ANTHONY MACKAY v. CHI-X ASIA PACIFIC HOLDINGS LTD

HCA 776/2021

[2024] HKCFI 511

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 776 OF 2021

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D E C I S I O N

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1.  There are two questions before me. One is whether to allow the Statement of Claim to be re-amended. The other is whether I have jurisdiction to hear this action.

2.  On the latter question, it seems to me that I have jurisdiction.  The Labour Tribunal has exclusive jurisdiction over unliquidated or liquidated money claims arising out of an employment contract.  However, mixed claims for monetary and non-monetary relief fall outside the Labour Tribunal’s jurisdiction.  The High Court can adjudicate on such mixed claims. Here I am satisfied that Mr Mackay’s claims in the Amended Statement of Claim (ASOC) and his proposed Re-Amended Statement of Claim are genuinely mixed claims. I say “genuinely” because claims in which non-monetary relief is sought merely as “window dressing” in an attempt to take the matter out of the Labour Tribunal’s jurisdiction will be treated as claims within the Labour Tribunal’s purview.

3.  On the proposed re-amendments to the ASOC, the background has been set out in paragraphs 3 to 9 of Deputy Judge Roxanne Ismail SC’s judgment in Anthony Mackay v Chi-X Asia Pacific Holdings Ltd [2023] HKCFI 938 (the Judgment).  I will not repeat that background here. 

4.  Essentially, JC Flowers & Co (JCF), a private equity firm based in New York obtained assets (the Chi-X Assets) from Nomura. To implement the acquisition, JCF incorporated Chi-X Holdings Limited (CXH) and the Defendant (Chi-X AP) (a subsidiary of CXH) to operate as the special purpose vehicles (SPVs) holding the Chi-X Assets. Mr Mackay claims to have entered into an Oral Agreement with Chi-X AP, whereby he would be employed as Chief Executive Officer (CEO) at an annual salary of US$500,000 and be entitled to participate in a Long-Term Investment Plan (LTIP) Agreement. In the Judgment, Deputy Judge Ismail refused summary judgment in respect of certain remuneration and benefits claimed by Mr Mackay as part of his employment with Chi-X AP.

5.  Mr Tom Ng for Chi-X AP opposes the proposed re-amendments on four broad grounds.  He says:

(1)  The amendments are late and inconsistent with ASOC which was verified by a Statement of Truth. No explanation has been given for the divergence.

(2)  The proposed amendments are embarrassing, such that Mr Mackay cannot cure what is said to be a demurrable claim by way of amendment.

(3)  The proposed amendments are prejudicial to Chi-X AP.

(4)  The limitation period of six years has now expired.  Consequently, by reason of RHC Order 20 Rule 5(5), I have no jurisdiction, or in any event should not exercise my discretion, to allow the proposed amendments.

6.  I am unable to agree with the broad grounds of objection advanced.

7.  Mr Ng submits that there was no averment in ASOC that Chi-X AP was a party to the Oral Agreement.  ASOC merely pleaded: “Pursuant to a series of discussions between Mr Yordan, Mr Porte, and the Plaintiff in or around 28 February 2016 (the ‘Oral Agreement’), it was agreed that the Plaintiff would be employed as CEO on the following terms …” ASOC referred to an LTIP Agreement.  But, according to Mr Ng, ASOC simply complained of the breach of the Oral Agreement and did not plead a separate breach of the LTIP Agreement.  The re-amendments therefore seek (Mr Ng says, belatedly) to introduce new causes of action: an Oral Agreement with Chi-X AP and separate breaches of the LTIP Agreement.

8.  More specifically, Mr Ng complains that by the re-amendments it is proposed:

(1)  to amend ASOC paragraph 22(c) to plead that it was a term of the Oral Agreement that Mr Mackay would be entitled to a minimum of 20% of the LTIP pool,

(2)  to amend ASOC paragraph 22(d) to plead that Mr Mackay would be entitled under the Oral Agreement to a bonus of US$500,000 in his first year of employment and an annual bonus of up to US$500,000 at the board’s discretion thereafter, instead of (as formerly pleaded) that Mr Mackay would be entitled to a bonus of US$500,000 per annum at the board’s discretion,

(3)  to introduce by a new paragraph 23A, an implied contractual entitlement under the Oral Agreement to a further bonus,

(4)  to introduce by a new paragraph 26A, an alleged Oral Agreement among Mr Porte, Mr Yordan and Mr Mackay that the latter would be entitled to 20% of the shares allocated to the LTIP,

(5)  to introduce by a new paragraph 27, an agreement on LTIP Terms among the parties’ legal representatives,

(6)  to introduce by a new paragraph 28A, the incorporation of the implied contractual entitlement to a further bonus into Mr Mackay’s employment contract,

(7)  to introduce by new paragraphs 29 and 29A, an oral agreement with Mr Yordan acting on behalf of Chi-X AP that Mr Mackay would be entitled to his salary for March 2016 despite an amendment to the commencement date of his employment contract,

(8)  to introduce by a new paragraph 29B(a), the incorporation of the implied contractual entitlement to a further bonus into Mr Mackay’s amended employment contract,

(9)  to introduce by a new paragraph 29B(b), an oral agreement with Mr Yordan acting on behalf of Chi-X AP that Mr Mackay’s LTIP commencement would be March 2016 despite Mr Mackay’s amended employment contract,

(10)  to introduce by a new paragraph 29B(c), an acknowledgment by Mr Yordan that Mr Mackay had already earned 25% of his LTIP entitlement under the LTIP Terms,

(11)  to introduce by a new paragraph 29B(d), an allegation that it had been determined that Mr Mackay would be entitled to 1,656,649 LTIP shares,

(12)  to introduce by new paragraphs 30 and 30A, a confirmation by Mr Yordan of Mr Mackay’s entitlement to 1,656,649 LTIP shares,

(13)  to introduce by a new paragraph 39A and revisions to paragraphs 40 and 42, the breaches of the implied entitlement to a further bonus and various understandings relating to the LTIP,

(14)  to introduce by revisions to paragraphs 43 to 48, that Mr Mackay’s 54.17% LTIP shares would be realised in accordance with the “Silver Lake Experience”.

9.  It will be seen that complaints (1), (2), (3) and (4) hinge on Mr Mackay’s alleged Oral Agreement.  The question for me is whether the cause of action based on the Oral Agreement was already sufficiently pleaded in the ASOC.  Complaints (6), (7), (8) and (9) relate to Mr Mackay’s employment contract (including in its amended form) and the LTIP.  Breaches of the employment contract in its original and amended forms featured in the ASOC.  Mr Ng is essentially complaining that understandings are said to have been reached with Mr Yordan acting for Chi-X AP in respect thereof.  This (he said) is a new allegation. However, on this, I do not see why Mr Mackay should not be allowed to particularise his allegations in the ASOC by identifying with whom purportedly on Chi-X AP’s behalf certain understandings were reached as to implementation of his employment contract (in its original and amended forms).  Complaints (5), (10), (11), (12), (13) and (14) plead facts as to Mr Mackay’s alleged entitlement under the master scheme of the LTIP and the realisation thereof. Mr Ng’s criticism is essentially that no cause of action was pleaded in respect of the LTIP in the ASOC.  If Mr Ng’s criticism is unwarranted, I do not see why I should disallow the re-amendments relating to the LTIP of which complaints are now being made by Mr Ng.

10.  In my view, fairly read, ASOC sufficiently pleaded a cause of action based on an Oral Agreement between Mr Mackay on the one part and Chi-X AP on the other.  ASOC paragraph 18 refers to “Neither Mr Porte nor any other director or representative of the Defendant” asking for documentary evidence.  Read in context, Mr Mackay must be taken to be suggesting there that at all material times, Mr Porte had actual authority to act as Chi-X AP’s director and representative.  When therefore Mr Mackay stated at ASOC paragraph 22 that “Pursuant to a series of discussions between Mr Yordan and Mr Porte and the Plaintiff in or around 26 February 2016 it was agreed that the Plaintiff would be employed as CEO on the following terms”, Mr Mackay must be taken to averring that, in arriving at the Oral Agreement, Mr Porte at least was acting for Chi-X AP in his capacity as director of Chi-X AP. What the proposed re-amendment to ASOC paragraph 22 now makes clear is that Mr Yordan is alleged to have been acting for Chi-X AP as well when the Oral Agreement was concluded.

11.  I accept that ASOC is messy.  Mr Mackay could have been clearer in his pleading.  But a lack of clarity which can be remedied by the provision of further and better particulars (as the proposed re-amendments in practical terms now seek to do) would not render a pleading demurrable.

12.  It is correct that Deputy Judge Ismail stated in the Judgment:

“23. Mr Ng on behalf of D submits that paragraph 22 of the ASOC pleads that P, Mr Yordan and Mr Porte entered into the alleged Oral Agreement and does not plead that the alleged Oral Agreement was made with D.

24. Ms Lau for P submits that it is implicit from the context that the plea is that Mr Yordan and Mr Porte were acting on behalf of D.

25. However, I agree with Mr Ng that the plea is deficient to plead D is a party to the Oral Agreement.

26. This deficiency is by itself sufficient to show cause against P’s application under 0.14 with respect to the alleged Oral Agreement. This is irrespective of whether P’s evidence in support of this Summons asserts the Oral Agreement to be with D ...

27. In any event, in its evidence, D denies the existence of the Oral Agreement with D, with particular reference to the LTIP issue ... A disputed oral agreement is unlikely to be suitable for summary determination, save where there is strong corroborating evidence. In light of the existence of the Employment Contract and the Amended Employment Contract, and D’s evidence, I regard the existence of, and the terms of, the alleged Oral Agreement to be a triable issue.”

13.  However, the “deficiency” that she identified seems to have been prompted by the lack of clarity in ASOC paragraph 22 read in isolation.  In summary judgment proceedings, there is a requirement under RHC Order 14 Rule 2(1) that a plaintiff swear “an affidavit verifying the facts on which the claim ... to which the application relates is based and stating that in the deponent’s belief there is no defence to that claim ...” Where a cause of action pleaded in a Statement of Claim lacks clarity, such deficiency makes it impossible for a plaintiff to swear that there is no defence to a claim.  The claim would be so confused that it would be difficult to depose in good faith that there was no defence to it.  The deficiency cannot be cured (as pointed out in paragraph 26 of the Judgment) by a plaintiff swearing further and better particulars in an affidavit in support.

14.  Deputy Judge Ismail seems to have felt that ASOC paragraph 22 was insufficiently precise as a pleading to enable summary judgment to be given in respect of the Oral Argument alleged. Whether Deputy Judge Ismail was right or wrong in her perception of ASOC paragraph 22, she observed that in any event Chi-X AP having denied the existence of the Oral Agreement, summary judgment could not be given in respect of the claims being advanced pursuant to the Oral Agreement.

15.  Thus, allowing Mr Mackay’s re-amendment application will not lead to the introduction of a new cause of action based on an Oral Agreement between Mr Mackay and Chi-X AP.  The Judgment is not an impediment to my so concluding.

16.  In the ASOC, Mr Mackay pleaded that, by the Oral Agreement, he became entitled to participate in the LTIP scheme.  He stated that the LTIP Agreement (which I understand from ASOC to be the Master Terms of the LTIP scheme) were finalised by relevant solicitor firms in September 2016.  He pleaded to his employment contract being amended on 1 September 2016 to comply with the Hong Kong Inland Revenue Department’s regulations.  Although the commencement date was changed in the amended contract, he pleaded to an understanding with Chi-X AP that the commencement date would be treated as 1 March 2016.  He complained of a failure to pay his bonus pursuant to the Oral Agreement and his employment contract.  He complained of a failure to allot shares in CXH to him under what he calls “the unsigned LTIP Agreement”.  He pleaded that pursuant to the terms of the LTIP Agreement, 50% of the non-voting ordinary shares in CXH ought to have been awarded to him.  Among other matters, he sought payment of a bonus of US$500,000, a declaration that he was beneficially entitled to CXH shares, and an order for specific performance of the Oral Agreement, and an allotment of CXH shares.

17.  In those circumstances, I am unable to say that the proposed re-amendments in respect of Mr Mackay’s alleged entitlement under the LTIP are introducing a fresh cause of action. What was previously pleaded is obviously now being fleshed out.  But I do not think that a new cause of action is being introduced based on the LTIP.  However messy the ASOC may have been, it is apparent that Mr Mackay was there claiming an entitlement to LTIP shares and other benefits pursuant to the terms of the master scheme under the LTIP Agreement.

18.  Accordingly, the proposed re-amendments relating to the LTIP Agreement do not constitute new matters.

19.  On prejudice, it is correct that the proposed re-amendments introduce more detail.  The defence against the re-amended claim will obviously entail more work on the part of Chi-X AP and its legal representatives.  But that is not a basis for refusing re-amendments. At the end of the day, if Mr Mackay’s more luxuriant claims fail, then Chi-X AP can recover the costs of defending itself.  Something more is needed to constitute prejudice.   I also note that the mere fact (relied on by Mr Ng) that Chi-X AP has an internal policy of retaining documents for only six years does not constitute sufficient prejudice to bar the proposed re-amendments.

20.  On limitation, given the conclusion that Mr Mackay’s claims in respect of the Oral Agreement and LTIP are not new, I do not believe that the matters sought to be introduced by the re-amendments constitute new causes of action which are time-barred.  In substance, the claims relating to the Oral Agreement and LTIP already featured in the ASOC.  Mr Ng’s limitation point falls away and there is no bar to my allowing the proposed re-amendments.

21.  I shall now hear the parties on costs and consequential matters.