MAK v. LA

HCA 1967/2020

[2022] HKCFI 285

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1967 OF 2020

(TRANSFERRED FROM LBTC 2329/2020)

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D E C I S I O N

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Background

1.  This is an application made by the Defendant (“LA”) for the proceedings instituted by the Plaintiff (“Employee”) to be stayed to arbitration pursuant to section 20(1) of the Arbitration Ordinance (“Ordinance”), or under the inherent jurisdiction of the Court on the ground that LA is entitled to rely on an agreement which excludes the jurisdiction of the Court. Alternatively, LA seeks a partial stay and for the remainder of the claims made in these proceedings to proceed in parallel with the arbitration.

2.  The application is opposed by the Employee, on the grounds (inter alia) that there was no valid arbitration agreement (or no arbitration agreement in relation to at least some of the claims), that there is sufficient justification against a reference to arbitration, that LA had submitted to the jurisdiction of the Hong Kong Court, and that there are no rare and compelling circumstances to justify a stay on case management grounds.

3.  Lengthy submissions have been made as to whether the arbitration clause relied upon by LA was “unconscionable”, whether the arbitration clause should be struck out, on the merits or otherwise of the defence to the claims made by the Employee, and on the application of Order 12 rule 8 RHC. As explained below, many of these submissions are irrelevant and unnecessary.

4.  In essence, and as stated in paragraph 1 of the Summons issued by LA on 11 May 2021 (“Summons”), the stay is sought primarily under section 20(1) of the Ordinance.  Despite the fact that the Summons was issued purportedly under Order 12 rule 8 RHC, the reference in the Summons to the agreement excluding the jurisdiction of the Court is, on the evidence, none other than an arbitration agreement. Order 12 rule 8(1)(ga) only refers generally to an application for an order staying the proceedings.  Where the stay is sought on the basis of an arbitration agreement, the governing provision should be section 20(1) of the Ordinance.

The Claims made by the Employee

5.  By these proceedings, the Employee makes claims under his employment contract with LA, on the basis that LA was in breach of the implied terms of the employment.  The Employee claims that under his contract of employment, he was entitled to payment of a discretionary bonus subject to his performance, and to participate in the staff profit sharing scheme of LA (“Scheme”). As part of his remuneration under his employment by LA, the Employee was awarded discretionary bonuses for the years 2016, 2017 and 2018, which bonuses comprised partly of share units in various funds managed by or for LA (“Units”), which Units were to be vested over a period of 3 years (“Deferred Shares”). The Employee claims that LA was in breach of contract when, upon termination of the Employee’s employment, LA failed to vest the unvested Deferred Shares to the Employee. By way of relief, the Employee claims the immediate vesting and redemption of unvested Deferred Shares, valued at US$212,673.88 (equivalent to HK $1,658,856.29); the redemption of vested Deferred Shares; the discretionary bonus for 2019 in the sum of US$429,139.58 (equivalent to HK $3,347,288.72); alternatively payment on quantum meruit basis for his contribution for the year 2019; and interest.  In the Statement of Claim, the prayer for relief was for: (1) an order that LA shall redeem all the vested and unvested Deferred Shares immediately, and pay the realized amount to the Employee; (2) HK$3,347,288.72; (3) payment on quantum meruit; (4) interest; (5) costs; and (6) further or other relief.

6.  The Employee had first commenced proceedings against LA in the Labour Tribunal, by LBTC 2329/2020 (“Tribunal Proceedings”). In those proceedings, he had sought relief by seeking LA’s distribution of the vested and unvested units comprising the annual bonuses which he had been awarded.  In the Statement of Defence filed by LA in the Tribunal Proceedings, LA stated (inter alia) that any disputes in connection with the Scheme should be submitted to arbitration, and claimed that the Labour Tribunal did not have exclusive jurisdiction to hear the claim made against LA in the Tribunal Proceedings.

7.  By consent, the Tribunal Proceedings were ordered to be transferred to the High Court, for the purpose of any application to be made for a stay of the Employee’s claims to arbitration, on the basis of the alleged arbitration agreement.

8.  On 8 February 2021, a Statement of Claim was filed by the Employee in the proceedings transferred to the High Court.  On 14 April 2021, the Master made an Unless Order for a Defence to be filed by 12 May 2021 (“Unless Order”). On 11 May 2021, LA issued its Summons for a stay of the proceedings, followed by the filing of its Defence on 12 May 2021.  The Defence stated in paragraph 1 that the filing was without any intention to submit to the jurisdiction of the Court, without prejudice to LA’s challenge to the jurisdiction of the Court, and without prejudice to its application to stay the action pending arbitration.

Applicable legal principles and preliminary objections

9.  Under section 20 of the Ordinance, which applies Article 8 of the Model Law, “a court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed”.

10.  The Court has no discretion since section 20 specifies that the court “shall” refer the parties to arbitration.  The authorities are also beyond dispute, that the party applying for the stay only has to establish a good prima facie case that the parties were bound by an arbitration clause.  Unless the matter is clear, the parties should be referred to arbitration, for it is the arbitral tribunal which should first decide on the question of its jurisdiction over the matter referred to it (PCCW Global Ltd v Interactive Communications Service Ltd [2007] 1 HKLRD 309). 

11.  The “court” in section 20 of the Ordinance is defined in section 2 as the Court of First Instance of the High Court.  The action brought, and the matter which is the subject of the arbitration agreement, to which reference is made in Article 8(1), is the action brought in the Court of First Instance of the High Court, and not any other tribunal.  The time for the application for stay to be made under Article 8(1), likewise refers to the time when the party requesting the stay of the action submits his first statement on the substance of the dispute before the Court of First Instance, and not before any other tribunal.

12.  Arguments made as to whether the reference in section 20 is to the submission of a Statement of Defence in the Tribunal Proceedings as the deadline for the application for a stay under the Ordinance, and whether the application for stay should have been made to the Labour Tribunal at the time when LA submitted its Statement of Defence in the Tribunal Proceedings, are accordingly irrelevant, as section 20 is inapplicable to the Tribunal Proceedings.

13.  Order 12 rule 8 RHC only applies to proceedings in the High Court (Order 1 rule 2(1) RHC).  It has no application whatsoever to claims made in the Labour Tribunal. There is accordingly no basis to contend that having failed to apply to the Labour Tribunal for an order staying the Tribunal Proceedings, which the Employee maintained were the source of the present proceedings before the Court, a stay under Order 12 cannot be made and LA had submitted to the jurisdiction of the Court.

14.  As LA has highlighted, it had made it clear in its Statement of Defence filed in the Labour Tribunal that the parties were bound by an arbitration agreement and that any dispute in connection with the Employees’ claims to benefits under the Scheme should be submitted to arbitration. The Defence filed by LA in these proceedings, upon their transfer from the Labour Tribunal to the Court, and pursuant to the Unless Order, likewise claimed (in paragraph 1) that the Defence was filed without prejudice to its application for stay of the action pending arbitration, without prejudice to LA’s challenge to the jurisdiction of the Court and without any intention to submit to the jurisdiction of the Court.  The Summons was in fact filed one day before the Defence was filed.

15.  Counsel for LA pointed out that the Defence was filed in accordance with the guideline set out by the Court of Appeal in George Chu v Tan Giong Seng Johnson [2020] HKCA 531, 3 July 2020, such that there was clearly no submission to the jurisdiction of the Court, and without prejudice to LA’s challenge to jurisdiction.

16.  Having considered the Statement of Defence filed in the Tribunal Proceedings, the challenge made therein to the jurisdiction of the Tribunal, and the reference to the arbitration clause relied upon by LA, I do not accept the submissions made for the Employee, that LA had already submitted to the jurisdiction of the Court and is precluded from seeking any stay of these proceedings.

17.  I am also satisfied that the application for stay under section 20 of the Ordinance was made before the filing of LA’s Defence, in compliance with Article 8(1) of the Model Law.

18.  These preliminary objections fall by the wayside.

Whether the Employee’s claims are within the exclusive jurisdiction of the Labour Tribunal

19.  Section 20(2) of the Ordinance expressly states that if a dispute in the matter which is the subject of an arbitration agreement involves a claim or other dispute that is within the jurisdiction of the Labour Tribunal (“Tribunal”), the court before which an action has been brought may refer the parties to arbitration “if it is satisfied that”:

(a) there is no sufficient reason why the parties should not be referred to arbitration in accordance with the arbitration agreement; and

(b) the party requesting arbitration was ready and willing at the time the action was brought to do all things necessary for the proper conduct of the arbitration, and remains so.

20.  There is no dispute that LA was ready and willing at all material times to do all things necessary for the proper conduct of the arbitration which it seeks.  The issue between the parties is whether there is an arbitration agreement between the parties, and if there was, whether the court can be satisfied that “there is no sufficient reason” why the parties should not be referred to arbitration.

21.  The parties did not focus their arguments on whether the Employee’s claims in respect of the Deferred Shares fall within the jurisdiction of the Tribunal, for section 20(2) of the Ordinance to apply.

22.  The claims set out in the Schedule to the Labour Tribunal Ordinance fall within the exclusive jurisdiction of the Tribunal.  Paragraph 1 of the Schedule refers to “a claim for a sum of money, whether liquidated or unliquidated, which arises from the breach of a term … of a contract of employment”.

23.  In these proceedings, as can be seen from the prayer to the Statement of Claim, the Employee’s claim is for a mandatory order for LA’s redemption of the vested and unvested Deferred Shares, and for payment of the realized amount of the vested and unvested Deferred Shares, after they are redeemed and vested. This is not a claim for a sum of money simpliciter, and is not within the exclusive jurisdiction of the Tribunal.

24.  As for the sum of HK$3,347,288.72, this was stated (at paragraph 31 (3) of the Statement of Claim) to be the average of the discretionary bonuses paid to the Employee for 2016 to 2018.  However, even on the Employee’s pleading (at paragraph 9 of the Statement of Claim) the discretionary bonuses for these years included units in the Scheme to be vested over 3 years, and the claim for payment is connected with and dependent on the Employee’s claim of his entitlement to the vesting and redemption of the unvested and vested Deferred Shares on his termination of employment, pursuant to the Scheme.  Before the amount of the discretionary bonus can be ascertained for the year 2019, the Employee’s entitlement to the redemption and vesting of the Deferred Shares has to be determined. This is relevant to the consideration of whether the claim for payment of this “average” sum should be stayed under section 20(2) of the Ordinance, or for case management reasons.

Whether there is an arbitration agreement

25.  In Tommy CP Sze & Co v Li & Fung [2003] 1 HKC 418, the Court set out the key questions to be considered on an application for a stay under section 20 of the Ordinance.  These are: (1) Is the clause in question an arbitration agreement? (2) Is the arbitration agreement null and void, inoperative or incapable of being performed? (3) Is there in reality a dispute or difference between the parties? (4) Is the dispute or difference between the parties within the ambit of the arbitration agreement?

26.  PCCW Global Ltd v Interactive Communications Service Ltd [2007] 1 HKLRD 309 sets out the threshold required to be established, regarding the existence or otherwise of an arbitration agreement.

27.  The Employee claims that his employment contract is contained in and evidenced by the letter of employment issued by LA, and accepted and countersigned by the Employee on 12 November 2010 (“Letter of Employment”). This states that the Employee may be eligible to receive a general discretionary bonus, which is subject to the discretion of LA and based on factors such as the performance of the Employee and LA, and other factors as LA considers appropriate.  It further states that the Employee may be eligible to participate in the Scheme, and that in the event that the Employee is granted any entitlements under the Scheme, he will be given shares in the funds maintained by or for LA.  As the Employee highlighted, the Letter of Employment expressly provides for Hong Kong law to govern the contract and for the parties to submit to the exclusive jurisdiction of the Hong Kong courts and tribunals in relation to any claim, dispute or matter arising out of or relating to his employment.

28.  There is no dispute that as evidenced by letters issued by LA, as agreed, acknowledged and countersigned by the Employee, LA confirmed the total bonuses issued to the Employee for each of the years 2016, 2017 and 2018 (“Bonus Award Letters”). Each of these letters stated the Employee’s total bonus for the year, which comprised a cash bonus, and awards of shares or Units under the Scheme.  The share awards were stated to be subject to a vesting period of 3 years, with one-third of the award vesting on an annual basis at the end of each subsequent year.  The Bonus Award Letters further state that the awards set out would be paid and delivered to the Employee in full satisfaction of all bonus and performance related remuneration for the year in question.

29.  For the year 2016, the Bonus Award Letter received by the Employee from LA was dated 17 May 2017.  It stated that his total bonus for 2016 was US$171,289.74, comprising US$153,467.74 in cash, and US$17,822 in the Scheme, to be awarded in shares.  The Bonus Award Letter for 2016 stated that the share award would be subject to a 3-year vesting period, with one-third vesting on 31 December 2017, one-third on 31 December 2018, and one-third on 31 December 2019.  The Bonus Award Letter dated 17 May 2017 was agreed, acknowledged and countersigned by the Employee on 18 May 2017. The Employee highlighted the fact, and LA does not dispute, that there was no arbitration clause in the 2017 Bonus Award Letter.

30.  On the evidence, LA restructured its scheme of employment remuneration, including the bonus scheme arrangements, which restructuring was in fact overseen by the Employee as the CEO, CFO and Head of Compliance of LA.  The restructured process was implemented for all staff for the year ending 2017, and on 16 June 2018, LA issued and the Employee received a letter in relation to the Scheme (“16/6/18 Letter”), which states:

“As advised to you on 13 April 2018, part of your bonus payment for 2017 comprises an interest in the Staff Profit Sharing Scheme (‘Scheme’). This letter sets out the terms of your participation in the Scheme. Capitalized words not defined in the body of the letter shall bear the meaning given to them in the Schedule.” (Emphasis added)

31.  The 16/6/18 Letter then explained the Employee’s interest in the Scheme, represented by notional Units in the Fund as defined.  The 16/6/18 Letter stated that the Units would be held by DA.  It further stated:

“Your Units are fully-funded, meaning that DA will hold shares in the Fund corresponding to the number of Units awarded to you. Once DA holds such shares, we (‘Company’, which expression will also include any other Group Company (as defined in your employment contract) which is your employer) will have no further obligations to you in relation to your interest in the Scheme (other than as expressly set out in this letter), and all redemptions and transfers of your Units will be fulfilled by DA.

Notwithstanding that you have been allocated a number of Units, you are not entitled to, and will not receive, any benefit from such Units until they have vested.” (Emphases added)

32.  The 16/6/18 Letter states that, for the Employee’s bonus payment for 2017, he would be allocated 5,691.7688 Units, equivalent to US$65,000, at US$11.42 per unit.  The said letter stated that these Units would vest in equal tranches over 3 years, with 1,897.2563 Units vesting on 31 December 2018, the same number of Units vesting on 31 December 2019, and the same number of Units vesting on 31 December 2020.

33.  Other terms and conditions are set out in the 16/6/18 Letter, including clause 3 which provides that in the event of termination of employment, the unvested Units would continue to vest in accordance with the vesting timetable provided, and clause 5 which states that upon the occurrence of a Forfeiture Event, any unvested Units would be automatically extinguished.  “Forfeiture Event” is defined in the Schedule to the 16/6 18 Letter.  In particular, Clause 6 of the terms and conditions states as follows:

“Notwithstanding any other provision in this letter, your rights in respect of Units and shares in the Fund (including, without limitation, your rights to redeem and transfer the same) are subject at all times to the obligations, restrictions and other provisions contained in the Fund’s explanatory memorandum and other constitutional documents (as amended from time to time).”

34.  Clause 9 of the terms and conditions of the 16/6/18 Letter provides for Hong Kong law to be the governing law of the agreement contained in the letter, and for “any dispute arising out of or in connection with this agreement” to be referred to arbitration in Hong Kong, by reference to a sole arbitrator to be appointed by LA from the HKIAC list of approved arbitrators.

35.  On 3 May 2019, a letter in similar terms to the 16/6/18 Letter was issued by LA to the Employee, setting out his bonus payment for 2018 as advised on 3 April 2019 (“3/5/19 Letter”). A Bonus Award Letter dated 3 April 2019 had been sent by LA to the Employee, stating that the Employee’s total bonus for 2018 comprised a cash payment, and a separate value of Units or shares in the Scheme, one‑third of which will vest respectively on 31 December 2019, 31 December 2020 and 31 December 2021. The 3/5/19 Letter stated that part of the Employee’s bonus payment for 2018 comprised an interest in the Scheme, and that the 3/5/19 Letter sets out the terms of his participation in the Scheme.

36.  The 3/5/19 Letter stated that the Employee had been allocated 3,243.7442 Units, equivalent to US$35,000 valued at US$10.79 per Unit, on the terms and conditions set out in the 3/5/19 Letter.  The 3,243.7442 Units vest in 3 equal tranches on 31 December 2019, 31 December 2020 and 31 December 2021.  The terms and conditions set out in the 3/5/19 Letter include the same forfeiture clause, and the same arbitration clause as those contained in the 16/6/18 Letter.

37.  There is no dispute, that the 3/5/19 Letter was not countersigned by the Employee.  He claims that he had never agreed to the terms set out in the 3/5/19 Letter.

38.  It is also the Employee’s case that the value of his interests in the Scheme by virtue of the bonus awarded to him for 2016, and his claim thereto, is not governed by any arbitration agreement, as the Bonus Award Letter of 17 May 2017 did not contain any arbitration clause.

The 2017 award of shares/Units in the Scheme

39.  Dealing first with the Employee’s claim made under or in respect of the bonus award for 2017, the Employee contends, firstly, that the arbitration clause contained in the 16/6/18 Letter should not be enforced, as it is unconscionable by providing for and permitting LA as the employer to unilaterally appoint a sole arbitrator; and secondly, that there was a total failure of consideration to support the Employee being bound by the terms set out in the 16/6/18 Letter, and to assume liabilities to have his Deferred Shares forfeited upon the occurrence of any Forfeiture Event.  It was further argued on behalf of the Employee that his claims in relation to the 2017 bonus are within the jurisdiction of the Tribunal, and under section 20(2)(a) of the Ordinance, there is “no sufficient reason” why the parties should be referred to arbitration in accordance with the arbitration agreement.

40.  It is indisputable that the Employee was a party to and had accepted the terms set out in the 16/6/18 Letter.  The 16/6/18 Letter was signed by him to acknowledge his understanding and acceptance.  The terms of the letter are clear.  They state that his bonus payment for 2017 comprised an interest in the Scheme, and that the 16/6/18 Letter sets out the terms of the Employee’s “participation in the Scheme”.  Clause 2 of the terms and conditions governs how the Employee is to redeem his vested Units, and how the Employee may request by written notice for title to the shares in the Fund representing his vested Units to be transferred either to his own name or to DA, and that upon such transfer to the Employee, the vested Units shall cease to be vested.  Under clause 2, LA had the right at its absolute discretion to redeem all or part of the Employee’s vested Units. Clause 3 of the terms and conditions state that in the event of termination of the Employee’s employment, his unvested Units continue to vest in accordance with the vesting timetable provided for in clause 1 of the letter, and under clause 5, any unvested Units would be automatically extinguished upon the occurrence of any Forfeiture Event.  Clause 6 of the terms and conditions states that the Employee’s rights in respect of the Units and shares in the Fund, including rights to redeem and transfer the same, are subject to the provisions contained in the Fund’s explanatory memorandum and other constitutional documents as may be amended.  The Schedule to the 16/6/18 Letter sets out in detail matters which constitute a “Forfeiture Event”.

41.  Clause 9 of the terms and conditions of the 16/6/18 Letter sets out the arbitration clause, and its language is wide, covering “any dispute arising out of or in connection with” the agreement. Clearly, it will extend to any dispute between LA and the Employee as to when the 5,691.7688 Units vest in the Employee, whether and when the Employee is entitled to redeem his vested Units, and whether upon termination of his employment, he is entitled (as alleged in the Statement of Claim) to the vesting of all the vested and unvested Deferred Shares under the Scheme, irrespective and regardless of the vesting dates specifically stated at clause 1 of the terms and conditions of the 16/6/18 Letter.

42.  In seeking a stay of the dispute to arbitration under section 20 of the Ordinance, LA is only required to establish a prima facie case of the existence of an arbitration agreement, and in this case, there is no doubt that there is an arbitration agreement between LA and the Employee in relation to the Employee’s claims to his interests in the Scheme.  Whether LA can forfeit any of the Units, whether there are other terms set out in the Fund’s explanatory memorandum, whether LA had acted capriciously, arbitrarily and perversely in refusing to pay any cash bonus or in forfeiting or procuring the forfeiture of the Units, and whether LA is liable in any way under the rules of the Scheme, all go to the merits of the Employee’s claims against LA and LA’s defences to his claims, and are matters for the arbitral tribunal to decide in the arbitration.  This Court is bound to refer the parties to arbitration, once a prima facie case is established as to the existence of the arbitration agreement relied upon.  Unless the matter is clear, it is for the arbitral tribunal to decide on its own jurisdiction.

43.  I reject the Employee’s claim, that because an arbitration clause provides for the reference to be made to a sole arbitrator, that by itself renders the arbitration agreement unconscionable and unenforceable.  The manner of reference and appointment of arbitrator was freely agreed to by the parties, at the time when the arbitration agreement was made.  In this case, they agreed to a sole arbitrator to be appointed by LA.  An arbitrator is under a statutory duty to act independently, fairly and impartially, and to treat the parties with equality, irrespective of the identity of the party appointing the arbitrator.  If the arbitrator fails in such duty, it is open to the Employee to pursue all remedies available to him, including setting aside the award.

44.  There is no basis, indeed no power under the Ordinance, for the Court on an application for stay under section 20 to strike out the arbitration clause as Counsel for the Employee urged the Court to do.  The Court can only consider whether the arbitration agreement is null and void, inoperative or incapable of being performed. On the facts and evidence in this case, I find no basis which can support the Employee’s claim that the arbitration agreement contained in the 16/6/18 is null, void, inoperative, or incapable of being performed.

45.  It is trite, that the arbitration agreement is separate to and severable from the underlying contract relating to the Employee’s participation in the Scheme, and as set out in the 16/6/18 Letter.  Even if the underlying contract was void for lack of consideration (as the Employee claims), there was apparent consensus between the parties that any dispute between them as to the parties’ rights under the Scheme should be arbitrated, as evidenced by the parties’ signature to the 16/6/18 Letter, which is sufficient for the arbitration agreement to be enforced. In any event, LA has established a prima facie case of the existence of a valid agreement in relation to the terms of the Employee’s participation in the Scheme.  The Letter of Employment only refers to the Employee being eligible to participate in the Scheme. If an award of bonus comprising Units in the Scheme is made by LA, the Employee must participate in the Scheme, and agree to the terms of his participation, before he can receive the benefit of the bonus, which is entirely discretionary under the Letter of Employment. There is clearly valid consideration to support the making of the underlying agreement.

46.  An arbitration clause is to be construed to give it commercial sense, and to reflect the presumed intention of the parties entering into the arbitration agreement as commercial and reasonable businessmen.  In the oft cited case of Fiona Trust & Holding Corporation v Privalov [2007] 4 All ER 951, Lord Hoffman considered that where businessmen have entered into an agreement with an arbitration clause, their purpose is to have the disputes arising from their relationship decided by a tribunal which they have chosen.  At para 13, His Lordship observed:

“In my opinion the construction of an arbitration clause should start with the presumption that the parties, as rational businessmen, are likely to have intended any dispute arising out of the relationship into which they have entered or purported to enter to be decided by the same tribunal. The clause should be construed in accordance with this presumption unless the language makes it clear that certain questions were intended to be excluded from the arbitrator’s jurisdiction…”

47.  The generous interpretation to be given to such jurisdiction clauses has been extended under the “extended Fiona Trust principle” to cover multi-contract disputes, such that a jurisdiction agreement contained in one contract may, on its proper construction, extend to a claim made under another contract (Sapinda Invest v Altera [2017] EWHC 871 (Comm); Emmott v Michael Wilson [2009] 1 Lloyd’s Rep 233; Etihad Airways v Flother [2019] EWHC 3107 (Comm); Terre Neuve Sarl v Yewdale Ltd [2020] EWHC 772 (Comm)).

48.  The conditions of the 16/6/18 Letter are stated to govern, generally, “the terms of (the Employee’s) participation in the Scheme”, and define his interests and rights under the Scheme. Having been awarded Units and shares in the Scheme in 2018, and having agreed then to submit to arbitration “any disputes arising out of or in connection with” the relationship between LA and the Employee as reflected by the terms of the 16/6/18 Letter concerning the Employee’s participation in the Scheme, it would be incredible for either the Employee or LA, at the time when the 16/6/18 Letter was signed and accepted, to have intended that the Employee’s rights and interests upon his continued participation in the Scheme after 2018, if the Employee should be granted more Units after 2018, should not continue to be governed by the terms of the 16/6/18 Letter, in the absence of an agreement providing for the contrary and for other governing terms.

49.  The terms and conditions set out in the 16/6/18 Letter are said to be the terms of the Employee’s participation in the Scheme.  The Employee had been awarded the 2016 bonus by the Bonus Award Letter of 17 May 2017, which included Units in the Scheme.  The Employee had to continue his participation in the Scheme, to be entitled to the rights and interests in the Units, particularly since they had not on their own terms been fully vested by 16 June 2018. It is plainly arguable that the terms and conditions set out in the 16/6/18 Letter extend to govern the Employee’s rights and claims to the Units awarded in 2016, which remained unvested.

50.  Adopting the Fiona Trust approach and applying the presumption in favour of arbitration, the terms of the arbitration clause contained in the 16/6/18 Letter are, on my construction, arguably wide enough to extend to the disputes between LA and the Employee relating to the Employee’s claims to the Units in the Scheme by virtue of the awards of the 2016 Bonus, the 2017 Bonus and the 2018 bonus. At the time of the 16/6/18 Letter, at least some of the Units awarded for the 2016 bonus, under the Bonus Award Letter of 17 May 2017, had not yet vested. The relationship between LA and the Employee, so far as the 2016 bonus, 2017 bonus and the 2018 bonus are concerned, remained the same.  The terms of the Employee’s participation in the Scheme, set out in the 16/6/18 Letter (and later in the 3/5/19 Letter), and the Bonus Award Letters of 17 May 2017, 13 April 2018 and 3 April 2019, all deal with the same subject matter: Units in the Scheme to which the Employee is entitled. They are all part of the package of the Employee’s remuneration under his employment. There is no competing jurisdiction clause in the Bonus Award Letter of 17 May 2017. At the time when LA and the Employee agreed to the terms of the 16/6/18 Letter, they were likely to have intended that all disputes arising out of the relationship into which they have entered in relation to the Employee’s participation in the Scheme, and the rights and liabilities of the parties thereunder, should be decided by the same tribunal, instead of in a different forum. The current dispute between the Employee and LA has the closest connection with the terms and conditions of his participation in the Scheme, rather than with the Letter of Employment.

The 2018 award of shares/Units in the Scheme

51.  In the context of the Employee’s claims in relation to the 2018 award of the Units and shares in the Scheme, he denies that he was a party to any agreement evidenced by the 3/5/19 Letter.

52.  Although the Employee was the executive in charge of the restructuring of and amendments to the bonus scheme and the redrafting of the standard letters for the bonus scheme and payment, he did not himself countersign the 3/5/19 Letter concerning the 2018 bonus payment.  There is no dispute raised that he was not aware of the issue and terms of the 3/5/19 Letter. The Employee only relies on the fact that the 3/5/19 Letter was not countersigned by him by way of acknowledgment.

53.  Section 19 of the Ordinance sets out the definition and form of an arbitration agreement, as provided for in Option 1 of Article 7 of the Model Law.  An arbitration agreement is one whereby the parties agree to submit to arbitration all or certain disputes which may arise between them in respect of a defined legal relationship, whether contractual or not.  It has to be in writing, and can be in a document, whether or not the document is signed by the parties (see section 19(2) of the Ordinance).

54.  The 3/5/19 Letter clearly sets out the arbitration agreement between LA and the Employee, whereby any dispute arising out of or in connection with the agreement for the Employee’s participation in the Scheme is to be referred to arbitration in Hong Kong.  That is clearly an arbitration agreement in writing, and the fact that it was not countersigned by the Employee does not alter the fact of the prima facie existence of a valid arbitration agreement.

55.  In any event, I have found that LA has a prima facie case of the existence of an arbitration agreement between LA and the Employee, contained in the 16/6/18 Letter, which by its scope extends to the claims made by the Employee in respect of the 2019 bonus.

Sufficient reason not to refer to arbitration?

56.  The Employee’s claims made in these proceedings for an order that LA should redeem the vested and unvested Deferred Shares which comprised his bonuses for 2016, 2017 and 2018, do not fall within the exclusive jurisdiction of the Tribunal. The question under section 20(2)(a) of the Ordinance, as to whether or not there is a sufficient reason not to refer the parties to arbitration, does not arise in relation to the Employee’s claim for the vesting of the Deferred Shares.

57.  Even if I should be wrong in my finding as to the jurisdiction of the Tribunal, I consider that there is no sufficient reason why the parties should not be referred to arbitration. I have found against the alleged unconscionability of the arbitration clause and the purported prejudice against the Employee. I reject the claim that employment disputes would not fall within the expertise of an arbitral tribunal. It is open to LA to select from the HKIAC list of approved arbitrators a suitable candidate with the necessary experience and expertise in dealing with disputes concerning employment and staff profit sharing schemes.  I accept the submissions of Counsel for LA, that there can be no hardship to the Employee to refer the parties to arbitration in accordance with their agreement. As the Court found in Wharf Properties Ltd v Eric Cumine Associates Architects & Surveyors (A Firm) [1984] HKLRD 211, a plaintiff has to show some sufficient reason why the Court should not refer the parties to arbitration, and there must be “a very strong reason” or a “very good reason”, bearing in mind the traditional strong bias in favour of maintaining the bargain between the parties.  In the modern context, there is also the strong bias in favour of arbitration, and of upholding the parties’ arbitration agreement.

58.  The alleged merits of the Employee’s claims, the alleged unconscionability of the arbitration clause and the alleged prejudice to the Employee if the matter should be arbitrated, are all rejected as reasons not to arbitrate.  If the Employee has a strong claim, arbitration of the claim will not weaken his case.  I do not agree that the Employee would be prejudiced by the lack of sufficient discovery in the arbitration.  The arbitral tribunal has the power to order such discovery as would be necessary for the Employee to pursue his claims in relation to the Deferred Shares, and in defence to LA’s claims concerning the Employee’s performance and conduct.

59.  The only relevant factor raised by the Employee is that the Letter of Employment itself conferred jurisdiction to the Hong Kong Court and tribunals in relation to any claim, dispute or matter arising out of or relating to the employment.  However, in this case, the parties had agreed, by the subsequent 16/6/18 Letter, to arbitrate their disputes which arise specifically out of or in connection with the parties’ agreement for the Employee’s participation in the Scheme. This clearly expressed a contrary intention of litigating their disputes in the courts, at least in relation to the Scheme.

Conclusion on the Deferred Shares claim

60.  Being satisfied that there is a prima facie case of the existence of a valid and binding arbitration agreement between LA and the Employee, and that the dispute relating to the Employee’s claims for the Deferred Shares falls within the ambit of the arbitration agreement, the Court is bound to refer the parties to arbitration on these claims.

The residual claims and whether there should be any stay

61.  The residual claims in these proceedings, after reference of the Deferred Shares claims to arbitration, are the Employee’s claim to the 2019 discretionary bonus of US$429,139.58, and alternatively on quantum meruit basis. These are not claims made under the Scheme, and are governed by the Letter of Employment which provides for the jurisdiction of the Court.  LA sought these claims to be stayed under the inherent jurisdiction of the Court, on case management grounds.

62.  Clearly, the Employee’s claim to the 2019 discretionary bonus and LA’s defence to the Employee’s claim for the Deferred Shares under the Scheme are related, as they both bring into focus and put in issue the Employee’s performance and conduct, and whether these justify his claim for a discretionary bonus for 2019, and whether LA was entitled to seek the forfeiture of the Deferred Shares under the Scheme.  As Counsel for the Employee argued, there would be a waste of time and resources if these issues are to be tried by 2 different fora (in the context of resisting the reference to arbitration). There is also a risk of inconsistent findings, which may be inevitable for parallel proceedings, and yet are no doubt undesirable.

63.  If the Employee is correct, that his claims to the Deferred Shares forming part of the 2016 bonus are not subject to the arbitration agreement, and should be determined by the Court, the overlapping of issues and the risk of inconsistent findings are even more apparent.

64.  I bear in mind the reminder that where a plaintiff commences proceedings as of right, he should not be deprived of the right to continue proceedings in the absence of very good reasons to the contrary, and that a management stay should only be granted in rare and compelling circumstances (China Shanshui Cement Group Ltd v Tianrui (International) Holding Co Ltd [2020] HKCFI 3043).

65.  At the end of the day, it is a question of what serves the ends of justice between the parties to the litigation and the administration of justice generally (Linfield v Taoho Design Architects Ltd & Ors [2002] 2 HKC 204).  A stay must not cause injustice to the plaintiff.

66.  In this case, I bear in mind that the Employee had first made his claims in the Labour Tribunal, obviously with the interests of minimizing costs and simplifying procedures in mind. These interests may be better served by arbitration rather than by litigation in the Court which would inevitably involve procedural, interlocutory and legal skirmishes.  Far from suffering prejudice as contended for the Employee, parties to an arbitration would be in a position to adopt informal pleadings and procedures, and to engage more freely with the arbitrator in terms of timetables, hearings, and preparations. Time and costs may be saved, to achieve an early resolution. The parties may even consent to submitting the residual claim of the 2019 Bonus to the same arbitral tribunal for determination, which would avoid the risk of inconsistent findings by the Court and the tribunal on questions of conduct and performance.

67.  With the above considerations in mind, I consider that the ends of justice would be served in this case by a stay of the residual claims made by the Employee in these proceedings, pending the determination of the tribunal in the arbitration of the Deferred Shares claim. The parties would also be at liberty during the stay of these proceedings to consider and agree on the possible resolution of all the claims in one forum.

Costs

68.  LA has been successful in its application for stay.  The order nisi is that the Employee is to bear the costs of the Summons (including any costs reserved), on indemnity basis. As the Arbitration Court has repeatedly emphasized, arbitration agreements are to be observed and will be upheld by the Court, and parties challenging same and acting in breach thereof do so at their own peril, of being ordered to pay costs on indemnity basis.