DEUTSCHE BANK AG (HONG KONG BRANCH) v. DANIEL MAMADOU BLANCO

HCA 1514/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1514 OF 2011

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DECISION

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1.  This is an application by the Defendant to strike out the Statement of Claim on the grounds that:

(i) the Plaintiff’s claim is one within the exclusive jurisdiction of the Labour Tribunal: and

(ii) the Statement of Claim discloses no reasonable cause of action against the Defendant, as the material facts in support of the various causes of the action relied on by the Plaintiff are missing in the pleading.

Background

2.  The Plaintiff is a company within the Deutsche Bank AG group of companies (“the Group”) which carries on banking business in Hong Kong.

3.  The Defendant is a former employee of the Plaintiff in Hong Kong with the functional title of Co-head of Capital Markets and Treasury Solutions (“CMTS”) and corporate title of Managing Director.

4.  On 29 July 2011, the Defendant gave the Plaintiff 3 months’ notice of resignation and was thereafter placed on “garden leave”.

5.  After the tender of the notice, the Plaintiff found out that the Defendant, on 19 April 2011, sent an email from the computer used by him in the office to his personal email address.  The email was headed “subject: cnn” (“the CNN Email”), and it comprised a schedule containing the names and details of the remuneration packages of 16 of the Group’s senior CMTS employees (including the Defendant) then based in the Group’s Hong Kong or Singapore branches, all of whom were colleagues of the Defendant who were working closely with him in the same “team”.

6.  Of the said 16 employees, 9 of them (including the Defendant) tendered their notices of resignation in the period from 29 July to 15 August 2011 and joined the same Plaintiff’s competitor after the expiry of the non-competition clauses in their respective employment contracts with the Plaintiff (if there was such term in the contract of the relevant employee).

7.  In view of the above, the Defendant was directed to attend an investigation meeting with the Plaintiff’s senior personnel on 10 August 2011 to explain the purposes of the CNN Email.  According to the Plaintiff, the Defendant attended the meeting but failed to provide a satisfactory or credible explanation for his conduct.

8.  On 16 August 2011, the Defendant immediately terminated his employment with the Plaintiff by making a substantial payment in lieu of notice rather than to attend the disciplinary hearing originally scheduled on 17 August 2011 for the investigation of the Defendant’s suspected misconduct.  Further, the Defendant originally agreed to permit the Plaintiff to have access to his personal computer and personal email account to facilitate the investigation.  However, the Defendant, through a letter from his solicitors, withdrew such consent on 16 August 2011.

9.  It is the Plaintiff’s “firm belief” that the Defendant had disclosed information contained in the CNN Email to the Plaintiff’s competitor for the purpose of assisting that competitor in recruiting the individuals concerned as a team of new employees to join its competing division in the same region including Hong Kong.  Further, it is the Plaintiff’s case that the Defendant 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.

10.  By reason of the said alleged wrongful acts, the Plaintiff claims against the Defendant for, inter alia, damages and a declaration that the Defendant is still bound by the non-competition and non-solicitation of employees clauses in his employment contract with the Plaintiff.

Jurisdictional issues

11.  In determining whether the Statement of Claim should be struck out, the first question I have to consider is whether the Plaintiff’s claim falls within the exclusive jurisdiction of the Labour Tribunal.  If the answer is in the affirmative, this court has no option but to strike out the claim.

(i) Statutory provision

12.  S. 7 of the Labour Tribunal Ordinance, Cap. 25 (“LTO”) provides that the Tribunal shall have exclusive jurisdiction to determine the claims specified in the Schedule of the LTO (“the Schedule”).  The Schedule reads as follows:

“1. A claim for a sum of money which arises from –

(a) The breach of a term, whether express or implied, 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;

… …. …

3. Notwithstanding paragraphs 1 and 2, the tribunal shall not have jurisdiction to hear and determine a claim for a sum of money, 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.

… … …”

13.  Obviously, the establishment of the Labour Tribunal was intended to provide an informal forum for employees to pursue their claims for unpaid wages and other statutory payments in a speedy manner. However, the Schedule also covers claims by the employers.  In many cases, the employers are claiming damages or other relief against their existing or previous employees for breach of restrictive covenants, breach of fiduciary duties and breach of confidence.  The proper forum for the adjudication of these kinds of claims is a question that has haunted the courts for many years.

14.  In the following, I would go through the authorities and deal with some of the legal principles which are relevant in determining whether the Labour Tribunal does have exclusive jurisdiction over the Plaintiff’s claim in the present case.

(ii) Liquidated and unliquidated claims

15.  The Plaintiff’s claim is for unliquidated damages arising from the alleged wrongful acts of the Defendant.  However, despite the use of the words “a sum of money” in the Schedule, it is trite law that a claim for unliquidated damages for breach of an employment contract is still one within the exclusive jurisdiction of the Labour Tribunal (see: Panalpine (Hong Kong) Ltd v Ulrich Haldemann [1983] HKLR 275, Citipost (Asia) v Julian Robert Holliday, unreported, CACV No. 111 of 2004, [2005] HKEC 200 and Gain Hill (Hong Kong) Ltd v Li Lin Yip [2006] 4 HKLRD 186).

(iii) Type of relief claimed by the claimant

16.  Since §1 of the Schedule covers only a claim for “a sum of money”, whether the Labour Tribunal does have jurisdiction over a particular claim depends on the type of relief claimed by the claimant.

17.  In many of the claims by the employer against employee for breach of restrictive covenant and breach of fiduciary duties, the employer is often seeking for an injunction to restrain the employee to continue the alleged wrongful conduct.  If the employer is claiming for relief other than monetary relief, the Labour Tribunal would no jurisdiction to entertain the claim.

18.  Conceptually, I have some difficulty with such criterion. Labour Tribunal provides a quite different mode of operation as compared with other civil courts.  The procedures in the Tribunal are more informal in nature. Further, as the presiding officer in the Tribunal has a general duty to investigate the claim, the proceedings are much more inquisitorial in the Tribunal.  In such circumstances, it is very difficult to see why a same claim can be subject to two possible regimes simply because of the difference in the type of relief claimed by the claimant.  Conceptually, it would make much more sense that the jurisdiction of the Labour Tribunal would depend on the nature of the claim rather than the type of relief claimed by the parties.  Nevertheless, this is the law as it now stands.

19.  In order to avoid abuses, the court would examine whether a claim for non-monetary relief is “window dressing”.  If the answer is in the affirmative, the court would disregard the claim for non-monetary relief and hold that the claim is one simply for “a sum of money” thereby falling within the exclusive jurisdiction of the Labour Tribunal (see: Gain Hill (Hong Kong) Ltd v Li Lin Yip, supra., and Ngan Yu Chiu v New World First Bus Services Ltd, unreported, DCCJ No. 824 of 2009, [2010] HKCU 836).

(iv) Claim for damages arising from breach of a term of the contract of employment or breach of employee’s fiduciary duty

20.  Provided that the claimant is not claiming for other non-monetary relief, Citipost (Asia) v Julian Robert Holliday, unreported, CACV No. 111 of 2004 (decision of the Court of Appeal on 8 February 2005) is the clear authority for the proposition that a claim by the employer against employee or former employee for loss and damages arising from 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 (see also: Glock (HK) Ltd v Brauner [2007] 4 HKC 186).  Citipost is a Court of Appeal decision which is clearly binding on this court.

(v) Claim founded in both contract and tort

21.  The Court of Appeal’s decision in Citipost is certainly based on the wording in §1 of the Schedule, which is a jurisdiction-conferring provision.  However, there is often overlap between claims in §§1 and 3 of the Schedule.  Since §3 is a jurisdiction-exclusion provision, there is always some tension between the operation of these two paragraphs.

22.  §3 of the Schedule states that “[notwithstanding] paragraphs 1 and 2, the tribunal shall not have jurisdiction to hear and determine a claim for a sum of money, 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”.  Obviously, one of the main objects of this paragraph is to exclude personal injuries claims from the jurisdiction of the Labour Tribunal.

23.  In Gain Hill (Hong Kong) Ltd v Li Lin Yip [2006] 4 HKLRD 186, the plaintiff dismissed its employee, the 1^st defendant, for allegedly misusing confidential information, setting up the 2^nd defendant in direct competition with it, and using the confidential information to solicit the plaintiff’s customers and to place orders with the plaintiff’s supplier.  The plaintiff brought proceedings in the Court of First Instance claiming for injunctive relief and damages for breach of confidence and/or breach of employment contract and/or breach of employee’s fiduciary duties.  The defendants sought to stay the proceedings on the basis that the Labour Tribunal did have exclusive jurisdiction over the claim.  Sakhrani J held that the claim for injunctive relief was not “window dressing”.  Further, the claim for breach of confidence was founded in both contract and tort and so it fell within both §§ 1 and 3 of the Schedule, but by §3, the Tribunal’s jurisdiction was excluded.  Hence, the Court of First Instance did have jurisdiction to entertain the claim.

24.  In his judgment, Sakhrani J referred to Citipost (Asia) v Julian Robert Holliday, supra, in which there was, inter alia, also a claim for breach of confidence.  However, since the counsel in Citipost conceded that the plaintiff’s pleading did not contain the necessary allegations to support a breach of confidence action, the Court of Appeal did not need to deal with the application of §3 of the Schedule in that case.  But in the case before Sakhrani J, the plaintiff’s breach of confidence claim could be founded both in contract and tort, and so by §3, the Labour Tribunal had no jurisdiction over the claim.  In reaching his decision about the effect of §3, Sakhrani J also referred to the similar dicta of Kwan J, as she then was,  in Estinah v Golden Hand Indonesian Employment Agency, unreported, HCSA No. 6 of 2001, [2001] HKEC 985 in support of his reasoning.

25.  Although both Gain Hill and Estinah are not strictly binding on this court, I myself agree with the dicta of both Sakhrani and Kwan JJ in the said two respective decisions because their interpretation of §3 of the Schedule is in accordance with the plain wording of the provision. 

(vi) Application of the said legal principles to the present case

26.  Has there been no claim for breach of confidence, based on the authorities mentioned above, I agree that the Labour Tribunal does have exclusive jurisdiction over the Plaintiff’s claim.

27.  Firstly, although the Plaintiff’s claim is for unliquidated damages as opposed to liquidated damages, it is clear that the Labour Tribunal does have jurisdiction to entertain unliquidated claims.

28.  Secondly, although the Plaintiff also claims for a declaration that the Defendant is still bound by the non-competition and non-solicitation of employees clauses in the contract of employment, I am of the view that such claim is purely “window dressing”.  In fact, in the letters of the Defendant’s solicitors dated 1 September and 3 October 2011, the Defendant had already confirmed that he was bound by the non-competition and non-solicitation clauses in the employment agreement.  Although there was a dispute between the parties about the effect of such confirmation (as the Defendant demanded for the monthly payments in return for the confirmation), the declaration serves no particular purpose as the effect of the clauses would have expired fairly soon.  Furthermore, even if the Defendant were in breach of these non-competition and non-solicitation clauses, an award of damages would be a sufficient remedy for the Plaintiff.

29.  Despite these observations, the Court of First Instance does have jurisdiction over the Plaintiff’s claim because it is, in substance, a claim for breach of confidence which can be founded both in contract and tort.  I agree that the Plaintiff has not expressly pleaded breach of confidence as a cause of action in the Statement of Claim.  However, the facts pleaded by the Plaintiff certainly support such cause of action.

30.  According to the Plaintiff, the Defendant had passed the confidential information relating to the remuneration packages of the 16 employees to the Plaintiff’s competitor in order to assist the latter to recruit the said employees.  The information was certainly confidential in nature and the Defendant had allegedly misused the confidential information. In fact, this is the only wrongful conduct known to the Plaintiff at this stage.   As breach of confidence claim can be founded both in contract and tort, by operation of §3 of the Schedule, the Labour Tribunal has no jurisdiction over the claim.

31.  Mr. Carolan, counsel for the Plaintiff, confirms that the Plaintiff is relying on breach of confidence as a cause of action against the Defendant.  If the pleading does not disclose the cause of action relied on, an opportunity to amend may be given even though the formulation of the amendment is not before the court (see: CBS Songs Ltd v Amstrad [1987] RPC 417 and [1988] RPC 429 and §18/19/4 of Hong Kong Civil Procedure 2012).  As the Court of First Instance clearly has jurisdiction over the Plaintiff’s claim, instead of striking out the claim, general leave should be granted to the Plaintiff to amend the Statement of Claim to include the breach of confidence claim against the Defendant.

32.  In the existing pleading, the Plaintiff has also claimed against the Defendant for breach of his duties of good faith and fidelity by encouraging his colleagues to leave the Plaintiff and to join a competitor. At this stage, I am not going to comment whether there is sufficient evidence to support such cause of action.  But if the Plaintiff still wants to include such cause of action in the amended pleading, it is arguable that the Court of First Instance does have jurisdiction over the entire claim of the Plaintiff.

33.  §§1 and 3 of the Schedule refer to “a claim for a sum of money”, and not “a cause of action”.  As the Plaintiff’s damages for breach of confidence would, in substance, be more or less the same as the damages for breach of fiduciary duty caused by the alleged act of the Defendant in encouraging his colleagues to leave the Plaintiff, it is actually one single claim of the Plaintiff “for a sum of money” which is based on two separate causes of action.  Hence, the Court of First Instance has jurisdiction over the entire claim of the Plaintiff.

Other defects in the pleading

34.  There are also other complaints about the pleading.

35.  According to Ms. Ismail, counsel for the Defendant, the material facts in support of the claim have not been included in the pleading, as the Plaintiff only expresses a “belief”, and alleges an “inference”, in the pleading that the Defendant had disclosed information to a competitor.

36.  This is certainly a legitimate complaint.  At this stage, the Plaintiff may not know the details of the alleged communication, if any, between the Defendant and the Plaintiff’s competitor.  Despite that, at the trial, the Plaintiff may rely on circumstantial evidence to ask the court to draw an inference that the Defendant had indeed passed the confidential information to the Plaintiff’s competitor.  Although the Plaintiff may not be able to supply the full particulars of the alleged communication at this stage, the positive fact that the Defendant had passed the confidential information to the Plaintiff’s competitor, which is a material fact on which the Plaintiff relies to establish the necessary element of his cause of action, needs to be expressly pleaded.  In the absence of such material fact, the pleading is defective.  Mr. Carolan does not seek to argue otherwise and agrees that there is room for improvement of the pleading.

37.  At this stage, I do not think that I need to deal with the other complaints of the Defendant about the pleading.  The Statement of Claim will have to be substantially amended to include the breach of confidence claim.  If the amended pleading is still defective, the Defendant can then make another application to strike out the pleading.

38.  However, I must add that, unlike the case of Total Lubricants Hong Kong Ltd v Christophe de la Cropte de Chanterac, unreported, HCA No. 1694 of 2008, [2009] HKCU 2031 in which Poon J struck out, inter alia, a claim for breach of confidence, the confidential information has been properly identified in the present case, ie. the remuneration packages of the 16 employees.  Hence, provided proper amendments are made to the pleading, there is basis to support the breach of confidence claim.

39.  I therefore make the following order:

(i) general leave be granted to the Plaintiff to amend the Statement of Claim;

(ii) the Plaintiff do file and serve the Amended Statement of Claim within 21 days; and

(iii) the Defendant’s summons dated 3 October 2011 be dismissed with liberty to the Defendant to make a fresh striking out application after the filing of the Amended Statement of Claim.

I also make an order nisi that the costs of the said summons, including the costs of the amendments, if any, be paid by the Plaintiff to be taxed if not agreed. The order nisi shall be made absolute 14 days after the date of the handing down of this Decision.

Revision of the Schedule

40.  In my view, the existing state of law relating to the jurisdiction of the Labour Tribunal is unsatisfactory.  Apart from the conceptual difficulty mentioned in §18 above, the courts would, from time to time, be asked to consider whether a particular claim for non-monetary relief is “window dressing”.  Such kind of argument is quite unnecessary.  Instead of wasting time on these peripheral issues, the court should focus more on the merits of the claims.

41.  As I see it, the Labour Tribunal was intended as an informal forum for employees to pursue their claims for wages and other statutory payments in a speedy manner.  I doubt whether it was the intention of the legislature that the Tribunal should be asked to adjudicate complex claims by employer against employee for breach of fiduciary duties.  In my view, it can avoid a lot of unnecessary arguments if such kind of claim is excluded all together from the jurisdiction of the Labour Tribunal.  In such case, the Tribunal can focus on and has more resources to deal with the more pressing claims by employees for unpaid wages and other statutory payments.