GAIN HILL (HONG KONG) LTD v. LI KIN YIP AND ANOTHER

                 HCA 1321/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1321 OF 2006

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JUDGMENT

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1. There are two summonses before me.  The first in time is the plaintiff’s summons dated 13 July 2006 under O.14 for summary interlocutory judgment for damages to be assessed and for interlocutory injunctions.  On the undertakings given by the defendants as recorded in the order of Deputy Judge Gill made on 26 July 2006 the plaintiff does not pursue the application for interlocutory injunctions.

2. The second summons is the 1^st defendant’s summons dated 15 July 2006 seeking a declaration that this Court has no jurisdiction in respect of the plaintiff’s claims against the 1^st defendant and for an order that the writ and subsequent proceedings be set aside or stayed as against the 1^st defendant.

3. Counsel agreed that the 1^st defendant’s application should be determined first.  It seems to me that it is both logical and desirable that the 1^st defendant’s application should be determined first.  I proceeded to deal with the 1^st defendant’s application.  The plaintiff’s summons was adjourned pending the decision on the 1^st defendant’s application with liberty to restore.

Background

4. The plaintiff’s claims against the defendants are for injunctive relief and damages as set out in the statement of claim.  The plaintiff’s case as pleaded is that it has been carrying on business as a merchandiser and trader sourcing for and supplying its customers with Lycra fibre yarns of various specifications, qualities and colours as required by its customers.  Lycra fibre yarn is a synthetic premium stretch fibre invented by Du Pont.  There are a limited number of Lycra accredited mills in the world.  In the Mainland one such accredited mill is Nanhai Guanxing Knitting Co. Ltd (“Nanhai”).

5. The plaintiff’s case is that in the course of its business the plaintiff spent much time, effort, skill and expenses working with Nanhai to develop and test the composition, knitting process,dyeing materials and process to ensure the yarns meet the strict requirements of each of its customers.  Upon the customer’s approval, each customer would be assigned by the plaintiff a specific set of colour numbers for each specific type of yarn required by the customer.  The plaintiff’s customers would order yarns in bulk and Nanhai would accept such orders, produce and supply yarns by reference and according to the colour numbers of that customer.  The plaintiff’s case is that the plaintiff’s lists of colour numbers for each customer was confidential information and the property of the plaintiff.  The plaintiff’s pricing system in respect of each type of Lycra yarn for each customer is also said to be confidential information.

6. Since about 16 February 2005, the 1^st defendant was employed by the plaintiff as a sales executive entrusted with the responsibility of accepting orders from the plaintiff’s customers and liasing on behalf of the plaintiff with the customers and Nanhai.

7. The plaintiff’s case is that when the plaintiff employed the 1^st defendant the plaintiff made known to the 1^st defendant that he would be entrusted with confidential information.

8. Para. 11 of the statement of claim pleads :

“ As an employee, the 1st Defendant owed the Plaintiff the duties or alternatively it was implied term in the contract of employment between the Plaintiff and the 1st Defendant that :-

(a) the 1^st Defendant shall serve the Plaintiff with fidelity and in good faith;

(b) the 1^st Defendant shall not act to the detriment of the Plaintiff;

(c) the 1^st Defendant shall not solicit and/or deal with the  plaintiff’s customers on his own behalf and/or for his own benefit; and

(d) the 1^st Defendant shall not use the Plaintiff’s property, including the Plaintiff’s Confidential Information for his own personal benefit and/or to the detriment of the Plaintiff.”

9. The complaint is made at paragraph 12 of the statement of claim that :  “Wrongfully and in breach of his contract of employment, his said duties as an employee and the obligation of confidentiality and since about April 2006 during his employment by the plaintiff the 1^st Defendant secretly and behind the Plaintiff’s back” did the acts complained of.  These include whilst in the plaintiff’s employ setting up and operating the 2^nd defendant in direct competition with the plaintiff and soliciting the plaintiff’s customers to place order for Lycra yarn with the 2^nd defendant by using the plaintiff’s confidential information.  There is also the allegation that the 1^st defendant misused the confidential information by placing orders on behalf of the 2^nd defendant with Nanhai.  Particulars are given of orders placed by the plaintiff’s customers with the 2^nd defendant these being orders diverted by the 1^st defendant to the 2^nd defendant whilst in the plaintiff’s employ.  On the evidence, the total value of these orders which were diverted to the 2^nd defendant is about HK$5.5 million.

10. According to the plaintiff, the plaintiff dismissed the 1^st defendant because of his wrongful acts and the employment was terminated on 20 May 2006.

11. There is a claim for an injunction against the defendants to restrain them from using the confidential information.  There is also a claim for an injunction to restrain them from soliciting or canvassing the plaintiff’s customers and Nanhai in relation to any business connected with the sourcing and supply of Lycra yarn.

12. Apart from injunctive relief, the plaintiff also claims by prayers 4, 5, and 6 as follows :

“	4.	Damages for breach of confidence to be assessed;
	5.	Damages for breach of employment contract or breach of the duties of an employee to be assessed or alternatively an account of profits;
	6.	Exemplary damages to be assessed;”

13. A defence has not yet been served by the defendants.  However, on the evidence filed on behalf of the defendants, the plaintiff’s allegations are denied.  It is also denied that the information given by the plaintiff to the 1^st defendant was confidential information.

The 1^st defendant’s application

14. Mr Clough informed me that the 1^st defendant was seeking an order on his application that the proceedings be stayed as against the 1^st defendant.

15. The application is made on the basis that the plaintiff’s claims against the 1^st defendant are within the exclusive jurisdiction of the Labour Tribunal and that the High Court has no jurisdiction over the matter.

16. S. 7 of the Labour Tribunal Ordinance (Cap. 25) (“the Ordinance”) provides that :

“ (1) The tribunal shall have jurisdiction to inquire into, hear and determine the claims specified in the Schedule.

(2) Save as is provided in this Ordinance, no claim within the jurisdiction of the tribunal shall be actionable in any court in Hong Kong.”

17. The Schedule to the Ordinance (“the Schedule”) specifies the claims as follows :

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

(a) the breach of a term, whether express or implied, of a contract of employment, whether for performance in Hong Kong or …………….....................…….......…….;

(aa) ………………………………………………......…;

or 

(b) the failure of a person to comply with the provisions of the Employment Ordinance .............................................

other than a claim specified in the Schedule to the Minor Employment Claims Adjudication Board Ordinance (Cap. 453).

2. A claim for contribution under section 26(2).

3. Notwithstanding paragraphs 1 and 2, the tribunal shall not have jurisdiction to hear and determine a claim for a sum of money, or otherwise in respect of a cause of action, founded in tort whether arising from a breach of contract or a breach of a duty imposed by a rule of common law or any enactment. 

4. ……………………………........................................................

5. ……………………………........................................................

6. ....................................................................................................

7. ..................................................................................................”

18. The 1^st and 2^nd defendants gave undertakings to the Court recorded in the order of Deputy High Court Judge Gill made on 26 July 2006 not to use the plaintiff’s confidential information “as defined in the Statement of Claim” within the next six months from the date of the order and not to solicit or canvass the plaintiff’s customers and Nanhai in relation to the business of the sourcing and supply of Lycra yarn within the next six months from the date of the order.

19. Mr Clough on behalf of the 1^st and 2^nd defendants informed me that the undertakings would continue pending the determination of the proceedings by the Labour Tribunal and on behalf of his clients he gave the same undertakings which were to continue pending the determination by the Labour Tribunal.

20. I would observe that from the above background facts this is a case that is eminently suitable to be determined by the High Court rather than by the Labour Tribunal where there is no legal representation.  It has not been suggested on behalf of the 1^st defendant that the Labour Tribunal is the more appropriate forum to determine this dispute between the parties.  However, Mr Clough submitted that the Labour Tribunal has exclusive jurisdiction over the plaintiff’s claims and that the proceedings should be stayed as the High Court has no jurisdiction over the matter.

21. The question to consider is whether the plaintiff’s claims are within the exclusive jurisdiction of the Labour Tribunal.

22. In National Ebauch Ltd v Rishi Kaumar Bhatnagar [1981] HKLR 114 it was held by Roberts CJ that the words “a claim for a sum of money” in the Schedule did not include a claim for unliquidated damages.  As the claim in the case before him was for unliqidated damages for breach of contract, he held that the Labour Tribunal did not have exclusive jurisdiction.  The effect of his decision is that the Tribunal’s jurisdiction was limited to claims for liquidated damages and the High Court had jurisdiction to hear claims for unliquidated damages for breach of contract.

23. That view was disapproved of in Panalpine (Hong Kong ) Ltd v Ulrich Haldemann [1983] HKLR 275.  Hunter J held that the legislature anticipated a “quantified” claim.  And a claim that was “ascertained” or ascertainable does not make the claim one for liquidated damages nor does it limit the Tribunal’s jurisdiction to such claims.  Hence he held that the Labour tribunal had exclusive jurisdiction to hear claims for unliquidated damages which arise from the breach of a term of a contract of employment.  He stayed all proceedings on the counterclaim.

24. In Panalpine the counterclaim was by the employee who sought damages for wrongful dismissal and the claim was for unliquidated damages.  That was clearly a claim for breach of the contract of employment.

25. The Court of Appeal in Citipost (Asia) Limited v Julian Robert Holliday (unreported CACV 111/2004, 8 February 2005) considered National Eubach and Panalpine and came to the view that Hunter J was correct.  Rogers VP in his judgment agreed with Hunter J’s judgment in Panalpine.  Le Pichon JA agreed with Rogers VP’s judgment. 

26. It is now clearly established by Court of Appeal authority that a claim for unliquidated damages for breach of a term, whether express or implied, of a contract of employment is a claim within the exclusive jurisdiction of the Labour Tribunal.

27. If that were the only claim of the plaintiff in this action then I would agree with the 1^st defendant that the Labour Tribunal has exclusive jurisdiction and the High Court has no jurisdiction.  But it is clear that the plaintiff is not only seeking damages for breach of contract.  There is also the claim for the injunctive relief as set out above in paragraph 11.  Paragraph 1 of the Schedule deals with a claim for “a sum of money” and not injunctive relief.  It is clear that the Labour Tribunal has no jurisdiction to grant injunctions.

28. There is also a claim by the plaintiff for damages for breach of confidence.  I accept that the dispute between the parties arises from the relationship of employer and employee but that does not mean that the causes of action are founded merely in contract.  The claim for damages and injunctive relief for breach of confidence is founded both in contract and in tort.

29. In Citipost there was also a claim for an injunction to restrain the defendant from breaching a restrictive covenant.  There was also a cause of action for breach of confidence.  However, as is clear from the judgment of Rogers VP both those matters fell by the wayside and the only real claim left was the claim for damages for breach of contract.

30. At paragraph 8 of his judgment Rogers VP said :

“ Indeed, nearly a year has passed since the judge heard the matter and it can now be said that the injunction claim, limited as it is to the Restrictive Covenant in the contract of employment, is now a matter of history.  The periods of the Restrictive Covenant have now expired save for clause 7 which prohibits the divulgence of confidential information.”

31. It was conceded by counsel for the plaintiff in Citipost that the pleading did not contain the necessary allegations to found a breach of confidence action.  Also at paragraph 8 Rogers VP said :

“ Indeed, Mr Yuen acknowledged that the pleading did not contain the necessary allegations to found a breach of confidence action.  In those circumstances, it seems to me that the allegations in respect of confidential information would fall to be struck out should any such application be made.”

32. Thus it is clear that in Citipost the claim for an injunction and the claim for breach of confidence fell by the wayside and the only real claim left was one for damages for breach of the contract of employment.  That being so, it was within the exclusive jurisdiction of the Labour Tribunal.

33. Mr Clough submitted that the plaintiff’s claims for injunctions were window dressing.  I am unable to accept this submission.  Because of the wrongful activities of the defendants as alleged by the plaintiff the plaintiff applied for interlocutory injunctions.  At the hearing before Deputy Judge Gill on 26 July 2006 the defendants gave undertakings to the court.  The claims for injunctive relief are important claims for the plaintiff and in no way can they be said to be window dressing.  The defendants took these matters seriously and offered undertakings in lieu of interlocutory injunctions.

34. Mr Clough also submitted that all the claims of the plaintiff are founded in contract and not in tort.  I am also unable to accept this submission.  The claim for breach of confidence is founded both in contract and in tort.  That being so, it seems to me that paragraph 3 of the Schedule comes into play.  

35. Paragraph 3 of the Schedule was considered by Kwan J in Estinah v Golden Hand Indonesian Employment Agency (unreported HCSA 6/2001, 21 August 2001).  Kwan J held that two of the three causes of action that she was concerned with were within the exclusive jurisdiction of the Labour Tribunal as coming within paragraph 1(b) of the Schedule.  However, the third cause of action was founded in tort as being a cause of action for breach of statutory duty.  This came within paragraph 3 of the Schedule.  

36. At paragraphs 37 and 38 of her judgment Kwan J said :

“37. On the plain wording of paragraph 3, it would seem to me that the claim insofar as it is based on breach of statutory duty is excluded from the jurisdiction of the Labour Tribunal, as it is a cause of action founded in tort arising from a breach of duty imposed by section 57(a) of the Employment Ordinance.  An action for breach of statutory duty is an action in tort, this is the established view and it has been recognized in textbooks on the law of torts.  I am unable to accept Miss Po’s submission that the claim based on breach of statutory duty is not “a cause of action, founded in tort” because it is in essence a claim for refund for overpayment. I do not propose to go over the legal basis of the claim founded on breach of statutory duty as I have analysed this when I rule (sic) that there is a valid cause of action on this ground.

38. Miss Po also submitted that the claim should not be excluded under paragraph 3 of the Schedule as this would give rise to tension between paragraphs 1(b) and 3 and might make it difficult to apply the provisions in the Schedule in practice.  I agree with Mr Ling that it is clear from the opening words of paragraph 3 (i.e. “notwithstanding paragraphs 1 and 2”), it was envisaged that there would be an element of overlap between the claims in paragraphs 1 and 2 and the claim in paragraph 3.  Take for instance a claim for a sum of money which arose from the breach of an express or implied term of a contract of employment to provide a safe system of work.  This would fall within paragraph 1(a) and yet one would have no difficulty in seeing that it would be excluded from the jurisdiction of the Labour Tribunal as this claim is in respect of a cause of action founded in tort whether arising from a breach of contract or a breach of duty imposed by the common law or by statute.  As for paragraph 1(b), Mr Ling has suggested that this is meant to cover simple claims in which there is an express provision in the Employment Ordinance or the Apprenticeship Ordinance governing the right of recovery in the event of failure to comply with the statutory provision.  He mentioned as an example section 40 of the Employment Ordinance which governs the payment of holiday pay.  Where there is failure of a person to comply with the Employment Ordinance and the means of enforcing the right which arose is provided in the Ordinance itself, there is no need to rely on a cause of action founded on breach of statutory duty.  I agree with his submission that where a claimant is driven to rely on a private right of action impliedly conferred by statute, as in this case, the claim is excluded from the jurisdiction of the Labour Tribunal by virtue of paragraph 3 in the Schedule.”

37. Kwan J held that the claimant could advance a claim founded on breach of statutory duty and as the claim was not within the exclusive jurisdiction of the Labour Tribunal by virtue of paragraph 3 of the Schedule, the Small Claims Tribunal had not exceeded its jurisdiction in trying the claim.

38. I agree with the views of Kwan J.

39. The words “Notwithstanding paragraphs 1 and 2” in paragraph 3 of the Schedule must mean something.  The meaning is in my view clear.  In spite of the fact that the Labour Tribunal has jurisdiction under paragraphs 1 and 2, the Labour Tribunal shall not have jurisdiction to determine a claim for a sum of money in respect of a cause of action “founded in tort whether arising from a breach of contract or a breach of duty imposed by a rule of common law…..”

40. Here there is an overlap between the claim in paragraph 1 and the claim in paragraph 3 of the Schedule.  The claim for damages for breach of confidence is founded both in contract and in tort.  It would fall within paragraph 1(a) as being within the jurisdiction of the Labour Tribunal but it would be excluded from the jurisdiction of the Labour Tribunal under paragraph 3 as being a claim for a sum of money in respect of a cause of action “founded in tort whether arising from a breach of contract or a breach of duty imposed by a rule of common law ……..”  The intention of the legislature was to exclude such claims from the jurisdiction of the Labour Tribunal.

41. In my judgment the plaintiff’s claims are not within the exclusive jurisdiction of the Labour Tribunal.  The 1^st defendant’s summons is dismissed.

42. The plaintiff is to be at liberty to restore its summons dated 13 July 2006 for hearing before any judge.

43. I also make an order nisi for costs of the 1^st defendant’s application to be costs to the plaintiff to be paid by the 1^st defendant.