NOBLE SPIRIT LTD t/a LIFE SOLUTIONS v. WONG SHU YUEN AND ANOTHER
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HCA 842/2011
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO. 842 OF 2011
_________________________
IN THE ORIGINAL ACTION
BETWEEN
| NOBLE SPIRIT LIMITED TRADING AS LIFE SOLUTIONS | Plaintiff | |
| and | ||
| WONG SHU YUEN also known as GARRY WONG | 1st Defendant | |
| MIND BODY (ASIA) LIMITED | 2nd Defendant |
_________________________
IN THE COUNTERCLAIM
BETWEEN
| MIND BODY (ASIA) LIMITED | Plaintiff | |
| and | ||
| NOBLE SPIRIT LIMITED trading as LIFE SOLUTIONS | 1st Defendant | |
| BLAKE TIMOTHY LAWRENCE IRELAND also known as BLAKE IRELAND | 2nd Defendant | |
| CHAN YIU MING also known as IVAN CHAN | 3rd Defendant | |
| LEE SIU HUNG | 4th Defendant |
_________________________
| Before: Deputy High Court Judge B Chu in Chambers |
| Date of Hearing: 31 October 2013 |
| Date of Judgment: 23 December 2013 |
_______________
J U D G M E N T
_______________
Introduction
1. This is an appeal by the plaintiff in the counterclaim (“Mind Body”) against the decision of Master M Wong striking out its claims against the 4th defendant (“Lee”) on the ground that Mind Body’s claims against Lee were within the exclusive jurisdiction of the Labour Tribunal.
2. Pursuant to Order 58 rule 1 of the Rules of the High Court, the appeal is by way of rehearing[1].
Brief Background
3. The present proceedings were initiated by Noble Spirit Limited trading as Life Solutions (“Life Solutions”) claiming, among other things, damages for wrongful termination of a dealership agreement, breach of confidence, publishing malicious falsehoods, and conspiracy to injure, against Mind Body and its shareholder and director, Mr Wong Shu Yuen also known as Garry Wong (“Wong”).
4. Life Solutions is a Hong Kong limited liability company carrying on the business of selling water filtration systems and its sole director and majority shareholder is a Mr Blake (“Blake”), the 2nd defendant in the Counterclaim.
5. Mind Body is a limited liability company carrying on the business of selling water purification systems and maintenance and warranty services for such systems to domestic and corporate clients.
6. It was not disputed that Life Solutions entered into a dealership agreement with Mind Body on 26 April 2004 whereby Life Solutions agreed to act as a dealer and agent of Mind Body to, among other things, procure sales of water purification systems on behalf of Mind Body (“Dealership Agreement”). The Dealership Agreement expired on 26 April 2007, but it appears that in effect the dealership continued under the terms of the Dealership Agreement until the dealership was terminated with effect from 6 May 2011 (“Termination Date”) by Mind Body. It was the case of Life Solutions that Mind Body wrongfully terminated the Dealership Agreement, which was denied by Mind Body, its case being that it accepted the repudiatory breaches of Life Solutions and terminated the Dealership Agreement.
7. Both 3rd defendant (“Chan”) and Lee were employees of Mind Body during the dealership.
8. Chan was employed as a Senior Customer Services Officer by Mind Body from 19 January 2006 until 9 May 2011 when he resigned. This was about 3 days after the Termination Date.
9. Lee was employed as a technician by Mind Body from 19 January 2006 to 15 April 2011 and an employment contract was signed in April 2006[2]. Lee resigned from Mind Body on 15 April 2011, about 3 weeks prior to the Termination Date.
10. After termination of their respective employment contracts with Mind Body, Chan and Lee had been working for Life Solutions.
11. Lee’s case was that during the period when he was being employed by Mind Body, he was simultaneously working for Life Solutions and two other companies. This was, however, denied by Mind Body and/or Wong.
12. About 12 days after the Termination Date, on 18 May 2011, Life Solutions commenced the present action against Wong and Mind Body, and its statement of claim was filed on 8 June 2011. On 5 July 2011, Mind Body filed a defence and counterclaimed against Life Solutions, Blake, Chan and Lee.
13. Life Solutions filed a reply to the defence and defence to the counterclaim on 15 September 2011. This was followed by certain amendments to the pleadings. Then on 7 December 2012, Lee took out a summons to strike out the claims made by Mind Body against him (“Lee’s Summons”).
14. The sole ground of Lee’s Summons was that the High Court had no jurisdiction to hear or determine Mind Body’s counterclaim against Lee or any part thereof, as it was within the exclusive jurisdiction of the Labour Tribunal (“Tribunal”) by virtue of section 7 of the Labour Tribunal Ordinance (“Ordinance”) and the schedule thereto (“Schedule”).
15. The final version of the re-amended defence and counterclaim of Mind Body, prior to Lee’s Summons should in fact be the one filed on 25 September 2012 (“Counterclaim”)[3], and not the one on 12 August 2012, as referred to in paragraph 4 of the Decision, but the subsequent amendments did not affect the claims made by Mind Body against Lee, whose re-amended defence to the Counterclaim was filed on 13 September 2012 (“Lee’s Defence”), and Mind Body’s re-amended reply to Lee’s Defence was filed on 25 September 2012 (‘Reply”).
16. Lee’s Summons was heard on 9 April 2013. Master Wong handed down his decision on 8 May 2013 (“Decision”) and ordered that Mind Body’s claims against Lee be struck out. Hence this appeal.
The Counterclaim
17. The reliefs sought by Mind Body against Lee in the Counterclaim[4] were:
(i) Damages for breach of the Employment Contract;
(ii) Damages for breach of duties as an employee;
(iii) Injunction to restrain Lee from engaging in any works in the same trade or industry as Mind Body in Hong Kong within 6 months after termination of his employment with Mind Body;
(iv) Damages in lieu of the injunction;
18. There were 5 “headings” in the Counterclaim, namely:
1. Dealership Agreement with Life Solutions (“Heading (1)”)
2. Employment of Chan and Lee (“Heading (2)”)
3. Outstanding Invoiced Amounts Due from Life Solutions (“Heading (3)”)
4. Conspiracy to injure, Breach of the Dealership Agreement and Fiduciary Duties (“Heading (4)”)
5. Breaches of Chan and Lee (“Heading (5)”)
19. Heading (1) and Heading (3) did not really concern Lee. In paragraphs 11, 13 and 14, under Heading (2), Mind Body pleaded the employment of Lee and set out the express and implied terms and conditions in his employment contract, as follows:
(1) The expressed terms in clause 12 of Lee’s employment contract (“Clause 12”)[5] whereby Lee agreed –
(i) not to engage himself in any work in the same trade or industry as Mind Body in Hong Kong within 6 months (“Restraint of Trade”); and
(ii) not to 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 operations to competitors, business entities in the same trade or industry, media or any other persons; and
(iii) all such above information of Mind Body shall be returned to Mind Body upon termination of his employment with Mind Body (“Confidentiality”).
(2) The implied terms of the employment contract, namely the following duties[6]:
(a) A duty of loyalty and fidelity;
(b) A duty to act in good faith;
(c) A duty to act at all times in the best interests of Mind Body;
(d) A duty not to put himself in a position of conflict of interest with Mind Body.
(The above collectively referred to as “Duties”)
20. Under Heading (4), Mind Body pleaded in paragraph 22 that Lee was extensively and intensively trained by Mind Body in the technical know-hows of installation and maintenance of new water purification systems, products and/or equipments sold by Mind Body since Lee’s employment with Mind Body.
21. Mind Body then went on in paragraph 23 to plead conspiracy to injure but only against Life Solutions, Blake, Chan, and a personal assistant of Blake, and not Lee.
22. Particulars were set out under paragraph 23 of alleged wrongful acts of Life Solutions, Blake, Chan and the personal assistant. The only references to Lee under Heading (4) were in paragraphs 23(vii) and (viii) where it was pleaded that, as part of the conspiracy to injure by the 4 persons, Lee would then resign from Mind Body after the alleged wrongful acts of those 4 persons were successfully done and Lee would then work for Life Solutions; and further that Lee would be rewarded by Life Solutions for his resignation from Mind Body and work for Life Solutions.
23. It was further pleaded by Mind Body in paragraph 30 that by reason of the wrongful conduct of Life Solutions and Blake, they “wrongfully incited” breach of employment contracts between Mind Body and Chan and Lee respectively.
24. Under Heading (5), it was pleaded by Mind Body in paragraph 36 that by reasons of the matters pleaded, Lee acted in breach of his employment contract and duties owed to Mind Body. The particulars thereunder were:
(i) Breach of implied terms of Lee’s employment contract and breach of the Duties;
(ii) Lee was working for Life Solutions, in breach of the Restraint of Trade term in his employment contract.
25. As set out in the Decision, Mr Shum, Counsel for Mind Body, had confirmed at the hearing before Master Wong that Mind Body was not making any claims against Lee based on breach of confidence or conspiracy to injure, and would further not rely on the contention that Lee had waived his rights to raise any dispute on jurisdiction by taking active steps in the present proceedings[7], as pleaded in paragraph 6 in the Reply. Mr Shum had also confirmed to Master Wong that Mind Body’s claims against Lee were based on only two causes of action[8], namely:
(i) Breach of express and/or implied terms of the employment contract; and
(ii) Breach of fiduciary duties.
26. There was no dispute that (i) above would fall within the exclusive jurisdiction of the Tribunal and the main issue before Master Wong was whether the claim based on breach of fiduciary duties would be excepted under paragraph 3 of the Schedule.
The Legal Principles
27. The Tribunal’s jurisdiction is set out in section 7 of the Ordinance and the Schedule thereof. Section 7 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.”
28. Paragraph 1 of the Schedule then 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, whether for performance in Hong Kong or under a contract to which the Contracts for Employment Outside Hong Kong Ordinance (Cap 78) applies; …”
29. Then paragraph 3 of the Schedule goes on to state:-
“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.”
30. The starting point, which can be gleaned from the case of Citipost (Asia) Limited and Julian Robert Holliday CACV 111/2004 8 February 2005, is that a claim for damages for breach of a term in an employment, whether for liquidated or unliquidated damages, and whether the term is an express or an implied one, is one within the exclusive jurisdiction of the Tribunal. It can also been seen from the Citipost case that the Tribunal has no jurisdiction to entertain a claim, such as for injunctive relief, such being not for a sum of money.
31. Mr Shum had referred the court to the case of Gain Hill (Hong Kong) Ltd v Li Kin Yip & Anor [2006] 4 HKLRD 186 where the plaintiff therein dismissed its former employee, the 1st defendant, for misuse of confidential information, setting up the 2nd defendant in direct competition with the plaintiff, and using the confidential information to solicit the plaintiff’s customers and to place orders with the plaintiff’s suppliers. It was the plaintiff’s pleaded case that the 1st defendant had acted in breach of his duties of good faith and fidelityby encouraging his colleagues to leave the plaintiff and to join a competitor, and that the 1st defendant wrongfully and in breach of his contract of employment, his duties as an employee and the obligation of confidentiality did the acts complained of. The plaintiff then sought (a) an injunction to restrain the use of the confidential information to solicit its customers; (b) damages for breach of confidence; (c) damages for breach of employment contract or breach of employees’ duties; and (d) exemplary damages. The 1st defendant relied on section 7 of the Ordinance and applied for a stay of the action.
32. Sakhrani J dismissed the 1st defendant’s application and held that (i) a claim for unliquidated damages for breach of an employment contract was one within the exclusive jurisdiction of the Tribunal and had that been the only claim then the Tribunal would have exclusive jurisdiction; (ii) the plaintiff’s claim for injunctive relief was not mere “window dressing” and the Tribunal had no jurisdiction to grant injunctions; (iii) the claim for breach of confidence was founded in both contract and tort and so fell within both paragraphs 1 and 3 of the Schedule, but by paragraph 3 the Tribunal’s jurisdiction was excluded, and it did not have jurisdiction to determine a claim for a sum of money in respect of a cause of action “founded in tort”.[9]
33. In his judgment of the above case, Sakhrani J had analysed the relationship between paragraphs 1 and 2 of the Schedule to the Ordinance on the one hand and paragraph 3 on the other hand. Sahkrani then said as follows:
“39. The words “Notwithstanding paragraphs 1 and 2” in paragraph 3 of the Schedule must mean something. The meaning is in my view clear. In spite of the fact that the Labour Tribunal has jurisdiction under paragraphs 1 and 2, the Labour Tribunal shall not have jurisdiction to determine a claim for a sum of money in respect of a cause of action “founded in tort whether arising from a breach of contract or breach of duty imposed by a rule of common law”. …
40. Here, there is an overlap between the claim in paragraph 1 and the claim in paragraph 3 of the Schedule. The claim for damages for breach of confidence is founded both in contract and in tort. It would fall within paragraph 1(a) as being within the jurisdiction of the Labour Tribunal but it would be excluded from the jurisdiction of the Labour Tribunal under paragraph 3 as being a claim for a sum of money in respect of a cause of action “founded in tort whether arising from breach of contract or a breach of duty imposed by a rule of common law”. … The intention of the Legislature was to exclude such claims from the jurisdiction of the Labour Tribunal.
41. In my judgment, the plaintiff’s claims are not within the exclusive jurisdiction of the Labour Tribunal. …”
34. Thus what was held by Sakhrani J was that the claim for “breach of confidence” was founded in both contract and tort, and as such the claim fell within the exception in paragraph 3 of the Schedule.
35. Sakhrani J had in his judgment also referred to the case of Citipost. In that case, the defendant was employed as the managing director of the plaintiff and he claimed that he was constructively dismissed and he filed a claim in the Tribunal claiming 19 months pay. The plaintiff filed a defence in the Tribunal and sought a transfer to the Court of First Instance and also filed a counterclaim. The matter in the Tribunal was then adjourned as the presiding officer had concerns that the matter should be transferred.
36. The plaintiff then issued a writ in the High Court and alleged that the defendant had breached various restrictive covenants in his employment contract, and implied term/s of his employment contract, or alternatively he had been in breach of fiduciary duty. The allegations in relation to the breach of implied term/s or alternatively fiduciary duty included that the defendant had charged a number of items which were items of personal expenditure to the plaintiff of about HK$20,000, that the defendant wrongly claimed to have worked when he was in fact on leave, that the defendant had denigrated the plaintiff in the eyes of its major customers, and that followed some “vague and totally unparticularised reference to ‘the plaintiff’s commercial confidential information’”. There were also allegations that the defendant had approached and solicited employees of the plaintiff to resign and join a new company the defendant had set up and there was a “further vague and unparticularised reference to the defendant having used the ‘plaintiff’s confidential commercial pricing and customer’s information.’”
37. The relief sought by the plaintiff was a claim for a declaration that the defendant be bound by the restrictive covenants and an injunction restraining the defendant from breaching the restrictive covenants, and also a claim for the said sum of about HK$20,000 and damages and interest.
38. The plaintiff’s Senior Counsel had conceded before the Court of Appeal that the pleadings did not contain the necessary allegations to found a breach of confidence claim. It is not quite clear whether that concession had already been made before the judge below, Yam J.
39. Anyway, it was held by Yam J, after analyzing the plaintiff’s claims, that the only matter which was outside the exclusive jurisdiction of the Tribunal was the injunctive relief, and the Court of Appeal held that he was correct.
40. As Yam J was of the view that all the other claims would fall within the exclusive jurisdiction of the Tribunal, such would include the plaintiff’s claims based on breach of fiduciary duty and/or breach of confidence.
41. The main issue on appeal in Citipost was, however, whether “a sum of money” in paragraph 1 of the Schedule only covered a liquidated sum, and not unliquidated damages. Yam J’s judgment was not produced before this court, and the details of his analysis of the plaintiff’s claims were unknown, in particular on the issue as to whether a breach of fiduciary duties in the context of employment was, or was not, a cause of action founded in tort. I accept, however, that the Court of Appeal was “apparently untroubled” in their conclusion that all the claims, save for the injunctive relief were more suitable for the Tribunal than the Court of First Instance, notwithstanding there being a claim based on an alleged breach of, alternatively, fiduciary duty[10], and/or a claim based on alleged breach of confidence.
42. Sakhrani J had also referred to the judgment of Kwan J (as she then was) in Estinah v Golden Hand Indonesian Employment Agency [2001] 4 HKC 607, in which she held that a claim based on breach of statutory duty imposed by s 57(a) of the Employment Ordinance was excluded from the jurisdiction of the Tribunal as it was a cause of action founded in tort.
43. Kwan J explained section 7(1) and the Schedule of the Ordinance as follows:
“Section 7(1) of Cap 25 provides that the Labour Tribunal shall have jurisdiction to hear ‘the claims’ specified in the Schedule. The Schedule makes provision for various types of claims for this purpose. A ‘claim’ is not the same thing as a ‘cause of action’, the latter denotes the factual or legal basis out of which a claim arose. Paragraph 1 provides for a claim for a sum of money which ‘arises from’ the breach of a term of a contract of employment, the breach of a term of a contract of apprenticeship, and the failure of a person to comply with the Employment Ordinance or the Apprenticeship Ordinance. I do not think the wording of paragraph 1 or of the other paragraphs in the Schedule would warrant a requirement that the entire legal or factual basis of a claim should be spelled out. I say this for two reasons. The various kinds of claims in the Schedule appear to be framed in fairly broad terms, see in particular paras 4, 5 and 7. If it were intended that the entire legal or factual basis must be set out, one would have expected more precise language to be used. Further, the words used in para 1 are ‘arises from’, which may leave room for debate as to the degree of causal connection required between the claim and the basis that gives rise to the claim, and this is another argument advanced by counsel which I will deal with. If the entire legal or factual basis were required to be spelled out, one would have expected a more restrictive expression to be used.”
44. It was also said by Kwan JA that:
“… it is clear from the opening words of para 3 (ie ‘notwithstanding paras 1 and 2’), it was envisaged that there would be an element of overlap between the claims in paras 1 and 2 and the claim in para 3. Take for instance a claim for a sum of money which arose from the breach of an express or implied term of a contract of employment to provide a safe system of work. This would fall within para 1(a) and yet one would have no difficulty in seeing that it would be excluded from the jurisdiction of the Labour Tribunal as this claim is in respect of a cause of action founded in tort whether arising from a breach of contract or a breach of duty imposed by the common law or by statute”.
45. The question of the jurisdiction of the Tribunal was also raised in another case Glock (HK) Ltd and Brauner [2007] 2 HKLRD 852, in which the plaintiff issued proceedings in the High Court against the defendant, alleging, among other things, breach of employment contract and breach of implied fiduciary duty. The statement of claim was struck out by the Master on the basis that the claim should have been commenced in the Tribunal, and the plaintiff appealed. It was the plaintiff’s position before that Master that the claim for damages resulted from a breach of a fiduciary duty and came within the exception in para 3 of the Schedule, but on appeal, the plaintiff’s Counsel accepted that the claim for damages for a breach of a fiduciary duty was not founded in tort but in contract and equity, and his then submission was that on the proper construction of the Ordinance as a whole should be that the Tribunal did not have jurisdiction where the remedies were in equity. Saw J did not accept such submissions and dismissed the appeal.
46. I was further referred to the case of Deutsche Bank AG (HK Branch) v Daniel Mamadou-Blanco [2012] 3 HKC 176 in which the plaintiff alleged that that the defendant had, among other things, disclosed information contained in the email to the plaintiff’s competitor and further that the defendant had acted in breach of his duties of good faith and fidelity. The Plaintiff then claimed for unliquidated damages and a declaration that the defendant was still bound by the non-competition and non-solicitation of employees clauses in his employment contract with the plaintiff. The defendant applied to strike out the statement of claim on grounds that the plaintiff’s claim was one within the exclusive jurisdiction of the Tribunal and that it disclosed no reasonable cause of action against the defendant. DHCJ Lok granted leave to the plaintiff to amend the statement of claim and dismissing the defendant’s summons with liberty to make a fresh striking out application.
47. DHCJ Lok had regarded the case of Citipost to be a clear authority for the proposition that a claim by the employer against employee or former employee for loss and damages arising from breach of an express or implied term of the contract of employment or breach offiduciary duties would be one falling within the exclusive jurisdiction of the Tribunal (emphasis added) and that he was bound by it[11]. Mr Shum submitted that DHCJ had misinterpreted what was said in the case of Citipost. Whether the case of Citipost is or is not a clear authority, as I have mentioned earlier, the Court of Appeal had no apparent trouble in accepting what Yam J had said, namely save for the injunctive relief, all the other claims fell within the exclusive jurisdiction of the Tribunal.
48. On the other hand, in the Deutsche Bank case, as pointed out by Mr Shum, DHCJ Lok was clearly of the view that that the Court of First Instance did have jurisdiction over the plaintiff’s claim because it was a claim for breach of confidence supported by the facts pleaded by the plaintiff which could be founded both in contract and tort and hence the Tribunal had no jurisdiction over the claim. (emphasis added)
49. DHCJ Lok had also said that although both Gain Hill and Estinah were not strictly binding on him, he agreed with the dicta of both Sakhrani and Kwan JJ in the two respective decisions because their interpretation of paragraph 3 of the Schedule was in accordance with the plain wording of the provision[12]. As there were defects in the pleading, DHCJ Lok in the end gave leave to the plaintiff leave to amend, and dismissed the defendant’s striking out summons.
50. Mr Shum had also referred to in a recent decision namely AXA China Region Insurance Co Ltd and Lin Kwai Ying Katie [2012] 2 HKLRD 1139 where the plaintiff had brought proceedings against the defendant and the causes of action relied on in the statement of claim were essentially (a) breach of a non-solicitation obligation in her employment contract; (b) breach of fiduciary duties, namely not to place herself in a position where her personal interest would conflict with the plaintiff’s and/or not to act for her own benefit or the benefit of others without the informed consent of the plaintiff; and (c) the tort of causing loss by unlawful means, the unlawful means being the breach of the non-solicitation obligation and the breach of fiduciary duties (the Tort Claim). The defendant sought to strike out the statement of claim on the basis that first, it fell within the exclusive jurisdiction of the Tribunal and (b) the Tort Claim, as pleaded, was deficient.
51. Chung J held that, among other things, that the “unlawful means” pleaded were the defendant’s alleged breach of the non-solicitation clause and breach of fiduciary duties, and the Tort Claim was founded in both contract and tort and so by para 3 of the Schedule, the Tribunal’s jurisdiction was excluded. Chung J agreed with the defendant’s complaints that the statement of claim suffered from various deficiencies, and in the end, Chung J struck out the statement of claim but did not dismiss the action if the plaintiff was to file and serve a re-amended statement of claim to reformulate its case regarding the tort of causing loss by unlawful means within 21 days.
52. Ms Lau, Lee’s Counsel, however, submitted that in the AXA case, ‘causing loss by unlawful means’ was clearly a tort, but it did not mean that the “unlawful means” must also be a tort, and that the breach of fiduciary duties referred to in that case was just part of the “unlawful means”, and there was nothing in that case suggesting that breach of fiduciary duties would be tortious by itself. Her submissions were accepted by Master Wong in the Decision[13].
53. Chung J had further said he agreed with the reasoning of and conclusions reached in the two earlier decisions, namely Gain Hill and Estinah, and he then went on to say[14],
“30. The underlying rational for the conclusion has not been discussed in those decisions. If any rationale is needed, it may be that the legislature intended the Labour Tribunal to be “an informal forum for employees [and employers] to pursue their claims … in a speedy manner”: Deutsche Bank AG (HK Branch) v Daniel Mamadou-Blanca, paras 13 and 18. Claims based on tort, breach of common law duties or statutory duties and the like are likely to be too complicated for the Labour Tribunal to be able to deal with speedily”.
54. Mr Shum had also referred to Advanced MP Technology HK Limited v Su Yan Wen, HCA 1252/2007 and Advanced MP Technology HK Limited v Ma Tsz Lung, HCA 1288/2007 (unreported, 5th August 2008), in which the defendants in the 2 actions were the employees of the plaintiff, and in gist the plaintiff’s complaints against them were breaches of confidence, use of trade secrets and/or confidential information and breaches of employment agreement. The plaintiff had sought injunctive reliefs, damages for breach of employment agreements and/or breach of confidence, and an account for profits arising out of the breaches and interest. The defendants applied to strike out the platinfiss’s claims in that they disclosed no reasonable cause of action and/or were matters within the exclusive jurisdiction of the Tribunal. Master M Yuen (as she then was) held that[15] -
“27. Actions involving claims for secret profits, duty to account, breach of confidence and use of trade secrets would likely involve intrigue facts entailing protracted legal arguments for which the assistance of legal representation would have enhanced the presentation of the case.
28. In a contract of employment, terms existed to delineate the duration and the scope of service as well as to reflect the consideration for the service and the benefit to be provided to the employee. Terms are often written in to govern the standard and quality of the service to be furnished by the employee. Provisions touching on the employment conditions, dealing with wages, holiday, financial benefits, welfare of an employee and the like should rightly be attended to in the Tribunal, be the claim liquidated or unliquidated.
29. When one is considering whether an employee breaches his duty of confidentiality (contractually written or implied) or has acted in breach of his other duties (common law or statutory) for acts done in the course of his employment (e.g. to steal from one’s own employer as in the case of 4M Goldmec Jewelry DCCJ 5902/2005), one is talking about the incidental acts of the employee whilst at work. The employee can hardly be said to be carrying out his duties under his employment contract when he performed tortious acts against the interest of his employer. For example, in outright case of theft from the employer, the Court does not need to look at the employee’s employment contract and construe the terms therein to determine the rights and liabilities of the parties.
30. Even if the tortious scenario is within the contemplation of the parties and had been reduced into writing in employment contract as a prohibitory duty, paragraph 3 of the Schedule of the Ordinance comes in aid to clarify the situation and remove such tortious claims from the jurisdiction of the Tribunal.”
55. The plaintiffs had filed voluntary particulars in the above case which gave rise to a clear plea of tortious liability which brought the claim out of the jurisdiction of the Tribunal, but the voluntary particulars failed to particularize the confidential nature of the information but further the right to an injunction would hinge upon the subsistence of a reasonable cause of action to begin with. Eventually, the defendants were given leave to strike out the plaintiff’s pleadings as disclosing no reasonable cause of action and the action to be dismissed unless the pleadings in the action are amended to disclose a reasonable cause of action within 14 days.
56. I now come to the question as to whether a claim based on breach of fiduciary duties is a claim founded in tort. The leading case on fiduciary duties in the employment context is University of Nottingham v Fishel and Another [2000] ICR 1462 where it was said by Elias J that :
“By contrast, the essence of the employment relationship is not typically fiduciary at all. Its purpose is not to place the employee in a position where he is obliged to pursue his employer’s interests at the expense of his own. The relationship is a contractual one and the powers imposed on the employee are conferred by the employer himself. The employee’s freedom of action is regulated by the contract, the scope of his powers is determined by the terms (express or implied) of the contract, and as a consequence the employer can exercise (or at least he can place himself in a position where he has the opportunity to exercise) considerable control over the employee’s decision making powers. 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. Where this occurs, the scope of the fiduciary obligations both arises out of, and is circumscribed by, the contractual terms; it is circumscribed because equity cannot alter the terms of the contract validly undertaken.”[16] (emphasisadded)
57. It can be seen from the above passage that not every employee owes obligations as a fiduciary to his employer, but if there are fiduciary duties arising out of an employment relationship, such are imposed by equity in addition to the contractual obligations (emphasis added).
58. The decision of Elias J in the University of Nottingham case was cited with approval by the Court of Appeal in Helmet Integrated Systems Ltd v Tunnard [2007] FSR 16. As said by Moses LJ
“An employee owes an obligation of loyalty to his employer but he will not necessarily owe that exclusive obligation of loyalty, to act in his employer’s interest and not in his own, which is the hallmark of any fiduciary duty owed by an employee to his employer. The distinguishing mark of the obligation of a fiduciary, in the contest of employment, is not merely that the employee owes a duty of loyalty but of single-minded or exclusive loyalty… care, as Elias J remarks, must be taken not to equate the duty of good faith and loyalty owed by every employee with a fiduciary obligation”[17]
59. I now turn to the present submissions before me.
Discussion
60. In the present case, Mind Body had sought an injunctive relief against Lee in the Counterclaim, but such claim was only for a period for 6 months after termination of Lee’s Employment Contract, being the period stated in Clause 12. The 6 month period had long expired, about 1½ years prior to the issue of Lee’s striking out application, and as in the Citipost case, and there was no dispute between the parties’ that the claim for injunctive relief was a “matter of history”. Mind Body never applied for an interlocutory injunction and the claim for injunctive relief was in my view more a “window dressing”.
61. All the remaining claims in the Counterclaim against Lee were for damages, namely monetary claims.
62. Mr Shum’s submissions at this hearing were that other than breach of contract, Mind Body’s case against Lee was based on an alternative cause of action of “breach of duties” at common law, which as submitted by him, were tortious in nature and a separate cause of action from the other claim of breach of the Employment Contract. Thus the two causes of actions were:
(i) Breach of the employment contract;
(ii) Breach of the Duties as an employee at common law.
63. Mr Shum submitted that the damages claimed for breach of Duties as employee and account for profits against Lee were also separate relief from the damages for breach of contract[18].
64. The claim for account for profits was, however, not specifically pleaded or set out in the Counterclaim.
65. In Lee’s Defence, he admitted that Clause 12 contained a Confidentiality term. It was Lee’s case that the part relating to Restraint of Trade in Clause 12 was not enforceable. It was also Lee’s case that Life Solutions stored its own confidential information and data into a common computer. Lee further averred that the skill and knowledge acquired by him as a technician for Mind Body and other parties had become his skill and knowledge which he would be entitled to use. So far as the conspiracy was concerned, Lee had also averred that Life Solutions had not paid anything to him, and that he had resigned from Mind Body on his own accord.
66. I have mentioned earlier, Mr Shum had confirmed that Mind Body was not claiming against Lee based on conspiracy to injure or breach of confidence.
67. What Mr Shum was submitting at the present hearing was that apart from breach of contract, Mind Body’s claim against Lee was based on an alternative cause of action of “breach of duties” at common law[19].
68. Ms Lau complained that Mind Body had not pleaded any alternative cause of action of “breach of duties at common law” in the Counterclaim. I accept that this had not been specifically pleaded in the Counterclaim.
69. Further, as pointed out by Ms Lau, Mind Body had also not specifically pleaded that its claim against Lee was based alternatively on “breach of fiduciary duties”.
70. There were 4 Duties pleaded. Mr Shum submitted that the first two, namely “duty of loyalty and fidelity” and “a duty to act in good faith” arose from a general fiduciary duty and were limbs to the general fiduciary duty. As pointed out in the Helmet case mentioned earlier, the distinguishing mark of the obligation of a fiduciary, in the context of employment, was not merely that the employee owed a duty of loyalty but of single-minded or exclusive loyalty. Such was not pleaded by Mind Body.
71. Ms Lau had also referred to Fiduciary Obligations by Finn, 1977 where in Chapter 15 8 “distinct groupings” of “duties of good faith” were set out[20], and submitted that the Duties were all strands of “duties of good faith” founded in equity.
72. Anyway, whether the Duties were strands of “duties of good faith” or whether they were “limbs” of “fiduciary duties”, in my view it is clear that the Duties were founded in equity.
73. Mr Shum had relied on the Gain Hill case and the AXA case to support his submission that “breach of duties” were held to be “tort”. As mentioned earlier, in AXA, Chung J only held that what was tortious was “causing loss by unlawful means”, which Ms Lau accepted to be tortious, but no tort of causing loss by unlawful means had been pleaded in the Counterclaim in the present case.
74. As also mentioned earlier, in Gain Hill, Sakhrani J held that the claim for “breach of confidence” was found both in contract and in tort but no reasons had been set out by him concerning this finding. In light of what was set out by the learned authors of Fiduciary Obligations, it seems “breach of confidence” should also fall into one of the 8 groups of “duties of good faith” founded in equity and this was accepted by Mr Shum. In any event, in the present case against Lee, we are no longer concerned with “breach of confidence”.
75. The only question as posed by Mr Shum was whether the breach of Duties, with their origin being in equity, would render them not“tort”, nor under “common law”. What Mr Shum seemed to be submitting was that as Hong Kong courts had held “breach of confidence” which originated from equity to be founded in tort, similarly breach of the Duties and/or breach of fiduciary duties must also be tortuous.
76. As explained by the learned authors of Clerk & Lindsell on Torts, 12th Ed in its Chapter 1, a “tort” is a “civil wrong” which can be defined simply as “a breach of a legal duty which affects the interests of an individual to a degree which the law regards as sufficient to allow that individual to complain on his or her own account rather than as a representative of society as a whole”[21]
77. As further explained by the learned authors as follows:[22]
“The equitable wrongs of breach of fiduciary duty and breach of confidence are analogous to torts but differ in that their historical roots lie in the Court of Chancery rather than the common law courts. The main remedy for these wrongs is that of “equitable compensation” which seeks to put the claimant in as good a position as if no wrong had occurred. As Burrows has noted, the case law has been moving in the direction or removing distinctions between this remedy and compensatory damages for tort. Birks has suggested that equitable wrongs should be considered alongside torts and although, strictly speaking, they cannot be regards as torts, this edition includes sections on both breach of fiduciary duty and breach of confidence.”
78. The case law mentioned by the learned authors of Clerk & Lindsell was not provided to this court, but as pointed out by Master Wong and which I agree, all the learned authors were saying was that the case law was moving in the direction of removing distinctions between the remedy of “equitable compensation” and compensatory damages for tort, which meant the main remedy for these equitable wrongs were becoming similar to the remedy for torts, and it did not mean that the causes of action founded in equity were changing to those under torts[23], or becoming tortuous.
79. Further, in paragraph 10-22, the learned authors also stated that “Quite apart from liability in contract and tort, a professional may also owe concurrent fiduciary duties to his cline in equity.” Thus, as pointed out by Master Wong, the authors were not advocating that there would be no more distinction between the different causes of action. I agree and I am of the view that Mind Body’s claims against Lee are thus based on causes of actions founded in equity, and not in tort.
80. Mr Shum also submitted that the claims of Mind Body against Lee arose from a breach of duty imposed by law. It is not disputed that under paragraph 3 of the Schedule, there are 3 classes of cases where the “tort” will be excluded from the jurisdiction of the Tribunal:
a. Tort arising from a breach of contract;
b. Tort arising from a breach of duty imposed by a rule of common law;
c. Tort arising from a breach of duty imposed by any enactment.
81. Mr Shum submitted that the present claim by Mind Body also fell within section 16 of the High Court Ordinance and “common law” in class b above must be a generic term used to describe both the common law and equity by virtue of section 16. In my view, section 16 only provides for how the Court of Appeal or the Court of First Instance is to exercise its jurisdiction in administering law and equity.
82. Paragraph 3 of the Schedule clearly refers to a cause of action “founded in tort”, whether arising from a breach of contract or a duty imposed by law. As set out earlier, I have already come to the view that Mind Body’s claims against Lee was founded in contract and/or equity, and not founded in tort.
83. In the above circumstances, I am satisfied that Mind Body’s claims against Lee do not fall within the exemption of paragraph 3 of the Schedule. I am further satisfied that as the claim for injunctive relief was “a matter of history” and “window dressing”, all the other monetary claims made by Mind Body against Lee are within the exclusive jurisdiction of the Tribunal.
84. Mr Shum referred the court to the court’s exercise of powers under Order 18 Rule 19 of the Rules of the High Court and in particular to the Hong Kong Civil Procedure 2013[24]where it is stated that it is only in plain and obvious cases that the court should exercise its summary powers to strike out the indorsement on any writ or any pleading.
85. Lee’s Summons was not taken out under Order 18 Rule 19, and further there is nothing to stop Mind Body to commence an action against Lee in the Tribunal.
86. Having considered all the above, in my view, it is plain and obvious that Mind Body’s claims against Lee are within the exclusive jurisdiction in the Tribunal.
87. I therefore dismiss the appeal, and order the claims made by Mind Body against Lee be struck out. Mind Body is to pay Lee the costs of this appeal to be taxed if not agreed, and Lee’s own costs be taxed in accordance with the Legal Aid Regulations.
88. Finally, I would like to express my thanks to both Counsel for their assistance and helpful submissions.
(Bebe Pui Ying Chu)
Deputy High Court Judge
Mr Erik Shum, instructed by Yip Tse & Tang, for the plaintiff in the Counterclaim
Ms Queenie Lau, instructed by Huen & Partners, assigned by Director of Legal Aid, for the 4th defendant in the Counterclaim
[1] Para 58/1/2, pg 1024, Hong Kong Civil Procedure 2014
[2] B: 424
[3] B:171(1)- 171 (26)
[4] B:171(13)- 171(14)
[5] Para 13, Counterclaim, B:171(6)
[6] Para 14, Counterclaim, B:171(6)
[7] Para 11, Decision
[8] Para 12, Decision
[9] See Headnote
[10] As said by Saw J in the case of Glock (HK) Ltd v Brauner [ 2007] 2 HKLRD 852, at para 15, pg 857
[11] At para 20, pg 182
[12] At para 25, pg 183
[13] At para 22, pg 9, Decision
[14] At para 30 ,pg 1148
[15] At paras 27-30
[16]per Elias J at lines E –H, pg 1491
[17] Para 36, pg 448
[18] Para 49, Shum’s skeleton submissions
[19] Para 49, Mind Body’s skeleton submissions
[20] At para 159 -170, pg 78-81
[21] Para 1-03, Chapter 1, pg 2, Clerk & Lindsell on Torts, 12th Ed
[22] Para 1-06
[23] Para 25, Decision
[24] At para 18/19/4