Cheah Peng Hock v Luzhou Bio-Chem Technology Limited

• Judge: Quentin Loh J
• Judgment Date: 06 February 2013
• Neutral Citation: [2013] SGHC 32
• Hearing Date: 13 January 2012,25 October 2011,20 January 2012,24 October 2011,21 March 2012,18 October 2011,29 February 2012,16 January 2012,17 January 2012,19 January 2012,20 October 2011,18 January 2012,19 October 2011
• Published date: 18 February 2013
• Subject Matter: contract of service,Employment Law,contractual terms,breach,employer's duties,implied terms,Contract
• Docket Number: Suit No 821 of 2010
• Court: High Court (Singapore)
• Plaintiff Counsel: Hee Theng Fong and Lin Ying Clare (M/s RHT Law LLP)
• Defendant Counsel: Yuen Djia Chiang Jonathan, James Lin Zhurong and Audrey Li (Harry Elias Partnership LLP)

Quentin Loh J:

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

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 24th 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”).

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.

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.

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.

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.

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.1Cheah Peng Hock’s Affidavit of Evidence-in-Chief, [12]-[13].

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.2CPH-4, Cheah Peng Hock’s Affidavit of Evidence-in-Chief. 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.

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

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.

The findings of this committee were released on 21 May 2009 in a memo (referenced in the evidence and in this judgment as “The 11th May Memo”).3Cheah Peng Hock’s Affidavit of Evidence-in-Chief, 06/09/2011, CPH-5. 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 Carry out the operational strategy of the group and implement its expansion plan, save for changes which required approval; take full responsibility for overall operation and management of the group and its subsidiaries; submit to the Board mid and long term plans and annual budget, as well as manage budgetary issues; formulate the internal management institution and fundamental management system of the group, including taking charge of the group organisation structure; lead the management team, facilitate performance, and make succession planning for senior management; propose the appointment or dismissal of senior management and key financial staff; decide the appointment and dismissal of management staff not requiring Board approval; and perform other roles and responsibilities requested and authorised by the Board.

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.

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: 3.1 The Executive shall be appointed the Chief Executive Officer of the Company and shall be responsible 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 during his employment. The detailed responsibilities of the Executive are set out in Schedule 1 hereto. 3.3 Without prejudice to the provisions of Clause 3.1, the Executive shall during his employment under this Agreement: 3.3.1 perform the duties and exercise the powers which the Board may from time to time properly assign to him in his capacity as Chief Executive Officer in connection with the business of the Group; 3.3.2 in the absence of any specific directions from the Board, have the general control and responsibility for the management of the business of the Group in compliance with applicable laws and regulations and with a view to promoting the Group’s interests; 3.3.3 do all in his power to promote, develop and extend the business of the Group and at all times and in all respects conform to and comply with the proper and reasonable directions and regulations of the Board; and 3.3.4 in pursuance of his duties hereunder perform such services for any Group Company and accept such offices in such Group Company as the Board may from time to time reasonably require.

A more detailed list of the CEO’s responsibilities was annexed at Schedule 1, and reads as follows: 1. With the exception of businesses required to be approved by the Board or the Executive Chairman, responsible for the overall management of the Group’s business and operations. 2. Execution and implementation of resolutions and policies established by the Board of Directors. 3. Recommending the medium-term and long-term development plans and annual budgets for the Board’s approval and managing resources within the budget guidelines. 4. Oversees fundraising planning and implementation. 5. Work out the internal management organization [sic] structure and basic management system of the Group. 6. Leading the management team, promoting effective performance, and successfully complete the succession plan of key management. 7. Recommending the appointment or dismissal of senior management and key financial executives. 8. Have the authority to appoint or dismiss the management except those that should be decided by the Board. 9. Executing or authorizing [sic] the execution of the documents for capital expenditures, agreement and other important documents of the Group. 10. Other works, responsibilities and powers required and authorized [sic] by the Board.

It is common ground that these responsibilities built on the earlier documents and in particular the 11th 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...