ALCOHOL COUNTERMEASURE SYSTEMS (HK) LTD AND ANOTHER v. LI CHI KONG, PETER

HCA 2336/2014 and HCA 193/2016

(Consolidated)

[2023] HKCFI 227

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NOS 2336 OF 2014 AND 193 OF 2016

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(Consolidated pursuant to the Order of Master Ho dated 30 March 2016)

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J U D G M E N T

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A.  Introduction

1.  The 1^st plaintiff (“P1” or “ACS HK” or “ACS Hong Kong”) claims against the defendant (“D” or “Peter”) for breach of express and implied terms of the employment contract between them. The 2^nd plaintiff (“P2” or “ACS China”, and collectively with P1, “Ps”) claims against D for fraudulent misrepresentation. D disputes liability, and counterclaims against P1 principally for wrongful dismissal. This is the trial.

2.  Mr Henry Cheng appeared for Ps. D was during the pleading stage and had until shortly before the 1^st Pretrial Review been represented. He appeared during the trial in person.

B.  The parties, and persons and entities involved

3.  Alcohol Countermeasure Systems (International) Inc. (“ACS Inc”) is a company incorporated in Ontario, Canada. It is the holding company of a group of companies (the “ACS Group”). Alcohol Countermeasure Systems Corp (“ACS Corp”), P1 and P2 are companies amongst the group.

4.  The ACS Group designs and supplies, amongst other items, alcohol sensing equipment, or breathalyzers in ordinary language.

5.  Whilst the ACS Group is based in Ontario, it has set up its manufacturing base in Asia.

6.  P1 was incorporated in Hong Kong on 6 July 2006. One purpose of its establishment was to employ management personnel who would oversee the factory to be set up in the Mainland.

7.  P2 was incorporated in the Mainland on 16 December 2010. Its principal place of business is Dongguan. It was originally wholly owned by ACS Inc. It was set up to act as the entity running the factory of the ACS Group in Dongguan (the “ACS Factory”), but was subsequently on 14 November 2014 sold to P1 pursuant to an equity transfer agreement. The intention was that P2 would be registered as a wholly-owned foreign enterprise (“WOFE”) in Dongguan.

8.  Felix Comeau (“Comeau”) was at the material times the owner and Chief Executive Officer of ACS Inc. Steve Chau (“Chau”) was until 15 August 2012 when he resigned the Vice President of Finance of ACS Inc, and the Legal Representative of P2.

9.  Bruce Bailey (“Bailey”) joined ACS Group on 4 September 2012. He became the Vice President of Finance of ACS Inc as Chau’s successor. He has also since 10 September 2013 become the Legal Representative of P2. He is an accountant by training.  

10.  D is a permanent Hong Kong resident. He was in about June 2010 identified by a headhunter called Potential Personnel Consultancy (“PPC”) as a suitable candidate for the position of Factory General Manager of the ACS Factory. D attended a number of interviews by the ACS Group, represented by Chau. One member of PPC involved in that process was called Judy Hui (“Judy Hui”). Judy Hui also had some email exchange with Chau. I will come back to those emails.

11.  Ultimately, D was employed. An employment contract in the form of an employment letter dated 10 January 2011[1] was signed (the “HKEA”). At the top of that letter is the name of P1. It was signed by Chau as “Director of Finance & Administration”. It was also signed by D in acceptance. There are disputes between the parties as to whether P1 was the sole employer of D, and whether the HKEA contained all the terms of D’s employment. I will come back to those disputes.

12.  D’s employment was summarily terminated on 31 August 2014.    

13.  During the time when D was employed, there was no internal accounting department within P2. P2’s accounts and ledgers were undertaken by an outside accounting firm in the Mainland called Xinlong Accounting Firm (“Xinlong”), and the physical person from Xinlong who undertook the work was Mr Zhong Xu Bin, Benny (“Zhong”).

D.  The pleadings, and parties’ cases

14.  The material pleadings are:

(a)  Ps’ Amended Consolidated Statement of Claim of 24 February 2017 (the “SOC”);

(b)  D’s Re-amended Consolidated Defence and Counterclaim of 19 March 2018 (the “D&C”);

(c)  D’s Further and Better Particulars of the D&C of 23 April 2018 (the “F&B”); and

(d)  Ps’ Re-amended Reply and Defence to Counterclaim of 9 April 2018 (the “R&DC”).

15.  In gist, Ps’ pleaded cases are as follows:

(a)  D was employed by P1 (not P2) as the Factory General Manager of the ACS Factory. The employment was pursuant the HKEA. The HKEA contained the full terms of employment between P1 and D;

(b)  D commenced work for P1 on 15 February 2011, and was employed to oversee the day to day operations of P2;

(c)  For payment of invoices and expenditure, Ps’ Account Policy should be followed;

(d)  P2’s pleaded cause of action is fraudulent misrepresentation. It avers that during his employment, D made fraudulent representations to P2 that he had incurred expenses for the benefit of P2 and sought to be reimbursed, which he was;

(e)  Subsequent investigation has shown that D in fact had not incurred those expenses as alleged or that he was not entitled to be reimbursed for them. The representations were false and fraudulent;

(f)  The representations related to 7 types of expenses and reimbursements[2] (the “Expenses”, the “Reimbursements”):

(i)  Living allowances, in the total sum of RMB88,000, which Ps say D was not entitled to[3];

(ii)  Alleged Payments to Wei Xing Design, RMB26,960 of which Ps claim was not paid to Wei Xing Design and was unaccounted for[4];

(iii)  Alleged Payments to Hungwei AC, in the amount of RMB25,000, which Ps claim Dongguan Hungwei Air-condition Electrical Company Limited (“Hungwei AC”) did not receive[5];

(iv)  Rental deposit, in the total sum of RMB10,000, which Ps say D was not entitled to[6];

(v)  Cash withdrawal, in the sum of RMB13,000, which Ps say D was not entitled to withdraw and retain[7];

(vi)  Travel and entertainment expenses, in the total sum of RMB951,023.64 and HK$44,942.30, which Ps say D was not entitled to[8]; and

(vii)  F&B Receipts, 333 in number, 328 of which issued on their faces by 3 hotels (the “3 Alleged Hotels”), in the total amount of RMB166,500, which Ps say are faked and false[9];

(g)  P2 claims repayment of those reimbursements;

(h)  Relying on the same conduct, P1 pleads[10] that:

“By producing fraudulent receipts to [P2] to claim expenses which had not been incurred, [D] has breached the duty of good faith and fidelity owed to [P1] as well as the duty of mutual trust and confidence.”

(i)  P1 hence claims against D damages for breach of principally his duty of good faith and fidelity which D owed to P1 under the HKEA. During his closing submissions, Mr Cheng clarified that even if P1 has suffered no actual loss in those regards (as the monies were paid by P2), P1 should still be entitled to nominal damages;

(j)  P1 also pleads that:

“[D] was summarily dismissed for persistently refusing to comply with lawful and reasonable orders of his employer. The reason for his summary dismissal was set out in his termination letter of 31 August 2014”[11];

(k)  P1 further claims against D for:

(i)  overpaid annual leave pay for 12.4 days of annual leave which P1 says D took in excess of his entitlement under the HKEA;

(ii)  overpaid salary for 23 days during which P1 says D was in fact absent from work without leave;

(l)  I record that despite the pleadings, Mr Cheng in his course of his closing submissions confirmed that P2 is not pursuing any of its pleaded proprietary claim[12].

16.  D’s defence in gist is that the HKEA in fact did not contained the full terms of his employment agreement with Ps. Chau had orally assured him that P2 would sign an employment contract with D to supplement the HKEA and to set out the full terms of employment agreement between the parties. He was therefore employed by both P1 and P2. Two contracts in Chinese were indeed subsequently signed on about 1[13] and 2 June 2011[14] (the “Mainland EA1”, the “Mainland EA2”, and collectively the “Mainland EAs”). He says that the Expenses were all genuine and had been incurred, and that under his full terms of employment (the HKEA and the Mainland EAs combined), he was entitled to the Reimbursements. He also claims accordingly that he has been dismissed wrongfully.

E.  The main issues

17.  The main issues for resolution are:

(a)  D’s terms of employment, and in particular, whether D was employed solely by P1 under the HKEA, or whether he was employed by both Ps under the HKEA and the Mainland EAs;

(b)  The propriety of the 7 heads of Expenses, and whether D was entitled to the Reimbursements;

(c)  Whether D is:

(i)  liable to P2 for fraudulent misrepresentation; and/or

(ii)  liable to P1 for breach of the terms (express or implied) of the HKEA;

(d)  Whether D is liable to P1 for the excess annual leave or salary payments;

(e)  Whether D’s summary dismissal by P1 was wrongful, and if so the remedy which D is entitled to be awarded.

F.  The witnesses

18.  Originally, Ps intended to call 7 witnesses. Ultimately, 3 out of those 7 were not called[15]. In order to place before this court Ps’ reasons for not calling them so as to avert any adverse inference that might be drawn against them, Ps by their summons of 4 May 2022 sought leave to file and rely on 2 additional witness statements, namely the 2^nd Supplemental Witness Statement of Jiang Hong Mei (“Jiang”, and “Jiang WS/3”), and the 2^nd Supplemental Witness Statement of Li Jun Xiu (“Li”, and “Li WS/3”). I on the first day of the trial explained to D the reasons for the application. D expressed no objection to the same. I granted Ps leave to do so, in terms of that summons.

19.  Upon Ps’ decision not to call those 3 witnesses, I invited Mr Cheng’s submissions as to whether I should expunge their witness statements from the bundles. Mr Cheng fairly brought to my attention that D had in some of his statements referred to those witnesses’ statements. In the end, and with Mr Cheng’s consent, I directed and ordered that as those 3 witnesses were not going to be called, but given that D had in his witness statements referred to some of those statements, I would ignore them unless in the interests of justice, I need to refer to them in fairness to D.

20.  In the end, Ps has called the following witnesses:

(a)  Via video link, Bailey. He has given two witness statements, dated 1 August and 19 November 2018 (“Bailey WS/1” and “Bailey WS/2”). He is the main witness who gives evidence in support of Ps case;

(b)  Also via video link, Mr Ong Ching-How (“Ong”). Ong was an Advance Quality Specialist of ACS Corp, and has become the Supply Chain Manager of P1. He has given one witness statement of 8 June 2018 (“Ong WS”). His evidence principally covers the results of the enquiries and investigation which he upon Bailey’s instructions conducted in respect of the F&B Receipts;

(c)  Jiang, who is the Production and Operations Manager of P2. She has given three witness statements, the first one dated 14 August 2018 (“Jiang WS/1”), the second one 5 December 2019 (“Jiang WS/2”), and Jiang WS/3 mentioned above. Her evidence relates principally to:

(i)  D’s attendance at work as she observed it;

(ii)  her enquiries and investigation in relation to the Alleged Payments to Hungwei AC;

(iii)  her enquiries and investigation, together with Ong and upon Bailey’s instructions, in respect of those F&B Receipts; and

(iv)  the manner in which D allegedly claimed reimbursements;

(d)  Li, who is an Administrative Assistant of P2. She has given three witness statements, the first one dated 14 August 2018 (“Li WS/1”), the second one 4 December 2019 (“Li WS/2”), and Li WS/3 mentioned above. Her evidence relates principally to:

(i)  D’s working hours as she observed them;

(ii)  certain alleged discrepancies in P2’s accounts; and

(iii)  the manner in which D allegedly claimed reimbursements.

21.  D has testified. He has given 3 witness statements (dated 13 August and 31 December 2018, and 7 January 2020, respectively “D WS/1”, “D WS/2” and “D WS/3”). He also during cross-examination confirmed the truth and accuracy of his 3^rd, 4^th and 5^th affirmations[16] which he previously filed in the course of this action for certain interlocutory proceedings (“D Aff/3”, “D Aff/4” and “D Aff/5”).

G.  The hearsay notices and counter notices

22.  D has filed two hearsay notices dated 9 November 2018 and 29 April 2019. They cover altogether 114 items which D has disclosed. No counter-notice has been filed. I admit them.

23.  Ps has also filed two hearsay notices dated 6 May 2019 and 18 May 2020. They together cover 107 items.

24.  D has filed two counter-notices, dated 23 December 2019 and 10 January 2022:

(a)  They cover some of the items set out in Ps’ two hearsay notices[17];

(b)  They cover further certain specified parts of Bailey WS/1, Ong WS, Jiang WS/1 and L1 WS/1;

(c)  I have considered Cheung Wei Man Vivien & Anor v Centaline Property Agency Ltd & Ors [2004] 1 HKC 692 [Ps#6], wherein Lam J (as the PJ then was) observed at [12] that:

“Under s47(1) [of the Evidence Ordinance], the court may exclude hearsay evidence if it is satisfied, having regard to the circumstances of the case, that the exclusion of the evidence is not prejudicial to the interests of justice. As I mentioned in the course of argument, although s 49 of the Evidence Ordinance primarily deals with weight to be given to hearsay evidence, it does have an indirect bearing on the assessment as to whether the exclusion of a piece of hearsay evidence would be prejudicial to the interests of justice. If the court finds it possible to conclude that irrespective of what shall happen at the trial, no weight could be attach to a piece of evidence after taking into account the matters set out under s 49, its exclusion would not be prejudicial to the interests of justice.”

(d)  I record also that D has previously taken out an application to strike out certain parts of the witness statements filed by Ps on the principal basis of they being hearsay. That application was dismissed by Master Kenneth Lam on 22 November 2019[18]. The learned Master, relying on Cheung Wei Man, was of the view that the trial judge (now this Court) is entitled to look at all the documents being objected to by D and then to decide, at the end of the trial, what to make of them. Their relevance and probative value cannot be properly assessed before the commencement of the trial;

(e)  I agree;

(f)  Having had the benefit of a trial, and having considered the documents, I am not satisfied that the exclusion of the relevant evidence is not prejudicial to the interests of justice. They are all potentially relevant to the issues under consideration. I admit them;

(g)  What weight that may be attached to them is however a different matter;

(h)  Section 49 of the Evidence Ordinance (Cap 8) stipulates as follows:

“Considerations relevant to weighing of hearsay evidence

(1) In estimating the weight, if any, to be given to hearsay evidence in civil proceedings the court shall have regard to any circumstances from which any inference can reasonably be drawn as to the reliability or otherwise of the evidence.

(2) For the purposes of subsection (1), regard may be had, in particular, to the following—

(a) whether it would have been reasonable and practicable for the party by whom the evidence was adduced to have produced the maker of the original statement as a witness;

(b) whether the original statement was made contemporaneously with the occurrence or existence of the matters stated;

(c) whether the evidence involves multiple hearsay;

(d) whether any person involved had any motive to conceal or misrepresent matters;

(e) whether the original statement was an edited account, or was made in collaboration with another or for a particular purpose;

(f) whether the circumstances in which the evidence is adduced as hearsay are such as to suggest an attempt to prevent proper evaluation of its weight;

(g) whether or not the evidence adduced by the party is consistent with any evidence previously adduced by the party.”

(i)  I will when I come to discuss the issues consider the weight to be given (if any) to some of the hearsay evidence. When I do so, I will bear in mind section 49 of the Evidence Ordinance, and the considerations set out therein.

H.  Credibility of the witnesses

25.  On credibility of witnesses Mr Cheng has cited Hui Cheung Fai and another v Daiwa Developemnt Limited and others (unrep. HCA 1734/2009, 8 April 2014) and reminded me of the following observations by Deputy Judge Eugene Fung SC at [77] - [83], which I reproduce for D’s ease of reference, and which I respectfully agree and apply, that:

“77. Generally speaking, contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility: Onassis v Vergottis [1968] 2 Lloyd’s Rep 403 at 431 (Lord Pearce). It is right to point out, however, that some of the documents in this case are alleged by the Son to be shams and those documents obviously cannot be used to assess the credibility of the parties.

78. 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: eg Lam Rogerio Sou Fung v Tan Soon Gin George (unreported, HCA 2576/2005, 5 May 2011) §39 (Chu J).

79. In determining a witness’ credibility, I have also attached importance 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 a comparison between the witness’ oral testimony and his or her witness statement.

80. I have cautioned myself against the dangers of too readily drawing conclusions about truthfulness and reliability solely or mainly from the appearance of witnesses (Ting Kwok Keung v Tam Dick Yuen (2002) 5 HKCFAR 336 at §§36-37 (Bokhary PJ)), or from the assessment of the witnesses’ character (Esquire (Electronics) Ltd v HSBC [2007] 3 HKLRD 439 at §135 (Stock JA)).

81. The practical approach to assessing credibility of witnesses in a case such as the present may have best been summarised by the words of Robert Goff LJ, as he then was, in The Ocean Frost [1985] 1 Lloyd’s Rep 1 at 57:

‘Speaking from my experience, I have found it essential in cases of fraud, when considering the credibility of witnesses, always to test their veracity by reference to the objective facts proved independently of their testimony, in particular by reference to the documents in the case, and also to pay particular regard to their motives and to the overall probabilities. It is frequently very difficult to tell whether a witness is telling the truth or not; and where there is a conflict of evidence such as there was in the present case, reference to the objective facts and documents, to the witnesses’ motives, and to the overall probabilities, can be of very great assistance to a judge in ascertaining the truth.’

82. Whilst these words were spoken in the context of a fraud case, I believe they are applicable to any case where a witness’ credibility features prominently in the court’s determination. They are particularly apposite in a case like the present where very serious allegations (akin to allegations of fraud) have been made by the Son against the defendants.

83.  In approaching the evidence in this case, I have also borne in mind that the allegations made by the Son are very serious, and that the more serious the allegation sought to be proved is, the more cogent the evidence relied upon to support it must be: see Re H (Minors) [1996] AC 563at 586D-587F (Lord Nicholls) and ADS v Brothers (2000) 3 HKCFAR 70 at 77J-78G (Lord Hoffmann NPJ).”

26.  I highlight Re H. Given the serious allegations of fraudulent misrepresentation and use of false documents made by Ps against D, Re H is engaged.  

27.  In general, I find Bailey, Li and Jiang to be honest witnesses. No material inconsistency or inherent improbability in their evidence has been revealed. The issue remains however the reliability of their evidence, a number of material areas of which being based on hearsay. I will deal with the specifics of their evidence when I consider the issues.

28.  In respect of Ong:

(a)  He was employed by ACS Corp between 10 March 2010 and 31 July 2014 as an Advance Quality Specialist. On 1 August 2014, he transferred his employment to P1 and was employed as Supply Chain Manager;

(b)  At §10 of Ong WS, he said that the ACS Factory was set up for the purpose of manufacturing ACS Corp’s products which would then be on-sold by ACS Corp to its customers;

(c)  Despite his position, and despite him describing ACS Corp as P2’s only customer, he cannot remember most matters asked of him. Those matters included how the ACS Factory was set up, when the lease of the ACS Factory first commenced, whether D had telephone-meetings with him and others of the headquarter 2-3 times every week, why the location of the ACS Factory was changed from Chang’An to Dalingshan, the progress of P2’s application for WOFE status, the production flow of the ACS Factory, whether he went to Dalingshan to choose furniture for the office of the ACS Factory, whether the headquarter in 2011 provided D with selling prices of the products, whether the president of the ACS Group went to the Mainland in 2014 to meet D, whether in July 2011, the account of P2 with ICBC had been frozen but that D was still required to go to Beijing for an exhibition, whether he (Ong) arranged to transport some little gifts to Beijing for that exhibition, when the ACS Factory first produced the first shipment of products, and by whom the first order was placed. He could not remember any of those questions despite him being the Supply Chain Manager;

(d)  I do not find him to be a forthcoming or reliable witness.

29.  In respect of D, he was subject to Mr Cheng’s careful and detailed cross-examination for 3 days. No material inherent improbability in his evidence has been exposed. His evidence is also materially supported by contemporaneous documents and records. His evidence on the difficulties he faced during the initial stage of the operation of the ACS Factory, the cash flow problems the ACS Factory had, and how he had to personally lend money to P2 for its operation not only have a clear ring of truth, but are supported by documents[19]. He also gave his answers in a direct and forthcoming manners.

30.  Mr Cheng during his oral closing submissions highlighted the points that certain aspects of D’s evidence are not supported by any documents, or are not consistent with the documents. I am invited to approach D’s evidence with a pinch of salt.

31.  I do note Mr Cheng’s submissions and have considered them. I note on the other hand that the material events took place quite some years ago, and that vast amount of details are involved. The receipts alone comprise 7 box files, the Scott Schedule itself 3, not to mention the 8 files of other documentary evidence in addition. Some inconsistencies are to be expected.

32.  In general, save certain areas which I have reservations about and which I will come back to, I find D to be an honest witness. I will again deal with the specifics of his evidence when I consider the issues below.

I.  D’s English ability

33.  D has requested the trial to be conducted in Punti. Ps on the other hand requested the trial to be conducted in English. Both Ps and D were entitled to make the requests. No adverse inference whatsoever is to be drawn therefrom. In the end, and having heard parties’ submissions during 2 pretrial reviews, I directed that a combination of Punti and English be used (with interpretation when necessary) to ensure fairness and to cater the best this Court can for parties’ requests.

34.  I note that Mr Cheng has cross-examined D about his English ability. He was referred to his CV[20]. Albeit some via distant learning, D had attended various certificate courses run by various universities in Hong Kong. He was awarded Master in Business Administration by Sussex College of Technology. He was Corporate Member Representative in the Hong Kong General Chamber of Commerce, and Fellow Member of Society of Business Practitioner, UK by examination. His language skills stated therein include English, and that his English typing speed is stated as 40-50 words per minutes. D indeed accepted during cross-examination that his English when he was 51-year-old (his age when the CV was prepared) was very good.

35.  On top of what have been stated in his CV, the documents contemporaneous to his employment also show that D’s English ability was very good.

36.  D said that after his employment with the ACS Group, he has had health problems. His eyes are not good. He said that he might need to spend more efforts in understanding English documents.

37.  In the light of the evidence before me, I am of the view that D’s English standard has been and remains very good. He would have no difficulty understanding English documents, except that he may now need to make more effort, and except possibly those which contain legal jargons.

38.  I record the above not for the purpose of drawing any adverse inference against D. I make my views known as D is acting in person, and in case my view on his English ability is regarded by D as being relevant.

J.  D’s employment

39.  I consider first of all who D was employed by, and the terms of his employment.

40.  As I have stated above, Ps ultimately only called 4 witnesses.

41.  The person most involved in the employment of D is Chau. He however is not a witness.

42.  Bailey in Bailey WS/2 has explained why Chau could not be called. He says that Chau resigns abruptly on 15 August 2012 for unknown reasons, and did not respond to request for provision of witness statement.

43.  In the light of the explanations which I have no basis to reject, I do not draw any inference against Ps for Chau’s absence as a witness.

44.  The reality however remains that Chau’s version of event is not before this Court.

45.  I note in this context that:

(a)  Bailey only joined ACS Corp in September 2012, and only became the Legal Representative of P2 on 10 September 2013. He was not involved in the employment of D1 or the early setting up and operation of the ACS Factory;

(b)  Whilst Ong was employed by ACS Corp between 10 March 2010 and 31 July 2014, and was employed as an Advance Quality Specialist, there is no evidence that he was involved in the employment of D. He could not remember anything about the early setting up and operation of the ACS Factory;

(c)  Li and Jiang were only employed by P2 respectively on 21 April and 5 May 2014.

46.  Hence, none of the witnesses whom Ps have called are able to give any direct evidence on the circumstances in which D was first employed, how the HKEA and the Mainland EAs came to be signed, and any related oral discussion between D and Chau.

47.  I have considered the contents of the HKEA:

(a)  It is dated 10 January 2011;

(b)  It comprises only slightly more than one page;

(c)  P1’s name is on top of page 1;

(d)  It was issued by Chau as the Director of Finance & Administration;

(e)  It is in the form of an employment letter, and is titled as such;

(f)  The contents are brief:

(i)  The first paragraph records that D is offered “the position of Factory General Manager reporting to the Managing Director or his designate in our company based in Dongguan, China”;

(ii)  It is followed by 5 headings (which terms thereunder I summarize in brackets below):

(1)  “Term” (commencing on 5 February 2011 till termination),

(2)  “Remuneration” (basic salary of HK$50,000 per month),

(3)  “Holiday” (10 working days of annual leave with pay in addition to all statutory holidays at such time or times as may be determined by the company),

(4)  “Absence” (deduction for absence without permission except by reason of incapacity through sickness in which case a certificate from a qualified medical practitioner is required), and

(5)  “Termination” (no notice within the first month, 7 days’ notice during 2^nd and 3^rd month, and afterwards not less than one month’s notice or payment in lieu, and “by the company without notice or payment in lieu in the event of serious misconduct or persistent neglect of duty or breach of any rules or regulations of the company”).

48.  Conspicuously, there is no term on the HKEA dealing otherwise with any benefits which D might enjoy.

49.  I have mentioned the email exchanges between Judy Hui of PPC and Chau[21]. The material parts which took place on 13 January 2011 went as follows:

(i)  Chau first stated amongst others that:

“We have not located any dormitory for staff yet and this will be one of Peter’s responsibilities. Peter would stay in hotel until arrangement with a dormitory has been made.”

(ii)  Judy Hui then asked:

“Please kindly advise if there is any allowance for the accommodation for the period that Peter has to live in the hotel …”

and then in a further email asked in addition:

“Please also kindly advise if there is allowance for him, will it be cash in advance or pay by himself first…”

(iii)  In reply, Chau said:

“Judy, yes there will be allowance. Our policy is the employee submits the expenses with all appropriate backup documents and the employee will be reimbursed immediately.”

50.  The provision of such allowance was not set out in the HKEA.

51.  Those emails in my view support D’s case that his terms of employment were not all in the HKEA.

52.  In D WS/1 at §4[22], D says:

“When PPC provided [the HKEA] to me, I noticed that it bore the name of ACS HK and was issued by [Chau], the Director of Finance and Administration of ACS Corp … I also noticed that the [HKEA] did not contain all the terms of employment that had been agreed. I raised the said matters with [Chau] and upon his oral assurance that ACS China would prepare a further employment contract in supplement to the [HKEA] and setting out all the terms of my employment as agreed, I signed the [HKEA] on or about 15^th January 2011 …”

53.  Mr Cheung highlights the inconsistency in D’s evidence, in that under cross-examination, he said that he had prior to his employment not communicated with Chau in relation to the terms of his employment, that the communications were done through PPC, and that his discussion with Chau only took place after commencement of his employment.

54.  I note the inconsistency. However, given the brevity of the HKEA, and given the existence of the prior email exchange between Judy Hui and Chau, I find that D’s case that the HKEA did not contain all the terms of his employment inherently probable. That is also supported by the subsequent execution of the Mainland EAs.

55.  Consistent with the above is also the subsequent email exchange between D and Bailey on 14 April 2014[23], wherein D said that:

“… Originally, I do not want to sign that contract with the Company as it carrys [sic.] nothing as expatriate from Hong Kong working in China. Going home trip expenses, dormitory, meals subsidize, income tax is a relatively common terms for Hong Kong resident working in China and even hardship allowance. I finally signed the appointment letter after advise from the headhunter for ACS that ACS had emailed them to confirm all these expatriate terms via email, and, the subsequent employment contract signed with ACS, China that submitted to the China Labour Bureau for taxation and work permit purpose.”

Bailey did not refute what D remarked therein, but only commented that “it is hard for me to comment on something that is outside of the contract. What would be a reasonable allowance for you on a monthly basis – say 10,000 RMB?”[24]

56.  I have considered Bailey’s evidence in Bailey WS/1 at §11[25], where he says that he could found from the emails and documents no such assurance by Chau. He further says that he also “spoke with Ms. Amy She (Accounting Manager of ACS China) and Ms. Ellen Xiong (Senior Accountant of ACS China) who worked very closely with [Chau] and [Comeau] (CEO of ACS Corp) and they were also not aware of any such assurances being made by [Chau] to [D].”  In my view, such indirect hearsay evidence with no particulars as to what checking they had undertaken is not of sufficient weight to counter D’s evidence on this point.

57.  As said, the Mainland EAs have in fact been signed.

58.  In relation to the Mainland EA1:

(a)  it bears the title 安星測試儀器(東莞)有限公司勞動合同(非中國公民適用);

(b)  it bears the date of 1 June 2011;

(c)  it was signed by P2 as 甲方 and D as 乙方;

(d)  it bears the seal of P2, Chau’s chop, and D’s signature on top of a thumb or finger print;

(e)  Clause 五(一) provides that D’s basic salary is RMB10,000 per month;

(f)  Clause 五(二) provides that:

“(二) 乙方的其它收入

1. 住房、交通補貼: 乙方在甲方工作期間，須由甲方提供住宿及交通便利，由甲方全部承擔乙方在工作期間的全部住宿費用及交通費用。具體的標準、方式由甲乙雙方另行確定。

2. 甲方在乙方工作期間因工作需要產生的業務經費如差旅費、伙食費、交通費等，由甲方按照乙方提供的有效證明結算，具體的標準、方式另行確定。”

59.  The wording of Clause 五(二) of Mainland EA1 should specifically be noted. It entitled D to be reimbursed, subject to provision of proof etc, “工作期間因工作需要產生的業務經費”. “差旅費、伙食費、交通費等” are only named as examples. The specific standards are also to be further confirmed.

60.  In relation to the Mainland EA2:

(a)  it bears the title “廣東省勞動合同”;

(b)  it bears the date of 2 June 2011;

(c)  it was signed by P2 as 甲方 and D as 乙方;

(d)  it bears the seal of P2, and D’s signature on top of a thumb or finger print;

(e)  Clause 四(一)1.(1) provides that D’s monthly salary was to be RMB10,000; and

(f)  Clause 四(三) provides that:

“乙方的津貼、補貼的發放標準和辦法為: 每月膳食補貼2000元”.

61.  D has in fact produced a third Chinese employment agreement between him and P2. It is dated 1 July 2011 and entitled 補充協議書. It provides that should there be any discrepancy between Mainland EA1 and Mainland EA2, Mainland EA1 prevails. I note that the Mainland EA2 provides for the specific standard and method in relation to D’s monthly meal allowance. That is consistent with Mainland EA1, which provides that the specific standards are to be confirmed further. There is no inconsistency between the Mainland EA1 and EA2 in that regard.

62.  On the face of documents, the Mainland EAs are prima facie binding.

63.  Ps say that they are not. The main evidence in support comes from Bailey. He says in Bailey WS/2 at §5[26] that:

“In respect of the Chinese Labour Contract which Peter alleges was signed, I have been told by [Comeau], who at all material times was the owner of ACS Inc., that he would always review and approve all contracts of ACS China. On the basis that he had not previously seen the Chinese Labour Contract, which Peter alleges was signed between himself and ACS China, he takes the view that it is not a genuine contract of ACS China.”

64.  I do not know when Comeau told Bailey so, the circumstances when he did, and the state of his memory at the time. Comeau has not been called. I have not been told why, or whether it would have been reasonable and practicable for him to be called. I have not heard from him how comprehensive he was in “always” reviewing and approving P2’s contracts. Bailey cannot say, as he had not joined ACS Group by then. Comeau, who was the owner and Chief Executive Officer of ACS Inc, has motive to conceal or misrepresent matters. I place little weight on Bailey’s hearsay evidence on Comeau’s view as to whether the Mainland EAs are genuine contracts.

65.  In saying that the Mainland EAs never came into effect, Bailey also refers and relies on an email of 3 November 2011 from D to P1’s tax consultant[27]. Bailey at §§12 to 14 of Bailey WS/1 says inter alia that:

“12. When [Chau] hired [D], I understand that there were some discussions as to whether [D] might be employed by both ACS China and ACS HK ….

13. ICS Trust (Asia) Limited (“ICS”), a consultancy engaged by ACS HK, was asked to review [D’s] employment situation and advise on the tax implications if he was to be employed by both ACS HK and ACS China. ICS was also asked to liaise with [D] in this respect. A copy of ICS’s advice dated 30 September 2011 is attached … According to the advice, ICS’s suggestion was to split up [D’s] salary into two parts (i.e. a Hong Kong portion and a China portion) in order to achieve tax efficiency.

14. When the matter was raised in discussions, [D] was told that regardless of whether he was employed by one company or both companies, his monthly salary would not in any event exceed HK$50,000 … [D] was told by Winnie Fung of ICS that the proposal as at 20 October 2011 was for HK$37,800 to be paid by ACS HK and RMB10,000 (equivalent to HK$12,000 as that time) to be paid by ACS China in the event that [D] signed new employment agreements with ACS HK and ACS China. The correspondence shows that despite all the discussions, [D] informed Winnie in his email dated 3 November 2011 that ‘… there were some misunderstanding in between for these issues…’ and ‘…both my employer and myself [Peter] do not want to change the terms and conditions of my employment’. It is clear that [D] did not want to adopt ICS's suggestion to split his salary as he did not want two sets of tax liabilities.  Given [D’s] decision, the Chinese Labour Contract never came into effect …”

66.  That email of 3 November 2011 however did not end with the part which Bailey has cited. In the last two paragraphs, D said:

“… I suggest ICS Trust to just prepare an addendum to my existing employment contract specifying starting date (June, 2011) of my payroll split and taxation for both my employer and myself to sign. Please also at the same time prepare the necessary workman compensation, medical, insurance, etc. for our review at your earliest convenience as 50% of my work require traveling here in China .

Last but not the least, the ACS, China employment contract will be prepared here in China by our Legal Consultant in Dongguan. Once when this was completed, I will work with Mr. Zhang of Dongguan Sunrise CPA Firm for the ITT and he will in turn get back to you at once.”

67.  It is quite apparent that by the time that letter was written, the preparation of an employment contract by P2 was still contemplated.

68.  In the end, according to D, the employment contract as contemplated was indeed signed, in the form of the Mainland EAs. His evidence is that the Mainland EAs were not finalized until late October 2011. He explains[28] that “as I had already been appointed as General Manager of ACS China on 8^th June 2011, the contract was backdated to and took effect as of 1^st June 2011 immediately after successful completion of my probation period.”

69.  When under cross-examination, Bailey stated his belief that the Mainland EAs had no effect as they were prepared for the purposes of (1) obtaining a work permit for D in the Mainland, (2) helping facilitate P2’s status as a WOFE, and (3) D’s personal income tax and dealing with the Hong Kong Inland Revenue. But those purposes do not by themselves render the Mainland EAs ineffective, not operative, or not having been intended to be binding. If they were intended to be entered into and be presented to the authorities (included the Hong Kong Inland Revenue Department), the inherent probability is that their terms and contents were intended to represent and reflect the true agreement and arrangements between the parties. The alternative is the scenario of the parties entering into the Mainland EAs with the intention of presenting a false picture to the authorities. That is a grave allegation to make, which is not supported by any direct evidence, and is, given the gravity of the same, inherently much less probable.  

70.  D accepted upon cross-examination, consistent with the salary payment records, that despite the execution of the Mainland EAs, there was no splitting of his salaries, and his full monthly HK$50,000 had throughout his employment been paid by P1. In his written closing submissions, Mr Cheng also points to a number of terms in the Mainland EAs which had not been performed – the expiry dates, the pay-rise, the PRC labour/social insurance, and that they have not been the subject matter of any counterclaim. This indicates that certain aspects of the Mainland EAs had not been performed. As D has said under cross-examination, that does not mean that he was not entitled to them. I have in any event considered those matters. I am not able to extrapolate the non-performance of aspects of the Mainland EAs as meaning that the Mainland EAs in their entirety never came into effect, or that D was not entitled to be reimbursed any “工作期間因工作需要產生的業務經費” as set out in Mainland EA1, or the monthly meal allowance as set out in Mainland EA2.

71.  Mr Cheng points to the fact that D was not on the payroll of P2. Given the fact that the splitting of D’s salaries was not effected and D’s salaries were all along paid by P1, I find that fact at best equivocal.

72.  I note D’s evidence, as mentioned above, that the Mainland EAs had been backdated. But according to D, the Mainland EAs were drafted by lawyers and other professionals engaged by P2 in the Mainland. There is no basis for me to conclude that the backdating of the Mainland EAs per se rendered them inoperative or otherwise having no effect.

73.  In the light of the state of the evidence before me, viewed objectively, and on balance, I find that the Mainland EAs were intended to be legally binding. Both P1 and P2 were D’s employers, and that the Mainland EAs were effective in governing D’s entitlement to benefits while under their employ.

74.  I proceed to consider Ps’ claims.

K.  Living allowances

75.  Mr Cheng fairly accepts that this claim relates to the monthly meal allowance provided in the Mainland EA2, and that if I am to find that the Mainland EA2 was binding, this claim fails.

76.  I agree, and so find.

L.  Payments to Wei Xing Design

77.  Wei Xing Design was a supplier of ACS China.

78.  Ps’ case is that D presented payment proof (支付證明單) dated 31 July 2014[29] (the “31/7 Payment Proof”) for (1) decoration costs of the factory building at RMB56,960, and (2) purchase of stainless steel door at RMB5,000, that D had made withdrawal of those sums from company funds, but that D had only paid Wei Xing Design RMB35,000 and kept the balance of RMB26,960[30].

79.  The payment of those 2 sums are recorded in the Monthly Voucher – Cash Disbursement for July 2014[31].

80.  In the Scott Schedule[32], D admits having submitted the 31/7 Payment Proof.

81.  On the evidence, I find that D did withdraw from P2 the total sum of RMB61,960.

82.  Under cross-examination, D said that given the nature of the payment, he would have paid them first and sought reimbursement from P2.

83.  The issue therefore is whether D had paid the total sum of RMB61,960 to Wei Xing Design.

84.  Ps’ case that D had only paid Wei Xing Design RMB35,000 was based solely upon hearsay, in the form of a letter dated 22 September 2014 said by Bailey to be from Wei Xing Design[33] (the “Wei Xing Letter”) asserting that it had only been paid RMB35,000. On the basis of that letter, Ps claim that D has pocketed the balance.

85.  The maker of the Wei Xing Letter has not been called. Mr Cheng submits that it would have been difficult, if not unrealistic or impracticable for Ps to call the maker. There is no evidence as to why that is so. Whilst Wei Xing Design is a Mainland entity and the author of that letter is presumably a Mainland resident, it does not necessarily mean that it is not practicable for him/her to be called.

86.  Mr Cheng submits that Wei Xing Design is a neutral third party who has no motive to conceal or misrepresent matters. In the absence of any cross-examination of the maker of that letter, I have no basis to jump to any conclusion that Wei Xing Design is necessarily a neutral party.

87.  There are further the following problems:

(a)  The Wei Xing Letter comprises 3 paragraphs. The author referred in the first two to the quotation and the invoices. It is only at the last sentence that the author asserted that “In fact, our company has only received 35,000 yuen to this date” (as translated);

(b)  There is no evidence that the author of the Wei Xing Letter in fact had personal knowledge of the assertion contained therein, and if not, what checking he/she had undertaken;

(c)  The Wei Xing Letter is not a contemporaneous document, but a letter issued after the event in reply to enquiries made by Ps;

(d)  According to Bailey, he instructed Ong to ask Li to make various enquiries. Neither Ong nor Li, who have been called, has given any evidence in those regards. There is no evidence before this Court from them as to what they had asked of Wei Xing Design that led to the Wei Xing Letter.

88.  Mr Cheung submits that the matters stated in the Wei Xing Letter are consistent with other documentary evidence, i.e. the quotation and invoices/receipts are concerned. But the existence of the tax receipt in the sum of RMB56,960[34] should be noted. According to D[35], the practice in the Mainland was that when Wei Xing Design received the payment of RMB56,960 from ACS China, Wei Xing Design reported the income and paid the relevant tax to the Chinese Authority, upon receipt of which the Chinese authority issued a valid tax receipt to Wei Xing Design, who sent it to ACS China for accounting purpose. The genuineness of that tax receipt has also been confirmed[36]. Mr Cheng in his closing submission points to certain evidence given by D under cross-examination suggesting the possibility that the tax receipt could have been pre-printed. Mr Cheng then suggests that its existence “should not necessarily mean that the sum of RMB56,960 was fully paid.” (emphasis added). I have taken those submissions into account. The existence of the tax receipt remains nonetheless a feature that can be taken as being inconsistent with Wei Xing Design’s assertion that it had only been paid RMB35,000.

89.  Having considered the matter in the round, I have decided to admit the Wei Xing Letter. But for the above reasons, I have decided to attach little weight to it.

90.  Mr Cheng in his closing submission further points to certain responses[37] that D has previously given. He submits that the figures do not tally. However, I note in this regard his related explanations given at §45 of D Aff/3[38], that there were various other sums that were owed to Wei Xing Design, and that he could not recall the details of each sum.

91.  Ps are alleging a case of theft and misappropriation against D. Re H is engaged. The onus remains on Ps to adduce cogent evidence to prove its case against D.

92.  On the evidence before me, I am not satisfied that Ps have. In particular, I am not satisfied that Ps have proved that the amount involved had not been incurred, or that that D had only paid Wei Xing Design RMB35,000, or that D had kept the balance. I am also not satisfied that Ps have proved any fraud against D.

M.  Payments to Hungwei AC

93.  This limb of the claim is in the amount of RMB25,000, which Ps say D had obtained reimbursement from P2 but which Hungwei AC did not receive[39]. Ps rely on 3 “廣東省國家税務通用機打發票” all dated 23 July 2014 for RMB9,900, 9,900 and 5,200[40] issued by Hungwei AC. The recipient is stated to be “Wai”. Ps say that those invoices were “false”, and that no such invoices had been rendered by Hungwei AC[41].

94.  That total sum of RMB25,000 is recorded in the Monthly Voucher – Cash Disbursement for July 2014[42]. It is described therein as “Maintenance costs (空調維修費)”.

95.  I accept on the evidence that D did withdraw that total sum from P2. That is not disputed in the Scott Schedule.

96.  In the WeChat message with Li on 17 October 2014[43], D said that a maintenance agreement had been signed with Hungwei AC, but was lost after his car accident on 10 April 2014. His case is that the payments were approved by Bailey, and had been budgeted.

97.  Ps’ case is that the alleged maintenance works were not carried out, and D split the RMB25,000 with Wai.

98.  Ps are not however not able to adduce any direct evidence to prove their case.

99.  Bailey’s evidence in this regard is multiple hearsay, that the “staff of [P2] reported the expenses to me as suspicious as they did not see Hungwei AC come to the factory to carry out any work”[44], and “I have been told by [Ong] that Mr Wei of Hungwei admitted to [Jiang] that [D] and Mr Wei conspired to defraud [P2] of the funds and that after the invoices were issued and [D] had withdrawn the funds from the account, the monies was [sic.] split equally between them”[45] (emphasis added).

100.  Ong has not dealt with this aspect of Ps’ claim at all, whether in his Ong WS or when giving evidence in court.

101.  The “staff of [P2]” referred to by Bailey should be Jiang.

102.  Jiang says in Jiang WS/1 that “As far as I can remember, such maintenance work had never been carried out by Hungwei”[46].

103.  There is however no evidence to show that any maintenance work would necessarily have been carried out in her presence, or that she would necessarily know of them. It should also be noted that she only joined P2 in May 2014.

104.  Jiang says that D said to her that the work was carried out between March and April 2014 before she joined. She then says that “upon checking the security records, I noted that there were no records of Hungwei attending the Factory during that period”[47].

105.  Jiang has however failed to disclose what records she had checked, or how accurate those records are supposed to be.

106.  Jiang then referred in §§9 to 12 of Jiang WS/1 to a number of telephone conversations she says she had with “Mr Wei of Hungwei” “after [D’s] dismissal”[48], in “January 2015”[49] and in “June to July 2018”[50].  

107.  That “Mr Wei” has not been called as a witness.

108.  It is not Jiang’s evidence that she has met this “Mr Wei” and confirmed his identity. Put at highest, Jiang’s evidence concerns only her telephone conversations with a person who claimed to be Mr Wei of Hungwei AC.

109.  The conversations were not contemporaneous with the events, but took place over several years.

110.  As described by Jiang, that “Mr Wei” told her different things at different time. Initially he “avoided answering” her questions as to whether Hungwei AC’s workers had done the work. Then in January 2015, he “admitted that Hungwei had not done any work for [P2] and [D] had paid Mr Wei the sum of RMB12,500 and kept the other half of the money himself.”  But subsequently, “Mr Wei changed his story and said that the received RMB13,000 (instead of RMB12,500 as previously mentioned) in cash from [D] but this was not for partial payment of the 3 invoices in question.”  And all along, that “Mr Wei” refused to give anything in writing to confirm her version.

111.  Jiang’s evidence amounts in effect to hearsay evidence of an inconsistent and changing story by a person who claimed to be Mr Wei of Hungwei AC, and who was himself involved in the alleged fraud.

112.  Further, similar to the tax receipts in the context of the Wei Xing Design payments, the existence of the “廣東省國家税務通用機打發票” is a feature that can be taken as being inconsistent with the assertion by “Mr Wei” that the full amount of RMB25,000 had not been paid.

113.  Again similar to the Wei Xing Design payments, Ps are here alleging a case of “conspiracy to defraud”[51] and misappropriation against D. Re H is engaged. The onus remains on Ps to adduce cogent evidence to prove its case against D.

114.  Having considered the matter in the round, I have decided to admit Jiang’s hearsay evidence in relation to her telephone conversations with “Mr Wei”. But for the above reasons, I have decided to attach no weight to it.

115.  On the evidence before me, I am not satisfied that Ps have proved their case in respect of the Hungwei AC payments. In particular, I am not satisfied that Ps have proved that the maintenance work had not been done, or that the invoices were “false”, or that the relevant amount had not been incurred, or that D had conspired with Mr Wei to defraud Ps.

N.  Rental deposit

116.  This claim relates to rental deposit in the total sum of RMB10,000 which Ps say that there was no agreement/authorization from either of Ps that D was entitled to charge the same[52].

117.  The relevant receipt for the rental deposit is dated 26 March 2014. It states that deposit (押金) in the sum of RMB10,000 was received from D for the renting of a flat at no.1704, Block 1, Kang Jing Tai, Dongzhong Road, Dongguan.

118.  That property was the third flat which D had rented in the Mainland while working for the ACS Group. D’s case is that based on the agreement between him and Chau prior to January 2011, D would be provided with free accommodation whilst he worked in the Mainland. He relies on the email exchange between Judy Hui and Chau in January 2011 (which I have summarized above). He says that that agreement was subsequently incorporated into the Mainland EAs. For the first and second flats, he had as was his entitlement claimed reimbursements for both the security payments and rents that he had paid. For those earlier security payments, when they were refunded by the landlords when D moved out, he returned them to P2. D says that due to his dismissal by P1 so that he had to vacate the third flat prematurely, the subject deposit got forfeited.

119.  Cheng accepts that this claim is difficult given the email exchange between Judy Hui of PPC and Chau in January 2011. I have set out their material contents above.

120.  Ps case is that those emails only concerned D’s allowance whilst living at a hotel, and gave him no entitlement to claim reimbursement for any accommodation in any domestic flat. In respect of the Mainland EAs, they had no effect.

121.  I have considered the contents of those emails. I find that they are not so confined. I have further ruled that the Mainland EAs were intended to be legally binding, and that the Mainland EAs were effective in governing D’s entitlement to benefits while under their employ. I refer in particular to Clause 五(二) of Mainland EA1.

122.  I note further in this regard that Ps have made no claim in respect of the earlier reimbursements sought by and paid to D for the first and second flats.

123.  On the evidence, I find that Ps have failed to prove this limb of their claim.

O.  Cash withdrawal

124.  This limb of the claim concerns the withdrawal of RMB13,000 by D on 8 August 2014 from P2’s account with the Agricultural Bank of China (the “ABC A/C”). The use of the fund was stated to be “Reserve Money” (備用金)[53]. Ps say that there was no agreement/authorization that D could withdraw or retain that sum.

125.  There is no dispute that D did withdraw that sum.

126.  It is Ps’ case, based upon Bailey’s evidence, that the withdrawal was in breach of the Cash Management Policy which required any withdrawal from the ABC A/C to be pre-approved, and there is nothing in the accounts to show that there was a need for the withdrawal. He said that he had not approved the same, and “can only conclude that Peter has withdrawn the money for his own personal use”[54].

127.  In D Aff/3[55], D accepts that the Cash Management Policy had been introduced. However, due to the same, P2 was not able to pay the electricity bill in cash, leading to power being cut. He then emailed Bailey for approval. Bailey gave the approval. D then made the withdrawal. Out of that sum, RMB10,000 was utilized towards settlement of the electricity bill, and the balance was to cover his transport expenses.

128.  In D WS/1[56], D produces a demand from Dalingshan Electricity Bureau dated 18 July 2014[57] chasing P2 for overdue electricity fees in the sum of RMB9,802.30. The deadline for payment is stated to be 22 July 2014. He further points to (1) the Monthly Voucher – Cash Disbursements for July 2014[58] showing that he had loaned to P2 the sum of RMB24,000, and (2) the Monthly Voucher – Cash Disbursements for August 2014[59] recording that D was repaid a sum of RMB13,000. Having referred to those document, D says in D WS/1[60] that:

“… I have paid a total sum of RMB24,000 in cash on behalf of [P2] out of my own pocket and the sum of money was entered into the accounts by Mr. Zhong as a loan by me to [P2]. The said sum of RMB 13,000 was part-reimbursement to me in August 2014, which was entered by Mr. Zhong into the accounts of cash disbursements for the month of August 2014, as repayment of loan to me. There is no doubt whatsoever that the said sum of RMB 13,000 was payment of electricity bills, upon having been threatened by the power supply bureau of Dongguan for cessation of power supply to [P2].”

129.  He was cross-examined on the Monthly Voucher – Cash Disbursements for August 2014. He was asked why there was an entry for “Utilties (水電費)” therein but not any repayment of overdue electricity charges. In reply D said that he did not know how Zhong made the entries.

130.  It was then put to him that the RMB13,000 was not for payment of electricity charges or transport expenses, not reserve money, and had not been consented by Bailey.

131.  Despite the cross-examination, given the demand from Dalingshan Electricity Bureau, and the entries in the Monthly Vouchers – Cash Disbursements for July and August 2014, I find that D’s version is supported by contemporaneous documents, and is inherently credible. The existence of those documents also to some degree run contrary to Bailey’s evidence that there was nothing in the accounts to show that there was any need for the withdrawal.

132.  I accept D’s evidence in relation to this limb of Ps’ claim, which I find that Ps have failed to prove to the requisite standard.

P.  Travel and entertainment expenses

133.  This limb of the claim relates to (1) some 5371 invoices or tax receipts which Ps say were submitted by D during the duration of his employment for travel expenses, in the total sum of RMB498,246.31 and HK$13,550.60[61], and (2) some 1976 invoices or tax receipts which Ps say were submitted by D during the duration of his employment for entertainment expenses, in the total sum of RMB439,279.84 and HK$46,310.50[62].

134.  The total amounts of this limb of the claim as now set out in the Excel Table submitted by Mr Cheng as part of his written closing submissions are RMB937,526.15 and HK$59,861.10 (but not RMB951,023.64 and HK$44,942.30 as pleaded in §16.vi) of the SOC).

135.  Ps’ pleaded case is that there was no agreement/authorization that D could pay himself those sums from the account of P2 for Travel and entertainment expenses[63].

136.  I record that in the course of his oral closing, Mr Cheng informed this court that on further consideration, Ps conceded their claim in respect of entry 3275 of Part B of the Excel Table[64] in the sum of RMB160,000.

137.  Net of that item, Ps’ claim under this limb is for RMB777,526.15 and HK$59,861.10.

138.  Mr Cheng has identified 2 issues in relation to this limb of Ps’ claim:

(a)  Whether the receipts were submitted by D, and

(b)  Whether D was entitled to submit those receipts to claim for reimbursement.

139.  For the reasons set out below, I am of the view that Ps have failed on both issues.

140.  Whether those invoices or tax receipts were submitted by D for claim of expenses incurred by him:

(a)  There were thousands of those invoices and receipts. They bear dates between 2011 and 2014;

(b)  According to D’s evidence which I accept, all expenses receipts submitted by P2’s employees went through D. They gave D their receipts, who would then submit them in batches together with his own to Zhong;

(c)  D raised this problem early on. In D Aff/3, he said that there were not enough details in the SOC for him to give specific details. In D Aff/4, he says at §35[65] that:

“Keeping in mind that some of the receipts are for expenses incurred three years ago and some of them are illegible, I will try to go through each receipt in Exhibit BB-14 and state, as far as I am able from my memory, the purpose for which the amounts were incurred and for which I submitted a claim for reimbursement from my employer. Since all the expense receipts submitted by ACS China employees went through me - my subordinates would give me their expense receipts, and I would submit them all in a batch along with my own to Mr Zhong - and they are unmarked, as a result of the long lapse of time and without the chance of checking the record, I have no way of knowing whether or not the receipts shown at Exhibit BB-14 are even mine.”

(d)  D’s evidence in §59 D WS/1, and his responses in the Scott Schedule to the vast majority of those invoices and tax receipt, are to the same effect.

(e)  In submitting that all those invoices and tax receipts were submitted by D for his own expenses, Mr Cheng relies on the evidence of Li and Jiang. In essence, they state their observations that claims by other employees were better supported with claim forms, which D never did. They therefore identified and picked out all those invoices and receipts not accompanied by claim forms and attributed them to D[66];

(f)  But Li and Jiang were only employed by P2 respectively on 21 April and 5 May 2014. D left Ps’ employed in August 2014. They only had limited time in observing Ds methods of claiming reimbursement;

(g)  I find that process of attributing all unsupported invoices and receipts to D neither reliable nor fair;

(h)  Whilst D said under cross-examination that amongst the documents before the court, there was only one claim form which was submitted by him, there is no evidence showing that all the claim forms that had previously been submitted during the relevant period were before the court. D said that after his summary dismissal, he was unable to retrieve the relevant documents. I do not find his evidence in this regard inherently improbable; 

(i)  On the evidence I am not satisfied that Ps have proved that all those invoices and tax receipts were submitted by D for his own expenses. I cannot tell which were, and which were not.

141.  D’s entitlement to reimbursement:

(a)  Ps accept, even on the terms of the HKEA only, “that if the expenses were properly incurred and duly explained by the supporting documents, then D would be entitled to reimbursement”[67];

(b)  Added to that concession is my earlier finding that the Mainland EAs were intended to be legally binding, and that the Mainland EAs were effective in governing D’s entitlement to benefits while under their employ (and see in particular to Clause 五(二) of the Mainland EA1);

(c)  But then Mr Cheng submits[68] that D had failed to claim the reimbursements by properly supporting the claim with underlying documents showing the propriety of the expenditure. Indeed, Mr Cheng appears to have gone one step further and submits[69] that even if any of the invoices and tax receipts were submitted by other employees through him for the expenses that they (but not D) had incurred, D should still be liable for them because “As the most senior staff in the ACS Factory, and the person who approved the other staff’s claims for reimbursement, D should not have approved of those reimbursements in any event”;

(d)  But Ps’ pleaded bases of D’s liability are not D’s failure to comply with the claim procedure arising from P1’s Account Policy or any Cash Management Policy, or D’s failure to ensure compliance by other employees. P2’s pleaded case against D is based on fraudulent misrepresentation, and that “[D] had not incurred the expenses he alleged were made for and on behalf of ACS China and the receipts submitted to the Company's Accountant for the expenses were false”; and P1’s pleaded basis in turn is that “By producing fraudulent receipts to [P2] to claim expenses which had not been incurred, [D] has breached the duty of good faith and fidelity owed to [P1] as well as the duty of mutual trust and confidence”.

142.  For the reasons set out above, I find that Ps have failed to prove which of the relevant invoices and tax receipts were submitted by D for his own expenses, and which were submitted by P2’s other employee through D, or that any of those invoices or tax receipts were “fraudulent” or “false”. I accept D’s evidence that he need to entertain as part of his job. I find that D was entitled to claim reimbursement for travel expenses and entertainment expenses incurred in the course of his employment. In so far as Ps seeking to relying on any non-compliance of the claim procedure as the basis of D’s liability, Ps should not be permitted to do so as that is not their pleaded cases.

Q.  The F&B Receipts

143.  There are altogether 333 in number. Ps case is that they are all tax receipts (each described on its face as “General Quota Invoice for Guangdong Local Taxation”) submitted by D to ACS China for entertainment or travel expenses. The main foci are the 328 F&B Receipts. They are all in the amount of RMB500 (hence in the total amount of RMB164,000). Each of those 328 F&B Receipts bears the chop of one of the 3 Alleged Hotels:

(a)  112[70] bearing that of “东莞市厚街喜来登大酒店” (“Houjie Sheraton”);

(b)  89[71] bearing that of “东莞市长安海悦酒店” (“Changan Haiyatt”); and

(c)  127[72] bearing that of “东莞市长安国际酒店有限公司” (“Changan International”).

144.  Mr Cheng submits that there are in respect of those F&B Receipts 4 major areas in dispute:

(a)  Whether the F&B Receipts were false receipts, in that despite purporting to be issued by the 3 Alleged Hotels, they in fact were not;

(b)  Whether the F&B Receipts were submitted by D to P2;

(c)  If any of the F&B Receipts were false receipts submitted by D, whether D did not honestly believe that they were true or were reckless as to whether they were true or false; and

(d)  If any of the F&B Receipts were not false receipts, whether D was entitled under his employment to claim for reimbursement of the expenses.

145.  Given the serious nature of the allegations, Re H is engaged.

Q.1.  Whether the 328 F&B Receipts fake

146.  I have considered the evidence of Ong and Jiang:

(a)  Upon Bailey’s instructions, they carried out some investigation in respect of the authenticity of the 328 F&B Receipts. They sought verification from the Dongguan Local Tax Bureau. They both attended the Bureau in person, and visited its website. They handed to the Bureau 3 of the 328 F&B Receipts, one each purported to have been issued by the 3 Alleged Hotels. The Bureau came back confirming that they were fake. They also checked as samples 33 of the 328 F&B Receipts online. There were no search results that matched with those samples, indicating that they were faked;

(b)  They also in person attended 3 hotels, and had further written communications with them. One of them was called “东莞喜来登大酒店”. It was situated at Houjie in Dongguan. Whilst its name was not the same as that of the Houjie Sheraton, it was the only Sheraton Hotel at Houjie. They also visited 东莞海悦花园大酒店有限公司. Its Finance Manager confirmed that the hotel’s name had always been same. The third hotel they visited and had communication with had the same name as that of Changan International. Their investigation all show that the 328 F&B Receipts were not issued by those 3 hotels;

(c)  There is no evidence from D that there were any hotels which had the names of Houjie Sheraton and Changan Haiyatt;

(d)  Having considered the evidence, I decide to admit the hearsay evidence in relation to the enquiries and investigations which Ong and Jiang had carried out;

(e)  On the evidence, principally on the basis of the investigations which Ong and Jiang had made with the Dongguan Local Tax Bureau, and in particular their online enquiries, I hold that the 328 F&B Receipts are not genuine documents.

Q.2.  Whether submitted by D

147.  In D WS/3 at §6[73], D says that:

“Without the Claim Forms annexed to the respective expense receipts produced by [Ps], I have no way to identify whether those 333 receipts, or any of them, were submitted by me or my colleagues; or whether they were submitted by me at all.”

148.  D’s responses in the Scott Schedule in relation to the 328 F&B Receipts are to the same effect[74].

149.  I repeat my observations made in §140 above in relation to the F&B Receipts.

150.  Mr Cheng both in the course of his cross-examination of D and in his written closing[75] refers to D Aff/3 and D Aff/4. He submitted that D did not therein dispute that the 328 F&B Receipts were submitted by him.

151.  I note however that D filed D Aff/3 and D Aff/4 for the purpose of setting aside the judgment that had been entered against him. It was then early stage of the proceedings, and D had not had the benefit of full discovery. In any event, he has not in those affirmations positively asserted that the 328 F&B Receipts were in fact submitted by him. I note further that in the D&C[76], D has made no admission on the issue.

152.  On the evidence I am not satisfied that Ps have proved that all those 328 F&B Receipts were submitted by D for his own expenses. I cannot tell which were, and which were not.

Q.3.  D’s state of knowledge

153.  At §22 of D Aff/4[77], D says that:

“If the receipts are fake, I genuinely have no knowledge of that, and I am as much a victim as [Ps]. Furthermore, since I am a Hong Kong resident, I am not sure how [Ps] could reasonably have expected me to be able to tell the difference between real and fake mainland Chinese tax receipts, when Mr Zhong and ACS China’s bank had verified the authenticity of all the receipts and approved the payment.”

154.  I do not find D’s evidence in that regard inherently improbable. There is further no directly evidence contradicting the same.

Q.4.  Whether D entitled to claim reimbursement

155.  I repeat my observations in §141 above.

156.  I have considered Ong’s evidence that P2’s only customer was ACS Corp, and that he was surprised by D’s statement that he had been entertaining local government officials and businessmen[78]. I have also considered D’s evidence[79] as to why it was necessary for him to entertain. I do not find D’s evidence in those regards to be inherently improbable.

157.  On the evidence, I am of the view that D was entitled to claim reimbursement for entertainment expenses as being “工作需要產生的業務經費”.

Q.5.  Conclusion

158.  For the reasons set out above, I conclude that Ps have failed to prove their cases in respect of the F&B Receipts.

R.  The alleged overpaid annual leave pay

159.  This limb of P1’s claim relates to 12.4 days of annual leave which P1 says D took in excess of his entitlement under the HKEA, in the total sum of HK$20,383.56.

160.  P1’s case is based and premised upon a number of matters:

(a)  D’s employment was based upon the HKEA only;

(b)  Bailey’s evidence recounting certain alleged agreement between Chau and D, that[80]:

“Under his Employment Contract, Peter was entitled to 10 working days annual leave each year. This was in addition to Hong Kong statutory holidays. As Peter spent his time in China, it was agreed between [Chau] and Peter that he would receive the Hong Kong statutory holidays and any days taken in respect of PRC holidays would come out of his annual leave entitlement. [Chau] had not agreed that Peter would enjoy the PRC labour holidays without deducting them from Peter’s annual leave entitlement.”

(c)  The document entitled “Annual leave record for Peter Li employed 15/02/2011 to 29/08/2014”[81] (“Annual Leave Record”), showing that cumulatively, from 15 February 2011 when D first started his employment with P1, D had by 8 February 2014 exhausted his annual leave, so that the 12.4 days of annual leave D took afterwards were inferentially taken in excess of his contractual entitlement.

161.  No details have been given by Bailey as to how and when he became aware that alleged agreement between Chau and D. I place little weight on the same.

162.  I have further found that the Mainland EAs were intended to be legally finding, that both Ps were D’s employers, and that the Mainland EAs were effective in governing D’s entitlement to benefits whilst under their employ.

163.  Clauses 四and 五(三)[82] of the Mainland EA1 provided that:

“四、 工作時間和休息休假

(一) 實行不定時工作制。平均每週休息二天。

(二) 乙方在合同期內享受國家規定的各項休息、休假的權利等。

五、 勞動報酬

…

(三) 乙方依法享受年休假、探親假、喪假等假期期間，甲方應按國家和地方有關規定標準，或勞動合同約定的標準，支付乙方工資。甲方給予乙方每年的10 天的有薪假期。”

164.  There is no evidence on D’s leave benefits under the Mainland EA1 during the period of his employment, and in particular those under Clause四(二).

165.  I have considered D’s evidence on this issue[83], that:

“… Throughout my employment with [Ps] in 2011 - 2014, I had taken only two days of annual leave on 9^th July 2014 and 22^nd August 2014 … Further or in the alternative, even if I had taken leave from my work on the days as alleged …, which is denied, such were and ought to be regarded as my time-off for the extra time and day that I was required to and did work outside the usual office hours in the daytime as well as during weekends (I was required to work only five days in a week, Monday to Friday) and holidays in Dongguan or elsewhere in Mainland China and in Hong Kong in 2011 - 2014.”

166.  Given my findings and the contents of the Mainland EA1, and given D’s evidence, which is consistent with the contents of the Mainland EA1 and is not inherently improbable, which I accept, I am not satisfied that the Annual Leave Record accurately shows the state of D’s annual leave. I find that P1 has failed to prove its case in this regard.

S.  The alleged overpaid salary

167.  P1’s case in this regard is that D had been overpaid salary for 23 days during which P1 says D was in fact absent from work without leave. The total amount involved was HK$37,808.22.

168.  P1’s case in this regard, as summarized by Mr Cheng[84], runs as follows:

“62. As for absence without approval, P1’s case is based on the receipts as submitted by D for reimbursement of his travel and entertainment expenses … , which demonstrated that D could not have been reporting for duty at the ACS Factory, and was therefore absent from work without leave. Ps say that, if the Court finds that the receipts for the travel and entertainment expenses were submitted by D, liability in this regard should be established.

63.  D was absent without leave for a total of 23 days, and in the circumstances, P1’s claim for absence from work without leave is (HK$50,000 x 12 months / 365) x 23 days = HK$37,808.22 …”

169.  I repeat my findings in respect of the Travel and entertainment expenses, and in particular those as set out in §140 above.

170.  I have also considered D’s evidence in relation to this limb[85], that:

“I refer to paragraphs 31 and 32 of the [SOC] where it is alleged that I was absent from work without approval. I deny the allegation. I was not absent from my work on the days alleged by the [Ps]. Further or in the alternative, even if I was absent from work on the days alleged, which is denied, such were and ought to be regarded as my timeoff for the extra time and day that I was required to and did work outside the usual office hours in the daytime as well as during weekends and holidays in Dongguan or elsewhere in Mainland China and in Hong Kong.”

171.  I find D’s evidence in the above regard credible which I accept. I repeat further my observations in §§162-164 above.

172.  I find that P1 has failed to prove this limb of its case.

T.  Conclusion on Ps claim

173.  For the reasons set out above, I dismiss Ps’ claim against D.

U.  D’s Counterclaim

174.  D’s pleaded Counterclaim is against P1 only[86].

175.  D counterclaims that he has been wrongfully dismissed.

176.  D was originally dismissed by P1 by one month notice effected by letter of 21 August 2014[87].

177.  By that letter, amongst other things, D was required by P1 to provide certain information in relation to various expenses referred to therein within 3 days.

178.  D did not response.

179.  There had been various subsequent attempts on the part of P1 and Bailey to contact D. Those attempts have been set out in Bailey WS/1[88], that:

“60. … After I returned from China I sent [D] a letter dated 21 August 2014 terminating his employment with one month’s notice … The letter was sent to [D] by email … In addition to sending the termination letter by email to [D], I also spoke with him on 21 August 2014 at approximately 7:30am Toronto time and informed him that his employment was terminated with one month’s notice.

61. When [D] did not respond to my email I tried calling the factory to speak to him. I was unable to speak to him mainly because he would not answer his direct line or his mobile phone or was not at the factory. Attached … is a copy of an email which I sent to [D] on 27 August 2014[89] asking him to contact me. This email was copied to Vivian Li who was asked to remind [D] to contact me. I understand that Vivian did remind [D] but he still chose to ignore my request and did not contact me. On 28 August 2014, ACS HK’s solicitors, Stephenson Harwood, sent [D] a letter[90] to remind him that he needed to account to his employer for the unexplained expenses and owed the company a duty of good faith and fidelity and was obliged to comply with the company’s requests and orders ...

62.  [D] continued to ignore the company’s requests that he account for the expenses … [D] was summarily dismissed on 31 August 2014. An email[91] was sent to [D] with the attached letter summarily dismissing him, … ”

180.  I have considered the divers means in which P1 sought to contact D. D asserted during cross-examination that he did not receive those emails and letters set out in §§61 and 62 of Bailey WS/1. No credible reason has been provided as to why. I do not accept D’s evidence in that regard.

181.  The issue of those emails and letter, and D’s failure to response to the same, have been clearly pleaded[92].

182.  Whilst I have found that the evidence, as discussed above, is not sufficient (given in particular Re H where applicable) to establish Ps claims, I do find that the facts justified P1’s requests to D for explanations and provision of information. Those requests in my view constituted lawful and reasonable orders from P1.

183.  I find that D was aware of those requests. He ignored P1’s requests for information relating to the expenses receipts. I find that D has wilfully disobeyed P1’s lawful and reasonable orders in those regards. I accept Mr Cheng’s submission[93] that such conduct of D by itself justified summary dismissal under section 9 of the Employment Ordinance, which summary dismissal was effected by P1’s letter of 31 August 2014 with immediate effect.

184.  Consequentially:

(a)  D is not entitled to the part of his Counterclaim for one day’s salary on 1 September 2014 when he claims he did report back for duty (§32 of the D&C), as that took place after the summary dismissal;

(b)  D is also not entitled to the part of his Counterclaim for payment in lieu of notice for the period from 1 September 2014 to 20 September 2014 (§33 of the D&C);

(c)  In respect of the part of D’s Counterclaim for annual leave (§34 of the D&C):

(i)  Mr Cheng has fairly brought to my attention Section 41D of the Employment Ordinance, Cap 57;

(ii)  As D was summarily dismissed, he would be entitled to his annual leave pay for accrued annual leaves during all the complete leave years (i.e. 15 February 2011 to 31 December 2013 = 2.875 years). He would not however be entitled to any notional leave pay for any incomplete leave year (1 January to 31 August 2014);

(iii)  The accrued annual leaves therefore were 28.75 days;

(iv)  I accept D’s evidence that he had only taken 2 days of his annual leave;

(v)  D is therefore entitled to 26.75 days of annual leave pay, in the sum of HK$44,583 ($50,000 / 30 x 26.75);

(d)  D is not entitled to the part of his Counterclaim for severance payment (§35 of the D&C) – see section 31C(1) of the Employment Ordinance. In any event, this part of D’s Counterclaim fails in any event given section 31B(1) of the Employment Ordinance, which stipulates that an employee would only be entitled to severance payment if he is dismissed by reason of redundancy or having been laid off. It is not D’s pleaded case that he was dismissed for either of those 2 reasons;

(e)  As to D’s claim for the sum of RMB11,916 (§36 of the D&C), it is D’s pleaded case that the sum was incurred in the course of and incidental to carrying out his duties in August 2014. However, D at §84 of D WS/1[94] states that this sum was “in fact the outstanding balance of the expenses paid by me for ACS China in the month of July 2014 instead of August 2014”. D is counterclaiming against the wrong party. His claim is further unparticularised, and not supported by any receipts. I dismiss the same.

185.  For the reasons set out above, I allow D’s Counterclaim only to the extent of HK$44,583. I dismiss the balance.

V.  Overall disposition

186.  For the reasons set out above, I dismiss Ps’ claim against D. I allow D’s Counterclaim only to the extent of HK$44,583, and dismiss the balance.

187.  I make an interest order nisi that interest of that sum of HK$44,583 should be at prime plus 1% from the original filing date of the D&C (namely 13 May 2016) till the date of this Judgment, and at judgment rate thereafter till payment.

188.  I have dismissed Ps’ claim. D is only successful in one limb of his Counterclaim. It is however Ps’ claim which has taken up the bulk of time and costs. In all the circumstances, rather than to split up the costs of the claim and counterclaim, I simply make an overall costs order nisi that Ps shall bear 95% of D’s costs in the entire action (claim and counterclaim included, and including any costs reserved both before the Court of First Instance and the Labour Tribunal), to be taxed if not agreed. Any application for variation should be made within 21 days of hand-down to the Clerk of this Court, upon receipt of which this Court may give further directions on papers with the view of disposing of the matter on the papers