UFERAHAL LTD (formerly known as HASSELBLAD ASIA PACIFIC, (HONG KONG) LTD AND ANOTHER v. HANSEN LARRY DOUGLAS

HCA 1707/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1707 OF 2014

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D E C I S I O N

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1. There are 2 applications before me:

A. the defendant’s application to stay P1’s proceedings pursuant to Order 12, rule 8 of the Rules of the High Court;

B. P1 and P2’s application to amend the writ to add a party and to file a statement of claim out of time.

BACKGROUND

2. The Hasselblad Group carries on the business of manufacturing and distributing photographic equipment through its subsidiaries, including P2 and the intended plaintiff (P3).  P1 was a wholly owned subsidiary of P2. 

3. The defendant was its ex-CEO of the Hasselblad Group employed pursuant to an agreement dated 13 September 2011 (as amended by the Amendment to Employment Agreement dated 2 January 2013) entered into between the defendant, P1and P2 (“the employment agreement”).

4. The defendant was summarily dismissed by P1 on 9 October 2013, having worked for 4 years.  He instituted a claim at the Labour Tribunal (“the Tribunal”) on 25 November 2013 under LBTC No. 3762 of 2013 (“the labour claim”), claiming for breach of the employment agreement and sums totalling about HK$12.6 million. 

5. By letters dated 6 and 10 February 2014, the plaintiffs had applied for transfer to the High Court on the grounds of complexity of law and fact, location of documents and witnesses abroad and availability of discovery procedure in the High Court.  There was a dispute as to whether or not the learned Presiding Officer had refused to transfer the labour claim to the High Court and whether he had given P1 2 months in which to issue proceedings in the High Court.  Anyway, at the hearing on 3 June 2014, P1 has still not issued the proceedings; and the Tribunal set the case down for trial for 9 days commencing from 23 September 2014. 

6. On 1 September 2014, P1 and P2 filed the writ in the present action.  The draft statement of claim relied on causes of action in:

(a) Breach of the employment agreement;

(b) Breach of implied terms;

(c) Breach of fiduciary duties;

(d) Negligence;

(e) Conversion, in using and refusing to return confidential documents obtained whilst in employment of the Hasselblad Group (“the materials”) to P1, P2 and P3 (collectively “the plaintiffs”). 

The plaintiffs seek, amongst others, damages, injunction restraining the defendant from using the materials and their delivery up to the plaintiffs.

7. After the writ was issued, P1 applied to the Tribunal for transfer of the labour claim to the High Court. 

8. On 10 September, the Tribunal adjourned the trial and application for transfer pending determination of the defendant’s summons to stay the claim in the present case.  A hearing for mention was fixed to take place at the Tribunal on 12 January 2015, which was then adjourned to 30 March 2015.

9. The defendant took out his summons under Order 12, rule 8.  As he is not willing to submit to the jurisdiction of the High Court, I shall deal with his summons first, although it was filed after the other summons.

A.  DEFENDANT’S APPLICATION TO STAY P1’S ACTION

10. The defendant says that P1 is attempting to delay and frustrate the proceedings before the Tribunal, which P1 denies.  The parties dispute as to whether or not P1’s claims are within the jurisdiction of the Tribunal. 

A1.  Relevant statutory provisions on jurisdiction

11. Section 7(1) and (2) of the Labour Tribunal Ordinance, Cap 25 (the “Ordinance”) read together gives exclusive jurisdiction to the Tribunal to determine the claims specified in the Schedule to the Ordinance (“the Schedule”). 

12. The High Court will only have jurisdiction if the case is transferred by the Tribunal to it under section 10 of the Ordinance: Borchert v Drmyo Ltd & anor [2010] 1 HKC 168, at paragraphs 15 and 20, Deputy Judge L Chan (as he then was).

13. The claims specified in the Schedule are:

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

(a) the breach of a term, …, of a contract of employment, whether for performance in Hong Kong or under a contract to which the Contracts for Employment Outside Hong Kong Ordinance (Cap 78) applies;

…

(b) the failure of a person to comply with the provisions of the Employment Ordinance …

…

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 a duty imposed by a rule of common law or by any enactment.”

A2.  Paragraph 1(a) of the Schedule

14. In order to fall within paragraph 1(a) of the Schedule, 3 matters must be satisfied:

(a) Firstly, there must be a claim “for a sum of money”, whether liquidated or unliquidated. 

(b) Secondly, the claim must arise from the breach of a term of contract of employment.

(c) Thirdly, the contract of employment must be “for performance in Hong Kong” or under a contract to which the Contracts for Employment Outside Hong Kong Ordinance (Cap 78) applies. 

15. On requirement (b), the Court should only consider the pleadings of the Plaintiffs to decide whether such claims are based on a contract of employment.  In Zhu Li v Mayer Brown JSM (a firm) HCMP 2574/2013, 3 January 2014, Macrae JA, at paragraphs 28 and 29, in the Court of Appeal summarised the relevant principles as follows:-

“28. In these circumstances, each of the monetary claims, in so far as they are pleaded as being based on the Contract, the breaches thereof, or the Employment Ordinance or the violation thereof, is a claim for a sum of money which arises from the breach of a term of a contract of employment or from the failure of a person to comply with the provisions of the Employment Ordinance, as specified in paragraph 1 of the Schedule to the Labour Tribunal Ordinance, Cap 25. Pursuant to section 7 of the Labour Tribunal Ordinance, the Labour Tribunal has jurisdiction over these claims, which are not actionable in any other court. Therefore the judge was entirely correct in striking out these monetary claims, as pleaded. We will deal with the claim for medical expenses later on in this judgment.

29.  We pause here to emphasise that in expressing our view that the monetary claims ought to be struck out, we express no views as to whether the working relationship between the parties, and any contract between them, was one of employment or not. Nor do we express any views on the merits of such claims. We have come to the conclusion that these monetary claims, simply as a matter of pleading, appear as claims based on a contract of employment over which the District Court has no jurisdiction and therefore ought to be struck out.”

16. On requirement (c), in order to determine whether a contract of employment is “for performance in Hong Kong”, the court should take into account not only the terms of the contract but also where the performance was actually carried out. 

17. In Matheson PFC Ltd v Jansen [1994] 2 HKC 250 (CA), it was held that the jurisdiction of the Labour Tribunal did not extend to an employment contract to be performed outside Hong Kong.  Liu JA further took the view, obiter, that “a contract to be performed partly outside and (possibly) partly in Hong Kong ... would not come within the specified relationship ... in para 1(a) of the Schedule”. 

18. In William Berry Preen v Industries Polytex Ltd (unreported, HCLA 171/1995, 8.3.1996), Yeung J (as he then was) referred to Liu JA’s obiter dictum in Jansen but held that a contract was for performance in Hong Kong if that performance was to take place partly outside Hong Kong, so long as the employer and employee remained “substantially connected to Hong Kong”.  In that case, the claimant had to travel to Macau on a daily basis.  He was provided with a flat in Macau but was only required to stay there on certain days of the week to ensure smooth production.  He was physically in Macau most of the time. He was provided with housing allowance to allow him to live in Hong Kong. However, the group corporate office was in Hong Kong.  It was held that the claimant’s employment could well be described as a contract for performance in Hong Kong, and hence within the jurisdiction of the Tribunal.

19. A different scenario occurred in Peter Ward v Harting (HK) Limited (DCCJ 2744/2004, 27 September 2004, District Judge Muttrie), where the contract required the plaintiff to be based in Zhuhai.  He did live in factory quarters there, five days a week.  His job was to run the factory, ie perform his side of the contract in Zhuhai.  Although he was required to liaise with his head office in Hong Kong on Saturday mornings, the Judge held that this did not lead to any implication that he was doing his job and performing his side of the contract in Hong Kong. Further, it appeared that the whole structure of remuneration was geared to minimise tax and so the fact of payment partly in Hong Kong, of whatever elements of the package, did not affect the question of where the contract was to be performed.

A3.  Paragraph 3 of the Schedule

20. As to paragraph 3 of the Schedule, all claims in tort are expressly excluded from the jurisdiction of the Tribunal.  A mixed claim founded both in contract and tort is also excluded from the Tribunal.

21. In Gain Hill (Hong Kong) Ltd v Li Lin Yip & anor [2006] 4 HKLRD 186, the plaintiff employer pleaded that the 1^st defendant (employee) had acted in breach of his duties of good faith and fidelity by encouraging his colleagues to leave the plaintiff and to join a competitor, and that he did so wrongfully and in breach of his contract of employment, his duties as an employee and the obligation of confidentiality. The plaintiff sought (i) an injunction to restrain the use of the confidential information to solicit its customers; (ii) damages for breach of confidence; (iii) damages for breach of employment contract or breach of employees’ duties; and (iv) exemplary damages. The 1^st defendant relied on section 7 of the Ordinance and applied for a stay of the action.

22. Sakhrani J analysed the relationship between paragraphs 1 and 2 of the Schedule on the one hand and paragraph 3 as follows at §§39-40:

“39. The words ‘Notwithstanding paras. 1 and 2’ in para. 3 of the Schedule must mean something. The meaning is in my view clear. In spite of the fact that the Labour Tribunal has jurisdiction under paras. 1 and 2, the Labour Tribunal shall not have jurisdiction to determine a claim for a sum of money in respect of a cause of action ‘founded in tort whether arising from a breach of contract or breach of duty imposed by a rule of common law…’.

40.  Here, there is an overlap between the claim in para. 1 and the claim in para. 3 of the Schedule. The claim for damages for breach of confidence is founded both in contract and in tort. It would fall within para. 1(a) as being within the jurisdiction of the Labour Tribunal but it would be excluded from the jurisdiction of the Labour Tribunal under para. 3 as being a claim for a sum of money 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…’.  The intention of the Legislature was to exclude such claims from the jurisdiction of the Labour Tribunal.”

23. Sakhrani J dismissed the 1^st defendant’s application and held that the plaintiff’s claims were not within the exclusive jurisdiction of the Tribunal (at §§26-28) for these reasons:

(1)  a claim for unliquidated damages for breach of an employment contract was one within the exclusive jurisdiction of the Tribunal and had that been the only claim then the Tribunal would have exclusive jurisdiction; 

(2)  the Tribunal had no jurisdiction to grant injunctions; and

(3)  the claim for breach of confidence was founded in both contract and tort and so fell within both paragraphs 1 and 3 of the Schedule, but by paragraph 3 the Tribunal’s jurisdiction was excluded, and it did not have jurisdiction to determine a claim for a sum of money in respect of a cause of action "founded in tort".

24. A claim for breach of confidence supported by facts which could found both a claim in contract and tort was beyond the jurisdiction of the Tribunal: Deutsche Bank AG (Hong Kong Branch) v Daniel Mamdou-Blanco [2012] 3 HKC 176.

25. A claim founded on breach of statutory duty imposed by section 57(a) of the Employment Ordinance, Cap 57, being founded in tort, was excluded from the jurisdiction of the Tribunal: Estinah v Golden Hand Indonesian Employment Agency [2001] 4 HKC 607, Kwan J (as she then was).

26. The rationale is that claims in tort, breach of common law duties or statutory duties etc are likely to be too complicated for the Labour Tribunal to be able to deal with speedily: AXA China Region Insurance Co Ltd v Lin Kwai Ying Katie [2012] 2 HKLRD 1139, §30, per Chung J.  Excluding such claims will enable the Tribunal to focus on and have more resources to deal with the more pressing claims by employees for unpaid wages and other statutory payments: Deutsche Bank AG (Hong Kong Branch) v Daniel Mamdou-Blanco,at §41.

A4.  Application of the legal principles to the facts

27. I have, for the purpose of the analyses, considered the draft statement of claim which is ready for filing. 

28. First of all, most of P1’s claims against the defendant are mixed claims based on breach of contract of employment and tort and hence fall within paragraph 3 of the Schedule.

29. Mr Hart, solicitor for the defendant, submits that even though the plaintiffs assert that part of their claim is based on tort, it is not apparent from their pleadings that such case was so based: Zhu Li v Mayer Brown JSM (a firm).

30. I am unable to agree. The present case is distinguishable from Zhu Li v Mayer Brown JSM (a firm).  There, the plaintiff asserted that her claim was based on tort but it was not apparent from the pleading itself what cause of action in tort she was relying on.  Here, the causes of action in negligence, breach of implied terms and breach of fiduciary duties have been specifically pleaded in Section D of the draft statement of claim, although the same pleas apply to each of those causes.  Even the cause in conversion overlaps with the plaintiffs’ reliance on clause 5 of the employment agreement.

31. Mr Hart questions how much damages P1 may recover beyond those under breach of employment contract.  He submits that the conversion was added only to bring the case within the High Court.  With respect, in the authorities cited, the court did not and does not have to embark on an enquiry of this kind. 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.

32. Secondly, it is apparent that some of the reliefs sought by P1 are not within the powers of the Tribunal to grant.  The plaintiffs’ claims include one for injunction and delivery up of the materials, defined in paragraph 52 of the draft statement of claim.  

33. The defendant does not dispute his possession or use of the materials.  He has not yet asserted a right to do so except that he needs them to conduct the labour claim. Although he has given an undertaking through his solicitors that he had not and would not disclose the materials to third parties, that is only good enough as an interim measure pending trial.  In no way can the Tribunal grant an injunction if he is found guilty on any head of claim.  P1’s prayer for injunction and delivery up of materials in the High Court is an important claim and not mere “window-dressing”.

34. Mr Hart submits that the plaintiff added the relief of injunction in their draft statement of claim, which was not originally in their indorsement of claim.  However, Order 18, rule 15(2) of the Rules of the High Court provides that the statement of claim may extend any claim made in the indorsement of claim without the need to amend the indorsement of claim itself.  The limitation period has not yet expired and the plaintiffs are at liberty to add in a claim.

35. Mr Hart also complains that the terms of the injunction sought by the plaintiffs are too wide and unreasonable that it would prohibit the defendant from advancing his claim at the Tribunal against P1.  In my view, the width of an injunction is for the plaintiffs to justify at the trial and not a ground to oppose this court’s jurisdiction to deal with P1’s claim.

36. Thirdly, the plaintiffs claim that the defendant’s employment agreement was not for performance in Hong Kong. 

37. The employment agreement contained clauses that permitted (not obliged) the defendant to work one week per month in Hong Kong, reimbursed him for travel, and gave him allowance for housing in Denmark/Sweden.   The plaintiffs affirmed to the fact that the defendant performed his duties almost entirely outside Hong Kong. The head office of the Hasselblad Group was in Copenhagen and had no business operations in or significant connections with Hong Kong at all.  P1 was incorporated in Hong Kong at the defendant’s request solely for the purpose of entering into the employment agreement and to minimize the defendant’s tax liability.

38. Matters in paragraph 37 have not been disputed by the defendant in his affirmations.  On the other hand, the defendant had to pay tax in Hong Kong.  The employment agreement also provided that upon repatriation to Hong Kong, the plaintiffs would cover the costs of shipping the defendant’s belongings and insurance from Copenhagen to Hong Kong.

39. At this stage, there is evidentiary basis for the plaintiffs to plead that the employment agreement was not for performance in Hong Kong.  The plaintiffs, of course, run the risk that the contrary is established so as to bar the High Court’s jurisdiction.

40. In summary, as the draft statement of claim now stands, there are viable, mixed causes of action in contract and tort, in relation to an employment agreement that was not for performance in Hong Kong, and for non-monetary reliefs.  The claims appear to fall outside the jurisdiction of the Tribunal.  Accordingly, P1’s action should not be stayed on the jurisdiction ground.

41. On the procedural side, Mr Hart draws to my attention Order 1A, in particular, Hong Kong Civil Procedure 2015, Vol 1, §1A/0/6-7.  He submits that the court should deal with the case in ways which are proportionate to (a) the amount of money involved, (b) the importance of the case, (c) the complexity of the issue, and (d) the financial position of each party. The Court should also consider the equality between the parties to achieving the underlying objectives.

42. I can understand the frustration the defendant feels.  The labour claim has been ongoing for 1½ years.  Notwithstanding the asserted need for legal representation and complexity of issues, P1 and the defendant had in fact been able to come up with the evidence/witness statements after 5 hearings, only to have the trial aborted at the last minute.  To the defendant, P1’s conduct might have been intimidating and delaying tactics.

43. The plaintiffs have, however, explained on affidavit that they needed time to investigate the misconduct of the defendant.  Moreover, the Hasselblad Group was in a period of transition, being in a serious state of disorganization after the defendant’s termination.  No reliance could be placed on the rest of the management team as they were either also potentially liable due to their own misconduct or their misplaced loyalty to the defendant.  In addition, legal advice had to be taken from European and Hong Kong lawyers.  Moreover, the Hasselblad Group had tried to explore settlement with the defendant before resorting to costly litigation.  In the middle of all these, the plaintiffs had to try to recover the business from the serious damage suffered, and to prepare for the Tribunal proceedings.

44. Judging from the draft statement of claim, P1’s explanation cannot be dismissed as incredible. The reasons it gave to the Tribunal in February 2014 seeking a transfer order were borne out by the evidence before the Tribunal and the issues disclosed on the draft statement of claim.  I am not persuaded that P1 was playing delaying tactics or using a team of legal advisers to intimate an ex-employee.  Nor am I satisfied that Order 1A, referred to in paragraph 41 above should trump the realities of this case. 

45. If, for example, the Tribunal is satisfied that P1 has not lodged a High Court claim in good time before the labour claim was set down for trial, the Tribunal may exercise its discretion to make appropriate orders.  However, that is not a good reason to stay P1’s claim here.

46. Furthermore, a stay of P1’s claim would be impractical.  P2 and P3, whose causes are premised on facts which found P1’s claim, will not be bound by findings of the Tribunal.  There will be duplication of evidence and risk of inconsistent findings if the trial of P1’s claim and P2 and P3’s claims is split.

47. In the premises, there are no good reasons to stay P1’s claim.

48. Ms Tong, counsel for the plaintiffs, invites this court, in the event it dismisses the defendant’s summons, to order for the transfer of the Tribunal proceedings to be heard by the same judge in the High Court on the same occasion.  This is a good suggestion but not made at the right time.  There might be a need for consolidation in the event the labour claim is transferred to the High Court.  The parties need to work on the directions for consolidation before this court will give further orders.  In any case, the Tribunal may wish to make orders for costs before it transfers the proceedings.  I therefore decline Ms Tong’s invitation, without prejudice to any party making the proper application in future.

B.  P1 AND P2’S APPLICATION TO AMEND THE WRIT TO ADD A PARTY AND TO FILE A STATEMENT OF CLAIM OUT OF TIME

49. The amendment is to (1) add in P3 as a proper and necessary party to the claim; and (2) include a claim for injunction against the defendant restraining him from using and misappropriating the materials.

50. The court may allow joinder of parties if 2 conditions are satisfied: (1) the right to relief must in each case be in respect of or arise out of the same transaction or series of transactions; and (2) there must be some common question of law or fact.  See Order 15, rule 4.

51. It is true that P3 was not a party to the employment agreement.  However, it was expressly stated in the employment agreement that the defendant’s duties were owed to the Hasselblad Group and companies within it, including P3.  That clause existed clearly for the benefit of P3 (and P2).  P3 arguably has a cause of action in tort against the defendant, plainly based on the same set of facts applicable to P1 and P2.  Both conditions for joinder of parties are met.

52. With regard to the additional claim in respect of the materials, I repeat my observations in paragraphs 32, 33 and 51. 

53. The proposed amendments are in order and I grant leave to amend.

CONCLUSION

54. The application for stay is refused on the ground that P1’s claims are beyond the jurisdiction of the Tribunal.  Moreover, the stay may cause a split trial of P1’s claim on the one hand and P2 and P3’s claim on the other, which may lead to inconsistent findings. 

55. It is appropriate to join P3 who has a cause of action premised largely on facts that found P1 and P2’s claims.  The additional cause of action is maintainable because the defendant has no right to retain the materials and the undertaking he gave is not sufficient to protect the plaintiffs’ interest.

56. I order as follows:

(1)  The application for stay of P1’s claim is dismissed. 

(2)  There be leave to amend the writ and indorsement of claim by 2 April 2015;

(3)  There be leave to file and serve the statement of claim out of time by 2 April 2015.

57. Costs of the stay application should, as a matter of principle, follow the event and be to the plaintiffs.  Costs of the amendment summons should, as a matter of principle, be in the cause but costs of the hearing should be to the plaintiffs.  I apportion the costs of the hearing between the 2 summonses as 80:20 respectively. 

58. With regard to the plaintiffs’ costs statement, I just point out matters of principle.  Firstly, it is not in the correct format.  Correspondence need not be set out one by one.  If there is good reason for lengthy correspondence, it is more useful to give a narrative explanation. Secondly, costs for preparing a costs statement and a USB are not claimable.

59. I therefore make an order on a nisi basis:

(1)  that costs of the stay summons together with 80% of the hearing time be to P1;

(2)  costs of the summons for stay are summarily assessed and allowed at $150,000;

(3)  costs of the summons for amendment, including 20% of the hearing time be in the cause.

60. I thank Ms Tong and Mr Hart for their assistance.