The recent decision of the Hong Kong Court of First Instance (“Court“) in Anthony Mackay v Chi-X Asia Pacific Holdings Ltd [2024] HKCFI 2901 highlights the critical importance of having clear, written employment contracts in place.

Background

The case concerns a dispute between Mr. Anthony Mackay (“Mr. Mackay”) and Chi-X Asia Pacific Holdings Limited (“Chi-X AP”) regarding his employment as Chief Executive Officer of Chi-X AP. Mr. Mackay alleged that he had reached an oral agreement with Chi-X AP whereby he would receive an annual salary of US$500,000 and certain core entitlements, including participation in a Long-Term Investment Plan (“LTIP”) and a guaranteed first-year bonus of US$500,000 (“Alleged Guaranteed Bonus“), regardless of whether his employment would be terminated before the conclusion of his first year.

The terms of the Alleged Guaranteed Bonus were not reflected in the subsequently executed written employment contracts, which provided for a discretionary bonus for each financial year instead. Further, Mr. Mackay and Chi-X AP, both of which were legally represented, had engaged in negotiations over the terms of the LTIP. Although draft LTIP terms were presented to Mr. Mackay by Chi-X AP, he did not sign his agreement to the same because he wanted to check the figures. Mr. Mackay’s case was that he orally agreed to join the LTIP in a phone call with Chi-X AP’s representative subsequently.

Following the termination of Mr. Mackay’s employment by Chi-X AP within his first year, he brought claims against Chi-X AP for various entitlements, including but not limited to the Alleged Guaranteed Bonus and unpaid entitlement under the LTIP.

The Court’s Ruling

It is trite that while oral agreements can indeed be binding, the onus of proving their existence and terms rests squarely on the party asserting them. This burden of proof requires the claimant to adduce compelling evidence, and the Court emphasized the significance of contemporaneous documentation and subsequent conduct in evaluating the veracity of alleged oral agreements.

In assessing Mr. Mackay’s claims, the Court embarked on a fact-sensitive inquiry and examined the available evidence in detail. The claims supported by written documentation, such as those for remuneration for March 2016 (despite the stipulation in the amended employment contract that Mr. Mackay’s employment commenced on 1 April 2016), interest on late salary payments, outstanding ORSO contributions, and expense reimbursements, succeeded. However, the claims based solely (or largely) on alleged oral agreements were subject to more rigorous scrutiny.

The Court was not convinced that Chi-X AP had orally agreed to pay the Alleged Guaranteed Bonus to Mr. Mackay. The Court reached this conclusion upon considering, among other things, that neither the term sheets of Mr. Mackay’s remuneration package nor the communications between Mr. Mackay and Chi-X AP’s representatives before or after the start of his employment referred to any guaranteed bonus. On the contrary, the written employment contracts provided for a bonus the payment and amount of which would be determined by the board “in its absolute discretion”. The Court’s observation that Mr. Mackay’s pleadings on this point had evolved over time further weakened his position. Even on Mr. Mackay’s alternative case that the board of Chi-X AP failed to exercise its discretion to award a bonus to him in accordance with its common law duty of rationality and good faith (i.e. the Braganza duty), the Court was unable to conclude that the board’s refusal to award a bonus was irrational, perverse or lacking in bona fides. In this connection, the Court emphasized judicial restraint in interfering with board decisions, particularly when supported by documented financial and performance considerations.

Similarly, Mr. Mackay’s claim for his LTIP entitlement was dismissed. The Court found that his failure to formally accept the LTIP terms, combined with ongoing negotiations concerning the percentage allocation, undermined his assertion of a concluded agreement. The Court found his explanation that his and Chi-X AP’s lawyers were simply unaware of the oral agreement implausible, given the lack of any contemporaneous documentation or communication supporting his claim.

Implications and Significance

The Mackay decision reinforces the importance of well-drafted and comprehensive written employment agreements in Hong Kong. It serves as a cautionary tale for both employers and employees, highlighting the risks associated with relying on oral agreements, particularly for complex matters like executive compensation. Above all, this case reinforces the message that comprehensive written contracts are essential for establishing clarity, managing expectations, and preventing disputes from arising.

The full judgment can be accessed here.