SUNNY TADJUDIN v. BANK OF AMERICA, NATIONAL ASSOCIATION

HCA 322/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 322 OF 2008

(Transferred from LBTC 5551 of 2007)

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J U D G M E N T

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INTRODUCTION

1. Miss Tadjudin was formerly employed by the Bank of America, National Association (“the Bank”) pursuant to a contract of employment dated 19 April 2000 (“the Contract”) as a Vice-President in its Distressed Debt Trading Group.  The Bank terminated the Contract by a letter dated 30 August 2007, and  the termination took effect from 28 August 2007.  In lieu of notice of termination, the Bank paid Miss Tadjudin one extra month’s wages.  She was also paid the unused annual leave and pro-rata year-end payment.

2. At the heart of the dispute is the discretionary performance bonus, which Miss Tadjudin claims that she is eligible for, but the Bank, in breach of the implied terms of the Contract, had failed to make an award in her favour.

3. The relevant clause of the discretionary performance bonus is provided in the last paragraph of clause 1 of the Contract, and it reads:

“You will be eligible for consideration under the Bank’s performance incentive program and it will be subject to you being employed by the Bank at the time of payment.”

4. Miss Tadjudin first commenced her claim against the Bank in the Labour Tribunal, and it was transferred to the Court of First Instance.  After the Statement of Claim (“SOC”) was filed, the Bank issued the summons under Order 18 rule 19 of the Rules of High Court to strike out the SOC under all the four grounds provided therein, and under Order 14A for the determination of the following questions of law, namely:

(i)    Whether, on proper construction of the Plaintiff’s employment contract with the Defendant, the terms set out in Paragraphs 5(1) to 5(4) of the SOC can be implied into the terms therein; and

(ii)  If the answer to the above is yes, whether the implied terms set out in Paragraphs 5(1) to 5(4) of the SOC are capable of overriding the effect of the express terms in the Plaintiff’s employment contract with the Defendant.

ISSUES

5. The cause of action in this claim is based not on an allegation of breach of express terms, but of the implied terms, which are particularized in Paragraphs 5(1) to 5(4) of the SOC.  For easy understanding, I set out below the entire Paragraph 5 of the SOC in full: -

“As legal incidents of the employment relationship between the Plaintiff and Defendant there were implied into the Employment Agreement contractual duties on the Defendant:

(1)   not to commit any unlawful act of discrimination against the Plaintiff;

(2)   not to exercise its right to terminate the Plaintiff’s employment by giving one month’s notice in writing or by paying one month’s salary in lieu of notice in order to avoid the Plaintiff’s being eligible for the Defendant’s performance incentive program;

(3)   not to implement its performance evaluations in respect of the Plaintiff in an irrational, perverse or arbitrary manner or in a manner that was not bona fide; and

(4)   not to administer its performance incentive program in respect of the Plaintiff in an irrational, perverse or arbitrary manner or in a manner that was not bona fide.”

6. Mr. Scott, SC, and Mr. McLeish, respectively senior counsel and counsel for the Bank and Miss Tadjudin agree that should I accede to the Bank’s application to strike out Paragraphs 5(1) to 5(4) of the SOC, the whole action would also go.

7. Although the grounds advanced for striking out Paragraphs 5(1) to 5(4) were given different headings, they can however be broadly divided into two main grounds.  They are the jurisdictional argument in relation to Paragraph 5(1), and the implied terms argument in relation to Paragraphs 5(2) to 5(4) of the SOC.

8. Hence, the issue I need to decide is therefore whether:

(1)  The cause of action pleaded in Paragraph 5(1) of the SOC falls within the exclusive jurisdiction of the District Court by the operation of the Sex Discrimination Ordinance (“SDO”), Cap. 480.  This will be referred to as the “Jurisdiction Issue”.

(2)  An implied term can be incorporated into the Contract to contradict its express terms ( this is the ground for striking out Paragraph 5(2) of the SOC (“Implied Term Issue”), but it is similarly applicable to the ground for striking out Paragraphs 5(3) to 5(4) of the SOC (“Irrelevant Pleadings Issue”))

DISCUSSIONS

9. The laws on striking out are settled, and I do not wish to repeat herein.  At the hearing, I made a remark that this case appeared to be more suitable to be heard by a Judge because of the importance of the legal issues involved in employment contracts, and in particular when the losing party would likely appeal.  It is evident that there would be another re-hearing before a Judge.

10. That being the case, my reasons could be brief.

(1)  Jurisdiction Issue

Mr. Scott’s arguments

11. Mr. Scott, submits that the implied term of a duty is within the ambit of section 11 (2) of Part III of the SDO, which make it unlawful to discriminate against a woman in a work establishment.  Mr. Scott therefore argues that sections 75(1), 76(1) and 76(3) of the SDO restrict Miss Tadjudin’s alleged discriminatory act as pleaded in Paragraph 5(1) of the SOC to be litigated only in the District Court.

Mr. McLeish’s arguments

12. Mr. McLeish contends that Miss Tadjudin’s claim is one of contract, and section 76 (3) of the SDO only confers exclusive jurisdiction in a civil action found on tort, but not on contract. Hence, Paragraph 5(1) of the SOC, as Mr, McLeish argues, is not caught by the restriction imposed by the SDO.

Analysis

13. According to Paragraphs 33, 41 and 42(1) of the SOC, Miss Tadjudin’s claim is based on an allegation that the Bank has allegedly applied a pro-male bias  in favour of males in its consideration for promoting employees at managerial level, and in its decision to terminate the Contract.

14. In the SOC, Miss Tadjudin seeks a relief for damages for the alleged unlawful acts, and claims for an entitlement for payment of performance bonus.

15. Are the said alleged discriminatory acts, and the relief Miss Tadjudin claims in fact governed by the SDO?

16. I think they are.  According to the particulars of the alleged acts of sex discrimination as pleaded in the SOC (Paragraphs 33, 41 and 42(1) of the SOC), the said alleged discriminatory acts, if proved, may be held to be unlawful under section 11(2)(a) and (c) of the SDO.  A District Judge could grant the relief Miss Tadjudin currently claims in the SOC by awarding damages provided under s. 76(3A)(e) of the SDO.  Further, s. 76(3) of the SDO confers unlimited power to the District Judge to grant both pecuniary and non-pecuniary reliefs.

17. In the circumstances, I take the view that the alleged unlawful discriminatory acts shall be subject to the restrictions imposed by sections 75 and 76(3) of the SDO.  Any civil proceedings, be they contract or tort, should lie within the exclusive power of the District Court. 

18. I am unable to accept Mr. McLeish’s contention that the wordings appear in section 76(1) that “A claim  … may be made the subject of civil proceedings in like manner as any other claim in tort” can be read to exclude contractual claims from the statutory regime.  I am more inclined to think that so long as it is a civil claim against the person “in respect of an act by reason that the act is unlawful by virtue of a provision of” the SDO (section 75(1)), the claim shall only be brought in the District Court.  The said words in section 76(1) of the SDO are likely to be otiose.

19. In view of the above analysis, notwithstanding a complete absence of any authorities in support of both parties’ submissions, I agree with Mr. Scott’s submission, and find that there is no jurisdiction to allow the present sex-discrimination claim to be brought in the Court of First Instance.  Hence, I would exercise my discretion to strike out Paragraph 5(1) of the SOC.

(2)  Implied Term Issue

20. The arguments in respect of this issue have to be understood in the context of the circumstances of the termination.  The Bank paying her one month’s salary in lieu of notice terminated Miss Tadjudin in accordance with clause 3 of the Contract.

21. Hence, this is a case of termination without cause, and it is done in accordance with an express term of the Contract.

Mr. Scott’s submissions

22. Mr. Scott, submitted that Miss Tadjudin was not permitted to rely on an implied term as pleaded in Paragraph 5(2) of the SOC to contradict the express terms of the Contract.

23. To support his arguments, Mr. Scott, has referred to the Privy Council decision of Reda & Another v Flag Ltd. [2002] IRLR 747, in which the Lord Justices had agreed with a previous House of Lords decision of Johnson v Unisys [2001] IRLR 279 and held that an employer’s express and unrestricted power to terminate an employee’s contract of employment without cause should not be qualified in any way, “whether by reference to the implied term of trust and confidence or otherwise” (at paragraph 52).

24. Mr. Scott, further submitted that although there was no Hong Kong authority directly on the issue of entitlement to discretionary bonus in an employment contract, Hong Kong courts in Sun Zhongguo BOC Group Ltd [2003] 2 HKC 239 and Ng Ai Keng, Jasmine v the Open University of Hong Kong, unrep. (HCA 9801/2000, CIF, 29 July 2005) have followed and applied the reasoning in Reda.

25. Mr. Scott, further stated that as a result of the termination in August 2007, the Bank no longer employed Miss Tadjudin when the performance bonus for year 2007 was paid in February the following year.  Hence, it was submitted that Miss Tadjudin, in accordance with the express terms of the Contract set out in paragraph 3  above, simply did not have any entitlement for an award of a performance bonus.

Mr. McLeish’s arguments

26. Mr. McLeish submitted that subsequent to Reda, in UK a number of authorities on discretionary bonus payments in employment agreements have emerged, which point to the possibility of the co-existence of an implied term with the express terms of an agreement.  He further contended that the recent line of authorities in UK have led to the development of – in additional to the overarching implied duty of trust and confidence – a new implied term into a contract of agreement requiring an employer not to terminate the employment of an employee in order to avoid an express term for payment of discretionary bonus, or an accrued benefit.

27. Mr. McLeish has therefore conveniently named Paragraph 5(2) of the SOC as an “anti-avoidance implied term”.

28. Further, there were cases of Clark v Nomura International plc [2000] IRLR 767 and Horkulak v Cantor Fitzgerald Int’l [2004] IRLR 942, which, according to Mr. McLeish, were authorities on the existence of an implied duty in a contract of employment requiring an employer not to act irrationally, perversely or contrary to good faith in the exercise of discretion for payment of a discretionary bonus.

29. The duty not to act irrationally and perversely, Mr. McLeish contended, applied not just to the process of assessment of the amount of the bonus to be paid, but it should also be applicable to an employer’s liability for payment.

30. In support of his arguments, Mr. McLeish relied on a number of decisions on unfair dismissal and redundancy cases resulting from a loss to an employee of either discretionary bonus or redundancy benefits (as the case may be).  The cases cited include Jenvey v Australian Broadcasting Corporation [2002] IRLR 520, Takacs v Barclay’s Services Jersey Ltd [2006] IRLR 877, Commerzbank AG v Keen [2007] IRLR 132 and Eastwood Magnox Electric plc [2004] IRLR 733.

31. Mr. McLeish placed particular emphasis on Lord Steyn’s dissent in the two House of Lords decisions of Johnson and Eastwood, and argued that the implied terms pleaded in the SOC were at least arguable, and should not be struck out.

Analysis

32. An analysis of this issue should, in my view, begin with a speech by Lord Hoffmann in his judgment in Johnson at paragraphs 35 and 37.

33. At paragraph 35:

“At common law the contract of employment was regarded by the courts as a contract like any other.  The parties were free to negotiate whatever terms they liked and no terms would be implied unless they satisfied the strict test of necessity applied to a commercial contract.”

34. At paragraph 37, any implied terms

“must be consistent with the express terms.  Implied terms may supplement the express terms of the contract but cannot contradict them.  Only Parliament may actually override what the parties have agreed ……”

35. In this case, the Contract has expressly empowered the parties to terminate it without cause by either giving the requisite notice or payment in lieu.  The express terms of the Contract clearly disentitle Miss Tadjudin for any performance incentive payment as on the date of payment in February 2008, she was no longer employed by the Bank (as required by clause 1 of the Contract).

36. Similar to the case of Reda, the power to terminate the Contract without cause in this case is evidently not qualified as the Bank (as well as Miss Tadjudin) could, according to clause 3 of the Contract, at any time forthwith terminate the Contract by paying wages in lieu of notice. 

37. In Hong Kong, Part VIA of the Employment Ordinance (Cap. 57) provides for anti-avoidance legislations to protect employees from being deprived of accrued rights for severance and long service payments as a result of dismissal.

38. There is however nothing in our statutory regime providing for anti-avoidance protection in respect of other benefits such as discretionary bonus under a contract of employment.

39. I am unable to draw much assistance from the cases Mr. McLeish cited, as these cases are not cases on termination without cause in accordance with the express power of an employment contract.  For this reason also, I do not consider Johnson is relevant in the context of this striking out application.

40. Our courts have followed Reda.  I, too, am of the view that Reda should be followed, and hold that there is nothing in this case allowing for the implication of the terms, which are clearly not consistent with the express terms of the Contract.

41. It therefore follows that Paragraph 5(2) of the SOC should also be struck out, as it is not legally sustainable.

IRRELEVANT PLEADINGS ISSUE

42. For the reasons above, Miss Tadjudin clearly has no entitlement to be considered for payment of any performance incentive payments, as she could not be artificially treated as still being employed in February 2008.  It follows therefore that Paragraphs 5(3) and 5(4) of the SOC should also be struck out, as the process of assessment for payment simply did not arise consequent upon the contractual termination.

ORDER 14A

43. Having come to the conclusion above, I have no need to determine this part of the summons.  However, the conclusion I have reached above would also mean that I would determine both questions posed in the negative.

CONCLUSION

44. As it is agreed that should Paragraphs 5(1) to 5(4)  of the SOC be struck out, the whole claim should be dismissed, I therefore make an order that the Claim be dismissed.

45. I grant a costs order nisi that Miss Tadjudin do pay the Bank’s costs of the application with certificate for counsel, including any costs reserved, to be taxed if not agreed.