XINHUA NEWS MEDIA LTD AND ANOTHER v. CHAN CHUN WO AND ANOTHER

DCCJ 6608/2020

[2021] HKDC 903

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 6608 OF 2020

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BETWEEN

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DECISION

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1.  This is the substantive hearing for 2 Summons taken out by the 1^st and 2^nd defendants respectively:

a. The 1^st defendant’s Summons dated 23 December 2020 to strike out the plaintiffs’ claims on the ground that they fall within the exclusive jurisdiction of the Lands Tribunal;

b. The 2^nd defendant’s Summons dated 16 December 2020 for (i) a declaration that the District Court has no jurisdiction; (ii) an order to stay the action permanently; or (iii) an order to strike out.

Background

2.  The 1^st defendant had been the Co-chairman of the Board, Executive Director and Chief Executive Officer of the 2^nd plaintiff as well as the Chief Executive Officer of the 1^st plaintiff.

3.  The 2^nd defendant had been the Managing Director, Chief Financial Officer and Company Secretary of the 2^nd plaintiff and an employee of the 1^st plaintiff.

4.  On 24 July 2020, the 2^nd defendant has initiated a claim at the Labour Tribunal against the 1^st plaintiff (LBTC 1267/2020) for arears of wages and other payments etc.

5.  On 25 September 2020, the 1^st defendant have also initiated proceedings at the Labour Tribunal: LBTC 2080/2020 against the 1^st plaintiff and LBTC 2079/2020 against the 2^nd plaintiff for area of wages and other payments etc.

6.  These Labour Tribunal proceedings are on-going.

7.  On 9 December 2020, the 1^st and 2^nd plaintiffs initiated the current action against both defendants in District Court, claiming for overpaid salaries and medical expenses on the bases of breach of employment contracts and/or fiduciary duties. The plaintiffs are not seeking injunction relief.

8.  On 10 May 2021, the plaintiffs amended the Statement of Claim which essentially deleted all reference to “breach of employment contracts” and replacing such with allegations of “misappropriation of plaintiffs’ assets” etc.

Legal principles for striking out

9.  The legal principles under Order 18 rule 19 are trite and need not be repeated here.

Exclusive jurisdiction of the Labour Tribunal

10.  It is trite that any claims based on a breach of express or implied term of a contract of employment falls within the exclusive jurisdiction of the Labour Tribunal, Section 7 and Schedule 1(a) of Labour Tribunal Ordinance (“LTO”).

11.  The plaintiffs’ argument is that the breach of fiduciary duties of the defendants, in view of their positions in the companies, are different from that of a normal employee, and there not within the exclusive jurisdiction of the Labour Tribunal. The plaintiffs also argued that the claims were not only based on breach of employment contract but on tort, which brought it into the exception in jurisdiction of the Labour Tribunal stated in paragraph 3 of the Schedule of the LTO.

12.  Mr. Brian Lo, counsel for the 1^st defendant, referred to the Court of Appeal case of Citipost (Asia) Limited and Julian Robert Holliday, CACV 111/2004. That case also concerned a defendant who was the managing director of the plaintiff company. The allegations were that the defendant was in breach of an implied term of the employment contract or alternatively fiduciary duty in over-claiming his expenses. It was held by Rogers VP, in paragraph 16 of the judgment, that:

“…I have…no doubt that the claims made by the plaintiff in the present proceedings do fall within the exclusive jurisdiction of the Labour Tribunal…Certainly the claim for the return of the allegedly wrongly claimed expenses is a matter which would be much more suitable for the Labour Tribunal to decide than the Court of First Instance.”

13.  This was followed by DHCJ Lok (as he then was) in Deutsche Bank AG (HK Branch) v Daniel Mamadou-Blanco [2012] 3 HKC 176 at paragraph 20:

“Provided that the claimant is not claiming for other non-monetary relief, Citipost…is the clear authority for the proposition that a claim by the employer against employee or former employee for loss and damages arising from the breach of an express or implied term of the contract of employment or breach of fiduciary duties is one falling within the exclusive jurisdiction of the Labour Tribunal.”

14.  Mr. Wilfred Tsui, counsel for the plaintiffs, argued that this “proposition” was over-simplified.

15.  Mr. Tsui sought to distinguish the fiduciary duties owed by company directors as oppose to the fiduciary duties of an ordinary employee. He quoted Regal (Hastings) Limited v Gulliver and Others [1967] 2 A.C. 134, Thomas Marshall (Exports) Ltd v Guinle [1979] 1 Ch. 227 amongst others, and argued that “fiduciary duties owned by company directors are distinct from the implied duties of fidelity of an employee under a contract of employment”. As the defendants had breached their fiduciary duty by awarding themselves with alleged unauthorised increased in wages and reimbursements, he argued that the 1^st defendant, as an executive director etc., and the 2^nd defendant, as the company secretary, should be put in that “distinct fiduciary duty” category.

16.  The test is, of course, to look at the substance and not the labels of the claim (Ho Chee Sing James and Secretary for Justice [2015] 4 HKLRD 311): some cases may be concerned with breaches of fiduciary duties arising out of the employment contract and imposed by equity, others may be concerned with a breach of confidentiality e.g. if the employee exploited his position to gain otherwise confidential information and had used that against the interest of the company (University of Nottingham v Fishel and Anor [2000] ICR 1462, Noble Spirit Limited trading as Life Solutions v Wong Shu Yuen and Anor HCA842/2011).

17.  The former category of cases should be within the exclusive jurisdiction of the Labour Tribunal whilst the latter, being a claim which might be founded on both contract and tort, could be caught by the exclusion of jurisdiction in paragraph 3 of the Schedule of the LTO (Lee Yiu Hong v Well-in Hotel Supplies Company Limited [2020] HKCFI 2760).

18.  I agree with Mr. Lo that, looking at the substance of current claims, whatever “window-dressing” has been applied, it is no more than a claim for recovery of alleged overpayments of wages and reimbursements.

19.  It is of note that wages / remunerations are expressed terms in the defendants’ respective employment contracts which also provided that the defendants should be subjected to, amongst others, the policy on reimbursement of expenses as stated in “Employee Handbook”.

20.  This is not disputed because the plaintiffs have stated all these in some details in paragraphs 6 to 15 of the (amended) Statement of Claim (Hearing Bundle page 4-8).

21.  This claim is therefore clearly within the exclusive jurisdiction of the Labour Tribunal.

22.  There are further arguments on whether the District Court has the jurisdiction to deal with such overpayment claims or claims on breach of fiduciary duty based on equity. However, I note that none of the precedents before the court was dealing with any arguments on jurisdiction of the District Court.

23.  Further, I note that in the current case, both defendants have already initiated actions at the Labour Tribunal which are on-going.

24.  Of course, the Labour Tribunal was established with the obvious intention to provide an informal forum for employees and employers to resolve disputes in wages and other payments in a speedy manner.

25.  As discussed above, the plaintiffs initiated a case here for a simple claim for repayment for unauthorised payments wages and expenses.  I think that all the plaintiffs need to show is that such payments were unauthorised and, indeed, detailed pleadings of various procedures not being followed are already stated in the (amended) Statement of Claim. I see little practical benefit to the plaintiffs’ case in putting forward, in additional, allegations for the reasons why such procedures were not followed.

26.  In other words, this claim would be determined by a factual finding of the defendants’ alleged failures to follow procedures, but whether such failures were due to breaches of fiduciary duties, bad faith, gross misconducts or, indeed, perfectly honest mistakes would not, as far as I can see, affect the finding nor the quantum. Thus, leaving aside the question of exclusive jurisdiction, there is no reason, even at a practical level, why this should not be dealt with at the Labour Tribunal.

27.  As such, the whole exercise of putting forward such additional allegations does raise some suspicion that it was for “window-dressing” to justify initiating a claim here in order to frustrate the proceedings at the Labour Tribunal.

28.  In any case, with or without such suspicion, it is clearly an abuse of process for the plaintiffs to take out the current claim in the District Court under the circumstances.

Order

29.  I will therefore give the following order:

a. The Plaintiffs’ claim against the 1^st and 2^nd defendants be struck out; and

b. The costs of the action including the current applications be to the defendants to be taxed if not agreed, with certificate for the 1st defendant’s counsel.