ELIZABETH HARRINGTON v. CAP GEMINI ERNST & YOUNG HONG KONG LTD

cacv 287/2004

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 287 of 2004

(on appeal from HCCL NOS. 10 and 61 of 2002)

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HCCL 10/2002

HCCL 61/2002

AND BETWEEN

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1.  This is an appeal from a judgment of Stone J given on 17 May 2004.  The claim in the action is for breach of contract.  The judge found in favour of the plaintiff but awarded the sum of US$46,666 together with interest and costs.  Against that judgment the plaintiff appeals on the basis that she should have been awarded sums of US$1,680,000 and US$400,000 together with interest and costs.  At the conclusion of the hearing of this appeal, this appeal was dismissed with costs with reasons to be given in writing which we now do. 

Background

2.  The issue arising on this appeal falls within a small compass.  It amounts to whether the provisions of section 5(2) of the Employment Ordinance, Cap. 57, which require that a contract of employment shall be deemed to be a contract for one month renewable from month-to-month unless the contract is evidenced in writing signed by the parties thereto, precludes, on the facts of this case, a claim being made for specific performance, and damages in lieu of specific performance, for the provision of such a written document.

3.  The plaintiff was a management consultant of some seniority and had been a partner with Pricewaterhouse Coopers (“PwC”).  She had retired from that partnership with what the judge has described, in my view with some justification, as a generous retirement package.  As well as receiving continuing substantial pension payments, the plaintiff also received medical benefits both for herself and her husband.  In view of the husband’s medical condition, those medical benefits were of importance to the plaintiff.  The plaintiff was also permitted to continue to provide services on a worldwide basis to five major clients with whom she had dealt whilst a partner of PwC.

4.  The plaintiff was not, however, content with retirement and through the introduction of a mutual client she was introduced to the defendant.  Apparently she was first approached by the defendant in October 2000.  At that time the defendant was planning to build up its China practice and the plaintiff appeared to be a suitable person to assist in that endeavour, given her experience.  The judge set out the history of the negotiations between the parties and no substantial issue on the findings of fact has arisen on this appeal save that, as will emerge below, it is the plaintiff’s case that the judge should have found that what he held to have been an understanding between the parties in the course of negotiating the contract of employment was a separate agreement which the plaintiff is entitled to enforce.

5.  There were 2 draft letters of employment which were sent to the plaintiff by the defendant.  Neither of those was signed.  The first letter of employment contained a clause 15 which was entitled “Probation, Resignation & Termination of Service”.  There were two aspects of that which the plaintiff found objectionable.  The first was that there was to be a six months probationary period.  The second objectionable aspect was that after the probationary period the contract of employment could be terminated by either party on two months notice.

6.  There was then a second draft letter of appointment dated 1 February 2001.  In that letter the relevant clause 15 still contained the provision as to termination on two months notice but it did not contain any reference to a probationary period.

7.  The defendant wished the plaintiff to negotiate with PwC to obtain its approval for her to serve all the defendant’s existing clients in Asia.  This posed a problem for the plaintiff.  She foresaw that negotiations with her former firm might not be that easy because, no doubt, they had envisaged that any work which the plaintiff would undertake after retirement with the five clients would be in conjunction with themselves, if it were necessary to involve any firm.  The plaintiff was concerned that if she were to approach her former firm on the basis envisaged by the defendant, the former firm might make difficulties with regard to her retirement package and that might involve her having to litigate in order to secure them.  She was thus reluctant to approach them without a firm offer from the defendant.

8.  On the defendant’s side, it did not wish to conclude any written agreement with the plaintiff until the position with PwC was secure.  The defendant was concerned that there should be no allegation that it had induced the plaintiff to breach the terms of her retirement agreement with PwC.  There is no dispute between the parties that the plaintiff was requested not to sign the letter of 1 February 2001 and she agreed not to do so.

9.  In the first half of March 2001 the plaintiff continued to negotiate with the defendant in the person of a Mr Bayless.  The plaintiff was concerned to have the comfort that should she secure the consent of PwC as requested by the defendant, the defendant would provide her with a signed contract of employment for two years.

10.  On 16 March 2001 the defendants sent the plaintiff a letter, the material part of which read:

“Dear Elizabeth,

This letter is to confirm our discussions related to the offer of employment we have extended.  We understand that in order to accept this offer of employment to work in Hong Kong and provide leadership and service to the Cap Gemini Ernst & Young client base, you need to obtain formal permission from your former employer, PriceWaterhouseCoopers (PWC).

You have expressed concern as to what action PWC might take in response to an inquiry on your part for permission to take up employment with Cap Gemini Ernst & Young.  You have solicited what action Cap Gemini Ernst & Young can take to mitigate those risks and I have indicated that there are no actions that we can take to mitigate those risks.  Cap Gemini Ernst & Young is willing to offer a firm commitment of employment for a two year period (twenty-four months) from the date of joining.  This offer is conditional upon the Terms and Conditions of the offer letter and we draw your attention to Clause 15 in particular ...” 

11.  A few days later on, as the judge recorded, on 22 or 23 March 2001 there was a further telephone conversation between the plaintiff and Mr Bayless.  In that telephone conversation Mr Bayless clarified that his reference to Clause 15 in the letter was not a reference to termination on two months but to termination for cause.  The judge considered the evidence in relation to that telephone conversation and in paragraph 79 of the judgment came to the following conclusion:

“

79.

Hence, I am prepared to find, and now so do, that there was consensus ad idem consequent upon the crucial telephone conversation, and that, to revert to the issue as framed, a contractual obligation had arisen to employ Miss Harrington upon the terms agreed for a fixed term of two years which was not terminable save for cause, subject to fulfilment, as subsequently occurred, of the condition requiring the necessary PwC consent.”

12.  The defendant for its own reasons concluded that it would not employ the plaintiff.  The plaintiff considered that an agreement had been arrived at and in those circumstances commenced these proceedings.  The problem which faced the plaintiff, however, was the provision of the Employment Ordinance to which reference has already been made.  Section 5 reads as follows:

“	(1)	Every contract of employment, which is a continuous contract, shall, in the absence of any express agreement to the contrary, be deemed to be a contract for 1 month renewable from month to month.
	(2)	Notwithstanding that it is proved that a contract of employment is for a period in excess of 1 month such contract shall be deemed to be a contract for one month renewable from month to month unless the contract is evidenced in writing signed by the parties thereto.”

13.  There was no indication as to the rationale behind Section 5(2) and this court was not directed to any reason for it.  Nevertheless the provision seems clear in its effect.  The plaintiff duly addressed the issue that a claim could not be made on the basis that the contract of employment had been arrived at as a result of an oral agreement.  What was said was that the agreement arrived at on the telephone on 22 or 23 March 2001 was a separate agreement and one which the plaintiff was entitled to enforce by an action for specific performance for the provision of a signed letter.

14.  In paragraph 84 of the judgment the judge referred to the fact that there was no doubt on the evidence that it had been accepted by the defendant that upon the conclusion of an agreement a formal contract would be sent to the plaintiff.  But he went on to say that the defendant did not send the contract because it reflected their position that no contractual relationship had been concluded between themselves and the plaintiff necessitating the production of such a document.

15.  The judge then considered the question as to whether the agreement as to the provision of a formal agreement in accordance with the telephone conversation of 22 or 23 March could be separately enforced.  At paragraph 87 he said:

“	87.	There certainly was an understanding that a formal agreement ultimately would be forthcoming which set out the agreed product of the negotiations, but in my view this formed part and parcel of the overrall contract negotiations, no more and no less.  Mr Smith acknowledged that a mere ‘understanding’ was insufficient for his purpose, and after reflecting on the evidence I am unable to accept the contention that this understanding may conveniently be regarded as, or transmuted into, a separately identifiable and specifically enforceable agreement.
	88.	Accordingly, I find, as a matter of fact, that in this case there is no such independent agreement as that for which the plaintiff now contends….”

16.  In my view the judge’s approach must be right.  He analysed the evidence and he came to the conclusion that there was no separate agreement; there were simply negotiations leading to an ultimate potential written contract of employment.  That for other reasons never took place.  This court was taken through the evidence both of the plaintiff and Mr Bayless in so far as it related to the issue raised on this appeal.  The upshot of that exercise was that it became clear that the judge had not only understood the evidence and encapsulated it fairly in the judgment but that his conclusion was correct.

Hon Le Pichon JA:

17.  I agree.

Hon Sakhrani J:

18.  I also agree.