AUBREY MARK EDWARD v. CATHEON GAMING (HK) LTD FORMERLY KNOWN AS CATHEON LABS LTD

HCLA 34/2024

[2024] HKCFI 3597

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

LABOUR TRIBUNAL APPEAL NO. 34 OF 2024

(ON APPEAL FROM LABOUR TRIBUNAL CLAIM NO 144 OF 2024)

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REASONS FOR DECISION

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A. INTRODUCTION

1.  By an Application for Leave to Appeal on Point of Law filed on 21st October 2024 (“the Application”), the Defendant applied for leave to appeal against the Labour Tribunal’s Award of 2nd February 2024 (“the Award”) “which was subsequently reviewed and/or varied and/or determined by further Awards/Orders/Directions by the Labour Tribunal on the 7th day of June 2024, 11th day of July 2024 and 7th day of October 2024”.

2.  The Award ordered that judgment in the sum of $39,846,582.34 be entered against the Defendant, comprising:

“(A) Wages in Lieu of Notice $730,324.05

(B) Sign-On Bonus $17,258.29

(C)  $Chicks Tokens - Long-Term Incentive Plan Value 39,099,000.00”

together with interest.

3.  The proposed grounds of appeal were that:

3.1  the Award is erroneous in point of law in that:

3.1.1  the agreement between the Claimant and the Defendant was not an employment contract, and the Tribunal failed to discharge its statutory duty to investigate this, or

3.1.2  the Tribunal failed to discharge its statutory duty to investigate in arriving at the quantum of damages;

3.2  the Award is outside the Tribunal’s statutory jurisdiction.

4.  At the hearing on 11th December 2024, I dismissed the Application.  I now set out my reasons for so doing.

B.   BACKGROUND FACTS

5.  On 21st March 2022, the Claimant and the Defendant entered into an agreement entitled “Independent Contractor Agreement” (“the Agreement”).  Under the Agreement, the Claimant agreed to provide certain services to the Defendant, including acting as its Chief Executive Officer, in exchange for a remuneration package which included a sign-on bonus, “recurring fees” paid on a monthly basis, and participation in a Long-Term Incentive Plan (“LTIP”) pursuant to which he was to be granted a certain amount of $CHICKS tokens (a form of cryptocurrency). The Agreement also provided that if it was terminated by the Defendant without reasonable cause within twelve months from the Commencement Date (essentially when the Claimant started work), then unvested tokens would be made available “up to a maximum value of USD 5 million set at a price of $0.13 per token”.

6.  On 12th January 2024, the Claimant commenced proceedings in the Tribunal against the Defendant.  In his Statement by Claimant, of 14th January 2024, the Claimant said that he had been constructively dismissed, and that the Defendant had repudiated the Agreement, inter alia by the unilateral change of his role from CEO to Co-CEO, the failure to pay his sign-on bonus, and the unilateral declaration of intention to reduce his monthly wages by 50%.  The Claimant expressly set out his case that he was an employee of the Defendant rather than an independent contractor, notwithstanding the statement otherwise in the Agreement.  The Claimant sought wages in lieu of notice, his sign-on bonus, and the value of the unvested $CHICKS tokens under the LTIP.  In his Supplementary Statement by Claimant, also of 14th January 2024, the Claimant further set out facts relied upon in support of his stance that he was an employee of the Defendant, for example, that the Defendant had total control over the Claimant’s tasks and duties.

7.  The Tribunal sent a written notification of the claim to the Defendant’s registered office address, which was also that of its company secretary Osome Limited (“the Company Secretary”).

8.  A call-over hearing was held on 2nd February.  The Presiding Officer noted that the Tribunal’s notice of hearing had not been returned and that the Claimant had also served his documents on the Company Secretary on 30th January 2024.  The Presiding Officer was satisfied that the Defendant had received sufficient notice of the claim, and he proceeded to hear the claim in the absence of the Defendant.  The Claimant gave evidence on oath, and the Presiding Officer made the Award.

9.  On 3rd April 2024, the Defendant applied to set aside the Award.  It gave various reasons for not having appeared at the hearing of 2nd February, which in substance were that it had ceased business activities, no longer maintained an office in Hong Kong, did not receive notifications from the Company Secretary as the latter had sent notifications to obsolete email addresses, and that its directors resided overseas.

10.  On 11th April 2024, the Defendant filed a Statement by Defendant, describing the Claimant as having been “employed”, and saying that the Claimant “unilaterally terminated his employment” without giving the required contractual notice so that it was the Claimant who was in breach of contract.  The Defendant said that it had all along made “salary payments” in full, and that the Claimant’s allegations of unilateral salary reductions were unfounded.  It disputed the three items claimed by the Claimant as follows.

10.1  It opposed paying wages in lieu of notice since the Claimant had failed to perform his duties from 22nd August 2022 and then prematurely resigned on 24th August 2022 without giving proper notice.

10.2  It opposed paying the sign-on bonus as the Claimant’s failure to perform his duties and premature resignation was gross misconduct and entitled the Defendant to a refund of the sign-on bonus under the Agreement.

10.3  It opposed paying the value of unvested tokens under the LTIP as the Claimant’s failure to perform his duties and premature resignation constituted gross misconduct or a material breach of the Agreement, rendering him ineligible for the LTIP proceeds.  Furthermore, the LTIP value was stipulated in tokens rather than a USD equivalent.

11.  On 15th April 2024, the Defendant applied for leave to file a counterclaim for damage arising from the Claimant’s unilateral and premature termination of his “employment”.

12.  On 7th June 2024, the Defendant’s application to set aside the Award was heard.  The Defendant was represented by its CEO Mr William Wu.  As noted by the Tribunal in its Reasons for Decision of 27th November 2024 (“the Reasons”), Mr Wu did not challenge the jurisdiction of the Tribunal, or dispute the Defendant’s employment relationship with the Claimant.  Instead, he asked the Tribunal to give the Defendant the chance to defend the Claimant’s claim and to file a counterclaim. Furthermore, Mr Wu did not dispute that the Company Secretary received the notice of hearing for the 2nd February 2024 hearing, or that it used the Company Secretary’s address as its registered office address.

13.  As noted in the Reasons, the Presiding Officer recognised that the quantum of damages in relation to the sign-on bonus and the LTIP value depended a lot on the value of the $CHICKS tokens which might be volatile, so that quantum was arguable.  The Presiding Officer therefore considered that the Defendant should be given a chance to defend these two items.  However, the Defendant had absented itself for no good reason from the hearing on 2nd February 2024, and only applied to set aside the Award on 8th April 2024, which was the date on which when the Claimant issued a statutory demand.  Balancing the Defendant’s right to defend the claim and the prejudice caused to the Claimant, the Tribunal ordered that the Award should be set aside on condition that the Defendant made a payment in to the Tribunal by 5th July 2024.  The Tribunal further provided for the Defendant to file witness statements and documents thereafter, and a further hearing on 12th September 2024.  The amount of the payment in was set at $365,162, being half of the first item claimed by the Claimant (wages in lieu of notice).

14.  The Tribunal’s order of 7th June 2024 (“the 07.06.2024 Setting Aside Order”) expressly provided that should the Defendant fail to comply with the condition of payment in, the Award would stand and the hearing date of 12th September 2024 would be vacated.

15.  The Defendant did not apply to review the 07.06.2024 Setting Aside Order within the seven days allowed for such a review under s.31(2)(b) of the Labour Tribunal Ordinance, Cap.32 (“the LTO”). On the contrary, Mr Wu wrote to the Tribunal on 20th June 2024 saying that “We sincerely appreciate the fair and reasonable judgment issued by the Labour Tribunal on June 7, 2024, regarding the set aside of the award.” Mr Wu then went on to ask that the Tribunal reconsider the provision of security so that it could be made as a deposit of $CHICKS tokens instead.

16.  On 4th July 2024, the Tribunal replied that it did not accept cryptocurrency as security, and directed that the 07.06.2024 Setting Aside Order should stand.

17.  The Defendant failed to make any payment in by 5th July 2024.  The Tribunal noted this in its order of 11th July 2024, and went on to say that pursuant to paragraph 4 of the 07.06.2024 Setting Aside Order, the hearing of 12th September 2024 was vacated, and the Award stood (“the 11.07.2024 Order”).

18.  On 9th September 2024, Mr Wu wrote to the Tribunal indicating that the Defendant had secured the financial resources to pay the security of $365,160, and asked the Tribunal to reinstate the 07.06.2024 Setting Aside Order.

19.  On 7th October 2024, the Tribunal replied that as the Defendant failed to make payment in by 5th July 2024, pursuant to the 07.06.2024 Setting Aside Order, the Award stood, and that the Tribunal could not deal with the matter further (“the 07.10.2024 Letter”).

C.   AWARD NOT A MATTER FOR APPEAL

20.  The Application seeks leave to appeal against “the Award…made…on the 2nd day of February 2024…which was subsequently reviewed and/or varied and/or determined by further Awards/Orders/Directions by the Labour Tribunal on the 7th day of June 2024, 11th day of July 2024 and 7th day of October 2024”.

21.  Insofar as the Application seeks leave to appeal against the Award, this is procedurally incorrect as the Award was a judgment entered in default.  As the Defendant earlier recognised, the appropriate procedure was to apply to set aside the Award pursuant to s.21A LTO.  That section expressly lays down the procedure for setting aside an award made in the absence of a defendant.  The Defendant in fact followed this procedure,^[1] and in fact was successful subject to satisfying the condition for payment in; it simply failed to actually make the payment in so as to have the Award set aside.  This failure could not then somehow have rendered it appropriate for the Defendant to launch an appeal against the Award instead.

22.  At the hearing, counsel for the Defendant, Mr Him Ho, submitted that the procedure for appeal under s.32 LTO could apply because the Award should be “read together as a whole” with the subsequent orders of the Tribunal which “affirmed” the Award, and these subsequent orders constituted some form of “dealing” with the Award by the Tribunal.  I do not agree.

22.1  The 07.06.2024 Setting Aside Order did not affirm the Award, but rather, ordered that it should be set aside conditional upon the making of payment into the Tribunal.

22.2  The 11.07.2024 Order also did not affirm the Award, but merely noted the Defendant had failed to make payment in and that by operation of the 07.06.2024 Setting Aside Order, the Award stood.  It is not the case that the Award became valid only as a result of the 11.07.2024 Order.  The matter can be tested this way: as at 6th July 2024, a day after the deadline of 5th July 2024 for making payment in had expired, the 07.06.2024 Setting Aside Order would already have operated so that the Award stood; it was not the case that there was a need for the 11.07.2024 Order to be made in order for the Award to stand.  In any event, the 11.07.2024 Order did not revisit the merits of the Award and therefore did not “affirm” such merits such that it could be “read together” with the Award so as to make an appeal, rather than an application to set aside, the correct mode of proceeding.

22.3  Similarly, the 07.10.2024 Letter did not affirm the Award, but merely restated what had already happened by virtue of the Defendant’s failure to make payment in, and noted that the Tribunal was functus officio.  This letter similarly could not make an appeal, rather than an application to set aside, the correct mode of proceeding.

23.  I therefore consider that procedurally, it is incorrect for the Defendant to seek to appeal against the Award.

D.   NO GOOD CAUSE TO EXTEND TIME FOR APPEAL

24.  I go on to consider what the position would be if I am wrong in my view that the appellate procedure is inapplicable.

25.  It is necessary to consider what the subject of the proposed appeal is, and whether the Claimant is within time to bring an appeal.

26.  As mentioned, the Application seeks leave to appeal against “the Award…made…on the 2nd day of February 2024…which was subsequently reviewed and/or varied and/or determined by further Awards/Orders/Directions by the Labour Tribunal on the 7th day of June 2024, 11th day of July 2024 and 7th day of October 2024”.

27.  Insofar as the Application seeks leave to appeal against the 07.06.2024 Setting Aside Order, the proposed grounds of appeal do not address the subject matter or merits of that order (rather, they only address the merits of the original Award), and cannot begin to suggest that the order was wrongly made.  Indeed, as noted above, it was in fact the Defendant’s position that the 07.06.2024 Setting Aside Order was “fair and reasonable”, and no application for a review of the order was made. 

28.  Insofar as the Application seeks leave to appeal against the 11.07.2024 Order, again, the proposed grounds of appeal do not address the subject matter or merits of that order, and cannot begin to suggest that the order was wrongly made.

29.  Insofar as the Application seeks leave to appeal against the 07.10.2024 Letter, again, the proposed grounds of appeal do not address the subject matter or merits of that letter, and cannot begin to suggest that the contents of the letter were wrong.

30.  As referred to above, Mr Ho submitted that the orders and letter should not be considered in isolation, but as a composite whole together with the Award.  However, the proposed grounds of appeal go only to the Award and not the subsequent orders and letter, as Mr Ho acknowledged.  The question therefore arises as to why the subsequent orders and letter were referred to at all in the Application.  The answer is apparent from the Defendant’s skeleton argument.  The Application refers to the 07.06.2024 Setting Aside Order, the 11.07.2024 Order and the 07.10.2024 Letter in a bid to extend the time for appealing against the Award.  At the hearing, Mr Ho submitted that the Tribunal did not complete its dealings with the Award until the 07.10.2024 Letter.  In his skeleton, Mr Ho argued that time for appeal against the Award of 2nd February 2024 only started to run on 9th October 2024, which is the date when the 07.10.2024 Letter was postmarked.  On that basis, the Application was said to have been brought within time.

31.  I do not agree.  The Award was made on 2nd February 2024. There was an order on 7th June 2024 to set it aside, but only on condition of payment in being made by 5th July 2024.  The condition was not met and the Award stood as at that date.  The fact that the Tribunal simply pointed this out to the Claimant on 11th July 2024 and 7th October 2024 could not have the effect of extending the time for appealing against the Award. Thus even if an appeal were the correct procedure, the Claimant would be out of time to bring an appeal.

32.  An appeal against an award of the Labour Tribunal has to be brought within seven days, or such extended time as may be allowed “on good cause”: s.32(1) LTO.  Mr Ho submits that good cause has been shown, relying on the matters set out in paragraph 23 of his skeleton argument.  I do not agree.

33.  First, even if an appeal were the right procedure to adopt to challenge the Award, there is no good reason why this was not done by at least 3rd April 2024, when the Defendant was sufficiently aware of the Award to have applied to set it aside.  The delay is substantial.

34.  The mere fact that the Defendant took some steps to set aside the Award does not justify the lack of action to appeal against the Award, if its stance (as now advanced to the court) is that appeal is the right way to proceed.  The fact that the Defendant had difficulties in making payment in is also not an excuse for the delay, particularly when it did not ask the Tribunal to review the 07.06.2024 Setting Aside Order, for example by modifying the terms of the payment in to be made.

35.  Second, I do not agree that there are merits in the proposed grounds of appeal.  As Mr Ho acknowledged, if the Award is to be challenged on its merits, then one has to consider what was before the Tribunal at the time when the Award was made, and to consider whether the Tribunal erred on the basis of that material, rather than matters subsequently raised and not placed before the Tribunal.

36.  The Defendant’s proposed grounds of appeal seek to make two points.^[2]  First, that the Tribunal was wrong to hold that the Agreement was an employment contract.  Second, that the Tribunal was wrong in its determination of quantum for the value of the unvested tokens under the LTIP, in failing to take into account the volatility of cryptocurrency.

37.  On the first point of whether the Agreement was an employment contract, Mr Ho submitted that there were “compelling factors” to show that it was not, the document being littered with references to “independent contractor” and in fact expressly providing that the Claimant was an independent contractor rather than an employee.  The Tribunal was alive to this issue and addressed it: see paragraphs 14 to 18 of the Reasons.  It noted that the Claimant gave a detailed explanation as to why he was an employee.  I have already referred above to the Statement by Claimant and the Supplementary Statement by Claimant which set out numerous matters in support of the Claimant’s claim that he was in fact an employee of the Defendant.  The Tribunal observed that the labels in the Agreement might shed light on the nature of the relationship but were not decisive.  It then noted that there was no challenge to the matters relied on by the Claimant to say that he was an employee.  In such circumstances, I do not agree that it is arguable to say that the Tribunal erred in law or failed in its statutory duty of investigation.

38.  I would further note that although Mr Ho submitted that there were “compelling factors” indicating that the relationship was not one of employment, the Defendant itself described the relationship as one of employment, and the Claimant’s remuneration as “salary”: see the Statement by Defendant of 11th April 2024 and letter seeking leave to counterclaim of 15th April 2024.  It will be recalled that these were to oppose the Claimant’s claim, which had expressly stated (in the accompanying Statement by Claimant) that the Claimant was an employee and not an independent contractor.  Furthermore, the Claimant’s status as an employee was not challenged at the hearing of 7th June 2024, at which the Defendant was represented by Mr Wu.

39.  On the second point of what quantum of damages should have been assessed for the unvested tokens under the LTIP tokens, again, there was nothing before the Tribunal on 2nd February 2024 to counter the Claimant’s claim and evidence that they should be valued at $39,099,000: see paragraph 24 of the Reasons.  In such circumstances, I do not agree that it is arguable to say that the Tribunal erred in law or failed in its statutory duty of investigation.  I can well see that there could be an argument, had the Defendant put one forward with evidence in support, that the quantum should be differently assessed, but there was no such argument or evidence before the Tribunal at the time the Award was made, so it cannot be said that the Award was erroneous.

40.  Third, I do not agree that the Defendant was not given any chance to put forward its case.  It is not disputed that it was properly served with the claim in the first place, so that it had the opportunity to put forward its case.  It is just that it did not make sufficient arrangements to be notified about the claim in good time despite such service.  This is not a matter that can be laid at the door of the Tribunal.  The Defendant then obtained a further chance to put forward its case when it successfully applied to set aside the Award, conditional upon making payment in. However, it failed to make the payment in on time, and failed to take steps such as applying for a review of the 07.06.2024 Setting Aside Order within the time allowed under s.31 LTO if (as it claims) it had difficulty in complying with the condition set.  The Tribunal had expressly noted that the Defendant might have an argument in relation to quantum for the sign-on bonus and the unvested tokens under the LTIP, and this was the basis for allowing the Defendant the opportunity to advance such an argument, but the Defendant did not comply with the terms of the 07.06.2024 Setting Aside Order so as to enable it to do so.  As the Presiding Officer observed in the Reasons, the Defendant is the author of its own misfortune.

41.  I therefore concluded that even if the appellate procedure were applicable, no good cause has been shown for an extension of time to appeal.