ACUMEN HONG KONG LTD v. KWAN PAK KEI LAWTON

HCA 1246/2022

[2023] HKCFI 2038

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1246 OF 2022

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D E C I S I O N

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Introduction

1.  It is not in dispute that the Defendant was a former employee of the Plaintiff. The parties signed an employment agreement dated 1^st March 2020 (the “Employment Agreement”). The employment was terminated on 7^th January 2022.   

2.  In the Original Action herein, the Plaintiff sues the Defendant for alleged breach of the Employment Agreement, alleged breach of fiduciary duties and alleged breach of duties of care.  

3.  On 15^th December 2022, the Defendant filed her Defence & Counterclaim.  Under the Counterclaim, the Defendant sues the Plaintiff for a sum of HK$203,000 pursuant to clause 5.1 of the Employment Agreement, which provided that the employment might only be terminated by giving 2 months’ notice in writing or paying salary in lieu of notice.  

4.  By the Summons dated 16 January 2023, the Plaintiff seeks to strike out the Defendant’s Counterclaim on the grounds that the same are frivolous or vexatious, or otherwise constitutes an abuse of the Court’s process.  

The Grounds relied on by the Plaintiff

5.  It is the Plaintiff’s pleaded case that by reason of the Defendant’s alleged wrongdoings and/or breaches of duties, he is not entitled to 2 months’ salary in lieu of notice as the Plaintiff was entitled to terminate his employment without notice pursuant to clause 6 of the Employment Agreement.  

6.  For the purposes of the present strike-out application, Ms Chung (who represents the Plaintiff)  sensibly does not ask me to determine whether the Defendant was guilty of any alleged breaches and/or wrongdoings.  

7.  Instead, Ms Chung relies on a letter dated 7^th January 2022 with title “Termination of Your Employment”, which was signed by both parties (the “Letter”). In the Letter, it was stated the parties agreed that the Defendant’s last date of employment would be 7^th January 2022.  It was also stated that in his final pay cheque, the Defendant would receive:  

(1)  salary of HK$24,116.13 in respect of the period from 1^st to 7^th January 2022;

(2)  unused annual leave of HK$40,967.31;

(3)  “No supplement as related to the 2 months’ notice period in your contract”; and

(4)  no severance payment.

8.  In line with the pleas in the Reply & Defence to Counterclaim, Ms Chung argues that the said Letter amounts to an agreement that precludes the Defendant from claiming 2 months’ salary in lieu of notice.  

9.  The legal principles on striking out are trite.  The Court may strike out a claim that is incapable of reasoned argument, without foundation or cannot possibly succeed.  However, the power to strike-out shall only be exercised in plain and obvious cases: see Oh Jae-hoon Eugene v Richdale [2005] 2 HKLRD 285, para 15 (per Ma CJHC, as he then was); Yifung Properties Ltd & Ors v Manchester Securities Corp & Ors (HCA 1341 & 1359/2014, 19^th October 2015), para 12 (per Au-Yung J); and HK Civil Procedure (2023), para 18/19/8.  

10.  Despite Ms Chung’s submissions, I am not persuaded it is plain and obvious that the Defendant’s Counterclaim is doomed to failure.  For the following reasons, I am of the view that the Defendant’s Counterclaim is arguable.  

11.  In view of the contents and format of the Letter, I am doubtful as to whether the same was intended to be an agreement that altered the parties’ legal position or created some new legal relationship.  It is, to say the least, arguable that the Letter was merely intended to be a document that recorded the sums of monies received (or to be received)  by the Defendant upon the termination of his employment, and the Defendant was simply on the receiving end.  

12.  More fundamentally, it appears to me that the contents of the Letter dated 7^th January 2022 are equivocal, and do not support the Plaintiff’s argument:-

(1)  If the parties agreed that the Defendant be deprived of 2 months’ salary in lieu of notice, paragraph 3 of the Letter should have been written in the following way:  

“In [the Defendant’s] final pay cheque, [he] will receive:….(3)  No payment in lieu in 2 months’ notice”.

(2)  This was not the case. As mentioned, paragraph 3 of the Letter was drafted as follows:  

“In [the Defendant’s] final pay cheque, [he] will receive:….(3) “No supplement as related to the 2 months’ notice period in your contract”. 

(3)  The phrase “No supplement as related to” appears to contradict the Plaintiff’s contention.  It is hard to understand why the Plaintiff would have drafted this part of the Letter as such had it intended that the Defendant be deprived of payment in lieu of notice.  

13.  In the circumstances:-

(1)  I am unable to conclude that the Defendant was incredible when he said that his understanding of the Letter was such that he would be paid 2 months’ salary in lieu of notice, but there would be no “supplement” provision[1].  

(2)  I am also unable to conclude that the Defendant had never made telephone calls to make enquiry with the Plaintiff’s Mr Ng regarding his entitlement to receiving 2-months’ salary.  The factual dispute as to the parties’ verbal communication can only be resolved at trial with the benefit of cross-examination.  

14.  Ms Chung also submits that the Defendant did not bring the Counterclaim in good faith as there was inexplicable delay on his part.  It is true that the Defendant did not seek to recover the 2 months’ salary until December 2022 when he brought the Counterclaim herein.  This was almost a year after the termination of his employment.  However, the delay or lack of enthusiasm on the part of the Defendant cannot constitute a sufficient basis for striking out the Counterclaim.  In my view, the explanation provided by the Defendant in paragraph 22 of his affirmation is not incredible.  The Defendant took the view that it was not worthwhile to resolve the dispute regarding the 2 months’ salary by legal means given that the amount involved was relatively small.  However, he took the opportunity to enforce his legal rights when the Plaintiff sued him in the present Action.  This explanation makes sense to me, and I am unable to conclude that it is incredible.  

15.  I also agree with the submissions of Mr Hon (who appear on behalf of the Defendant)  that even if the Plaintiff’s contention on the interpretation of the contents of the Letter were correct, there is still no valid consideration coming from the Plaintiff at all, and hence there could not be any valid agreement.  In this connection: -

(1)  The Letter did not provide that the parties would waive their intended claims against each other.  I cannot see how it can be said the Letter is a settlement agreement between the parties.  

(2)  The Letter also did not provide that the Defendant would receive any additional benefits to which he was not entitled under the Employment Agreement.  The Defendant was plainly entitled to the payments stated in paragraphs (1)  and (2)  of the Letter pursuant to the Employment Agreement and/or the Employment Ordinance.  I cannot see how it can be said that the Letter has varied the Employment Agreement.  

16.  In her oral submissions, Ms Chung relies on various correspondence and emails to contend that the Defendant must have agreed that he was not entitled to 2 months’ salary in lieu of notice and that there was good consideration coming from the Plaintiff.  For instance, I was referred to an email dated 5^th January 2022.  However, I am not of the view that these correspondence and emails would avail the Plaintiff at all. First of all, it is not open to Ms Chung to contend that the alleged agreement between the parties is based on and/or evidenced by the Letter as well as other correspondence or emails as it is the Plaintiff’s pleaded case[2] that the Letter was the agreement between the parties.  Second, the correspondence and emails in question simply do not show that the Defendant agreed to give up 2-month salary in lieu of notice or that there was any valid consideration coming from the Plaintiff.  Third, in any event, it is not appropriate for me to embark on an exercise of drawing inference from the correspondence or emails in a strike-out application.  This is plainly a matter for trial.  

17.  For all the above reasons, I am of the view that the Defendant’s Counterclaim are, to say the least, arguable.  In the premises, I declined to strike the same on the basis that it is frivolous or vexatious as contended by the Plaintiff.  

The Question of Jurisdiction

18.  However, I am concerned that the Court of First Instance of the High Court (the “CFI”)  does not have jurisdiction over the Counterclaim.  As such, I invited the parties to make submissions on this fundamental issue before the present hearing commenced.  

19.  Under sections 7(1)  and (2)  of the Labour Tribunal Ordinance (Cap 25)  and paragraph 1(a)  of the Schedule thereto, the Labour Tribunal has exclusive jurisdiction to hear and determine monetary claims arising from breach of employment contracts.

20.  If a claim is within the Labour Tribunal’s exclusive jurisdiction, such claim must be commenced in the Labour Tribunal as it is not actionable in any other court in Hong Kong including the CFI. “The CFI would only have jurisdiction if the claim is transferred by the [Labour] Tribunal to it under section 10 of the [Labour Tribunal Ordinance].” Otherwise, the CFI “has no option but to strike out the claim”: see Weng Chi-Cheong v Barclays Capital Asia Ltd (HCA 741/2016, 6^th December 2016), para 42-43 (per DHCJ Marlene Ng, as she then was). See also Deutsche Bank AG (Hong Kong Branch)  v Daniel Mamdou-Blanco [2013] 3 HKC 176, para 11 (per DHCJ Lok, as he then was); and Lee Man Yee Norman v International Contractors Supply Ltd (HCA916/2014, 17 September 2014), para 4-11 (Master Herbert Au-Yeung).  

21.  In my view, the Defendant’s Counterclaim for HK$203,000 pursuant to clause 5.1 of the Employment Agreement (being payments in lieu of 2 months’ notice)  falls squarely within the Labour Tribunal’s exclusive jurisdiction under sections 7(1)  and (2)  and paragraph 1(a)  of the Schedule of the Labour Tribunal Ordinance.  The Counterclaim is hence liable to be struck out for want of jurisdiction.  

22.  I do not lose sight of the facts that:

(1)  On 7^th March 2023, the Defendant commenced proceedings against the Plaintiff in the Labour Tribunal under LBTC 721/2023 (the “LBTC Proceedings”), and the Defendant’s claim there is identical to his Counterclaim in the present Action.  

(2)  On 26^th April 2023, the Labour Tribunal ordered that the Defendant’s claims in the LBTC Proceedings be transferred to the CFI of the High Court (the “Transfer Order”

23.  According to the records in the Court’s file: -

(1)  Pursuant to the Transfer Order, the Defendant’s claim under the LBTC Proceedings is now the subject matter of a fresh action in the CFI, namely HCA 713/2023.  In that action, the Defendant herein is the plaintiff and the Plaintiff herein is the defendant.  

(2)  Pursuant to O 79, rule 1, a direction hearing took place before Mr Registrar S Kwang on 2^nd June 2023.  Upon hearing counsel from both sides, it was ordered that HCA 713/2013 be stayed pending the determination of the Plaintiff’s application to strike out the Defendant’s Counterclaim in the present Action.  

24.  I cannot see how the Transfer Order made by the Labour Tribunal on 26^th April 2023 might cure the jurisdictional defect in respect of the Counterclaim.  

25.  Mr Hon submits that when the Labour Tribunal made the Transfer Order, it “declined” to exercise jurisdiction over the claim in the LBTC Proceedings, and it follows that the CFI must have “resumed” its unlimited jurisdiction over the Counterclaim in this Action: see paragraphs 11-17 of Defendant’s Supplemental Submissions.  

26.  Despite Mr Hon’s skilful submissions, it does not appear to me that this is the correct analysis.  I am of the view that:-

(1)  The Transfer Order only provides that the LBTC Proceedings be transferred to the CFI of the High Court.  It does not impact on, and is incapable of impacting on, the Counterclaim in the present Action.  I simply cannot see how a subsequent order (ie the Transfer Order)  made by a tribunal (ie the Labour Tribunal)  is capable of affecting a set of pre-existing proceedings in the CFI (ie the Counterclaim in the present Action).  

(2)  More fundamentally, there is no room to conflate the Defendant’s Counterclaim in the present Action with the Defendant’s claim in the LBTC Proceedings (which is now the subject matter of HCA 713/2013).  

(3)  Although their substance is identical, the reality is that there are two different sets of proceedings:  

(a)   The Defendant’s Counterclaim in the present Action was not transferred from the Labour Tribunal at all.  In light of the authorities mentioned above, it must be defective as the CFI has no jurisdiction at all.  

(b)  On the contrary, the claim under the LBTC Proceedings has been duly transferred to the CFI from the Labour Tribunal pursuant to section 10 of the Labour Tribunal Ordinance.  As pointed out, pursuant to the Transfer Order made by the Labour Tribunal, the claim under the LBTC Proceedings is now the subject matter of HCA 713/2013. 

27.  I am also unable to accept Mr Hon’s submissions that the issue of jurisdiction was argued and determined previously, such the doctrine of res judicata is applicable:-

(1)  It is true that the parties’ counsel did make submissions before Mr Registrar Kwang on the question of jurisdiction at the call-over hearing on 1^st March 2023. 

(2)  Nonetheless, the learned Registrar did not make any substantive determination as to the Court’s jurisdiction over the Defendant’s Counterclaim in this Action.  He simply made a case-management decision that the Plaintiff’s strike-out application be adjourned sine die pending the Labour Tribunal’s decision on whether the claim under the LBTC Proceedings should be transferred to the CFI.  

(3)  I cannot how it can be said that this case-management decision (which was made at a call-over hearing)  might constitute a substantive determination that the Court does have jurisdiction over the Counterclaim.  This was not the case.  

(4)  In any event, the parties’ counsel who appeared at the call-over hearing did not make submissions on the matters canvassed hereinabove.  

28.  For all the above reasons, I am of the view that:-

(1)  The existing Counterclaim in the present Action shall be struck out as the CFI has no jurisdiction in respect thereof.  

(2)  Whilst it was abusive for the Defendant to commence the Counterclaim in the CFI, it would also be abusive for the Defendant to continue prosecuting the Counterclaim in the present Action when HCA 713/2023 was clearly the appropriate avenue to resolve the dispute in relation to the 2 months’ salary.  As mentioned, HCA 713/2013 emanated from the LBTC Proceedings, which were duly commenced in the Labour Tribunal and duly transferred to the CFI.  It is for the Defendant to seek appropriate directions for prosecuting HCA 713/2023.  

29.  Mr Hon’s alternative stance is that the Counterclaim shall be stayed, instead of struck out.  In light of the aforesaid authorities[3], I am of the view that the appropriate course to take is to strike out the Counterclaim. Unlike the scenario in Panalpina (Hong Kong)  Ltd v Ulrich Haldermann [1983] HKLR 275, 278H-J (which Mr Hon seeks to rely on), there is now an appropriate avenue for the parties to resolve their dispute regarding the 2 months’ salary (ie HCA 713/2013).  I see no reason why the Counterclaim shall be left overhanging the heads of the parties.  

30.  Accordingly, I order that the Counterclaim be struck out for want of jurisdiction and on the basis that it constitutes an abuse of the Court’s process.  

Costs

31.  Having heard the parties’ submissions, I am of the view that the fair costs order is that the Plaintiff shall have 50% of the costs in respect of the strike out application under the Summons dated 16^th January 2023 in any event to be taxed if not agreed (with certificate for Counsel).  

32.  I take into account the following matters: -

(1)  The Defendant is to be blamed.  He should not have commenced the Counterclaim[4] in the CFI.  

(2)  Although the Counterclaim was struck out, this was not done on the grounds advanced by the Plaintiff.  I rejected the contentions that were articulated extensively in the submissions and affirmations lodged and filed on behalf of the Plaintiff.  

(3)  Whilst the Counterclaim was struck out, there is no question that the stance and assertions of the parties in the new proceedings under HCA 731/2023 would be substantially the same as those under the existing Counterclaim.  Bearing in mind the complexity surrounding the overlapping elements, it would be advantageous to deal with questions of costs at the end of the day by way of taxation as the Court will have the benefit of the assistance of law costs draftsmen. 

Other Matters

33.  I thank Ms Chung and Mr Hon for their helpful assistance.