Trust, Confidence & Anti-Avoidance - Will Hong Kong Decisions Impact Australia?

Hong Kong and Australia have always enjoyed something of a shared history. Both were former British colonies. Both legal systems are based on the English common law. Australian judges are invited to sit as non-permanent members of the Hong Kong senior courts. And although not binding, the Hong Kong courts will often look to Australian decisions for guidance in cases where the law is not clear or underdeveloped.

For all their similarities, however, they differ in one crucial respect from an employment law perspective: trust and confidence. Whereas in Hong Kong the implied term of trust and confidence is alive and well, the Australian High Court has declined to recognise it in a recent high-profile decision.

Now Hong Kong is witnessing a second wave of cases involving a potentially similar implied term of ‘anti-avoidance’, which has been decided in one case so far. Could there be repercussions for employers Down Under?

Trust and Confidence – Jefferies (HK) v. Barker (AUS)

Trust and confidence was born out of the English jurisprudence of the late 1990s, when the English House of Lords held that an employer is subject to an implied term to “not, without reasonable and proper cause, conduct itself in a manner calculated or likely to destroy or seriously damage the relationship of trust and confidence between employer and employee”.

The decision has had far-reaching consequences for employment lawyers in common law jurisdictions ever since. The term has proved to be notoriously flexible and capable of being applied to a variety of situations including issuing references, exercising mobility and transfer clauses, bullying and abuse, and changes to employment terms and conditions.

In Hong Kong, trust and confidence have enjoyed something of a revival in recent years. In Grant Williams v Jefferies Hong Kong Limited [2013] HKEC 1084, the Bank summarily dismissed its Head of Equity Trading Asia, Mr Williams, for gross misconduct. Mr. Williams had circulated a daily newsletter designed to poke fun at current affairs in the banking sector to over 900 subscribers (mostly clients).

It contained a link to a Youtube video which showed footage of Adolf Hitler, various expletives and a not-so-subtle nod to the CEO of a US investment bank. However, the newsletter had not gone through the usual centralised vetting process and had been sent out by Mr William’s Personal Assistant in error. Notwithstanding this, Mr Williams was fired within 24 hours at a meeting lasting little more than a few minutes, with the Bank failing to conduct any material prior investigation or give Mr Williams the right to explain himself.

The Bank later publicly contacted the recipients of the newsletter to apologise on his behalf. The Court held that the Bank had conducted the dismissal in such an egregious manner that it had acted in breach of the implied term of trust and confidence. Mr. Williams was awarded total damages of almost HKD14 million (AUD2.5 million) for terminal payments, loss of bonus and loss of earnings for over two years (due to the damage caused to his reputation and the time it would take for him to find a similar role in the market).

The decision sent shockwaves through the Hong Kong community. Hong Kong does not have a statutory procedural unfair dismissal regime like the UK or Australia. Employers have the ability to terminate employment relatively easily provided that there is a fair and lawful reason for termination and they ensure the employee has been paid their contractual and statutory entitlements. The decision in Jefferies seemed to have introduced a concept of procedural fairness through the back door of the Hong Kong courts, albeit on the basis of a set of facts which few employers would hope to replicate.

Australia has taken a completely different path. Although the duty of trust and confidence was thought to be alive and well, this was overruled in Commonwealth Bank of Australia v Barker [2014] HCA 32. The case involved the Bank’s failure to notify Mr. Barker of possible redeployment opportunities after he was given notice of redundancy, due to his work email and mobile phone access having been cut off.

The Australian High Court (on appeal from the Full Federal Court) held that it was not appropriate for the judiciary to effectively be setting new law by recognising trust and confidence as a term implied into every employment contract – this was a decision for the legislature. It also gave a lesson in Contract Law 101 by pointing out that a term should only be implied into a contract if it is necessary and the term so obvious that it goes without saying – this could not be said of trust and confidence.

The Court declined to imply the term into employment contracts generally or (more significantly) even in particular cases.

In contrast to Hong Kong, Australia seems to have found sure footing on this issue and employers have enjoyed some welcome relief.

Hong Kong – The Implied Anti-Avoidance Term

There may, however, be cause for concern in light of one more recent Hong Kong decision.

The Jefferies decision was followed in 2016 by Tadjudin Sunny v Bank of America (CACV 12/2015). Ms. Tadjuin was an analyst at the Bank. She received a discretionary bonus which was paid out regularly and comprised the majority of her total compensation. As is common, her contract made clear that any bonus was conditional on her remaining employed by the Bank through to the date of payment. Following a series of performance issues which ended in the Bank placing her on a performance improvement plan, Ms. Tadjudin was ultimately terminated with notice.

As the termination took place prior to the bonus payment date, the Bank awarded her no bonus for that year. Ms. Tadjuin successfully argued before the Hong Kong Court of Appeal that notwithstanding the express condition in her contract that she was to remain in employment, the Bank was subject to an implied term that it would not terminate her employment with the purpose of avoiding payment of her bonus (the so-called ‘anti-avoidance term’).

The Court further found that the performance improvement plan was a sham and had been implemented with the sole intention of exiting her from the business in retaliation for a personal grievance with her line manager. She received HKD3.9 million (AUD700,000) in damages for loss of bonus for breach of the implied anti-avoidance term.

The decision has potentially far-reaching implications in Hong Kong, particularly for the banking sector. Hong Kong employers are still getting to grips with this decision and there have been anecdotal accounts of a spike in similar cases.

Employers are closely watching the progress of another case involving Barclays which is currently making its way through the courts. In Pratt v Barclays Capital Asia Limited, Barclays’ former Managing Director of Investment Banking is challenging the Bank’s decision to award no bonus and to suspend vesting of his unvested awards after he was terminated for redundancy and following his involvement in an investigation. His claims are based on (among other things) breach of the anti-avoidance term.

The concept of the implied anti-avoidance term was also touched on briefly in the UK in Takacs v Barclays Services Jersey Limited [2006] IRLR 877. Although the case ultimately never proceed to trial, the English High Court denied the Bank’s strikeout application on the basis that (among other things) there was a real prospect of successfully arguing the existence of an implied anti-avoidance term.

What now?

Australian employers may wish to monitor Hong Kong developments in this space. In Tadjuin the Court of Appeal expressly held that the anti-avoidance term could be (and was) implied without having to rely upon the implied obligation of trust and confidence. In other words, the anti-avoidance term is not the same as the implied duty of trust and confidence.

There may, therefore, be scope for application of this new implied term in Australia, particularly in the financial services sector and in other cases where a bonus makes up the majority of an employee’s total compensation. The sure footing that the Australian High Court made for itself in Barker may not be so sure when it comes to the implied anti-avoidance term.

Having said that, Australian employers should take comfort from the Court of Appeal’s finding that the anti-avoidance term was implied based on the facts and circumstances of the particular case; not to employment contracts generally. And if a claim under the anti-avoidance term ever made its way into the Australian courts, presumably they would adopt the same reasoning as was applied in Barker. It is difficult to see how the anti-avoidance term would be viewed as any less of an attempt by the judiciary to make new law in lieu of the legislature, or that it is any more necessary or obvious such that it should be implied into an employment contract.