GRANT DAVID VINCENT WILLIAMS v. JEFFERIES HONG KONG LTD

HCA 320/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 320 OF 2011

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BETWEEN

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JUDGMENT ON DAMAGES

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1.  The successful plaintiff’s claim for damages has two aspects, the first of which is hardly controversial in view of my decision that he was wrongly, unfairly dismissed. I will deal with them under separate headings.

CONTRACTUAL LOSS OF EARNINGS AND BENEFITS

2.  Had the defendant given proper notice, this would have been for six months under clause 13.1 by which either party had to give such period of notice.  It was due to change to three months on 31 March 2012, a little over fifteen months in the future so that does not affect the position.

3.  The six monthly loss is an agreed figure of HK$1,017,434.81.  I have left this unconverted into Singaporean or United States dollars simply because it is claimed in Hong Kong currency.

4.  Clause 3.3 provided for a grant of shares in the Jefferies Group of US$250,000.00 value subject to certain sub‑clauses which relate to certain circumstances of disentitlement.  They do not apply in this case.  The plaintiff is entitled to that sum.

5.  Clause 4 sets out the entitlement to a Retention Bonus on or before 31 December 2010.  Again it provides for circumstances in which the bonus would not be payable.  Again they do not apply in these circumstances.  In any event, it specifically provides for payment of this sum if the defendant company were to terminate the employment other than for cause before 31 December 2010.  (The plaintiff’s employment was terminated on 8 December 2010.)

6.  Finally under this aspect, there is by clause 5, a Guaranteed Bonus for the fiscal year 2011 payable on 12 March 2012.  That date for payment is now long past by some fifteen months.  This is also in the sum of US$250,000.00. There are provisions for disentitlement to this bonus but if employment was terminated other than for cause before 31 March 2012, the bonus will still be “immediately paid”.  There is therefore, no valid exclusion of the plaintiff from this guaranteed bonus.

7.  The total sums due to the plaintiff to cover the six‑month period from 8 December 2010 to 7/8 June 2011 are HK$1,017,434.81 and US$750,000.00.

DAMAGES FOR BREACH OF THE IMPLIED TERM OF TRUST AND CONFIDENCE

8.  This implied term which applies to every contract of employment is not in any way or to any extent affected by the particular terms of his contract of employment.  Adopting part of the speech of Lord Steyn in Malik (and another) v Bank of Credit and Commerce International S A [1998] A C 20:

“The evolution of the implied term of trust and confidence is a fact. It has not yet been endorsed by your Lordships’ House. It has proved a workable principle in practice. It has not been the subject of adverse criticism in any decided cases and it has been welcomed in academic writings. I regard the emergence of the implied obligation of mutual trust and confidence as a sound development.”

9.  Earlier in his speech, Lord Steyn expressed the term as “imposing an obligation that the employer shall not:

“without reasonable and proper cause, conduct itself in a manner calculated and likely to destroy or seriously damage the relationship of confidence and trust between employer and employee.” (see Woods v W M Car Services (Peterborough) Ltd [1981] CR 666, 670 (Browne‑Wilkinson, J) )”

10.  Lord Steyn furthermore adopted the statement of Mr Douglas Brodie of Edinburgh University in his article “Recent cases, Commentary, The Heart of the Matter: Mutual Trust and Confidence” (1996) 25 1 L J 121:

“In assessing whether there has been a breach, it seems clear that what is significant is the impact of the employer’s behaviour on the employee rather than what the employer intended. Moreover, the impact will be assessed objectively.”

11.  I now go on to consider objectively both what the defendant employer did and the effect it had upon the plaintiff employee.

12.  We start with the e‑mail issued by Mr Bob Albano on 8 December, following the reaction at the centre of decision — “Damage control will be directed by New York”, indicating something of an emergency as viewed by Mr Bob Albano, and others.  His response had been triggered by a communication from Laurin Scoran:

“This is awful, vile and an extreme embarrassment for the firm. Inge sent this out without checking to see it was approved. We should never have permitted Grant Williams to write this garbage in the first place.”

13.  It is difficult to know what is meant by the written “garbage” unless it is a reference to the English sub‑titles to the Hitler video which Michael Alexander behaved to have been created by the plaintiff.  That notion — bizarre as it was — was thus shared by others in New York as I surmised earlier.

14.  The e‑mail sent out by Ms Inge Ivechenko on the same date went to all clients and perhaps wider still.  I have referred to it in the first part of my judgment.  It bears repetition:

“Please be aware that we inadvertently distributed Grant Williams’ 7 December 2010 edition of ‘Things That Make You Go, Hmmm. . .’ before it was properly vetted. That piece contained third party material from a website that we do not condone. . .We sincerely apologise for the inadvertent distribution of this material.”

15.  The blame was put squarely on the plaintiff’s shoulders.  The defendant was doing its utmost to distance itself from its employee. In effect it was denying it as a corporate publication.  It incorrectly stated that it “contained. . . material from a website that we do not condone”.  It contained a reference to “material from a website”.  It had all the signs of an ill‑considered, hasty and inaccurate attempt to shuffle off responsibility.  It was extremely damaging to the plaintiff.

16.  Coupled with the cessation of the daily newsletter (which would have been noticed by at least 900 people in the financial world) and the virtually immediately dismissal of the plaintiff for gross misconduct, the position would have become readily apparent to a much wider audience.  I have to bear in mind that some of that audience, if not the majority of it with a degree of intelligence above the average, would have wondered why on earth the newsletter had occasioned such an extreme reaction.  They may have understandably queried, in their own minds at least, whether there was something else behind the decision which did not reflect well upon the plaintiff and was perhaps the real cause for his peremptory dismissal.  We have also not been able to see any record of other communications between the senior personnel in New York which reflected their discussions and thinking.

17.  What we do have, as aggravating factors, are the perceptions that the reference to the Hitler video somehow denoted racism, anti‑Semitism, and, the product of an inaccurate but nonetheless over‑sensitive line of thought, sexism.  These perceptions aggravated the errors of the decision‑making body, however wide that may have been, but more importantly for the plaintiff, they had the potential to aggravate the reaction against him.  It is not known how many shared Mr Alexander’s deluded belief that the plaintiff in fact, created the offending sub‑titles.  If that belief permeated the thoughts and expressions of others, then the barriers being raised for the plaintiff were becoming considerable.  Mr Alexander’s own statement says that “his [plaintiff’s] name came up a few times in client meetings in the first few months following his dismissal, and I addressed [them] by saying that ‘the newsletter was entirely inappropriate and we had to dismiss him because of this unacceptable conduct’.” Whether by then Mr Alexander had disabused himself of his fundamental misunderstanding of the origin of the English sub‑titles is not known but he may well have passed his original error onto clients — and thereby most probably a wider audience.

18.  The plaintiff’s evidence concerning the problems he had experienced in obtaining employment, or even access to the means of obtaining opportunities to explore was entirely reasonable and I accept it.  I do not need to repeat it.  I think too his evidence about what Michael Alexander said to him after the short dismissal encounter, to the effect that he expressed some degree of regret or sympathy in view of what had happened, has the ring of truth about it.  Michael Alexander had brought the plaintiff and others with him to Jefferies from another financial concern in 2010.  Whether Mr Alexander ever communicated to his superiors his own misunderstanding, when he realised it, is something we shall not know.

19.  “Head hunters” are no doubt a special breed but if one finds it difficult or impossible to place a client who has been dismissed allegedly for gross misconduct by a well‑known large group in the financial world which would require detailed explanation (if a candidate was able to proceed as far as an interview for a vacancy) then others would find a similar difficulty.  I readily accept that instructing more than one such agency in this cross‑fertilising world, would be counter‑productive.  Advice to the effect that it would be better to wait for “it all to blow over” or “go away”, though unpalatable and certainly not re‑assuring, would be almost inevitable and leave the plaintiff in limbo.

20.  Evidence was given concerning the special treatment accorded to another employee of the defendant who had appeared in court in Hong Kong for an offence of violence, when in drink, against a police officer.  He received support from the defendant company and not only retained his liberty but also his employment.  The defendant’s terms of employment categorised such behaviour as justifying instant dismissal.  The contrast between his treatment by his employers and their treatment of this plaintiff would have left anyone in the financial trading milieu with the entirely unwarranted impression that Grant Williams’ behaviour must have been particularly heinous.

21.  I accept the plaintiff’s evidence concerning how he viewed the stigma.  I consider it a matter of reality. A vindication of his position and a declaration that he should be free of that stigma, and the other taints or smears, is the essential basis for a return to normality and he now has that.  In view of his ability as recognised by the defendants when they took him on fortified even by their recognition of the newsletter as an attractive marketing tool, it is virtually unarguable that his inability to gain worthwhile employment commensurate with his ability is not entirely due to the treatment he received at the hands of the defendant company and the Group.

22.  He has obtained limited employment with a significantly reduced income, which the plaintiff believes will be or can be equally remunerative once the stigma, etc, are removed.  Mr Ashley Burns SC on behalf of the plaintiff argues that it would be reasonable to take the loss under this head as terminating at the 31 July 2013.  I think he is right.  That represents a period of a little over two years since the termination of the six‑month period of notice which forms the basis of the first period of loss.  Credit will of course have to be given for any earnings between 8 June 2011 and 31 July 2013, which is conceded.

BONUSES AND THE CULTURE

23.  It has been argued that by reason of the troubles experienced in the financial world, remuneration and bonuses are, to use a colloquial phrase, not what they were.

24.  The meaning of bonus seems to have changed significantly over the past decade or so.  Entitlement to bonuses in one form or another has been built into contracts as a matter of course.  They have ceased, it appears, to be dependent upon performance over and above that for which high levels of remuneration, in themselves generous, are paid.  There may be some tax advantage to employer or employee, in devising pay packages along these lines, I do not know, but the public at large has come to recognise that bonuses are not synonymous with success but are paid regardless of success or failure.

25.  No evidence has been called before me to suggest that any of the bonuses (however described) to which the plaintiff was entitled under his contract of employment are no longer payable or, rather, were not payable in 2011 to 2013.  Nor is there any to suggest that the level of principal remuneration has been reduced, or that the pay structure of anyone of the status or position of the plaintiff in 2010, has been varied or reduced in any way.  No comparables have been put forward.  I am not prepared to be influenced by some vague or anecdotal suggestion that the financial world has had a difficult time in terms of remuneration, over the past few years — if indeed it has.

26.  Accordingly, there is nothing reliable or even factual generally to justify my departing from an approach to the effect that the plaintiff would have, and should have continued to reap the same financial rewards from the defendant company over the interim period to date, consistent with the terms of his contract.

THE TAX POSITION

27.  Should any part of the award of damages (under either head) be subject to deduction for tax?

The six‑month period of notice award

28.  Prior to the 2012/2013 year of assessment in Hong Kong, payments made in lieu of notice in accordance with the contract of employment would not have been assessed for tax.  The six‑month period of notice would have expired on 7/8 June 2011 and since the plaintiff’s award under this head would not have been subject to tax at that time, the fact that he receives the award after 31 March 2013 does not affect its tax free status.  What follows also applies to this head.

The award as damages for breach of trust and confidence

29.  This head of damage is based on just over two years loss of salary and contractual benefits.  There is no evidence before me which supports any contention that tax, whether that applicable in Hong Kong or in Singapore, should be deducted from any sum which I order to be paid to the plaintiff as damages under this head, whatever the basis used for calculating the figure.  The figure is therefore to be paid gross and if the Inland Revenue were to claim any liability for tax, then that would be the responsibility of the plaintiff.  It is not appropriate for me to devise some notional rough and ready calculation where there is no clear contingent liability.  That would be to defeat the principle adumbrated by the Privy Council in Comptroller of Inland Revenue v Knight [1973] AC 428 at p 433.  The court held that where a payment was made in respect of the loss of employment it does not come within the ambit of a taxable payment. In Hong Kong, the Court of Final Appeal in Fuchs v Commissioner of Inland Revenue [2011] 2 HKC 422 considered very much the same situation.  Ribeiro PJ put it succinctly (at § 19):

“It is well‑established that damages obtained in a suit for wrongful dismissal or a payment under a settlement agreement reached in such a suit are not regarded as income from employment. Such a sum is properly regarded as deriving from a cause of action arising after the contract has been discharged by breach.”

That therefore is an end to the matter unless legislation changes the situation.

CONCLUSION

30.  The awards are as follows:

	HK$
6 months wages in lieu of notice	1,017,434.81
Restricted Stock Cash Grant	1,945,000.00
Retention Bonus	1,945,000.00
2011 Guaranteed Bonus	1,945,000.00
	___________ 6,852,434.81
Damages for breach of trust and confidence
Loss of salary – 8/9 June 2011 to 31 July 2013 @SGD344,250.00 per annum. 26 months: SGD745,875.00
Discretionary bonus for 2012 @US$250,000.00
Discretionary bonus for 7 months of 2013 @250,000.00: US$145,833.33

31.  I have left these figures in the currency set out in the claim and identified for the most part in the plaintiff’s contract.  Certain deductions have yet to be made to reflect the plaintiff’s earnings during the period up to 31 July 2013.  Once the parties have agreed those, and the currencies in which the judgment is to be given, I will approve that figure or those figures and incorporate them in the judgment.