High Court · Decided 6 February 2013

Cheah Peng Hock v Luzhou Bio-Chem Technology Limited

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[2013] SGHC 32Case no. Suit No 821 of 2010

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Employment Act 1968

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Quentin Loh J:
[1] This case turns entirely on its facts. The question is whether the Plaintiff, Mr Cheah Peng Hock (“Mr Cheah”), was constructively dismissed by Luzhou Bio-Chem Technology Limited, the Defendant Company (“The Defendant”). Underlying this question is the issue of whether there had been a breach of an implied term of mutual trust and confidence amounting to a repudiation of the Employment Agreement between the parties.
The facts
[2] Mr Cheah was a retired Chief Executive Officer (“CEO”) with 18 years of experience in China. He was subsequently employed by the Defendant, first as a consultant, and later as its CEO. He left the Defendant’s employment on 24 August 2009, claiming that he had been constructively dismissed. He issued proceedings on 25 October 2010, claiming contractual damages under the Service Agreement he had with the Defendant (“the Agreement”).
[3] The Defendant was founded in1988 by Mr Niu Jixing (“Mr Niu”) as a private limited company in China. It is a corn refiner principally engaged in the business of producing and distributing various maltose related products and sweeteners such as corn syrup and liquid glucose to domestic and overseas customers. From 1988 to 2006, it was developed and expanded by Mr Niu, with the help of fellow executive directors Mr Wang Deyou (“Mr Wang”) and Mr Gao Zhongfa (“Mr Gao”), from a small organisation with four or five staff members to a large company with 4,000 staff members. The Defendant was listed in China in 1994, with Mr Niu holding 80% of the shares.
[4] On 24 February 2006, the Defendant listed on the Singapore Stock Exchange, with Mr Niu holding 39% of the shares in the Defendant after listing. Mr Niu was, at all material times, the managing director of the Defendant. The Defendant’s production facilities are located in the Liaoning, Shandong, Shaanxi and Henan provinces in China. Prior to 2008, the Defendant’s principal corporate office was located in the Shandong province. Prompted by the Defendant’s expansion, the principal corporate office moved to Beijing in March 2008 before Mr Cheah’s employment with the Defendant.
[5] As part of corporate governance and the need for proper corporate structure and greater transparency with independent directors on the Board, the idea of employing a CEO was floated at the time of the office move. It is unclear whose idea this was, or who was the main driver, but this is not an issue as it was accepted by the parties at the material time.
[6] Around November to December 2008, Mr Du Xiangzhi (“Mr Du”), the Defendant’s head of Human Resources, approached Mr Cheah to see if he would be interested in a position as a part-time management consultant for the Defendant. Mr Du recommended and introduced Mr Cheah to Mr Niu. As a result of this introduction, Mr Cheah was employed as a part-time consultant and started work on 5 January 2009.
[7] Around late February or early March 2009, being satisfied with Mr Cheah’s performance as a consultant, Mr Niu and Mr Du approached the Plaintiff together to ask him to take on a new role as CEO. Mr Cheah deposed that he was initially hesitant, as the Defendant’s business in the food industry was outside his previous experience in the healthcare and pharmaceutical industry. He was also worried that his style of management would be unsuited to the Defendant’s business and he had doubts about Mr Niu’s ability to simply hand over the reins of the Defendant to him.
[8] Letters of authority were issued on 25 February 2009 and 30 March 2009 which continued to give Mr Cheah increasing authority, and this went some way towards alleviating his concerns about taking on the position of being the Defendant’s CEO. These letters mentioned, inter alia, the need for a CEO to take over management and operations and revamp the operation model, and the need to have explicit provision of the CEO’s job scope in any future employment contract. Mr Cheah became the acting CEO from as early as March 2009. From 4 to 7 May 2009, a sales and management meeting was held (“the Jinan meeting”), where Mr Cheah made a speech as the incoming CEO. Mr Cheah rolled out a series of changes to the company’s organisation structure at this meeting. These changes form the bulk of the dispute in the present case.
[9] It is disputed whether these changes effected by Mr Cheah had obtained Board approval or been made in consultation with the Board or its representatives. It is common ground that these changes were implemented sometime between the Jinan Meeting and early June 2009, but the Defendant contends that they did not become aware of these changes until late June or early July 2009.
The Contract
[10] On 11 May 2009, the Board of Directors Remuneration Committee (which consisted of executive and independent directors) met to discuss the role of the CEO and how it would impact the current organisation of the Defendant and, most notably, Mr Niu’s role as Managing Director.
[11] The findings of this committee were released on 21 May 2009 in a memo (referenced in the evidence and in this judgment as “The 11 May Memo”). Annexed to this memo was a document entitled “Roles and Responsibilities of Managing Director and CEO” (“the Roles and Responsibilities Document”), which provided a list of duties of the Managing Director, Mr Niu, and the CEO. The material items which would require approval by the managing director or the Board were any principal change in the internal management structure and any appointment or dismissal of senior management. The CEO’s role was, inter alia, to
(a) Carry out the operational strategy of the group and implement its expansion plan, save for changes which required approval;
(b) take full responsibility for overall operation and management of the group and its subsidiaries;
(c) submit to the Board mid and long term plans and annual budget, as well as manage budgetary issues;
(d) formulate the internal management institution and fundamental management system of the group, including taking charge of the group organisation structure;
(e) lead the management team, facilitate performance, and make succession planning for senior management;
(f) propose the appointment or dismissal of senior management and key financial staff;
(g) decide the appointment and dismissal of management staff not requiring Board approval; and
(h) perform other roles and responsibilities requested and authorised by the Board.
[12] Also annexed to this memo was a new organisation chart with the position of the CEO written in, Mr Cheah’s curriculum vitae, and a draft Employment Contract which was later executed as the Agreement with a few numbering changes.
[13] The Agreement was entered into on 1 June 2009. Clauses 3.1 and 3.3, which outlined the duties of the CEO reads as follows:
[14] A more detailed list of the CEO’s responsibilities was annexed at Schedule 1, and reads as follows:
[15] It is common ground that these responsibilities built on the earlier documents and in particular the 11 May Memo. Most notably, Schedule 1 refers to businesses requiring approval or decision from the Board (items 1 and 8), but a list of these items is provided only in the Roles and Responsibilities Document and not in the Agreement itself.
[16] The relationship between the Board and Mr Cheah was outlined at Clause 3.2, which reads as follows:
[17] The Agreement also contained a Termination Clause (Clause 2 and 11). Clause 2.2 reads as follows:
[18] Clause 11 allowed for summary termination of employment without notice or payment in lieu of notice according to Clause 2.2 under, inter alia, the following circumstances:
The other circumstances provided for under Clause 11 are not in issue here.
Background leading to the Dispute
[19] Mr Cheah took on his role as the CEO without incident as he already enjoyed some authority as the CEO prior to the formal signing of the Agreement (see [8] above). He proceeded to implement changes to the organisation structure, and these changes became a point of dispute between the parties in late June or early July 2009. One of the main changes was a removal of the regional General Mangers (“GMs”), to be replaced by more specialised roles relating to sales, production and manufacturing. The reporting structure for each production factory was thus altered. There was also a disputed change to invoicing structure, which the parties agreed during the trial was not an issue.
[20] Mr Cheah’s version is that the implementation of the changes was merely a continuation of what he had been doing prior to his official appointment on 1 June 2009 and that this had been duly approved before the Jinan Meeting. The Defendant’s account is very different. The Defendant alleges that, at all material times, Mr Cheah did not have the authorisation of the Board nor its representatives. Mr Niu claims that, while he had seen the documents detailing the changes from the Jinan meeting, he had not paid much attention to it and was waiting for additional documents submitted in the proper approval format. He further claims that he did not become aware that the changes had been implemented until July 2009, when the system stopped coping with the changes and went into chaos, with numerous complaints from the staff. He alleges that he then spoke to Mr Cheah on at least two occasions in July to ameliorate the situation, but was told that the changes were already in the midst of being implemented and could not be stopped or reversed.
[21] This became a full-blown dispute in August 2009. The Defendant’s Mr Niu conducted a series of unofficial meetings from 8 to 11 August 2009 to discuss what was to be done about these changes. These included meetings with:
(a) the Defendant’s two other executive directors, Mr Wang and Mr Gao, to discuss matters in advance of an official Board Meeting on 12 August 2009 (“the Board Meeting”);
(b) the Defendant’s senior management staff on 10 August 2009 at 9.00 a.m. to discuss the cessation of production in the Defendant’s production facilities; and
(c) the Defendant’s senior management staff on 10 August 2009 at 4.10 p.m. to discuss the bureaucratic practices of the Defendant.
[22] Two further meetings were held on 12 August 2009: the Board Meeting at 9.00 a.m. and a meeting with the directors and managers of all centres at 6.00 p.m. to discuss the changes implemented after Mr Cheah became CEO (“the 12 August Crisis Meeting”). At the latter meeting, the senior management was encouraged to support the changes in the interim until a solution could be found.
[23] Whether and why Mr Cheah was not at any of these meetings is disputed. The Defendant claims that Mr Cheah was not invited to the meetings because his presence was not necessary. It also claims that the reason why Mr Cheah was not present at the two meetings on 10 August 2009 was because Mr Cheah had absented himself from the office from 9 to 11 August 2009 without authorisation. The Defendant’s Mr Niu further testified that Mr Cheah had been present at the Board Meeting, but had stormed out when the Board appointed Mr Niu as joint-CEO with him. He was thus not in the office when the 12 August Crisis Meeting took place.
[24] Mr Cheah vehemently denies this, and claims that while he had applied for leave via email to Mr Niu, he had chosen to return to the office on those dates (10-12 August 2009) and had attended an Audit Committee meeting just before the Board Meeting on 12 August 2009. He avers that he was present in the office on 12 August 2009 but did not attend the meetings because he had not been invited to them. Mr Cheah claims that he called Mr Niu for an explanation and was told that he did not have a right to attend these meetings. Mr Cheah further alleges that this was a break from past practice where he had been invited to attend other Board meetings, including one in April 2009 to update the Board on his plans and budget for the group.
[25] What happened during the Board Meeting is also in dispute. The Defendant claims that during the Board Meeting, Mr Cheah was asked about his plans in relation to the problems arising from his changes. Mr Cheah denies this and claims that he was not present at the Board Meeting at all. The defendant’s case is that Mr Cheah’s changes were discussed at the Board Meeting and Mr Niu was then appointed joint-CEO with Mr Cheah. Mr Cheah’s version is that Mr Niu had already informed him prior to this meeting that he was going to share the position of the CEO. The Defendant contends that this was envisaged by Clause 3.4 of the Agreement, which reads:
Mr Cheah alleges that this term was never meant to cover a situation where the effect was the joint-CEO taking over the CEO’s duties and position. The meeting minutes record that “Mr Niu noted that he had to take a more active role in the management”, but did not specifically record that Mr Niu was to share the CEO position with Mr Cheah.
[26] From 13 to 17 August 2009, further discussions took place concerning these changes. Mr Cheah alleges that Mr Niu told him on 17August 2009 that he could no longer work with Mr Cheah, and suggested that Mr Cheah take a holiday. The Defendant denies that this happened.
[27] On 18 August 2009, Mr Niu, Mr Wang, Mr Gao and independent director Mr Teoh Teik Kee took the decision on behalf of the Board to reverse Mr Cheah’s changes. This reversal was announced at a key management team meeting the next day (19 August 2009). Mr Cheah alleges that he was not invited to this meeting. The Defendant’s version is that Mr Cheah refused to attend this meeting. Mr Cheah further alleges that the Mr Niu gave him verbal notice to vacate his office on the same day.
[28] On 20 August 2009, Mr Niu moved into Mr Cheah’s office. Mr Niu claims that it was normal for him to use Mr Cheah’s office when he was visiting the Beijing office, as Mr Niu was based in Shandong and did not have an office in Beijing. Mr Niu also avers that he used the small meeting table instead of the larger working table. While Mr Cheah concedes that Mr Niu did use his office while in Beijing, he alleges that it was different this time because Mr Niu started putting his things on the working table instead of in a corner by the meeting table. Coupled with the earlier verbal notice that he claims he had been given, Mr Cheah contends that this was an attempt by the Defendant’s Mr Niu to take over the office of CEO.
[29] On the same day, Mr Cheah found himself unable to log into his email account. He alleges that when he called the IT staff, he was told that his account had been terminated. Mr Cheah claimed that he was unable to send or receive things from his email until 26 August 2009. On 26 and 29 August 2009, two emails that he had been trying to send were sent. There was no further activity from his email account.
[30] Mr Cheah further claims that he spoke to Mr Du on 20 August 2009 and that Mr Du had offered two months’ salary to him in lieu of termination. Mr Niu followed up with this discussion the next day. Mr Niu claims that he had called this meeting in order to discuss new ways that the Defendant and Mr Cheah could continue to cooperate. However, his account is that Mr Cheah remained hostile, refused to accept Mr Niu’s appointment as joint-CEO, and said that he wanted to leave the company. It was at this juncture that Mr Niu offered three months’ salary in lieu of termination. Mr Niu claims that this offer was a goodwill gesture. Mr Cheah regarded this as an attempt to replace him as the CEO. Mr Cheah was given till 31 August 2009 to decide whether he would accept this offer. It is the Defendant’s position that they had never wanted Mr Cheah to leave, despite the problems he had allegedly caused, because they were worried that dismissing the newly-appointed CEO would reflect badly on the company.
[31] On that same day, the company car, which had previously sent Mr Cheah to and from work each day, did not pick Mr Cheah up for work. Mr Cheah contends that this was an attempt to further undermine his position as the CEO, as the privilege of having the company car at his disposal was a key indication of his status as the CEO. The Defendant claims to the contrary that the company did not offer cars for personal use, and that Mr Cheah never had the right to use this car exclusively.
Summary of Pleadings
[32] On 24 August 2009, after almost five days of being unable to access his office email account, Mr Cheah sent in a notice of termination to Mr Niu via his personal email account. He followed this up with an email to the Board of Directors on 3 September 2009, setting out his allegations, namely that
(a) he had been deliberately excluded from meetings and consultations from 8 to 11 August 2009;
(b) Mr Niu had informed him that he was to share the CEO position, but nothing was reduced to writing, nor was sharing envisaged by the responsibilities of the CEO under Schedule 1 of the Agreement;
(c) he had been told to go on a holiday on 17 August 2009 and informed that Mr Niu could no longer work with him;
(d) he had been excluded from a Board meeting on 18 August 2009 where his employment as the CEO was a subject for discussion;
(e) Mr Niu had informed his direct subordinates on 19 August 2009, including Mr Wang and Mr Gao, that Mr Niu would be taking over day-to-day operations and reversing Mr Cheah’s changes. This effectively prevented Mr Cheah from discharging his duties as a CEO; and
(f) he had been offered three months’ salary in lieu of notice to terminate.
[33] At trial, Mr Cheah raised three further points that showed that the Defendant had indeed repudiated the Agreement:
(a) The company car befitting his status as the CEO was withdrawn from his use;
(b) his email account was deactivated, making it impossible for him to carry out his duties; and
(c) his office was taken over by the Defendant’s Mr Niu, leaving him no office to work out of.
[34] The Defendant flatly denied these allegations, and made the following counter-claims:
(a) Mr Cheah had implemented a series of unauthorised changes to organisational structure, including a change in the role and functions of the GMs. This was a repudiation of the Agreement which gave the Defendant a right to terminate Mr Cheah’s employment without notice;
(b) Mr Cheah had taken unauthorised leave on 10, 11, 12 and 31 August 2009, and refused to carry out his duties in the interim, leaving the Defendant no choice but to negotiate an alternative agreement and offer him three months’ salary in lieu of notice;
(c) Mr Cheah had not been actively excluded from consultations, but Mr Niu had actively engaged him during July, and the only reason for his absence from certain meetings was his failure to turn up for work;
(d) the Defendant had every right to appoint Mr Niu as joint-CEO, and this was envisaged in the Agreement itself; and
(e) the Defendant had not repudiated the contract, but worked very hard to retain Mr Cheah as its CEO despite the problems faced with his working style and unauthorised changes.
Issues
[35] The sole issue is whether Mr Cheah had been constructively dismissed. The test for constructive dismissal is a contractual one; see Western Excavating (E.C.C.) Ltd v Sharp [1978] QB 761 (“Western Excavating”). There are four main questions:
(a) Did the Defendant commit a repudiatory breach of the contract by breaching an implied term of mutual trust and confidence?
(b) Did Mr Cheah accept this breach?
(c) Did the breach cause Mr Cheah to leave?
(d) If so, what is the measure of damages that Mr Cheah should be awarded?
[36] By way of counterclaim, a further issue arises: whether there was a wrongful repudiation of the service agreement by Mr Cheah which entitled the Defendant to terminate his contract.
[37] The following factual issues also arise for determination:
(a) Had Mr Cheah introduced unauthorised changes which made the Defendant’s reversal of them reasonable?
(b) Did the Defendant deliberately exclude Mr Cheah from his duties from 17-24 August and prevent him from defending the choices that he had made as the CEO?
(c) Did Mr Niu’s appointment as joint-CEO make Mr Cheah’s position in the Defendant redundant?
(d) Did the Defendant discontinue or block Mr Cheah’s email?
(e) Did the Defendant remove the company car which was meant for Mr Cheah’s use as the CEO?
(f) Did Mr Niu take over Mr Cheah’s CEO office in Beijing?
(g) Did Mr Cheah take leave without approval?
Did the Defendant commit a repudiatory breach of the contract by breaching an implied term of mutual trust and confidence?
[38] Whilst cases like Western Excavating and Wong Chee Hong v Cathay Organisation (M) Sdn Bhd [1988] 1 MLJ 92 (“Wong Chee Hong”) considered constructive dismissal within the context of legislation like the English Trade and Union and Labour Relations Act 1974 and the Malayan Industrial Relations Act 1967, I find that the principle of constructive dismissal is sufficiently well established in common law, regardless of its connection with statute. The court in Wong Chee Hong recognised this, stating that
[39] Constructive dismissal was accepted outside any statutory context in Tullet Prebon (Singapore) Ltd v Chua Leong Chuan Simon [2005] 4 SLR 344 at [5]. However as the matter was at the interlocutory stage, the final determination was left to the trial judge. The doctrine of constructive dismissal was also applied in the common law context in Ramzi Toufic Fares v Aidec Management Company Pte Ltd [1998] SGHC 208 (“Ramzi”). Tan Lee Meng J quoted Lord Denning MR in Western Excavating at 226:
Tan Lee Meng J also relied on the Canadian case of Poulos v Murphy Oil Company Ltd [1990] 5 WWR 696 at 711 for two rules: first, the burden of establishing such a breach going to the root of the contract of employment is on Mr Cheah, and secondly, the test for constructive dismissal is an objective test and not how the employee views the changes.
The scope and content of an implied term of mutual trust and confidence
[40] Mr Cheah does not aver the breach of an express term; he relies squarely on the breach of an implied term of mutual trust and confidence. Both parties accept the existence of this implied term. Such an implied term was assumed to be a part of Singapore law in the High Court case Chan Miu Yin v Philip Morris Singapore Pte Ltd [2011] SGHC 161 (“Chan Miu Yin”). While the Defendant accepts the existence of this term, I note that their submissions do not give this implied term any practical effect. I find it therefore necessary to state my understanding of such an implied term of mutual trust and confidence and what its content is before considering if there was a breach going to the root of the contract of employment.
[41] As a starting point, a contract of employment is a special kind of agreement with special attributes. In Aldabe Fermin v Standard Chartered Bank [2010] 3 SLR 722, Steven Chong J, as he then was, said, at [54]:
It is important to recognise that an employment contract is not a commercial contract. It involves a continuing relationship of trust and confidence between employer and the employee.
However, there seems to be some doubt whether the term to be implied is one of mutual trust and confidence or what I consider to be the higher duty of good faith.
[42] There have been some references to a duty of good faith and fidelity in the employment context. In Wong Leong Wei Edward & Anor v Acclaim Insurance Brokers Pte Ltd [2010] SGHC 352 (“Wong Edward”) Steven Chong J, as he then was, citing Rickshaw Investments Ltd & Anor v Nicolai Baron von Uexkell [2007] 1 SLR(R) 377 (“Rickshaw Investments”) and Man Financial (S) Pte Ltd v Wong Bark Chuan David [2008] 1 SLR(R) 663 at [193] (“Man Financial”), stated at [45]:
[43] Similarly, the New South Wales Court of Appeal in Russell v The Trustees of the Roman Catholic Church for the Archdiocese of Sydney [2008] NSWCA 217 (“Russell”) used mutual trust and confidence as a synonym for a good faith obligation. This was a case concerning allegations of sexual abuse by a priest, which were eventually dropped. The priest was summarily dismissed and the question arose as to whether this dismissal was a breach of contract. The trial judge had considered the implied duties of good faith and mutual trust and confidence separately as two implied terms. The New South Wales Court of Appeal found (at [32]) that it was “probably sufficient to identify them as a single obligation”.
[44] In England, the implied duty of mutual trust and confidence has also been likened to good faith. Lord Steyn in Johnson v Unisys Ltd [2003] 1 AC 518 at 536 (“Johnson”) opined:
Lord Steyn also made reference to Lord Browne-Wilkinson’s dicta in Imperial Group Pension Trust Ltd v Imperial Tobacco Ltd [1991] 1 WLR 589 at 597, which went further, describing the implied term of mutual trust and confidence as an “implied obligation of good faith”.
[45] I find that the interchangeable use of the obligation of good faith and mutual trust and confidence is to go down a slippery slope. As alluded to earlier, the duty of good faith is a wider duty than that of mutual trust and confidence. In New Zealand, where the duty of good faith has been statutorily incorporated in the Employment Relations Act 2000, it has been recognised that the duty of good faith is not to be confused with the implied duty of mutual trust and confidence, but encompasses a positive duty to inform, invite comments, and maintain the employer-employee relationship. Section 4(1A) of the New Zealand Employment Relations Act 2000 reads as follows:
[46] The danger of implying a duty of good faith into contracts of employment is to introduce a potentially far reaching concept which may impose positive duties and fetters the freedom of parties, particularly those of equal bargaining power who are not protected under the Employment Act (Cap 91, Rev Ed 2009) or under the common law, to contract. It will probably also conflict with written terms.
[47] The Court of Appeal has cautioned, with good reason, against too readily implying a term in law. As Phang JA opined in Ng Giap Hon v Westcomb Securities Pte Ltd and others [2009] SGCA 19 (“Ng Giap Hon”) at [46]:
[48] In Ng Giap Hon, the Court of Appeal, in a detailed examination of implying a duty of good faith in law, refused to imply a term of good faith into an agent-principal contract for the primary reason that it was a “fledgling doctrine” which required much clarification, even on a theoretical level, and could not thus be practically applied (see [44] to [60]). This caution appears, with respect, to make very good sense because a good faith obligation is of greater import and reach than one of mutual trust and confidence. While the Court of Appeal’s findings were made in the context of formation of contract, it applies a fortiori in an employment contract because, for example, relationships do not remain static as the employee gets promoted, assumes greater responsibilities and may serve his employer for fairly long periods. It starts getting into murky waters when we come to termination of the employment contract, especially when there are express terms requiring only a specified period of notice or payment in lieu and no necessity to give reasons for the termination.
[49] Even in Australia, the duty of good faith has more often been applied to the formation of the employment agreement and used as a tool of interpretation to read down more onerous clauses; see Walker v Citigroup Global Markets Australia Pty Ltd [2006] FCAFC 101. Where the notion of good faith has been imported into the more general employment relationship, this doctrine has been kept narrow. Even in Russell (see [43] above), the New South Wales Court of Appeal found that there was no breach of an implied duty of mutual trust and confidence or good faith (see Russell at [37]); it was not necessary to collapse the two duties into one. Commenting on the case law on good faith in the employment context, Prof Joellen Riley comments in Good Faith in Employment Relationships, The Debate: Good Faith and the Employment Relationship (Australian Institute of Employment Rights, April 2009 No. 2):
If this is all that is required, this is already covered under the implied duty of mutual trust and confidence and there is no need to make matters more uncertain by introducing a concept of good faith which brings with it all the connotations of a contract uberrmae fidei, ie., one of the fullest confidence or of the utmost good faith, which normally govern contracts between insurer and insured, solicitor and client, guardian and ward and partnership.
[50] In light of the Court of Appeal’s dicta in Ng Giap Hon, I also make three observations about Steven Chong J’s (as he then was) use of the words “duty of good faith and fidelity” in Wong Edward (see [42] above).
[51] First, it is important to note in Wong Edward that the implied duty of good faith and loyalty was applied in the specific situation where the Plaintiff, the head of the employer’s strategic wealth management division with a team of financial advisers under him, was also in breach of his fiduciary duties to the defendant employer. The Plaintiff, aware that he was behaving illegitimately, had deliberately instigated a mass exodus of the financial advisers under him and had instructed these advisers to transfer their clients to a competitor while he was still employed by the defendant (see Wong Edward at [46] and [47]). The Court found that this was a breach of his fiduciaries duties in relation to the defendant within the context of the insurance industry, insurance intermediaries and trustees who hold client’s monies, where obligations of good faith are well accepted and applicable. Like Russell, the supposed duty of good faith merely reinforced the finding that the Plaintiff held a fiduciary position in relation to the defendant employer and thus owed specific duties of honesty, integrity and loyalty to his employer. Moreover, I note that the Plaintiff in Wong Edward seemed to accept the existence of a duty of good faith and had argued that the Plaintiff’s actions were consistent with such a duty. Therefore, the question as to the source and content of a duty of good faith and fidelity did not really arise.
[52] Secondly in Rickshaw Investments, the fiduciary relationship first arose from a principal-agent relationship; the respondent being orally appointed a freelance marketing agent to market the second appellant’s Tang dynasty artefacts salvaged from Indonesian waters. This ‘agency agreement’ was terminated and then revived. Later, the second appellant and respondent entered into a written agreement which stated that the second appellant and respondent had agreed on freelance employment, but it was for the same activity of finding buyers for the second appellant’s Tang Dynasty artefacts. It is thus not surprising to find the court referring to a breach of fiduciary duties which, on the facts of the case, arose from a principal-agent relationship. The terms of the agreement in relation to this issue are not referred to in the judgment. The principal issues in Rickshaw Investments concerned the choice of law rules governing equitable claims, whether there were any exceptions to the double actionability rule in tort and forum non conveniens.
[53] Thirdly, Man Financial, centred on the enforceability of restrictive covenants, a non-solicitation clause and its breach by the employee, who was the managing director and CEO of a brokerage company. However, I accept that at the end of its judgment, the Court of Appeal stated, at [193]:
[54] These statements, although expressed as an employee’s duties to his employer, must logically apply to the employer as well. In fact the standard formulation of this implied term is the duty on both employer and employee not to undermine or destroy the mutual trust and confidence. These passages in the judgments refer to a term implied by law, not just fact, and consequently have a significant consequence. As stated in Forefront Medical Technology (Pte) Ltd v Modern-Pak Pte Ltd [1006] SGHC 3 at [42]
[55] For the reasons set out above, including the later Court of Appeal decision, Ng Giap Hon, I do not accept that there is an implied duty of good faith and confine the term implied by law to one of mutual trust and confidence. This includes a duty of fidelity, ie, a duty to act honestly and faithfully.
[56] The duty of mutual trust and confidence has been consistently applied even before it was accepted by the House of Lords in Malik v Bank of Credit and Commerce International S.A. (In compulsory liquidation) [1998] AC 20 (“Malik v BCCI”). It has been applied in the following contexts to include:
(a) Malik v BCCI: a duty not to act in a corrupt manner which would clearly undermine the employee’s future job prospects;
(b) Woods: a duty not to unilaterally and unreasonably vary terms (although on the facts it was found that the employer’s behaviour in this case did not rise to the level necessary to breach this duty);
(c) WA Goold (Pearmak) Ltd v McConnell [1995] IRLR 516: a duty to redress complaints of discrimination or provide a grievance procedure;
(d) Gogay v Hertfordshire CC [2000] IRLR 703: a duty not to suspend an employee for disciplinary purposes without proper and reasonable cause;
(e) Bracebridge Engineering Ltd v Darby [1990] IRLR 3: a duty to enquire into complaints of sexual harassment;
(f) Isle of White Tourist Board v Coombes [1976] IRLR 413: a duty to behave with civility and respect;
(g) Hilton International Hotels (UK) v Protopapa [1990] IRLR 316: a duty not to reprimand without merit in an humiliating circumstance; and
(h) British Aircraft Corporation v Austin [1978] IRLR 322: a duty not to behave in an intolerable or wholly unacceptable way.
[57] The House of Lords in Malik v BCCI also rejected the three limitations on the implied term proposed by the Respondent Bank, namely (1) that the conduct complained of must be conduct involving the treatment of the employee in question, (2) that the employee must be aware of such conduct while he is an employee, and (3) that such conduct must be calculated to destroy or seriously damage the trust between the employer and employee. Lord Steyn found at 47 that any conduct “objectively considered… likely to cause serious damage to the relationship between employer and employee” gives rise to a breach of the implied obligation, such that the conduct may not even involve the treatment of the employee in question. He further found that the awareness of the employee as to the employer’s conduct was only relevant to the choice of whether or not he should terminate his employment, but was irrelevant to whether there was a breach of the implied duty. Finally, Lord Steyn found that the intention of the employer was irrelevant as the test of breach of the implied term was an objective one.
[58] The duty of mutual trust and confidence, through long use, has acquired a clearer meaning and application than that of good faith. Lord Nicholls aptly observed in Malik v BCCI at 35 that the implied term of mutual confidence was a “portmanteau, general obligation” necessary for the continuation of the employment relationship “in the manner the employment contract implicitly envisages”. It can be flexibly applied to different employment situation but is subject to an objective test and limited to the manner of treatment within the employment relationship. Unlike the doctrine of good faith, the House of Lords observed that this was a “workable” and “sound” doctrine. It is a narrower doctrine than the doctrine of good faith and is the natural corollary of an implied duty of faithful service (of which there is little dispute in the common law). While this term may not be capable of precise definition, it is not a fledgling doctrine incapable of practical application like the doctrine of good faith advocated for in Ng Giap Hon. I accept that there is an inherent risk of terms implied in law necessarily involving a measure of uncertainty; see Jet Holding Ltd v Cooper Cameron (Singapore) Pte Ltd [2006] 3 SLR(R) 769 where the Court of Appeal stated at [90] that “the category of ‘terms implied in law’ does tend to generate uncertainty – not least because of the broadness of the criteria used to imply such terms”.
[59] In my judgment unless there are express terms to the contrary or the context implies otherwise, an implied term of mutual trust and confidence, and fidelity, is implied by law into a contract of employment under Singapore law. As stated in Malik v BCCI at 45, the implied term of mutual trust and confidence operates as a default rule. Parties may thus exclude or modify them to limit its content. It also follows that express terms may modify the scope of the implied term. For example, in the context of an analogous implied duty not to knowingly put the employee’s health at risk, Lord Browne-Wilkinson had this to say in Johnstone v Bloomsbury H.A. (1990) 1 QB 333 (“Johnstone”) at 350:
[60] The content of that implied term can thus vary greatly depending on the facts in each case; this includes but is not limited to the type of employer and employee, the business or activity of the employer, the position or nature of the appointment of the employee, the employee’s level within the hierarchy of employees, the express and other implied terms of employment and the termination provision. These factors are obviously not exhaustive and there will be as many factors as there are types of employment contracts and individual facts and circumstances. Ian Smith and Gareth Thomas, Smith &Wood’s Employment Law (Oxford University Press 2007, 9 Ed) describes the implied term in the following way at p 151:
The applicability of this implied term to the constructive dismissal context
[61] Although this issue does not arise in this case, I nonetheless flag an interesting question: does the duty of mutual trust and confidence apply when it comes to the employer dismissing its employee?
[62] Prior to the decision in Johnson, the implied term of mutual trust and confidence has been applied in constructive dismissal cases; see eg, Post Office v Roberts [1980] IRLR 347, where a junior clerical assistant who had been appraised as acceptable for a few years, found that her application for a transfer had been denied as her last appraisal, of which she had not been told, had rated her negatively. She resigned. The Employment Appeal Tribunal agreed that there had been a breach of an implied term of mutual trust and confidence amounting to a repudiation of the employment contract, and the employee had been constructively dismissed. Also, in Woods v W.M. Car Services (Peterborough) Ltd [1982] ICR 693 (“Woods”) the English Court of Appeal dealt with a similar issue but agreed with the tribunal’s finding that the facts did not justify the employee’s claim of being constructively dismissed. Lord Denning MR, in discussing the implied term of mutual trust and confidence said, at 698:
[63] However, in 2001, the House of Lords held in Johnson that although it was possible to conceive of an implied term which the common law could develop to allow an employee to recover damages for loss arising from the manner of his dismissal, it would be an improper exercise of judicial function in light of the Employment Act of 1996 which provided an employee a limited remedy for the conduct complained of in that case. Lord Hoffman opined at [46]:
Lord Steyn dismissed the appeal on grounds of remoteness and disagreed with the majority’s reasoning on the implied term. He opined at [26]:
[64] Johnson has been criticised; see e.g., Douglas Brodie, Fair Dealing and the Disciplinary Process (2002) 31 ILJ 294; Mark Freedland, Claim For Unfair Dismissal (2001) 30 ILJ 309. A later House of Lords decision, McCabe v Cornwall County Council and another [2005] 1 AC 503 (“McCabe”) distinguished Johnson and Lord Steyn commented on the difficulties of the Johnson approach at [39] and [40]:
[65] Resolution of this question, interesting as it may be, does not arise on the facts of this case. If, as is often the case, there is an express term allowing termination of employment without having to give reasons and a notice period or payment in lieu, speaking for myself, I would have found it difficult to imply such a duty without more. English cases after the Employment Act 1996 came into force should be read carefully as they have a statutory regime as their backdrop. As Lord Hoffman said in Johnson, at [35]:
Whether the implied term is overridden or qualified by express terms
[66] I now turn first to examine whether there are any express terms which will negative the implied term or modify its content.
Clause 3.1, read with Schedule 1
[67] Clause 3.1 gives Mr Cheah responsibility for the management of the Group’s “overall operations” and “leading the management to ensure that the annual business operating targets and management targets set by the Board are achieved.” This is supplemented by Schedule 1, which lists the responsibilities of the Executive. The Defendant argues that the proper interpretation of this clause was not that Mr Cheah was “overall-in-charge”, but that his role was merely as an implementation arm of the Board. The Defendant further points out that Mr Cheah had admitted this during cross-examination, when he agreed that he was subordinate to the Board.
[68] I cannot agree with the interpretation placed upon clause 3.1 by the Defendant. The fact that Mr Cheah is subordinate to the Board does not mean that he was only an execution or implementation arm of the Board. Mr Cheah admitted to the former, but firmly denied the latter. The management staff, including the CEO, of every company is subject to Board decisions because it is the Board which is accountable to the shareholders. The inclusion of a phrase to say that business targets were set by the Board is merely a restatement of the Board’s supervisory functions in law. To say that this has the effect of reducing the management authority of the CEO, particularly where the clause has stated in no uncertain terms that he should be “responsible for the management of the Group’s overall operations and leading the management”, is disingenuous. I find that the words “responsible for the management of the Group’s overall operations” is clear. It means that Mr Cheah was to oversee the general management of the Group’s operations; he was overall in charge of matters and was not merely an implementation arm of the Board with no executive or management autonomy.
[69] Schedule 1 (laid out in full at [14] above) further clarifies that this is the correct interpretation of Clause 3.1. Para 1, schedule 1, gives Mr Cheah responsibility “for the overall management of the Group’s business and operations” [emphasis added], with the exception of business requiring approval. Mr Cheah was to oversee fundraising planning and implementation (para 4), recommend development plans and budgets, and manage resources in line with the budget (para 3). The only mention of Mr Cheah executing and implementing policies is in para 2, which states that Mr Cheah is responsible for “execution and implementation of resolutions and policies established by the Board of Directors”. In the context of his other responsibilities, and in particular the reference to “overall management” in the preceding paragraph, I am unable to read para 2 as limiting Mr Cheah’s role to one of mere implementation and execution. Para 2 does not say that this is his only role. In fact, there are numerous roles in schedule 1 which necessitate management autonomy: leading the management team and deciding on the succession plan of key management (para 6), appointing or dismissing management staff except appointments which should be decided by the Board (para 8), and executing or authorising the execution of capital expenditures, agreements, and other important documents (para 9).
[70] Most importantly, para 5 gives Mr Cheah authority to “work out the internal management organization [sic] structure and basic management system of the Group”. This is the very act which the Defendant claims was outside of Mr Cheah’s authority. If Mr Cheah’s role had only been to execute and implement the Board’s policy, as the Defendant claims, then para 5 is redundant. I find that para 5 is also clear: Mr Cheah had management autonomy to re-organise the management structure.
[71] The 11 May Memo, read with Schedule 1, supports this interpretation of Clause 3.1. In addition to carrying out the operational plan and policy of the Board, Mr Cheah was to “take charge of group organisation structure, management system and performance building”, “and to take full responsibility for the overall operation and management of the group and its subsidiaries”. Moreover, the 11 May Memo seems to have been drafted with the assumption that the CEO job was partially a “replacement job” which would enable “MD Niu Jixing [to]… assume the position of Executive Chairman of the Board, and focus on the Board of Directors” and for Mr Gao to “not work as Group GM and… focus on government affairs”. It is clear from the 11 May Memo that Mr Cheah was not being brought in as a CEO merely to implement the decisions taken by Mr Niu and the Board, but that many of his functions were in replacement of Mr Niu’s and Mr Gao’s general managerial functions. This supports the plain and natural reading of Clause 3.1, i.e., that Mr Cheah had general managerial autonomy and was overall in charge of the Defendant’s operations. He was not meant to supersede the Board, but neither was his role limited to merely implementing and executing the instructions of the Board.
[72] I do not find that an implied term of mutual trust and confidence is incompatible with Clause 3.1, read with Schedule 1. I find that the general tenor of Clause 3.1, granting overall managerial autonomy to Mr Cheah for daily operations and organisational structure, fleshes out the content of the implied term. The implied term of mutual trust and confidence should safeguard Mr Cheah’s general managerial autonomy. Attempts to sideline or undermine Mr Cheah as overseer of daily operations and organisational change would be a breach of the implied term of mutual trust and confidence.
Clause 3.2
[73] Clause 3.2 reads as follows:
[74] I find that the meaning of Clause 3.2 is also clear. Clause 3.2 is about Board approval of business and management targets and development plans for the performance assessment of the CEO. It is clear from Clause 3.2 that the Board was to be kept informed of the overall direction and growth of the company, and to approve these targets and plans accordingly. I find that Clause 3.2 does not have the effect of diminishing or taking away Mr Cheah’s responsibility of oversight over daily operations and organisation.
[75] In any event, the Board’s “overriding power and control” is not incompatible with the implied term of mutual trust and confidence. The Board’s power and discretion to override should be exercised subject to its ordinary duty not to undermine Mr Cheah’s position so as to destroy the relationship of mutual trust and confidence. The implied term does not contradict the express term of the Agreement; it merely regulates the manner of exercise of the powers given to the Board under Clause 3.2.
Clause 3.3
[76] Clause 3.3 provides for assignment of duties to the CEO by the Board and in the absence of specific directions gives the CEO “general control and responsibility for the management of the business of the Group” (3.3.2) to “promote, develop and extend the business of the Group” (3.3.3). It also calls for the CEO to “conform to and comply with the proper and reasonable directions and regulations of the Board” (3.3.3) and gives the Board the power to make changes to the office of the CEO (3.3.4). It is thus similar to both Clauses 3.1 and 3.2 in that it gives Mr Cheah general powers of oversight and management, and a considerable amount of autonomy in developing the Defendant’s business, but retains the Board’s residual power, allowing the Board to perform a general supervisory function. As I have observed (at [68] above), the general function of supervision and powers of overriding given to the Board is part of every company’s structure. If the Board is meant to have a more intrusive management role impinging on the ordinary functions of the CEO, then this should be stated clearly. Clause 3.3 not only does not state this clearly, it affirms Mr Cheah’s managerial autonomy and authority in para 3.3.2, by giving him “general control and responsibility” subject only to complying with “applicable laws and regulations” and the “proper and reasonable directions and regulations of the board”.
[77] I do not find that such a clause is incompatible with an implied term of mutual trust and confidence. In fact, this implied term supports the affirmation of Mr Cheah’s “general control and responsibility” by ensuring that his employer does not take away with its left hand what it has given to him with its right. This is particularly so as Clause 3.3.3, which refers to the Board’s general supervisory function, subjects Mr Cheah’s authority to the “proper and reasonable directions and regulations of the Board” [emphasis added]. There is nothing incompatible between an express term of reasonableness and an implied term which has been used traditionally to control unreasonable or negligent behaviour of an employer (see [56] above).
Clause 3.4
[78] Clause 3.4 gives the Board the power to appoint a joint-CEO to “act jointly with [the CEO]… and for any period require the Executive to cease performing or exercising the said or any duties or powers.” The Defendant rightly points out that, unlike Clause 3.6, which requires Mr Cheah to consent to any secondment to another Group company, clause 3.4 does not contain such a qualification. The Board’s discretion to appoint a joint-CEO would only be incompatible with an implied term of mutual trust and confidence if this implied term forbade the Defendant from appointing a joint-CEO or suspending Mr Cheah’s duties or powers. Clause 3.4 thus limits the scope of the implied term.
[79] However, I am unable to read Clause 3.4 as giving an absolute and unqualified right to the Defendant to replace Mr Cheah in all his functions as CEO or to appoint a joint-CEO to take over all his managerial functions. An absolute right of this nature does not sit well with Clauses 3.1 to 3.3 and Schedule 1 of the Agreement. I have already found that these clauses give Mr Cheah overall control of management and organisation structure of the Defendant. If Clause 3.4 is read as widely as the Defendant submits, then Mr Cheah’s functions under Clauses 3.1 to 3.4 may be effectively changed or even made otiose without the Defendant’s needing to pay the penalty provided for termination under Clause 2.2.1, or without Mr Cheah’s having committed any of the offences justifying termination under Clause 11. The only option available to the CEO in such a position would be to terminate the contract and for the CEO himself to pay the penalty. This effectively pre-empts any claim for constructive dismissal and gives the employer carte blanche to deal with the employee. Such a far-reaching power can only be given to an employer if it is a necessary and unequivocal interpretation of the clause.
[80] In Johnstone, the employer had a discretionary right under contract to have its employee doctor work for 88 hours a week (48 hours overtime) on average and to call on its employee to work for more than 88 hours on some weeks. The Court found that this discretion was not an absolute right. Lord Browne-Wilkinson opined at 351:
[81] Similarly, I find that there is no reason why the Defendant’s discretion to appoint a joint-CEO and require the CEO to cease performing his duties should be an absolute one. I find that there is no incompatibility between Clause 3.4 and an implied term of mutual trust and confidence which governs the manner in which the Defendant’s exercise their discretion to appoint a joint-CEO or require the CEO to cease performing his duties. I do not find that it is a necessary or unequivocal interpretation of Clause 3.4 that it should be given as wide an interpretation as the Defendant urges upon me. I find that the word “joint” in “joint-CEO” means exactly what it says, viz that the appointment of another CEO should be alongside Mr Cheah’s appointment as CEO and should not effectively overtake or replace Mr Cheah’s functions as CEO but perhaps take over some of his functions, for example, because the demands of the job are beyond one person or that person is temporarily ill or otherwise indisposed.
[82] It may be argued that the implied obligation to safeguard an employee’s health is more important than the implied obligation of mutual trust and confidence. However, the argument in Johnstone was not that the implied obligation to safeguard health had an overriding effect because of its relative importance to other terms, but that this implied term was not incompatible with the express term. I do not find it a useful exercise to compare the importance of terms within a contract, or to decide which term should have precedence. The more important exercise and the exercise that I have conducted here is to ask whether the terms are compatible, or if they may be read in a way which gives effect and mutual compatibility to the terms. I find that the Defendant’s discretion to appoint a joint-CEO can be given full effect even with the limitations put upon it by the implied term of mutual trust and confidence. The Defendant cannot appoint a joint-CEO or require the CEO to cease performing his duties in such a manner as to make the CEO redundant or make it impossible for him to continue to carry out his responsibilities under Clauses 3.1 to 3.3 and Schedule 1 of the Agreement.
Was there a breach of the implied term by the Defendant?
Unauthorised Changes
[83] I must now examine the evidence. Mr Cheah’s evidence was that the changes he made to the organisational structure were authorised by the Defendant’s Mr Niu verbally and by conduct. The Defendant denies this, and claims instead that he had not given any authorisation for these changes, but had recommended that Mr Cheah submit documents for approval.
[84] It is first necessary to consider whether Mr Cheah’s changes were authorised, as this is the crux of the Defence. If the changes were unauthorised and Mr Cheah had thus repudiated the employment contract and such repudiation had been accepted by the Defendant, then the Defendant’s subsequent behaviour would not be relevant as it could not repudiate an already repudiated contract.
[85] Mr Cheah was a credible witness. He was consistent in the way he answered each question, and explained what he did and why he did not do certain things especially in relation to the series of meetings in August 2009. He gave straight answers, even when these answers were not clearly favourable to him and he did not attempt to hedge or squirm his way out of difficult questions. For example, when he was challenged on documents that he had not adduced into evidence, he admitted their relevance without demur.
[86] Mr Wang, Mr Niu and Ms Zhang were not impressive witnesses. All three witnesses were evasive and constantly changed their positions. To varying degrees, these witnesses often refused to give a straight answer to the questions asked during cross-examination, but gave irrelevant answers, did not answer the question or attempted to use cross-examination as a means of mounting their defence. This was especially so in the case of Mr Niu. Even giving these witnesses the benefit of a cultural clash, I find that these witnesses were inconsistent and not very credible.
[87] In particular, Mr Niu’s evidence that he refused to acknowledge or approve the proposed changes to organisational structure was not credible. He was evasive and omitted to explain key facts in his evidence. He did not and could not explain why he did not mention the change in the role and functions of the GMs during the Board Meeting on 12 August 2009. When pressed on the issue, he made vague reference to “the problem” but could not say what he had discussed at the Board Meeting. He evaded the question by drawing attention to the lack of documentation:
This was typical of his characterisation of that meeting throughout cross-examination; he made reference to having discussed “a portion” of the problems, “issues that pertain to the unauthorised issues” or “contents that were in relation to the unauthorised changes,” but could not or would not elaborate on what was discussed. I find that Mr Niu understood the questions that were put to him but was being deliberately vague. The minutes of the meeting state that the Board had been briefed on Mr Cheah’s performance and noted his failure to consult the Board or other senior management in the termination of key management staff and his failure to anticipate rising raw material prices. The accuracy of these minutes has not been disputed. I find the truth to be that the change in role and functions of the GM and the attendant change in Group Department head functions had not been discussed at the Board Meeting.
[88] I further find that the lack of documentation for the change in role and function of the GMs or the change in the Group Department head functions could not have been the real reason for Mr Niu’s failure to bring these specific issues to the attention of the board. Mr Niu did not need any documentation in order to know that the GMs were being removed. He effectively conceded this when he mentioned under cross-examination that it was the complaints from the department heads at the end of June 2009 which had alerted him to these changes. He testified that the GMs had also complained of these changes at the end of July 2009, well in advance of the Board Meeting.
[89] More importantly, he had been having discussions with Mr Cheah about these changes as early as June 2009 “because it was a period in the middle of the changes.” He followed this up with two more discussions in July. Mr Niu claimed that there was no need for further action at that juncture because the proposed changes were only minor. However, he later contradicted himself by stating that the documents sent to him after the Jinan Meeting showed a completely new organisation structure but was missing the work processes required to implement that structure. Mr Niu was very evasive when asked when he had read the documents, how he had read them, or why he had not read them in detail. During cross-examination, Mr Niu vacillated between saying that he had not taken notice of the documents, saying that he had read them but not in detail, saying that he had received the email but not read the attachment at all, and saying that he had read the attachment and decided that he needed supplementary documents. For the most part, he proceeded on the basis that he had glanced through the documents. Accordingly, when Mr Cheah started implementing these changes in June and July, I find that Mr Niu must have known that these changes were being made pursuant to the proposed new structure. When I sought clarification as to what Mr Niu meant, his responses were telling:
[90] I am unable to believe Mr Niu’s claim that he did not notice these changes until July. Mr Wang testified that the change in role and functions of the GMs and the Group department heads would have been a big change. He also testified that the GMs had worked with the Defendant for a long time, and knew Mr Niu and Mr Wang well. Given the close relationship between Mr Wang and the GMs and the fact that some of them (e.g. Zhao Yu Dong of the Shaanxi Factory) had been with the company since the 1990s, I find it highly improbable that these GMs would not have at least informally told Mr Wang or Mr Niu about their discontent the moment they found themselves moved to a different job and long before July. I do not believe Mr Wang’s evidence that the GMs would have waited until the full effects of the change were felt before surfacing their complaints to Mr Niu and Mr Wang, particularly since this allegation was made in the context of Mr Wang’s attempt to retract his evidence after realising the import of his evidence that the change to the role and function of the GMs was a major one.
[91] Mr Niu’s silence at the Board Meeting is deafening. Mr Niu had testified that the cause of the Defendant’s problems was Mr Cheah’s change to the GM’s and Group Department’s functions. He knew this when he came into the Board Meeting. Yet he chose not to mention these changes and was deliberately vague and evasive when asked what he had mentioned at that meeting. Given that the company was in “chaos”, it simply does not make sense for him not to at least mention the change in role and function of the GMs or the department heads if this was indeed the cause of the problem. Mr Cheah’s termination of key management staff without consultation and his failure to anticipate rising raw material prices were irrelevant to Mr Niu’s explanation of the “chaos” in the company, yet these were the matters which found their way into the Board Meeting minutes. It is inconsistent with Mr Niu’s account of the “chaos” in the company that it should be these matters and not the change in GM’s and Group Department’s functions that were mentioned at the Board Meeting. I find that Mr Niu’s explanation does not ring true. He claims that he was unable to give a full airing to Mr Cheah’s changes because the Board did not decide until 18 August 2009 that these changes were unauthorised and their status was uncertain at the Board Meeting. This contradicts his earlier statements that he had told Mr Cheah that these changes were unauthorised. Even then, Mr Niu was equivocal as to what he had said in relation to authorisation:
Even if the status of these changes were uncertain, there is no reason why they should not have been mentioned at the Board Meeting as, on Mr Niu’s version, this meeting was to discuss “the problems caused by the Plaintiff’s unauthorised changes and what is the best solution to assist the Plaintiff in running the business operations of the Defendant”. I find the truth to be that Mr Niu chose not to bring up the specific changes at the Board meeting because he had already given his verbal approval, or at least acquiesced, to the new organisational structure and was hedging his bets and avoiding taking a firm position. If the venture succeeded, he could claim credit for it and if it did not, he could always turn around and say ‘I told you so’.
[92] I further find that these changes had been duly authorised. Mr Niu agreed that the document he had read and approved was closer to the new structure submitted to him after the Jinan meetings than it was to the original chart. This directly contradicted his later evidence that the chart was the same as the original structure and did not need approval, or had been approved before Mr Cheah’s appointment as CEO on 1 June 2009. When pressed on this issue, Mr Niu’s only response was the bare assertion that the documents had not been approved according to the Defendant’s “fixed operating procedure”. His performance on the stand is, again, telling:
I find that his testimony that what had been approved was the old organisation structure did not make any sense. Notably, in one of the pages forming the corpus of these attachments, two of the four pre-change GMs, Tan Qingde and Zhao Yudong, are absent from the organisation chart. This should have alerted Mr Niu to the fact that this was not the old structure, but a different structure absent those GMs. I find that the changes proposed at the Jinan meeting were new organisational changes. This is consistent with the report of the meeting (“Hudson Teh’s report”) which states that this was an “introduction of the structure of the entire brand-new sales organization” [emphasis added]. That this was a new chart prepared for board approval was corroborated by Mr. Koh Pee Keat, the group financial advisor, under cross-examination. Mr Niu also conceded that these documents were initially prepared for board approval. For someone so adamant on going through all the right channels and getting all documents in for formal approval, Mr Niu was inexplicably remiss in acting on irregularities and admitted that he did nothing to inform the Board that there were changes sought to be implemented which did not have their authorisation. I therefore find that Mr Niu had not only acquiesced to these changes, but had given his approval. Without this approval, Mr Cheah would not have been able to present the changes at the Jinan meeting as a fait accompli.
[93] Mr Wang claimed that Mr Cheah’s presentation of these changes were merely his opinions rather than a proposed new structure. I find this a rather implausible suggestion. The presentation of these changes was included in Hudson Teh’s report which was eventually presented to the board. If these had merely been opinions, they would not have been accompanied by detailed charts and documents showing a plan of implementation which were then included as attachments and forwarded to the Board. This was also a meeting involving executive Directors Mr Niu and Mr Wang, yet the changes were presented as a fait accompli. If the changes had been mere opinions and had not been hitherto raised for approval with Mr Niu and Mr Wang, this would have caused some alarm to Mr Wang who would be keen to discuss these opinions. Given the fact that Mr Wang had admitted earlier in his testimony that a removal of the GM function was not a normal event, it is strange that Mr Wang would not have thought to at least bring this up with Mr Cheah or Mr Niu, at least by way of warning him that these were not changes that were appropriate to the Defendant. There is no evidence that such a discussion ever happened. It is unlikely that these changes would have been announced and treated so lackadaisically had they not already been brought to the notice of and approved by the executive directors. I find that Mr Wang’s insistence that these were merely Mr Cheah’s “personal viewpoints” was an attempt to wriggle his way out of answering some difficult questions about the rolling out of the changes at the Jinan meeting. He had earlier attempted to evade these questions by saying that he had not been present for the entire duration of the meeting, but when he was pressed on when he was absent and discovered that some of these changes were announced on a day when he was present, he further added that he had “left for some time during the meeting”. I am unable to believe Mr Wang’s testimony that the Jinan meeting was not a presentation of changes which had already been approved.
[94] Even if these changes had not been approved before the Jinan meeting, it is clear that the Defendant had adopted them. For the reasons given at [90] above, I do not believe that Mr Niu and his lieutenants Mr Wang and Mr Gao did not find out about the changes until July. Mr Wang sits at the top of production in the new organisation structure. Even if he had not received any complaints from the GMs, he would have been receiving an abnormal quantity and type of paperwork and would have been alerted to the changes before the end of June/beginning of July which he claims was the date he became aware of the changes. I find that it is more probable than not that the changes had been approved and adopted by the Defendant and they were not unauthorised as the Defendant claims.
[95] In contrast to the prevarication and evasiveness of Mr Wang and Mr Niu, I find that Mr Cheah’s testimony was largely consistent and made sense. I have already found (at [92] above) that Mr Cheah had submitted a new organisation chart which had been duly authorised by Mr Niu. I also believe Mr Cheah’s evidence that Mr Cheah and Mr Niu had had extensive discussions about who should take on which role within the new organisation structure. This explains why there were names in the document, despite Mr Niu’s testimony that organisation structure charts did not usually have names on them.
[96] I find the truth to be that while the relevant paperwork was not properly filed (as Mr Cheah conceded during cross-examination), Mr Niu had given verbal approval to the changes as Mr Cheah claimed. Later instructions from Mr Niu that formal documents should be in written form instead of “being conveyed in oral format” were too little and too late, and was effectively a concession that oral approval had been given. It was Mr Niu’s role to mediate between the CEO and the board, and he admitted this on cross-examination. This is consistent with the 11 May Memo which stated that Mr Niu had a role to “maintain the communication between the Board and the company management.” As far as Mr Cheah was concerned, submitting the charts to Mr Niu and obtaining Mr Niu’s verbal approval would have sufficed as proper approval. I find the truth to be that Mr Niu’s insistence on written approval was an afterthought, and that the need for formal documentation was a recent thing arising from the Defendant’s being listed in Singapore. Mr Cheah thus announced these changes at the Jinan meeting and implemented them soon after. The Defendant, by its actions and through Mr Niu, elected to adopt the changes notwithstanding the lack of formal documentation. I find that Mr Niu’s offer of 2-3 month’s salary in lieu of termination (granted without board approval) was also an afterthought.
[97] Given that the changes had been duly authorised, I find that Mr Cheah had not repudiated the contract. Even if the changes had been unauthorised, the Defendant elected to treat the contract as continuing. All of the Defendant’s key officers’ behaviour subsequent to the introduction of these changes are thus relevant in assessing whether the Defendant had repudiated the contract by breaching the implied term of mutual trust and confidence, thereby allowing Mr Cheah to claim constructive dismissal.
Exclusion of Mr Cheah from the August 2009 meetings
[98] I find that Mr Cheah was improperly excluded from the 10 August Meeting, and the Board Meeting.

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Cheah Peng Hock v Luzhou Bio-Chem Technology Limited

Laws this judgment relies on

Grounds of decision

The facts

The Contract

Background leading to the Dispute

Summary of Pleadings

Issues

(b) Did Mr Cheah accept this breach?

(c) Did the breach cause Mr Cheah to leave?

(d) If so, what is the measure of damages that Mr Cheah should be awarded?

(a) Had Mr Cheah introduced unauthorised changes which made the Defendant’s reversal of them reasonable?

(c) Did Mr Niu’s appointment as joint-CEO make Mr Cheah’s position in the Defendant redundant?

(d) Did the Defendant discontinue or block Mr Cheah’s email?

(e) Did the Defendant remove the company car which was meant for Mr Cheah’s use as the CEO?

(f) Did Mr Niu take over Mr Cheah’s CEO office in Beijing?

(g) Did Mr Cheah take leave without approval?

The scope and content of an implied term of mutual trust and confidence

The applicability of this implied term to the constructive dismissal context

Whether the implied term is overridden or qualified by express terms

Clause 3.1, read with Schedule 1

Clause 3.2

Clause 3.3

Clause 3.4

Was there a breach of the implied term by the Defendant?

Unauthorised Changes

Exclusion of Mr Cheah from the August 2009 meetings