The decision handed down at trial follows on from an award of summary judgment in April 2023 in favour of the Plaintiff, in respect of various due payments and entitlements.

The Facts

In January 2016, J.C. Flowers & Co. (“JCF”), a New York based private equity firm, through various companies and limited partnerships acquired assets of Chi-X Global Holdings LLC (“CXG”). The Defendant was incorporated to hold the assets. The Plaintiff was the catalyst for the acquisition as he was the founding CEO and Chairman of CXG back in 2008 and was of the view that if managed properly the CXG assets could be profitable and would be a target for acquisition by one of the global exchanges.

During the acquisition process of the CXG assets, representatives of JCF (on behalf of the Defendant) offered to employ the Plaintiff as the CEO of the Defendant after the acquisition. They had various discussions regarding the Plaintiff’s expected employment package as the CEO of the Defendant including salary, ORSO contributions, medical insurance, annual leave, bonus, long term incentive plan (“LTIP”), etc. Although the Plaintiff was not given a written employment contract prior to starting work, his employment terms were agreed and JCF widely touted the fact that the Plaintiff would lead the business once it was acquired to ensure the success of the deal.

The acquisition was completed in February 2016. The Plaintiff’s employment as CEO commenced in March 2016. However, the parties soon found themselves having very different views on how the business should be run with the Plaintiff being concerned that JCF had failed to fund the Defendant properly, while JCF insisted that costs should be cut as the company was in debt. There was also a dispute as to when the Plaintiff’s employment started. A written employment contract was executed in July 2016 and backdated to 1 March 2016. Later a second employment contract was executed in September 2016 stating that the employment start date was amended to 1 April 2016 (“Amended Employment Contract”). The Amended Employment Contract was executed to rectify the Defendant’s omission to inform the Inland Revenue Department of the Plaintiff’s employment within the time period stipulated in section 52(4) of the Inland Revenue Ordinance.

On 11 November 2016, the Defendant served the Plaintiff notice of the termination of his employment  and placed him on garden leave for six months until 10 May 2017. Up until that point, the Plaintiff had not been paid any salary or benefits as set out in his contract despite having worked for the Defendant for more than 8 months. The Defendant had also failed to reimburse him for legitimate business expenses totalling over HK$5.8 million that had been paid by the Plaintiff as the Defendant was unable to make payments itself having no bank account. .

The Plaintiff received a portion of his contractual entitlements between 2 December 2016 to 21 September 2017, but commenced legal proceedings against the Defendant for his outstanding entitlements on 20 May 2021 and applied for summary judgment on 23 August 2022. The Plaintiff succeeded in his claims against the Defendant for making unlawful deductions of bank charges from his salary, unlawful withholding of salary and unpaid expenses, save for two items incurred before April 2016 as March 2016 was a disputed period of employment. The Plaintiff’s remaining claims were dealt with at trial and included the remaining unpaid expenses, salary and ORSO contribution for March 2016, MPF contributions, unused accrued annual leave, annual bonus and LTIP.

Decision at trial

The Plaintiff succeeded in his claims for the following: 

1. Salary and ORSO contribution for March 2016

Both parties gave evidence as to the circumstances in which the Amended Employment Contract was executed and its intended effect. The Court took the view that as the Plaintiff effectively started working for the Defendant on 1 March 2016, he was entitled to be remunerated for that time notwithstanding that he signed the Amended Employment Contract. Accordingly, he was awarded his salary and ORSO contribution for the month of March 2016.

2. Interest on late payment of salary

As mentioned, the Defendant failed to pay any of the Plaintiff’s salary until 2 December 2016, after notice of termination of employment had already been served on him. The Defendant pleaded no positive case against this claim and so the Court awarded interest on the late payments to the Plaintiff.

3. Reimbursement of expenses

The expenses concerned legal fees paid by the Plaintiff on behalf of the employees of the Defendant and for entertainment expenses while working on behalf of the Defendant. The Court took the view that as the expenses were reasonably incurred and the Defendant had not queried or taken issue with them when they were submitted, the Defendant was liable to reimburse the Plaintiff in accordance with the terms of the employment contracts.

In respect of the Plaintiff’s claims which were dismissed, the Court found as follows:

1. Outstanding MPF payments

The Plaintiff’s ORSO scheme was not an MPF-exempted scheme and the Plaintiff claimed the unpaid MPF contributions from the Defendant. The question before the Court was whether the Plaintiff had a personal cause of action against the Defendant for the sum. Referencing section 45G(1), the Court held that the Plaintiff “needs to show that he has suffered financial loss from the failure by [the Defendant] as employer to pay MPF contributions” in order to succeed in his claim. The Judge  stated that section 45G(1) was not “intended to enable an employee automatically to sue an employer for unpaid MPF contributions without more”, otherwise “one would have expected the provision to state so directly”. Instead, the employee is required to show that (1) he or she has sustained financial loss and (2) such loss is attributable to the employer’s failure to pay contribution. He stated that the Plaintiff should have adduced evidence of (a) the MPF scheme to which the Defendant’s contributions would have been made or (b) the quantum of profits which such scheme would have made over a relevant period if the requisite contributions had been made. He further commented that “because the value of an MPF scheme will fluctuate over time, the mere fact that an employer has not paid contributions over some period will not necessarily mean that an employee has suffered financial loss or damage in the amount of the unpaid MPF contributions”.

The Judge did not cite any authority on coming to this point and relied on his own interpretation of section 45G(1). This somewhat curious interpretation seems to contradict the decision handed down in Li Wan Choi v Choi Wan Hing & Anor [2000] 4 HKC 549 where the Court of Appeal awarded 5% MPF contribution as a cash payment to the claimant in a personal injury case. That decision was made just before the MPF regime came into effect, which meant that the Court of Appeal in that case did not require any evidence regarding the MPF scheme in which the contributions would be made, and did not consider that possible fluctuations of the MPF scheme would affect the employee’s entitlement to their MPF contributions.

2. Unpaid accrued annual leave

The Plaintiff’s employment contracts contained the following clauses on annual leave:

“9.1    … the Executive shall be entitled to 30 working days’ paid annual leave (inclusive of statutory annual leave) for each calendar year, which will be the leave year.

…

9.3    Annual leave may not be carried forward from one leave year to the next for a period of more than 90 days unless agreed in writing by the Board. No payment in lieu will be paid for annual leave not taken.”

The Plaintiff’s case was that he had never taken any annual leave during his employment with the Defendant and thus was entitled to be paid all accrued unused annual leave. The Defendant was unable to adduce any evidence to show the contrary, but relied on Clause 9.3 to say that there had been no prior agreement by the Board to carry forward any untaken leave, and therefore it was not required to make any payment in lieu of the annual leave entitlement. The Plaintiff argued that clause 9.3 was void by reason of section 70 of the Employment Ordinance (“EO”) as the practical effect would amount to a forfeiture of statutory annual leave which is in conflict with section 41AB(3)(b)(ii) of the EO which provides that statutory annual leave cannot be lawfully forfeited and allows an employee to carry untaken statutory leave forward to the next year.

Whilst the Judge accepted that the Plaintiff did not take any annual leave, he took issue with the Plaintff’s claim for the following reasons:

• There was a rounding up of 10.68 days to 11 days of annual leave in the Plaintiff’s calculation of his entitlement on the basis that the employer has adopted a common leave year. The Judge stated that rounding up only applies where the annual leave is to be taken by the employee and not when it is paid out.
• Clause 9.3 entitles an employee to carry forward up to 90 days annual leave from one leave year to the next.  As statutory annual leave days per year are significantly less than 90 days, the Judge took the view that clause 9.3 allowed employees to carry forward up to 90 days’ annual leave from one year to another and this did not prevent the carrying forward of statutory annual leave in contravention of section 41AB(3)(b)(ii) of the EO. Therefore, clause 9.3 was not void by reason of section 70.

Again, no authority was cited by the Judge for his interpretation of the statutory provisions. The distinction made in respect of rounding up annual leave days between the employee taking it and the employer making a payment in lieu seems arbitrary. It is also difficult to understand the Judge’s reasoning regarding clause 9.3 as he has effectively ruled that it is permissible to forfeit statutory annual leave whereas the EO makes it clear that statutory annual leave should never be forfeited.

3. Annual bonus

No bonus was awarded to the Plaintiff during his employment with the Defendant. The Plaintiff’s primary position was that there was an oral agreement made between the parties guaranteeing the Plaintiff to a bonus of US$500,000, although there was no written record whether in correspondence or the executed employment contracts regarding the guaranteed bonus (only a discretionary bonus clause). The Plaintiff’s secondary position was that even if there was no guaranteed bonus, the Defendant should have awarded him a bonus of US$500,000 if its Board had exercised its discretion in accordance with its Braganza obligation of good faith.

The Court dismissed the claim on the basis that there was insufficient evidence to show that the parties had agreed on a guaranteed bonus, and that the Court “should not readily substitute what a board thought to be reasonable with what the Court believes to be reasonable”. The Judge took the view that “it cannot be said that the perception of [the Defendant’s] profitability at the relevant time was so wrong that no board of directors could have rationally reached a similar view”.  

4. LTIP

The Court rejected the Plaintiff’s claim on factual grounds, and took the view that the evidence suggested that no LTIP agreement was concluded between the two parties despite there being an agreed form, as there was correspondence which suggested that negotiations continued beyond the point where the Plaintiff said an agreement had been reached.

Points worth noting for employers

This case highlights the importance of documenting the negotiations of employment terms and ensuring that any written contract accurately encapsulates the terms of agreement. It is never advisable to either the employer or the employee to allow employment to commence without the terms of employment being agreed and reduced to writing. Changes made to  employment documentation after an employee has commenced work will not relieve the employer of its liabilities under the original agreement for the period prior to the amendment.

Where employers have queries about employee’s expenses claims or wish to challenge them, they should do so in writing and in a timely manner, otherwise it would be difficult to avoid liability for the reimbursement.

Lastly, the court’s decision and reasoning on the MPF and annual leave claims seem at odds with case law and the EO. Whilst no appeal has been lodged for this case, we will be continuing to monitor developments closely to see how and whether the Court will follow or deviate from the Judge’s ruling in this case.