Jurisdiction - Hong Kong
News
Hong Kong – Noble Spirit Ltd T/A Life Solutions V Wong Shu Yuen & Anor.

5 September, 2014 

 

Legal News & Analysis – Asia Pacific – Hong Kong – Labour & Employment

 

[Court of First Instance – HCA 842B/2011; HCA 842/2011]


Noble Spirit Ltd T/A Life Solutions (Plaintiff) and Wong Shu Yuen & Anor (Defendants)
Judgment of the Court of First Instance (Deputy High Court Judge B Chu in Chambers) dated 23 December 2013


Civil Procedure – Dealership Agreement – Termination – Employment – Restrictive Covenants – Implied duties – Counterclaim – Striking out – Exclusive jurisdiction of Labour Tribunal


The Facts


The plaintiff (“Life Solutions”) carried on the business of selling water filtration systems. Mind Body was a company carrying on the business of selling water purification systems and the maintenance and warranty services for these systems to domestic and corporate clients. In April 2004, Life Solutions and Mind Body entered into an agreement where Life Solutions agreed to act as dealer and agent to sell Mind Body’s water purification system (the “Dealership Agreement”). The Dealership Agreement expired in April 2007 but the parties effectively continued the dealership until Mind Body terminated it in May 2011. Life Solutions brought a claim for wrongful termination of the Dealership Agreement, amongst other things. Mind Body made a counterclaim against two ex-employees, Lee and Chan who, around the time of termination of the Dealership Agreement, had both resigned from Mind Body and began working for Life Solutions.


Mind Body claimed damages for breach of the employment contract, breach of duties as an employee and an injunction to restrain Lee from engaging in any work in the same trade or industry as Mind Body in Hong Kong within six months after termination of his employment with Mind Body. Clause 12 of Lee’s employment contract with Mind Body provided that he would:


(i) not engage himself in any work in the same trade or industry as Mind Body in Hong Kong within six months


(ii) not disclose or divulge any internal information of Mind Body obtained in his course of employment with Mind Body including data of contracts, customers, commercial and other information relating to operation to competitors, business entities in the same trade or industry, media or any other persons


(iii) return all internal information of Mind Body to Mind Body upon termination of his employment with Mind Body.


Mind Body also relied on the implied terms of (1) a duty of loyalty and fidelity; (2) a duty to act in good faith; (3) a duty to act at all times in the best interests of Mind Body and (4) a duty not to put himself in a position of conflict of interest with Mind Body. Lee took out an action to strike out the claims made by Mind Body against him, on the basis that the High Court had no jurisdiction to hear the counterclaim as it was within the exclusive jurisdiction of the Labour Tribunal.


The relevant legislation is the Labour Tribunal Ordinance (Cap. 25) (the “LTO”). Section 7 LTO stipulates that:


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


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


The claims in the Schedule include paragraph 1 which states: “A claim for a sum of money which arises from the breach of a term, whether express or implied… of a contract of employment.”


However, the Schedule also states: “Notwithstanding paragraphs 1 and 2, the tribunal shall not have jurisdiction to hear and determine a claim for a sum of money, or otherwise in respect of a cause of action, founded in tort whether arising from a breach of contract or a breach of a duty imposed by a rule of common law or by any enactment” [emphasis added].


Master Wong struck out Mind Body’s claim. Mind Body appealed (by way of a re-hearing). The issue for the Court on appeal was whether Mind Body’s counterclaim was within the exclusive jurisdiction of the Labour Tribunal.


The Judgement


The Court began with the principles established by Citipost (Asia) Limited and Julian Robert Holiday CACV 111/2004 where the Court of Appeal stated that a claim for damages for breach of a term in an employment contract is one within the exclusive jurisdiction of the Labour Tribunal, but that the Labour Tribunal has no jurisdiction to entertain a claim for injunctive relief. 


Counsel for Mind Body referred to a number of cases including Gain Hill (Hong Kong) Ltd v Li Kin Yip & Anor [2006] 4 HKLRD 186 where Sakhrani J held that because a breach of confidence claim was founded in both contract and tort it fell within both paragraphs 1 and 3 of the Schedule but the Tribunal’s jurisdiction was excluded by paragraph 3. Sakhrani J stated that the intention of the legislature was to exclude all tortious claims from the jurisdiction of the Labour Tribunal. 


The Court had to examine the question of whether a claim based on breach of fiduciary duties was a claim founded in tort. In University of Nottingham v Fishel and Another [2000] ICR 1462 it was said by Elias J “that by contrast, the essence of the employment relationship is not typically fiduciary at all… this is not to say that fiduciary duties cannot arise out of the employment relationship itself. But they arise not as a result of the mere fact that there is an employment relationship. Rather they result from the fact that within a particular contractual relationship there are specific contractual obligations which the employee has undertaken which have placed him in a situation where equity imposes these rigorous duties in addition to the contractual obligations” [emphasis added].


Taking all of this into consideration the Court held that as the six month injunction period had long since expired, all the remaining claims in the Counterclaim against Lee were for damages (namely monetary claims) and the claim for injunctive relief was more ‘window dressing’. Mind Body’s claims were for breach of the employment contract and in the alternative breach of the implied terms which were imposed by equity. As such, the Court came to the view that Mind Body’s claims against Lee were founded in contract and/or equity and not tort. Therefore, paragraph 3 of the Schedule did not apply and all the other monetary claims were within the exclusive jurisdiction of the Labour Tribunal. The Court dismissed Mind Body’s appeal and the claim against Lee was struck out.

 

Commentary:

 

The judgment in this case is both an interesting and problematic one. The first question to be asked when making any employment law related claim is whether that claim is to be heard in the Labour Tribunal or the High Court. Rightly or wrongly, there is often a perception that the Labour Tribunal is a more favourable forum for an employee in the event of a claim. It is certainly less expensive for a party than a High Court action, there is less risk of a costs order being made against the employee (which can often outweigh the claim itself) and many hold the view that the Labour Tribunal may be more likely to find in favour of an employee.


Accordingly, employers are keen to commence their employment law proceedings in the High Court and often a claim for injunctive relief, which is not available in the Labour Tribunal, has been used to ensure any claim begins and stays in the High Court. This is the “window dressing” which Judge Lok was critical of in the recent case of Deutsche Bank AG (HK Branch) v. Daniel Mamadou-Blanco.


This approach will no longer work. Mind Body’s claims (which seem somewhat spurious in any event) were dressed up in the language of breach of fiduciary duty in order to ensure a High Court action and the most costly inconvenience to the Defendants. Some commentators are suggesting that this case in fact means that employment claims dealing with breach of fiduciary duty are now within the exclusive jurisdiction of the Labour Tribunal, but it is not as clear cut as that. Rather, this case appears to reinforce the view that the High Court is not prepared to be used as a stick with which to beat an employee, and therefore a prospective plaintiff must consider the nature of his or her claim before deciding where it should be heard.

 

Pinsent Masons

 

 

For further information, please contact:

 

Paul Haswell, Partner, Pinsent Masons
paul.haswell@pinsentmasons.com

 

Pinsent Masons Labour & Employment Practice Profile in Hong Kong

 

Homegrown Labour & Employment Law Firms in Hong Kong 

 

Comments are closed.