FILBERT TERRENCE KIRK v. BIG BLUE RESOURCES LTD

HCLA 27/2015

[2019] HKCFI 285

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

LABOUR TRIBUNAL APPEAL NO 27 OF 2015

(ON APPEAL FROM LABOUR TRIBUNAL

CLAIM NO. LBTC 2579 OF 2013)

____________

____________

_______________

J U D G M E N T

_______________

1.  This is the appeal against the order (“the Order”) of the Presiding Officer, Mr Raymund C W Chow (“the Presiding Officer”), of the Labour Tribunal (“the Tribunal”) dated 14 May 2015.

2.  In the subject claim in the Tribunal (“the Claim”), the Claimant claimed against the 1^st and 2^nd Defendants for: (i) wages in lieu of notice in the sum of $697,500; (ii) arrears of wages from 1 April 2013 to 11 June 2013 in the sum of $275,125; (iii) annual pay leave in the sum of $115,861.69; (iv) the value of 3 home visit tickets in the sum of $232,500; and (v) severance pay in the sum of $17,389,726.02.

3.  Under the Order, the Defendants were held jointly and severally liable to pay the Claimant his wages in arrears in the amount of $275,125 and another sum of $135,000 being the value of the 3 air tickets.  Other claims by the Claimant were dismissed.

4.  The Defendants’ review application was dismissed on 29 July 2015.  The Defendants lodged an appeal against the Order and the Presiding Officer handed down the Reasons for Decision dated 9 September 2015 (“the Decision”).  Subsequently on 17 September 2015, I granted leave to the Defendants to appeal against the Order.

Background 

5.  The 1^st Defendant is and was at all material times wholly-owned subsidiary of the 2^nd Defendant.

6.  Before 2010, the 1^st Defendant was a dormant shelf company of which the Claimant was the sole director.

7.  In 2010, the Claimant was presented with a business opportunity of obtaining Indonesian coal concessions by his friend Eddy Syaifulah (“Syaifulah”).  They then decided to use the 1^st Defendant as the vehicle for the said business opportunity.

8.  In January 2011, the 1^st Defendant engaged 2 bankers to raise fund for the investment of the coal concessions project.

9.  The Claimant and Syaifulah were at the helm of the business from its inception in 2011 until 2013. The two were the only directors of the 1^st Defendant at the material time in 2011 when the Claimant’s remuneration was determined.

10.  By a purported written agreement dated 15 March 2011 between the Claimant and the 1^st Defendant (“the Employment Contract”), the 1^st Defendant employed the Claimant as an executive director with a monthly remuneration of US$10,000.  Such remuneration had not been approved by the 1^st Defendant’s shareholders in general meeting.

11.  On 1 October 2011, the 1^st Defendant purportedly assigned the Employment Contract in its entirety to the 2^nd Defendant. The 2^nd Defendant’s shareholders had not approved the Claimant’s remuneration in terms of the Employment Contract.  There was merely a board resolution which stated that the Employment Contract had been assigned to the 2^nd Defendant.

12.  On 11 November 2011, the board of the 2^nd Defendant passed a resolution to revise upwards the level of pay to the Claimant to US$15,000 per month.  The Claimant was also granted 4 business-class air tickets for home visit by that resolution.  Such revision had not been approved by the 2^nd Defendant’s shareholders in general meeting.

13.  There were a few rounds of fund raising for the coal concessions project.  After the third round of fund raising, the representatives of the new investors (“the New Investors”) were appointed as directors of both Defendants in March and May 2013.

14.  Upon review of the records and documents of the Defendants, the New Investors claimed that there were certain irregularities and they therefore sought answers from the Claimant.

15.  The New Investors were not satisfied with the answers.  The Defendants issued a suspension notice to the Claimant dated 13 April 2013 suspending his duties as director.  He was removed as a director on 10 June 2013.

The issues in the Claim and the decision of the Presiding Officer

16.  The Claimant brought the Claim in the Tribunal to claim for various payments under the Employment Contract and the provisions of the Employment Ordinance (Cap 57).

17.  Article 14(a) of the 1^st Defendant’s Articles of Association (“Art 14(a)”) provides that the directors shall be paid out of the funds of the company remuneration for their services such sum (if any) as the company may by ordinary resolution from time to time determine.  The 1^st Defendant therefore contended that without the requisite approval from the 1^st Defendant’s shareholders in general meeting, there was no legal basis for the Claimant to claim remuneration under the Employment Contract.  There is also similar provision in Article 83 of the Articles of Association of the 2^nd Defendant requiring the director’s remuneration to be determined by shareholders in general meeting.  Again no such approval was given by the shareholders of the 2^nd Defendant.

18.  Alternatively, if the Tribunal were to find that there was a valid Employment Contract between the parties and the remuneration properly approved, the Claimant was not entitled to certain payments because he had committed some wrongs which justified a summary dismissal by the 1^st or 2^nd Defendant.

19.  The decision of the Presiding Officer can be summarised as follows:

(i) The remuneration of the Claimant as director had to be approved by the shareholders of the 1^st Defendant.  There was no such approval and the Claimant was aware of this.

(ii) Despite the lack of approval by the shareholders, there was still an employment relationship between the Claimant and the Defendants.  The Defendants are therefore still liable to pay remuneration to the Claimant, although they may claim back the same from the Claimant resorting to company law.

(iii) Though there was no written agreement between the Claimant and the 2^nd Defendant for his employment, the circumstances of the case show that both Defendants were the employers of the Claimant.

(iv) As stipulated in the Employment Contract, the Claimant was employed as an executive director and not managing director of the Defendants.

(v) The Claimant was guilty of serious misconduct in respect of: (a) the transfer of a sum of US$395,000 to a number of recipients who were the shareholders or investors of the 1^st Defendant; (b) the advancing of a loan to the banker; and (c) the application of bonus shares, and as a result the Defendants were entitled to terminate the Claimant’s employment by way of summary dismissal.

(vi) By reason of the summary dismissal, the Claimant was not entitled to claim any wages in lieu of notice, terminal payment or severance payment.

(vii) The summary dismissal would not affect the Claimant’s claim for arrears of wages and the value of the air tickets, and the Presiding Officer ordered both Defendants to pay the sums jointly and severally.

The parties’ position in this appeal

20.  The Defendants accept the findings of fact made by the Presiding Officer.   However, they complain that the Presiding Officer had made the following errors of law:

(i) The primary position of the Defendants is that neither of them had approved the remuneration of the Claimant as executive director in general meetings.  The Claimant therefore has no right to recover the same pursuant to any employment contract.

(ii) Even if the Employment Contract and the remuneration stipulated therein are somehow valid, it either binds the 1^st or the 2^nd Defendant.  They cannot both be ordered to pay the Claimant on a joint and several basis.

(iii) The purported increase of monthly remuneration by US$5,000, as approved by the 2^nd Defendant’s board, is not valid and in any event does not bind the 1^st Defendant.  Similarly, the relevant board resolution of the 2^nd Defendant in granting the air tickets cannot bind the 1^st Defendant.

(iv) Even if the Employment Contract and the remuneration stipulated therein are valid, the Tribunal should set off any wages in arrears with the damages payable by the Claimant for his breach of contractual duties.

(v) At least 14 days of wages should be deducted from the Claimant’s claim for arrears of wages because of the suspension notice.

21.  The Defendants argue that if their primary position is accepted, this court should dismiss the Claim outright.  On the other hand, if the court accepts the other arguments but not the Defendants’ primary position, the court will have to explore what order to make in the circumstances.

22.  The position of the Claimant is an interesting one.  The Claimant seems to accept that the Presiding Officer had made errors of law in reaching the Decision, and he does not contest the proposition that, if the Claimant was so employed as an executive director, his remuneration had to be approved by the shareholders in general meeting.

23.  Despite that, the Claimant relies on cases such as Chok Kin Ming v Equal Opportunities Commission[1] and Chong Cheng Lin Courtney v Cathay Pacific Airways Ltd[2] and argues that the appellate court should not dismiss the Claim outright.  This is not the case that the Tribunal, if properly directed, could have come to only one legitimate conclusion on the evidence and findings.  Since the Tribunal could possibly have arrived at the same decision on alternative grounds, the court should remit the case back to the Tribunal for re-trial with the following directions:

(i) The parties shall not be bound by any determinations or findings of fact that were made by the Presiding Officer in the Decision.

(ii) The case should be considered by a new presiding officer whether to transfer the Claim to the High Court.

24.  According to the Claimant, even if the Presiding Officer had misdirected himself on the law, it is very possible for the Claimant to argue that he was entitled to remuneration on the basis that he was employed as a managing director of the Defendants.  There are provisions in the Articles of Association of both Defendants[3] that the directors may appoint one or more managing directors, and such directors shall receive such remuneration, whether by way of salary, commission or participation in profits, as the directors may determine.  In other words, the directors could determinate the remuneration of the Claimant as a managing director without a resolution in general meeting.

25.  After the granting of leave to appeal against the Order, the Defendants brought a claim in the High Court against the Claimant (“the High Court Claim”) in March 2017, in which the Defendants seek substantial compensation for breaches of the Claimant’s fiduciary duties as director.  I am given to understand that the allegations made in the High Court Claim are similar, if not exactly the same, as the allegations of serious misconduct raised by the Defendants in the present Claim.  According to the Claimant, his Claim should be heard together with the High Court Claim in due course.

26.  The Claimant accepts that this court has no jurisdiction to make an order for the Claim to be transferred to the High Court.  However, under s 35(1) of the Labour Tribunal Ordinance (Cap 25), this court, in hearing an appeal from the Tribunal, can remit the matter back to the Tribunal with such directions as it thinks fit.  As in the case of Royal Hong Kong Jockey Club v Tam Tak Man[4], this court can remit the case back to the Tribunal before another presiding officer with a direction that he considers transferring the Claim to the High Court.

The problems with the Decision

27.  Having addressed the parties’ positions, I then turn to the Decision itself of which I can identify certain problems.

28.  First, in order for the Tribunal to have jurisdiction to hear the Claim, there had to be a contract of employment made between the Claimant and the Defendants.[5]

29.  The problem is that a director can work for the company without an employment relationship.  In Ranson v Customer Services plc[6], Lewison LJ said the following:

“The appointment of a person as a company director does not make that person an employee of the company. A director is the holder of an office. Nor does appointment as a company director of itself bring into existence any contract between the director and the company. Many directors will have contracts of service running in parallel with their status as officers of the company. But they are distinct legal relationships.”

30.  It follows that a director may, if so authorised, entitle to receive remuneration from the company in the capacity of a director without a contract of employment.

31.  By accepting that the Tribunal did have jurisdiction to hear the Claim in the first place, it seems that the parties agree that there was a contract of employment under which the Claimant was an employee in addition to his office as a director of the Defendants.  The Presiding Officer also relied on the written Employment Contract to find that there was employment relationship between the parties.

32.  However, it is trite law that written agreement is only the starting point for the court to determine whether employment relationship existed.  In considering whether there was, in law, a contract of employment between the parties, the court needs to consider all the circumstances of the case including the various indicia of employment.[7] Without looking at the factors beyond the written document, the Presiding Officer’s finding that the Claimant was both a director and an employee of the Defendants is certainly open to challenge. In my judgment, the Presiding Officer should have carried out a more detailed investigation into the relationship between the Claimant and the Defendants.  More reasons need to be given as to why there was a contract of employment between the Claimant and the Defendants.

33.  It is also open to the Defendants to argue that:

(i) The Employment Contract is void for illegality as its object was to get round Art 14(a) by purportedly paying remuneration to the Claimant without shareholders’ approval.

(ii) The Employment Contract is void for uncertainty as there was no validly approved remuneration.

(iii) By reason of the principle that a person is not permitted to benefit from his own wrong, i.e. by purported approving the remuneration on board level but not at general meeting, the Claimant should not be allowed to claim any remuneration against the Defendants.

34.  The Presiding Officer had not considered any of these matters.  In any event, these are fact sensitives issues (as the Claimant maintains that he was in fact employed as a managing director[8]), and so this court cannot dispose of them without proper fact findings.

35.  On the basis that there was a valid Employment Contract, there is also a serious dispute between the parties about the capacity in which the Claimant was employed: whether he was employed to work as an executive director or a managing director.  As mentioned above[9], the remuneration of the former was required to be approved by shareholders in general meeting whereas that of the latter could be determined by the directors themselves.

36.  It was stipulated in the Employment Contract that the Claimant was employed as an executive director and the Presiding Officer’s investigation stopped there.

37.  However, taking into account the extensive duties of the Claimant, it is certainly open to him to argue that he was in fact employed to work as a managing director.  In construing contractual documents, the court should ascertain the objective meaning of the document, having regard to all the background materials available.  In particular, the court should generally interpret the document in a manner which accords with business common sense[10], which supports that the Claimant was actually employed to work as managing director.  Further, the correspondence with the third parties described the Claimant as the managing director.[11] It is unfortunate that the Presiding Officer had not considered these matters in determining the exact capacity under which the Claimant was employed to work for the Defendants.  Without proper investigation about such matter, the Order has to be set aside and the case has to be remitted back to the Tribunal for reconsideration.

38.  I also find it difficult to accept the Presiding Officer’s finding that both Defendants were co-employers of the Claimant.

39.  In §6 of the Decision, the Presiding Officer found that the Employment Contract had been assigned in its entirety by the 1^st Defendant to the 2^nd Defendant, as evidenced in a board resolution of the 2^nd Defendant signed by the Claimant dated 1 October 2011.

40.  It is well established that an employment contract can be assigned with the consent of both parties.[12]

41.  On the basis there was a valid employment contract, after the said assignment, the 1^st Defendant ceased to be liable to pay remuneration to the Claimant.  The Presiding Officer had failed to give any reason as to why the 1^st Defendant would continue to be liable for the wages of the Claimant after the assignment.  In any event, the 1^st Defendant had never agreed to grant the air tickets to the Claimant.  The resolution to increase the wages of the Claimant was also made by the 2^nd Defendant alone.  Hence, it is clear that the Presiding Officer had erred in ordering the 1^st Defendant to make payment to the Respondent jointly and severally with the 2^nd Defendant.

42.  There is an issue as to whether the assignment of the Employment Contract was valid, since the parties had not signed a new contract embodying the terms of the Employment Contract after the change of corporate control as required by Clause 13.1 of the Employment Contract.  But no matter whether the assignment was valid or not, only one party should be liable depending on the validity of the assignment: if valid, the Claimant could not be the employee of the 1^st Defendant; if invalid, the Claimant could not be the employee of the 2^nd Defendant.  One way or the other, it is erroneous to order the 1^st and 2^nd Defendants to jointly and severally make payments to the Claimant.

43.  These observations are already sufficient for the court to dispose the appeal.  It is not necessary for me to determine the other complaints of Defendants, for examples: (i) whether the Presiding Officer should set off the Claim against the damages payable by the Claimant for breach of fiduciary duties owed to the Defendants; and (ii) whether the wages in the suspension period should be deducted from the claim for arrears of wages.

The proper order to be made in this appeal

44.  Having made the aforesaid observations, what should be the order to be made in this appeal?   It is clear that the Order has to be set aside. However, should the court dismiss the Claim outright, or to remit the case back to the Tribunal for re-trial?

45.  In my judgment, the court should not dismiss the Claim at this stage.  As mentioned above[13], it is possible for the Claimant to argue that he was employed as a managing director of the Defendants, and as a result the board could determine the remuneration of the Claimant without obtaining a resolution in general meeting. The case should therefore be remitted back to the Tribunal for reconsideration. In addition, further investigation has to be made about the exact relationship between the parties.

46.  The next question is whether the court should make a direction that the parties will not be bound by the factual findings made by the Presiding Officer.

47.  In my judgment, it would be appropriate for the court to make such directions under the peculiar circumstances of this case. The way in which the Presiding Officer came to certain findings is plainly wrong, for example, he just relied on the contents of the Employment Contract in determining the relationship between the parties without further consideration. In addition, it is very difficult for me to accept the reasoning of the Presiding Officer that both Defendants are liable to the Claimant for the Claim under the Employment Contract.

48.  Obviously, the parties are concerned whether they are bound by the findings of the Presiding Officer on the issue of serious misconducts, which are closely related to the alleged breaches of fiduciary duty as director which would be the main subject matter of the High Court Claim.

49.  In law, there is an important distinction between claims for breach of fiduciary duties against employees and claims for breach of fiduciary duties against directors. The two types of duties are fundamentally different in principle.  The fiduciary duties of directors arise from their position in the company and not by reason of contract.^[14] In contrast, the fiduciary duties of a mere employee are derived from an express or implied term of the contract of employment, and so the content of any fiduciary duty are determined, in the first instance, by the terms of the employee's contract of employment.^[15]

50.  As the Presiding Officer had failed to explain clearly why the Claimant was both an employee and a director of the Defendants, it would be unsafe to rely on the findings of the Presiding Officer relating to the breach of contractual duties as an employee.  In any event, these matters will be revisited and canvassed in much more details, probably with the benefit of legal representation, in the High Court Claim.  More evidence and documents will be revealed in the High Court Claim, and the judge hearing that claim will carry out a detailed investigation relating to various transactions which are the subjects of the serious misconduct complaint.  If the previous findings made by the Presiding Officer are binding, it would hinder the investigation by the trial judge in the High Court Claim.  It would also cause great injustice and embarrassment if there is new evidence shedding new light on the relevant issues.  Under such circumstances, it would only be fair to the parties that there is a fresh trial for the Claim itself.

51.  In view of the commencement of the High Court Claim, the Tribunal should also consider whether the Claim should be transferred to the High Court so that both claims can be heard together.  This may avoid the usual problems associated with parallel proceedings and the embarrassment of conflicting findings by different court and tribunal.  Further, as both claims can be conducted with the assistance of lawyers, it would avoid the possible injustice caused by the lack of legal representation in the Tribunal.

52.  With the benefit of hindsight, it would have been more desirable if the Defendants were to commence the High Court Claim much earlier.  If they done so, the Presiding Officer would probably have transferred the Claim to the High Court without determining the case himself. Now that the Presiding Officer has made errors in reaching the Decision, this court has no option but to set aside the Order and remit the case back to the Tribunal to consider whether the Claim should be transferred to the High Court.

53.  For the avoidance of doubt, the new presiding officer will be directed to consider the question of transfer, but it is wholly a decision to be made by the new presiding officer himself.

54.  For the above reasons, I set aside the Order with the following directions:

(i) There be a re-trial of the whole case and the parties shall not be bound by any determinations or findings of fact that were made by the Presiding Officer in the Decision.

(ii) The case be remitted back to the Tribunal beforeanother Presiding Officer with a direction that he considers transferring the claim to the High Court.

55.  I also make a costs order nisi that the costs of this appeal be costs in the cause of the Claimant’s Claim in the Tribunal, which shall be made absolute 14 days after the date of the handing down of this Judgment.  For the avoidance of doubt, if it were to be later found by the Tribunal or the court that the Claim should not have been brought in the Tribunal and as a result the costs of the Claim should be borne by the Claimant, the costs of this appeal should follow that event.