ICAP (HONG KONG) LTD v. KWOK CHI LEUNG

HCA 636 & 637/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 636 & 637 OF 2007

(On transfer from the Labour Tribunal Claim Nos. LBTC 1125 & 1126 of 2007)

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(Consolidated by Order of Mr Registrar Chan dated 2 May 2007)

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D E C I S I O N

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1.  This is an appeal from a decision of a Master who refused leave to amend for certain proposed re-amendments to an Amended Statement of Claim.

2.  The plaintiff is an inter-dealer broker.  The defendants are its former employees working in its Equity Desk.  The contracts of employment required a six-month notice for termination, but the contracts also provided that the notice could not expire before 8 January 2008.

3.  The defendants notified the plaintiff on 30 November 2006 that they would terminate the contracts by paying the plaintiff wages in lieu of notice.  Section 7 of the Employment Ordinance allows either party to an employment contract to terminate the contract by making a payment in lieu notice.  The wording of section 7(1) in 2006 was as follows:

“(1) Subject to sections 15 and 33, either party to a contract of employment may at any time terminate the contract without notice by agreeing to pay to the other party a sum equal to the amount of wages which would have accrued to the employee during the period of notice required by section 6.” (emphasis supplied)

Section 7 has been substantially amended in July 2007.    But the amendment does not apply to the defendants.  They have to comply with the section 7 as quoted above.  They did tender payments of wages to the plaintiff which were calculated up to 8 January 2008.  There is however an argument of whether the payments were adequate.

4.  When the defendants were in the plaintiff’s employ, they were entitled to bonuses.  The plaintiff argues that such bonuses were contractual in nature and not gratuitous.  Hence, they constituted wages within the meaning of section 2(1) of the Employment Ordinance.  The plaintiff therefore demands that the bonuses be included in the defendants’ payments of wages in lieu of notice.  There was a further issue of loyalty payment, but that was resolved and need not be mentioned.

5.  The bonuses in question were provided in two letters of the plaintiff both dated 3 February 2005 and addressed to the 1st and 2nd defendants respectively.  The letter to the 1st defendant provided her bonus as follows:

“4.     The Equity Desk will be entitled to a bonus of 50% of profits (before bonus) payable every six months in April and October.  Distribution of this bonus to the brokers on the desk will be based on your recommendation to be approved by Vince Wong.”

The letter to the 2nd defendant provided a different formula for him:

“4.     You will be entitled to participate in the bonus scheme which will allocate 50% of profits (before bonus) payable every six months in April and October.  Your proportion of this bonus ‘pool’ will be determined by your desk manager.”

6.  There were seven persons working in the Equity Desk with the 1st defendant being the head and the 2nd defendant the deputy head.  The seven persons together constituted the Desk.  There is no dispute that the 1st and 2nd defendants had in April and October 2006 received bonuses pursuant to the terms above mentioned.

7.  All seven persons resigned and left the plaintiff on 30 November 2006.  They all went to work for a competitor of the plaintiff.  Had the defendants remained in the plaintiff’s employ, they would have been paid bonuses in April and October 2007 according to the terms above-mentioned.  The plaintiff therefore claims these bonuses from them under section 7 of the Employment Ordinance on the basis that these bonuses “would have accrued” to them during the period of notice of termination.

8.  The plaintiff has pleaded in paragraph 16 of the Amended Statement of Claim that the bonuses that would have accrued to the 1st defendant in 2007 were the same as those accrued to her in April and October 2006.  Paragraph 17 is a similar pleading in respect of the 2nd defendant.  The figures so claimed are hypothetical ones.  The method of calculation in these two paragraphs is to extrapolate backward by assuming that the volume of business that would have been done by the plaintiff’s Equity Desk had the seven persons remained there in the period from October 2006 to September 2007 would have been the same as that for October 2005 to September 2006.

9.  The plaintiff, in seeking to re-amend the Statement of Claim, wanted to put in an alternative method of calculating the bonuses that would have accrued to the defendants.  This is by extrapolating forward to September 2007.  But it was not seeking to rely on its own profits made during this period as such profits, if any, did not result from transactions brokered by the defendants and the other five former employees.

10.  Since the defendants and their five colleagues were working for the competitor from October 2006 to September 2007, the plaintiff submitted that the obvious inference was that they were brokering the same types of transactions for the competitor as they would have done had they remained with the plaintiff.  The plaintiff therefore wanted to plead and rely on the number and volume of transactions done by each of the two defendants and the other five persons for the competitor during this period.  The plaintiff sought to do so by adding two paragraphs numbered 16A and 17A to the Amended Statement of Claim. 

11.  The application to re-amend included other matters. But those were not bearing opposed.  The opposition was only on paragraphs 16A and 17A.  The Master accepted the defendants’ opposition and the application in relation to these two paragraphs was dismissed. 

12.  Before the appeal was heard, the plaintiff revised these two paragraphs by supplying more particulars.  The particulars made it plain that the alternative method of calculation was adopted because all seven persons of the plaintiff’s Equity Desk had moved over to the competitor as a desk.  They also continued to broker the same types of business for the competitor as they would have done for the plaintiff had they not made the move.

13.  The defendants opposed the appeal on the grounds that the proposed paragraphs 16A and 17A plead amendments that were inconsistent, immaterial and useless to the matters in issue and the proposed method of calculating the bonuses is bound to fail.  They also argue that they will suffer prejudice and injury caused by these amendments which cannot be compensated by costs.

14.  The defendants pointed out that the plaintiff’s claim is a statutory remedy based on section 7 of the Employment Ordinance (see Kao Lee & Yip v Lau Wing & Anrs (unreported FACV 7/2008 at para. 26 per Ribeiro PJ)).  If any sum under section 7 should be payable by an employer to employee, section 7 of the Ordinance requires it to be paid within seven days after the date of termination.  Any employer who wilfully and without reasonable excuse fails to pay as required by section 25 would commit an offence under section 63C.  

15.  The defendants further submitted that the payments they had to make to the plaintiff under section 7 should not include the bonuses for business done in 2007 as a section 7 payment should be ascertained no later than seven days after the termination.

16.  I do not accept this argument.  No doubt in most cases, the sum payable under section 7 whether by an employer or an employee would be ascertainable no later than seven days after the date of termination.  However, there are cases where the amount cannot be ascertained so soon.  One example is the contractual commission payable to a salesperson that is to come from the proceeds of sale received.  The receipt of the proceeds may be delayed by the credit period given to the purchaser.  In such a case, the employer’s failure to include the commission in the wages in lieu of notice paid within seven days from termination would not be a wilful failure.  There is a good reason for paying the commission at a later date upon receipt.

17.  The defendants also argued that the work done by them and any amount they earned after termination were irrelevant and immaterial to the section 7 statutory claim.  They said that the amount payable should be the same had they done no work during the relevant period.  However, had they done no work during the relevant period, this proposed method of calculation would be unworkable.  Assuming that the plaintiff would succeed on liability, the court will have to quantify the claim by some other means like extrapolating backwards with appropriate adjustments.  The quantum of the award arrived at through such means may well be different from that arrived at by this proposed method.  Furthermore, the defendants had indeed worked in the relevant period together with the other five former employees.  This method can be engaged.  I therefore reject this submission.

18.  The defendants further argued that the bonuses were calculated and allocated by the plaintiff.  There is hence an element of discretion in the plaintiff.  Nevertheless, any discretion of the plaintiff in administering the payment of bonuses has to be exercised reasonably.  There were also two previous occasions of payment that can serve as reference.  This argument of the defendants does not defeat the proposed amendment.

19.  The defendants’ next argument was that the bonuses should be calculated from the plaintiff’s profits and not the profit of the competitor.  They therefore submitted that it is illogical to enforce the bonus scheme with reference to the trading of the competitor.  I do not think this is a correct understanding of this method of quantification of the claim.  The bonus should be calculated from the plaintiff’s profit generated from the business done by the seven persons in the Equity Desk.  Since these seven persons were doing business for the competitor which, according to the plaintiff, would be the same business had they remained with the plaintiff, then it was legitimate for the plaintiff to use the number and volume of the transactions done by them for the competitor to calculate the bonuses which would have accrued to them had they remained with the plaintiff.  I think this argument of the plaintiff is valid.

20.  The defendants also argued that when the parties entered into the contracts of employment, it was unlikely that they in mind that the earnings of their future employer would be relevant to the calculation of the bonuses.  I think the flaw of this argument lies in its confusion over the nature of the claim.  The plaintiff was not seeking to use the profit of a third party to calculate the bonuses that would have accrued to the defendants.  The plaintiff is seeking to calculate the bonuses from the business that would have been done for it had the seven former employees remained with it.

21.  The defendants then argued that the Equity and Derivatives Desk of the competitor is not the same as the Equity Desk of the plaintiff.  The 1st defendant has also filed an affirmation purportedly to show the differences.  However, this is a matter of evidence.  I cannot refuse leave to re-amend simply by relying on the untested and disputed evidence of the 1st defendant. 

22.  The defendants then argued that the proposed amendment would result in prejudice and injury to them that cannot be compensated by costs.  They said that the amendments would place them or the competitor under an obligation to disclose confidential and commercially sensitive information belonging to the competitor.  They will be required to disclose the gross and net brokerage charged or invoiced by the competitor.  They will also have to disclose information regarding the competitor’s business, the identities and commissions paid by the clients including those who were not the plaintiff’s clients when the defendants were with the plaintiff.  The revenue earned by other brokers on the same desk of the competitor and their identities would also have to be disclosed.  Such information belongs to the competitor and not the defendants.  The competitor would also oppose the discovery of commercially sensitive information.  The defendants therefore said that the proposed amendments were bound to fail.

23.  This argument is however based on a wrong apprehension of the extent of discovery that the proposed amendment may entail.  I think the plaintiff would only be entitled to know the number of transactions and their volume as brokered by each of two defendants and the other five former employees of the plaintiff.  The plaintiff will not be entitled to information of clients of the competitor or the identities or business done by the other brokers of the competitor.  This has been confirmed by leading counsel for the plaintiff in the course of the hearing of the appeal.  The defendants have not given any reason why such limited discovery would still create to them the alleged prejudice and injury. 

24.  Having considered the proposed amendment and the defendants’ grounds of opposition, I am of the view that the plaintiff should be allowed to make the amendment as an alternative method for assessing the bonus claims.  I do not think that the grounds of opposition, whether taken individually or collectively, are sufficient for defeating the plaintiff’s application to amend.  I therefore allow the appeal and give leave to the plaintiff to re-amend the Amended Statement of Claim by adding paragraphs 16A and 17A as stated in a letter of the plaintiff’s solicitors dated 11 March 2009. 

25.  Regarding costs, since the plaintiff has succeeded on the appeal, it should be entitled to the costs of the appeal.  This is so despite the introduction of more particulars for the proposed amendment pending appeal.  These particulars no doubt enhanced the clarity of the proposed amendment but they do not make any change to its purpose and intent.  Even without these particulars, the purpose and intent of the proposed amendment is clear and unambiguous and leave would have been granted.  I therefore hold that the introduction of new particulars on appeal has no effect on the incidence of costs.

26.  Regarding the costs below, the plaintiff should of course bear the costs of and occasioned by the amendments and the application to amend, however the costs of the hearings where the unsuccessful opposition was made require different consideration.  I think the defendants should bear the costs of the hearings below as they should have been avoided and the application to amend consented to. 

27.  For the above reasons, I make an order nisi that the defendants do pay the plaintiff the costs of the appeal and the costs of the hearings on 3 November 2008 and 17 November 2008.  The Master’s order on costs save as varied here will remain.