YANG ZHIZHONG v. NOMURA INTERNATIONAL (HONG KONG) LTD

HCA 622/2018

[2024] HKCFI 2192

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 622 OF 2018

(Transferred from LBTC 3966/2017)

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JUDGMENT

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A.  INTRODUCTION

1.  The Plaintiff (“Mr Yang”) claims against the Defendant (“Nomura”) for breach of his contract of employment in:

1.1  issuing him with a warning letter of 13th December 2016;

1.2  failing to grant him a bonus award for the performance year 2016/17;

1.3  terminating his employment by a letter of 31st May 2017.

2.  The Plaintiff seeks damages comprising:

2.1  the bonus award for the performance year 2016/17 of at least US$1,880,996;

2.2  annual base salary of US$618,703 from 1st September 2017 onwards;

2.3  the loss of certain unvested bonus awards granted in the earlier performance years of 2014/15 and 2015/16, agreed to be valued at HK$12,7876,483.

B.  THE FACTS

3.  Many of the matters which occurred in this case were documented and there is therefore not much dispute about them.  In this section, I set out the undisputed or indisputable matters, which I find as facts.  I will also deal with a number of the disputed matters of fact.

B1.  The parties

4.  Nomura is and was at all material times:

4.1  a member of the Nomura group of companies, with Nomura Holdings, Inc (“NHI”) being the ultimate holding company; and

4.2  a licensed corporation under the Securities and Futures Ordinance (Cap.571), registered with the Securities and Commission (“the SFC”) to engage in the activities of dealing in and advising on securities and futures contracts, as well as corporate finance.

5.  The Nomura group’s business is organised by geographical regions and business divisions.  Nomura’s activities belonged to the “Asia ex-Japan” (“AEJ”) geographical grouping. Within this grouping, the activities were further divided by business divisions (such as the investment banking division) and country groupings.

6.  In Hong Kong, Nomura engaged in, inter alia:

6.1  investment banking activities, which belonged to Nomura’s “private side” business.  This part of the business had access to information that was not publicly available;

6.2  equity research activities, which belonged to Nomura’s “public side” business.  This part of the business had access only to publicly available information.

7.  Prior to joining Nomura, Mr Yang had been employed by Lehman Brothers.  He was offered employment at Nomura as a Managing Director in Nomura’s investment Banking Division connection with the sale to NHI of certain assets of the Lehman Brothers group.

B2.  The terms of Mr Yang’s contract of employment with Nomura

B2.1  The Employment Offer Letter

8.  Mr Yang accepted the offer of employment on 29th September 2008 by signing and accepting the terms of employment in an offer letter of that date (“the Employment Offer Letter”).  The terms of that letter included the following.

8.1  Clause 4 provided that Mr Yang would be eligible to participate in Nomura’s discretionary bonus program.  The nature and amount of the bonus was to be determined at Nomura’s discretion.  In particular, clause 4 provided that “The payment of any bonus in respect of any year, and the amount of such bonus if paid, shall not give rise to any expectation of the payment or amount of any bonus in any future year of employment.  Other than as set out in this Agreement, you acknowledge that no representation, assurance or guarantee has been provided by or on behalf of [Nomura] with respect to the payment of any discretionary bonus and you also acknowledge that you may receive a nil bonus.”

8.2  Clause 4 also provided for the award of certain fixed bonuses for performance years 2008 and 2009 as a “retention incentive”.

8.3  Clause 13 provided that nothing in the Employment Offer Letter would limit either party’s right to terminate the agreement with or without notice in accordance with applicable laws.

8.4  Clause 21 provided that Mr Yang was required to comply with Nomura’s policies, guidelines and handbook as issued and/or amended from time to time and that these, together with the terms in the Employment Offer Letter, constituted Mr Yang’s contract of employment.

8.5  The Appendix provided that Mr Yang’s corporate title was to be Managing Director (“MD”).

9.  In October 2010, the period of notice for termination of Mr Yang’s employment was changed from one month to three months.

B2.2  The Employee Handbook

10.  The employee handbook in force at the material time was version 9 (“the Employee Handbook”). As provided for therein, Sections A and B of the handbook formed part of Mr Yang’s contract of employment; Sections C and D did not form part of his contract of employment, but he was expected to comply with them.

11.  Section B of the Employee Handbook contained a section regarding compensation, and within it, a subsection regarding bonuses.  It provided that all bonus awards were conditional on (1) satisfactory completion of all the assigned mandatory training (including mandatory Compliance and Risk training) and (2) continued compliance with Nomura’s rules, regulations, policies and working practices.  Any determination by Nomura to reduce, withhold or cancel a bonus award was not conditional upon any formal disciplinary sanction being imposed.

12.  Section B of the Employee Handbook further contained a section regarding leaving Nomura, and within it, a subsection regarding suspension and garden leave.  It provided that Nomura reserved the right to exclude an employee from Nomura premises and require him not to attend at work and/or not to undertake all or any of his duties of employment at any time (this was termed “the Leave Period”).  During the Leave Period, the employee would be entitled to receive his usual pay and all contractual benefits.  If either the employee or Nomura served notice of termination of employment, Nomura could require the employee to take “garden leave” for all or part of the remaining period of the employee’s employment. During the Leave Period (including any garden leave), the employee was not to attend his place of work and might be required not to carry out duties during the remaining period of his employment.

13.  Section C of the Employee Handbook (“Policies and Procedures”) contained a section entitled “Code of Ethics”, which provided as follows.

“The Nomura Group is one of the world’s leading financial services groups. We can maintain this position only by setting for ourselves the highest business standards and working together as a team to maintain those standards in all areas. Our Code of Ethics set out basic principles of business to which the senior management of Nomura are committed.

Just as our regulators are keen to emphasize compliance with the spirit of regulations as well as the letter, so Nomura’s senior management which is all directors, officers and employees of Nomura to be conscious of the need to work within the spirit as well as the letter of the Code of Ethics and the other laws, regulations and requirements which apply to Nomura’s business. Integrity and honesty are the guardians of our reputation, and our reputation is the most vital asset to protect and the hardest to rebuild.  Every member of staff is entrusted with this responsibility.”

14.  The “Compliance” section provided, inter alia, as follows.

“… It is your responsibility to ensure that you act in accordance with the Compliance Manual and associated Compliance policies and procedures and with the various obligations and instructions relevant to your role, as advised from time to time by Compliance or any regulatory authority.

… Breaches of the requirements of the Compliance Manual or any policy, procedure or guidance issued by Compliance may result in disciplinary action up to and including summary dismissal.

…

Everyone who works for Nomura needs to be aware of, and understand, the laws, regulations, rules and Nomura policies and procedures that apply to them and their role. It is your responsibility to be compliant – Compliance will help you and the provision of training is a key element of this.

You should treat Compliance training as a priority and give it your full attention. Non completion of Compliance training by the specified time is recorded and considered as part of year-end performance and compensation assessment processes.

…

Nomura must ensure that all licensed representatives comply with the Securities and Futures Ordinance (the “SFO”). You must keep yourself acquainted with and comply with the provisions of the SFO and associated rules and regulations. You must not do anything, or fail to do anything, which could place Nomura in breach of the SFO and any of its associated rules and regulations.”

15.  The various policies relevant to the current dispute are set out below.  There was no dispute that they applied to Mr Yang.

16.  The “Disciplinary Measures” section provided, inter alia, as follows.

“Nomura may take disciplinary action against employees from time to time where appropriate to address unsatisfactory conduct, behaviour or performance. This may include but is not limited to any breach of a provision of Nomura’s policies (including this Handbook). Examples of disciplinary action include but are not limited to verbal or written warnings, suspension and dismissal (including summary dismissal).”

17.  Section D of the Employee Handbook (“Discretionary Benefits”) contained a section entitled “Discretionary Bonus”, which provided, inter alia, as follows.

“Provided that you are eligible to be considered for a discretionary bonus and Nomura, in its sole discretion decides that a bonus is awardable, Nomura will consider the appropriate level of bonus to be awarded to you (if any). In exercising its discretion, Nomura may take into account factors as it considers relevant, including:

• the performance of the Nomura Group as a whole

• the specific contribution of the component business units in which you are involved

• your individual contribution to Nomura, including a performance at work and your participation in the achievement of any strategic and/or financial objectives of your component business units

• the need to motivate you and other members of your component business units in the future

• Nomura’s perception of your future value to the business

• any disciplinary offence committed by you during the performance year…

• whether you have been employed for a full year of employment…

This list is not exhaustive.

Please note that you do not have a contractual right to receive a bonus annually and any award is at the complete discretion of Nomura.

B2.3  The Compliance Manual 

18.  Nomura’s Compliance Manual provided, inter alia, as follows.

“1.3.1 Senior Management’s Responsibility for Compliance

1.3.1.1 The primary responsibility for ensuring that Nomura’s business is conducted in accordance with the regulatory requirements and internal policies rests with the President, the Board of Directors, the Executive Committee, the Division Heads and the Responsible Officers of [Nomura], who may delegate authority to nominated staff to ensure that all relevant regulatory requirements are adhered to at the operational level.

1.3.1.2 The Securities and Futures Ordinance and the Code of Conduct issued by the SFC also set out the responsibilities of senior management of [Nomura]. Please refer to Section 2.2.4 for further details.

1.3.2 Individual Responsibility for Compliance

1.3.2.1 Responsibility for compliance with the rules, regulations and policies rests with every staff of [Nomura]. Compliance with the regulatory requirements and the observance of a high standard of business conduct should become the accepted disciplines which are part of everyday business. Failure to adhere to this standard may render [Nomura] or the staff concerned to disciplinary action by [Nomura], the local or overseas regulators.

…

2.2.4 Senior Management’s Responsibilities

2.2.4.1 The SFO introduces the concept of “Responsible Officer” (“RO”) – a licensed individual who supervises the conduct of the regulated activities of a licensed corporation and is nominated to act as such by the licensed corporation. The ROs will be regarded by the SFC as having primary responsibility for [Nomura’s] compliance with the SFO and its subsidiary legislation, and other codes and guidelines issued by the SFC.

2.2.4.2 Examples of high-level issues relevant to the ROs:

…

(b) The ROs should possess appropriate knowledge in law and regulations to ensure compliance with the relevant rules and regulations, both on an individual and [Nomura] level as a whole;

(c) The ROs should possess appropriate knowledge of the business and have access to all relevant information about the business on a timely basis, and have available to them all necessary advice on that business and on their own responsibilities. The ROs also have duty to understand the business, both front and back office, and manage risks…

…

7.1 Research

7.1.1 [Nomura] research publications must be impartial, clear and not misleading. [Nomura] maintains Policies for Managing Analysts’ Conflicts of Interest, which should be adhered to by the relevant staff at all times and be reflected in [Nomura] research publications.

…”

B2.4  The Code of Ethics of Nomura Group

19.  Paragraph 3 of the Code of Ethics of Nomura Group (as translated) provided that:

“Nomura People must understand how confidence in Nomura Group could be undermined by any misconduct and how hard it could be to restore it. Therefore Nomura People must promote proper understanding and compliance with the letter and spirit of all applicable laws, rules and regulations…”

B2.5  The AEJ Conflicts of Interest Policy  

20.  Nomura’s Conflicts of Interest Policy as applicable to AEJ provided, inter alia, as follows.

“1.1 Application

…

• Compliance with this Policy is mandatory. If you are in doubt about the application of this Policy in any circumstances, or the extent of any obligation owed, please consult your Compliance representative or AEJ Control Room …

…

1.2 Purpose

…

1.2.2 Conflicts of interest may arise in any area of the Firm’s businesses and across any business areas including among the Firm’s business divisions. Conflicts of interest may exist even though Nomura does not benefit as a result of the conflict. …

…

2.1 Conflicts of Interest Situations

2.1.1 Nomura operates as a multiservice investment bank and recognises that there are certain Conflicts of Interest that are inherent to its business. …

2.1.2.2 Research

Given the independent nature of the Firm’s Investment Research, possible conflicts may arise as a result of the other services the Firm provides to the same issuer or different clients. To prevent such Conflicts of Interest, the Research Department is set up independently and a policy is also in place to ensure Research publications are produced impartially and without favouring any particular client or department and Nomura is not being seen as benefiting from the issuance of such Research publications.

…

2.3.1 Employee Responsibility

The identification, management, mitigation, escalation and monitoring of Conflicts of Interest is a Firm-wide, continuous process and is each employee’s responsibility. While this policy sets out a framework by which the operation of the firm’s businesses are reviewed, with regard to escalating specific Conflicts of Interest, it is important that employees know how to escalate conflicts they might identify in their specific areas of the Firm.

2.3.2 Division Responsibility

Escalation of Conflicts of Interest is important for regulatory, risk management and reputational reasons. In the first instance, employees should identify potential conflicts to their line manager and Compliance representative, who can provide advice as to the most appropriate manner for escalation. In the event that any Conflict of Interest arises between different divisions of the Firm, it would be referred to the appropriate committee such as, Reputational Risk, Suitability and Conflicts Committee, for review.

…”

B2.6  The AEJ Confidentiality and Chinese Walls Policy

21.  Nomura’s Confidentiality and Chinese Walls Policy as applicable to AEJ, provided, inter alia, as follows.

“1. Overview

This Policy describes the methods that Nomura has implemented to monitor and control the flow of Material, Non-Public Information, aka MNPI, between business areas that routinely have access to such information (the “Private side”) and those business areas that trade, sell or provide investment research (the “Public side”). The policies and physical and technological procedures designed to monitor and control the flow of MNPI are commonly referred to as information barriers or “Chinese walls”. Controlling the flow of information within the firm allows public side employees to trade, sell or provide investment research to clients on securities and related derivatives while private side employees are in possession of material, non-public information relating to the issuer of those securities. Effective Chinese walls enable Nomura to manage conflicts of interest, maintain client confidentiality and provide an effective means of ensuring the firm complies with laws and regulations relating to market abuse and insider dealing.

…

4. Chinese Walls

Nomura has implemented Chinese walls throughout the firm. The firm's Chinese walls separate private side businesses such as investment banking and merchant banking from public side businesses such as sales, trading, research and asset management.

…

5. Employees “Above” the Chinese Walls: Regional Executive Insider (REI)

Certain employees who have regular exposure to and influence over both Nomura public and private side businesses are designated as Regional Executive Insiders (“REIs”). REIs are usually members of regional executive management or the senior business employees who will manage the business resources for supporting both public and private business. Notably, REIs will have regular access to Nomura confidential information from both public and private business units.

REIs will not typically have responsibility for trading and/or sales activities or be the primary account executive or first port of call for clients, be responsible for directing trading decisions or the allocation of risk limits or author and publish research although they may manage other employees who directly supervise those activities. REIs should recognize when they are in possession of inside information and should ensure that such information is not inadvertently conveyed to their employees. Information sharing must strictly follow the need-to-know principle. MNPI can only be provided to public side employees after the employees are properly wall-crossed. Supplementary policies may be implemented for managers that have responsibilities for directly supervising both public side and private side groups.

…

8. Wall Crossings

In certain instances, when a valid business purpose exists (e.g., to ensure the proper functioning of the firm or to better serve a client) it may become necessary to “cross” a public side employee to the private side of the firm to facilitate the sharing of inside information with that public side employee. Prior to the communication of any inside information to a public side employee, the requestor (usually a private side employee or a deal team member) must have obtained the necessary approvals. In general, only REIs, private side or wall-crossed staff may request to wall cross a public side employee. Such requests are submitted to Control Room using the internal OTW application.

…”

B2.7  The Global Markets Research Compliance Manual

22.  Nomura’s Global Markets Research Compliance Manual as applicable to AEJ, provided, inter alia, as follows.

1.1  Introduction

…

Although senior management and the Compliance Department are charged with certain compliance responsibilities, ultimately it is the responsibility of every employee to ensure they comply with the relevant rules and regulations that govern the conduct of their daily business.

…

1.2  Regulatory Environment

…

Research departments within investment banks have been subject to intense regulatory focus throughout the world. Therefore, many rules and best practice standards have been adopted by regulators, and, in turn, by the firms that they regulate.  Of particular focus has been the issue of conflicts of interest inherently present within investment banks that maintain research divisions.

…

4.2.2  Prohibition on Participating in Efforts to Solicit Investment Banking Business

Analysts are prohibited from engaging in any communication for the purpose of soliciting investment banking business and may not discuss the Firm’s investment banking capabilities with subject companies.  If asked about investment banking services or the Firm’s capabilities, analysts may refer the company to an Investment Banking contact.

Analysts are prohibited from attending a meeting with any Firm’s personnel (regardless of their department) if one of the purposes or goals of the meeting is to discuss or pitch the Firm’s investment banking capabilities.  Analysts should notify the Control Room when they are requested to attend a meeting or participate in a conference call with personnel from the IBD or Merchant Banking Division and a client or potential client so that Compliance can confirm whether participation would be consistent with the Firm’s policies.

…

4.3  Communications

In general research analysts are permitted to talk to investment bankers.  In general it is acceptable for the analyst to:

• Provide industry & company updates…;

• Discuss their published research;

• Provide published models; and/or

• Attend at widely held industry events.

However the following communications must not take place:

…

• Three-way meetings with an issuer, banker and analyst, without the prior consent of Compliance;

…”

B2.8  The Guidelines for Communication between IBD and Research

23.  Nomura’s Guidelines for Communication between the investment banking division (“IBD”) and Research provided, inter alia, that Control Room had to be copied in on the emails from IBD to Research.

B3.  External codes of conduct and rules

24.  Given Nomura’s status as a licensed person and Mr Yang’s status as one of its Responsible Officers (“RO”), a number of other codes of conduct and rules applied.

25.  The Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission (“SFC Code of Conduct”) provided, inter alia, as follows.

“Explanatory notes

The Commission will be guided by this Code of Conduct … in considering whether a licensed or registered person satisfies the requirement that it is fit and proper to remain licensed or registered, and in that context, will have regard to the general principles, as well as the letter, of the Code.

…

General principles

…

GP6. Conflicts of interest

A licensed or registered person should try to avoid conflicts of interest, and when they cannot be avoided, should ensure that its clients are fairly treated.

GP7. Compliance

A licensed or registered person should comply with all regulatory requirements applicable to the conduct of its business activities so as to promote the best interests of clients and the integrity of the market.

…

GP9. Responsibility of senior management

The senior management of a licensed or registered person should bear primary responsibility for ensuring the maintenance of appropriate standards of conduct and adherence to proper procedures by the firm. In determining where responsibility lies, and the degree of responsibility of a particular individual, regard shall be had to that individual’s apparent or actual authority in relation to the particular business operations, and the factors referred to in paragraph 1.3 below.

…

Interpretation and application

…

1.3 Persons to which the Code applies

… In considering the conduct of representatives under the Code, the Commission will consider their levels of responsibility within the firm, any supervisory duties they may perform and the levels of control and knowledge they may have concerning any failure by their firms or persons under their supervision to follow the Code.

…

14.1 Responsibility of senior management

Senior management of a licensed or registered person should properly manage the risks associated with the business of the licensed or registered person, including performing periodic evaluation of its risk management processes.  Senior management should understand the nature of the business of the licensed or registered person, its internal control procedures and its policies on the assumption of risk.  They should clearly understand the extent of their own authority and responsibilities. …”

26.  The SFC’s Licensing Handbook provided, inter alia, as follows.

“3.2 Responsible officers

Responsible officer

3.2.1 S/he is a licensed representative (see paragraph 3.3) who is also approved as a responsible officer under section 126 of the SFO to supervise the regulated activity of the licensed corporation to which s/he is accredited.

…

4.2.9 The senior management of your corporation should bear primary responsibility for ensuring the maintenance of appropriate standards of conduct and adherence to proper procedures by you.

The SFC is of the view that senior management of a licensed corporation includes, among others:

…

(b) responsible officers of the corporation …”

B4.  The structure of Mr Yang’s bonuses

27.  In each of the performance years (that is, years ending on 31st March) between 2011/12 and 2015/16, Nomura awarded Mr Yang bonuses, each of which comprised:

27.1  an upfront cash payment;

27.2  deferred cash payment in the form of Collared Notional Stock Units (“CSUs”), which entitled Mr Yang to cash payments upon vesting, the amounts of which were (and are) calculated by reference to the prevailing market price of NHI’s common stock;

27.3  deferred Stock Acquisition Rights (“SARs”), which entitled Mr Yang to acquire NHI’s common stock for nominal sums upon vesting.

28.  In the performance year 2015/16, Mr Yang was awarded a bonus (comprising the three elements above) of the value of US$1,889,996.

29.  The vesting of the CSUs and SARs granted to Mr Yang was in each case deferred in accordance with the vesting schedules set out in the award statements in which he was notified of his bonuses.

30.  The vesting of the CSUs and SARs was (and is) governed by the terms and conditions of the relevant CSU Agreements and CSU Plans and the SAR Agreements and SAR Plans respectively.  These agreements and plans formed part of the contract between Mr Yang and Nomura.

31.  The preamble to the CSU Plan indicated that the CSUs were:

“…an additional incentive to attract and retain qualified and competent persons who provide services to [Nomura] and upon whose efforts and judgment the success of [Nomura] is largely dependent…”

32.  The CSU Plan further defined “Continuous Service” as the

“the uninterrupted provision of services by a Participant to [Nomura] in any capacity of employee, director, consultant or other service provider. Continuous Service shall not be considered to be interrupted in the case of: (i) any approved leave of absence (which shall include sick leave, military leave, or any other authorized personal leave), (ii) transfers among the [Nomura group companies], or (iii) any change in status from one type of service provider to another type of service provider as long as the Participant remains in the service of [Nomura] as an employee, a director, a consultant or any other service provider…”.

33.  The CSU Agreement provided as follows.

33.1  Except as otherwise provided in section 4(b), the general rule was that CSUs were to become vested in accordance with the vesting schedule in the Award Statement (termed the “Standard Vesting Date”), subject to the employee’s Continuous Service (as defined in the CSU Plan) through each Standard Vesting Date (section 4(a)).

33.2  Except as otherwise provided or determined by the Human Resources Committee, the unvested CSUs were to terminate immediately and become null and void upon the termination of the employee’s Continuous Service for any reason.  The termination of the employee’s Continuous Service might occur earlier than the termination of the employee’s employment or engagement with the employer (termed the “Separation Date”) where the employee is on leave or otherwise ceases to provide active service prior to the Separation Date (section 5(a)).

33.3  In the event that the employee’s Continuous Service was terminated by the employer by reason of a redundancy resulting from a job or position elimination or the employee’s Continuous Service was otherwise terminated by the employer without cause, the employee’s interest in his CSUs was to continue to vest on the Standard Vesting Dates, subject to compliance with certain specified restrictive covenants (section 5(b)(ii)).

33.4  Notwithstanding any other provisions of section 5(b), the continued vesting of the employee’s interest in his CSUs in any of the circumstances permitted under section 5(b) was expressly conditioned on the employee’s execution of any general waiver and release of claims in such form and within such time period as might be required by the employer (section 5(b)(v)).

34.  The preamble to the SAR Plan indicated that the SARs were “to enhance the motivations to elevate the value of [NHI]”.

35.  The SAR Agreement (which is governed by the laws of Japan and contains an exclusive jurisdiction clause in favour of the Tokyu District Court) provided as follows.

35.1  The employee had to maintain a position as an executive or employee during the period between the grant date of the SAR and the commencement of the Exercise Period (as defined) (section 9A, 1(1)).

35.2  The grantee was deemed to maintain a position of executive or employee where Nomura determined that the grantee had lost such position by “ceasing employment due to redundancy, discharge, dismissal due to economic conditions or a similar reason as determined by [Nomura]” (section 9A, 1(1)(ii)(f)).

35.3  Notwithstanding any other provision of section 9A, 1(1), the continued eligibility to exercise the grantee’s SARs in any of the circumstances permitted was expressly conditioned on the grantee’s execution of any general waiver and release of claims in such form and within such time period as might be required by the employer ( (section 9A, 1(8)).

B5.  Mr Yang’s role at Nomura

36.  At the material times, Mr Yang was registered with the SFC at various times for conducting Type 1 (dealing in securities), Type 4 (advising on securities) and Type 6 (advising on corporate finance) regulated activities until his employment was terminated with effect from 31st August 2017.

37.  As mentioned above, Mr Yang joined Nomura at the corporate grade of Managing Director.  In November 2009, Mr Yang was promoted to the corporate grade of Senior Managing Director (“SMD”), which was the highest corporate rank within Nomura AEJ. At the material time, there were only four SMDs in Nomura AEJ, one of which was Mr Yang.  Two of the others were Mr Toshiyasu Iiyama (“Mr Iiyama”), who later became Mr Yang’s primary manager, and Mr Vikas Sharma, Nomura’s Head of Region (“Mr Sharma”).

38.  The corporate grade was a designation of seniority and also had an impact on compensation.  For the discretionary bonus, employees of the corporate grade of SMD or above across the Nomura group fell within the “CEO Group” and received different treatment: their bonus awards were not considered as part of their respective business divisions; there was no specific pool of money allocated for the CEO Group bonus; and the bonus for those in the CEO Group were assessed by the employee’s manager individually on a case by case basis.

39.  Separately, Nomura assigned its employees a functional role in a specific business division. Mr Yang was assigned to the IBD, as set out in the Appendix to the Employment Offer Letter.

40.  When Mr Yang first joined Nomura, he retained his functional title of “Chairman and CEO, China Region” (“China CEO/Chairman”) from his time at Lehman Brothers.  This was subsequently changed to “Head of China” in 2016.  As a country head, he was given a seat in the Nomura Group’s Asia Executive Management Committee (“the AEMC”).  

41.  In January 2011 Mr Yang was appointed as Chairman of Investment Banking AEJ (“IBD-AEJ Chairman”).  The announcement stated that this was to drive forward Nomura’s regional business.

42.  In summary, during the period from January 2011 until 31st December 2016, Mr Yang held dual roles:

42.1  a country head role (“Chairman and CEO, China Region”, later “Head of China”), and

42.2  an IBD role (“Chairman of IBD, AEJ”).

43.  Mr Yang’s IBD role as IBD-AEJ Chairman was unique in that:

43.1  although it was a senior title in IBD, he did not in fact belong to IBD in terms of headcount, which was under the “Executive Administration” division instead;

43.2  the head of IBD, AEJ was Mr Kenji Teshima (“Mr Teshima”), an MD, but Mr Yang was not answerable to him even though he performed IBD functions in AEJ.

44.  With effect from 1st January 2017, Mr Yang stepped down as Head of China, following on from the disciplinary proceedings referred to below.

B6.  Mr Yang’s performance management reviews

45.  The annual objectives for Mr Yang were agreed with Nomura and set out in his performance management reviews (“PMRs”) and included, inter alia:

45.1  contributing to revenue and profitability;

45.2  complying with Nomura’s Code of Ethics, Compliance and Risk Management;

45.3  supporting and coaching key Nomura employees in the China business;

45.4  recruiting and retaining employees;

45.5  promoting cross-divisional business referrals including cross-selling and introducing client contacts to peers.

46.  In Mr Yang’s 2013/14 PMR, Mr Yang’s then primary manager Mr Minoru Shinohara gave Mr Yang an overall rating of “Outstanding” with positive comments on his performance.

47.  In Mr Yang’s 2014/15 PMR, Mr Shinohara gave Mr Yang an overall rating of “Highly Effective” with positive comments on his performance.

48.  In Mr Yang’s 2015/16 PMR, Mr Yang’s new primary manager, Mr Iiyama, gave Mr Yang an overall rating of “Highly Effective” with positive comments on his performance.

B7.  The three-way meetings

49.  Mr Yang arranged and attended the following meetings:

49.1  a meeting on 9th April 2015 with Ms Liu, Head of China Equity Research and China Strategist of Nomura and the CEO of Huatai Securities Co Ltd (“Huatai”), which was a potential applicant for an initial public offering (“IPO”), before Nomura was formally mandated a role in the IPO (“the April 2015 Three-Way Meeting”);

49.2  a meeting on 6th May 2015 with Mr Huang, an equity research analyst of Nomura, and the major shareholder of a potential listing applicant before Nomura was formally mandated a role in the IPO (“the May 2015 Three-Way Meeting”);

49.3  a meeting on 8th August 2016 with Mr Huang and the management of AsiaInfo, which was a potential IPO applicant, when Nomura had not yet been mandated a role in the relevant transaction (“the August 2016 Three-Way Meeting”).

50.  It is appropriate to note at this juncture that:

50.1  prior to the hard block against email traffic between Equity Research and IBD staff imposed in September 2016 (see below), there was no such email block on Mr Yang’s work email account;

50.2  at the material time Nomura’s internal policies in force did not require Mr Yang to seek prior approval from Nomura’s Compliance Department or any other body or person for meeting clients generally; and

50.3  the aforesaid three-way meetings did not constitute a breach of Nomura’s Confidentiality and Chinese Walls Policy.

B8.  The SFC inspection and Nomura’s internal investigations

B8.1  The SFC inspection

51.  In May 2016, the SFC initiated an on-site inspection at Nomura’s offices (“the SFC Inspection”). In about early to mid-2016, Mr Yang and all the other senior executives on the AEMC were notified that the SFC was carrying out a routine review into Nomura’s business practices.

52.  From about May to September 2016, at the request of Nomura’s Legal and Compliance team, a number of Nomura’s employees, including Mr Yang, participated in internal “fact finding” meetings.  The purpose of the meetings as conveyed to Mr Yang was to discuss the April 2015 Three-Way Meeting, including Ms Liu’s attendance, which the SFC had identified as raising a possible issue.

53.  During this period, Nomura answered various questions posed by the SFC.  They included the following.

53.1  On 30th May 2016, the SFC noted that Ms Liu met Mr Yang (“deal team member”) and the CEO of Huatai on 9th April 2015 (the April 2015 Three-Way Meeting) before she was wall-crossed on 14th April 2015.  The SFC asked whether this breached Nomura’s wall-crossing policy, and whether the meeting had obtained prior consent from Nomura’s Control Room.  The SFC also asked for copies of the email correspondence between Ms Liu and the IBD and Huatai.  In response, Nomura said that the meeting was not a breach of its Confidentiality and Chinese Walls Policy; meeting with Nomura clients without exposing material non-public information (“MNPI”) did not require wall-crossing; the meeting was mainly for Huatai’s CEO to introduce himself and Huatai’s business to Ms Liu; there was no discussion at the meeting of Nomura’s desire to participate in the IPO; consent from Control was not obtained prior to the meeting; emails would be provided separately.

53.2  On 23rd June 2016, in answer to the question of whether certain emails between Ms Liu and Mr Yang, which were not copied to Nomura’s Control, were escalated to the Compliance team, and the request for provision of the audit trail of any such escalation, Nomura answered that “The emails between [Ms Liu and Mr Yang] … were not escalated … To the HK Compliance team.  According to the Standard Operating Procedures, one of the escalation criteria is to escalate messages between IBD and Research staff without copying Control Room.  [Mr Yang] is our China Chairman & CEO and he is under Head Office in our HR structure.  … Hence, the emails between [Ms Liu and Mr Yang] did not hit the escalation criterion mentioned above.

53.3  On 27th June 2016, in answer to the questions of (1) why Ms Liu met the CEO of Huatai at the April 2015 Three-Way Meeting before Nomura was mandated as IPO book runner, and (2) what the details of the discussion were, Nomura answered that “Nomura’s China Chairman & CEO [Mr Yang] introduced China Equity Research Strategist Ms Liu to the CEO of Huatai.  The meeting was an opportunity for the CEO to meet experienced capital market practitioners… There was no discussion of Nomura’s desire to participate in the IPO as an underwriter.  There was also no discussion of what Nomura research would do to support the IPO.  …”

54.  On 8th September 2016, the SFC sent a letter to Nomura setting out its findings.  It stated:

“We have identified an array of control deficiencies and non-compliances in our focus areas, including some very severe deficiencies and non-compliances that require [Nomura’s] immediate attention and remedial actions. …

When this letter only sets out some of our inspection findings and observations as illustrative examples, you may find further details of all inspection findings and observations in the Appendix.

…

Research

It is very worrying to note from our sample review that a senior investment banker set up a three-way meeting with the listing applicant and the research analyst when he was at the final stage of pitching for the book-runner role of an Initial Public Offer transaction. The research analyst participated in the meeting without prior consent of [Nomura] Compliance. This was in breach of relevant [Nomura] internal policy on Research. Furthermore, [Nomura] was unable to provide any concrete evidence to demonstrate that it had not also violated the Code of Conduct which clearly stipulates that (i) an analyst should not participate in business activities designed to solicit investment banking business; and (ii) any undue influence should be eliminated and managed. Based on the above, we find the behaviours of both research analyst and investment banker unacceptable, causing concerns as to whether [Nomura] may not have sufficiently upheld the independence of its Research function.

…

Issue Escalation to Local Management and Regulator

As your senior management has the primary responsibility for ensuring that the firm has maintained the appropriate standards of conduct, adequate financial resources and internal control system to comply with the Securities and Futures Ordinance and other applicable regulatory requirements, you are expected to report the findings of this letter to the boards of Nomura and senior management of your holding companies.

…

55.  The appended Summary Report stated as follows.

“Background

SFC staff conducted an onsite inspection under section 180 of the Securities and Futures Ordinance [of Nomura] from May 2016 to September 2016.

Inspection findings and/or observations

This Summary Report now sets out all of our inspection findings and/or observations when articulating our concerns over each of the following areas:

…

D. Research

1. Research analysts involved in pitching activities

Based on our sample review, we noted that [Nomura’s] China Chairman & CEO, [Mr Yang] arranged [the April 2015 Three-Way Meeting] when Nomura was at the final stage of pitching for the book-runner role of the [Huatai IPO] transaction. Liu had attended the meeting without prior approval of Nomura Compliance. We further noted that Liu was not yet wall-crossed when this meeting took place.

On 14 April 2015, three business days after the meeting, Nomura was verbally mandated as an IPO book-runner of Huatai and Liu was wall-crossed accordingly on the same day. Liu was responsible for preparing and reviewing the research report as well as the pre-deal report in relation to the [Huatai IPO].

Upon our enquiries, Nomura advised that the purpose of the meeting was only for Yang to introduce Liu to the CEO of [Huatai] and that there was no discussion of Nomura’s interest in participating in the IPO as a book-runner and no discussion of the research report Liu was working on.

…

Three-way meetings with issue, banker and analyst without prior consent of Compliance was prohibited according to paragraphs 4.2.2 and 4.3 of your Global Markets Research Compliance Manual. In this regard, Liu had clearly breached your internal policies by not notifying and seeking approval from Compliance for attending the meeting. It was even more worrying that Liu, who was not properly wall crossed while she attended the meeting, was able to meet with a key management of the listing applicant without the knowledge of Compliance.

While we took note of your explanation, you were however unable to provide any evidence to support your explanation. In addition, there were no independent functions such as Compliance, chaperoning the meeting or meeting notes taken as a record of discussions held.

…

We have grave concerns about the perceived and potential conflicts of interest that might arise when research analysts, who were expected to be independent at all times, were requested to attend and actually attended meetings with listing applicants as conceivably they could take this opportunity to assist investment bankers in soliciting their business, especially when such activities even formed part of their performance review.

…

You are required to critically review and take all necessary remedial actions to enhance your current controls on monitoring the participation of research analysts in meetings with potential IPO clients and to prevent research analysts from being involved in soliciting investment banking business.  You are also required to escalate this incident to management and report to the Commission what actions to be taken against Liu and Yang.”

56.  As submitted by counsel for Nomura, Ms Eva Sit SC (appearing with Ms Sheena Wong), the reason why the SFC found the April 2015 Three-Way Meeting problematic was that there could be a conflict of interest between the investment banking division (which earned fees from promoting an IPO) and the research division (which was in a position to influence the investing public through its published research). Where a three-way meeting took place at the time when the IBD was pitching for a company’s business and was subsequently awarded the business, there could be a perception, to say the least, that the IBD was suggesting the possibility of favourable reviews from Research as an inducement for the company to engage IBD. The SFC’s Code of Conduct had a lengthy section in paragraph 16 relating to research analysts, and specific rules preventing the investment banking function of a firm from influencing the firm’s research analysts.

57.  The SFC’s letter was circulated by Nomura’s Compliance Department to various people, including Mr Yang.  The observation was that “The tone of the letter is quite serious.”  The SFC’s comment about the April 2015 Three-Way Meeting was highlighted, and recipients were asked to go through the SFC’s findings and observations in detail and work with Control Room to prepare a response to the SFC.

58.  Mr Yang’s response of 11th September 2016 made the points that (1) the meeting was not designed to solicit investment banking business, (2) “In my capacity as country head (above the wall), I should be able to take colleagues from both the public and private sites to meet clients and I have done that many times to support various business divisions”, (3) Huatai was expected to do a very big IPO at the time so that naturally most brokerage firms would have wanted to understand its business, (4) neither he nor Ms Liu mentioned anything at the meeting about the IPO, (5) he and Ms Liu were aware of the compliance issues and were extremely careful; they did not want the meeting to be construed as supporting IBD business; no IBD business was mentioned, and no research coverage commitment was made whatsoever.

B8.2  Nomura’s internal Investigation Team

59.  After receiving the SFC’s letter of 8th September 2016, the AEJ Internal Investigations Committee appointed an internal investigation team consisting of members from Compliance, Legal and Operational Risk Management Departments to investigate the April 2015 Three-Way Meeting (“ the Investigation Team”).  The team interviewed Mr Yang on 5th October, 26th October and 3rd November 2016.

60.  On 6th October 2016, Nomura replied to the SFC, stating that in relation to the three-way meeting identified (the April 2015 Three-Way Meeting), an internal investigation team had been established to undertake a critical review of the incident, and the findings and decisions relating to disciplinary actions to be taken would be reported to the SFC.  Furthermore, a hard block against email traffic between staff of the Equity Research and the Investment Banking Divisions had been imposed with effect from 21st September 2016.

B8.3  The Investigation Team’s October 2016 Preliminary Investigation Report

61.  In October 2016, the Investigation Team’s Preliminary Investigation Report into the April 2015 Three-Way Meeting was issued (“the October 2016 Preliminary Investigation Report”).

61.1  The Investigation Team reviewed all electronic communications between Mr Yang and Nomura’s Equity Research analysts from 1st January 2015 to 31st August 2016.

61.2  The Investigation Team also reviewed electronic communications between other senior banking staff (selected on the assumption that potentially inappropriate interaction with clients at the request of the Equity Capital Markets or China IBD teams would more likely be initiated by senior staff) and equity research analysts in order to consider the broader practice regarding interactions with Equity Research staff.  In this regard, the Investigation Team did not identify any conduct which was relevant for investigation.

61.3  The Investigation Team then went on to conduct interviews with the analysts who had communicated with Mr Yang.

62.  Whilst the correspondence of all MDs in the Equity Capital Markets and China IBD teams in the IBD AEJ for the eighteen-month period was reviewed, it was only Mr Yang’s conduct which was identified as being problematic, and the conduct was not confined to the incident identified by the SFC.

63.  The Investigation Team’s factual findings were as follows.

63.1  The Investigation Team identified a number of incidents where Mr Yang performed duties in his capacity as China CEO/Chairman that would have caused concern if performed by another member of IBD without such dual capacity.  The team found that Mr Yang was aware of the need to avoid substantive conflicts of interest in his IBD role when interacting with members of Equity Research, but that he did not appear to be sufficiently conscious of the perception of such conflicts of interest when interacting with members of Equity Research given his dual roles. Accordingly, he did not take proactive steps to manage any such perceived conflicts of interest.  The concern was observed in three main areas.

63.2  The first area was the potential perception of research analysts being involved in solicitation of IBD business.

63.2.1  The Investigation Team identified a number of three-way meetings arranged by Mr Yang with a research analyst and a listing applicant, including the April 2015 Three-Way Meeting, the May 2015 Three-Way Meeting, and the August 2016 Three-Way Meeting. (The SFC had only identified the April 2015 Three-Way Meeting in its investigations and it was the Investigation Team’s review which had identified the other two meetings.)

63.2.2  The Investigation Team recorded that Mr Yang had said that he well understood the regulatory and policy requirements regarding conflict of interest, and that he was emphatic that there had not been any pitching or solicitation of business at the three-way meetings.  The Investigation Team went on to say that Mr Yang acknowledged that there could nevertheless be a perception of potential conflict of interest where a Research analyst met with an IPO applicant before Nomura was formally mandated for a role in the transaction, and that he had suggested that a more prudent practice would have been for IBD staff not to attend any such meetings to avoid any perception of a potential conflict.

63.2.3  The Investigation Team did not identify any breach of the Confidentiality and Chinese Wall Policy, or leakage of non-public information, by Mr Yang in the three incidents.

63.2.4  The Investigation Team noted that emails between IBD and Research were encouraged to be copied to the AEJ Control Room under the Guidelines for Communication between IBD and Research.  Mr Yang had indicated that he was not familiar with the requirements of the guidelines.

63.3  The second area was the potential leakage of non-public information without wall crossing.

63.3.1  The Investigation Team identified two instances where Mr Yang contacted a research analyst about a company which subsequently announced a corporate action.

63.3.2  The Investigation Team had asked Mr Yang how he ensured that the analysts would not have deduced the possibility of a potential non-public transaction from his discussion with them about a specific company.  Mr Yang had said that his requests had been for information only and that he was fully aware of the need to avoid the possibility of tainting research analysts with non-public information unless they were wall-crossed.

63.3.3  The Investigation Team did not identify any breach of the Confidentiality and Chinese Wall Policy, or leakage of non-public information, by Mr Yang in the two incidents.

63.4  The third area was the potential exercise of inappropriate influence.

63.4.1  The Investigation Team noted that Mr Yang as China CEO/Chairman was involved in certain recruitment and personnel matters.  Mr Yang was selected by Ms Liu to provide feedback in her performance review for 2015/16; he provided specific comments about her support of certain IBD transactions.  There was no evidence that Mr Yang had exerted inappropriate influence over research analysts’ compensation or advancement.

63.5  The Investigation Team interviewed Ms Liu regarding the April 2015 Three-Way Meeting.

63.5.1  After the meeting took place Ms Liu had drafted an email on 11th April 2015 to thank the Huatai CEO for his time and inform him that she had mentioned Huatai to a few investing funds.  Before she sent the email, Ms Liu had sent the draft to Mr Yang and asked him whether she needed “to obtain compliance/control room approval”.  Mr Yang had advised Ms Liu “No need to go through Compliance.  I am over the wall.”

63.5.2  The Investigation Team recorded that Ms Liu had acknowledged that she had made a mistake and apologised a number of times for not seeking Control Room approval for the meeting or her email to the client.

63.5.3  The Investigation Team noted that although there was no policy which would have required Ms Liu to seek Control Room approval for emails to corporate clients, Ms Liu should have obtained guidance from Compliance (instead of Mr Yang) in circumstances where she appreciated that it would have been prudent to do so.  It was further noted that no other breaches by Ms Liu had been identified in the investigation.

63.6  The Investigation Team noted that although it had found no evidence that a breach of the (SFC’s) Code of Conduct had occurred arising from research analyst participation in meetings with clients, certain of the conduct identified in the report had contravened Nomura’s policies.  Remedial measures had since been implemented to enhance Nomura’s controls over the monitoring of the participation of research analysts in meetings with potential listing applicants and to prevent them from being involved in soliciting investment banking business, including the hard block against emails between staff of Equity Research and IBD.

63.7  The Investigation Team suggested a number of further actions, including the referral of Mr Yang’s and Ms Liu’s conduct for potential disciplinary action; the implementation of clearer guidance / governance protocols for Country Head who might also be involved in IBD transactions, and how to manage potential conflicts of interest between the two roles.

64.  On 8th November 2016, Mr Iiyama sent an email to Mr Tetsu Ozaki, Nomura’s Group Deputy President and Chief Operating Officer in Tokyo at the material time (“Mr Ozaki”), reporting about China business. Mr Iiyama raised the issue of Mr Yang.  He noted that the SFC investigation indicated that Mr Yang had conducted meetings with an enterprise preparing for an IPO and had involved research staff, which was described as “a conflict with internal rules”,^[1] and the plan was to convene a local disciplinary committee that week, which was likely to result in a written warning.  Mr Iiyama also said that one of the causes in the case was that Mr Yang held dual status both as Head of China and IBD-AEJ Chairman, so that one of the titles would have to be stripped in providing an explanation to the SFC.

B8.4  The DRC meeting of 9th November 2016

65.  On 9th November 2016, Nomura’s Disciplinary Review Committee (“the DRC”) met to consider whether to recommend disciplinary action against Mr Yang in respect of his failure to ensure that there were no conflicts of interest when arranging meetings between equity research analysts and clients.^[2]

66.  The briefing memo to the DRC noted that:

66.1  Mr Yang had not copied the Control Room in on any of his emails with the Research analysts, as encouraged under the Guidelines for Communication between IBD and Research. Mr Yang had explained that he was not aware of the guidelines. Furthermore, Ms Liu had sought Mr Yang’s advice about whether to obtain approval from Compliance/Control Room when sending a note to the Huatai Securities CEO after the meeting, and Mr Yang had replied “No need to go through Compliance, I am over the wall.”  The Investigation Team did not consider that this was an appropriate response and that Mr Yang should either have checked with Compliance himself told Ms Liu to check with Compliance if she was unsure.

66.2  Mr Yang had explained that he was aware that Equity Research staff could not be involved in any pitching or solicitation activities for IBD business and he ensured that this did not occur.  When asked about the perception of this potentially occurring in cases where Nomura had not yet been formally mandated in a proposed transaction for a client company, Mr Yang acknowledged this possibility but did not say that he had considered it when arranging the three-way meetings.

66.3  The Investigation Team considered that given Mr Yang’s seniority and dual roles as China CEO/Chairman, Mr Yang should have been more proactive about taking steps to manage the risk of a perceived conflict of interest in arranging the three-way meetings.

66.4  When the findings were put to Mr Yang, he maintained that he had not done anything wrong but acknowledged that he could have done more to be extra conservative in view of the perception of conflict of interest.

66.5  As regards Mr Yang’s communications with Equity Research staff with enquiries about a specific stock name, in circumstances where the company in question subsequently announced a corporate action, Mr Yang had said he sometimes contacted analysts for general information about a company as a convenient way to obtain research, but he never disclosed information about potential IBD activity and was careful that his questions did not give any indication of potential transactions so that the analysts would not be tainted with MNPI.

66.6  The Investigation Team was concerned that Mr Yang did not sufficiently recognise the potential risk that asking questions about a specific company name might allow a public side employee to infer potential non-public information about a transaction.  It was common practice for private side employees to “mask” information requests to public side employee so that they did not identify a particular company name, for example by asking about an industry/sector, or group of company names. Such practices were consistent with the requirements of section 3 of the Confidentiality and Chinese Walls Policy, which provided that employees in possession of inside information should not hint to any public side employees or lead the public side employees to believe that the firm was in possession of inside information.  Mr Yang’s communications and his explanations showed that he did not follow this standard industry practice.

67.  The DRC meeting of 9th November 2016 was attended by, inter alia, Mr John Baker (responsible for the Office of Conduct & Culture) (“Mr Baker”), Ms Karen Yao (the Asia Pacific Co-Head of Human Resources and Global Head of Talent) (“Ms Yao”), Mr Wilfred Yeung (the Head of Compliance, AEJ) (“Mr Yeung”), Ms Holly Wong (the Head of the AEJ Control Room) (“Ms Wong”), Mr Edmond Ching (invited in his capacity as the Head of the IBD Control Room and Research Compliance) (“Mr Ching”), and Mr Iiyama (invited in his capacity as Mr Yang’s manager).

68.  At the meeting, in response to queries from members of the DRC:

68.1  Mr Ching confirmed that Mr Yang was not considered to have breached the three main policies reviewed during the investigation as he had not disclosed any MNPI to Research;

68.2  Mr Ching confirmed that by the time of the August 2016 Three-Way Meeting, Mr Yang had been made aware of the concerns raised by the SFC, as he (Mr Ching) and Ms Louise Moat (Nomura’s Chief Operating Officer, AEJ, IBD) (“Ms Moat”) had those discussed them with Mr Yang; and

68.3  Mr Ching explained that the policy requirements to obtain Compliance clearance for three-way meetings rested with research analysts rather than bankers, consistent with the obligations under the SFC’s Code of Conduct.  However, there was also an obligation on Nomura’s management to ensure fit and proper behaviour and conduct by analysts, and Mr Yang was a member of Nomura’s management.

69.  Mr Yeung noted that Mr Yang had two additional Compliance breaches for late completion of mandatory training modules in 2015.  Whilst it was not general practice to send Compliance reminders for late completion of training at the time, some of the topics covered in that training were relevant to the Investigation Team’ findings.

70.  The members of the DRC discussed concerns that Mr Yang’s conduct and explanations did not demonstrate that he was fully aware of the potential risks to be managed by someone with Over the Wall status. For example, Mr Yang’s rationale that he did not do anything wrong because he did not disclose any MNPI was viewed as inadequate for someone of his seniority and responsibility; his failure to change his behaviour (ie. proceeding with the August 2016 Three-Way Meeting) despite having learnt of the SFC’s enquiries was viewed as not taking the risks seriously enough.

71.  Mr John Baker noted that qualitative feedback received by the Office of Conduct & Culture was to some extent consistent with the view that Mr Yang either did not understand, or did not take seriously, the policies and procedures implemented to enable the firm to manage various reputational and regulatory risks.  He read out some excerpts of qualitative feedback that had been shared with Mr Yang earlier in 2016.^[3]

72.  The DRC members discussed whether it was appropriate for Mr Yang to continue his dual roles as Head of China and IBD-AEJ Chairman.  They considered that Mr Yang’s role was better aligned with IBD rather than as a Country Head.

73.  The DRC members unanimously decided on the following disciplinary measures:

73.1  a written warning with a clear message about the required standard of conduct in the future;

73.2  removal of Mr Yang’s role as Head of China; and

73.3  additional Compliance training and restricted activities as IBD-AEJ Chairman.

B8.5  Communicating the results of the DRC’s decision

74.  On 14th November 2016, Mr Yang had dinner with Mr Iiyama.On this occasion, Mr Iiyama told Mr Yang about the DRC’s decision, and gave him advance notice that a written warning would be forthcoming, and the contents of the written warning.

75.  There is some dispute as to exactly what said at the dinner.  Mr Iiyama had sent an email on 15th November 2016 reporting on the DRCs’s decision, and the meeting with Mr Yang, to Nomura’s senior management in Tokyo (including Mr Koji Nagai, the Group CEO; Mr Ozaki; Mr Kentaro Okuda, Nomura’s Global Head of IBD).  The email had recorded that Mr Yang’s reaction was to the effect that whilst his behaviour might have been careless, he did not do anything wrong, and what he did was for Nomura; he wanted to discuss the matter directly with the SFC to protect his own reputation; he could not accept the three penalties; he wanted to be dismissed if the penalties could not be changed; he would carry out the handover well.  The email further recorded that Mr Iiyama had responded that the standards expected of senior members was high – if a senior member repeatedly conducted himself in a way which was likely to increase the possibility of conflicts of interest and/or information leakage, then it would not be tolerated even if it was not a definite violation of law; since the behaviour in question had been repeated, whether or not maliciously, it was highly risky; a quarrel with the SFC would not assist Mr Yang’s reputation; a release from the role of Country Head would make IBD business easier for Mr Yang to run; Nomura did not intend to dismiss Mr Yang.

76.  When this email was put to Mr Yang, he agreed that it was possible (and I find) that Mr Iiyama had mentioned to him requirement of high standards, that there had been repeated infractions, and that these were highly risky for Nomura.  The email having been written contemporaneously for reporting purposes and no reason having been identified for it not to be accurate, I take the view that it should be an accurate record of what was discussed.

77.  It was put to Mr Yang that at this dinner, he had indicated that he wanted to leave Nomura.  Mr Yang did not agree, saying that he had indicated that he would rather be let go than to receive the written warning. In this regard I note that Mr Iiyama’s email (as translated) had indeed recorded Mr Yang as saying that he wanted to be dismissed if the penalties could not be changed, and I accept Mr Yang’s account.  (It was also put to Mr Yang that he said that he had job offers elsewhere, but Mr Yang explained (and I accept) that what he had said was that over the years he had received various job offers but had always been loyal to Nomura and had turned them down.  What he was trying to do was to prevent the warning letter from being issued.)

78.  Mr Yang also said, and I accept, that he was extremely shocked that the written warning had been proposed, and in fact got quite emotional at the meeting. 

79.  After the dinner, Mr Iiyama wrote his email of 15th November 2016 to senior management in Tokyo.  He said that he wished there was a way to “make a good landing that saves [Mr Yang’s] face, but since it was an SFC finding with Mr Yang’s name being specifically identified, there were limitations”.

80.  On 23rd November 2016, a one-page “Disciplinary Action Memo” was sent to NHI’s Executive Management Board (“the EMB”).  As one of the highest decision-making bodies of the Nomura group of companies, the EMB was informed of the matter given Mr Yang’s seniority, the nature of what had happened, and the SFC’s express request for Nomura’s senior management to be informed.  The memo summarised the background, including the SFC’s inspection, and the establishment of the Investigation Team; the findings from the investigation;^[4] and the DRC’s conclusions and decisions of 9th November 2016.

81.  On 24th November 2016, Mr Iiyama emailed Mr Ozaki, warning him that Mr Yang might go directly to see him, and asking him to hear Mr Yang out.  He went on to say that “Unfortunately, leniency in the punishment cannot be considered as an option, so I would be much obliged if you would guide him to straighten out the double hatting that is one cause of the issue and to be positive and work hard, and give other words of encouragement.  While I do not think it is based on malice in the slightest, the underlying issue is his stance on conduct and compliance.”

82.  On 25th November 2016, there was an EMB meeting in Tokyo, which Mr Iiyama attended.  He gave an account of the SFC’s inspection, the Investigation Team’s findings, and the DRC’s decision regarding disciplinary action.  The DRC’s decision was not challenged by the EMB. 

83.  On 29th November 2016, Mr Yang met Mr Ozaki in Tokyo. Mr Yang says that Mr Ozaki said it would be difficult to change the DRC’s decision, that he advised Mr Yang to accept it, that it was not a big deal as many people in Tokyo received written warnings also, and that the China business was important to Nomura.  Nomura denies that Mr Ozaki underplayed the seriousness of the written warning.  There is an email dated 29th November 2016 in which Mr Ozaki reported to other members of senior management his 45-minute meeting with Mr Yang.  He said that he told Mr Yang that there was callousness in terms of outside exchanges and failing to adhere to internal compliance procedures as identified by the SFC; but since Mr Yang didn’t have any bad intention his value in conducting business would not be damaged and his title as IBD-AEJ Chairman would remain unchanged; the title of Head of China was more a marketing role and the loss of such a title was not a major issue.  Mr Ozaki recorded that Mr Yang had said that what he did was for Nomura; the written warning was an insult to him; he had asked whether the DRC’s decision would change; he was on the wall and therefore should be able to attend meetings with analysts in the same way as Mr Nishida.  I do not accept Mr Yang’s evidence that Mr Ozaki had said that the written warning was not a big deal. Mr Yang himself obviously thought it was a big deal since he found it to be insulting, and a matter which he sought to take up with senior management in Tokyo, and since he had said that he would rather be let go than receive such a warning.  His reaction at the earlier dinner with Mr Iiyama on 14th November 2016 also shows that he considered the matter to be serious.  Mr Ozaki’s contemporaneous email did not suggest that he had pacified Mr Yang by underplaying the importance of the written warning; rather he had emphasised the importance of proper compliance, whilst at the same time acknowledging that Mr Yang had had no bad intention and had sought to act for Nomura.  Mr Ozaki had expressly recorded in his email that Mr Yang considered the written warning to be an insult, but had not suggested that he had pacified Mr Yang by saying that the warning was no big deal (he had, however, said that the loss of the Head of China title was not a major issue).  Furthermore, it was undisputed at trial that a warning letter was indeed one of the most serious penalties possible, and no reason was suggested as to why Mr Ozaki would have sought to suggest otherwise, or indeed why Mr Yang would have believed any such suggestion.

84.  Shortly thereafter, Mr Iiyama sent a reply email, commenting, “There is a gap in understanding regarding the standards required of an SMD under the current business environment and the concerns and the like of the authorities, and he seems to be unable to pry himself away from the old way of thinking.  The fact is that he strongly believes that it was for the company, and I believe that this is one reason why he is so unable to accept the outcome.”

B8.6  Missing compliance training

85.  From time to time, the staff of Nomura were required to complete items of online compliance training, by specified deadlines.  Mr Yang missed a number of deadlines for completion of such training set for October 2015, October 2016 and November 2016.  It will be noted that these missed deadlines happened during the same period in which the three-way meetings, the SFC’s investigation, and Nomura’s internal investigation took place.

B8.7  The Warning Letter

86.  Nomura issued a written warning to Mr Yang dated 13th December 2016 (“the Warning Letter”).  It read, in part as follows.

“1. Meetings between Equity Research Analysts and clients

…

We understand that you arranged these meetings in your capacity as Head of China, but you did not take any steps to manage the potential risk of being perceived to arrange such meetings in your capacity as a representative of Investment Banking. Given your seniority and your various roles (Head of China, Chairman of Investment Banking for AEJ, NIHK Responsible Officer and NIHK IPO Principal), it was incumbent on you to ensure that you proactively managed any perceived conflicts of interest between these roles. For example, you failed to do any of the following which could have mitigated such risks…

c

Instead of taking any of the above steps, or other suitable risk mitigation steps, we noted that you:

▪ Continued to arrange one of these meetings in August 2016, after Compliance had already notified you of the SFC’s concerns about an earlier meeting in May 2015; and

▪ Instructed one of the Equity Analysts that there was no need to obtain Compliance approval when she sent a follow-up note to a client after one such meeting in May 2015. Your advice of “No need to go through Compliance, I am over the wall” was inappropriate and you should have told her to check with Compliance if she was unsure.

2. Questions to Equity Research Analysts about specific company names prior to announced corporate action

You contacted an Equity Research Analyst on at least 2 occasions about a specific stock name, in circumstances where such corporate subsequently announced a corporate action… We understand that you did not recall the specific enquiries and said you are always careful to ensure that you only ask general information. Notwithstanding this, we are concerned that you did not follow the common practice for private side employees to “mask” information requests to public side employees so that they do not identify a particular company name, e.g. by asking about an industry/sector, or group of company names etc. this is a basic standard practice in the industry, and we were very surprised that you did not follow this, particularly given your experience and seniority.

Determination

Upon investigation and review, Nomura has determined that your failure to protect the firm against perceived conflicts of interest fell short of the standard expected of you as an SMD, Country Head and Responsible Officer. We understand that you believe that you did not do anything wrong in such communications with Equity Research. However, as senior management, you have a responsibility to not only ensure that you manage actual conflicts of interest but also to ensure that you take all necessary precautions to manage perceived and potential conflicts of interest.

Given this, we have decided to issue to you this written warning ...

…

A copy of this letter will be placed in your official personnel file and taken into consideration as it relates to future performance and compensation evaluations. Any further breach of any Nomura’s policies may be subject to more serious disciplinary action up to and including the possibility of termination of employment.”

87.  The Warning Letter was delivered to Mr Yang by Mr Iiyama and Ms Yao at a meeting on 14th December 2016.

88.  On 14th December 2016, Nomura informed the SFC that Mr Yang had received a written warning and that he would cease his position as Head of China, and would only continue in his position as IBD-AEJ Chairman.

89.  Ms Liu also received a written warning.  Her cooperation, acknowledgement of the error, and apology and remorse for the same were taken into consideration as mitigating factors in the decision to issue a written warning rather than a more severe disciplinary action. 

90.  Pursuant to the measures mentioned in the Warning Letter, with effect from 1st January 2017:

90.1  Mr Yang stepped down as Head of China, and

90.2  Mr Teshima became Mr Yang’s secondary manager.  (Thus Mr Yang reported to both Mr Iiyama and Mr Teshima.)

B8.8  Headhunting of Mr Yang; separation discussions

91.  Unbeknownst to Nomura, in September 2016, Mr Yang was contacted by a headhunter in relation to a possible job at HSBC.  In November 2016, Mr Yang met the CEO of HSBC Asia Pacific.  In December 2016, pursuant to a request from the headhunter, Mr Yang provided details of his unvested compensation with Nomura, his notice period and non-compete period.  He further gave his salary, housing subsidy and bonus details to the headhunter.

92.  Subsequently there were rumours in the market that Mr Yang might be leaving to join HSBC.  On 21st April 2017, Brian Cheng from Nomura’s HR department notified Ms Yao that he had learned from his contacts that Mr Yang was interviewing with HSBC and was at an advanced stage.

93.  The headhunter emailed Mr Yang on 25th April 2017 with terms of the potential offer from HSBC, “subject to approval and subject to contract”.  Another headhunter who had been copied in on the email contacted Mr Yang on 10th May 2017, saying “Congratulations on achieving a successful outcome to the joining of HSBC”.  He noted that the offer still had to be made formally and was subject to contract, but that a “smooth ride” was now envisaged; Mr Yang was asked for the details of his bonus from Nomura.  Mr Yang texted one of the headhunters saying that he had received a message of congratulations from an acquaintance at another bank.

94.  On 11th May 2017, the headhunter emailed Mr Yang, noting that Mr Yang had accepted the HSBC offer. On 17th May 2017, Mr Teshima emailed Mr Iiyama and Ms Yao, copied to Ms Moat, expressing concern that as Mr Yang’s new boss at HSBC had already been telling his team that Mr Yang was joining as Head of Corporate Finance China, “I don’t know if it is okay for us to keep him in our office anymore.”

95.  Meanwhile, there had been discussions between Mr Yang and Nomura regarding separation.  On 5th December 2016, Mr Iiyama emailed Mr Yeung, saying that he had spoken to Mr Yang, and that “Separation is the way we have agreed to move for.  Karen [Yao] is working on detailed options.”  Nomura’s case is that the parties had agreed that Mr Yang would be leaving; Mr Yang’s case is that he was open to exploring separation by mutual agreement, but it that if no agreement was reached, he would stay on.  (He did however accept in cross-examination at one point that he and Mr Iiyama had agreed on 5th December 2016 that since the written warning would be issued, he would leave, and there would be discussions about options for separation.  By this time, therefore, the parties were at least discussing separation, and Mr Yang’s position as portrayed to Nomura (whether for the purposes of negotiation or as reflecting his true intentions) was that he would leave.)

96.  At the meeting on 14th December 2016 at which Mr Yang was given the Warning Letter, there were discussions regarding the possibility of a mutually agreed separation.  (It was originally Nomura’s case that Mr Yang said that he would leave Nomura, based on Ms Yao’s internal email of that date stating that based on current discussion Mr Yang would stay until May and would likely resign.  In cross-examination, Ms Yao accepted that it was not so much a case of Mr Yang having indicated that he would leave, but rather that of the parties exploring ways of parting amicably and on terms acceptable to both.) 

97.  In any event, it is not disputed that the parties then had “without prejudice” discussions with the view to agreeing on terms of separation.  However, the parties were unable to come to terms.  On 27th April 2017, Ms Yao emailed Mr Yang, saying that she had discussed his requests with senior management “and unfortunately we believe that we will be unable to come to an agreement giving your expectations regarding a discretionary bonus for FY16/17.  In AEJ, we do not typically have separation discussions during the year-end process but were willing to do so at your specific request.  However, as it seems unlikely that we will be able to agree separation terms you by mutual consent, I just wanted to confirm that we have decided to cease these negotiations.”

B8.9  The bonus for 2016/17

B8.9.1  Consultations in Hong Kong 

98.  The parties did not reach any agreement by 31st March 2017, which was the end of Nomura’s financial year.  Mr Yang’s discretionary bonus for the financial year of 2016/17 therefore arose for consideration. There is no dispute that Mr Yang was eligible to be considered for such a bonus.

99.  On 21st March 2017, Mr Iiyama emailed Mr Teshima to consult him about Mr Yang’s remuneration, in particular, the bonus.  Mr Teshima responded that the revenue from the China business was expected to be US$54m compared to the financial performance target of US$63m and the previous year’s revenue of US$69m, although the possibility of reaching US$56 million still remained; he would summarise Mr Yang’s personal contribution separately.  Mr Iiyama then noted that “In addition, given the disciplinary action taken pursuant to the matters pointed out by the SFC, I guess the line of discussion with no bonus would be the baseline going forward. It depends on how his attitude will be… Please try to summarise his contributions just in case.”  Some time in March 2017, Mr Teshima gave Mr Iiyama a verbal briefing about Mr Yang’s personal contributions for the year 2016/17.

100.  On 23rd March 2017, Mr Baker (responsible for the Office of Conduct & Culture) emailed Mr Iiyama the presentation for the upcoming compensation committee meeting.  He noted, “Based on our analysis of the feedback received, we only recommend one for comp committee consideration: [Mr Yang].”  There were a few others who were to be placed on a “watch list” but in respect of whom no specific compensation impact would be recommended for that year.

B8.9.2  Qualitative feedback

101.  Nomura had a qualitative feedback process which solicited feedback regarding employees from a number of senior staff (for the year in question, feedback was sought from 170 people, including Division Heads, Business Executives, Country Heads and Corporate Heads; it was received from 34 individuals and pertained to 56 individuals).  Nomura’s Office of Conduct and Culture had provided the feedback to line managers for their consideration in the annual performance review of their subordinates.  There were various procedures built into the process to verify the feedback given.^[5]

102.  In the financial year 2015/16, Mr Yang had received three items of negative feedback.^[6]  One of them read “…Non-existent filtering of transactions.  Ie pushing all deals regardless of risks.  Pushing deals that put [N]omura’s reputation at risk.  Putting revenues ahead of Nomura’s appetite, clients and shareholders.  This is the 2nd year that these issues are raised with no improvement…” Another read “Lacks basic risk awareness for a senior manager, often dismissing material reputation, legal and regulatory risks as inconsequential in order to push through risky transactions.  He does not actively supervise and monitor the China banking team, a portion of which has consistently performed poor due diligence and made incomplete and misleading presentations to transaction approval committees.  He does not take ownership or responsibility over problematic China issues when he is the senior franchise risk owner for China…”.

103.  In the financial year 2016/17, Mr Yang received two items of negative feedback.  One of them read “[Mr Yang] continues to show little regard for agreed process or behaving in an acceptable manner.  This is probably the 3rd time I’ve raised concerns around [Mr Yang] and [AEJ] IBD team… [T]here is a deep rooted culture of trying to execute all transactions without any regard for what is best for [N]omura or our clients.  [T]here appears to be no accountability within or actions taken from above.”

B8.9.3  Performance Management Review

104.  Nomura had a performance management review process, which consisted of the setting of objectives for employees, and mid-year and year-end reviews to allow communications between an employee and his line manager to discuss the employee’s performance against those objectives.  The reviews involved the filling in of forms online.  For employees at SMD level, their forms had pre-populated objectives covering the topics of “Professional Ethics, Compliance and Risk Management” and “Talent Leadership”.

105.  In the financial year 2016/17, the pre-populated objective in Mr Yang’s performance management review for the topic of “Professional Ethics, Compliance and Management” read, inter alia, as follows.

“• I will ensure that my judgement and behaviors are built on highest standards of social responsibility and professional ethics

• I will continue to develop my understanding as to the importance of professional ethics, good conduct practices, our firm’s risk appetite and our firm’s social responsibility

• I commit to adhere in act and spirit to all relevant laws and regulations, Nomura Group’s Code of Ethics and Risk Appetite Statement and our firm’s internal rules

• I will ensure that risk management, risk appetite, supervision, and compliance policies, procedures, processes and guidelines are implemented in full

• I will take full responsibility for appropriately managing the various risks relevant to my role and contributing to an effective control environment. If I have any concerns or reservations regarding decisions or behaviors of my own or other employees in terms of compliance with professional ethics, our firm’s good conduct practices/principles as well as all relevant laws and regulations, I will act and seek guidance from the relevant senior management

…”

106.  The part of the review consisting of Mr Yang’s self-review read, in part, as follows.

“…Striking the right balance [between upholding the highest standards of professional ethics, compliance and risk management on the one hand, and taking calculated risks and staying competitive on the other] is by no means easy. What happened in the current fiscal year about Hong Kong SFC’s inquiry regarding our equity research and IBD professionals attending client meetings together is definitely a lesson to be learned. Though I do not think Nomura and, in particular, myself, have done anything wrong, the appearance of wrongdoing has caused certain anxiety on the part of our senior management. I am sure I will be even more careful in my future endeavors…”

107.  In relation to the objective of meeting the financial performance target for the China Business, Mr Yang wrote as follows.

“For the overall China Business, revenue for the current fiscal year will be behind budget [ie. financial performance target], partly because the previous year was a spectacular year and the revenue for the current fiscal year was set at a relatively high level… Among the 40 plus China IBD transactions we have completed this year, I am directly involved in about 20 of them…”

108.  The comments of Mr Teshima (as Mr Yang’s secondary manager), were as follows.

“China Team was again the biggest revenue origin country for AEJ this year, consisting 55% of our revenue.

[Mr Yang] as Chairman of the team led the senior relation part of the business and contributed to further grow our platform in China.

[Mr Yang] is open and cooperative to new ideas or agendas which could lead to new business opportunities, and is a fast mover to support such new initiatives.

[Mr Yang] is basically respected by his team mates and treats and protects his team mates very well.

Time is changing in terms of stricter regulatory requirements and compliance requirements, but sometimes [Mr Yang] comments as time has not changed for years on those points which would look bad on him and his team mates and above all business.

I hope [Mr Yang] could flexibly change and try to comply with firms and regulators requirements more clearly.”

B8.9.4  The decision to award a zero bonus

109.  On 7th April 2017, Mr Iiyama emailed Mr Ozaki regarding bonuses for SMDs.  In respect of Mr Yang, Mr Iiyama wrote “As I discussed with you earlier, we were proceeding with the separation negotiations.  Since there was a finding (that there was a case involving an Analyst in a matter without seeking clearance), and as a result that a punitive Written Warning was issued and furthermore, no bonus is generally paid to any employee who is expected to leave…, the bonus shall be zero…”.

110.  Mr Ozaki replied, “I am overall comfortable, but it largely depends on the entire balance, so please convey this to Kimura of HR and hear his opinion as well.”  Mr Iiyama emailed Mr Kimura with his comments about SMDs in Asia.  It is his evidence that Mr Kimura had no contrary comments about the recommendation from Mr Yang, and on that basis Mr Iiyama submitted his recommendation to the Human Resources Committee for its consideration together with the Nomura group CEO.

111.  As earlier mentioned, Brian Cheng’s email of 21st April 2017 alerted Ms Yao to the fact that Mr Yang was at an advanced stage of interviewing with HSBC.  That email was forwarded by Ms Yao to Mr Iiyama, Kenji Kimura (Nomura’s Global Head of Human Resources) and Maria Bentley (also of Human Resources).  Mr Iiyama’s comment was “It’s even stronger and clearer reasoning for no bonus.”

112.  On 27th April 2017, the zero bonus recommendation for Mr Yang was tabled before Nomura’s Compensation Committee.

113.  It is Mr Iiyama’s evidence that although he was not privy to the deliberations of the Human Resources Committee, he understood that the senior management in Japan no objection to, or comment on, his recommendation.  In the event, Nomura ultimately decided not to award Mr Yang any bonus for the performance year 2016/17 (“the Bonus Decision”).

114.  At trial, Mr Iiyama gave further evidence regarding the reasons for his zero bonus recommendation.  This will be addressed below.  

B8.9.5  Communicating the Bonus Decision

115.  The Bonus Decision was communicated to Mr Yang on 10th May 2017, at a meeting between Mr Iiyama, Ms Yao and Mr Yang.  Ms Yao’s evidence is that given the anticipated contentious nature of the discussion, a script was prepared in advance of the meeting.  It made the following points.

115.1   Nomura made compensation decisions based on various factors; individual conduct was a core consideration.

115.2   Given the SFC findings, and Nomura’s internal investigation, Mr Yang had been issued with the Warning Letter.  Senior management took the matter very seriously.

115.3   In all the circumstances, the decision had been made to award a zero bonus for the past performance year.

115.4   As regards Mr Yang’s future employment with Nomura, it had been determined that the position of AEJ Chairman was no longer needed.  Furthermore Nomura understood that Mr Yang had been considering retirement from Nomura.  Given these matters, Nomura was willing to offer Mr Yang a severance package to help him with the transition; Ms Yao would discuss the applicable terms and conditions with him.

116.  A written offer dated 10th May 2017 was provided to Mr Yang, providing for a separation date of 31st August 2017.

117.  In an email of 10th May 2017, Mr Iiyama reported to Mr Okuda that there had been no consensus at the meeting about the bonus, but that the severance offer had been made, with a deadline for Mr Yang to accept by 17th May 2017.  As pointed out by Nomura, under the terms of the CSU Agreement and SAR Agreement, Mr Yang would have obtained his unvested options had he signed the relevant waiver.

118.  By a letter of 18th May 2017, Messrs Gall, instructed on behalf of Mr Yang, wrote to Nomura, demanding that it reassess Mr Yang’s bonus for the performance year 2016/17.  The letter noted that at the meeting of 10th May 2017, Mr Yang had been told that he would not receive any bonus because (1) the bonus was discretionary, (2) Mr Yang had received the Warning Letter, and (3) the bonus was for retention purposes.  It was said that Nomura’s decision to award a nil bonus was unreasonable, irrational and capricious, as (inter alia) a reasonable employer would have had regard to the strong performance of the China business and Mr Yang; the Warning Letter should not bear excessive weight; and Mr Yang had not given or received any notice of termination so that there was no issue of retention.

B8.10 Termination

119.  Mr Yang did not accept the severance package offered on 10th May 2017 within the time initially provided for acceptance (ie. by 17th May 2017).  The deadline for acceptance was subsequently extended until 26th May 2017.  Mr Yang never accepted the package.

120.  It will be recalled that on 17th May 2017, Mr Teshima had expressed concern to (inter alia) Mr Iiyama that as Mr Yang’s new boss at HSBC had already been telling his team that Mr Yang was joining HSBC, “I don’t know if it is okay for us to keep him in our office anymore.”

121.  On 20th May 2017, Mr Iiyama wrote a reporting email to senior management in Japan.  He noted that Mr Yang had not taken up the offer to cease employment for redundancy.  He recapped that previously, terms had been discussed on an amicable basis, but Mr Yang’s monetary demands had been considered to be unacceptable, “and the conclusion was to make it a redundancy case”; that the SFC’s finding which resulted in the Warning Letter had not yet been resolved and would be taken over by the SFC’s enforcement team, that Mr Yang had been told of the many types of behaviour which were unsuitable for a senior manager, and that its harmful effect on business operations was continuing.  He concluded that Mr Yang was “no longer a human resource we wish to keep in our organization”. Also, according to the information from various sources, it was thought that Mr Yang’s negotiations to join HSBC were already quite advanced. Furthermore, Mr Yang’s solicitors’ letter indicated the possibility of a lawsuit, so that Mr Iiyama thought that Nomura should not make any more concessions.

122.  On 23rd May 2017, Mr Yang was directed to take garden leave. This was his last day of his attendance at Nomura’s office.

123.  On 31st May 2017, Nomura gave a written notice to Mr Yang that his employment would be terminated on three months’ notice on the ground of redundancy.  The letter stipulated that Mr Yang’s employment would cease on 31st August 2017, and that from 23rd May 2017 until 31st August 2017, Mr Yang was not required to attend Nomura’s office or to carry out his normal duties but was to be available to deal with work questions which might arise, over the telephone or email.  Mr Yang was to continue receiving his monthly base salary and allowances.  He would also receive a statutory severance payment, and payment in lieu of accrued and unused leave.  Paragraph 8 of the letter further noted that as Mr Yang had not executed a waiver and release, his outstanding deferred compensation awards (“the Unvested Bonus Awards”) had been forfeited in accordance with the terms of the applicable award documents.

B11.  Appointment of Chairman of China Investment Banking

124.  In June 2018, Charles Wang (“Mr Wang”) was identified as a potential candidate to join IBD.  An email of 9th June 2017 from Ms Moat to Mr Sharma, asking the latter to meet Mr Wang, described the position as being “one of a senior rainmaker who will be responsible for originating business and connecting with senior business leaders in China”.

125.  On 8th August 2017, Ms Moat emailed a human resources colleague regarding Mr Wang’s interview. She said, “Charles is interviewing for the position of Chairman of IBD China.  Initially he will not be able to assume this title until we have settled with [Mr Yang].  This may take some time.  So in the interim he would come in as Vice Chairman of AEJ IBD.”  She also described Mr Wang’s role as being “to network with Chairman of various Chinese companies, connect senior bankers as appropriate and facilitate transactions.  He will also facilitate relationships with the government and regulators as needed.”

126.  On 11th September 2017, Mr Wang was offered employment as Chairman of IBD China by Nomura.  He was to report to the Head of Investment Banking (Mr Teshima at the time).  Mr Wang requested the title of “Chairman of AEJ IBD” or “Chairman of China”, titles previously held by Mr Yang.  Internal discussions were to the effect that the preference was not to refer to AEJ, so that the title to be given was Chairman of China.

127.  In January 2018, Charles Wang was appointed as Chairman of IBD China at Nomura, with the corporate rank of MD.

C.  THE PARTIES’ CASES

C1.  Mr Yang’s case

128.  Counsel for Mr Yang, Mr Robert Whitehead SC (leading Mr Jeff Yau), submitted that Mr Yang’s contract of employment with Nomura contained nine implied terms, which were said to be implied into the contract on multiple grounds.

129.  Mr Whitehead says that Nomura was in breach of these nine implied terms in deciding:

129.1   to issue the Warning Letter;

129.2   not to grant a discretionary bonus to Mr Yang for the performance year 2016/17;

129.3   to terminate Mr Yang’s employment on the grounds of redundancy; and

129.4   to wrongfully forfeit the Unvested Bonus Awards.

130.  Given this scattergun approach, I have found it helpful to organise the allegations by adopting, with modification, Nomura’s tabulation of the implied terms and alleged breaches as follows.

131.  Mr Yang’s case is that Nomura was in breach of the following implied terms when it decided to issue the Warning Letter.

1	“Term of Trust and Confidence”[7]	Nomura would not, without reasonable and proper cause, conduct itself in a manner calculated or likely to destroy or seriously damage the relationship of trust and confidence between it and Mr Yang as employer and employee. This was said to be a legal incident of the employment relationship.
2	“Bona Fide Warning Term”	Nomura would not censure/sanction Mr Yang’s conduct as an employee of Nomura, whether by a written warning, removal from his role(s) or otherwise, in an irrational, perverse or arbitrary manner or in a manner that was not bona fide or otherwise not in good faith. This was said to be an aspect of the Term of Trust and Confidence, and/or further legal incidents of employment relationship, and/or as terms implied by obvious inference, business efficacy and/or otherwise.
3	“Legitimate Expectation Sanction Term”	Nomura would not censure/sanction Mr Yang’s conduct as an employee of Nomura unconscionably, without reasonable cause and/or contrary to Mr Yang’s legitimate expectations. This was said to be an aspect of the Term of Trust and Confidence, and/or further legal incidents of employment relationship, and/or terms implied by obvious inference, business efficacy and/or otherwise.

132.  Mr Yang’s case is that Nomura was in breach of the following implied terms when it decided not to grant any discretionary bonus to Mr Yang for 2016/17.

1	“Term of Trust and Confidence”	(as above)
4	“Bona Fide Bonus Scheme Term”	Nomura would not administer the bonus scheme(s) in respect of Mr Yang’s bonus awards (whether during or after Mr Yang’s employment by Nomura) in an irrational, perverse or arbitrary manner or in a manner that was not bona fide or otherwise not in good faith. This was said to be an aspect of the Term of Trust and Confidence, and/or further legal incidents of employment relationship, and/or a term implied by obvious inference, business efficacy and/or otherwise.
		Alternatively, Mr Yang relies on the duty in Braganza v BP Shipping Ltd and another [2015] 1 WLR 1661 which Nomura accepts applies to the Bonus Decision,[8] ie. a duty of Nomura to exercise its discretion in good faith, rationally and for proper purposes, and not arbitrarily or capriciously or in a manner which is not bona fide.

133.  Mr Yang’s case is that Nomura was in breach of the following implied terms when it decided to terminate Mr Yang’s employment.

1	“Term of Trust and Confidence”	(as above)
5	“Fair Termination Term”	Nomura would not exercise its right to terminate Mr Yang’s employment by giving three months’ notice in writing (or by paying three months’ salary in lieu of notice) or his service with Nomura other than fairly and in good faith. This was said to be an aspect of the Term of Trust and Confidence, and/or further legal incidents of employment relationship, and/or a term implied by obvious inference, business efficacy and/or otherwise.
6	“Good Faith and Rationality Termination Term”	Nomura would not exercise its power to terminate Mr Yang’s employment by giving three months’ notice in writing (or by paying three months’ salary in lieu of notice) or his service with Nomura other than in good faith and not for arbitrary, capricious, perverse or irrational reasons. This was said to be an aspect of the Term of Trust and Confidence, and/or further legal incidents of employment relationship, and/or a term implied by obvious inference, business efficacy and/or otherwise.
7	“Legitimate Expectation Termination Term”	Nomura would not exercise its power to dismiss Mr Yang or his service with Nomura unconscionably, without reasonable cause and/or contrary to Mr Yang’s legitimate expectations. This was said to be an aspect of the Term of Trust and Confidence, and/or further legal incidents of employment relationship, and/or a term implied by obvious inference, business efficacy and/or otherwise.
8	“Anti-avoidance Term”	Nomura would not exercise its right to terminate Mr Yang’s employment by giving three months’ notice in writing (or by paying three months’ salary in lieu of notice) in order to avoid Mr Yang being eligible for or receiving a bonus award. This was said to be an aspect of the Term of Trust and Confidence, and/or further legal incidents of employment relationship, and/or a term implied by obvious inference, business efficacy and/or otherwise.
9	“Anti-deprivation Term”	Nomura would not exercise a power to censure/sanction Mr Yang’s conduct as Nomura’s employee and/or a power to dismiss Mr Yang or terminate his service with Nomura to deprive Mr Yang of his bonus awards or which resulted in the unreasonable deprivation of his bonus awards. This was said to be an aspect of the Term of Trust and Confidence, and/or further legal incidents of employment relationship, and/or a term implied by obvious inference, business efficacy and/or otherwise.

134.  As regards the complaint that Nomura wrongfully forfeited the Unvested Bonus Awards, Mr Yang did not actually plead that this was a breach of contract; rather, the loss of the Unvested Bonus Awards was pleaded as loss and damage resulting from the three categories of breach above.  Strictly speaking, therefore, it does not arise for consideration as a breach.  I will, however, deal with it briefly below.

135.  Mr Yang says that the breaches led to him losing:

135.1   the bonus award for the performance year 2016/17 of at least US$1,880,996;

135.2   annual base salary of US$618,703 from 1st September 2017 onwards;

135.3   the loss of the Unvested Bonus Awards granted in the earlier performance years of 2014/15 and 2015/16, valued at HK$12,7876,483.

C2.  Nomura’s case

136.  It is Nomura’s case that the terms to be implied into the contract of employment are limited, and that there was no breach.

D.  WHETHER IMPLIED TERMS AS ALLEGED

D1.  Term of Trust and Confidence - nature

137.  Nomura accepts that there exists an implied obligation of mutual trust and confidence between employer and employee.  What the parties do not agree on is the nature of that duty.

137.1   Mr Yang says that the implied term is that Nomura would not, without reasonable and proper cause, conduct itself in a manner calculated or likely to destroy or seriously damage the relationship of trust and confidence between it and Mr Yang as employer and employee.

137.2   Nomura says that the implied term is that it would not, without reasonable and proper cause, conduct itself in a manner calculated and likely to destroy or seriously damage the relationship of trust and confidence between it and Mr Yang as employer and employee.

138.  Mr Whitehead submitted that the disjunctive conjunction “or” should be used in the formulation of the implied term, citing Woods v WM Car Services (Peterborough) Ltd [1981] IRLR 347 at [17].  It is said that Woods was approved in Malik v Bank of Credit and Commerce International SA (in liquidation) [1998] AC 20 at 45F-G.

139.  Ms Sit submitted that the duty applies only where the employer’s conduct is calculated to destroy or seriously damage the employment relationship, pointing out that the formulation in Malik used the conjunctive “and” (at 45F-G, Lord Steyn, with whom Lords Goff, Mackay and Mustill agreed).  Moreover, the need to show that the conduct complained of was calculated to destroy or damage the employment relationship was emphasised in Malik at 53C, where Lord Steyn said:

“Earlier, I drew attention to the fact that the implied mutual obligation of trust and confidence applies only where there is “no reasonable and proper cause” for the employer’s conduct, and then only if the conduct is calculated to destroy or seriously damage the relationship of trust and confidence.  That circumscribes the potential reach and scope of the implied obligation.”

140.  This limit on the scope of the implied obligation was adopted by our Court of Appeal in Semana Bachicha v Poon Shiu Man [2000] 2 HKLRD 833 at 845I (Ribeiro JA, as he then was, with whom Rogers JA and Godfrey VP agreed).

141.  I therefore agree with Nomura’s formulation of the implied Term of Trust and Confidence, and that the questions to be considered in determining whether there has been a breach of the term are:

141.1   whether the employer’s conduct was likely to destroy or seriously damage the relationship of trust and confidence between employer and employee.  This is to be assessed objectively, by reference to all the circumstances (see Malik at 35C-D, 53C; Semana Bachicha at 845F, I);

141.2   whether there was reasonable and proper cause for the conduct;

141.3   whether the conduct was calculated to destroy or seriously damage the relationship.

142.  In this regard, I note the observation of Hale LJ (as she then was) in Gogay v Hertfordshire County Council [2001] 1 IRLR 703 that the test for whether the implied term has been breached is a “severe” one; the conduct must be such as to destroy or seriously damage the relationship.

D2.  Term of Trust and Confidence - applicability

143.  The other area of dispute between the parties as regards the Term of Trust and Confidence is whether it applies to all of Nomura’s acts complained of.  Nomura accepts that the Term of Trust and Confidence applies only as regards its decision to issue the Warning Letter.  Mr Yang says that it should also apply to Nomura’s decisions not to award Mr Yang any bonus for 2016/17, and to terminate Mr Yang’s employment.

144.  Nomura’s argument is that where a contract provides for an apparently unqualified power or discretion, the term is generally to be construed as being subject to an implied requirement that it can only be exercised in good faith, rationally and for proper purposes, and not arbitrarily or capriciously or in a manner which is not bona fide (citing Braganza v BP Shipping Ltd and another [2015] 1 WLR 1661).  The argument is that where a contractual discretion is involved, it is the Braganza duty that applies.  It is said that this duty is different to the Malik implied term of trust and confidence, citing Stevens v University of Birmingham [2015] EWHC 2300 at [28].  Nomura’s stance is therefore that the Term of Trust and Confidence does not apply to the Bonus Decision.

145.  The fact that the two duties are different in nature is not a reason why they cannot co-exist.  The duty of parties to an employment contract not to conduct themselves in a manner calculated and likely to destroy or seriously damage the relationship of trust and confidence is an overarching obligation implied by law as an incident of the contract of employment, a legal duty imposed by law; and it requires at least express words or at least a necessary implication to displace it or cut down its scope: Johnson v Unisys Ltd [2003] 1 AC 518 at [24] (Lord Steyn).  Indeed, in Stevens, the possibility that the two duties could co-exist was recognised: see [28], where reference was made to United Bank v Akhtar [1989] IRLR 507, in which breaches of both duties were found in relation to an employer’s exercise of contractual discretion.

146.  Furthermore, as a matter of logic, it seems to me that if an employer has a duty not to conduct himself in a manner calculated and likely to destroy or seriously damage the relationship of trust and confidence, there is no reason why such a duty should be suspended if the conduct he engages in happens to be carried out pursuant to contractual discretion (unless of course this is permitted by express words or necessary implication as to the scope of the discretion).  Indeed, as Mr Whitehead submitted, Nomura accepts that the implied Term of Trust and Confidence argued for by Mr Yang applies in considering whether or not the decision to issue the Warning Letter was a breach of contract – but that decision also involved the exercise of a contractual discretion (see “Disciplinary Measures” ^[9] in the Employee Handbook).  Ms Sit argued that where the parties have made a contractual bargain (conferring discretion on the employer), the court will respect that contractual bargain, and insofar as it is necessary to prevent the abuse of an unfettered discretion, the Braganza duty is implied into the contract.  It seems to me that there is no reason why the implied term not to damage trust and confidence should not, for the same reason, be implied into the contract.  The contractual bargain is respected in that any express, or necessarily implicit, authorisation given to the employer under the contract to engage in certain conduct will not constitute a breach of the implied term not to damage trust and confidence.

147.  Mr Whitehead referred to Faieta v ICAP Management Services Ltd [2017] EWHC 2995 (QB) as an example of a case where the implied term of trust and confidence was held to apply to a decision by an employer which involved the exercise of discretion (as to whether to place an employee on garden leave).  The employee contended that the fact that the exercise of the discretion was subject to an implied duty of rationality did not exclude the implication of a duty that the employer was not to act so as to destroy the relationship of trust and confidence.  The employer argued that where there was a contractual discretion, the role for the implied term of trust and confidence was limited to a duty to give reasons.  The employer’s argument was rejected (although on the facts, no breach was found).  See [80] to [82] (Moulder J).

148.  I therefore accept that the Term of Trust and Confidence applies to the Bonus Decision.  As will be seen below, however, this makes little difference on the facts.

149.  Ms Sit then says that the Term of Trust and Confidence cannot apply to its decision to terminate Mr Yang’s employment.  The argument is that the duty is concerned with the preservation of the continued relationship between an employer and employee, and therefore cannot be applied to the termination of the relationship.  Furthermore, the alleged duty cannot be used to water down an employer’s right to terminate an employee’s employment without cause.

150.  Mr Whitehead’s argument is that Malik itself was concerned with the employees’ future employment prospect after termination of his employment.  However, as Ms Sit pointed out, the complaint in Malik was not about the employees’ termination, but rather, the stigma associated with having being employed by a dishonest and corrupt employer.

151.  The issue of whether an employer’s right to terminate an employee’s employment is subject to an implied duty of trust and confidence was considered in Lam Siu Wai v Equal Opportunities Commission [2021] 5 HKLRD 30, where Anthony Chan J held that an employer’s right to terminate an employee’s employment without cause by invoking the contractual notice provisions could not be watered down by an implied duty of trust and confidence.  The reasoning was summarised in Haveaux Xavier Marie-Ghislain v Hong Kong Express Airways Limited [2023] HKCFI 3073 at [72] (Coleman J), including that the duty of trust and confidence relates to the maintenance of the ongoing employment relationship, and is therefore inappropriate to be applied to the termination of the relationship; and that a contractual right to terminate employment can be exercised unreasonably or capriciously.  No serious challenge was made to these authorities, and I therefore proceed on this basis.

152.  In the circumstances, I do not accept that the Term of Trust and Confidence applies to Nomura’s decision to terminate Mr Yang’s employment.

D3.  The “Bona Fide Warning Term” and the “Legitimate Expectation Sanction Term”

153.  It will be recalled that Mr Whitehead complains that Nomura’s issue of the Warning Letter was a breach of not only the Term of Trust and Confidence, but also a breach of the Bona Fide Warning Term and the Legitimate Expectation Sanction Term.  Ms Sit does not accept that these two terms should be implied into the contract.  She says that the cases relied on are merely cases where the Malik implied term of trust and confidence was applied, and not authorities supporting the implication of additional terms.

154.  I agree with Ms Sit’s submission.  Gogay was merely an invocation and application of the Malik implied term of trust and confidence (see [53]).  This was also the case with Went v The Governing Body of Sir Roger Manward’s School [2004] Lexis Citation 1353 (see [28]); Leeds Dental Team Ltd v Rose [2014] IRLR 8 (see [21] to [23], [25]); Stevens vat [28].

155.  I do not accept that there was any Bona Fide Warning Term and the Legitimate Expectation Sanction Term as alleged.

D4.  The “Bona Fide Bonus Scheme Term” and the implied duty to exercise discretion in good faith, rationally and for proper purposes

156.  The Bonus Decision was made in the exercise of Nomura’s discretion.  It will be recalled that Nomura accepts that where a contract provides an apparently unqualified power or discretion, the term is generally to be construed as being subject to an implied requirement that it can only be exercised in good faith, rationally and for proper purposes, and not arbitrarily or capriciously or in a manner which is not bona fide, following Braganza at [18] to [19], [23] to [24], [30], [57]; Tadjudin Sunny v Bank of America, National Association, unreported, CACV 12/2015, 20th May 2016 at [46], [55]; and Post v Nomura International (HK) Ltd, unreported, HCA 7259/1997, 29th May 2001 at [47], [51].

157.  Mr Yang argues primarily for a different implied term, namely, the “Bona Fide Bonus Scheme Term”.  As a fallback, he relies on the Braganza duty.

D4.1  The Braganza duty

158.  I first deal with the Braganza duty, which is not controversial. There is no challenge to the way in which Ms Sit has framed the test for whether there has been a breach, which is to ask:

158.1   whether Nomura took into account all relevant considerations and excluded irrelevant ones, and

158.2   whether the result was so outrageous that no reasonable decision-maker could have reached it.

See Braganza at [24], [28] to [30], [53], [103].

159.  Ms Sit further submitted, and Mr Whitehead did not disagree, that:

159.1   in determining whether there has been a breach of the Braganza duty, the court does not substitute its own view of what is a reasonable decision for that of the decision-maker.  It only conducts a rationality review: Braganza at [18] to [19], [52]; Sunny Tadjudin at [168];

159.2   rationality is not the same thing as reasonableness. Reasonableness is an external, objective standard applied to the outcome of a person’s thoughts or intentions.  Rationality is an external, objective standard applied to the person’s mental processes.  It imports a requirement of good faith, a requirement that there should be some logical connection between the evidence and the ostensible reasons for the decision, and an absence of arbitrariness, capriciousness or reasoning so outrageous in its defiance of logic as to be perverse: Braganza at [23];

159.3   the focus should be on the decision-making process, rather than on the outcome.  Concentrating on the outcome runs the risk that the court will substitute its own decision for that of the primary decision-maker: Braganza at [29];

159.4   the scope for scrutiny of the decision-making process depends on the nature of the decision made by the employer.  Where the decision is whether an employee should be awarded a discretionary bonus, which is a decision involving a qualitative judgment of the employee’s performance (as opposed to whether a state of facts existed), there is little scope for intensive scrutiny of the decision-making process: Braganza at [56] to [57];

159.5   the burden of showing irrationality is a very high one.  It is not sufficient for the employee to show that the employer acted unreasonably; he would have to show that no reasonable employer in the same field would have exercised his discretion in that way or that the employer acted irrationally: Sunny Tadjudin at [11], [163].

D4.2  The Bona Fide Bonus Scheme Term

160.  Mr Whitehead also argues that there was an implied term that Nomura would not administer the bonus scheme(s) in respect of Mr Yang’s bonus awards (whether during or after Mr Yang’s employment by Nomura) in an irrational, perverse or arbitrary manner or in a manner that was not bona fide or otherwise not in good faith.  It was said that this term stemmed from the Term of Trust and Confidence.

161.  I have already expressed the view that the Term of Trust and Confidence, being an overarching obligation implied by law as an incident of a contract of employment, applies to the Bonus Decision.  Furthermore, the Braganza duty applies to this decision.  It does not seem to me that there is any need for any further extension of the Term of Trust and Confidence as argued for by Mr Whitehead.  Nor does it seem that the alleged Bona Fide Bonus Scheme Term would add anything, as the complaints which Mr Yang seeks to raise thereunder can be raised as alleged breaches of the Term of Trust and Confidence or as breaches of the Braganza duty.  Nor has any authority been cited to suggest that the alleged term should be implied.

162.  I therefore do not agree that the Bona Fide Bonus Scheme Term should be implied into Mr Yang’s contract of employment.

D5.  The implied terms applicable to the termination of Mr Yang’s employment

163.  Ms Sit submitted that in considering Nomura’s duties in relation to the termination of Mr Yang’s employment, the starting point is to consider the parties’ mutual right under the contract of employment to terminate the employment on the giving of notice and without cause.

164.  Where a contract of employment provides for the parties to terminate the employment without cause, either party can exercise this right by following the termination provisions (for example by giving the requisite notice or making payment in lieu), and this will not be wrongful even if it is done for unreasonable or capricious reasons.  After all, the very nature of a power to terminate a contract without cause is that its exercise does not have to be justified.  See Shek Kin Pong and others v FTLife Insurance Company [2019] HKCFI 1781 at [48] (Mimmie Chan J); Cheung Chi Keung v Hospital Authority [2006] 2 HKLRD 46 at [19], [61], [62], [93] (DHCJ A To, as he then was).

165.  It follows that in such a situation, an employer (or employee) can terminate the employment in accordance with the terms of the contract “for no, good or bad reason”: see Cheung Li On v Sun Life Hong Kong Limited [2021] HKCFI 3784 at [115].  Furthermore, even if the employer provides a reason for the termination which turns out to be untrue, this is legally irrelevant, since he would have been entitled to terminate for any reason (or no reason at all): see Lam Siu Wai at [20], [39] and [42].^[10]

166.  Nomura accepted that this position was qualified (only) to the extent that an employer could not exercise his contractual right to terminate an employee’s employment in order to avoid the employee becoming eligible for a bonus, following Tadjudin Sunny at [55], [64] to [66], [84]. This position is similar to the Anti-avoidance Term contended for by Mr Whitehead.  Mr Whitehead submitted that the Anti-avoidance Term was more appropriate as it was formulated so as to limit Nomura’s right to terminate Mr Yang’s employment where such termination was to avoid Mr Yang become eligible for, or receiving, a bonus award, whereas Nomura’s formulation was confined to catching the situation where termination was in order to prevent Mr Yang from becoming eligible for a bonus payment. It seems to me that whilst the implied term in Tadjudin Sunny was framed as one to limit the employer’s right to terminate the employee’s employment where such termination was to avoid the employee becoming eligible for a bonus award, the reasoning of the Court of Appeal at [63] to [66] would apply equally to the present case. ^[11]  On that basis, it seems to me that an employer’s apparently unqualified right to terminate an employee’s employment should be construed as limited where such termination is to avoid the employee either becoming eligible for consideration for a bonus award, or receiving a bonus award.  I therefore accept the formulation of the Anti-avoidance Term advanced on behalf of Mr Yang.  However, on the facts of the present case, either formulation makes no difference.  I return to this below.

167.  Similar to the Anti-avoidance Term is the Anti-deprivation Term, save that the latter was additionally to restrict Nomura from exercising any power to censure or sanction Mr Yang’s conduct so as to deprive Mr Yang of his bonus awards or to unreasonably deprive him of such awards.  However, I do not see the basis to imply additional variations of the Anti-avoidance Term in relation to Nomura’s decision to terminate Mr Yang when the variation being sought goes to Nomura’s power to “censure” and “sanction” Mr Yang rather than to terminate his employment.

168.  Three other implied terms were advanced on behalf of Mr Yang in relation to the decision to terminate his employment: the “Fair Termination Term”, the “Good Faith and Rationality Termination Term”, and the “Legitimate Expectation Termination Term.”  They sought to limit Nomura’s power to terminate Mr Yang’s employment and prevent it from doing so for (amongst other things) reasons of bad faith, arbitrariness, capriciousness, perversity and irrational reasons.  However, these directly contradict Nomura’s express contractual right to terminate Mr Yang’s employment without cause.  I agree with Ms Sit that the terms cannot be implied into the contract as they would impermissibly water down Nomura’s express contractual right (cf. Lam Siu Wai at [27]).

169.  The authorities relied on by Mr Whitehead in support of these three implied terms do not support such an implication.

169.1  In Bartlett v Australia & New Zealand Banking Group Ltd (2016) 255 IR 309, the Court of Appeal of New South Wales in fact rejected arguments that the employer’s power to terminate the employee’s employment was limited by requirements that the termination be reasonable and that the decision to terminate was taken in good faith: see [86], [87], [107].

169.2  In FWD Life Insurance Company (Bermuda) Ltd v Poon Cindy [2019] 3 HKLRD 455, the Court of Appeal remitted the case back to the trial judge to assess whether, on the facts, various terms should be implied into the contract of employment.  It did not hold that any particular implied terms were an incident of the contract of employment.

170.  I have earlier also held that the Term of Trust and Confidence does not apply to Nomura’s decision to terminate Mr Yang’s employment.

171.  Thus in relation to Nomura’s decision to terminate Mr Yang’s employment, the only duty that arises for consideration is the “Anti-avoidance Term” (namely, that Nomura would not exercise its right to terminate Mr Yang’s employment by giving three months’ notice in writing (or by paying in lieu of notice) in order to avoid Mr Yang being eligible for or receiving a bonus award.

E.  WHETHER BREACH OF IMPLIED TERMS

E1.  The decision to issue the Warning Letter

172.  It follows from Sections D1 and D2 above that in determining whether the issue of the Warning Letter constituted a breach of contract, the questions which I have to consider are:

172.1  whether Nomura’s issue of the Warning Letter was likely to destroy or seriously damage the relationship of trust and confidence between Nomura and Mr Yang;

172.2  whether there was reasonable and proper cause for the issue of the Warning Letter; and

172.3  whether the issue of the Warning Letter was calculated to destroy or seriously damage the relationship of trust and confidence between Nomura and Mr Yang.

173.  Mr Yang’s case is that the Warning Letter was a serious sanction and made Mr Yang extremely upset, and that it was capricious and without any reasonable or proper cause.

174.  Nomura’s case is that there was ample cause for the issue of the Warning Letter, and that it was not calculated to destroy or seriously damage Nomura’s relationship with Mr Yang.

E1.1  Whether reasonable and proper cause for the issue of the Warning Letter

175.  As Ms Sit submitted, the gravamen of Mr Yang’s conduct which concerned Nomura was not any actual breach of Nomura’s internal policies,^[12] but Mr Yang’s inability to recognise and handle the perception of a conflict of interest between the IBD and Research functions of the firm, and his failure to take steps to protect Nomura from the potential risks arising from his actions.  This was the concern raised by both the SFC and in Nomura’s internal investigations and deliberations, as will be apparent from the facts set out earlier.  For example:

175.1  the SFC’s letter of 8th September 2016 referred to its “grave concerns about the perceived and potential conflicts of interest that might arise when research analysts, who were expected to be independent at all times, were requested to attend and actually attended meetings with listing applicants as conceivably they could take this opportunity to assist investment bankers in soliciting their business, especially when such activities even formed part of their performance review”;

175.2  the October 2016 Preliminary Investigation Report set out the Investigation Team’s findings that Mr Yang did not appear to be sufficiently conscious of the perception of conflicts of interest when interacting with members of Equity Research given his dual roles, and his failure to take proactive steps to manage any such perceived conflicts of interest;

175.3  the members of the DRC discussed at their meeting of 9th November 2016 their concerns that Mr Yang’s conduct and explanations did not demonstrate that he was fully aware of the potential risks to be managed by someone with Over the Wall status.^[13]  They also noted that the quantitative feedback received by the Office of Conduct & Culture was to some extent consistent with the view that Mr Yang either did not understand, or did not take seriously, the policies and procedures for managing various reputational and regulatory risks;

175.4  the Warning Letter noted that Mr Yang had arranged three-way meetings as Head of China, but pointed out that the concern was Mr Yang’s failure to manage the potential risk of being perceived to be arranging three-way meetings in his capacity as a representative of IBD, and his failure to follow the common practice of masking information requests made to public side employees.  The determination as set out in the letter was Mr Yang’s failure to protect the firm against perceived conflicts of interest.  It pointed out that “as senior management, you have a responsibility to not only ensure that you manage actual conflicts of interest but also to ensure that you take all necessary precautions to manage perceived and potential conflicts of interest”.

176.  In cross-examination, Mr Iiyama explained the misconduct as follows.

“A. Because he, Zhizhong himself, does not understand the philosophy of guidelines or rules, so he repeatedly

making some misguidance, misconduct. So that's why --

that's what we discovered and we thought that's very

problematic, seriously.

   Q. I thought you said he hasn't committed any misconduct.

   A. His misconduct is not breaching the rules but he did not

make any necessary actions to prevent from others to

breach the rules so that company is away from the risks

of conflict of interest and MNPI leakage. It's the

senior management responsibility to do that. That is

very dangerous for the company.”

177.  There were a number of aggravating features of Mr Yang’s conduct which gave particular rise to concern for Nomura.

177.1  The SFC had identified one three-way meeting and stated its view that this gave rise to grave concerns about perceived and potential conflicts of interest.  However, upon further internal investigation, Nomura discovered that there had in fact been three such meetings, and two occasions of failure to name-mask, over a period of eighteen months, and all of these incidents involved Mr Yang.

177.2  Mr Yang told Ms Liu that she did not need to seek approval from Compliance before she sent her email to the Huatai CEO. In other words, not only did he not take precautionary steps himself, he encouraged other, more junior, staff to do the same.

177.3  He proceeded with the August 2016 Three-Way Meeting despite knowing about the SFC’s investigation.

177.4  Mr Yang was very senior, being one of the four SMDs in the whole of Nomura’s AEJ region.  He ought to have been helping to ensure Nomura’s compliance with both its own policies and guidelines (both in letter and spirit) and the SFC’s guidelines.  Yet he did not appear to understand why Nomura considered his conduct to be problematic.  Indeed, at trial, Mr Yang continued to take the view that he had not done anything wrong.

178.  As Ms Sit pointed out, Mr Yang accepted that:

178.1  Nomura greatly valued ethics, compliance and professional standards;

178.2  as an SMD, he should have understood and should have promoted the understanding of both the letter and spirit of all the applicable laws, rules and regulations; and

178.3  as one of Nomura’s ROs, he had a special responsibility to help Nomura ensure its compliance with the SFO and the regulatory regime.

179.  Thus far, it seems to me that Nomura had reasonable and proper cause to issue the Warning Letter.

180.  I now turn to consider the points raised on behalf of Mr Yang insofar as they have not already been addressed.

181.  Mr Whitehead suggested that the Preliminary Investigation Report had in fact largely exonerated Mr Yang and that the factors relied on by Nomura in issuing the Warning Letter had shifted from a focus on Mr Yang’s conduct (which was said to be largely unproblematic) to a focus on his lack of awareness.  I do not agree. On an objective reading of the documents, the Preliminary Investigation Report identified as a matter of concern Mr Yang’s insufficient awareness of the perception of conflicts of interest and his failure to take steps to manage such conflicts.  This point was consistently echoed as the matter was reported to successively higher levels of seniority of Nomura’s management.

182.  Mr Whitehead submitted that the Preliminary Investigation Report did not consider Mr Yang to have been in breach of the common practice of “name-masking” when putting queries to a Research analyst, and that Mr Yang had not been offered an opportunity to respond to the allegations in this regard.  This is not correct, as the Preliminary Investigation Report in fact raised Mr Yang’s failure to name-mask on two occasions as one of the matters illustrating his insufficient appreciation of the perception of conflicts of interest, and also set out the responses he gave when the allegations were put to him.

183.  Mr Whitehead also complained that the briefing memo to the DRC expanded on various issues which were not covered in the Preliminary Investigation Report and in respect of which the Investigation Team did not come to any view.^[14]  However, the briefing memo appears to have been written by the Investigation Team and set out a number of the team’s observations, for example, its view that it was not appropriate for Mr Yang to have told Ms Liu that there was no need to send her email (proposed to be sent to Huatai’s CEO) to Compliance.  The factual premise of the complaint is therefore incorrect, and in any event I do not see its relevance – there is no reason why the Warning Letter could only be issued based on matters covered in the Preliminary Investigation Report and not on any points raised in discussions thereafter.

184.  Mr Whitehead then complained that further matters were raised at the discussions by the DRC or EMB, for example, the point that whilst the policy requirement to obtain Compliance clearance rested with Research analysts, there was an obligation on Nomura’s management to ensure fit and proper behaviour by analysts, and that Mr Yang was a member of the management.  Again, I do not see why these concerns could not validly be relied upon in the decision to issue the Warning Letter.  Mr Whitehead submitted that Mr Yang did not attend the DRC so that he did not have an opportunity to address the DRC.  But the substance of the complaints had already been raised with Mr Yang by the Investigation Team, and it is not being suggested that there were any material representations which Mr Yang could have, but was denied the opportunity of, making to the DRC.  In any event, it is not a pleaded complaint that Mr Yang did not have an opportunity to address the DRC.

185.  Much emphasis was placed by Mr Whitehead on the argument that Mr Yang was “above the wall” and acting as Head of China rather than in any IBD role when arranging the three-way meetings, and that the primary duty lay on Nomura, rather than Mr Yang, to manage any perceived conflicts of interest, given that it was Nomura who had given Mr Yang his dual roles.  I agree with Ms Sit that the argument is wholly misplaced.

185.1  Factually, the documents show that whilst at one point, Mr Yang had “permanent insider” status, Mr Yang was redesignated as a “private side” employee with effect from 12th November 2013, and that this was set out in Nomura’s Corporate Directory which was available to all employees. There was also an email circular from Compliance of 12th November 2013 informing employees that with the revised Confidentiality and Chinese Wall Policy, the status of “permanent insider” had been discontinued and that employees who had held this designation had been re-designated as either a “regional permanent insider” or “private side” employee.  Mr Yang said he did not remember the email notification that he had been redesignated as a “private side” employee as he was not a direct addressee of the email but merely a “bcc” recipient, but he also accepted that it was not the case that he ignored emails from Compliance just because he was merely a “bcc” recipient.  He further accepted that he did not recall receiving any email that had designated him as a “regional permanent insider”.

185.2  Mr Whitehead pointed to the fact that in the Labour Tribunal (in which the current proceedings had originally been commenced), Nomura had filed a Statement of Defence in January 2018 which stated that Mr Yang’s roles “involved both a “public side” and a “private side” element and that [Mr Yang] was therefore placed “above the wall”.”  It was said that the maker of the statement, Nomura’s General Counsel, had not been called to give evidence to explain this, and that an adverse inference should be drawn against Nomura accordingly.  However, Nomura’s Defence filed in these proceedings (after the transfer to the Court of First Instance) has consistently pleaded a case that Mr Yang was designated as a “private side” employee whilst concurrently holding the positions of Head of China and IBD-AEJ Chairman.  In any event, the contemporaneous documentary evidence shows that Mr Yang was indeed redesignated as a “private side” employee with effect from 12th November 2013.  In the circumstances, no prima facie case arises which Nomura needs to answer, so that the question of drawing adverse inferences does not arise.

185.3  More importantly, even if Mr Yang mistakenly believed himself to be “above the wall”, this would not have affected Nomura’s assessment of Mr Yang’s conduct.  Indeed, the minutes of the DRC’s discussions recorded that members were concerned that Mr Yang was not fully aware of the potential risks to be managed “by someone with Over the Wall status”.^[15] Similarly, the Statement of Defence in the Labour Tribunal proceedings went on to state that “An employee’s status as “above the wall” does not, however, remove the need to comply with legal and regulatory requirements and compliance with rules, policies, procedures and best practice relating to the different elements of the business.”

185.3.1  The Confidentiality and Chinese Walls Policy drew attention to the fact that regional executive insiders might be in possession of inside information and warned that they should ensure that such information was not inadvertently conveyed.  As Ms Wong explained in her evidence, regional executive insiders had heightened, not reduced, obligations to ensure that they complied with confidentiality and Chinese Wall requirements, and Mr Yang’s belief that being “above the wall” exempted him from these requirements in fact demonstrated his failure to understand the risks which the Chinese Wall system was designed to manage.  Mr Iiyama made a similar point in his evidence – that an executive regional insider would have even more responsibility to ensure that everything was done correctly and MNPI was not leaked.

185.3.2  Similarly, “regional executive insider” status would not have exempted Mr Yang from the need to address perceived conflicts of interest.

185.3.3  In any event, whatever Mr Yang’s status might have been, this would not have altered the status of Research analysts.  He could not have granted them exemption from seeking Compliance approvals.

185.4  Mr Yang cannot on the one hand enjoy the benefit of his dual roles (in terms of remuneration, power and authority), and on the other hand say that he does not need to take any responsibility arising from occupying the roles.

185.5  The claim that problems arose because of Nomura’s conferring of dual roles on Mr Yang, and because there was inadequate guidance in place for handling potential conflicts of interest arising from such roles, is refuted by the fact that other employees occupying similar dual roles have not had difficulty in understanding what was required of them.  Mr Iiyama pointed out that had the problems been attributable to the fact of employees wearing dual hats, then similar problems would have been observed with other employees who wear dual hats in Nomura, but this was not the case at all – it was only Mr Yang who failed to understand that those who occupied dual roles needed to be more, rather than less, careful. This was why Nomura decided to remove one of his roles.  He observed that Mr Yang still continued not to understand where the problem lay.  Ms Wong’s evidence was that there were employees in Nomura who had multiple roles, and they were always advised that they had to follow the most stringent set of rules that applied to them, to protect both themselves and the firm.

185.6  It was also argued that had the SFC been informed that Mr Yang had arranged the April 2015 Three-Way Meeting in his capacity as Head of China, rather than as IBD-AEJ Chairman, it would have taken a different view of the matter.

185.6.1   I accept Ms Wong’s evidence that this would not have been an adequate explanation.  As she pointed out, Mr Yang was licenced by the SFC to conduct Type 6 activities as Nomura’s RO, advising on corporate finance.  She said that given this registration, there would been “no way” that the SFC would have accepted an explanation that Mr Yang was not meeting clients in his banking role; indeed, this was a “typical” conflict of interest situation.

185.6.2  In fact, the SFC was told at an early stage^[16] of Mr Yang’s position as China Chairman and CEO (as the role was then titled) and of Mr Yang’s explanation that at the April 2015 Three-Way Meeting, he simply introduced Ms Liu to the Huatai CEO and that there was no discussion of Nomura’s desire to participate in the Huatai IPO.  Nevertheless, the SFC went on to set out its concerns in its letter of 8th September 2016, which shows that it was not satisfied with the explanation that no investment banking business was discussed.

186.  It was suggested that Mr Yang was being used as a scapegoat by Nomura to appease the SFC.

186.1  However, it was indeed Mr Yang who had organised the three-way meeting which the SFC had discovered, so it is not as if he was unfairly asked to shoulder the blame for someone else. Furthermore, the findings of the Investigation Team were that out of the senior banking staff, it was only Mr Yang who had organised other problematic three-way meetings and failed to name-mask.

186.2  Insofar as it was suggested that the scapegoating lay in using Mr Yang to cover for Nomura’s failures to implement sufficient internal controls to prevent the problems arising, as already mentioned above, the unchallenged evidence is that there were other employees who, like Mr Yang, occupied dual roles, but they did not have any difficulty in avoiding actual or perceived conflicts of interest.  Moreover, Nomura had already told the SFC (in its emails of 30th May and 23rd June 2016) that the April 2015 Three-Way Meeting was not a breach of its Confidentiality and Chinese Walls policy, and that emails between Ms Liu and Mr Yang did not meet the firm’s escalation criteria.  Thus the SFC would have been well aware of the state of Nomura’s internal controls, and putting forward Mr Yang as the “scapegoat” would not have covered over the facts.

187.  Another matter on which much time was spent at trial was that of the qualitative feedback regarding Mr Yang.  It was said that Nomura relied on the feedback in coming to its decision to issue the Warning Letter, and that this was wrong in that, inter alia, the feedback procedure was not properly followed.  Allied to this was a complaint that the feedback and other allegations against Mr Yang were not put to him for a response.^[17]  As regards the complaint about the feedback procedure, I had already ruled against Mr Yang’s application on the first day of the trial to amend his pleadings to include this.  As regards the complaint that various allegations were not put to Mr Yang, this is not a pleaded complaint either.  Regrettably, both complaints continued to be pursued in closing submissions.  As they are not pleaded complaints, I do not propose to deal with them.

188.  In all the circumstances, I take the view that Nomura had reasonable and proper cause to issue the Warning Letter.

E1.2  Whether issue of Warning Letter calculated to destroy or seriously damage the relationship of trust and confidence

189.  Mr Yang was upset by the Warning Letter.  He went to Tokyo to protest to Mr Ozaki about it.  However, I agree with Ms Sit that the Warning Letter was not calculated by Nomura to destroy or seriously damage the relationship of trust and confidence between Nomura as employer and Mr Yang as employee, in the light of the following matters.

189.1  The Employee Handbook provided that a written warning might be issued as a disciplinary measure.  In other words, the matter should be approached on the basis that it was within the parties’ contemplation that a written warning might be issued in appropriate circumstances.

189.2  As I have found above, Nomura had reasonable and proper cause to issue the Warning Letter.

189.3  The Warning Letter was issued as a private and confidential document, rather than as a measure to publicly embarrass him.

189.4  Nomura sought to deliver the Warning Letter whilst at the same time assuring Mr Yang that it intended to continue the employment relationship.

189.4.1  On 14th November 2016, Mr Iiyama gave advance notice of the Warning Letter, whilst at the same time telling Mr Yang that releasing him from the role of Country Head would make IBD business easier for him to run, and that Nomura did not intend to dismiss him.

189.4.2  On 24th November 2016, Mr Iiyama emailed Mr Ozaki about a possible visit by Mr Yang.  He asked Mr Ozaki to guide him to be positive and to give other words of encouragement.

189.4.3  On 29th November 2016, Mr Ozaki met Mr Yang in Tokyo.  According to Mr Ozaki’s reporting email (this part of which is not challenged), he told Mr Yang that since he did not have any bad intention, his value in conducting business would not be damaged, and his title as IBD-AEJ Chairman would remain unchanged; the title of Head of China was more a marketing role and the loss of such a title was not a major issue.

E1.3  Whether issue of Warning Letter likely to destroy or seriously damage the relationship of trust and confidence

190.  In the light of my findings above, I do not need to separately consider whether the issue of the Warning Letter was likely to destroy or seriously damage the relationship of trust and confidence between the parties.

E1.4  Issue of Warning Letter not a breach of contract

191.  I therefore find that the issue of the Warning Letter was not a breach of Mr Yang’s contract of employment.

E2.  The decision not to grant a discretionary bonus to Mr Yang for the performance year 2016/17

192.  It follows from Section D2 above that in determining whether the Bonus Decision constituted a breach of the Term of Trust and Confidence, the questions which I have to consider are:

192.1   whether Nomura’s decision was likely to destroy or seriously damage the relationship of trust and confidence between Nomura and Mr Yang;

192.2   whether there was reasonable and proper cause for the decision; and

192.3   whether the decision was calculated to destroy or seriously damage the relationship of trust and confidence between Nomura and Mr Yang.

193.  It further follows from Section D4 above that in determining whether the decision constituted a breach of the Braganza duty owed to Mr Yang, the questions which I have to consider are:

193.1  whether, in making the decision, Nomura (acting through Mr Iiyama) took into account all relevant considerations and excluded irrelevant considerations; and

193.2  whether the result was so outrageous that no reasonable decision-maker could have reached it.  The focus is on whether there is some logical connection between the evidence and the reasons for the decision to award a nil bonus, without concentrating on the outcome, and without applying intensive scrutiny given the qualitative judgment involved in the decision.

194.  Mr Yang’s case is that Nomura took into account irrelevant or incorrect matters, and failed to take into account the important factor of Mr Yang’s contribution to Nomura’s business; and that the Bonus Decision was so outrageous that no reasonable employer could have reached it.  It is also said that the Bonus Decision was made in a manner likely to destroy or seriously damage the trust and confidence between Mr Yang and Nomura, and that there was no reasonable and proper cause for Nomura to make it.

195.  Nomura’s case is that all relevant considerations were taken into account, and that the Bonus Decision was not irrational.

E2.1  The factors taken into account

196.  As earlier mentioned, in Mr Iiyama’s email of 7th April 2017, he referred to the investigation into Mr Yang’s conduct and the Warning Letter, and the general approach of not paying bonuses to employees expected to leave, and then recommended that Mr Yang not be awarded any bonus for 2016/17.

197.  In his witness statement and oral evidence at trial, Mr Iiyama elaborated on his reasons for his recommendation. 

197.1  There was no formula for assessing bonus awards.  It was not a simple box-ticking exercise.

197.2  An important factor which he considered was Mr Yang’s misconduct as recorded in the Warning Letter, because this put Nomura at risk of a perceived conflict of interest, as identified by the SFC.  Mr Iiyama’s view was that the bonus should reflect the gravity of Mr Yang’s misconduct and unacceptable attitude towards risk and compliance, to give proper effect to the disciplinary sanction in line with regulatory expectations. In cross-examination, Mr Iiyama described the SFC findings and the Warning Letter as “the most important factor”.

197.3  As for Mr Yang’s financial contributions:

197.3.1  Mr Iiyama took into account the deals and business development activities which Mr Yang reported to him, and also Mr Teshima’s report about the revenue from the China IBD team (which was less than the original target), and Mr Teshima’s summary of Mr Yang’s contributions.  He agreed with Mr Teshima that Mr Yang had contributed to the business, which had a positive impact on bonus considerations, but he considered that it would be too simplistic to consider Mr Yang’s contributions by reference to the numbers and the transactions as the success of each deal would have been a collective effort of one or more teams;

197.3.2  in cross-examination, Mr Iiyama explained that whilst Mr Yang’s contributions should be considered as having a positive impact, the bonus recommendation was nevertheless zero, as the positive factors were outweighed by the negative factors.  Mr Iiyama frankly acknowledged that this was exceptional, and he readily agreed with Mr Teshima’s description of the decision as “shocking”;

197.3.3  Mr Iiyama could no longer ascribe the rating (given in the previous year) of “highly effective” to Mr Yang’s financial contributions, now that he knew that the generation of the business might have been problematic;

197.3.4  Mr Iiyama could not remember why he did not mention Mr Yang’s financial contributions in his email to Mr Ozaki, but he thought that it was because the negative factors were “so large, so serious”, that they outweighed the positive factor of financial contributions.  In any event, he considered that Mr Ozaki would not have declined the zero bonus recommendation even if he had been told about Mr Yang’s financial contributions, because Mr Ozaki shared Mr Iiyama’s view about the seriousness of Mr Yang’s conduct, and because the China IBD team in any event had not met their financial target and Mr Yang’s contribution was smaller than the previous year;

197.3.5  in any event, it was not as if Mr Yang’s performance had been that positive, since the China IBD team had not met their performance target.

197.4  Mr Iiyama also took into account Mr Yang’s failure to complete compliance training on time as considered by the DRC, and the negative qualitative feedback.

197.4.1  Mr Iiyama considered that given Mr Yang’s negative influence on junior staff, his lack of understanding of both the seriousness of the SFC inspection and the importance of compliance in general, and that his conduct fell below the standard expected of an SMD, his contribution in terms of his ability to lead by example was poor.

197.4.2  In cross-examination, Mr Iiyama said that whilst he did take into account the negative qualitative feedback in his recommendation of zero bonus, this was not the most important factor, and Mr Iiyama did not mention it at the meeting of 10th May 2016 with Mr Yang; it was however a matter that was consistent with the factor relating to the SFC findings and warning letter.

197.4.3  Mr Iiyama was cross-examined as to why late compliance training in the previous year had not led to a nil bonus.  He explained that the late completion of training in that year was not serious enough to cancel out Mr Yang’s positive contributions in that year, but by 2016/17, the late completion of training was a repetition of negative behaviour.

197.5  Mr Iiyama took into account the fact that Mr Yang had expressed his desire to leave Nomura. 

198.  I accept Mr Iiyama’s evidence on these matters.  He was a straightforward witness who was not shaken in cross-examination.

199.  I turn to deal with Mr Yang’s complaints.

199.1  It was said that the Warning Letter was unjustified.  I have already rejected this submission above.

199.2  It was said that the removal of Mr Yang from his position as Head of China was not intended to be a sanction and therefore could not be relied on as a relevant factor.  However, it must be the case that Mr Yang was removed from this role as part and parcel of Nomura’s assessment that Mr Yang could not properly handle the role (even if Mr Ozaki told Mr Yang that the loss of the title was not a major issue).  Indeed, the Warning Letter stated that “Additionally, we have determined that it is no longer appropriate for you to continue in your dual roles as Head of China and Chairman of Investment Banking for Asia ex-Japan with the various potential conflicts of interest identified during our review.”

199.3  It was said that Mr Yang was not in breach of Nomura’s policies.  As already explained above, what concerned Nomura was not so much a breach of a black letter rule but Mr Yang’s inability to recognise and handle the perception of a conflict of interest between the IBD and Research functions of the firm and to take appropriate action accordingly; as a member of senior management, Mr Yang was expected to promote compliance with Nomura’s policies and guidelines both in letter and spirit.

199.4  It was said that Nomura’s feedback process was problematic. I have already dealt with this above. In closing submissions, Mr Whitehead made further submissions to the effect that the unreliability of the feedback was exacerbated by the risk of bias and that Mr Yang had improved in the year 2016/17.  I do not accept these matters as fact, when they were not put to Mr Iiyama, and when in fact Mr Iiyama’s evidence was that there had been no change in Mr Yang’s behaviour.

199.5  It was said that there was no basis to say that Mr Yang induced Ms Liu to breach Nomura’s policies, as there was no policy requiring Ms Liu to seek Control Room approval before emailing the Huatai CEO.  As mentioned above, the Investigation Team noted that although there was no policy which would have required Ms Liu to seek Control Room approval for emails to corporate clients, Ms Liu should have obtained guidance from Compliance (instead of Mr Yang) in circumstances where she appreciated that it would have been prudent to do so.  The point was that when asked, Mr Yang should either have checked with Compliance, or ask Ms Liu to check with Compliance herself, rather than just brush off a valid concern raised by Ms Liu.

199.6  It was said that there was no basis for Nomura to have concluded that Mr Yang intended to leave Nomura.  However, as Mr Yang accepted in cross examination, he and Mr Iiyama had agreed on 5th December 2016 that since the written warning would be issued, he would leave, and there would be discussions about options for separation.  At the very least, Mr Iiyama would have understood that Mr Yang was seeking to negotiate a departure.  There were also discussions at the meeting on 14th December 2016 between Mr Yang, Mr Iiyama and Ms Yao, regarding the parties exploring ways of parting amicably.  Whilst the parties had not yet arrived at agreed terms, their mutual understanding must have been that the employment was going to come to an end.

200.  Mr Yang also complained that apart from taking into account irrelevant considerations, Mr Iiyama left out of consideration (and failed to report to senior management) the most important consideration, which was that of Mr Yang’s positive contributions to the business, and Mr Teshima in turn did not provide a complete and proper account to Mr Iiyama in the first place.  I do not accept this as a valid criticism.

200.1  I do not accept the submission that Mr Iiyama did not have an accurate picture of Mr Yang’s performance.

200.1.1  Mr Yang had provided his own regular updates to Mr Iiyama directly about his activities.

200.1.2  Mr Iiyama had been correctly told by Mr Teshima that the China IBD team had not met its financial performance target.

200.1.3  As for the assessment provided to Mr Iiyama by Mr Teshima about Mr Yang’s personal contributions, Mr Teshima accepted in cross-examination that he had omitted to mention Mr Yang’s claim that he had been directly involved in twenty out of forty of the China IBD team’s transactions for the year.  However, he explained that as Mr Yang was the chairman of the team, the assessment of his performance for bonus purposes would look more to the overall performance of the team.  In his witness statement, he had pointed out that the team’s revenue for the year was a collective effort and it could not be said that half of the transactions could be attributed to Mr Yang as he claimed.  He had already highlighted to Mr Iiyama the deals in which Mr Yang had made notable contributions.  He did not agree with various claims that Mr Yang had in fact made notable contributions to other deals as well. For example, Mr Yang considered that he made a lead role in a transaction with China Resources, but Mr Teshima explained that whilst Mr Yang had a very good relationship with the chairman, so did the coverage officer for the deal, and it was she together with the consumer retail team who had made significant contributions to the deal over many months.  Therefore, he attributed the credit to the consumer retail team.  I accept Mr Teshima’s evidence – he answered questions in a straightforward manner, including those which did not reflect so well on him, such as the aforesaid oversight, which he readily accepted as being “negligent”.^[18]

200.1.4  It was said that Mr Teshima’s assessment would have been incomplete and unreliable because, as Mr Teshima explained, Mr Yang’s bonus pool was not the same as his, so he paid less attention to Mr Yang’s contributions.  However, Mr Teshima was asked specifically by Mr Iiyama for his views for 2016/17, so he made inquiries of key members of the team and tried to understand which were the deals in which Mr Yang played a critical part, before providing his assessment to Mr Iiyama.

200.2  As mentioned above, I accept Mr Iiyama’s evidence that he did take into account Mr Yang’s contributions to the business, but this was something outweighed by the negative factors, and in any event, the China IBD team had not met their financial target and Mr Yang’s contribution was smaller than in the previous year.  Contribution to business was therefore not something which justified particular mention to senior management.

201.  I therefore do not agree that Nomura took into account irrelevant factors, or left out of account relevant factors, in determining Mr Yang’s bonus for 2016/17.

E2.2  Whether Bonus Decision irrational

202.  Mr Whitehead submitted that the Bonus Decision was so outrageous that no reasonable employer could have reached it.  I do not agree.

202.1  Mr Yang had expressly acknowledged, through the Employment Offer Letter, the possibility that he might receive a nil bonus.  The Employee Handbook had also set out the discretionary nature of the bonus.

202.2  Mr Yang’s evidence was that it was “completely outrageous” for the most senior China banker in any bank to be paid a zero bonus, but he also qualified this by saying that this was the case “unless that person has done something seriously wrong”. (Of course he added that in his view, he had done nothing wrong, but as I have set out above, I am of the view that Nomura had reasonable and proper cause to issue the Warning Letter.)

202.3  The weight placed on the various factors properly taken into account by Nomura is a matter for Nomura’s judgment rather than the court’s.  In the present case:

202.3.1  Mr Iiyama placed great weight on the SFC’s findings and the Warning Letter.  Mr Iiyama was cross-examined extensively about this and he repeatedly emphasised the importance of these matters, describing them as “the most important factor” and “so serious”; they were “much more important and bigger” than the negative feedback although the latter was “very consistent” with them.  Similarly, they were much more serious than Mr Yang’s late completion of compliance training requirements. This weighting was reflected in the contemporaneous documents, featuring as the primary reason in Mr Iiyama’s email to Mr Ozaki of 7th April 2017, and also the only one set out in the written script prepared in advance of the 10th May 2017 meeting at which the Bonus Decision was communicated;

202.3.2  there were other negative considerations, such as the negative feedback and the failure to complete compliance training on time.  However, Mr Iiyama explained that played a smaller part in the decision, although the point was that they did not help in countering the principal negative factors.  It could not be said that these factors had no rational link to the Bonus Decision.  The qualitative feedback process had been set up to obtain feedback about employees and there were procedures built into the process to verify the feedback given.  The Employee Handbook had expressly provided that employees should treat compliance training as a priority and that completion of training by the specified time was considered as part of the compensation assessment process;

202.3.3  there was also the further consideration that Mr Yang would have no further value to the business, given that the parties were in the process of arranging for his departure.  Again, it could not be said that this factor had no rational connection to the Bonus Decision.  The Employee Handbook had expressly provided that Nomura’s perception of an employee’s future value to the business was a matter relevant to consideration of any discretionary bonus to be awarded;

202.3.4  it was not the case that Mr Iiyama left out of account the contributions made to the China business by Mr Yang.  However, the positives were not sufficient to outweigh the negatives;

202.3.5  I accept Ms Sit’s summary of Mr Iiyama’s evidence regarding the weighing process as accurately reflecting the evidence given to the court, as follows: “…it is clear from Mr Iiyama’s evidence that the most important – indeed the overwhelming – factor that led to the FY16/17 Bonus Decision being zero was the Warning Letter.  While he did consider the other negative factors, they only further anchored the decision being zero.  As to the positive factor of [Mr Yang’s] contribution, it was present and was considered, but was unable to outweigh the overwhelming negative factors which led to zero bonus”.

202.4  It seems to me that Mr Iiyama’s recommendation was not lightly made in a frivolous or casual manner.  He must have considered that the decision was a grave one, describing it as “shocking” as he had never done this for a senior person before, but he felt that he “had to do it”, because “that was the right thing for the company, because [Mr Yang’s] conduct and behaviour was too serious to the company and we needed to properly reflect that in his bonus in that year”.

202.5  Mr Yang occupied a very senior position of responsibility in Nomura, and his conduct had to be viewed in that light.

202.6  It should be borne in mind that the view of the seriousness of Mr Yang’s conduct was not one taken by Mr Iiyama alone. The members of the Investigation Team and the DRC were the ones who had originally taken this view, and it was the DRC’s decision to issue the Warning Letter.

202.7  There is nothing to suggest any irrationality in the fact of the senior management following Mr Iiyama’s recommendation.

203.  In the circumstances, I consider that there was a logical connection between the evidence and Nomura’s reasons for the Bonus Decision.  The Bonus Decision conveyed Nomura’s serious disapproval of the conduct which led to the Warning Letter.  It is not for the court to substitute its own view of what was reasonable for that of Nomura. ^[19] Whether or not another employer may have weighed the factors differently and awarded a bonus is not the test; even if another employer may reasonably have decided, on the same facts, to award Mr Yang a bonus, this is not relevant.  The court only intervenes if the decision-making process was irrational, and Mr Yang falls far short of demonstrating irrationality.

204.  Mr Whitehead sought to draw a contrast between Mr Yang’s situation and the increase in bonus of Mr Erik Tung, the Head of China IBD (“Mr Tung”) who had received an increase in his bonus for 2016/17 even though he had only one deal to his name as “deal owner”.  However, Mr Yang’s bonus pool was not that of the investment banking team but the bonus pool of the CEO office, and in any event there were reasons why Mr Tung’s bonus was increased from that of the previous year.  Furthermore, no disciplinary issues had arisen for Mr Tung, and there was no evidence he was about to leave Nomura.  I do not consider that any meaningful comparison can be made.

205.  Mr Whitehead also sought to draw a contrast with Ms Liu, who received a bonus for 2016/17 albeit one reduced from the previous year.  As Ms Sit submitted, again there is no comparison.  Ms Liu was more junior; whilst she was also the subject of disciplinary sanction, this was limited to one incident; she had at least been aware of the issue of avoiding a perceived conflict of interest since she had sought to ask about this before sending her email to the Huatai CEO; she had acknowledged her mistake, expressed remorse and apologies.  Ms Liu was also not in the same bonus pool as Mr Yang.

206.  Mr Whitehead submitted that the Bonus Decision was a “negotiation tactic and a retaliative step”^[20] taken by Nomura in light of Mr Yang’s refusal to sign the settlement agreement on terms which he did not accept.  This allegation was not pleaded.  It was also not put to Nomura’s witnesses.  (What was put to Mr Iiyama was that the waiver (not the Bonus Decision) was a negotiating tool.  I return to this below.)

E2.4  Whether Bonus Decision breach of Term of Trust and Confidence

207.  In the light of the analysis in the foregoing section, I consider that there was reasonable and proper cause for the Bonus Decision.

208.  It is therefore, strictly speaking, not necessary for me to decide whether the Bonus Decision was calculated to destroy or seriously damage the relationship of trust and confidence between Mr Yang and Nomura.  On the available evidence, I would have considered that Mr Yang had not established that the decision was so calculated. The evidence is that the parties had been engaging in discussions since December 2016 with a view to achieving mutually agreeable terms of separation.  Nomura’s intention appears to have been one of preserving an amicable relationship for the remainder of its duration.  Then, by 21st April 2017, Nomura learnt that Mr Yang was at an advanced stage of interviewing with a competitor bank – a matter that Mr Yang had not disclosed to Nomura.  The impact of this on the state of the relationship and trust and confidence between Mr Yang and Nomura was not explored in evidence.  It is not possible to say that Nomura’s decision to proceed with the recommendation of zero bonus was calculated to destroy or seriously damage the relationship as it then stood.

209.  It is also not necessary for me to consider whether the Bonus Decision was likely to destroy or seriously damage the relationship of trust and confidence between the parties.

E2.5  Bonus Decision not a breach of contract

210.  In the light of the above, I find that the decision not to grant any discretionary bonus to Mr Yang for 2016/17 was not a breach of Mr Yang’s contract of employment.

E3.  The decision to terminate Mr Yang’s employment on the grounds of redundancy

211.  It follows from Section D5 above that in determining whether the decision to terminate Mr Yang’s employment constituted a breach of the Anti-avoidance Term, the question which I have to consider is whether Nomura exercised its right to terminate Mr Yang’s employment in order to avoid Mr Yang being eligible for, or receiving, a bonus award.

212.  Mr Yang’s pleaded case is that Nomura terminated his employment not because of redundancy, as it claimed, but rather, to prevent him from being eligible for, or receiving, Bonus Awards (including the discretionary bonus for 2016/17 and the Unvested Bonus Awards from previous years).

213.  Mr Yang’s case as developed at trial was that as the parties’ separation negotiations had broken down, Nomura “had decided to, as a retaliative step, terminate [Mr Yang’s] employment if he did not concede to the Bonus Decision and reached a settlement on that basis, knowing (i) Mr Yang would be required to execute any general waiver and release and (ii) he would not do so given his legitimate claim in respect of the Bonus Decision”.^[21]  It was alleged that Nomura’s real intention was to deprive Mr Yang of his Unvested Bonus Awards.^[22]  Nomura complained that it was neither pleaded nor put to Nomura’s witnesses that the termination of Mr Yang’s employment was some kind of retaliative step, to prevent him from receiving the Unvested Bonus Awards.  I would accept that it was sufficiently pleaded (see RRASOC paragraph 50(2)) and sufficiently put to Mr Iiyama, who denied it (Day 7, p.87:21 to 88:22).

214.  Nomura’s case was that the reason for Mr Yang’s termination was redundancy, or to give Mr Yang face, but in any event not to deprive Mr Yang him of any 2016/17 bonus or his Unvested Bonus Awards.

E3.1  The reasons for termination of Mr Yang’s employment

215.  The written notice to Mr Yang of 31st May 2017 stated that his employment would be terminated on three months’ notice on the ground of redundancy.

216.  There is some evidence to suggest that the position of IBD-AEJ Chairman was being made redundant and that Mr Wang did not take up Mr Yang’s role.

216.1  Mr Teshima had said that he wanted the China team to be fully under his control, whereas Mr Yang’s position was that of SMD, which was one layer above him and therefore not reporting directly to him.  This had made it more difficult for Mr Teshima to institute the change of conduct and culture which he wanted for the China team.  Mr Wang was hired as MD rather than SMD, and was of the same seniority as Mr Tung, the Head of China IBD.  Mr Wang and Mr Tung both reported to Mr Teshima.

216.2  Mr Yang agreed that since Mr Wang was only an MD rather than an SMD, he did not have a specific responsibility for businesses other than investment banking.  Mr Yang had wider responsibilities than Mr Wang – he covered not only China but also other regions such as Australia and South-East Asia, and he dealt with a number of administrative and staff matters such as hiring staff and employee bonuses.  Mr Wang dealt with the “rainmaking” aspect only and the training of juniors.

216.3  Mr Iiyama said that after the parties started separation discussions, he talked to the global and regional heads of IBD and the view was that there was no need to replace Mr Yang’s role.  Whilst Mr Yang had good connections in China and had contributed to the China business by brining in deals, his presence was not necessary to carry on the same level of business.

216.4  There was a proposal to make Mr Yang’s assistant redundant “in association with” Mr Yang.  (However, whether Mr Yang’s assistant’s position became redundant does not necessarily shed light on whether Mr Yang’s position became redundant.)

217.  On the other hand, there is also evidence to suggest that Mr Wang was hired to replace Mr Yang and to carry out his role.

217.1  Whilst Mr Iiyama’s evidence was that Mr Yang’s presence was not necessary to carry on the same level of China business, as the IBD team was able to carry on business in the same way as usual whilst Mr Yang had been winding down his work activities, Nomura engaged Mr Wang for essentially the same key function which Mr Yang had performed.

217.1.1  As Ms Moat noted, Mr Wang was a “rainmaker”, and this aspect of Mr Yang’s and Mr Wang’s work – which was one of their key functions – was the same.  Ms Moat’s email to Mr Sharma (Nomura’s Head of Region) of 9th June 2017 described Mr Wang as being considered for “the position … of a senior rainmaker who will be responsible for originating business and connecting with senior business leaders in China”.

217.1.2  Mr Teshima’s evidence was that whilst Mr Tung was a good manager of the China IBD team, Nomura still needed “someone sufficiently senior who could take over the part of [Mr Yang’s] role that involved bringing in and managing client relationships at the C-suite or Chairman level.”  Nomura’s China business was expected to grow, and Nomura expected Mr Wang to “connect senior bankers in the China IBD team”, “facilitate transactions”, and “facilitate relationships with Chinese government bodies and regulators” – which had been key tasks for Mr Yang as well.

217.2  Whilst Ms Moat said that Mr Wang oversaw regions other than China whereas Mr Wang was concerned only with China, Mr Teshima’s evidence was that Mr Yang’s focus and comments were always China-centric, and he did not ask about the business of other regions.

217.3  Insofar as Mr Teshima and Ms Moat gave evidence that Mr Wang did not deal with administrative and staff matters, unlike Mr Yang, there is no evidence as to how extensive or significant such matters were.

217.4  Nomura’s emails are rather revealing.  Ms Moat’s email of 8th June 2017 to various IBD staff introduced Mr Wang as someone “who we are considering for the position of Chairman, IBD China, so effectively a replacement for [Mr Yang] although his title was Chairman of IBD, AEJ”.  Her email of 7th August 2017 to human resources colleagues regarding the hiring of Mr Wang stated that “Eventually [Mr Wang] would like the title of Chairman of China IBD.  [Mr Iiyama] is supportive but only when the whole issue with [Mr Yang] is settled”. Her email of 8th August 2017 to another human resource colleague stated that “[Mr Wang] is interviewing for the position of Chairman of IBD China. Initially we will not be able to give him this title until we have settled with [Mr Yang]/ This may take some time.  So he would come in as Vice Chairman of AEJ IBD”.

217.5  Whilst Mr Wang was hired as an MD rather than as an SMD, this was a matter of seniority rather than business function.  It will be recalled that Mr Yang had originally been hired as an MD also.

218.  At trial, Mr Iiyama frankly admitted that it was not a true redundancy.

218.1  It will be recalled that Mr Iiyama’s reporting email of 20th May 2017 had mentioned that Mr Yang’s monetary demands were considered to be unacceptable, “and the conclusion was to make it a redundancy case”.  The email also referred to Mr Yang’s conduct and the view that “Therefore, he is no longer a human resource we wish to keep in our organization”.

218.2  When the email was put to Mr Iiyama in cross-examination, he explained that whilst Nomura could have simply terminated Mr Yang’s employment on the basis of his conduct, this would look bad for him and it would have been very difficult for him to find another job, so Nomura had attempted to achieve mutually agreed separation, and when that was unsuccessful, Nomura decided to make him redundant, also with a view to making the termination a “moderate” one for Mr Yang’s sake. Had that not been the case, Nomura would have had to adopt a more “severe” approach of termination with or without notice, which would have made it very difficult for Mr Yang to find another job.

218.3  Mr Iiyama further accepted that Mr Yang’s “redundancy” was not a real redundancy, since Nomura could have terminated the employment given Mr Yang’s conduct, but it was called a redundancy in order to save Mr Yang’s face or to give him face.^[23]

219.  I therefore do not accept that Nomura has established that Mr Yang’s employment was terminated on the ground of redundancy.  Mr Yang was terminated on three months’ notice, and redundancy was stated as the ground of termination, but the latter was to save Mr Yang’s face.

E3.2  Whether Mr Yang’s termination to avoid eligibility for, or receipt of, bonus awards

220.  It does not, however, follow that Mr Yang has established that his employment was terminated in order to avoid Mr Yang being eligible for, or receiving, any bonus awards.

221.  As far as the 2016/17 discretionary bonus was concerned, the termination of Mr Yang’s employment could not have been for the purpose of depriving Mr Yang of this bonus, for the simple reason that the Bonus Decision had already been made in April 2017 (and communicated to Mr Yang on 10th May 2017), whereas Mr Yang was given notice of termination of employment only subsequently, on 31st May 2017.  Thus by the time of the termination of employment, it had already been determined that Mr Yang would not be receiving any bonus for 2016/17.

222.  As far as the Unvested Bonus Awards were concerned, Mr Yang could have kept all of these despite the termination of his employment. It is true that he would have had to have signed a waiver in accordance with the terms of the CSU Agreement and the SAR Agreement in order to obtain the payment, but it does not follow that the purpose of the termination was to stop him receiving the Unvested Bonus Awards.

223.  It is at this point that Mr Yang’s case as developed at trial comes in.  However, I have difficulty with the convoluted reasoning of this case.  As far as I can understand, it is said that:^[24]

223.1  the separation discussions broke down in late April 2017;

223.2  Nomura decided on the “retaliative step” of terminating Mr Yang’s employment if he did not accept the Bonus Decision and settle on that basis, as it knew that Mr Yang would have to execute a waiver, and as it also knew that Mr Yang would not execute the waiver because he had a legitimate claim in respect of the Bonus Decision;

223.3  had Nomura revisited its perverse Bonus Decision, it would have realised that Mr Yang would not forego his rights in respect of the same;

223.4  Nomura “took advantage” of the terms of the CSU Agreement and the SAR Agreement by requiring Mr Yang to execute a waiver in accordance therewith;

223.5  since Mr Yang had a legitimate claim to a bonus for 2016/17, he did not execute the waiver, and this led to the loss of the Unvested Bonus Awards.

224.  The logic is inherently flawed.

224.1  There is no evidence that Nomura knew of Mr Yang’s state of mind, including that he would not execute any waiver because he considered that he had a legitimate claim for a discretionary bonus for 2016/17.  On the contrary, the evidence shows otherwise.  Nomura extended the time for Mr Yang to sign the waiver, first to 10th May 2017 and then to 26th May 2017.  Mr Iiyama said that he was “a bit confused” as to why Mr Yang did not sign the waiver, since this meant that he would not receive the Unvested Bonus Awards.  The fact that Nomura offered extensions, and Mr Iiyama’s confusion, show that they did not know that Mr Yang had made up his mind not to execute any waiver, or his reasons for not executing the waiver. They also show that Nomura’s intention was not to deprive Mr Yang of the Unvested Bonus Awards.

224.2  The argument presupposes that the Bonus Decision was perverse and Mr Yang had a legitimate claim in respect thereof. I have rejected this argument above.

224.3  Since Nomura was entitled to require Mr Yang to sign a waiver under the CSU Agreement and the SAR Agreement, it is difficult to see why Nomura was under any obligation not to require Mr Yang to do so.

224.4  Under the terms of the CSU Agreement and the SAR Agreement, the Unvested Bonus Awards would automatically have been forfeited on the cessation of employment, unless (inter alia) Mr Yang executed the required waiver in such form and within such time period as required by Nomura.  Since Mr Yang did not sign any waiver, the Unvested Bonus Awards were automatically forfeited without any act on the part of Nomura.  As Ms Sit submitted, the loss of the Unvested Bonus Awards was not caused by Nomura but by Mr Yang’s choice in failing to sign the waiver.

224.5  Whether or not the reason of redundancy had been given would not have altered the outcome.  Nomura was entitled to terminate Mr Yang’s employment on the giving of notice, without cause.  Upon such termination, the Unvested Bonus Awards would automatically have been forfeited unless Mr Yang signed the required waiver.

E3.2  Termination of Mr Yang’s employment not a breach of contract

225.  In the light of the above, I find that the termination of Mr Yang’s employment was not a breach of Mr Yang’s contract of employment.

E4.  The decision to wrongfully forfeit the Unvested Bonus Awards

226.  As mentioned above, Mr Yang sought to advance a further, unpleaded complaint of breach of contract, namely, that Nomura wrongfully forfeited the Unvested Bonus Awards.  The argument is that the Unvested Bonus Awards would not have failed to vest in Mr Yang just because his employment was terminated and he failed to execute a waiver. Rather (it is said), the forfeiture resulted from Nomura’s exercise of discretion, since it was up to Nomura as to whether to require the execution of any waiver; the exercise of such discretion should be subject to the Term of Trust and Confidence and the Braganza duty.^[25]

227.  Mr Whitehead relied on a clause in the CSU Agreement and the SAR Agreement which provided that Mr Yang’s continued eligibility to exercise his SARs and the continued vesting of his interest in his CSUs was to be “expressly conditioned on the … execution of any general waiver and release of claims in such form and within such time period as may be required” by Nomura.  It was said that the words “as may be required” meant that Nomura had a discretion as to whether to require Mr Yang to execute a waiver and that execution was not required as a matter of course, and that Nomura made a recommendation to NHI as to Mr Yang’s eligibility to the SARs on an erroneous basis as a result of the wrongful termination of employment.

228.  This was not pleaded as a distinct breach of contract.  It was raised as a matter of quantum.^[26]

229.  In any event, I agree with Ms Sit that the argument has no merit.

229.1  The Unvested Bonus Awards had been granted to Mr Yang in earlier years, but would not vest until after Mr Yang ceased to be employed by Nomura.  Under the terms of the CSU Agreement and the SAR Agreement, the awards would have been forfeited upon cessation of employment, unless Mr Yang satisfied the relevant conditions, which included the execution of a waiver and release of claims in such form and within such time period as might be required by Nomura.

229.2  The words “as may be required” in the relevant clauses of the CSU Agreement and the SAR Agreement refer to “such form” and “such time period” as may be required by Nomura for the execution of the waiver.  They do not confer a discretion on Nomura to decide whether in any individual case a waiver is to be signed.  It was therefore not the case that the forfeiting of the awards was to be decided by Nomura.

229.3  It is a misunderstanding of the evidence to say that Nomura made a recommendation to NHI as to Mr Yang’s eligibility to the SARs upon the termination of his employment.  The evidence was that Nomura’s recommendation about Mr Yang’s eligibility was made at the time of the original awards; upon termination of employment, the SARs were forfeited.^[27] Ms Yao explained that all that Nomura would have done was to notify NHI that the SARs had been forfeited because the conditions for the awards had not been satisfied.

230.  I therefore do not agree that Nomura was in breach of contract in forfeiting the Unvested Bonus Awards.

F.  LOSS AND DAMAGE

231.  In the light of my findings above, issues of causation and quantum do not arise.

G.  DISPOSITION

232.  I dismiss Mr Yang’s claim.

233.  I further order, on a nisi basis, that Mr Yang pays the costs of and occasioned by the action, with certificate for two counsel, to be taxed if not agreed.