LEE YIU HONG v. WELL IN HOTEL SUPPLIES CO LTD

HCLA 9/2020

[2020] HKCFI 2760

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

LABOUR TRIBUNAL APPEAL NO 9 OF 2020

(ON APPEAL FROM LABOUR TRIBUNAL CLAIM NO 3925 OF 2018)

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D E C I S I O N

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1.  The claimant (“C”) was a former employee of the defendant (“D”). C was employed by D as a sales executive since 18 March 2002, was promoted to assistant sales manager on 13 May 2004, and was later further promoted to sales director. Since 1 April 2018 C’s basic salary was increased to $36,000/month plus commission. On 14 August 2018 C resigned as sales director. His last working day as agreed with D was 24 August 2018.

2.  On 27 December 2018, C commenced LBTC3925/2018 at the Labour Tribunal (“Tribunal”) to claim against D for unpaid commission in the total sum of $306,822.73. The trial of C’s claim commenced on 10 June 2020 before Deputy Presiding Officer Lo Hong Wai Charmaine (“DPO”).

3.  On the 1^st day of trial, both parties reached settlement on part of C’s claim for unpaid commission.[1] As a result, C’s remaining claim for unpaid commission was reduced to $221,227.33.[2] The trial of such remaining claim took place on 11-12 and 17 June 2020.

4.  On 8 July 2020, the DPO granted the following judgment (“Judgment”), and gave her oral reasons:

(a)  partial judgment in favour of C’s remaining claim for unpaid commission being items 28, 58, 148, 149, 151, 152, 156, 161 and 162 in C’s claim form in the total sum of $110,538.24 with interest on each such item from the corresponding date specified in the Judgment until payment pursuant to section 25A of the Employment Ordinance Cap 57, which sums were to be paid forthwith;

(b)  order that D shall pay P costs in the sum of $5,977.20 with interest thereon from the date of judgment until payment pursuant to section 39(3) of the Labour Tribunal Ordinance Cap 25 (“LTO”) to be paid forthwith.

5.  On 15 July 2020, D commenced the present proceedings to seek leave to appeal against the Judgment (“Leave Application”). Initially D relied on 2 intended grounds of appeal, but at the hearing of the Leave Application on 21 October 2020 before this court (“Hearing”), Ms Tang, counsel for D, advised that D intended to only rely on the 1^st draft ground of appeal (“Draft Ground”), ie that (i) the DPO erred in law by failing to discharge her statutory duty to investigate/explore and subsequently to take into account relevant issue/claim raised by D being C’s breach of his duties of fidelity and good faith owed to D, including the obligation not to disrupt the business of his employer, and (ii) in particular the DPO erred in attaching little/no weight to the following:

(a)  C’s unauthorised disposal of important company documents that belonged to D shortly before the termination of his employment contract with D;

(b)  C’s refusal/failure to return D’s company computer containing confidential information relating to D’s business and operation;

(c)  C’s appointment as director of a competing company carrying on similar business of distribution of hotel equipment shortly after his resignation from D;

(d)  the fact C held the senior position of sales director at D and was privy to important sales information essential for conducting D’s business that was not known to other employees.

In short, D complained that the DPO failed to discharge her duty to investigate into C’s conduct that amounted to breaches of duty, and that if the aforesaid matters had been properly investigated, substantial damages in respect of C’s breaches of the duties of fidelity and good faith could have been set-off against C’s claim for unpaid commission in which case the commission allowed under the Judgment would have been extinguished.

6.  It was pertinent to note (and Ms Tang confirmed at the Hearing) that the Draft Ground did not seek to challenge the findings and determination/conclusion by the DPO in relation to the unpaid commission. The sole issue was whether the DPO should have investigated into the facts and matters referred to in the above paragraph which D claimed might have led to a defence of set-off that might have resulted in “substantial damages” for extinguishing or reducing the unpaid commission as found and determined by the DPO.

7.  On 30 July 2020, the DPO handed down written reasons for the Judgment (“Reasons”).

8.  Ms Tang in her written submissions set out the relevant principles for (a) seeking leave to appeal against a decision from the Tribunal, and (b) the Tribunal’s duty to investigate. I have summarised these principles in Chan Chi Ling Elwyn v Richard Realty Ltd,[3] Vermeerbergen Peter Alfred v Swisstribe Limited,[4] Kouk Chung Fai & anor v EBP Global Limited & anor,[5] and Li Jing Jenny v Kingsway Security Limited,[6] which I shall adopt but do not repeat here.

9.  Ms Tang argued that employees owe their employers implied duties of fidelity and good faith, but the scope of such duty depends on the facts of each case.[7] To ascertain whether there is any breach of such duty, the relevant enquiry to be made is “whether the employee had done something which saps the confidence of the employer in him and thus strikes at the very root of the relationship between them. Usually conduct which is held to be a breach of the duty will …… be such as the employee will admit to be unfair and dishonourable, but we do not rule out the possibility that a case might occur where, upon an objective approach, a breach of duty might be found although the employee did not in fact think he was doing wrong, for one must have regard to the feelings of the employer”.[8]

10.  But I start with the anterior question of whether there was any arguable case that the Tribunal would have jurisdiction to deal with D’s alleged claim for unliquidated damages for breaches of duty. Ms Tang submitted that such claim for damages for breaches of duty would have fallen within the exclusive jurisdiction of the Tribunal, so the DPO should have inquired into the aforesaid facts and matters raised by D.

11.  Section 7(1) of the LTO provides that “[the] tribunal shall have jurisdiction to enquire into, hear and determine the claims specified in the Schedule”. The Schedule to the LTO provides inter alia as follows:

“1.  A claim for a sum of money, whether liquidated or unliquidated, which arises from –

(a)  the breach of a term, whether express or implied ……, of a contract of employment ……

……

3.  Notwithstanding paragraphs 1 and 2, the tribunal shall not have jurisdiction to hear and determine a claim for a sum of money (whether liquidated or unliquidated), or otherwise in respect of a cause of action, founded in tort whether arising from a breach of contract or a breach of duty imposed by a rule of common law or by any enactment.”

12.  A claim for unliquidated damages for breach of a term, whether express or implied, of a contract of employment is one within the exclusive jurisdiction of the Tribunal.[9] So broadly speaking, a claim by an employer against an employee or former employee for loss and damages arising from breach of express or implied term(s) of the contract of employment or breach of fiduciary duties is one that falls within the exclusive jurisdiction of the LTO.[10]

13.  In Citipost (Asia) Limited v Julian Robert Holliday, the Court of Appeal found that a breach of implied term(s) under a contract of employment or alternatively breach of fiduciary duty (eg the defendant in that case had charged a number of items of expenses which were personal expenditure to the employer) is one falling within the exclusive jurisdiction of the Tribunal.[11] The Court of Appeal took the view that the aforesaid claim should be dealt with by the Tribunal because other claims in the action were spent, non-particularised or led to nowhere. The other claims included claims for (a) breach of express covenants and/or fiduciary duties under the contract of employment not to divulge trade secrets / confidential information, not to compete with the employer for 1 year following termination of employment, not to solicit the employer’s existing/potential customers for 6 months following termination of employment, and not to solicit, hire or assist in the hire of the employer’s employees with 6 months following termination of employment, and (b) injunction against alleged breaches of the aforesaid covenants, which validity periods had expired except for the covenant in respect of confidential information.

14.  In Glock (HK) Ltd v Brauner, the employer alleged the former employee was in breach of an implied fiduciary duty owed by him to the employer by reason of incurring unnecessary expenditure, conducting irresponsible and unreasonable business transactions, neglect to his responsibilities, and mismanagement of financial matters generally. Saw J accepted that when stripped of technicalities such breach of fiduciary duty was in essence a claim for damages arising out of an express or implied term in a contract of employment and was not founded on tort.[12]

15.  Paragraph 3 of the Schedule to the LTO makes clear that all claims in tort are expressly excluded from the jurisdiction of the Tribunal.[13] The tension in the language of paragraphs 1 and 3 of the Schedule to the LTO shows there can be overlap between a claim falling within paragraph 1 thereof and one also falling within paragraph 3, ie a mixed claim founded in both contract and tort is also excluded from the Tribunal.[14]

16.  Hence, a claim for breach of confidence being one that can be founded both in contract and in tort is outside the Tribunal’s jurisdiction by reason of the jurisdiction-exclusion provision in paragraph 3 of the Schedule to the LTO.[15]

17.  In Uferahal Limited (formerly known as Hasselblad Asia-Pacific, (Hong Kong) Limited & anor v Hansen Larry Douglas,[16] the plaintiffs relied on the following causes of action: breach of the employment agreement, breach of implied terms, breach of fiduciary duties, negligence and “[conversion], in using and refusing to return confidential documents obtained whilst in the employment of the Hasselblad Group …… to P1, P2 and P3” (paragraph 6). The former employee suggested that the conversion claim was added only to bring the case within the High Court, but Au-Yeung J held that “[the] test remains whether the claim is in tort either on its own or also in contract. If the answer is yes, the claim falls outside the Tribunal” (paragraph 7). It was also held the claim in that case and the injunctive relief sought therefor brought such claim outside the Tribunal (paragraphs 32-35 and 40).

18.  In AXA China Region Insurance Co Ltd v Lin Kwai Ying Katie,[17] the defendant former employer left her employer’s employ to join its direct competitor, and before that a number of other employees had done the same. The employer sued its former employee alleging: (a) breach of a non-solicitation of employees clause in her employment contract, (b) breach of fiduciary duties, and (c) consequently, the tort of causing loss by unlawful means (pages 1142-1143). In that case, the “unlawful means” pleaded were the former employee’s alleged breach of the non-solicitation clause and breach of fiduciary duties (page 1143), so the clam was founded in both contract and tort, and hence outside the jurisdiction of the Tribunal (page 1148).

19.  In my view, given the above, it would be necessary to have a more considered review of the Draft Ground. Ms Tang argued that given (a) C worked for D since 2002, (b) C held a senior position of sales director at D, and (c) C was almost solely responsible for the entire contracting process with D’s clients from negotiating contracts, sourcing goods to arranging delivery,[18] there was prima facie basis to say C was in breach his duties of fidelity and good faith owed to D (including but not limited to the obligation not to disrupt the business of his employer) by reason of the matters in paragraph 5(a)-(d) above that had been raised in the course of the trial, but the DPO failed to discharge her statutory duty to investigate and then gave little/no weight to the same.

20.  D’s case was inter alia that (a) C failed to provide complete sets of documents for client orders which disrupted D’s business and operation (D/11), (b) before his resignation C disposed of D’s documents and refused to return one of D’s company computers that contained confidential client information, and (c) the contents of the 2 computers that were returned to D were erased such that no company information could be retrieved (D/4(1)-(2)). It was also said that from the outset of the proceedings at the Tribunal D complained about C’s unauthorised disposal of company documents (D/14(2)) and re-setting of and failure to return D’s computers.[19]

21.  Ms Tang submitted that notwithstanding D’s such complaints, the DPO on the 1^st day of trial deemed D’s complaint of C’s unauthorised disposal of D’s company documents to be mere background information, and such view as to the non-relevance of D’s such complaint led to (a) D not calling Fung Kit Lin as witness to give evidence on this subject,[20] and/or (b) dearth of enquiry by the DPO during the examination-in-chief of D’s witnesses Forever Chan[21] and Bowie Wong,[22] and/or scant harvest of evidence on such complaint during cross-examination of C,[23] C’s witness Yip Tsui Shan (transliteration),[24] Forever Chan[25] and Bowie Wong.[26]

22.  Ms Tang further submitted that as regards D’s complaint about C erasing the contents of D’s computers, the DPO was again of the view that this was mere background information as apparent from her observations during C’s cross-examination of D’s technician Chow Wai Kit: “…… 電腦究竟有冇資料, 有幾多資料, 呢個解釋嗰個background, 點解會牽涉到 …… 譬如好似[D]好似唔畀commission你呀。…… 即係佢解釋點解佢用左咁多時間, 即係嗰個background, 咁但係你問我, 最終係咪會影響你嘅entitlement呢? To 呢啲佣金, 咁我自己就覺得就相對嗰個關連性就唔係咁強嘞”.[27]

23.  Ms Tang also submitted the DPO merely noted that during cross-examination by Forever Chan on behalf of D, C was questioned over his having established a new company when he was still in the course of his employment with D, but the DPO did not make further inquiry.[28] But when Forever Chan on behalf of D raised this again in her closing submissions,[29] the DPO closed the matter by saying there was no evidence on this except that C did eventually work at the new company. Ms Tang contended that the real issue was whether C established his new company when he was still employed by D, and not whether he eventually worked in the new company. Forever Chan on behalf of D further submitted to DPO that “…… 我司相信[C]是為了競爭關係, 於離職時, 故意銷毀公司大量文件, 及刪除電腦內的所有資料, 並拒絕交還其中一部電腦, 就請參考D-7。…… 本次審訊麥藹儀小姐就不能出席喇, 咁但係據我哋所知, …… 麥小姐喺2018年嘅 …… 年中離開[D]之後, 就入職咗去一間同我司行業相同嘅公司, 亦即係[C]現時所持有嘅公司”.

24.  Ms Tang contended that none of the above matters were investigated into or discussed in the Reasons. Apart from setting out the evidence of Forever Chan,[30] Bowie Wong[31] and Chow Wa Kit,[32] including Bowie Wong’s evidence that “…… 於交接期間, [C]指示[D]的清潔員工將[D]的大量文件及彩圖掉去; [C]不合作, 未有帶[Bowie Wong]出外見客戶; 未有將資料交給[Bowie Wong]; 及[C]令到[D]的訂單資料, 紀錄混亂”,[33] and Chow Wai Kit’s evidence that “…… [Chow Wa Kit]沒有刪除[C]的電腦資料。[C]離職後交回[D]的2部電腦均沒有任何[D]的資料。[Chow Wa Kit]發現該些電腦已被回復原廠設定多次，沒有任何歷史資料可以找回”,[34] it was said the DPO did not make any enquiry on these matters and/or give any appropriate consideration/weight to the same for she stated in paragraph 11 of the Reasons that “本席留意到[D]稱[C]離職時掉去/刪除[D]的文件或資料。但本席認為這對本案的主要爭議點沒有影響”.

25.  From Ms Tang’s submissions, it appeared that D argued the DPO should have investigated into the aforesaid facts/matters which, it was said, would have given rise to various causes of action to justify claim(s) for substantial damages, and which in turn would have fed a defence of set-off against the unpaid commission found and awarded by the DPO. But I am not satisfied the relevant claim(s) and/or cause(s) of action allegedly for substantial damages would have fallen within the jurisdiction of the Tribunal:

(a)  D complained that C failed/refused to return D’s company computer and/or disposed of important company documents without authorisation, but the relevant cause of action for damages in respect of such factual complaints would have been a tortious claim in conversion that would have been outside the jurisdiction of the Tribunal (see paragraph 17 above).

(b)  if the complaint was that there was misuse or threat of misuse of confidential information in such computer and/or documents, it would have been a claim for breach of confidence grounded in both tort and contract (see paragraph 16 above);

(c)  in respect of the complaint that C failed to provide complete set of documents for client orders and erased company information in the computers that were returned, which acts allegedly disrupted D’s business and operation, then the relevant cause of action for damages would have been the tort of causing loss by unlawful means (the unlawful means being breach of fiduciary duties and/or possibly breach of confidence) (see paragraph 18 above);

(d)  in respect of the complaint that C joined a competing company that carried on similar business shortly after he resigned from D, I bear in mind there was no express restraint of trade clause in C’s employment contracts, and it is difficult to see how in the absence of a special covenant a former employee can be restrained from competing with and/or soliciting or doing business with the customers of the former employer;[35]

(e)  even if, as D complained, C used another’s name to form a new company when he was still employed by D, but “…… 於離職後的兩個月接手該公司其業務與D相同”,[36] I bear in mind that an employee is not in breach of his or her duty of fidelity at any given moment merely because at that time he or she intends to act subsequently in a way which would be in breach of his or her fiduciary duty;[37]

(f)  as regards the suggestion by Forever Chan that an employee left D in mid-2018 (but note C’s last day with D was 24 August 2018) and later joined C’s company which was in the same line of business as D,[38] this, in my view, was scant material for suggesting that whilst still in D’s employ C wrongfully “enticed” his then colleague (also employed by D) to join his new company, but even if it were such material (which I disagree), this would also have grounded the economic tort of inducing or procuring breach of contract[39] (but bearing in mind there would have been no breach if C approached his colleague to join his new company after he had left D’s employ and/or if his colleague left D of her own accord before C approached her).

26.  The above causes of action in tort and/or in both contract and tort would have fallen outside the jurisdiction of the Tribunal pursuant to paragraph 3 of the Schedule. In my view, the DPO could not be faulted for not investigating further into these facts/matters. Ms Tang submitted that the DPO should have made enquiries into these facts/matters to see (a) if there were claims or causes of action that would have given rise to substantial damages for set-off against C’s remaining claim for unpaid commission, and (b) if such claims or causes of action were outside the jurisdiction of the Tribunal, the DPO could have gone on to consider whether such claims or causes of action together with C’s remaining claim could have been transferred to other court venues. Having considered the relevant legal principles (see paragraph 8 above), I find such submissions, which depended upon a number of contingencies, did stretch the Tribunal’s duty to investigate relevant matters too far into the imponderables. As Ms Tang acknowledged, not every failure to investigate a relevant matter will give rise to an appeal. The alleged set-off contended for was not a legal set-off (ie a right to set off mutual debts), and I am not persuaded it would be manifestly unjust for D (if it wished) to independently pursue its various alleged claims or causes of action (that would have been outside the Tribunal’s jurisdiction) in other court venues, especially by now there is no criticism of the findings/ conclusion of the DPO in respect of C’s claim for the remaining unpaid commission.

27.  I also note Order 55 rule 7(7) of the Rules of the High Court provides that the Court of First Instance shall not be bound to allow the appeal on the ground of misdirection, or of the improper admission or rejection of evidence, unless in the opinion of the court substantial wrong or miscarriage has been thereby occasioned. For all of the above reasons, I am not satisfied there was such substantial wrong or miscarriage.

28.  Therefore, I dismiss the Leave Application, and there be no order as to costs of and occasioned by such application.