WILLIAM SO v. CRITCHLEY GROUP PLC

HCA9803/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.9803 OF 2000

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REASONS FOR RULING

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1. The plaintiff applied by summons dated 15 November 2002 for leave to file a Reply out of time. At the hearing, I granted leave to the plaintiff to file most of the Reply. I now give my reasons.

Background

2. The plaintiff was employed by the defendant as the Managing Director of its subsidiary Critchley Asia ("the Company") under a contract dated 20 November 1995 ("Employment Contract"). The Employment Contract contains, inter alia, the following terms :

(1) Clause 4 provides that the employment shall continue unless or until terminated pursuant to Clauses 10.1 or 10.2;

(2) Clause 10.1 provides for termination by three months' written notice or payment in lieu;

(3) Clause 10.2 provides for termination forthwith for cause;

(4) Clause 7 provides that it is the defendant's present intention that the plaintiff be entitled to participate in the future success of the Company and be a member of an equity plan being drawn up. Further details will be provided to the plaintiff upon finalisation of the terms; and

(5) Clause 14 contains an entire agreement clause as follows :

"This Agreement supersedes all previous agreements and understanding of the parties relating to the employment of the Executive by the Employer."

3. The parties have further entered into an incentive agreement on 8 July 1997 ("Incentive Agreement"). The Incentive Agreement contains the following terms:

"3. Grant of Option

Critchley grants to the Executive an option to require Critchley to purchase all the Option Securities on the terms of the Put Option as described in this agreement.

The Executive grants to Critchley an option to purchase all the Option Securities on the terms of the Call Option as described in this agreement.

4. Exercise of Put Option

Subject to the rest of this paragraph, the Put Option may not be exercised before 1st May 2000 or after 31st May 2002 and if it cannot be or is not exercised before the latter date it shall lapse. For this purpose the date of exercise is the date upon which a notice is served on Critchley in accordance with this paragraph 4.

Subject to the provisions of the rest of this paragraph 4, the Put Option may not be exercised unless at the proposed date of exercise the Pre-Tax Profits of the Company are equal to or in excess of HK$2.25 million and the parties hereby agree to act in good faith with the intention of satisfying the above condition within the period commencing 1st May 2000 and ending on 31st May 2002.

In the event that an offer is made by the Company or by any third party to the ordinary shareholders of the Company before the exercise or expiry of the Put Option, the Executive shall be deemed to have exercised the Put Option whether or not the first date mentioned above has passed. The deemed exercise shall occur at the time indicated by notice in writing by Critchley (being any time up to the last business day before the expiration of the offer), subject always to the other provisions of this agreement.

Subject to the Pre-Tax Profits of the Company being equal to or in excess of HK$2.25 million at the relevant time, the Put Option shall be deemed to have been exercised whether or not the first date mentioned above has passed upon the earliest to happen of either of the following:-

a) the death of the Executive

b) the Executive being unable to perform his duties on behalf of the Company, whether by reason of disability injury or illness or otherwise.

The Put Option shall lapse and shall cease to be exercisable if the Executive ceases to be an employee of the Company.

11. General

...

This agreement (together with any documents referred to in it) constitutes the entire agreement between the parties in connection with the subject matter of this agreement."

4. In about June or July 2000, the plaintiff's employment was terminated by the defendant. The plaintiff commenced proceedings in January 2001 claiming termination and severance payments, and damages for loss of the Put Option or the opportunity to exercise the Put Option.

5. In paragraph 14 of the Amended Statement of Claim, the plaintiff contended that by reason of certain representations made to him by the defendant's then Financial Controller Christopher Humphrey in late May 1997 prior to the execution of Incentive Agreement, there was an oral and/or implied term of the Employment Contract and/or the Incentive Agreement that the employment would not be terminated so as to prevent him from exercising the Put Option save in the event of his death, inability to carry out his contractual duties, becoming handicapped or being guilty of a criminal offence. Paragraph 13 pleaded the particulars of the representations as follows :

"At the second meeting, Mr. Humphrey showed Plaintiff a draft document setting out the terms and conditions of the incentive scheme. The terms of the draft were identical to those later embodied in the Incentive Agreement. Mr. Humphrey explained the method of calculation of the Put Option and how it could be exercised. He advised the Plaintiff about the possibility of termination of the Plaintiff's employment on the grounds of death, inability to perform contractual duties or of the Plaintiff's becoming handicapped or being guilty of a criminal offence. He referred to the conditions for triggering the Put Option. Mr. Humphrey said that the Plaintiff had five years to achieve the profits needed to trigger the Put Option and assured the Plaintiff that there should be no problem with the Plaintiff's employment before the end of that five year period and that he was confident that it would be possible for the Plaintiff to trigger the Put Option. The Plaintiff responded to the effect that even if the Put Option was not triggered he would at least have five years employment. Mr. Humphrey agreed. Mr. Humphrey also said that he would have a formal agreement prepared for signature."

6. In answer, the defendant averred in paragraph 14 of the Amended Defence the following :

"(i) that the express words of Clause 4 of the Incentive Agreement, '(t)he Put Option shall lapse and shall cease to be exercisable if the (plaintiff) ceases to be an employee of the Company' and the termination provisions of Clause 10 of the (Employment) Contract are inconsistent with each or both of the alleged implied terms; and

(ii) on account of the express words of Clause 14 of the (Employment) Contract, '(t)his Agreement supersedes all previous agreements and understandings of the parties relating to the employment of the Executive by the Employer' and/or the express words of Clause 11 of the Incentive Agreement, '(t)his agreement (together with any documents referred to in it) constitutes the entire agreement between the parties in connection with the subject matter of this agreement', the (Employment) Contract and/or the Incentive Agreement could not have been subject to the alleged oral terms."

7. On 9 January 2002, the defendant took out a summons under Order 14A of the Rules of the High Court to determine the question of law of whether, by reason of the above representations, the Employment Contract and/or the Incentive Agreement was subject to the said oral and/or implied term. The summons was adjourned for the plaintiff to amend the Statement of Claim. On 3 September 2002, the defendant took out a fresh summons for the determination of the question of law. And on 15 November 2002, the plaintiff took out the summons to file the Reply out of time.

8. The draft Reply contains, inter alia, the following points :

(1) By reason of the representations pleaded in paragraph 13 of the Amended Statement of Claim which was relied on by the plaintiff in remaining as the Managing Director of the Company and seeking to develop the Company's business so as to trigger his entitlement to exercise the incentive scheme in the period from 1 May 2000 to 31 May 2002, the defendant is estopped from relying those terms referred to in paragraph 14 of the Amended Defence; and

(2) Rectification of the Incentive Agreement.

9. Ms Ismail for the defendant objected to the above two points. Firstly, it was too late, after the defendant has taken out the Order 14A summons. I do not think it is too late. It has always been the practice to allow an amendment for the purpose of determining the real question in controversy between the parties to any proceedings, even up to the trial, insofar as the other party has not suffered any prejudice that cannot be compensated in costs. No real prejudice has been shown.

10. Secondly, it was submitted that the two points were plainly and obviously unarguable, futile and bound to fail. I shall first deal with the estoppel.

11. Mr Stokes for the plaintiff referred to Edwin John Phillips v. Sa Sa International Holdings Limited, HCA No.5190 of 2001 [2002] HKCU 407, per Deputy Judge Andrew Cheung, and submitted that it is important to look at the wording of the entire contract clause to find out whether it has the effect of superseding and cancelling the previous representation which left surviving would potentially constitute a basis of mounting an argument of estoppel.

12. In the Sa Sa case, the English case of Walmsley v. Acid Jazz Records Ltd, unreported 31 March 2000, per Deputy Judge Terence Etherton QC was referred to. In the Walmsley case, the entire contract clause is as follows :

"8(f) The provisions set forth herein constitute the entire agreement of the Parties. This Agreement may not be modified, altered or changed except by an instrument signed by a duly authorised officer of the Company and by the Artist. The Parties acknowledge that they are to enter into a more formal agreement, at which time the provisions of this Agreement shall be superseded, until such time the provisions hereof shall apply to the exclusion of all preceding correspondence and agreement between the Parties.

...

15. This document constitutes the entire Agreement between the Parties hereto and no statement, promise or inducement made by such party which is not contained herein shall be binding or valid and this Agreement may not be enlarged, modified, amended or altered except by a separate agreement in writing signed by the Parties hereto."

13. Counsel in the Walmsley case conceded that none of the above provisions would be effective to preclude any operation of the doctrine of estoppel or relief in equity. Deputy Judge Cheung commented that the concession was understandably and correctly made. Mr Stokes submitted that the entire contract clause in the Walmsley case was more extensive than Clause 14 of the Employment Contract and/or Clause 11 of the Incentive Agreement. A fortiori, the defence of estoppel is not excluded by those clauses. I agree with Mr Stokes.

14. Ms Ismail submitted that even without relying on the entire contract clauses, the estoppel was unarguable.

15. Ms Ismail cited Woodhouse AC Israel Cocoa Ltd SA & Anr v. Nigerian Produce Marketing Co. Ltd [1972] AC 741 for the proposition that to find a promissory estoppel, a representation had to be clear and unequivocal. In Woodhouse v. Nigerian Produce, Lord Hailsham cited the passage of Bowen LJ in Low v. Bouverie [1891] 3 Ch 82, 106 :

"... an estoppel, that is to say, the language upon which the estoppel is founded, must be precise and unambiguous. That does not necessarily mean that the language must be such that it cannot possibly be open to different constructions, but that it must be such as will be reasonably understood in a particular sense by the person to whom it is addressed."

and his Lordship went on to say :

"I am satisfied that, in the second sentence of the above quotation, the meaning is to exclude far-fetched or strained, but still possible, interpretations, whilst still insisting on a sufficient precisions and freedom from ambiguity to ensure that the representation will (not may) be reasonably understood in the particular sense required. I do not regard this second sentence as any authority for general qualification of the first. On the contrary, the fist sentence governs the second and contains the very proposition for which Low v. Bouverie is rightly cited as an authority."

Mr Stokes did not argue with this proposition.

16. Ms Ismail submitted that the representations pleaded were not clear and unequivocal so as to find an estoppel. She relied on the comments by Lord Hailsham and submitted that the alleged assurance was far-fetched. It meant the plaintiff could not be summarily dismissed for cause except for guilty of a criminal offence. And the assurance as to disability or death was otiose as they had already been catered for in the deemed exercise provision in the Incentive Agreement.

17. Looking at the pleadings, it could reasonably be understood to mean that the plaintiff relied on the assurance of Mr Humphrey that he could have five years to develop the business of the Company so as to trigger off the Put Option and was induced to remain as the Managing Director of the Company. The question of weight aside, it is clear and unequivocal enough.

18. Ms Ismail further submitted that even if the representations were clear and unambiguous in themselves, they could not give rise to any estoppel as a matter of law because they were directly contrary to the terms of the written contract.

19. Mr Stokes referred to Bremer Handelsgesellschaft mbH v. Mackprang [1979] 1 LLR 221, 230 per Shaw LJ :

"... whether the conduct of a contracting party may amount to a waiver must be determined by reference to all the prevailing circumstances. It needs not be such as to amount virtually to an express declaration that this or that right is waived or surrendered. If in the prevailing conditions affecting the position of the parties to a contract the conduct of one of them affords a reasonable foundation for the inference that he is prepared to forgo any right or rights he may have in a certain regard and the other contracting party does draw that inference and persists in the residual contractual relationship upon that basis, then whether it is regarded as waiver or estoppel the forgoing of those rights cannot thereafter be gainsaid."

20. I agree that whether an estoppel will arise depends on all the prevailing circumstances of the case. It is a question of mixed facts and law which is not apt to be decided on looking at the pleadings alone.

21. Ms Ismail also submitted that there could be no reliance on the oral assurance because the representations were put to an end and replaced by the written contract. I dare say if it were so, no estoppel could ever arise.

22. Ms Ismail submitted that there was no detriment to the plaintiff. The so-called detriment was that the plaintiff remained in employment and the plaintiff was contractually bound to do so prior to entering into the Incentive Agreement.

23. Mr Stokes on the other hand submitted that there was a change of position because the plaintiff had, by reason of the assurance, remained in employment and sought to develop the business of the Company. I find that a change in position has been pleaded, and prima facie, that is sufficient for the prevent purpose.

24. In the premises, I shall allow leave to file the Reply on the estoppel point.

25. As to rectification, apart from the technical objection that it should have been contained in the Statement of Claim, Ms Ismail also complained that no common mistake was pleaded.

26. What has in fact been disclosed by the pleadings and the affirmation of the plaintiff is that there was a draft agreement followed by the representations by Mr. Humphrey and he later entered into a formal Incentive Agreement identical in terms to the draft agreement, without reading carefully about the entire contract clause nor was explained about it. Not only is common mistake not shown, there is actually no room for any common mistake. And the facts also do not disclose any non est factum.

27. In the premises, leave to file the Reply on the rectification point is refused. I allow the filing of the draft Reply except on the rectification point.