MATILDA & WAR MEMORIAL HOSPITAL v. DAVID HENDERSON

1996, No.MP4285

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H E A D N O T E

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Effect of dismissal letter on contractual licence to occupy quarters

If dismissal wrongful - whether employee is bound to accept repudiation of contract by employer or whether employer to be restrained from acting on that dismissal

Company law - irregularity principle - when applicable

Ratification of act of unauthorised agent - whether retroactive - effect on third parties

Held

(1) Effect of dismissal letter was the immediate termination of the employee's contract and in any event of his licence to occupy the premises, the employee being entitled to a reasonable packing up time.

(2) Even if the termination was wrongful, where there was no continuing mutual trust between the parties, an injunction will not be granted to keep alive an employment relationship that has ended solely to enable the employee to enjoy the benefit of quarters provided in specie and where the employee has failed to establish the damages would not be an adequate remedy.

(3) A member of company may not bring action to question the lawfulness of a decision taken by the directors if the only factor making it unlawful is a mere informality or irregularity and the intention of the meeting is clear. An employee is in no better position than a member of the company and may not question the lawfulness of the decision taken by the board where the irregularity principle applies.

(4) As a general rule, the act of an unauthorised agent once ratified relates back to the date when the act was done and is binding on third parties. The Defendant has failed to establish that the general rule is not applicable in the present case.

Plaintiff's application for an order for possession granted and Defendant's application for injunctive relief dismissed.

1996, No.MP 4285

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

MISCELLANEOUS PROCEEDINGS

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D E C I S I O N

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1. This is a summons under O.113 of the Rules of the Supreme Court issued by the Matilda & War Memorial Hospital ("the Hospital") to recover possession of what is known as the Chief Executive Flat at the Hospital ("the Flat") from the Defendant Dr Henderson.

2. Dr Henderson was offered employment as Chief Executive of the Hospital for a two year term commencing 4 March 1996. The letter setting out the terms of his employment ("the Contract") is dated 28 February 1996. It was a term of the Contract that Dr Henderson would be provided with rent-free accommodation within the Hospital, i.e., the Flat. The Hospital's case is that the Contract came to an end on 31 October 1996, and that being the case, he has no right to remain in possession.

Chronology of events

3. A meeting of the Board of Governors was held on 31 October 1996. It was attended by seven out of eight members of the Board. One of the Board members present was Dr William Green. There is a dispute between the parties as to what took place during the board meeting, but it is accepted that at some point the meeting stood adjourned whilst Mr Lang, the Chairman of the Board accompanied by another board member, delivered a letter dated 31 October 1996 ("the October letter") to Dr Henderson.

4. The October letter was addressed to Dr Henderson and was signed by Mr Lang as Chairman of the Board of Governors. It read as follows :

" It has been agreed by the Board of Governors that your employment with the Matilda Hospital will end on 31 October 1996. This letter constitutes the giving of six months' notice in writing, although the Hospital does not require your services during these six months and the Hospital will pay you six months' salary ..... in lieu of notice.

You may use your present accommodation on the 4th floor of the Hospital until noon on Friday, 15 November 1996."

The letter went on to deal with education allowances, repatriation costs, unused leave passages and untaken annual leave which the Hospital believed to be due to Dr Henderson under the terms of the Contract. It made certain proposals regarding these items. It went on to say :

"In return for receiving these sums and the above payment in lieu of notice, you accept that this is a full and final settlement from the Hospital, and you hereby waive, release and abandon any claims you may have against the Matilda Hospital."

The Hospital proposed to effect payment in respect of outstanding education allowance, unused leave passages and untaken annual leave upon Dr Henderson vacating the Flat on Friday, 15 November. It further proposed that the amount of wages in lieu of notice would be paid to Dr Henderson upon receipt by the Hospital of a signed copy of the letter indicating Dr Henderson's acceptance of the terms.

5. The next board meeting was held on 13 November 1996. It was attended by six out of the eight Board members. The minutes of the November board meeting recorded that :

"The minutes of the Board of Governor's meeting held on 31 October 1996 were tabled, approved and signed."

For present purposes, the relevant part of the minutes of the October board meeting confirmed at the November board meeting was as follows :

"New Chief Executive

The Board resolved, with effect from 31 October 1996, to end Dr David Henderson's Employment Contract with the Hospital and to pay him six months' salary in lieu of notice. The Board also resolved that he be allowed to remain in Matilda Hospital accommodation until 15 November 1996."

6. At an unofficial meeting of members of the Board convened by Dr Green on 2 December 1996, it was agreed that Dr Green would no longer be involved in discussions in relation to the dispute between the Hospital and Dr Henderson and that Dr Green would excuse himself from meetings of the Board or board members when the matter was discussed. This arose out of the possibility that Dr Green would be subpoenaed to appear in court regarding the dispute.

7. Accordingly, Dr Green did not attend the board meeting convened for and held on 4 December 1996 where it was resolved that the Hospital instruct solicitors to commence legal proceedings for possession of the Flat. Mr Lang was authorised to instruct the Hospital's solicitors in the matter involving Dr Henderson and in particular to make all necessary affidavits in support of the present proceedings which were issued two days later on 6 December 1996.

8. Notice of a board meeting convened for 22 January 1997 at 4:30 p.m. to discuss the on-going legal dispute with Dr Henderson was given to all board members including Dr Green on 20 January 1997. An addendum to the agenda for the meeting was sent out to all members in the afternoon of 22 January shortly before the meeting was due to commence. It set out two proposed resolutions. This addendum was faxed to the Hospital at 15:20 that afternoon for Dr Green. According to Dr Green, he did not receive it until 16:10 hrs. At 16:40/16:45 hrs., Dr Green received a telephone call from Mr Lang asking whether he would be attending the meeting. Dr Green confirmed that he would not be attending the meeting.

9. The board meeting scheduled for 4:30 p.m. commenced at 4:55 p.m. Five out of the eight board members were present. At that meeting, it was resolved unanimously on a show of hands as follows :-

"For the avoidance of doubt that Dr Henderson's employment with the Hospital was and is hereby (in so far as there may be any doubt about the matter) terminated with effect from 31st October 1996 and any right or licence which Dr Henderson had or has to occupy the Chief Executive's flat on the 4th floor of the Grayburn Wing of the Hospital was and is hereby revoked and terminated.

It was also resolved unanimously on a show of hands to ratify the act of the Chairman of the Board of Governors, John Lang, whereby he notified Dr Henderson of the termination of his employment with the Hospital by his letter dated 31st October 1996."

10. The Hospital's application for possession is resisted on a number of grounds. Dr Henderson claims to be entitled to remain in the Flat until 4 March 1998 or, in the alternative, to 30 April 1997.

Construction of the Contract

11. Clause 1 of the Contract provided as follows :

"1. Term

The term of this contract will be two years, ie., until 4 March 1998. This contract may be extended or renewed subject to mutual agreement, but may be terminated by either party on the giving of six months' notice in writing."

12. Counsel for Dr Henderson submitted that on its true construction, the contract was for a fixed term of two years which was not terminable during that period and that the provision for the giving of six months' notice was referable only to any extended or renewed term after the expiration of the initial two year term. On this construction, it was submitted that Dr Henderson has a contractual licence to remain in the Flat until at least 4 March 1998.

13. I do not accept that this can be the true construction of the Contract. The provision relating to the giving of six months' notice is referable to "this Contract", meaning the contract evidenced by the letter dated 28 February 1996 which has a term of two years subject to any extension or renewal by mutual agreement. As such, the notice provision most naturally applies to the whole of the period during which the Contract subsists, including any extended term. As a matter of construction, that is the most natural and ordinary meaning of the words used. There is nothing in that clause to warrant an interpretation that makes the notice provision referable only to any extended term and not also to the original term.

14. In any event, even a contract for a fixed term may be brought to a premature end : the only difference is that premature termination may constitute a breach sounding in damages. Of itself, the Defendant's construction of the Contract is not a ground for resisting possession.

Effect of the October letter

15. Various possibilities were canvassed in the course of the hearing :

(i) it was nothing more than an offer to treat upon and in relation to the terms of a mutually agreeable termination of the Contract;

(ii) it operated as a dismissal with notice;

(iii) it operated as an immediate dismissal without notice, whether or not it was a dismissal within s.7 of the Employment Ordinance, Cap.57 ("the Ordinance");

(iv) it operated as a withdrawal of the licence.

(i) offer to treat

16. Read as a whole, the October letter cannot properly be construed as only taking effect upon the parties reaching mutually acceptable terms. The "offer" made in the letter was an attempt to reach agreement in monetary terms as to the Defendant's entitlement under the Contract and the Ordinance in respect of the termination. It was the Hospital's quantification of the Defendant's entitlement which, if accepted by the Defendant, would preclude any question of a claim for damages from arising. If rejected, it would leave the question of compensation or damages open for future adjudication. The termination itself was not conditional on agreement being reached in respect of the Defendant's monetary entitlements. Accordingly, the submission that the letter was nothing more than an offer to treat is untenable.

(ii) dismissal with notice

17. In the alternative, the Defendant contended that the letter constituted a dismissal upon notice within Adams v. GKN Sankey Ltd. [1980] IRLR 416. In that case, the dismissal letter dated 2 November 1979 was couched in the following terms :

"You are given 12 weeks notice of dismissal from this company with effect from 5 November 1979. You will not be expected to work out your notice but will receive money in lieu of notice...."

The question that arose was whether the employment terminated on the date of the letter of 2 November or whether it took effect only at the end of the 12 weeks' notice from 5 November. The Employment Appeal Tribunal held that the employment continued until the expiration of the period of notice. It was contended that the October letter should similarly be construed as a dismissal upon notice and as it was common ground that the effect of such a dismissal is that the contract remains extant until the expiration of the period of notice, the Defendant is entitled to remain in occupation under his contractual licence until 30 April 1997.

18. Leading Counsel for the Hospital submitted that GKN Sankey is factually distinguishable because in the present case the dismissal letter stated that "the contract will end" on a specified date and there was also the clear requirement that the Defendant vacate the Flat by 15 November. These features were absent from GKN Sankey.

19. Although the second sentence of the first paragraph of the October letter standing alone can be said to bear certain similarities with the terms of the dismissal letter in GKN Sankey, reading the October letter as a whole, the intent is clear : the first sentence of the first paragraph stated in no uncertain terms that the Defendant's employment would end on 31 October 1996. When coupled with the requirement to vacate the accommodation within 15 days thereafter, which is and can only be consistent with the termination taking effect on 31 October, there can be little doubt that termination was immediate. Whilst the language used in the second sentence may have been infelicitous, when the letter is read as a whole, it does not give rise to an ambiguity such as would require that issue to be tried. In my judgment, the October letter was not a dismissal upon notice. Even if I were wrong about this, it makes no difference to the result as will be apparent from the section dealing with injunctive relief below.

(iii) immediate termination (whether or not within s.7)

20. Counsel for the Defendant submitted that the termination was not within s.7 of the Ordinance because wages in lieu due under s.7 were never tendered together with the October letter. In fact it was not until 20 December 1996 that an amount, different from that mentioned in the October letter, was tendered. He also placed reliance onYip Wan Chiu v. Magnificent Industrial Ltd. [1974] HKLR 183 for the proposition that for an effective s.7 termination, there must be mutual agreement. But whether mutual agreement is necessary is unclear : in Downey's Annotated Guide to the Employment Ordinance, (at p.32 of Part II) it was noted that subsequent courts have proceeded on the basis that a unilateral undertaking to make payment in lieu is sufficient to meet the provisions of s.7 despite the majority decision of the Full Court in Yip Wan Chiu. Be that as it may, it is unnecessary for the purposes of the present application to make any determination as to whether the Hospital has complied with its obligations under s.7 of the Ordinance. Whether or not the termination takes immediate effect does not turn on that question. If the Hospital has not complied with s.7, then the dismissal would have been wrongful and if that is established, the Defendant will be entitled to compensation under s.8A of the Ordinance.

21. If I am right that the October letter operated as a dismissal with immediate effect, not only does the contract of employment come to an end, the licence of the Defendant to occupy the flat also comes to an end with it : see Vipac Engineers & Scientists Ltd. v. Mark Karpovich [1990] 1 HKLR 725 at 728H-729E and Ivory v. Palmer [1975] ICR 340.

22. The Defendant sought to distinguish Vipac and Ivory v. Palmer on the basis that in those cases the employee accepted that his contract of employment had come to an end whereas in the present case the Defendant has consistently refused to accept that his contract has been brought to an end.

23. Mr Scott submitted that acceptance of the repudiation by the employee is not a necessary part of the ratio in Vipac or Ivory v. Palmer. The employee has no choice but to accept the employer's repudiation. He referred to the English Court of Appeal's decision in Ivory v. Palmer [1975] ICR 340 where Roskill L.J. stated (at 352 A-B).

"Once the defendant was dismissed, under what was an ordinary service agreement between employer and employee, he had, as a matter of the ordinary contract law of master and servant, no alternative but to accept that dismissal as an accomplished fact, whether it was right or wrong. If it was right, he had no remedy: if it was wrong, his remedy, as was pointed out in Vine's case, lay in damages."

The judgment of Browne L.J. at 354H-355B is to the same effect.

24. Neither Counsel referred to the unresolved controversy between (1) the "automatic" or "unilateral" theory (of which Ivory v. Palmer is an illustration) under which the employee's only remedy in law becomes one of damages and (2) the "acceptance" or "elective" theory where acceptance of repudiation is still required, leaving open the possibility of some form of enforcement in exceptional cases.Hill v. C.A. Parsons & Co. Ltd. [1972] 1 Ch. 305 is a well-known illustration of the latter. The special features in that case were not only continuing mutual confidence but also the fact that it would enable the employee to avail himself of the Industrial Relations Act which came into force after the date of the act of repudiation.

25. The current position is summarised in 16 Halsbury's Laws of England (4th Ed. Reissue) at para.303 as follows :

"An employee who has been wrongfully dismissed will therefore normally have to accept the repudiation and sue the employer for damages. As an exception to this rule, there may be cases where a court will grant an injunction to a wrongfully dismissed employee to restrain the employer from acting on that dismissal where there remains a strong element of continuing mutual confidence between the parties, but this exception has been restrictively construed ..."

26. The feature of "continuing mutual confidence" is plainly lacking in the present case. That alone is dispositive of any question of this case falling within the exception to the general rule referred to in the passage cited above.

27. It is to be noted that the application of either theory produces a similar result (immediate termination and no legal enforcement) in most common law actions : see 16 Halsbury's Laws (supra) para.303, note 1.

28. If the Defendant's dismissal was not within s.7 of the Ordinance only for the reason that the amount tendered was less than his entitlement under the Ordinance and the Contract, although such termination would be "wrongful" entitling him to compensation under s.8A, in my judgment, that is not a ground that would warrant the grant of any injunction. (The question of injunctive relief is considered further below.)

(iv) withdrawal of the licence

29. On any view, the October letter was effective in terminating the Defendant's licence to occupy the Flat. As a matter of law, a contractual licence can be effectively revoked in breach of contract, whereupon the licensee becomes a trespasser. Wood v. Leadbitter (1845) 13 M & W 838 is still good authority on this point. The principle at law is that the licensor has power to remove the licensee but no right to do so. Though it would be unusual, it is open to an employer to terminate a contractual licence to occupy employment-related accommodation without terminating the employment contract itself. It is in substance no different from the unilateral withdrawal of a benefit available under an employment contract such as the provision of a car. Whilst the unilateral withdrawal of a benefit (albeit significant) under the Contract may amount to a repudiatory breach on the part of the employer in respect of which a claim for damages would lie, an employee has no right to remain in possession : see Ivory v. Palmer (supra). In such a case, all the employee would be entitled to would be a reasonable "packing up time" : see Vipac (supra) at 728.

30. In this connection, I express no views as to whether the 15 day period given to Dr Henderson amounted to a reasonable packing up time, but merely observe that the period was subsequently extended to either 29 or 30 November and in the events that have happened, the Defendant is still in possession some 90 days after the withdrawal of the contractual licence. So, on any view, the Defendant has had a reasonable time to pack up.

(The question whether the Defendant would be entitled to an injunction is considered below.)

Whether there was an effective resolution to terminate

31. The Hospital was incorporated as a body corporate with perpetual succession by the Matilda & War Memorial Hospital Ordinance, Cap.1035. Its Articles of Constitution are set out in the Schedule to that Ordinance. Under Article 5, the supreme control, government and management of all the property and affairs of the Hospital is vested in the Board of Governors. The powers of the Board of Governors are set out in Article 6 and include a power "to appoint and at their discretion dismiss or suspend ... medical superintendents ..." Article 10 provided that "at any meeting of the Board of Governors, a quorum shall be constituted by four members of the Board." Article 12 provided that "the Board of Governors shall cause minutes to be made in books provided for the purpose - (b) of all resolutions and proceedings at all meetings of the Board ..."

32. According to Dr Green, at no time was a resolution ever put to the Board to dismiss Dr Henderson and the Board at no time resolved at the October meeting to terminate the Contract. Nevertheless, it is accepted that the issue of terminating the Defendant's Contract was raised at the Board meeting held on 31 October 1996 and that a majority of the Board held the view that the Contract should be terminated. It is common ground that no formal vote was taken at the meeting.

33. Leading Counsel for the Hospital observed that there is nothing in Dr Green's affidavit about Dr Green (or for the matter any other Board member) voicing any objection to the termination of Dr Henderson's Contract : no one was prevented from speaking out yet no one spoke out against it and in the absence of dissent, it was fair and proper for Mr Lang to assume that to be the unanimous view of the meeting. Mr Scott submitted that, in reality, it was a decision "nem con".

34. It is not essential for the validity of a directors' resolution that the determination should be embodied in a formal resolution : see Palmer's Company Law at para.8.307. A resolution is nothing more or less than a decision or determination taken by the Board. What appears to me to be essential is that the course of action to be implemented has the concurrence of the members acting with full knowledge. That concurrence constitutes the decision or determination of the Board. On principle, concurrence may be signified in a number of ways and in an appropriate case, it may suffice if the concurrence is tacit. Be that as it may, even if (as Dr Green says) a resolution was not put to the Board, that is at best an irregularity where the intent of the meeting is clear. The confirmation of the October minutes by the Board at the November meeting would have laid to rest any residual doubts about the intent of the meeting. That was an unanimous act of the Board. So was the decision to institute the present proceedings. Further, any irregularity would have been cured by the resolutions passed at the board meeting held on 22 January 1997.

35. Mr Scott Q.C. submitted that the irregularity principle as stated by Lord Davey in Burland v. Earle (1902) AC 83 at 93-94 applies. A member of a company may not bring an action questioning the lawfulness of a decision taken by the directors if the only factor alleged to make it unlawful is a mere informality or irregularity and the intention of the meeting is clear. Thus, a member cannot bring an action questioning the validity of the decision on the basis of mere informality or irregularity if it is clear that on going through the correct procedure the decision would be ratified. See Lawton on Meetings in Hong Kong at pp.203-4. Would the outcome of the October meeting have been different if the correct procedure had been observed? The answer must be in the negative having regard to the approval of the October minutes at the November meeting, the decision to institute the present proceedings taken at the December meeting and the resolutions passed at the recent meeting of 22 January. On each occasion, the decision of the Board was unanimous. No different result has been demonstrated by the Defendant.

36. It was further submitted that the act of ratification of an unauthorised agent is retroactive and relates back : see the judgment of Tindal C.J. in Wilson v. Tumman (1843) 6 Man & G 236 cited by Harman J. in Boston Deep Sea Fishing Co. v. Farnham (1957) 3 All ER 204 at 209D. The net result is that if Mr Lang was not duly authorised by the Board to deliver the October letter because of any procedural irregularity, the second resolution passed on 22 January would have validated that act.

37. Two objections were raised on behalf of the Defendant. First, it was contended that the January meeting was not duly convened and this fact was sufficient to invalidate the meeting and the resolutions passed at that meeting. As Dr Green only had 20 minutes' notice in relation to the addendum item and could not have made the meeting in time quite apart from his being professionally engaged at the time, it was contended that the notice being insufficient was not due notice and thus a nullity. Browne v. La Trinidad (1888) 37 Ch.D.1 at 10 was distinguished on the ground that although in that case the notice was left with the plaintiff only a few minutes before the time fixed for the meeting, the plaintiff's office was at a very short distance away and could have attended the meeting. The Defendant relied on Young v. Ladies' Imperial Club Ltd. (1920) 2 KB 523 where the omission to summon the absent member of the committee invalidated the proceedings and Harben v. Phillips (1883) 23 Ch.D.14 where Cotton L.J. observed (at p.34) that if a meeting was not properly convened by the board, the resolutions passed at it could not alter or repeal the previous resolutions.

38. The objection that the January meeting was not duly convened is not well-founded. Even if notice was required, Dr Green was given it. The addendum item plainly fell within the topic of discussion for the January meeting in respect of which due notice had been given to Dr Green : it did not constitute business that could objectively be said to be unrelated to or which was not in reality part and parcel of the business to be discussed under the notice given on 20 January. In that sense notice of the addendum to the agenda was not strictly necessary. In any event, the cases relied on by the Defendant are distinguishable. Accepting (as I must) Dr Green's account of the time the addendum was delivered to him, it is material that this was followed by a telephone call from Mr Lang at approximately 4:40 p.m. There is no evidence that Dr Green considered it appropriate (having regard to the agreement of 2 December 1996) that he should be present at the meeting to discuss the addendum item or that he endeavoured to seek any adjournment of the meeting. He did not evince any intention of wanting to attend the meeting. In these circumstances, the objection that the January meeting was not properly convened has no merit.

39. The second objection raised by the Defendant is as to the effect of an act of ratification. Mr Fisher submitted that the act of ratification by a principal was relevant only to the relationship between the agent and the principal and did not affect the position of a third party. Mr Fisher was unable to provide an authority for this general proposition at the hearing. Subsequent to the hearing, Mr Fisher submitted passages from Bowstead & Reynolds on Agency, 16th Edition, Chapter 2, Article 19 which deal with limitations on the doctrine of ratification for the court's consideration. Suffice to say that the limitations on the retrospective effect of ratification which are necessary for the protection of third parties was no part of Mr Fisher's submissions. In any event, there is no material before the court upon which any such finding could be based. But no authority was submitted in support of his general proposition. This is not surprising because it is clear that the effect of ratification on the principal-third party relationship is to confer authority which relates back to the date when the act was done : Bolton Partners v. Lambert (1888) 41 Ch.D.295; 1 Halsbury's Laws of Hong Kong at 15.030.

40. Accordingly, I hold that the resolutions passed on 22 January were effective in curing any irregularities that might have affected the October board meeting.

Injunctive relief

41. The question of a final injunction does not arise unless and until the Defendant establishes that he has a right which is being infringed. It is apparent from the foregoing that none has been established and the Defendant's summons for injunctive relief ought therefore to be dismissed. I did not dismiss the Defendant's summons at the hearing of the summons for directions notwithstanding certain procedural difficulties flowing from the fact that what is sought is a final rather than an interlocutory injunction so as not to preclude the possibility of injunctive relief should a case be made out. It is to be noted that had the application been for interim relief, questions of a cross-undertaking as to damages and as to the balance of convenience would have arisen.

42. Mr Fisher referred to the discussion in Meagher, Gummow and Lehane's Equity : Doctrines and Remedies on the "ticket" cases and contractual licences and relied on statements to the effect that in every contractual licence there is an implied negative stipulation by the licensor not wrongfully to revoke the licence, not to treat the licensee as a trespasser until the licence has been validly determined and that a negative stipulation in a mere licence can be protected by injunction (at 2148 and 2151).

43. I do not see how these general observations can be of assistance to the Defendant even if I were to assume in the Defendant's favour that his dismissal was wrongful. The licence is nothing more than a benefit available under and ancillary to the employment contract. Its value is readily quantifiable. Wherein lies the equity in granting the injunction solely to preserving the Defendant's enjoyment of the benefit in specie although the employer-employee relationship has foundered?

44. There does not appear to be any decided case whether in the contractual licence context or the employer-employee context where a court has granted an injunction (interlocutory or final) to restrain an employer from recovering employment-related accommodation where that employer had wrongfully terminated the employment contract. That is perhaps not surprising since it is difficult to conceive that in such a case damages would not be an adequate remedy. On any view of the matter, that appears to be the short answer to the Defendant's summons. Indeed whilst lengthy affidavits have been filed on behalf of the Defendant, evidence on this issue was conspicuously absent. It follows the Defendant's summons must be dismissed.

Conclusion

45. No valid ground has been made out for resisting the Hospital's application for possession. I will hear Counsel as to the terms of the order including the question of costs.