MCGUIRE MICHAEL JOHN EDMUND v. AGW HOLDINGS LTD t/a A G WILKINSON & ASSOCIATES AND ANOTHER

HCA 4984/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4984 OF 2001

____________

____________

_______________

J U D G M E N T

_______________

I. Background

1. The Plaintiff claims that his employment with the 1st Defendant ("Holdings") was wrongfully terminated. He claims various fees, payments and compensation which he says are owed to him as a result of his employment and its wrongful termination but which Holdings refuses to pay.

2. By a letter dated 12 July 1982 A G Wilkinson & Associates ("Associates") confirmed the Plaintiff's employment as Graduate Surveyor with effect from 19 July 1982 at a monthly salary of $8,500.

3. On 29 June 1984 Holdings was incorporated. By a Memo dated 2 January 1985 Mr Tai Yu Wong of Holdings informed the staff of Associates (including the Plaintiff) that Holdings would take over as their employer and new letters of employment would be drawn up.

4. At the end of 1989 the Plaintiff asked whether Holdings could engage him through a service company "to maximise his tax efficiency". Holdings agreed. By letter dated 30 December 1989 Holdings entered into a consultancy agreement ("Glenharvic Agreement") with Glenharvic Limited ("Glenharvic"), a company beneficially owned by the Plaintiff. The Glenharvic Agreement provided as follows:-

(1) (Recital)

"WHEREAS CO 1 [Holdings] wishes to engage CO 2 [Glenharvic] to provide continuous professional consultation from 1st January 1990.

AND WHEREAS CO2 is in a position to provide certain general consultation and marketing services and other services are set out in Appendix 1 to this Agreement (hereinafter referred to as 'the Services') to CO 1 on the terms herein contained."

(2) (Clause 1)

"THAT from 1st January 1990, CO1 shall retain CO 2 to supply the Services in consideration of the payment of a Consulting Fee by CO 1 to CO 2 of HK$17,000 per month for a period of nine months and thereafter the Consulting Fee to be reviewed annually in July of each year. In addition, CO 2 will be entitled to a 4% overriding commission on net turnover of CO 1's Agency Department, and 5% personal commission for any sales transaction handled by CO 2. CO 2 will also be entitled to a bonus each year to be initially calculated at 2.67% of CO 1's HK operation turnover in excess of HK$ 7 million for each year of retainership assessed up to 30 June, and be payable one month after auditing of CO 1. The bonus is subject to annual review."

(3) (Clause 2)

"... CO 1 will reimburse cost of the annual subscriptions in respect of membership to Royal Institute of Chartered Surveyors and Hong Kong Institute of Surveyors for a qualifying employee of CO 2."

(4) (Clause 10)

"CO 2 will perform the Services as an independent contractor and nothing contained herein shall be construed so as to create between CO 1 and CO 2 or between the employees of CO 2 and CO 1 the relationship of partners, employer or employee."

5. The 2nd Defendant ("Mr Tam") has suggested that, upon entry into the Glenharvic Agreement, Holdings instructed National Mutual Insurance Company Limited ("National Mutual") to release to the Plaintiff his share of provident fund scheme benefit relating to his past service as a Holdings employee. The sum of $49,888.88 is said to have been paid. There is no evidence of such payment having been either mandated by Holdings, paid by National Mutual or received by the Plaintiff. The solitary document raised in support of Mr Tam's vague recollection was a sheet showing a calculation based on a 5% salary contribution running from July 1990 to June 1993. That calculation reckons that, on an assumption of certain monthly interest rates, a sum of $49,888.88 would have accrued from the salary contributions. The purpose of the calculation is unknown. Plainly it cannot concern any payment in late 1989 or early 1990. Since (as seen below) Holdings apparently only started a provident fund scheme in July 1990, I reject the suggestion that National Mutual made any provident fund payment to the Plaintiff in late 1989 or early 1990.

6. By memo dated 2 July 1990 Holdings introduced a Provident Fund Scheme for permanent staff. Under the scheme Holdings and a participating employee would each contribute 5% of the latter's basic salary to a fund. Upon retirement or death the employee would receive a lump sum comprising his contribution and a percentage of Holdings' contribution dependent on the employee's years of service. Further, an employee who had worked for Holdings (including Associates) for more than 5 years as of 1 July 1990 would enjoy a lump sum bonus contributed by Holdings.

7. Since strictly the Plaintiff was working for Holdings under a consultancy agreement rather than an employment contract, Holdings and Glenharvic entered into a special arrangement in respect of the lump sum bonus. By letter dated 9 July 1990 Holdings stated that from 1 July 1990 Glenharvic would be entitled to a gratuity calculated thus:-

"Latest consultancy fee x 5% x 60 months (5 years) = $51,000.00"

Holdings agreed to pay $51,000 into a fund for Glenharvic's benefit in yearly instalments of $10,200 over the next 5 years. The entitlement would end when Glenharvic's consultancy agreement with Holdings terminated.

8. By another letter dated 9 July 1990 Holdings told Glenharvic that it would also be entitled to a monthly bonus of 5% of the agreed consultancy fee on a graduated basis. Thus, from 1 July 1990 to 30 June 1991 Glenharvic would only be entitled to 80% of this bonus, but it had the potential to receive more (up to 100% of the bonus from 1 July 1992) depending on how long it worked for Holdings.

9. The arrangements in the 2 preceding paragraphs were confirmed in a revised consultancy agreement between the Plaintiff and Glenharvic dated 15 December 1990.

10. In early 1991 Mr Tam, Mr Sal To Wing Nin ("Mr To"), Mr Victor Yang Yan Chi ("Mr Yang") and the Plaintiff (collectively, "the Four") became shareholders of Smart Idea Limited ("Smart Idea"). The Four intended to use Smart Idea as a vehicle for acquiring Holdings from its then controlling shareholder, Mandarin Resources. Following buy-out of Mandarin Resources on 30 January 1991, Smart Idea became Holdings' sole beneficial owner.

11. Mr Tam was allotted 47,000 shares in Smart Idea; Mr To 43,000 shares and Mr Yang and the Plaintiff 5,000 shares each. The terms agreed among the Four as to the conduct of Smart Idea's business were reflected in a Shareholders' Agreement ("the Smart Idea Agreement") dated 16 July 1991. The latter provided (among other terms) as follows:-

(1)	(Clause 3)
	"WORKING CAPITAL
	3.1 It is anticipated that the Company [Smart Idea] will require an initial working capital of HK$900,000.00 (HONG KONG DOLLARS NINE HUNDRED THOUSAND ONLY) which shall be contributed by the parties hereto to the Company pro-rata to their respective shareholdings as set out in Clause 2.1 and at such time as shall be determined by the Directors. Thereafter, each of the parties shall lend or procure to be lent to the Company from time to time in proportion to their shareholdings in the Company for the time being such sums as may be necessary to meet the financial requirements of the Company.
	....
	3.3 All such loans or securities shall be made to the Company within seven (7) working days of the same being required by the Board of Directors.
	3.4 All such loans by the parties shall be on terms determined by the directors. All such loans shall not be repayable by the Company unless the Board by majority vote resolve so to do and no demand for payment shall be effective unless approved by such resolution of the Board. Any repayment of such loans by the Company shall be in the proportion of the amount of shareholders' loan advanced by such party to that of the total amount of shareholders' loan advanced by all parties. In the event of any party ('Defaulting Party') failing to make his loan to the Company or to provide security for the obligations of the Company in accordance with this Clause 3 the provisions of Clauses 3.5 and 3.6 hereof shall apply. The course of action to be taken shall be determined by a majority of the directors nominated by the other parties not in default ('the Non-defaulting Party').
	...."
(2)	(Clause 4)
	"DIRECTORS AND MANAGEMENT
	4.1 Unless and until otherwise agreed in writing by the parties hereto Tam, To and Yang shall be the directors of the Company.
	...."
(3)	(Clause 17)
	"ENTIRE AGREEMENT
	17.1 This Agreement embodies all the terms and conditions agreed upon between the parties hereto as the subject matter of this Agreement and supersedes and cancels in all respects all previous letters and correspondence, understandings, agreements and undertakings (if any) between the parties hereto with respect to the subject matter hereof, whether such be written or oral."

12. The Plaintiff paid for his 5,000 shares and his pro-rata share of additional working capital for Smart Idea in 2 payments of $25,000 each made on 31 January and 1 March 1991.

13. Holdings being under new management, it had an organisational restructuring. Mr Tam, Mr To and the Plaintiff became directors of Holdings. From time to time Mr Tam or Mr To, as Holdings' 2 executive directors, issued memos to staff. I highlight some of those memos below to the extent needed.

14. By memo dated 1 July 1991, Mr Tam wrote that, although the job nature and responsibilities of the Plaintiff, Mr Yang and Ms Wong Sin Yee would remain as before, their job title would be changed from Associate to Assistant Director.

15. On about 28 January 1992 the Plaintiff made a shareholders' loan of $30,000 to Smart Idea. This was acknowledged by Mr Tam as Smart Idea director.

16. By memo dated 10 December 1992 Mr To issued new terms for Holdings' Referral Scheme ("the Scheme"), which (Mr To stated) took immediate effect. The revised terms were as follows:-

"The Referral Incentive Scheme has been recently reviewed owing to the increasing cross-referral activity between departments and is revised as follows:

1)	Any staff member introducing a client to anyone of our agency departments (Residential, Commercial/ Industrial and Investment) is entitled to a referral commission.
2)	Referrals within anyone agency department fall outside this scheme and should be considered under relevant policy of individuals department.
3)	A client herein is defined as a purchaser or a tenant or an owner or a landlord, who is not already being handled for the same purpose by someone in any particular agency department(s) to which a client is referred.
4)	The referral commission is calculated at a flat rate of 10% of all commissions received by this Company from all parties of the introduced transaction.
5)	The referral commission is treated as expenses against company commission, and is paid to the introducer within the first seven working days of a month following full receipt of payment by the client(s) in the previous month.
6)	All referrals must be formally registered and acknowledged by the relevant Department Head in order to confirm entitlement of benefit under this scheme.
7)	This scheme is a recognition of effort for staff member who contributes to the Company, and is not intended to form any part or terms of individual's employment contract.
8)	The Company has sole discretion to determine entitlement of this scheme by staff member under unusual circumstances."

17. On 2 March 1993 Mr Tam issued a memo to all Holdings assistant directors and managers as follows:-

" With immediate effect, you are exempted from signing attendance book and appointment book when you come to work in the morning and go out during office hours respectively.

This new arrangement will give you all more flexibility and privilege. However, it does not mean that you do not need to comply with the rules and regulations of the Company as a whole. It, therefore, demands your self-disciplined mentality to regulate yourself in order to demonstrate a good model of your own to you subordinates."

18. On 28 October 1994 Mr To issued a memo which stated:-

" Effective 1st November 1994, the cost of subscription fee, membership fee, enrolment fee for the Royal Institute of Chartered Surveyors (RICS) and Hong Kong Institute of Surveyors (HKIS) will be reimbursed to all permanent staff according to the followings:-

1.	Associate Members of RICS and HKIS
	The annual subscription and membership fee will be fully reimbursed to staff concerned upon the produce of receipt of payment from the respective institutes.
	However, if the staff terminates his/her employment with the Company the reimbursement will be deducted on pro-rata basis accordingly..."

19. The Amended Defence of the 1st and 2nd Defendants ("AMDEF") alleges that in November 1994, because Holdings was then experiencing cashflow difficulties:-

" The 2nd Defendant [Mr Tam], the Plaintiff (acting for himself and/or Glenharvic) and the other shareholder of Smart Idea Limited orally agreed ('the said oral agreement') that:-

(a)	they would not draw their respective directors' emoluments, commissions and/or referral fees from the 1st Defendant [Holdings];
(b)	their respective directors' emoluments, commissions and/or referral fees would be treated as amounts owing by the 1st Defendant and such amounts would be unsecured, interest free and have no fixed repayment terms;
(c)	they would make loans to the 1st Defendant sufficient to meet its liabilities so as to maintain the 1st Defendant's business and such loans would be unsecured, interest free and have no fixed repayment terms; and
(d)	repayment for the above or any part thereof would be made when the financial situation of the 1st Defendant would allow."

The Plaintiff denies that any oral agreement was made. Mr To (who gave evidence before me on subpoena and who is the person referred to in AMDEF as the "other shareholder of Smart Idea") also denies the agreement. According to Mr Tam, Mr Yang (the remaining Smart Idea shareholder) had left Holdings' employment by November 1994. Presumably for this reason, the Defendants have not said that Mr Yang was privy to the November 1994 agreement. I refer below to the alleged 1994 oral agreement as "Oral Agreement I".

20. On 28 February 1995 Glenharvic wrote to Holdings as follows:-

" With reference to the Service Agreement between [Holdings] and [Glenharvic] we are pleased to write to confirm our recently discussed arrangements in relation to same.

We understand our mutual agreement to be as follows:-

1)	[Glenharvic] will cease to provide consulting services to [Holdings] after 31 march 1995, that being one month from date of this letter. The service Agreement dated 30th December 1989 shall hereby cease to be in effect.
2)	In relation to the Gratuity entitlement outlined in your letter dated 9 July 1990, [Holdings] will nonetheless pay the individual lump sum gratuity, due on 30th June 1995 on the proviso that [Glenharvic] forgoes entitlement to any interest accrued thereon.

Total lump sum gratuity payment due from [Holdings] will therefore be HK$51,000.

Assuming the above correctly represents the newly agreed arrangement, please indicate by signing below to validate."

Holdings signed a copy of the letter to show acceptance of its terms.

21. Following termination of the Glenharvic Agreement, by letter dated 1 April 1995 Holdings confirmed the Plaintiff's employment as Assistant Director of Investment Department Agency. The letter stated:-

"	(1)	Commencement Date: Saturday April 1, 1995.
	(2)	Remuneration:
		Monthly basic salary of $45,500.00 will be paid in arrear by the end of each month. Year-end bonus is NOT applicable.
		Your personal commission entitlement is calculated according to the followings:-
		...
	(3)	Working Hours:
		You will be required to work from 9:00 am to 5:30 pm on Monday to Friday and from 9:00 am to 1:00 pm on Saturday. Lunch hour is from 1:00 pm to 2:15 pm subject to change at the discretion of the Company. In certain special situations and depending on the volume of work, you will also be required to work aside from normal working hours and on holidays. No over-time allowance is payable in these circumstances. The basic criterion is that all daily work must be completed within the same day.
	(4)	Duties:
		Your duties will be specified from time to time by the Company and you are required to carry out these responsibilities to the best of your endeavours. During your employment with the Company, you should devote the whole of your time, energy, attention and ability to the business and affairs of the Company and will use your best endeavours to promote the interest of the Company. Unless with prior written consent, you will not be concerned, involved with or interested with directly or indirectly in any way in any business other than that of the Company or accept remuneration, commission or any other gains for any employment or services whatsoever.
	(5)	Holiday/ Leave:
		i) Your are entitled to an annual leave of eighteen working days after the completion of 12 months' continuous service. Holidays include all public holidays as announced by Government.
		...
	(6)	Termination of Employment:
		Written notice of one month for termination of contract should be given by either party. The Company may exercise the right to dismiss you summarily without giving any notice or salary in lieu, should you, in the Company's opinion, be guilty of misdemeanour, misconduct, negligence, misbehaviour, wrongful acts or deeds which are inconsistent with the Company's policy or which may be harmful or bring disrepute to the Company or of disclosing any information on properties and clients, which you will have obtained during the course of employment or without the consent of the Company to any party. Upon dismissal, all rights and advantages of the appointment shall be forfeited immediately.
	(7)	Other Rules and Regulations:
		All staff should take notice of and obey the Company's general rules and regulations. Notice(s) issued from time to time should also be observed.
		..."

22. In his Witness Statement, the Plaintiff explained the rationale for termination of the Glenharvic Agreement on 31 March 1995 and entry into a fresh employment contract on 1 April 1995 as follows:-

" Due to an impending change in tax laws, limiting the usage of service companies from fiscal year 1995-1996, we [that is, the Plaintiff and Holdings] agreed to revert back to my being employed under my own name, terminating the service agreement with [Glenharvic] effective 31st March 1995."

23. Thereafter, the gratuity of $51,000 (originally proposed in July 1990) was paid to Glenharvic without interest in instalments of $7,500 (on 1 December 1995); $8,925 (on 8 January 1996); $4,050 (on 7 February 1996); $575 (on 7 March 1996); $8,400 (on 9 April 1996) and $21,550 (on 7 May 1996).

24. On 23 June 1997 Holdings' authorised capital increased from $2 million to $5 million through creation of 3 million A shares of $1.00 each. Shares were allotted to Mr Tam, Mr To and the Plaintiff with the end result that as at 23 June 1997 Holdings became owned as follows:-

Smart Idea	1,989,999 shares
Mr Tam	1,484,211 shares
Mr To	1,357,895 shares
Plaintiff	157,895 shares

The shares were paid for by setting off their nominal amount against sums due from Holdings to Mr Tam, Mr To and the Plaintiff respectively.

25. AMDEF alleges that:-

"In about mid-1998 when the [1st] Defendant [Holdings] was again in cash flow difficulties and there were outstanding referral fees, directors' emoluments and loans owing by the 1st defendant to the Plaintiff and other creditors, including the 2nd Defendant [Mr Tam], the Plaintiff and the 2nd defendant made the oral agreement with terms identical to [Oral Agreement I]."

I refer to this alleged 1998 agreement as "Oral Agreement II". It is denied by the Plaintiff. It is denied by Mr To who is said by the Defendants to have been privy to Oral Agreement II as well. During the trial Mr Philip Tam ("Mr Philip Tam") (appearing for the Defendants) clarified that, despite being pleaded as a fresh contract, Oral Agreement II was in reality a mere re-affirmation of Oral Agreement I which had never come to an end. Further, although AMDEF refers to Holdings being "again" in cashflow hardship in 1998, in fact (Mr Philip Tam submitted) Holdings had perennial liquidity problems in the sense that, even if from time to time Holdings could pay the debts of outside creditors as and when due, anticipated cash demands meant that Holdings lacked funds to pay remuneration due to Mr Tam, Mr To and the Plaintiff.

26. On 30 July 1999 Ms Flora Hung ("Ms Hung"), Holdings' Finance and Administration Manager, issued a memo warning staff about timekeeping. With effect from 1 August 1999 written warnings would be sent to latecomers and, based on the number of warnings issued, penalties could be imposed.

27. By letter dated 12 August 2000 Mr Tam informed the Plaintiff that his monthly salary had been raised to $46,390 with retrospective effect from 1 July 2000.

28. On 25 October 2000 at a Holdings board meeting ("the 2000 Meeting") a heated argument took place between Mr Tam and Mr To over Holdings' management. The Plaintiff was present although it apparently was the usual practice that he, not being an executive director, did not (and was not expected to) attend board meetings. Mr Tam queried the appropriateness of the Plaintiff's presence. After discussion the Plaintiff remained, but Mr Tam perceived the Plaintiff's presence as indicative of the latter's support for Mr To rather than Mr Tam.

29. The 2000 Meeting was taped. The minutes ("the Minutes") of the 2000 meeting record the following:-

"1.21 ST [Mr To] suggested either the directors or shareholders put in the fund in order to facilitate the need of cash flow or we have to find a change in cash flow management.

1.22 JT [Mr Tam] commented that there was no problem with the cash flow management.

1.23 JT asked MJM [the Plaintiff] whether he will perform the obligation of a shareholder to advance money out to the company together with the shareholders in term of proportion of the shareholding.

1.24 MJM promised to do so.

1.25 JT stated that he advanced money to the company for many years to about HK$4.8 million. If somebody wanted to get fund for the company, JT suggested ST & MJM to adjust their advancement which was in proportion to JT's advancement to the company. Then he will talk any further additional advance.

1.26 JT commented that it was not necessary for the company to have an additional advance from the shareholders.

1.27 ST proposed to put in $0.5 million to satisfy the current need of fund to the company immediately in proportion to the shareholding.

1.28 JT requested that the (remaining) shareholders should make adjustments on his advancement to the company first.

1.29 ST said that he advanced to the company around HK$4.4 million.

1.30 MJM said that he is owed around HK$0.5 million from the company.

1.31 JT assigned FH [Ms Hung] to check all the advancements from the members to the company.

1.32 JT suggested ST & MJM to give cash to the company in proportion to his advancement first, after the adjustment, if still necessary to have another advance, then will talk about the other advance.

1.33 ST proposed a loan of HK$0.5 million to the company including those advances needed to level JT's advance in proportion to respective shareholdings.

1.34 MJM agreed to ST's proposal.

1.35 JT did not agree and objected to that proposal. He said ST & MJM might go ahead to do that, and he stated that at the beginning of the meeting he had warned them and had reserved his right already. He also said that he would fight back and do whatever possible to protect his interest.

1.36 ST stated that it was the quorum. IT WAS RESOLVED that the shareholders need to put in $0.5 million in proportion to the shareholding to the company including the adjustments to be made for levelling JT's advance.

1.37 ST recommended that if JT refused to forward his proportion of the loan to the company he will temporarily take over JT's cash flow management to resolve the problem of the company.

1.38 MJM agreed to ST's proposal."

30. Subsequently, a memo dated 5 December 2000 signed by Mr To and the Plaintiff was issued. The memo stated that, as a result of a resolution passed at the 2000 Meeting, Mr To was temporarily taking over Holdings' financial management from Mr Tam. Mr Tam's response was swift. By letter dated 6 December 2000 Messrs Chan, Lau & Wai (Mr Tam's solicitors) challenged the validity of the resolutions recorded in §§1.36 and 1.37 of the Minutes and demanded that the 5 December 2000 memo be withdrawn on threat of legal proceedings. As far as Mr Tam was concerned, the 2000 Meeting was void and of no legal effect.

31. On 12 January 2001 Mr Tam sent a memo to Mr To and the Plaintiff as follows:-

" Recently I learnt that you deliberately withheld a lot of urgent payments of [Holdings] to various creditors whereby these creditors vigorously demand immediate payment and some of them already stopped their supply and services to us and will take legal action against us very soon. The reason for you to withhold such payments is to squeeze and divert HK$1 million cash from Holdings to A G Wilkinson & Associates (surveyors) Ltd (Surveyors) as paid-up capital in order for Surveyors to perform a floatation valuation job of around HK$8,000 income fee.

It is ridiculous to see such behaviour you have wherein you are causing Holdings into an unnecessary financial problem conducive to damage to its goodwill, involvement of costly litigation and downgrade of staff working morale.

If you continue with such improper behaviour, I, as the majority shareholder and executive director of Holdings, warn you and hold you liable for any loss and damage Holdings and I have in respect of your wrongdoings."

32. On 9 February 2001 Mr To was dismissed from Holdings.

33. On 21 February 2001 Ms Hung on Mr Tam's instructions issued a memo to the Plaintiff in the following terms:-

"	1.	Since Mr To had left our Company, please kindly cross out his name in all our company letterheads and correspondence with immediate effect.
	2.	You are reminded to let Zedy or the Receptionist know in case you have an appointment to go out and the time you will be back. This is part of our office routine and should be done at all times.
	3.	Furthermore, all annual leave or vacation leave should not be taken without proper approval."

The Plaintiff responded by writing to Ms Hung that he had never previously been required to inform anyone of his appointments. He asked whether §2 of the memo was intended to apply to other department heads and associate or assistant directors. Ms Hung referred the matter to Mr Tam. There is no evidence of a substantive response to the Plaintiff's query.

34. On 5 March 2001 the Plaintiff wrote a memo ("Referral Memo I") to Ms Hung as follows:-

" I feel compelled to write to register my deepening concern at the company's continued non-payment of the legitimate referral fees due to me. You are naturally aware from my usual related representations and complaints to you on this matter, that the situation is just not being seriously addressed by the company. In fact, with the limited payments that have been made to me being further diminished and delayed over the past two years, the accrued fees still unpaid have reached worryingly high levels. These continue to accumulate month by month and the situation is causing me financial hardship I can simply no longer withstand.

Although the referral fee update report prepared by you for the period up to end October 2000, clearly showed I was immediately due $471,154.80, I have in the 4 months since still only received paltry payments totalling $32,355. With an additional $1 million-plus in further billings up to February 2001 on business referred by me, my actual current entitlement is of course even higher.

As you know, referral fees account for a sizeable proportion of my overall remuneration package, reflecting the business development area I have been focusing on, and with the company benefitting to the tune of some $6 million worth of such business from me in the last 2 years, I am both disheartened and very concerned at the company's failure to uphold its commitment in this regard. It is very upsetting that the company, whilst enjoying the full benefit on the one hand, has not seen fit to reward my efforts with more consideration, especially after all these years.

I feel I have demonstrated as much restraint and patience as possible in this matter, and it really is a pity, with the situation now clearly out of hand, that I have to resort to submitting this formal notification to seek full and proper rectification without further delay."

The Plaintiff spoke personally to Ms Hung after sending the memo. She was non-committal. She passed the memo on to Mr Tam who said that he would deal with it. But the Plaintiff received no substantive response from Mr Tam.

35. The Plaintiff sent a 2nd memo ("Referral Memo II") on the subject of overdue referral fees to Ms Hung on 27 March 2001. That stated:-

" Further to my previous memorandum of 5th March instant in relation to my due but still unpaid referral fees, it is very discouraging that the company failed to respond to me in any way at all. Even my subsequent approach to you revealed n sincere intention on the part of the company to settle this anytime soon, even though the company is not disputing the amount of my claim.

As a result, given the company's apparent intransigence, I give notice that I shall have to immediately pursue this with the aid of the Labour Department. In the meantime I would be pleased to hear of any re-consideration on your part."

Again the memo was relayed to Mr Tam. Again Mr Tam failed to respond substantively to the Plaintiffs request.

36. On 31 March 2001 the Plaintiff was informed by letter ("the Termination Letter") signed by Mr Tam that his employment with Holdings was terminated with immediate effect "due to your misbehaviour at work in accordance with the terms and conditions of employment of April 1, 1995". No particulars of "misbehaviour" were specified.

37. On 16 May 2001 the Plaintiff sued Holdings for unpaid wages, referral fees and other amounts in Claim No. LBTC 3546/2001 at the Labour Tribunal. By Order dated 2 November 2001 the Plaintiff's claim was transferred from the Labour Tribunal to the High Court.

II. Discussion

38. I consider the Plaintiff's action by reference to 3 Issues:-

(1)	Was the Plaintiff's employment with Holdings wrongfully terminated?
(2)	Can the Defendants rely on Oral Agreements I and II as a defence against such payments (if any) as the Plaintiff may be entitled to?
(3)	In light of my findings on Issues (1) and (2):-
	(a)	Is the Plaintiff entitled to any (and, if so, what) remedy against the 1st Defendant?
	(b)	Are the Defendants entitled to any (and, if so, what) remedy against the Plaintiff?

A. Issue (1): Wrongful termination?

39. In his Witness Statement, Mr Tam alleges the following acts of misbehaviour by the Plaintiff while employed:-

(a)	the Plaintiff often went missing without explanation and proof during office hours;
(b)	the Plaintiff was often seen having drinks with an ex-employee and others of the Defendants near the office of the Defendant during office hours;
(c)	the Plaintiff often worked with other staff in a rude and uncooperative manner about which I [Mr Tam] received numerous complaints."

40. In my view, the particulars of alleged misconduct are vague and imprecise. They do not justify summary termination of the Plaintiff's employment. I examine each alleged particular in detail.

41. Absence and timekeeping. Precisely when (for what periods of time on which days) was the Plaintiff found (by whom) to be missing without explanation (did anyone and (if so) who asked the Plaintiff for explanation)? No serious evidence was adduced on the matter.

42. The best that Mr Tam could do in evidence at trial was to contend that from February 2001 onwards the Plaintiff's behaviour became "irregular" and, contrary to Holdings' 21 February 2001 memo, the Plaintiff did not report his movements. No record of written warnings to the Plaintiff about bad timekeeping were produced, although one might have expected such evidence given Holdings' 30 July 1999 memo.

43. Even as regards the 21 February 2001 memo which the Plaintiff is said to have ignored, the Plaintiff does not seem to have received a substantive answer to his query whether §2 of the memo applied to him. This was important. Since 2 March 1993 assistant directors had been afforded a degree of flexibility in timekeeping and were exempted from having to notify their movements prior to leaving the office. The 21 February 2001 memo refers in §2 to the Plaintiff being "reminded" of the need to report his movements. That (as the Plaintiff observed in writing to Ms Hung) was strange since Assistant Directors had not been required since 1993 to report their movements. If the practice since 1993 had suddenly been revised, the Plaintiff was entitled for that to be spelled out to him cogently.

44. Drinks with an ex-employee. The ex-employee which Mr Tam had in mind was Mr To. Although he alludes to tea with "others of the Defendants", those "others" were never identified.

45. Mr Philip Tam asked the Plaintiff in cross-examination whether he had taken tea with Mr To during office hours, after the latter's dismissal. The Plaintiff said that it was possible. When asked how many times, the Plaintiff thought that, between Mr To's dismissal and his own, they might have taken tea some "3 or 4 times or possibly less". Undoubtedly Mr Tam might have regarded having tea with Mr To as disloyalty towards Mr Tam. But it is difficult to understand how having tea with an ex-employee some 3 or 4 times, possibly less, during unspecified "office hours" for an unspecified period can qualify as a serious dereliction of duty demanding immediate dismissal.

46. One must also bear in mind that, though no longer an employee of Holdings from 9 February 2001, Mr To remained a director of Holdings until after 31 March 2001 when the Plaintiff was himself dismissed. It is conceivable that the Plaintiff and Mr To were discussing matters relevant to Holdings' smooth operation over tea. That would not only be innocent. It would also be consistent with the Plaintiff's duty of fidelity as a Holdings employee. The topics of tea-time conversation between the Plaintiff and Mr To were not explored in cross-examination by the Defendants on whom the onus of proving misbehaviour on the Plaintiff's part squarely rests.

47. Rudeness and lack of cooperation. The Defendants identified no particular staff member as having been rudely treated by the Plaintiff. Nor were any particulars volunteered by the Defendants at any time as to how, when and where the Plaintiff manifested himself in a rude and uncooperative manner.

48. Absent proper particulars and evidence, the Court can only conclude that the allegations of misbehaviour are unfounded. Holdings had no basis summarily to terminate the Plaintiff's employment on 31 March 2001. The termination was wrongful.

B. Issue (2): Oral Agreements I and II

49. Mr Tam's credibility. Proof of Oral Agreements I and II largely rests on Mr Tam's oral evidence. I did not find Mr Tam to be credible on Oral Agreements I and II. Where his evidence conflicted with that of the Plaintiff, I have preferred the Plaintiff's version of events. I found that Mr To to a large extent corroborated the Plaintiff's evidence.

50. During the trial Mr Tam qualified the alleged terms of Oral Agreements I and II. He claimed that under Oral Agreements I and II Holdings could pay directors some emolument to the extent possible at a given time in view of then current or anticipated demands on funds in hand. Thus, at times (Mr Tam was vague as to precisely when), directors would receive some, but not necessarily all, of the amounts due to them. This version of Oral Agreements I and II was different from that in AMDEF and Mr Tam's Witness Statement. That this clarification of the scope of Oral Agreements I and II came late in the day undermined Mr Tam's overall credibility.

51. More fundamentally, it would be surprising if Mr Tam, Mr To and the Plaintiff entered into a nebulous oral agreement to forego indefinitely monies due, until such time when some person determined that Holdings had enough cash to pay those monies. How would the directors survive in the meantime? How would they manage their own cashflow requirements if, at any given time, they could not be certain when or how much they would be paid (if at all)? Even now, at the start of trial, Holdings asserts that, while it has sufficient cash to meet its commitments to other creditors, it does not have enough to pay referral fees accepted as due to the Plaintiff.

52. One would have expected the relevant parties to commit into writing such a momentous contract as that alleged by the Defendants. Indeed, one would expect more. One would think that there would have been regular reports and memos passing among the parties dealing with whether cashflow allowed payment of their remuneration (and if so, how much) at different points of time. One would think that there would be notes of discussions among the parties as to whether Holdings should incur a future liability, where that might use up available funds and mean postponing receipt of directors' remuneration. There would also be notes to accounting staff so that proper records might be kept of who gave up what remuneration in a given month by way of a shareholder's loan. One does not see the paper trail that one might expect to see if Oral Agreements I and II were the reality that they are asserted to be. One sees nothing in writing.

53. The pleading of Oral Agreements I and II is in itself odd. What was the need for Oral Agreement II if (as Mr Philip Tam asserted at the outset) Oral Agreement I was still in effect?

54. I asked Mr Philip Tam whether Oral Agreements I and II, even if established as pleaded, would be so vague as to be unenforceable. See Chitty on Contracts (28th ed.), I, §2-128 (pp. 147-8): "An agreement may be so vague or uncertain that it cannot give rise to a binding contract". I expressed concern that no mechanism is alleged in AMDEF to have been agreed for determining "when the financial position of [Holdings] would allow" payment of remuneration. For example, was Holdings' financial position to be assessed every day, month or year? By whom? And then by what criteria? Mr Philip Tam accepted that the mechanism for evaluating whether Holdings could pay remuneration was vague. But he suggested that a term could be implied, presumably on grounds of commercial efficacy, that Holdings' financial position was to be reviewed "monthly or at latest yearly". The criteria to be used for determining whether Holdings could make payment was its balance sheet. I asked whether the balance sheet had to be an audited one. Mr Philip Tam initially thought so. However, when it was pointed out that (on the evidence) Holdings' audited accounts were not ready until around 2 years after a financial year, he thought that in such situation the balance sheet could be unaudited.

55. I doubt that the officious bystander would be curtly dismissed if (looking over the shoulders of Holdings directors as they were discussing Oral Agreements I and II) he suggested that they agree transparent criteria for assessing when Holdings' financial position allowed payment of remuneration. I do not agree that the terms mentioned by Mr Philip Tam can be implied. On the contrary, Mr Philip Tam's obvious difficulties with questions on the scope and working of Oral Agreements I and II fortify my conclusion that the contracts are so unworkable as to make it highly unlikely that experienced commercial men such as Mr Tam, Mr To and the Plaintiff ever agreed them.

56. Mr Philip Tam relies on the following as significant pointers towards the existence of Oral Agreements I and II:-

(1) The Smart Idea Agreement.

(2) The allotment of shares in Holdings to Mr Tam, Mr To and the Plaintiff on 23 June 1997.

(3) Holdings audited financial statements

(4) Letters of support signed by Holdings directors from time to time.

(5) The Minutes.

(6) Referral Memos I and II.

Mr Philip Tam says that "the only reasonable inference" to be drawn from these 6 pointers "must be that there was [a] certain arrangement made between the Plaintiff, [Mr Tam] and Mr To ... consistent with the existence of the oral agreements".

57. I disagree. In my view, the 6 pointers do not support Oral Agreements I and II. Taken singly or together, the 6 pieces of evidence may even be incompatible with the existence of Oral Agreements I and II. I consider each "pointer" in turn.

58. The Smart Idea Agreement. I do not understand how the fact of the Smart Idea Agreement makes it easier to accept Oral Agreements I and II as a reality.

59. By the Smart Idea Agreement, working capital of $900,000 ($1 million if monies paid for Smart Idea's shares are included) was raised for the day-to-day management of Holdings' business. The Smart Idea Agreement further stipulated a precise mechanism whereby additional monies might be raised as and when required by way of loans proportionate to shares held by individual members. Such loans would be made within 7 working days of being resolved by Smart Idea's board.

60. A formal mechanism having been agreed in writing, why should there be any need to agree for provision of further advances to Holdings by an unwritten and nebulous agreement indefinitely to forego all (or some) remuneration due from Holdings to its directors? Loans made through this informal mechanism would almost certainly not be in proportion to individual shareholdings in Smart Idea or (after 23 June 1997) in Holdings. Accounting for "loans" advanced in the form of remuneration postponed would be awkward. Instead of a certain amount being resolved by the Board as necessary for Holdings and contributions being made proportionately to cover that amount, every month an unknown amount dependent (among other factors) on commission or fees generated over a relevant period would be treated as loaned. The transparency of the mechanism in the Smart Idea Agreement is replaced by uncertainty. It would thus be odd if, having entered into the Smart Idea Agreement, the same parties later agreed to operate a less rigorous parallel arrangement.

61. The allotment of Holdings shares in June 1997. I do not see how the allotment of shares in Holdings which took place in 1997 takes the Defendants' case very far.

62. The Defendants say that Holdings was experiencing cashflow difficulties from 1994 onwards. That does not seem to be strictly accurate since Holdings' audited accounts show a profit of $4,452,062 for the financial year ended 30 June 1997. The balance sheet in the same accounts further state that current assets exceeded current liabilities by $978,371.

63. But assume for argument's sake that there was a cashflow problem, such that it was deemed prudent to pay off some of the debt owing to Holdings' directors by capitalising the same and allotting the equivalent in Holdings shares. There would still be no irresistible inference to be drawn from such capitalisation in respect of the making of Oral Agreement I in 1994 or Oral Agreement II in 1998.

64. Holdings audited statements. Mr Philip Tam relies on the financial statements principally to establish that Holdings was experiencing cashflow problems from 1994 onwards. As mentioned above, in at least one financial year (1996-97) when Oral Agreement I was said to be effective, Holdings made a significant profit. So historically there are difficulties with Mr Philip Tam's submission. Even if it could be said that Holdings was experiencing cashflow problems for most of the time from 1995 to 2001, I disagree with Mr Tam's suggestion that such situation renders it more likely than not on the balance of probability that Oral Agreements I and II were made.

65. The audited accounts are double-edged for the Defendants. The accounts indicate that remuneration may have been regularly paid to Mr Tam and Mr To during the time when Oral Agreements I and II are said to have been operative. If regular payments were indeed made, such conduct would be inconsistent with the existence of Oral Agreements I and II and would cast doubt on Mr Tam's evidence.

66. Mr Tam said in Court that he was only entitled to receive salary from Holdings. For the relevant period, Mr Tam's monthly salary was in the region of $90,000 to $100,000. Mr Tam could not be more specific.

67. Mr To said that he was only entitled to receive a monthly payment of $90,000 from Holdings. This amount was paid to Mr To, not as director's remuneration, but in the form of consultancy fees to his service company, Trillion Limited ("Trillion") (now Partners Corporation Limited). By HCA No. 1797 of 2001 Trillion is suing Holdings for unpaid fees covering the period from March 1997 to February 2001. A total of $4,310,928 is pleaded to be outstanding.

68. The Plaintiff received a monthly basic salary (see Section I above for the quantum over time), supplemented by referral fees. At a meeting in January 1997 with Mr To and Mr Tam, it was agreed that the Plaintiff would concentrate on business development activity, particularly in the project marketing sector. As a result, the Plaintiff's role in Holdings focussed more on sourcing project work. For this he received 10% of all billings, as per the terms of the Scheme. The bulk of the Plaintiff's supplemental income since January 1997 then was derived from referral fees, rather than agency commissions.

69. Note 4 to the Profit and Loss Account of Holdings' financial statement for the year ended 30 June 1995 (covering November 1994 when Oral Agreement I is alleged to have become operative) records $1,276,500 as directors' remuneration, compared to $1,105,000 in the previous financial year. The 1994-95 statement further reports:-

" During the year, the Company paid consultancy fees amounting to HK$1,080,000 to Trillion Limited, a company to which To Wing Nin [Mr To] has beneficial interests."

$1,080,000 is equal to $90,000 times 12 months.

70. Note 5 to the Profit and Loss Account of Holdings' financial statement for the year ended 30 June 1996 records $1,686,000 as directors' remuneration. The 1995-96 accounts further report that $1,080,000 was paid to Trillion during the year.

71. Note 5 to the Profit and Loss Account of Holdings's financial statement for the year ended 30 June 1997 records $1,729,200 as directors' remuneration. The 1995-96 accounts further report that $1,080,000 was paid to Trillion during the year.

72. Note 5 to the Profit and Loss Account of Holdings's financial statement for the year ended 30 June 1998 records $2,156,571 as directors' remuneration. The 1995-96 accounts further report that $1,200,000 was paid to Trillion during the year.

73. Holdings's financial statement for the year ended 30 June 1999 (which would cover mid-1998 when Oral Agreement II is said to have become operative) is in a different format to previous statements. It has a Detailed Profits and Loss Account which records $1,689,920 as directors' remuneration. The accounts state only $2,041,103 (as opposed to $2,156,571 mentioned in the previous year's report) as directors' remuneration for the year 1997-98. No evidence was adduced at trial to explain the latter discrepancy. But I do not think that it is material to my conclusions. The 1998-99 statement also reports that $1,080,000 was paid to Trillion.

74. Holdings audited accounts for later years were not provided in evidence at trial.

75. Shown the foregoing evidence, Mr Tam said that the directors' remuneration entries in the accounts merely showed liabilities which had accrued but had not necessarily been paid. However, that does not explain the unequivocal statements that fees were "paid" to Trillion.

76. Additionally, there is no dispute that the Plaintiff was paid his basic salary. Given that such salary formed part of directors' remuneration in a given financial year, 12 months of a salary of $45,500 (that is, the Plaintiff's approximate basic monthly wage during the years in question) amounts to $546,000. At least that amount was actually paid and not just accrued. This suggests that the directors' remuneration entries in the financial statement do not just comprise accrued liabilities. They also include payments that were actually made.

77. It follows that the balance of directors' remuneration reported in the financial statements (that is, that part not actually paid to the Plaintiff) would either have been paid or accrued to Mr Tam as salary. Without evidence to show that the balance was not in fact paid but only accrued as a liability, the Court cannot regard the audited accounts as supportive of the Defendants' contentions in any way.

78. Mr Tam noted entries in the audited accounts stating that certain amounts were due to directors. For instance, the following are shown to have been due to directors in Holdings' balance sheets:-

(1)	Financial year 1994-95	$4,960,000
(2)	Financial year 1995-96	$7,820,000
(3)	Financial year 1996-97	$3,517,895
(4)	Financial year 1997-98	$3,975,000
(5)	Financial year 1998-99	$4,804,173

Mr Tam observed that these amounts were typically described as "unsecured, interest free and [having] no fixed repayment terms". The directors are said in the audited reports to be of the opinion that such amounts "will not be repaid within twelve months from the balance sheet date". Consequently, "the amounts are shown as non-current in the balance sheet".

79. Again there are difficulties with the foregoing as any evidence of the Defendants' contentions. The amounts said to be due to directors in a given year do not necessarily incorporate unpaid but accrued directors' remuneration in the same or previous financial years. The evidence merely shows that loans were made by directors. The Court does not know from the audited accounts who loaned what amount at what time. It is one thing to claim that directors' remuneration shown in the accounts were accrued but unpaid. It is another thing to assert that these accrued but unpaid amounts were then treated by Holdings' accountants as shareholders' loans with no fixed time for repayment. The accounts are silent on that. No accounting evidence was adduced to flesh them out.

80. I draw a simple conclusion from all this. Far from substantiating the existence of Oral Agreements I and II, Holdings' accounts may possibly show that directors' remuneration was paid to Mr Tam and Mr To when (on the Defendants' version of events) they were supposed to be foregoing remuneration. Mr To for one appears to have been regularly paid consultancy fees in the financial years just considered, despite Mr To allegedly being a party to Oral Agreements I and II. What the audited financial statements do not do is to buttress the Defendants' case.

81. Letters of support. The auditors periodically requested Holdings' shareholders to sign letters in the following terms:-

" It is the intention of us to provide adequate funds to [Holdings] in order to ensure that [Holdings] is in a position to meet its liabilities as they fall due."

Letters in those terms dated 8 June 1998, 31 March 1999 and 19 February 2000 were produced to the Court by way of example. They are standard letters which auditors commonly obtain from shareholders, especially where the audited accounts show that a company has incurred a loss in a financial year. The bare fact that the letters were signed by Mr Tam, Mr To, the Plaintiff and Smart Idea does not support any inference that Oral Agreements I and II were made.

82. The Minutes. The 2000 Meeting is criticised by Mr Tam as irregular. It is therefore ironic that he should rely on the Minutes in support of the Defendants' argument. If anything, however, the Minutes are against those contentions.

83. In the course of the 2000 Meeting, the Minutes record Mr Tam as saying that there was no problem with cashflow management and no need for further advances to Holdings from its shareholders. See Minutes §§1.22 and 1.26. If so, Holdings would have no reason, even if Oral Agreements I and II had been made, for withholding accrued directors' payments from the Plaintiff.

84. More pertinently, during the 2000 Meeting, it is strange that Mr Tam, Mr To and the Plaintiff do not refer to Oral Agreements I and II at all. One would have thought that those arrangements would have been uppermost in the minds of all. If Oral Agreements I and II had been truly agreed by the directors, one would have expected discussion (perhaps heated) at the way month after month significant sums were not being paid to each director, ostensibly because of cashflow problems, with no indication that the situation would improve in the near future. It is equally curious that Mr To and the Plaintiff should be prepared to advance further monies without taking account of sums that would presumably be withheld from them in September 2000 and succeeding months under the terms of Oral Agreements I and II. In my judgment, the reason that no mention is made of the 2 latter contracts is because they never existed.

85. Referral Memos I and II. In cross-examination of the Plaintiff Mr Philip Tam suggested that, until Referral Memos I and II were written, the Plaintiff had never complained about the withholding of referral fees. That (Mr Philip Tam put it) was because the Plaintiff knew that under Oral Agreements I and II he was not entitled to receive fees until Holdings' financial position had improved. The Plaintiff denied the suggestion.

86. It later became plain from the Defendants' own witnesses (Mr Tam and Ms Hung) that the Plaintiff had regularly complained orally, principally to Ms Hung, about slow payment ("drip-feeding") of his referral fees. Referral Memo I itself corroborates this in its allusion to the Plaintiff's "usual representations and complaints" about late payment of his fees.

87. In closing Mr Philip Tam had to change tack. He argued that the Court could infer the existence of Oral Agreements I and II from the Plaintiff not strenuously pressing for payment after being told by Ms Hung that Holdings' financial position was not sound. I reject Mr Philip Tam's argument.

88. The revised allegation was not put to the Plaintiff in cross-examination. In any event, the evidence shows that the Plaintiff regularly pressed for payment of overdue referral fees regardless of Holdings' financial position. Since he did not wish to make a scene, he restrained himself from putting his complaints in writing until, fed up, he sent Referral Memos I and II. But his restraint does not diminish the reality that he constantly complained about late payment.

89. Conclusion on Oral Agreements I and II. I find that Oral Agreements I and II were never made. Even if made, I would have found that the agreements were vague and unworkable so as to be incapable of enforcement. Finally, even if Oral Agreements I and II had been made and were workable, no evidence of Holdings's current financial position was adduced at trial. There is no evidence that Holdings' present finances render impossible the payment at this time of any monies owed to the Plaintiff by reason of his employment and its wrongful termination.

C. Issue (3): Remedies

90. It follows from my findings on Issues (1) and (2) that Holdings is liable to the Plaintiff. The Plaintiff did not bring these proceedings in breach of Oral Agreements I and II as alleged in the counterclaim. I now consider the quantum of Holdings' liability to the Plaintiff.

91. Some heads of damage were agreed between the parties as follows:-

(1)	Outstanding referral fees	$577,809.10
(2)	Unused annual leave	$39,526.35
(3)	Payment in lieu of notice	$68,280.73

92. This left the following claimed heads of damage in dispute:-

(1)	Long Service Payment
	(a)	Plaintiff's case:-
		$281,7000, covering the period from 19 July 1982 (when the Plaintiff was first employed by Associates) to 30 April 2001 (when, treating the Termination Letter as giving 1 month's notice, the Plaintiff's employment would have ceased).
	(b)	Defendants' case:-
		$90,000, covering the period from 1 April 1995 (when the Plaintiff was formally re-employed by Holdings upon termination of the Glenharvic Agreement) to 31 March 2001 (the date of the Termination Letter).
(2)	Reimbursement of RICS Subscription
	(a)	Plaintiff's case: $1,225.43.
	(b)	Defendants' case: Not entitled.
(3)	Anticipated referral fees
	(a)	Plaintiff's case: $120,327.00
	(b)	Defendants' case: Not entitled. Alternatively, $19,498.50.

I examine each of the disputed heads.

93. Long service payment. The debate is whether, for the purposes of calculating the Plaintiff's long service pay, the Court should:-

(1)	include the whole of the period when the Plaintiff was in fact working for Holdings and Associates (Holdings' predecessor); or,
(2)	exclude the period immediately before termination of the Glenharvic Agreement.

94. The Defendants argue that the Plaintiff's initial employment with Holdings ceased in December 1989 and was replaced by the Glenharvic Agreement. The latter contract being a consultancy, the Plaintiff was not an employee when the Glenharvic Agreement was effective. What is more, the Plaintiff benefitted from the Glenharvic Agreement in that he could deduct a range of expenses from the fees received under the Glenharvic Agreement and reduce profits tax. Had the Plaintiff received those fees as salary from Holdings, he would have had to pay salaries tax and could not have made the deductions allowed by the Revenue in the computation of profits tax. Since he derived a benefit from being treated as a consultant for tax purposes, the Plaintiff should not now be permitted to resile from his previous position and seek to be treated as an employee during the period of the Glenharvic Agreement so as to obtain more long service pay.

95. The question is not free of case law. I review 3 cases on similar facts to ascertain what the approach should be on this sub-issue.

96. In Massey v Crown Life Insurance Co. [1978] 2 All ER 576, Massey worked as Crown Life's manager under 2 contracts, one a contract of employment, the other a contract of general agency. Tax and other contributions were deducted from wages paid under the former, while commission was paid under the agency contract. Under the agency contract Massey could work for other insurance brokers. Later, with Crown Life's agreement, Massey registered himself as Massey & Associates and, trading under such name, entered into a new contract as a self-employed person with Crown Life in 1973. Massey's duties under the new contract remained the same, although tax and other contributions were no longer deducted from monies paid to him. When Crown Life dismissed Massey in 1975, he brought a claim for unfair dismissal. The question was whether he was entitled to make such claim since (Crown Life argued) he was not an employee under a contract of employment. A tribunal decided that Massey had no locus. He eventually appealed to the Court of Appeal.

97. The Court of Appeal dismissed Massey's appeal. Lord Denning MR stated (at 579j-580b):-

" The law, as I see it, is this: if the true relationship of the parties is that of master and servant under a contract of service, the parties cannot alter the truth of that relationship by putting a different label on it. If they should put a different label on it, and use it as a dishonest device to deceive the Inland Revenue, I should have thought it was illegal and could not be enforced by either party and they could not get any advantage out of it, at any rate not in any case where they had to rely on it as the basis of a claim: see Alexander v Rayson. An arrangement between two parties to put forward a dishonest description of their relationship so as to deceive the Inland Revenue would clearly be illegal and unenforceable. On the other hand, if their relationship is ambiguous and is capable of being one or the other, then the parties can remove that ambiguity, by the very agreement itself which they make with one another. The agreement itself then becomes the best material from which to gather the true legal relationship between them."

98. Lord Denning's judgment in Massey was closely analysed by the Court of Appeal in Young & Woods Ltd v West [1980] IRLR 201. Y & W gave West the option of being paid as an employee or a self-employed person. West preferred the latter. No tax was accordingly deducted from his salary as would have been the case had he been treated as an employee. The Inland Revenue knew of the arrangement. West having been dismissed by Y & W, he claimed unfair dismissal. An industrial tribunal found for West. The Employment Appeal Tribunal by a majority also found for West. The Court of Appeal affirmed the last decision.

99. Delivering the principal judgment, Stephenson LJ quoted extensively from Lord Denning's judgment in Massey. He then said:-

" [T]he Master of the Rolls [in Massey] appears to be saying that, when an agreement is made for a man to be self-employed, that affords strong evidence that that is the real relationship; and he may be saying that, if such an agreement is found, the man must accept it. He cannot afterwards assert that he was only a servant. On the other hand, it may be that the Master of the Rolls meant that, if the evidence is strong enough to show that a contract for services is the real relationship and that is found to be the real relationship, then the man must accept it. I do not myself find the words entirely clear but, read in their context - which itself clearly indicates considerable sympathy with dissenting view expressed by Lord Justice Lawton in the Ferguson case [Ferguson v John Dawson & Partners (Contractors) Ltd [1976] IRLR 346] - I do not think that they would justify me in concluding that wherever there is an agreement openly made that a particular person shall be treated by a company as self-employed, it follows that he must accept the position and cannot claim compensation for unfair dismissal as if he was not self-employed but an employee. It must be the court's duty to see whether the label correctly represents the true legal relationship between the parties in that case as in every other.

Lord Justice Lawton puts very clearly at the beginning of his judgment [in Massey] those considerations which led him to dissent in the Ferguson case:-

' In the administration of justice the union of fairness, common sense and the law is a highly desirable objective. If the law allows a man to claim that he is a self-employed person in order to obtain tax advantages for himself and then allows him to deny that he is a self-employed person so that he can claim compensation, then, in my judgment, the union between fairness, common sense and the law is strained, almost to breaking point. The applicant is asking this court to adjudge that he is entitled to make claims with two different voices.'

Then the learned Lord Justice went on to consider the facts of the case and to find that that was not, on the facts of that case, so. Lord Justice Eveleigh agreed with both judgments.

It is nowhere stated by Lord Justice Lawton in the judgment which he gave that an agreed change in the status of a person or an agreed choice of status necessarily determines that status and prevents that person from resiling from his choice or from pursuing what would appear to be a remedy completely inconsistent wit the choice that he has deliberately made.

Fairness and justice have throughout incline me to accept the minority view in this case. If Mr West chooses to call himself self-employed for fiscal advantages which are denied to an employee, why should he claim the advantage of statutory rights which are available to an employee but denied to the self-employed? And why should the agreement of employers to treat him as self-employed make any difference to the injustice or unfairness of his having both advantages? But, in my judgment, the answer is that he and his work should be classified not by appearance but by reality. If he is really self-employed the Industrial Tribunal should refuse to consider his statutory rights as an employee. If he is really an employee or servant the Inland Revenue should reclaim tax deductions which have been granted to him as self-employed; and, if this court declares that the true legal position between him and his employers is not in accordance with the agreement deliberately chosen by the parties and put before them for their information, I do not suppose that the Inland Revenue would fail to discharge their statutory duty.

But I have come to the conclusion that the minority view cannot prevail. I have come to the conclusion that the decision of the Industrial Tribunal was right and that the true legal relationship of the parties was not that of a self-employed agent working independently for this company."

100. There is finally the relatively recent decision of the UK Employment Appeal Tribunal in Catamaran Cruisers Ltd v Williams [1994] IRLR 386. The case illustrates how the principles are applied to a given situation. Williams provided his services to Catamaran through Unicorn, a limited company. Could he be treated as an employee within the terms of the Employment Protection (Consolidation) Act 1978?

101. Tudor Evans J, delivering the judgment of the tribunal, again cited Lord Denning in Massey. He continued:-

" In our view, it is a question of fact in every case whether or not the contract in question is one of service or a contract for services. We accept that the formation of a company may be strong evidence of a change of status but that the fact has to be evaluated in the context of all the other facts as found.

Having pointed out that it was conceded on behalf of [Catamaran] that, but for the existence of Unicorn, it could not be argued that Mr Williams was an independent contractor and that his evidence showed that all the facts necessary for a finding that he was an employee were present, the Tribunal held:-

(i)	that Unicorn could provide the services of Mr Williams for the work provided and no one else. It was told that:-
	' It was not possible for Unicorn ... to supply to [Catamaran] any person other than Mr Williams to do the work provided and [Catamaran] would have objected had Unicorn ... attempted to do this;'
(ii)	Unicorn was Mr Williams under another name.
(iii)	his hours were similar to others who were [Catamaran's] employees and he was paid on the same basis except that he was paid gross and the money was expressed to be paid as a fee for his services;
(iv)	Mr Williams was under the same conditions of service and the same disciplinary procedures as employees, the only difference being that Unicorn was aid a fee for his services.

We might add that we were told during the hearing of the appeal, and it was not challenged, that Mr Williams was offered such pay and holiday pay after Unicorn was formed.

...

It is clear from the findings of fact that, save for the gross payments made to Mr Williams and described as a fee, there was no factual change whatsoever in the terms of Mr Williams employment. It was, in our view, right for the Tribunal in these circumstances to find that Mr Williams worked for [Catamaran] under a contract of service. The first ground of appeal must fail."

102. The foregoing cases establish that, in deciding how to characterise the Plaintiff's relationship with Holdings during the period of the Glenharvic agreement, I should focus on the facts. Although entry into the Glenharvic Agreement is a fact which I can take into account, it is not decisive. Nor is the label used by the parties in the Glenharvic Agreement to describe their relationship determinative. Further, although tempting, one should not prejudge the issue of characterisation on the basis that the Plaintiff in all likelihood derived a significant tax advantage from entering into the Glenharvic Agreement and paying profits tax rather than salaries tax. If the Court finds that the true relation between Holdings and the Plaintiff was all along one of master and servant, it would be open for the Commissioner of Inland Revenue to consider whether or not the Plaintiff should be re-assessed to additional tax.

103. Given the approach just summarised, I think that the facts unequivocally point to the Plaintiff having been at all times in an employment relationship with Holdings. Indeed, at all material times, all parties actually thought of the Plaintiff as having been continuously employed by Holdings since 19 July 1982.

104. The following evidence supports my conclusion:-

(1)	The Plaintiff's unchallenged testimony was that he simply entered into the Glenharvic Agreement to obtain a tax advantage.
(2)	Glenharvic, which the Plaintiff beneficially owned in its entirety, was merely his alter ego. It is unlikely that Glenharvic could have nominated anyone else to act as "consultant" to Holdings in the Plaintiff's stead.
(3)	The Plaintiff's hours, duties and position in Holdings remained substantially the same, following entry into the Glenharvic Agreement.
(4)	Benefits afforded by Holdings to long-serving staff were also offered to the Plaintiff. The $51,000 gratuity was an example. Further, the Plaintiff was treated by Holdings as eligible through Glenharvic to earning referral fees under the Scheme.
(5)	Holdings changed the Plaintiff's title from Associate to Assistant Director as part of a change in Holding's organisational structure. The memo drawing attention to such change goes on to state that nonetheless the Plaintiff's "job nature and responsibilities remain the same". Following the change in job title, the Plaintiff's name appeared on Holdings letterhead as Assistant Director.
(6)	Holdings held the Plaintiff out to the rest of the world (apart from the Inland Revenue) as its employee. Periodically, Holdings at the Plaintiff's request would address letters (signed by Mr To) to various bodies (for instance, the Philippine Consulate on 14 September 1993 and the Immigration Department on 14 September 1993 and 19 April 1994) stating that the Plaintiff had been in Holdings' employment since 19 July 1992. Even after termination of the Glenharvic Agreement, Holdings issued a similar letter (addressed "To whom it may concern") on 29 May 2000 referring to the Plaintiff's employment with Holdings since 19 July 1982.

105. I therefore find in the Plaintiff's favour on long service pay.

106. Reimbursement of RICS subscription. I also find here in the Plaintiff's favour.

107. By its 28 October 1994 memo, Holdings announced a policy of reimbursing RICS membership fees. It would have formed part of Holdings' rules and regulations (including notices issued from time to time) incorporated as a term of the Plaintiff's employment by cl.7 of his contract with Holdings dated 1 April 1995. The October 1994 memo stipulates pro-rata reimbursement when a staff member terminates his employment. Here, Holdings and not the Plaintiff terminated the employment. Thus, the pro-rata provision does not apply.

108. In any event, the evidence shows that the Plaintiff only paid his RICS subscription on 15 February 2001, after he had been assured by Ms Hung that Holdings would refund the same. Holdings is thus estopped from denying an obligation to reimburse the Plaintiff.

109. Anticipated referral fees. The Plaintiff claims referral fees on commission income which Holdings has either received on 3 projects since termination of the Plaintiff's employment or which it is anticipated Holdings will receive in the future in respect of the 3 projects. The 3 projects and the referral fee amounts claimed by the Plaintiff in respect of each are as follows:-

(1)	Wealthy Court, Winslow Road, Hung Hom	$3,070
(2)	Olympic Terrace, Kowloon West	$72,257
(3)	Shun Cheong Building, Hau Wo Street, Kennedy Town	$45,000

The Plaintiff calculates his referral fee amounts by assuming that certain units in each project have been or will be leased by Holdings following his departure from office.

110. The Defendants deny that the Plaintiff is entitled to receive anything. They argue first that to be entitled to referral commission the Plaintiff must not only refer a client, but he must also follow up the project. I am not convinced by this argument. Obviously, the Plaintiff could not follow up as his employment with Holdings was prematurely terminated. Holdings cannot rely on its wrongful act as a defence from having to pay any referral fees due.

111. Then, Mr Tam states in his Supplemental Witness Statement that:-

" since the introduction of [the Scheme] in 1992, it has been the norms and practice in [Holdings] that an employee's entitlement to referral commission will lapse after the termination of his employment with [Holdings], despite [Holdings] may receive commission from the client introduced by the relevant employee."

112. I am not persuaded that a nebulous "norm" or "practice" which has not been recorded in the December 1992 memo setting out the Scheme or any later notice can affect rights accruing to an employee who conducts himself on the basis of the Scheme as set out in the December 1992 memo.

113. It is true that the December 1992 memo states that the Scheme is "not intended to form any part or terms of individual's employment contract". But where (as here) an employee works to introduce clients on the understanding that his introduction will be rewarded with a referral fee, I do not think that Holdings can deny payment of referral fees in respect of clients already introduced. Holdings may possibly be able unilaterally to modify the Scheme in how it rewards employees in respect of clients introduced in the future. But if, as here, a client has already been introduced and Holdings has obtained the benefit of such introduction, I do not think Holdings can resile from paying the promised benefit by vague reference to an unrecorded "practice".

114. Finally, the Defendants say that they have only received the following amounts to date from clients introduced by the Plaintiff in respect of the 3 projects:-

(1)	Wealthy Court, Winslow Road, Hung Hom	$1,817.50
(2)	Olympic Terrace, Kowloon West	$17,681.00
(3)	Shun Cheong Building, Hau Wo Street, Kennedy Town	$0.00

115. In my judgment the Plaintiff is entitled to receive referral fees for clients introduced by him on the 3 projects prior to the cessation of his employment. The question is how much. To a certain extent there is inevitably an element of assumption in ascertaining a figure.

116. How much is Holdings likely to receive all told from clients introduced by the Plaintiff on the 3 projects? Ms Cruden (appearing for the Plaintiff) did not cross-examine Mr Tam on Holdings' low receipts from the 3 projects. I will assume then, in light of Mr Tam's evidence, that actual receipts so far since 31 March 2001 are lower than originally expected. This suggests that the Plaintiff's projections (as to how much income Holdings might receive in all from the clients introduced by him on the 3 projects) are over-optimistic.

117. Ms Cruden has argued that the Plaintiff was deprived of the opportunity to follow through with the clients introduced by him. Had he remained with Holdings, he could have pushed such clients (Ms Cruden says) to place more business with Holdings. But, if one treats the Termination Letter as Holdings giving the requisite 1 months' notice to end the Plaintiff's employment, the Plaintiff would only have had a month in which to work on clients. I am not persuaded that, in the month from 31 March to 30 April 2001, the Plaintiff could have substantially altered the position on the 3 projects, however hard he may have worked on the matter.

118. Consequently, doing the best that I can in a rough and ready way, I would reduce the amounts claimed by the Plaintiff as follows:-

(1)	Wealthy Court, Winslow Road, Hung Hom: There is a difference between the parties' figures of $1,252.50. Splitting that difference between the parties and rounding down, I would give the Plaintiff $2,400.
(2)	Olympic Terrace, Kowloon West: There is a substantial difference between the parties. The Plaintiff bases his figure on an assumption of 100% apartment occupancy and 75% car park occupancy. That strikes me as high. If I take 50% of his estimated total commission for Holdings ($722,574) and round the resultant figure downwards, I arrive at $360,000. The Plaintiff's referral fee would be 10% of that or $36,000.
(3)	Shun Cheong Building, Hau Wo St., Kennedy Town: Again there is a substantial difference between the parties. The Plaintiff assumes that some 30 of 58 units will be sold at a net average price of $1.5 million. The number of units anticipated to be sold is probably optimistic. I would again take 50% of the Plaintiff's figures. That produces a total anticipated commission to Holdings of $225,000. The Plaintiff's referral fee would amount to 10% of that or $22,500.

119. The resultant total on the 3 projects would be $60,900. Under the Scheme, the Plaintiff is only entitled to payment of referral fees after commission is actually received by Holdings. Since I am in effect awarding the present value of anticipated receipts, I think it would be appropriate further to discount the figure of $60,900 to a round $60,000.

III. Conclusion

120. The Plaintiff's Claim succeeds. The Counterclaim is dismissed.

121. I award the following sums to the Plaintiff:-

(1)	Outstanding referral fees	$577,809.10
(2)	Unused annual leave	$39,526.35
(3)	Payment in lieu of notice	$68,280.73
(4)	Long service pay	$281,700.00
(5)	Reimbursement of RICS Subscription	$1,225.43
(6)	Anticipated referral fees	$60,000.00
	TOTAL:	$1,028,541.61
		==========

122. The Plaintiff is to have interest on the sum of $968,541.61 (that is, $1,028,541.61 less the anticipated referral fees of $60,000) at a rate of 2% over Hong Kong prime from 16 May 2001 (the date when the Labour Tribunal claim commenced) to date of judgment and thereafter at the judgment rate. Interests is to run on the $60,000 of anticipated referral fees from date of judgment at the judgment rate.

123. I make an Order Nisi that the Plaintiff is to have his costs of the Claim and Counterclaim from both Defendants, such costs to be taxed if not agreed.