salary in any 3 month period following the first 18 months of your employment hereunder.” (Underscore added)

59.  It is evident that for the purpose of clause 6, the applicable salary for calculating the “Threshold Amount” may be the original salary or the salary as varied under clause 6.2(i). That is to say, clause 6 is still effective after the reduction under clause 6.1(i), and there is also no provision that only clause 6.1(i) is to remain in effect and clause 6.2(ii) will become extinct. Hence, in the context of clause 6, the conjunction “or” between clause 6.2(i) and 6.2(ii) is conjunctive rather than disjunctive.

60.  As to whether the suspension of the “lemon clause” was only as to flooring the salary, or it also covered the termination by 3 month’s period, it must be noted that the genesis of the November 2019 agreement as stated in the 1^st email (12:14pm) was to raise the Claimant’s salary to US$250,000 p.a. to compensate for the added responsibility of RO, and to floor his salary at US$250,000 (regardless of production) while he remained RO. Then, it really defies any common commercial sense in blowing hot and cold, i.e. to floor the Claimant’s salary regardless of production on the one hand, and on the other hand to land him in the shortened termination notice for deficit in production under clause 6.2(ii) and to ignore the “regardless of production” as promised. Hence, the only logical and sensible interpretation is that both clauses 6.2(i) and 6.2(ii) were suspended under the November 2019 agreement, and for the duration while the Claimant remained as RO. In any case, the Claimant could have been removed as RO.

61.  On the separate point, DPO Yip was not satisfied that the deficit in the Threshold Amount had been proved, notwithstanding that the Defendant had raised it in evidence, and the Claimant was not denying it and was explaining that clients had been taken away from him apparently through some reorganization of his team.

62.  Under s20(3) of the Labour Tribunal Ordinance, it is provided that “The presiding officer shall investigate any matter which he may consider relevant to the claim, whether or not it has been raised by a party”. If the DPO Yip were of the view that the evidence Simon Gray’s witness statement on the deficit of HK$812,331.08 were not sufficient and needed to be further proved, he should have investigated it, not in the sense of gathering the evidence himself, but to raise it with the parties whether that was all the evidence, and to draw any adverse inference, if at all, in the event that no further evidence were forthcoming. Be that as it may, it is not of any great moment now given my decision on the other points. Otherwise, the matter might have to be remitted to DPO Yip for further investigation.

Conclusion

63.  In the event, the appeal by the Defendant is dismissed.

Costs

64.  As the Defendant has succeeded on the point of the deficit in the Threshold Amount, I shall hear the parties on costs by written submissions.

65.  Lastly, I thank Mr Carolan and Mr Alder for their helpful submissions.