BLACK MARBLE SECURITIES LTD v. LEE YAN CHI

HCA 920/2020

[2023] HKCFI 1084

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 920 OF 2020

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J U D G M E N T

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A.  INTRODUCTION

1.  The Plaintiff (“Black Marble”) claims against the Defendant (“Ms Lee”) a sum of $3,384.093.12 and interest pursuant to a broker cooperation agreement (“the Broker Agreement”) made between the parties and dated 31^st August 2015. The sum sought is in the nature of an indemnity by Ms Lee for amounts owed by two clients to Black Marble, which clients were originally introduced by Ms Lee to Black Marble.

2.  Ms Lee disputes liability on the ground that the indemnity provision in the Broker Agreement is void for breach of the Employment Ordinance (Cap.57) (“the EO”) or is otherwise unenforceable. She further counterclaims for the sum of $329,512.18 and interest which has been withheld from the salary and commission otherwise payable to her.

B.  THE FACTUAL BACKGROUND

3.  Unless otherwise indicated, the following is not in dispute (or indisputable), and I find them as facts. I will address the disputes of fact in a subsequent section.

4.  Black Marble was at all material times a Hong Kong company licensed under the Securities and Futures Ordinance (Cap. 571) to conduct Type 1 regulated activities, namely, dealing in securities.

5.  Ms Lee was at the material time, a licensed representative for Type 1 regulated activities accredited to Black Marble, and an account executive of Black Marble.

6.  On 31^st August 2015 Ms Lee entered into an employment agreement with Black Marble (“the August 2015 Employment Agreement”). The agreement stated that Black Marble employed Ms Lee as a broker. Ms Lee’s salary was stated to be $30,000 per month with commission as indicated in Appendix 1. Appendix 1 stated that in respect of the amount of commission received from a client, Black Marble was to be entitled to 30%, and Ms Lee and her team were to be entitled to 70%.

7.  The August 2015 Employment Agreement did not itemise Ms Lee’s job duties, but instead, provided that the “specific job content” of Ms Lee was “stipulated by the relevant systems” of Black Marble, “which [had] been fully understood and grasped by [Ms Lee] when signing this contract”.

8.  On 30^th December 2015 Mr Lee entered into a further employment agreement with Black Marble (“the December 2015 Employment Agreement”, and together with the August 2015 Employment Agreement, “the Employment Agreements”). The terms were materially the same as those in the August 2015 Employment Agreement, save that the salary was reduced to $15,000 per month.

9.  There is a further Broker Cooperation Agreement (經紀合作協議) between the parties, namely, the Broker Agreement on which Black Marble brings its claim. It is dated 31^st August 2015. Black Marble says it was signed on that date. Ms Lee says it was signed at the end of August 2016 and backdated.

10.  The Broker Agreement provided that:

10.1  Ms Lee was to deal in securities on behalf of clients of Black Marble (cl.1(2));

10.2  commissions and fees charged by Black Marble to its Clients were to be shared with Ms Lee in accordance with the ratio in Appendix 1 (cl.1(3), 3(1)). The ratio stipulated in Appendix 1 was the same as that under the Employment Agreements;

10.3  “After the opening of an account with [Black Marble], if the Client fails to make payment in relation to dealing in securities or futures, service charges and interests on time, and is thereby in breach of any responsibility or rules, any loss including but not limited to those caused to [Black Marble] shall be borne by [Ms Lee], and [Black Marble] has the absolute right to recover the loss against [Ms Lee] or the Client severally or jointly” (cl.9(1)) (“Clause 9(1)”).

11.  On around 17^th November 2015, at the introduction of Ms Lee, Mr Wong Ho Sing (“Mr Wong”) opened a margin securities trading account with Black Marble.

12.  On around 25^th July 2015, at the introduction of Ms Lee, Mr Zhang Jie (“Mr Zhang”) opened a margin securities trading account with Black Marble.

13.  The accounts of both Mr Wong and Mr Zhang (“the Clients”) were governed by and subject to the terms and conditions of Black Marble’s securities client agreement (“the Client Agreement”).

14.  As at 28^th July 2016, the Clients had outstanding margin in their accounts. However, in breach of their respective Client Agreements, neither of the Clients settled the outstanding margin in full.

15.  Ms Lee says that she was asked to sign the (backdated) Broker Agreement at the end of August 2016. She says that at the same time, she and Black Marble entered into an oral agreement that any compensation payable to Black Marble under Clause 9(1) would be paid through deduction of her wages (“the Oral Agreement”). I return to this dispute of fact below.

16.  On 28^th September 2016, Ms Lee executed a written undertaking in favour of Black Marble in respect of the amount owed by Mr Zhang (“the September 2016 Undertaking”). The agreed translation of the undertaking reads as follows.

“I am LEE YAN CHI…, as Zhang Jie…, being my customer, has arrears of HK$1,904,287.03 as of today and the repayment situation remains uncertain, I am very sorry for the loss that it may cause to the company. I agree to freeze [“凍結” in the original] 50% of my total monthly income to set off [“抵償” in the original] the arrears owed by Zhang Jie, until such arrears owed by Zhang Jie are fully repaid, and then my total frozen amounts can be made unfrozen.”

17.  On 4^th November 2016, Ms Lee executed a further written undertaking in favour of Black Marble in respect of the amounts owed by both Mr Zhang and Mr Wong (“the November 2016 Undertaking” and together with the September 2016 Undertaking “the Undertakings”). The agreed translation of the undertaking reads as follows.

“I am LEE YAN CHI…, as the repayment situation of Zhang Jie… and Wong Ho Sing are uncertain, I am very sorry for the loss that it may cause to the company. I agree to freeze [“凍結” in the original] 100% of my total monthly commission income, until the arrears owed by Wong Ho Sing being fully repaid, after that, the frozen percentage of my total monthly commission income will be changed to 70%, until the arrears owed by Zhang Jie being fully repaid, and then my total frozen amounts can be made unfrozen.”

(The arrears ($1,928,795.18 for Zhang and $61,936.01 for Wong) were then set out.)

18.  An amount of $329,512.18 from Ms Lee’s salary or commission income has been withheld by Black Marble. Black Marble says that it has merely “retained” the amount; Ms Lee says that the sum has been “deducted” by Black Marble.

19.  On 28^th February 2017, Black Marble issued a notice to Ms Lee, communicating “a decision to terminate the employment relationship with [Ms Lee], and retain her broker position only” (“the Termination Notice”). The last working day was stated to be 31^st March 2017. From 1^st April 2017, Black Marble no longer paid any monthly salary to Ms Lee.

20.  Notwithstanding the Termination Notice, Ms Lee continued to work at Black Marble. Black Marble says that Ms Lee was not required to attend for regular work. Ms Lee says that nothing changed in that duties remained the same, and Black Marble’s control over her work remained the same (in terms of the requirement to attend at fixed hours, notify her superiors of her whereabouts if she was not in the office, make regular work progress reports, and submit sick leave certificates if she took sick leave).

21.  Ms Lee says that because Black Marble’s business continued to deteriorate, she decided to give notice of resignation on around 13^th August 2018 (“the Resignation Notice”); however, Black Marble refused to accept her resignation, and did not consent to the change of accreditation of her SFC licence. Black Marble says that it has no record of Ms Lee’s resignation of 2018, and that Ms Lee continued to receive a proportion of commissions from Black Marble until 2020.

22.  By a letter of 5^th February 2020, Messrs HY Leung & Co, on behalf of Ms Lee, wrote to Black Marble, stating that requests had been made by Ms Lee, and also in December 2019 by her new employer SinoPac Securities (Asia) Limited (“Sinopac”), for the release of Ms Lee’s Type 1 licence, which had been refused by Black Marble. Black Marble was asked to take action to release the registration.

23.  On 18^th February 2020, Ms Lee ceased to be a licensed representative accredited to Black Marble.

24.  On 2^nd March 2020, Messrs So, Lung and Associates, on behalf of Black Marble, sent a demand letter to Ms Lee. The letter referred to Clause 9(1), stated that the total amount which the Clients owed to Black Marble as at 2^nd March 2020 was $3,251,466.37, that the amount retained by Black Marble pursuant to the Undertakings was $329,512.18, and that as a result, a sum of $2,921,954.19 was payable to Black Marble.

C.  THE FACTUAL DISPUTES

25.  I will first deal with the factual disputes, as they are key to the determination of many of the issues arising between the parties.

C1.  Some general observations

26.  There were two witnesses who gave evidence at the trial: Mr Ho Kit Ming (“Mr Ho”), who gave evidence on behalf of Black Marble, and Ms Lee.

27.  In assessing the witnesses’ evidence, I have had regard to the principles summarised in Hui Cheung Fai v Daiwa Development Ltd, unreported, HCA 1734/2009, 8 April 2014 at [77] to [83] (DHCJ Eugene Fung SC). In particular:

27.1  contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility;

27.2  in deciding whether to accept a witness’ account, importance should also be attached to the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of events;

27.3  regard should be had to the consistency of the witness’ evidence with undisputed or indisputable evidence, and the internal consistency of the witness’ evidence. The latter type of consistency is often tested by comparing the witness’ oral testimony and his witness statement;

27.4  care should be taken in drawing conclusions about truthfulness and reliability solely or mainly from the appearance of a witness or from the assessment of a witness’ character; and

27.5  witnesses’ credibility should be tested by reference to the objective facts proved independently of their testimony, and regard should be had to their motives and to the overall probabilities.

28.  A notable feature of this case is that it does not really involve a conflict of oral evidence as such. The only witness called to give evidence by Black Marble, Mr Ho, had no personal knowledge of the factual issues in dispute between the parties. Mr Ho only joined Black Marble in April 2021, as a director. In the witness box, Mr Ho frankly admitted that he had no personal knowledge of a number of matters. Through an admirably concise and precise cross-examination, Miss Natalie So, counsel for Ms Lee, demonstrated that in respect of a number of other important matters, Mr Ho equally had no personal knowledge. Much of what was in his witness statement was based on what he gleaned from his consultation of Black Marble’s internal records.

29.  Miss So submits that Black Marble’s failure to call witnesses who might have been expected to give evidence, coupled with the absence of any justification, justifies the drawing of adverse inferences against Black Marble on certain matters.

30.  Where a party against whom a prima facie case is established fails, without explanation, to call a witness who might reasonably be expected to give direct evidence on the matters in question, the court may draw adverse inferences against him. See Pacific Electric Wire & Cable Co Ltd v Texan Management Ltd, unreported, CACV 90-91, 93-96/2012, 17 September 2013 at [106] to [107]:

“106. The relevant principles are as set out by Brooke LJ in Wisniewski v Central Manchester Health Authority [1998] PIQR 324 at 340:

“(1) In certain circumstances a court may be entitled to draw adverse inferences from the absence or silence of a witness who might be expected to have material evidence to give on an issue in an action.

(2) If a court is willing to draw such inferences, they may go to strengthen the evidence adduced on that issue by the other party or to weaken the evidence, if any, adduced by the party who might reasonably have been expected to call the witness.

(3) There must, however, have been some evidence, however weak, adduced by the former on the matter in question before the court is entitled to draw the desired inference: in other words, there must be a case to answer on that issue.

(4) If the reason for the witness’s absence or silence satisfies the court, then no such adverse inference may be drawn. If, on the other hand, there is some credible explanation given, even if it is not wholly satisfactory, the potentially detrimental effect of his/her absence or silence may be reduced or nullified.”

107. And as Lord Sumption has stated in Prest v Petrodel Resources Ltd [2013] UKSC 34 at §44:

“There must be a reasonable basis for some hypothesis in the evidence or the inherent probabilities, before a court can draw useful inferences from a party’s failure to rebut it. For my part I would adopt, with a modification which I shall come to, the more balanced view expressed by Lord Lowry with the support of the rest of the committee in R v IRC, ex parte TC Coombs & Co [1991] 2 AC 283, 300:

‘In our legal system generally, the silence of one party in face of the other party’s evidence may convert that evidence into proof in relation to matters which are, or are likely to be, within the knowledge of the silent party and about which that party could be expected to give evidence. Thus, depending on the circumstances, a prima facie case may become a strong or even an overwhelming case. But, if the silent party’s failure to give evidence (or to give the necessary evidence) can be credibly explained, even if not entirely justified, the effect of his silence in favour of the other party may be either reduced or nullified.

Cf Wisniewski v Central Manchester Health Authority [1998] PIQR 324, 340.’ ” ”

31.  Mr Keith Tam, counsel for Ms Lee, submitted that it was not open to the court to draw adverse inferences as Miss So had not put to Mr Ho that she would invite the court to do so. I do not agree that it was necessary for Miss So to do so. In any event, Miss So did cross-examine Mr Ho as to whether Black Marble had made efforts to contact and obtain evidence from the personnel who was said to have been involved in the various events, and I refer further to this below.

C2.  Whether Broker Agreement signed in August 2015 or August 2016

32.  Ms Lee’s evidence is that Ms Chu Yat Kiu of Black Marble approached her one morning around the end of August 2016, with two copies of the Broker Agreement backdated to 31^st August 2015 and already signed by Mr Wong. Ms Lee understood from Ms Chu that Black Marble had serious concerns about the amounts owed by the Clients. Ms Chu said to Ms Lee that she would be laid off if she refused to cooperate and sign the Broker Agreement. Ms Lee therefore signed the two documents. She kept one copy for herself and gave the other back to Ms Chu.

33.  Mr Tam submitted that Ms Lee’s evidence was untruthful because there was no good reason for her to agree to backdate or even enter into the Broker Agreement in August 2016, when the outstanding amounts owed by the Clients totalled almost $2.8 million, and when Ms Lee understood that in the absence of the Broker Agreement, she would not be liable for such amounts. However, it does not seem to me that the mere fact that Ms Lee would be disadvantaged by signing the Broker Agreement renders it inherently unlikely or illogical that she signed. Ms Lee found herself in the situation that two clients whom she had introduced to her employer[1] had caused loss to the employer; she was being blamed for this; Ms Chu told her that if she did not sign the Broker Agreement, she would be laid off; she therefore felt that she had to comply. In fact, as Ms Lee pointed out in cross-examination, something similar had happened before: in December 2015, she was asked to sign an employment contract with a reduced salary of $15,000 per month instead of the original $30,000 – something which would put her in a disadvantageous position. She was “very unwilling” to do this, but she still felt that she had to sign it. There is no suggestion that this account of events was inaccurate.

34.  Furthermore, at the time, Ms Lee felt that Mr Zhang, who owed the larger share of liabilities to Black Marble (around $2 million), had the financial means to repay, as he was a “major shareholder” and as he had offered to repay Black Marble in instalments (which Black Marble had refused).

35.  Mr Tam also submitted that another person who was introduced by Ms Lee to work at Black Marble signed both an employment agreement and a broker agreement with Black Marble on 4^th September 2015 (in other words, that there was no backdating in that case). However, what happened in another person’s case, without more, can have little probative value as to what happened in the present case.

36.  I turn to Mr Ho’s evidence on this issue. In his witness statement, Mr Ho said that the Broker Agreement was signed on 31^st August 2015. However, in cross-examination, he said that this was simply based on the date which appeared in the document; he had “no idea” about whether it was signed and backdated; and he did not know the actual circumstances in which it was signed.

37.  Mr Ho’s statement said that in relation to the allegation that the Broker Agreement had been signed in August 2016 and backdated to 31^st August 2015, Black Marble had contacted Mr Wong King Man, the director of Black Marble who had signed the agreement on its behalf, to ascertain the circumstances in which the document was executed. Mr Wong had apparently said that it was “impossible” that the Broker Agreement had been entered into after the date appearing on its face. However:

37.1  Mr Ho did not personally speak to Mr Wong King Man. He was only able to say that it “should be” the two previous directors of Black Marble who had done this. One of these was Mr Eddy Fan Chun Wah. The other was presumably Mr Lai Kin Chung.[2] Both left Black Marble before Mr Ho joined.

37.2  Mr Ho did not know how Mr Fan or Mr Lai had contacted Mr Wong King Man; he thought it took place in 2020; he did not see any internal documents regarding such communications with Mr Wong King Man.

38.  Mr Ho’s statement also said that Mr Wong King Man was not willing to testify in court, apparently because he left Black Marble more than four years ago. This information was based on what he was told by another colleague, Mr Gerald Chu, who was “probably not” working at Black Marble any more.

39.  Mr Ho was aware that Ms Lee’s case is that Ms Chu Yat Kiu had asked her to sign the Broker Agreement in August 2016. However, Ms Chu had resigned in August 2018; Mr Ho had not contacted Ms Chu about the allegation; Mr Ho had no idea whether any colleagues or former directors had contacted Ms Chu about the allegation; and there were no internal records of any contact with Ms Chu about the allegation.

40.  In the light of the above, I see no reason to disbelieve Ms Lee’s evidence that the Broker Agreement was backdated. Insofar as may be necessary, I would also go further to draw an inference that this was the case, given the failure of Black Marble to call Mr Wong King Man or Ms Chu Yat Kiu to give evidence regarding this issue. Whilst Mr Ho was able to testify that there was hearsay evidence that Mr Wong King Man was not willing to testify as had left Black Marble, the evidence in this regard was somewhat uncertain and lacking in particulars. It is not clear, for example, whether Black Marble had actually asked Mr Wong King Man to testify in court.

41.  I therefore find the Broker Agreement was signed at around the end of August 2016, and backdated to 31^st August 2015.

C3.  Whether Oral Agreement made

42.  Ms Lee’s evidence in her witness statement is that at around the same time as she signed the Broker Agreement, and presumably (she surmises) to make her feel less concerned about its terms, Ms Chu told her that any compensation payable by her pursuant to the Broker Agreement would be paid solely by deduction from her wages. In the light of Ms Chu’s comments about potentially laying her off, Ms Lee agreed to Ms Chu’s statement.

43.  Mr Tam submitted that the Oral Agreement was a fabrication, since:

43.1  there was no written record of the Oral Agreement or other contemporaneous documentary record of it;

43.2  the claim of the Oral Agreement is self-serving and surfaced only in the Defence and Counterclaim;

43.3  the Undertakings contradict the Oral Agreement as they refer only to freezing of Ms Lee’s income, rather than deduction;

43.4  Black Marble’s records show that it has been retaining (rather than deducting) portions of Ms Lee’s income; and

43.5  it defies common sense for the parties to have made an agreement which would have rendered the Broker Agreement void.

44.  However, I agree with Miss So’s submissions that:

44.1  unlike the typical situation where a party seeks to enforce an oral agreement and obtain some right or entitlement thereunder, the Oral Agreement was one which did not confer any benefit on Ms Lee. Ms Lee is not trying to enforce the Oral Agreement – she has never sought to have Black Marble make deductions from her income. In the circumstances, it is hardly surprising that Ms Lee did not hasten to make any written record of the Oral Agreement;

44.2  similarly, it is not surprising that the Oral Agreement was referred to in the Defence and Counterclaim only for the first time, since at no point has Ms Lee sought to enforce it by asking Black Marble to make deductions from her income;

44.3  not a lot can be read into the fact that the Undertakings use the word “freeze” rather than “deduct”, given that (1) they were prepared by Ms Chu and not Ms Lee, (2) Ms Lee’s evidence was that Ms Chu asked her to sign the Undertakings to give additional reassurance to Black Marble (rather than to record the Oral Agreement), (3) Ms Lee felt that she had no choice but to sign as she did not want to lose her job, (4) given the circumstances, even if Ms Lee noticed any discrepancy between the Undertakings and the Oral Agreement, surely she would have preferred to have signed a document that said that her income was to be frozen rather than deducted;

44.4  the Undertakings are therefore consistent with the Oral Agreement, and seek to further particularise how the Oral Agreement was to be implemented;

44.5  as regards the two-page document produced by Black Marble, said to set out the salary and commission of Ms Lee and showing the proportion which was “Hold on Company” and the proportion “Paid to Rosa [Ms Lee]”, said to evidence Black Marble’s case that no deductions were made: the document was not prepared by Mr Ho; he said that it was Black Marble’s internal record. Black Marble has not called anybody to explain what the document is and what it purports to show. It carries little weight in showing that Black Marble merely retained, rather than deducted, portions of Ms Lee’s income;

44.6  indeed, it can be seen from the two-page document that whilst in October 2016, the amount of commission “held” was apparently “100%”, from November 2016 onwards, the amount of commission “held” was reduced to 70%, which would be consistent with the “held” amounts having been used to offset the arrears owed by Mr Wong. It will be noted that the November 2016 Undertaking provided for the “frozen” percentage of Ms Lee’s commission to be reduced from 100% to 70% after full repayment of Mr Wong’s arrears.[3] Nobody has come forward from Black Marble to explain this either;

44.7  it is not inherently implausible for lay persons to make agreements which turn out to be void or unenforceable. There is no evidence as to whether Ms Chu knew that what she was proposing might turn out to be void. On the one hand, she apparently had experience in human resources matters, so she might be expected to have some knowledge as to whether deductions could be made from an employee’s income. On the other hand, whilst Black Marble apparently initially withheld some part of both Ms Lee’s salary and commission in September and October 2016, it subsequently decided to withhold part of her commission only; and then in February 2017 it sought to terminate her “employee” status by the Notice of Termination. It might be that there was some realisation, but only belatedly, that deduction of salary from an employee was problematic. However, nobody from Black Marble has come forward to explain these matters;

45.  I turn to Mr Ho’s evidence on this issue. He was not working for Black Marble at the time of the Oral Agreement. He said that he had no idea as to whether any such agreement was made. Moreover, he had not asked Ms Chu about this, nor was there any internal record that any other colleague had asked Ms Chu.

46.  In the light of the above, I see no reason to disbelieve Ms Lee’s evidence that the Oral Agreement was made. Again, insofar as may be necessary, I would also go further to draw an inference that the agreement was made, given the failure of Black Marble to call Ms Chu to give evidence regarding this issue, and to explain why she was not asked to give evidence.

47.  I therefore find that the Oral Agreement was made.

48.  However, although I accept Ms Lee’s evidence as to how the Oral Agreement came to be made, I do not agree that it was made as supplementing, or as part of, the Broker Agreement. Ms Lee’s witness statement recounts how she was first pressured into signing the Broker Agreement. It was only thereafter that, in an apparent attempt to make Ms Lee less concerned about its terms, Ms Chu said to Ms Lee that compensation would be paid solely by deduction from her wages.[4]

49.  Miss So submitted that the signing of the Broker Agreement and the entering into of the Oral Agreement were a series of interlinked events, so that even if they did not take place on the same occasion, they should be construed as one event. However, having revisited Ms Lee’s witness statement, it seems to me that the Oral Agreement was made after the Broker Agreement had already been signed; furthermore, it was not the case that Ms Lee entered into the Broker Agreement because of any understanding that payment of compensation under Clause 9(1) would be done by way of wage deduction. I therefore find that the Oral Agreement was not made on the same occasion as the Broker Agreement, and was not made as a supplement to or as part of the Broker Agreement, but on a separate occasion shortly thereafter.

50.  This gives rise to another issue, and that is the lack of consideration for entering into the Oral Agreement. It seems to me that no consideration was given. What happened was that Ms Chu said to Ms Lee that compensation would be paid by way of deduction from her wages (and not that Ms Lee would be asked to come up with the outstanding amount) so as to make Ms Lee feel better about the Broker Agreement which she had signed. The Oral Agreement is therefore not a binding agreement with any effect, whether as an agreement supplemental to the Broker Agreement (as Ms Lee argues) or as a standalone agreement. I return to the implications of this below.

C4.  Whether Ms Lee was required to work in the same way after the Termination Notice

51.  Ms Lee says in her witness statement that although she received the Termination Notice in February 2017, purporting to terminate her employment relationship with Black Marble after March 2017, her duties remained the same, and Black Marble’s control over her also remained the same, in that she had to attend the office at fixed hours, notify her superiors of her whereabouts if she was not in the office, make regular work progress reports, and submit sick leave certificates if she took sick leave.

52.  Under cross-examination, Ms Lee said that her duties under the August 2015 Employment Agreement and the December 2015 Employment Agreement and her duties as broker of Black Marble were the same. She spent half the time devoted to the house accounts of clients assigned to her by Black Marble, and the other half on the accounts of her “own” clients. Ms Lee explained that despite the termination, she still had to look after both sets of clients. Whilst there was no express instruction that she had to attend for work at the same hours as before, it was her understanding, given that there were few personnel left at Black Marble, that she had to do so, and to continue to look after the daily instructions given by such clients.

53.  Mr Ho in his witness statement says that Ms Lee was not required to work regularly in Black Marble’s office. However, in cross-examination, he acknowledged that this was simply based on his understanding that Ms Lee was no longer an employee; he had not received any information from his colleagues as to the actual circumstances of Ms Lee’s work.

54.  I see no reason to disbelieve Ms Lee’s evidence that her duties remained the same, and Black Marble’s control over Ms Lee remained the same, even after the Termination Notice took effect. Again, insofar as may be necessary, I would also go further to draw an inference that this was the case, given the failure of Black Marble to call any witness with knowledge of the matter to give evidence regarding this issue. It is not even said that there is nobody currently working at Black Marble who had knowledge of Ms Lee’s work duties during the lengthy period from April 2017 to February 2020.

55.  It is convenient to mention here that it was put to Ms Lee that she had admitted that she had two relationships with Black Marble: one of employment and one of a “brokerage relationship”, since Messrs HY Leung & Co’s letter of 5^th February 2020 referred to Black Marble’s termination of the former through the Termination Notice for February 2017, and Ms Lee’s termination of the latter through her Resignation Notice of August 2018. However, it seems to me that this goes to the question of what labels the parties may or may not have used, which is not the same question as what Ms Lee’s duties, or the rules to which she was subject, were as a matter of fact. In any event, the focus of Messrs HY Leung & Co’s letter of 5^th February 2020 was on requesting a release of Ms Lee’s licence. It did not seek to address the issue of whether Ms Lee was an employee of Black Marble.

56.  I therefore find that despite the Termination Notice, Ms Lee’s duties at Black Marble remained the same, and that she continued to be subject to the same rules and regulations of Black Marble as before.

C5.  Whether Ms Lee attempted to resign

57.  Ms Lee says in her witness statement that around 13^th August 2018, she decided to give notice to resign from Black Marble. However, her resignation was not accepted as Black Marble would no longer have any full-time account executives under its employment if Ms Lee left; furthermore, Black Marble was of the view that Ms Lee should be responsible for the outstanding amounts under Mr Wong’s and Mr Zhang’s accounts. Black Marble did not consent to the change of accreditation of Ms Lee’s SFC licence. Therefore, Ms Lee had no choice but to continue working at Black Marble. Ms Lee signed an employment agreement with Sinopac on 10^th December 2019, intending to start working there on 19^th December 2019. However, Black Marble refused to consent to the change of accreditation of Ms Lee’s licence. Subsequently, Messrs HY Leung & Co wrote on 5^th February 2020, complaining that the refusal to release Ms Lee’s registration was unreasonable and demanding that the release be completed within seven days. On around 6^th February 2020, Mr Eddy Fan approached Ms Lee and asked her not to leave Black Marble. In the end, on 18^th February 2020, Black Marble finally agreed to the change of accreditation.

58.  Mr Tam says that the copy of the resignation letter produced by Ms Lee is marked as a draft only and was unsigned. Furthermore, Ms Lee was unable to explain why she sought to resign in August 2018 when the agreement with Sinopac was was only signed more than a year later in December 2019. It is therefore questionable as to whether Ms Lee tendered her resignation as alleged.

59.  However, when questioned about this, Ms Lee explained that she tendered her resignation in August 2018 because she wanted to resign and look for other jobs at the time.

60.  Whether or not it may have been the case that Ms Lee was persuaded to stay on at Black Marble after August 2018, which might explain why she did not sign an agreement with Sinopac until December 2019 and why the written demand for the release of her registration was not made until afterwards, was not explored in cross-examination.

61.  Mr Ho’s evidence in his witness statement is that Black Marble had no record of Ms Lee’s resignation. However, he accepted in cross-examination that he could not say whether Black Marble might not have kept a record of a resignation that it did not accept. Mr Ho also said that Ms Lee continued to receive commission until around 2020, but he accepted that as long as Ms Lee continued to work for Black Marble, she would have been entitled to receive commission. Furthermore, neither he nor anyone else at Black Marble had contacted Mr Eddy Fan regarding Ms Lee’s claim that Mr Eddy Fan had asked her not to leave.

62.  In the circumstances, I see no reason to disbelieve Ms Lee’s evidence that she tried to resign in August 2018, but that Black Marble refused to accept this, and that she had no choice but to continue working for Black Marble because Black Marble would not release her SFC licence which was accredited to Black Marble, and I so find. Insofar as may be necessary, I would go further to draw an inference that this was the case, given the failure of Black Marble to call Mr Eddy Fan or other witnesses who could have given evidence regarding the matter.

D.  WHETHER CLAUSE 9(1) VOID FOR VIOLATION OF SECTION 32(1) EO

63.  Ms Lee’s key argument is that the Oral Agreement supplemented the Broker Agreement and rendered Clause 9(1) void for violation of s.32(1) EO for requiring deductions from Ms Lee’s salary and commission. It is a necessary part of her case that the Broker Agreement formed part of the terms of employment with Black Marble. However, in the light of my findings above, irrespective of whether the Broker Agreement formed part of the terms of employment, the argument based on the EO must fail:

63.1  the Oral Agreement was not made on the same occasion as the Broker Agreement, and was not made as a supplement to, or as part of, the Broker Agreement, but on a separate occasion shortly thereafter;

63.2  no consideration was given for entering into the Oral Agreement. It is not a binding agreement with any effect.

64.  The Oral Agreement therefore does not affect the operation of the Broker Agreement and cannot render Clause 9(1) void.

65.  For completeness, I would note that it is not Ms Lee’s case that withholding of $329,512.18 of her salary and commission, pursuant to the Undertakings, is in itself problematic, in the absence of the Oral Agreement.[5] This is presumably because, in the absence of a basis to challenge the validity of Clause 9(1), any challenge to the withholding of Ms Lee’s salary and commission, in the circumstances of the present case, makes little practical difference to the overall outcome given Black Marble’s claim for set-off.

E.  THE NATURE OF THE RELATIONSHIP BETWEEN THE PARTIES

66.  Black Marble’s case is that there were two relationships between the parties: Ms Lee was an employee of Black Marble, pursuant to the Employment Agreements; and she was also an independent contractor of Black Marble, pursuant to the Broker Agreement. The reason why Black Marble has advanced this contention is to counter Ms Lee’s case that she was only ever an employee; that the Broker Agreement formed part of the terms of employment; and that the Oral Agreement supplemented the Broker Agreement and rendered Clause 9(1) void pursuant to s.70 EO for requiring deductions from Ms Lee’s salary and commission.

67.  In the light of my findings regarding the Oral Agreement and implications of such findings, the exact nature of the relationship between the parties is no longer of any real importance. Nevertheless, I set out my observations in deference to counsel’s arguments.

68.  The modern approach to the question of whether one person is another’s employee is to examine all the features of their relationship against the background of the indicia developed in the case law with a view to deciding whether, as a matter of overall impression, the relationship is one of employment, bearing in mind the purpose for which the question is asked. It involves a nuanced and not a mechanical approach. See Poon Chau Nam v Yim Siu Cheung (2007) 10 HKCFAR 156 at [18] (Ribeiro PJ).

69.  In the present case, there are undoubtedly features of the Broker Agreement that suggest that, if one were to consider the agreement on its own, a broker thereunder is an independent contractor. Clause 9(1), for example, places a substantial degree of financial risk on the broker.

70.  However, I am being asked to consider the issue against the background of there being another agreement between the parties as constituted by the Employment Agreements. Furthermore, it is not disputed that these agreements created a relationship of employment between the parties from 31^st August 2015 up to at least 31^st March 2017, when the Termination Notice took effect.[6]

71.  It is against this background that Mr Tam argued that there were two relationships between the parties, with Ms Lee being both employee and independent contractor. Mr Tam’s submissions were that:

71.1  the wording of the Broker Agreement and the August 2015 Employment Agreement / December 2015 Employment Agreement were drafted, and intended, to be “wholly independent from each other”.[7]

71.2  Miss So’s reliance on Samengo-Turner & Ors v J & H Marsh & McLennan (Services) Ltd & Ors [2007] 2 CLC 104, where bonus agreements were held to be part of the employment agreements, did not assist as the case was distinguishable on the facts, the bonus agreements making express reference to employment;[8]

71.3  Poon Chau Nam did not change the analysis;[9] and

71.4  Ms Lee’s case was flatly contradicted by the documentary evidence. For example, Ms Lee blew hot and cold in admitting that she had two relationships with Black Marble (via HY Leung’s letter of 5^th February 2020).[10]

72.  I cannot agree that there were two relationships as argued for by Mr Tam, at least not in the period prior to the termination of the Employment Agreements on 31^st March 2017.

72.1  In his oral closing submissions, Mr Tam acknowledged that Ms Lee could not be both an independent contractor and employee in respect of the same duties at the same time. However, Mr Tam did not identify any difference in duties which Ms Lee carried out qua employee and qua independent contractor. He pointed to the fact that Ms Lee spent half her time on her own clients as “employed broker” or as “independent broker” and then half her time on Black Marble’s clients as “employee”. But the nature of Ms Lee’s duties, the degree of control by Black Marble over Ms Lee, and the degree of reward and risk in both cases was the same.

72.2  It was not disputed that the terms on which Ms Lee agreed to be employed by Black Marble might be found outside the Employment Agreements. The Employment Agreements did not expressly refer to the Broker Agreement, but they stated that Ms Lee was being employed as a broker, without condescending into particulars of what the duties of a broker were to be, whereas the Broker Agreement set these out. There is nothing to indicate that a “broker” under the Broker Agreement was not the same as a “broker” under the Employment Agreements, and both documents were Black Marble’s.

72.3  Whilst it is true that on the facts I have found, the Broker Agreement was not signed until the end of August 2016 and backdated to 31^st August 2015, this does not preclude the Broker Agreement from supplementing the Employment Agreements as a matter of law. (It may be that there might be issues as to whether particular aspects of the Broker Agreement take effect from 31^st August 2015 or end of August 2016 but none are relevant for present purposes. At the time when the Oral Agreement was made, the Broker Agreement had already been signed and was in effect.) Mr Tam submitted that as a matter of fact, it was illogical that on Ms Lee’s case, she was employed as a broker from 31^st August 2015 when she did not know of the scope of her work until she signed the Broker Agreement a year later, but Ms Lee said in cross-examination that she understood what her job duties were from the term “broker”.

72.4  Samengo-Turner was cited by Miss So as an illustration of the proposition that the terms of an employment contract can come from sources other than the contract “proper” (Chong Cheng Lin Courtney v Cathay Pacific Airways Limited, unreported, HCA 898/2007, 22^nd December 2009 at [11] (Chung J)). This proposition was not disputed by Mr Tam. Thus whether or not Samengo-Turner is or is not similar to the present case does not advance either party’s case.

72.5  The submission that the application of Poon Chau Nam adds nothing seems to me to be self-defeating, in that it also acknowledges at the same time that the evidence “of course would accord with being an employee of [Black Marble] precisely because of the Employment Agreements … On [Ms Lee’s case], the [Broker Agreement] was entered into 1 year after she began her work as an employee of [Black Marble]. There is also no dispute that the Employment Agreements themselves are contracts of employment. It is therefore unsurprising that she would fulfil the indicia of employment…”.[11]

72.6  As for Messrs HY Leung & Co’s letter of 5^th February 2020, I have already made the point above that its focus was on requesting a release of Ms Lee’s licence. It did not seek to address the issue of whether Ms Lee was an employee of Black Marble. I cannot read into it an admission by Ms Lee “that she had 2 relationships” with Black Marble. In any event, whether or not Ms Lee was an employee of Black Marble or an independent contractor is a matter of law and not admission.

73.  I do not find it necessary to express any view as to the nature of the parties’ relationship after 31^st March 2017. The parties’ dispute about whether Ms Lee was an employee of Black Marble arose only because Ms Lee sought to argue that the Oral Contract supplemented the Broker Agreement and rendered Clause 9(1) void for violating s.32(1) EO. For this purpose, whether or not Ms Lee was an employee of Black Marble would have been relevant at most at the time that the Oral Contract was made. If she was an employee at that time (so that Clause 9(1) could be open to challenge and be held to be void at that point in time), then whether or not she later became an independent contractor would be neither here nor there; it is not suggested that Clause 9(1) could at that point have come back to life.

F.  OTHER GROUNDS FOR DENYING LIABILITY UNDER CLAUSE 9(1)

74.  Miss So advanced a number of alternative arguments to seek to deny liability under Clause 9(1).

F1.  Breach of clause X of December 2015 Employment Agreement

75.  Miss So submitted that the signing and backdating of the Broker Agreement was a breach of clause X of the December 2015 Employment Agreement, as clause X provided that the contract superseded all prior agreements previously signed by the parties.

76.  I cannot agree with this argument. Clause X did not prohibit the parties from signing subsequent agreements, even if they were then to be backdated and even if they were to be treated as having been entered into previously.

F2.  Clause 9(1) is a penalty

77.  Miss So submitted that Clause 9(1) is penal in nature, being a secondary obligation that imposes a detriment on the contract breaker that is out of all proportion to any legitimate interest of the innocent party in the enforcement of the primary obligation (Law Ting Pong Secondary School v Chen Wai Wah [2021] 3 HKLRD 185 at [69] (Chu JA)).

78.  A secondary obligation is one that operates on a breach of contract: Cavendish Square Holdings BV v Makdessi [2016] AC 1172 at [12] to [14].

79.  Miss So argued that:

79.1  cl.2(2) of the Broker Agreement required a client who has obtained a credit limit from Black Marble to deposit such funds and shares as required by Black Marble;

79.2  this amounted to a primary obligation on Ms Lee as broker to “cause or otherwise bring about such state of affairs” in getting the client to make the necessary deposit;[12]

79.3  Clause 9(1) provides that if the client fails to make payment in relation to dealing in securities or futures, service charges and interest on time, any loss caused to Black Marble shall be borne by Ms Lee. This amounted to a secondary obligation since it provided for the situation where the client had failed to make payment, which must have mean that Ms Lee failed to perform her primary obligation.

80.  I do not agree that cl.2.2 of the Broker Agreement imposes any obligation on Ms Lee. The clause simply states that the client is to deposit funds or shares as required by Black Marble. It may be prudent for a broker to see to it that a client does so, given the potential liability under Clause 9(1), but it in no way suggests an obligation on the part of the broker, owed to Black Marble, to ensure that the client does so. Accordingly, I do not agree that Clause 9(1) creates a secondary obligation on the part of Ms Lee, arising in the event of her breach of cl.2.2.

F3.  Clause 9(1) is a guarantee, discharged by material variation of the term relating to interest between Black Marble and Mr Zhang

81.  Miss So argued that Clause 9(1) is a guarantee, and that given that the default interest rate applied to Mr Zhang’s outstanding indebtedness was increased from 8% to 15% per annum in an internal email of 12^th August 2016, under the rule in Holme v Brunskill (1878) LR 3 QBD 495 (see AVC Property Development v Joyful Grace Trading Ltd [2018] 3 HKC 47 at [35] to 37)), the guarantee was discharged since Ms Lee had not consented to the alteration in the interest rate.

82.  Even assuming that Clause 9(1) could be construed as a guarantee, the argument fails on the facts.

83.  First, the internal email of 12^th August 2016 was copied to Ms Lee, who acknowledged in cross-examination that she was thereby made aware that Mr Zhang was being charged a default interest rate of 15% per annum. On Ms Lee’s case, she signed the Broker Agreement (containing Clause 9(1)) only afterwards, at the end of August 2016. It cannot be said that the rate was changed thereafter without her consent.

83.1  It cannot matter that the agreement was to be backdated to take effect from 31^st August 2015: the question is whether there was a change in the underlying agreement after Ms Lee agreed to Clause 9(1), and she agreed to Clause 9(1) only at the end of August 2016.

83.2  Nor can it matter that Ms Lee did not expressly consent to the interest rate, in the same way that she did not, presumably, expressly consent to any of the terms in the Client Agreement between Mr Zhang and Black Marble. The terms of the underlying agreement were already in place and known to Ms Lee before she agreed to Clause 9(1).

83.3  In cross-examination of Mr Ho, it was said that there was one month’s statement for Mr Zhang’s account (for September 2016) which showed a default interest rate of 20.25%. The point had not previously been raised before. Mr Ho said that in his experience, this was a number generated by a computer setting. In the subsequent month, the rate reverted to 15%. This piece of evidence is not sufficient basis to suggest that there was a change in the underlying contract between Mr Zhang and Black Marble, as opposed to a mistake.

84.  Second, the underlying contract between Mr Zhang and Black Marble provided for Black Marble’s right to set the default interest rate and simply notify Mr Zhang of it. Clause 2.4 of the terms and conditions relating to margin financing in the Client Agreement provided that if an event of default occurred, the “Normal Interest Rate” could be replaced with “such Default Interest Rate as notified to Client by [Black Marble]”. Thus even if Ms Lee was not aware of the change of interest rate, it could not be said that there was any material alteration in the underlying agreement between Mr Zhang and Black Marble in any event.

F4.  Breach of duty to act bona fide towards Ms Lee as guarantor

85.  Miss So’s final alternative argument was that Clause 9(1) constituted a primary obligation on the part of Ms Lee to guarantee Mr Zhang’s and Mr Wong’s obligations to settle amounts owed to Black Marble, and that Black Marble breached its duty to act bona fide towards Ms Lee as guarantor, such that her liability was discharged. Reliance was placed on Bank of India v Gobindram Naraindas Sadhwani & anor, unreported, HCA 4969/1982, 27^th April 1998, to say that “acting in total disregard of the unnecessary injury” likely to be inflicted on Ms Lee amounted to bad faith. It was said that:

85.1  Black Marble had failed to agree to the repayment plan proposed by Mr Zhang despite Ms Lee’s belief that Mr Zhang would be able to shoulder his liability;

85.2  Black Marble had refused to accept Ms Lee’s resignation in August 2018 and to change her accreditation of licence until 18^th February 2020 so that she had to continue to work for Black Marble.

86.  However, conduct which is irregular or prejudicial to the interests of a surety does not discharge the surety; this is not bad faith: Bank of India v Patel [1982] 1 Lloyd’s Rep 506 at 515 (Bingham J).

87.  I do not agree that taking a commercial decision to decline Mr Zhang’s repayment plan, or that putting pressure on Ms Lee to stay with Black Marble by delaying the release in her SFC licence accreditation until a formal letter was written, amounts to bad faith.

G.  THE COUNTERCLAIM

88.  Ms Lee’s counterclaim relies on the complaints that (1) the backdating of the Broker Agreement is a breach of cl.10 of the December 2015 Employment Agreement and (2) the Oral Agreement renders Clause 9(1) void, in order to claim repayment of the $329,512.18 withheld by Black Marble. I have held above that these complaints fail. Accordingly, the counterclaim fails.

89.  Black Marble should however give credit for the retained sum.

H.  DISPOSITION

90.  I give judgment for Black Marble on its claim against Ms Lee, together with interest, in accordance with paragraphs i and ii of the prayer in the Statement of Claim, with credit to be given for the sum withheld as indicated above, and an adjustment for the mistake regarding the interest rate charged in respect of Mr Zhang for September 2016.

91.  I further make a costs order nisi that Black Marble is to have the costs of the action, including the counterclaim, to be taxed if not agreed.

92.  The parties should submit an agreed draft judgment for approval within 14 days.