Hewlett-Packard Singapore (Sales) Pte Ltd v Chin Shu Hwa Corinna

• Jurisdiction: Singapore
• Judge: Sundaresh Menon CJ
• Judgment Date: 28 March 2016
• Neutral Citation: [2016] SGCA 19
• Plaintiff Counsel: Gregory Vijayendran, Lester Chua and Pradeep Nair (Rajah & Tann Singapore LLP)
• Docket Number: Civil Appeal No 109 of 2015
• Date: 28 March 2016
• Hearing Date: 25 February 2016
• Subject Matter: Rules of construction,Contract,Contractual terms
• Year: 2016
• Citation: [2016] SGCA 19
• Defendant Counsel: P E Ashokan and Soon Meiyi Geraldine (KhattarWong LLP)
• Court: Court of Appeal (Singapore)
• Published date: 30 March 2016

Andrew Phang Boon Leong JA (delivering the judgment of the court): Introduction

This is an appeal against the decision of the High Court judge (“the Judge”) in Corinna Chin Shu Hwa v Hewlett-Packard Singapore (Sales) Pte Ltd [2015] SGHC 204 (“the GD”). It raises important issues with regard to the nature of a contractual ambiguity in general and the contra proferentem rule in particular. Whilst the actual facts of the present appeal are deceptively simple, they belie difficulties of application (see also, for example, the decisions of this court in YES F&B Group Pte Ltd v Soup Restaurant Singapore Pte Ltd (formerly known as Causeway Point) Pte Ltd) [2015] 5 SLR 1187 especially at [2] and Lucky Realty Co Pte Ltd v HSBC Trustee (Singapore) Ltd [2016] 1 SLR 1069, especially at [1]).

Facts

The respondent, Corinna Chin Shu Hwa (“the Respondent”), was employed as a product sales specialist by the appellant, Hewlett-Packard Singapore (Sales) Pte Ltd (“HP” or “the Appellant”), in its NonStop Enterprise Division (“NED”) from 10 January 2005 to 22 June 2012. The NED sells NonStop servers, which are fault-tolerant servers designed for businesses that require continuous and undisrupted provision of their services. The Respondent was the plaintiff in the proceedings below. She brought a claim against the Appellant for certain sales incentive compensation she alleges is owed to her, particularly in respect of a $5.38m contract she helped the Appellant clinch with Network for Electronic Transfers (Singapore) Pte Ltd (“NETS”) in March 2012. In order to understand the gravamen of the Respondent’s claim, it is necessary to set out the Respondent’s sales incentive compensation scheme in some detail.

The sales incentive compensation scheme

The Respondent’s salary package comprised a basic salary as well as a variable salary in the form of incentive compensation. For sales employees like her, incentive compensation typically forms the bulk of their total salary package. The amount of incentive compensation that the Respondent would earn depended on the extent of her meeting her sales target for the financial year. The Respondent’s sales targets were determined by her then country sales manager, Jacob Lieu Chiap Ling (“Jacob”), in consultation with the Respondent. Her sales targets for the financial year were communicated to her in the form of a sales letter. According to her sales letter for the financial year 2012 (commencing 1 November 2011) (“FY12”), the Respondent’s sales targets were as follows:

Metric	Quota (USD $)	Weight %
NED Shipment Metric	2,142,000	50
NED Shipment New Business Metric	214,200	25
NED Technical Services Attach Orders Metric	471,000	25

As may be observed from the table set out in the preceding paragraph, the Respondent’s sales targets were divided into three metrics, each having a specified quota of sales and weight. According to the FY12 HP Global Sales Compensation Policy (“SC Policy 2012”), the Respondent’s incentive compensation was calculated in the following way: if the Respondent were to achieve 100% of her sales quota for the first metric, ie, US$2,142,000, she would obtain 50% of her target incentive amount (“TIA”). The TIA is a fixed amount that is paid if a sales employee manages to attain 100% of his or her sales quota requirements. If the Respondent were to exceed 100% of her sales quota for any given metric, she would receive a correspondingly higher percentage of her TIA.

The second metric in the Respondent’s sales letter (above at [3]) was known as the “New Business Metric” (“NBM”) and was introduced for the first time in FY12. It was to be fixed as a percentage of the first metric, ie, the percentage of business under the NED Shipment Metric that was expected to be “new business” (the Respondent’s sales target for the NBM was 10% of her sales target for the NED Shipment Metric). A guideline was also disseminated to the staff on 6 October 2011 via email to, inter alia, define what qualified as “new business” for the purposes of the NBM (“the Guidelines”). The Respondent only received this email on 7 December 2011, though she had already heard about the NBM and its impending introduction sometime in September 2011. The Guidelines provided as follows:

Implementation Guideline

…

New Business definition

• New end-user customer • New application and/or new area for the existing end-user customer • New NonStop system sale as pre-requisite to new business entitlement • To differentiate new biz from upsell

The Appellant’s regional NED director, Sandeep Kapoor (“Sandeep”), was one of the developers of the NBM. According to Sandeep, the NBM was introduced to incentivise sales employees to “sell to new customers and to seed new customer accounts”. There was a need to do so because the sales records for the previous financial year showed that a disproportionate percentage of the NED’s total business came from existing customers through “technology refreshes” and/or “up-sells”. “Technology refreshes” refer to the customer migrating from old HP servers to new HP servers and “up-sells” refer to the customer purchasing greater capacity loads or other upgrades on its existing HP servers. As the Appellant’s servers had become more powerful, “technology refreshes” and “up-sells” were occurring less frequently; hence, the need to incentivise sales employees to source for “new business”. In an email dated 26 July 2011 by Sandeep in relation to the development of the incentive compensation plan for FY12, Sandeep wrote:

It’s very critical to goal specialist on new business as our installed base revenues will continue to erode due to systems getting powerful and customers investing in platform refresh now have enough capacities to buy for next 4-5 years. Hence the need to incent [sic] the NED specs to hunt for new business to drive growth in FY12 and beyond.

As alluded to at [2] above, the claim brought by the Respondent was for outstanding incentive compensation in respect of a contract that she helped secure with NETS (“the NETS Contract”). One of the key issues in the present appeal is whether the NETS Contract qualified as “new business” pursuant to the Guidelines. If it did, then the NETS Contract, valued at S$5.38m, would go towards satisfying the Respondent’s sales quota under the NBM, thus entitling her to additional incentive compensation to the tune of S$584,613.19, which formed part of her claim against the Appellant. We now turn to the facts surrounding the NETS Contract and the events that followed.

The NETS Contract

NETS operates an electronic payment system that allows ATM cards to be used to make payments island wide. NETS had been using the Appellant’s servers known as the Tandem system, which it had purchased sometime in 2001, to support its e-payment services. These servers ran a software application known as Base24 Classic, which was provided by a company called ACI Worldwide Inc.

Sometime in 2010, NETS decided to replace its existing Tandem system because the Appellant had begun phasing out the Tandem system and would eventually discontinue all maintenance support for those servers by 31 December 2011. Besides the Appellant’s servers, NETS was also considering using servers from International Business Machines Corporation (“IBM”) (known as the AIX system) which ran a software application named 1st Switch from a company called FIS. Faced with this competition, the Respondent and her team presented “a very aggressive proposal” to NETS to purchase HP’s new NonStop system to replace the old Tandem system. Despite their efforts, NETS decided, in late 2010, to purchase the IBM servers and eventually entered into an agreement with IBM which, according to Lau Soon Liang (“Soon Liang”), NETS’ then director of technology and infrastructure, was worth S$5m to S$6m. In April 2011, NETS took delivery of the IBM servers. It also contracted with FIS for the 1st Switch software application.

The process of migration from the HP system to the IBM system was expected to take place over 18 months – commencing in 2011 and stretching through 2012. However, due to the critical nature of NETS’ e-payment service to the general public, the existing HP system had to remain online until after the migration was completed. Hence, during this period of migration, NETS continued to use its old Tandem system to serve its critical business needs. Furthermore, the Appellant continued to supply maintenance services to NETS under a maintenance contract and NETS continued to pay software licence charges to the Appellant.

Notwithstanding NETS’ decision to purchase IBM servers in late 2010, the Respondent and her team devised a strategy in January 2011 to place pressure on NETS to discontinue its migration to the IBM servers and to purchase new NonStop servers from HP instead. As mentioned at [9] above, HP’s maintenance services for the Tandem system were slated to be discontinued by 31 December 2011, before the planned migration was expected to be completed. According to Soon Liang, “the continual maintenance from the hardware vendor [was] very critical”. Even after the new IBM system had gone live, NETS would still require maintenance for the old Tandem system for at least three months as the old system would be used by NETS as a fall back. Part of the Respondent’s strategy was thus to refuse NETS’ request to extend the Appellant’s maintenance services for the Tandem system unless NETS purchased new HP NonStop servers, thereby placing pressure on NETS to abandon its migration to IBM. In response, NETS engaged a third party, Marshall Resources, sometime in August 2011 to maintain its old Tandem servers.

However, in addition to the pressure placed by the Appellant on NETS, problems and delays began surfacing in NETS’ migration to the IBM servers. FIS was unable to...