Mok Hon Kin Patrick v. C3s Far East Ltd
Read the full judgment text of DCCJ 4860/2015 on BabelCite. This District Court judgment was delivered on 3 July 2019.
1. This is the trial of an employment dispute.
Cited by 1 case · Cites 4 cases
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DCCJ 4860/2015 [2019] HKDC 798 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO 4860 OF 2015 ---------------------------
--------------------------- Before: Her Honour Judge Winnie Tsui in Court Dates of Hearing: 4-8, 19-20 June and 16 July 2018 Date of Further Written Submissions: 22 August 2018 Date of Judgment: 3 July 2019 -------------------- JUDGMENT -------------------- INTRODUCTION 1.This is the trial of an employment dispute. 2.The plaintiff brought an action against the defendant, his ex-employer, in the Labour Tribunal on 27 May 2015 under LBTC 1661/2015. 3.The plaintiff was employed as the General Manager of the defendant from 22 January 2007 to 26 April 2015. The termination was brought about by the plaintiff resigning on one month’s notice. 4.The defendant is a Hong Kong company set up in 2004 and is part of the C3S group. The group is based in Yorkshire in the UK. It is owned by Mr Graham Midgley and his wife. It specialises in the supply of cut-size fire resistant glass and bullet resistant glass. The defendant is a small operation in Hong Kong, which serves as the group’s trading arm in the Asia Pacific region. 5.At the Labour Tribunal, the plaintiff made a claim for outstanding salary for April 2015, ie his last month of employment, and other items. The defendant subsequently paid the salary in October 2015. It also made a number of counterclaims for a total sum of just over $650,000. In view of these various claims, the Tribunal transferred the action and the counterclaim to the District Court on 8 October 2015. 6.As pleaded, the plaintiff claimed against the defendant under three heads.
7.The sum in item (a) has since been paid by the defendant to HSBC, the MPF provider. At closing, Mr Adrian Leung, appearing with Mr Newton Mak for the plaintiff, revised the figures in items (b) and (c) to $421,967.21 (which corresponds to 132 days of untaken leave) and $43,634.60. The plaintiff’s claim is therefore now for the sum of $465,601.81. Out of the sum in item (c), the defendant accepts that a lesser sum of $21,498.60 is justifiably claimed. 8.On the other hand, the defendant says that shortly before the plaintiff resigned, it discovered that he had, over the years, made false claims on the company. The defendant says that the plaintiff had been in breach of his fiduciary duty and had wrongfully, unlawfully and fraudulently misappropriated the company’s fund. The defendant counterclaims under the following four heads. Save for item (d), the sums were incurred from about July 2009 to January 2015.
9.Accordingly, it counterclaims from the plaintiff a total sum of $633,618.92. (This amount is less than the original claimed sum. At closing, Mr Kelvin Liu, counsel for the defendant, confirmed that a sum of $22,215.50 should be taken out from the original claim for taxi fares.) 10.At the trial, the plaintiff and Midgley gave evidence. 11.Also forming part of the evidence in the trial are the statements filed in the Labour proceedings and transcripts of the three hearings which took place at the Labour Tribunal on 3 July, 2 September and 8 October 2015. 12.It would be more convenient to recount the defendant’s case first, to be followed by the plaintiff’s. THE DEFENDANT’S CASE 13.The C3S group is a family business dating back to the early 1980’s. The defendant was set up in Hong Kong in 2004 as part of the group’s initiative to expand its business in Asia. It used to have its own glass cutting facilities in mainland China but they were closed down in 2013. Since then, it focuses on the supply and installation of complete fire-resistant and secure glazed framing systems. 14.The plaintiff joined the defendant as its General Manager in 2007. He was hired to replace a Mr Mike Jones. When he joined, apart from Mike Jones, the defendant had only one other staff, namely a sales coordinator. 15.In his oral testimony, Midgley explained that when recruiting, the plaintiff appeared to be a good fit for the position since his past experiences were with building products and he used to work with Clestra, which is a partitioning manufacturer of metal ceiling products. Hence the plaintiff had the relevant installation experiences. 16.During his employment, he was the most senior staff of the defendant in Hong Kong in charge of its operation. The defendant describes the plaintiff’s role as follows:-
Terms of employment 17.It is common ground that the plaintiff’s initial monthly salary was $50,000. It was increased to $55,000 with effect from June 2007 and further increased to $65,000 with effect from January 2010. (The exact dates of the two increases are not agreed but the difference is not presently material.) 18.As regards the plaintiff’s terms of employment, the defendant’s position is that they were governed by the basic requirements set out in the Employment Ordinance, Cap 57, and the terms set out in a document entitled “Staff Information Handbook” of the C3S group, a copy of which was given to the plaintiff shortly after he joined. At trial, the document has been referred to as “the Handbook”. 19.In these proceedings, the defendant has disclosed a draft employment agreement. It is three pages long and bears the date of 27 January 2006. (There is apparently a typo in the year, which should have been 2007.) The document was not signed by either the plaintiff or the defendant. In fact, Midgley is not sure whether that draft was the initial version given to the plaintiff or a later version. On the other hand, the plaintiff has produced another draft employment agreement, which is slightly different from the defendant’s draft and is also unsigned. 20.Since neither draft was signed, the defendant’s position in this action is that the terms contained in these drafts are not binding on the parties. 21.Shortly after he joined the defendant, the plaintiff went to the UK head office for training for about four weeks. At that time, he was given a copy of the Handbook. 22.The cover of the Handbook had the plaintiff’s name printed on it. It included an organisation chart as of 22 January 2007 which included the defendant and, underneath it, the plaintiff’s name. He signed an acknowledgment confirming that he had received and read it. 23.Clause 1.1 provided:-
24.The whole purpose of giving the Handbook to the plaintiff, the defendant says, was to require him to abide by its terms during his employment. The defendant pleads that the plaintiff “always considered himself as working under the C3S group of companies and to be bound by such Handbook”. 25.In this action, one of the hotly disputed issues concerns annual leave. The parties disagree on (a) how many days of annual leave the plaintiff was entitled to, and (b) whether there was any restriction on carrying forward any untaken leave. I shall deal with the parties’ rival arguments later. The defendant’s business and the plaintiff’s role 26.As its General Manager, the plaintiff was in charge of the whole operation of the defendant, in terms of business development, management, compliance and administration of staff. The plaintiff was authorised to operate the defendant’s bank accounts in Hong Kong. He reported directly to Midgley. They communicated through emails and phone calls, sometimes as often as every day and less frequently at other times. It is common ground that Midgley travelled to Hong Kong about three or four times a year. 27.In his oral testimony, Midgley elaborated on the defendant’s business and the plaintiff’s role in developing it. 28.The defendant’s customers are architects, quantity surveyors, partitioning companies and those engaged in refurbishment of buildings. In a construction project, there would be “specifiers” (mainly architects), who would designate the type of products to be used. The defendant’s role is to supply fire-resistant partitioning systems where they are specified in a project and as such it would be one of the sub-contractors. 29.According to Midgley’s understanding, the plaintiff knew a lot of architects from his experiences with Clestra. As General Manager, one of his major responsibilities was to develop the defendant’s business. He was expected to reach out and talk to the specifiers to secure new orders. In Hong Kong, the defendant had been involved in supplying glass products in MTR projects and other building projects. 30.Architects’ offices are usually located in Central or Admiralty. It would usually be the defendant’s staff paying visits to the architects instead of the other way round. 31.As part of his duties, the plaintiff was to send reports to Midgley on a monthly basis covering various areas relating to the defendant’s business, including, eg, the sales figures, its financial position, its business performance by reference to customers, products and geographical areas, customer enquiries and action plans for new projects. 32.Midgley reposed utmost trust in the plaintiff in operating the defendant in its best interest. Under his management, however, the defendant was not performing well. Midgley discussed with the plaintiff many times about the poor performance but he would never have thought that the plaintiff would do anything compromising or hurting the interests of the defendant or anything illegal. 33.In his witness statement, Midgley gave an overview of the performance of the defendant’s business during the plaintiff’s employment. It was not good. The following figures were extracted from the defendant’s audited accounts:-
34.As the turnover was small especially from 2013 when the glass-cutting facilities in the mainland ceased operation, the plaintiff’s duties and responsibilities had been reduced tremendously. He became the only staff in the defendant. The level of enquiries and orders from customers did not justify employing more staff. But Midgley always made it clear to the plaintiff that if the business picked up, more staff would be recruited. The defendant basically had only one project in Singapore. Every time when Midgley discussed with the plaintiff about customer enquiries and orders position, he always ensured Midgley that he would increase the number of calls, enquiries and orders. 35.The plaintiff stopped sending Midgley the monthly reports since 2013. 36.As the business remained stagnant, in June 2012, Midgley requested the plaintiff to send him weekly reports so as to keep track of the defendant’s activities. As the customer call rates kept declining and the defendant got less and less enquiries, the main purpose of these weekly reports was for Midgley to find out about the number of customers the plaintiff was contacting and the business activities. In cross-examination, Midgley was asked if that was indeed the purpose of the weekly reports, why he did not follow up with the plaintiff when the weekly reports did not show many entries on customer calls. Midgley replied that he had indeed followed up and that was the main subject of conversation whenever he came over to Hong Kong as he repeatedly stressed to the plaintiff that the call rates had to be improved. 37.These weekly reports were compiled from June 2012 to April 2015 and have been disclosed in these proceedings. The reports were typically two or three pages long each and appeared in a table format in which the plaintiff set out the tasks he had carried out on each day of the week. 38.The defendant says that the weekly reports show that the plaintiff’s workload comes no more than what one would call heavy. Discovery of irregularities 39.The defendant’s business had not been doing well by early 2015. In February 2015, Midgley engaged an accountant, Mr Jonathan Tsang, as a consultant/business advisor and to carry out an internal audit and give advice on how to improve the efficiency and business of the defendant. The plaintiff also spent some time with Tsang in his audit and appeared to agree with Tsang’s recommendations. 40.On about 26 March 2015, Midgley informed the plaintiff that he had asked Tsang to join the business on a three-month consultancy basis. The main idea was to enable the plaintiff to spend more time on the business side, ie serving customers and getting more orders, whereas Tsang would handle administrative matters. 41.To Midgley’s surprise, the plaintiff tendered his resignation on the following day, saying that it was due to health reason. 42.On 1 April 2015, Tsang commenced an internal audit and found out various misconduct, irregularities and wrongful and unlawful act committed by the plaintiff. 43.For a lengthy period from at least July 2009 to the end of his employment, the plaintiff made various false, unjustified and unaccounted for expense claims and received the sums so claimed until January 2015. These expenses claims were false because they related to the plaintiff’s personal expenses and were unrelated to the defendant’s business. The defendant makes claims under the following three heads:-
44.Separately, from about April 2007 to about April 2015, the plaintiff failed to pay the employee’s portion of his MPF account himself. Instead, he misappropriated the defendant’s fund to make those contributions. The defendant had never authorised him to do so. 45.Upon learning of these irregularities, Midgley confronted the plaintiff in a meeting on or about 22 April 2015. The plaintiff made no comment and gave no explanation. At that time, the defendant considered that it was entitled to withhold the plaintiff’s salary and the employer’s portion of his MPF contribution for the month of April 2015 since the sums which he had misappropriated from the defendant were of a far larger amount. Octopus cards 46.Based on its records, the defendant has compiled a table setting out the unjustified claims submitted by the plaintiff each month for topping up his Octopus cards from July 2009 to January 2015 in the total sum of $167,000. Such monthly amounts range from $500 to $5,500. In his claim forms, the plaintiff provided no details on how he spent the money credited to his Octopus cards. His practice was to top up his card usually by $500 each time. 47.The defendant says that a top-up of $500 a month would be more than sufficient to cover business expenses which would normally be settled by Octopus card and considers that a claim of $500 per month is justified. Accordingly, in its counterclaim, the defendant claims in respect of each month the total topped-up amount less $500. (However, in respect of the expenses for February, March and April 2015, the defendant has allowed a sum of $1,000 for top-up per month.) In cross-examination, Midgley said that the “local people”, such as Tsang and other sales people who joined the defendant after the plaintiff left, told him that $500 a month would be sufficient. 48.In some months, the plaintiff topped up his cards ten times or more. That happened in six months in 2013. The defendant says that the top-ups were plainly excessive and could not have all been related to business expenses. 49.In these proceedings, the plaintiff has disclosed the statements issued by the Octopus company for the period from October 2013 to January 2015 showing the details of the individuals debits made to one of his cards. 50.The defendant says that according to these statements, the plaintiff had used his Octopus card to pay for various petty personal expenses, such as breakfast at fast food places and local cafés, shopping at supermarkets and convenience stores, transportation expenses during the day (bus, minibus and MTR) and swimming admission fees at South China Athletic Association (“SCAA”). The defendant says that they were clearly not incurred in the course of its business. Taxi fares 51.Based on its records, the defendant has compiled tables setting out the taxi fares claimed by the plaintiff from July 2009 to January 2015. The defendant says that the sum of $88,713 should not have been claimed, judging from the time of the rides as shown in the receipts, these taxi fares were not incurred for business purposes and hence were sums misappropriated from the defendant. These false claims fall into the following categories:-
Entertainment expenses 52.Based on its records, the defendant has compiled tables setting out the entertainment expenses claimed by the plaintiff from July 2009 to January 2015. The corresponding receipts are also disclosed in these proceedings. They reveal the following expenses which the defendant says were not business related:-
53.In his claim forms, the plaintiff did not put in any notes or remarks showing the names of the clients or business partners he treated for meals. 54.As regards the many meals taken on weekends and public holidays, Midgley said in cross-examination that works over weekends or public holidays just did not happen that often. It is true that the plaintiff needed to do site survey for each project. But, towards the end of the plaintiff’s employment, there were in fact not many projects. 55.In cross-examination, Midgley also said that entertaining customers would be an occasional occurrence. This is particularly so when the business of the defendant had been declining over the years. Also, it would be unusual to entertain installers, who are the defendant’s sub-contractors. The defendant used a few companies for installation and it tended to use the same people time and again. In fact, it would usually be the installers who would entertain the defendant rather than the other way round. 56.By contrast, the plaintiff made claims for meals frequently. In re-examination, he said that he would be having around 20 business meals in a normal month. 57.As regards the many meals taken on weekdays, the defendant says:-
58.Overall speaking, these expense claims are suspicious because of the frequency, regularity and location of the meals. Furthermore, the plaintiff did not record these meals in the weekly reports. 59.Apart from that, there are some one-off claims which on their face could not have been business expenses. For instance, there was a receipt dated 14 October 2012 for the sum of $201 for delivery of food to the plaintiff’s home address in Tai Hang Road by Pizza Hut. 60.The defendant claims a total sum of $269,655.92 for the meals which the plaintiff had falsely claimed. MPF contributions 61.The plaintiff was in charge of MPF compliance. Midgley was not familiar with the MPF regulations in Hong Kong. He just knew that the defendant had to comply with the local requirements and trusted that the plaintiff would handle it well for himself and the other staff in the Hong Kong office. He did not know about what the plaintiff had done until Tsang informed him in late April 2015. 62.The defendant now claims a total sum of $108,250 from the plaintiff, which represents the total amount misappropriated by the latter as contributions towards the employee’s portion of his MPF account. 63.Midgley said that throughout the years of the plaintiff’s employment, he took advantage of Midgley not being in Hong Kong and abused the trust reposed in him. His conduct is akin to stealing money from the company. THE PLAINTIFF’S CASE 64.In around 2006, the plaintiff was introduced to the position by a headhunting company. In November 2006, the headhunting agent emailed a copy of the employment agreement to the plaintiff and followed up with a phone call. The plaintiff confirmed to her that he had no problem with the terms set out in the written agreement and they were acceptable to him. After the confirmation, a Mr Mike Fawcett of the defendant called the plaintiff to discuss the probation arrangements. The plaintiff commenced work on 22 January 2007. 65.The plaintiff now relies on an unsigned written agreement which bore the date of 16 January 2006. (There would appear to be a typo in the year, which should have been 2007.) That contract was never signed by either party. After he started, the plaintiff did remind Midgley to sign the agreement but the latter did not attend to it. The plaintiff did not follow up since his relationship with Midgley was all along harmonious. Terms of employment 66.The plaintiff says that in light of the above factual background, the parties entered into an employment contract by 22 January 2007, ie the plaintiff’s first day of work, based on the terms set out in the unsigned written agreement. There is, Mr Leung submitted, after all no requirement that an employment contract must be signed. Accordingly, the terms in the written agreement are binding on the parties. 67.According to the written agreement, the plaintiff would be under probation for three months from 22 January to 21 April 2007 and his monthly salary would be $50,000, which would be reviewed after three months. 68.I should highlight the provisions relating to two of the issues in dispute, namely annual leave and MPF contribution. On these, the written agreement contained the following provisions:-
69.Clearly, the annual leave clause in the unsigned agreement was more generous terms than the basic entitlement under the Employment Ordinance. 70.In closing, Mr Leung confirmed that notwithstanding the express provision, the plaintiff is not pursuing the claim for the “extra” MPF contributions (as italicised above). 71.The plaintiff denies that the Handbook was applicable to the staff in Hong Kong. He received a copy from Midgley’s secretary, Bernie Flynn, when he was in the UK for training. She told him that it was for his reference only because it was based on the UK labour law. Upon enquiry by the plaintiff, he was told that the copy was to provide him with a general picture of the head office as he was a senior staff in charge of the Asia Pacific region. The plaintiff therefore believed that the terms in the Handbook would not apply to the staff under the employ of the defendant because none of the other Hong Kong staff had been given a copy before. And the plaintiff was not instructed to introduce the terms to the staff in Hong Kong. Subsequent oral amendments to the employment contract 72.The employment contract was subsequently varied orally by the plaintiff and Midgley. 73.First, after a number of conversations around the time when the plaintiff completed his probation, he and Midgley agreed over the phone that with effect from 1 June 2007, the plaintiff’s monthly salary would be increased to $55,000 and, the employee portion of his MPF account would be wholly sponsored by the defendant (latter, “the alleged MPF sponsorship agreement”). 74.Secondly, in around October or November 2007, during a business trip, the plaintiff and Midgley agreed that with effect from 1 January 2008, his leave entitlement would be increased to 20 days a year (“the alleged annual leave entitlement agreement”). 75.Thirdly, in around late 2007 or early 2008, when Midgley was in Hong Kong, the plaintiff explained to him the shortage of manpower in the office and that there was no one else who could take up his heavy responsibilities if he was on leave. And that was why the plaintiff had not taken his annual leave for the year. Midgley fully understood the situation and appreciated the difficulty faced by the plaintiff. He therefore agreed and allowed the plaintiff to accumulate his untaken annual leave (“the alleged accumulation agreement”). 76.Lastly, in around December 2009, Midgley agreed that with effect from 1 January 2010, the plaintiff’s monthly salary would be increased to $65,000. The plaintiff’s role 77.Mike Fawcett, who interviewed the plaintiff for the job, was the sales director of another group company and was generally based in the UK. Midgley had sent him to Hong Kong to assist Mike Jones to improve the sales performance of the defendant in 2006. But it did not work out. Therefore, Mike Fawcett and Midgley set out hiring a replacement of Mike Jones. After the plaintiff joined, Mike Fawcett stayed in Hong Kong for over a year. 78.The plaintiff’s responsibility was, apart from running the office, to develop and promote its business in Hong Kong and the Asia Pacific region. 79.During his employment, the plaintiff went to work before 8 am and worked till after 8pm from Monday to Friday, even though his official working hours were only from 9 am to 6 pm. He also had to communicate with colleagues in the UK and the suppliers in Europe. Due to the time difference, the plaintiff had to prepare emails in the early morning. 80.The plaintiff stresses in his reply that his working hours were:-
81.The defendant used to maintain a cutting facility in mainland China but that was closed down in 2012 due to change in local regulations. When that was in operation, he would visit the facility at least once a month. In addition, the plaintiff travelled within the Asia Pacific region frequently to explore and develop new businesses. 82.There was an established system of reporting to Midgley and the UK office every month. The plaintiff prepared and emailed the monthly report, bank statements, cash book summary, inquiries, quotations and billings in Hong Kong for Midgley’s reference and approval every month. Therefore, the UK office and Midgley were at all times fully aware of what was going on in Hong Kong, although the plaintiff stopped sending the monthly reports in about May 2013 since the last staff left and he had nobody to assist him to put together the reports. The plaintiff’s claim for untaken annual leave 83.The plaintiff makes a claim for untaken annual leave in the sum of $421,967.21. 84.According to the written agreement and the alleged annual leave entitlement agreement, he was entitled to 15 days of leave in 2007 and 20 days in each of the subsequent years. Given Midgley’s understanding, the plaintiff took some annual leave when time and circumstances permitted. 85.In a table in his amended statement of claim, which is reproduced below with a slight change made at closing, he set out the leave days which he had taken and the balance of his leave entitlement:-
86.He is therefore entitled to untaken annual leave pay as follows:-
87.On each occasion before the plaintiff took annual leave, he would send an email to Midgley for approval and record the leave actually taken. Midgley was fully aware of the same. In any event, the plaintiff stresses that even when he was taking annual leave, he would still be working in his own time, although not being physically in the office. 88.The defendant’s stance on the claim for untaken annual leave is as follows. 89.Midgley denies that the alleged accumulation agreement was ever made. In late 2007 and early 2008, the defendant employed more staff and therefore he would not anticipate any difficulty if the plaintiff was to take leave. In any event he could come over to Hong Kong himself if there was any staff shortage. It is true that each time the plaintiff took leave, he would email Midgley. The leave requests were never declined. However, Midgley did not keep tabs on the leave days as he trusted the plaintiff and did not have any doubts about him. He was shocked when he heard about the claim for annual leave. For all these years, the plaintiff did not say a word about unused leave. He had never mentioned to Midgley that he had any untaken leave, until he knew that the defendant had found out about his wrongdoings. 90.The defendant’s primary position is that the plaintiff is not entitled to any unused annual leave at all. This is because he was the most senior executive in Hong Kong and his working hours were flexible and he arranged his own working hours and days off. He had enjoyed sufficient time off and days off and he considered himself no longer entitled to any more leave or, alternatively, he had waived the untaken leave. 91.In his witness statement, Midgley said:-
92.Alternatively, the defendant says that the plaintiff is now estopped from claiming his entitlement to untaken annual leave, if any. The plaintiff, as General Manager, had a duty to report to Midgley of any untaken annual leave of all the staff, including himself. The information was important to the defendant as it would affect its budget, financial and human resources planning. Furthermore, the plaintiff never kept any leave records of himself and the staff. All these years, the plaintiff was silent about his alleged untaken leave. And Midgley was under the impression that he had none. Had the plaintiff reported his untaken annual leave to the defendant at each year end, the defendant would have made arrangements for him to take the leave. The plaintiff had not done so and it would be unjust to grant him any remedy now in respect of the untaken annual leave. 93.The defendant has a further alternative position if the court does not accept the above. 94.In any event, as to the plaintiff’s annual leave entitlement, since no written employment agreement was finalised and signed, the terms in the draft agreement were not binding. The plaintiff was only entitled to the basic annual leave provided for in the Employment Ordinance. 95.Further, section 2.4 of the Handbook provided that only up to five days of annual leave may be carried forward from one year to the next provided that they were taken by the end of March of the following year. Any holiday not taken would be forfeited and the employee would not receive any payment in lieu. The defendant says that the plaintiff was bound by such term. Neither Midgley nor Bernie Flynn ever told the plaintiff that the Handbook did not apply to him. In any event, Bernie Flynn did not have the authority to represent Midgley in these matters. 96.On this basis and assuming that the plaintiff had taken 30 days’ annual leave in total as alleged, Mr Liu submitted in closing that the plaintiff should only be entitled to claim 51.1 days of untaken annual leave, which amounts to $109,200 in monetary terms. The calculation is as follows:-
*((31 + 28 + 31 + 26/365) x 13 = 4.1 Annual leave pay = $65,0000 x 12/365 x 51.1 days = $109,200 97.In the calculations, Mr Liu submitted that 365 days should be used instead of 244 days as suggested by the plaintiff. 98.I should however highlight here that in cross-examination, Midgley readily accepted that although the written agreement remained unsigned, the defendant in fact acted in accordance with its terms. He also accepted that the initial agreement with the plaintiff was that he would be entitled to 15 days’ annual leave and his entitlement was later increased to 20 days in late 2007 or early 2008. That was in fact the general stance taken by the defendant in the Labour proceedings in 2015 as well. At the present trial, Midgley explained that the defendant subsequently received legal advice to the effect that as the written agreement was unsigned, it was, as a matter of law, not binding and in such a case, the Employment Ordinance would take precedence. Hence the defendant’s present position on the annual leave entitlement. The plaintiff’s defence to the counterclaim for false expenses 99.The plaintiff denies the counterclaim. He says that the expenses which he had claimed were incurred for and on behalf of the defendant and/or in the course of its business. 100.Since around 2007, there was an established practice in place for staff to claim expenses incurred in the course of their job. There was a standard expense claim form. The plaintiff followed the practice adopted in the UK head office. Every month, the plaintiff would fill out the form and email it to the head office. John Little, an accountant in the UK, assisted Midgley in monitoring and approving expenses incurred by staff. Upon approval, the plaintiff would arrange to issue a cheque. He supposed the UK head office would correct him if he did anything incorrectly all these years. But he never received any complaints or objections regarding his claims at all during his employment. 101.This practice continued until about 2011 or 2012. John Little then left the group. From then onwards, the plaintiff sent the emails to Midgley. All along, the defendant approved these expenses without any dispute. It is common ground that the plaintiff stopped sending the claim forms to the UK but the exact time when it happened is in dispute. The plaintiff says that he had sent the expense forms until March 2013. 102.Every item of expenses which he claimed was supported by a corresponding receipt. But the UK head office had never requested to see the receipts throughout. They were all kept in the defendant’s office in Hong Kong for audit purpose. 103.Throughout the years, the plaintiff followed the company practice and Midgley approved his expense claims, which were also audited and approved every year. The plaintiff feels that the defendant is now trying to reject his claims as illegitimate so as to offset his claim for unused annual leave. 104.The plaintiff stresses that all his expenses were work or business related. They included meals with clients, sub-contractors, installers, suppliers and colleagues and also when he was travelling on business or working overtime. As an example, when Midgley visited Hong Kong between 2 and 6 March 2015, they visited clients together by taxi and had lunch together. The plaintiff had paid for these expenses. But the defendant is now rejecting these claims as improper. 105.In light of the above, the plaintiff says that the defendant is estopped from denying the established practice and disputing the expenses which had been reimbursed. This is because the defendant had already approved and endorsed those expenses since 2007 and they were properly audited and approved on an annual basis. By reason of the defendant’s inaction, it had waived its right to challenge such expenses as “false” expenses. Octopus cards 106.The plaintiff denies the defendant’s allegation that he had topped up his Octopus cards for his own personal use. He would use his Octopus cards for work purposes, including on public transport and refreshments at convenience stores and restaurants. 107.When Midgley came to Hong Kong, the plaintiff would give him one of his Octopus cards for public transport, eg, MTR, if Midgley forgot to bring his own. 108.He stresses that he was entitled to be reimbursed the top-up amounts in full. He was working not only as the General Manager but also discharging his duties as project manager, sales engineer, sales coordinator and office boy of the defendant at the same time. He worked long hours and answered phone calls and emails even when he was at home or during weekends and holidays. He did not claim any overtime pay for such works. When compared with overtime claims, if made, these expenses incurred for business purposes were very minimal. 109.His understanding has been that he could claim expenses incurred during weekends or holidays provided that they were work related. In cross-examination, he explained that he had to go to the sites regularly to monitor the installation process. He said that the glass was very heavy and fragile and he had to see to it that the installation was done in a safe manner. Sometimes, at the request of the sub-contractors, he had to schedule site visits outside office hours or over weekends or during holidays. He recalled that for a project in Pedder Street in Central, the installation could only take place after 11 pm. When he attended project sites, he would buy refreshments for the installers, so as to maintain a good relationship. Transportation and refreshment expenses on these occasions settled by his Octopus cards should therefore be reimbursed. 110.As regards the expenses incurred in supermarkets and convenience stores, the plaintiff said that he would buy grocery items for the office, including snacks and drinks for staff. 111.There were also some one-off items. For instance, he would make purchases to decorate the office, such as plants and an aquarium. 112.Midgley had never set any top up limit for the plaintiff’s Octopus cards. It was only after his resignation that Midgley started to dispute his top-ups. And he did so with a view to mounting a claim to offset the plaintiff’s claim for unused annual leave. 113.The plaintiff was subject to extensive cross-examination on these expenses. He revealed for the first time at trial that:-
Taxi fares 114.The plaintiff denies the defendant’s allegation that the taxi fares which the plaintiff had claimed are false claims. In his witness statement, he pointed out that at times when public transport was not available, or would be too time consuming, or he had a tight schedule, the staff, including himself, would take a taxi. Further, from 2013 to 2015, when he was the only staff in the defendant, taxi became a necessity. 115.The plaintiff’s understanding has been that transportation expenses for trips from home to office and from office to home could be claimed. He referred to the UK practice that staff would be provided with company cars to drive between home and office. Also, he recounted a conversation between him and Midgley in early 2007. That took place in a late evening after 8 pm when the plaintiff was still working in the office. The plaintiff asked Midgley whether he could take a taxi home and claim the fare from the defendant. Midgley said it was okay. 116.Midgley’s response was that he cannot remember agreeing with the plaintiff that he could claim his taxi fare when going home after work. If he did agree on one occasion, it would have been on the basis that he felt it appropriate as the plaintiff worked late on that occasion. It would have been for just that occasion but was not an authorisation that he could claim taxi fare every day. In cross-examination, he explained that it was probably a gesture of goodwill for the hours which the plaintiff had put in. 117.As regards his claims for taxi rides taken early in the morning and some taxi rides during weekends, the plaintiff’s explanation is this. He had been suffering from sciatica and had lower back pain. His doctor advised him not to sit for too long and to walk more. The doctor also suggested that he swim and hike. The plaintiff followed the advice and went for swimming early in the morning before work and sometimes went hiking during weekends. He regarded these activities as alternative physiotherapy treatment, which was much cheaper than formal sessions with physiotherapists and was less disruptive to his works as he would have to take time off during work hours to attend the sessions. 118.In cross-examination, the plaintiff stated for the first time that he told Midgley about his back problem and the alternative physiotherapy methods suggested by his doctor during one of their trips to Singapore. The plaintiff asked Midgley whether he had any problem if the plaintiff claimed his swimming and hiking expenses from the defendant. Midgley replied that it was okay. 119.The plaintiff therefore proceeded to submit expense claims for the taxi fares he paid for travelling to SCAA where he swam (on weekdays) and for his hiking trips (on weekends). He regarded them as medical expenses which should be covered by the defendant, only that they were much cheaper than formal medical fees and the arrangement was therefore to the defendant’s advantage. 120.As to the taxi fares incurred on weekends or during holidays, the plaintiff confirms that they were business related and incurred when he worked outside of weekdays, when the work required. Entertainment expenses 121.The plaintiff denies the counterclaim. He stresses that all the expenses claimed by him were for the business of the defendant. In his witness statements, he did not elaborate on those items of claims. However, he revealed the following in cross-examination. 122.On the plaintiff’s first day, it was Mike Fawcett who welcomed him to the office and explained to him the defendant’s operation. The plaintiff regarded him as his superior. On that day, Mike Fawcett took the plaintiff to lunch and explained how meals could be reimbursed. The plaintiff’s understanding is that, generally, expenses could be reimbursed if they related to work and were supported by receipts. However, there is no clear definition as to which was work related and which was not. For instance, Midgley had once allowed expenses incurred for the staff going to karaoke and having meals together. 123.Apart from meals with customers and potential customers, the plaintiff would also need to entertain sub-contractors, whom the defendant employed to carry out projects. The plaintiff explained in oral testimony that the sales model in Hong Kong is different from that in the UK. Here, the defendant would not only supply the products but would also provide the installation service. By contrast, in the UK, the sales company would only supply the products and the customers would engage their own contractors to install the system. Because of that, the plaintiff had the unique challenge in Hong Kong to find suitable and reliable sub-contractors for the installation and he needed to maintain good relationships with them. These included installers who undertake the installation works and foremen who deal with technical drawings and other paper works. The plaintiff considered that it would be more effective to discuss works with them over meals. He says that clearly these meal expenses were work related. 124.In cross-examination, he explained why many of the meals were taken in or near Causeway Bay, even though the sites were not in the same area. He said that the sub-contractors would often drive to the sites and they would also give the plaintiff a ride and they might drive to Causeway Bay for meals when they could discuss the works. Sometimes, the sub-contractors would even drive the plaintiff home. 125.Furthermore, the plaintiff denies that the meals were consumed by him alone:-
126.In cross-examination, the plaintiff was shown his weekly reports and was asked questions about his expense claims:-
127.He was cross-examined on some specific claims. For instance:-
The plaintiff’s claim for expenses for February, March and April 2015 128.The plaintiff now makes a claim for expenses in the total sum of $43,634.60 which he had submitted to the defendant for approval but which has remained unpaid. These expenses were all work or business related. The amounts are as follows:-
129.The defendant accepts that for these three months, the plaintiff is entitled to receive the following amounts which are justified expenses:-
The plaintiff’s defence to the counterclaim for MPF contributions 130.Pursuant to the alleged MPF sponsorship agreement, the plaintiff put in place his MPF arrangement with HSBC. He was also responsible for submitting the forms and calculations for the other staff to HSBC, although the other staff did not have the same sponsorship arrangement as he did. Each month, the plaintiff would fill out the relevant forms, completed the calculations for all the staff including himself and emailed them to John Little and Midgley for approval. It usually took about a week for the latter to approve. Sometimes John Little would raise a few questions over emails. The plaintiff would deliver the forms together with a company cheque for the contribution amounts to HSBC, upon Midgley’s approval. The plaintiff had never received any disapproval from the UK office regarding the MPF payments and arrangements. 131.In cross-examination, the plaintiff explained that during his job interview, the monthly salary discussed was $55,000. But Mike Fawcett later called the plaintiff asking for a reduction to $50,000 but said it would be increased to $55,000 after probation if the plaintiff’s performance was satisfactory. The plaintiff agreed to it as he was confident that he would perform well. Around the time of completion of his probation, the plaintiff followed up with Midgley several times. As Midgley was happy with the plaintiff’s performance, he verbally agreed to increase the salary to $55,000 and to offer him full MPF sponsorship. 132.In the course of cross-examination, the plaintiff was asked who first suggested the idea of MPF sponsorship. The plaintiff said that after his probation ended in April, the contemplated salary increase did not happen. Hence he chased Midgley for that. In the end, it was only until May that Midgley confirmed the salary increase. At that juncture, Midgley felt that he had been delaying it and said sorry about it. Therefore, as a small compensation, Midgley suggested the defendant would sponsor the plaintiff’s MPF contribution. And the plaintiff agreed to that. That was how the alleged MPF sponsorship agreement came about. 133.The defendant denies that the alleged MPF sponsorship agreement was ever made. In any event, such agreement, if made, would be against public policy and the Mandatory Provident Fund Schemes Ordinance, Cap 485, and is therefore void. 134.Mr Leung highlighted in his closing submissions that the defendant’s denial must be assessed against the undisputed background that there was an oral agreement by which the plaintiff’s monthly salary was increased from $50,000 to $55,000 in June 2007. In fact, in cross-examination, Midgley did not deny having had the conversation concerning the increase in salary as the increase must have come about after some discussion. However, he could not recall the content of the conversation. Mr Leung submitted that if that was the case, Midgley “could not possibly be certain that he did not say anything to the effect of agreeing to the MPF sponsorship in the same conversation”. THE EVIDENCE 135.The resolution of the factual disputes primarily turns on the credibility of the plaintiff and Midgley, who have at times given conflicting accounts of the same events. My task is to evaluate the competing evidence against the backdrop of undisputed and indisputable facts. I am to weigh the inherent probabilities of the parties’ cases. Contemporaneous documents should be given due weight in the assessment exercise. The internal consistency (or inconsistency) of the witnesses’ evidence should be taken into account. The court would also be guided by its overall impression of the characters and motivations of the witnesses: see, eg, Re B (Children) [2009] 1 AC 11, para 31, per Baroness Hale, cited in Standard Chartered Bank v Li Wai Ping HCA 10587/2000 and HCA 3573/2003, 17 February 2011, para 19. 136.On the whole, I prefer the defendant’s evidence to the plaintiff’s where they are in conflict. I set out below the material considerations which I have taken into account in arriving at this conclusion. First, the plaintiff’s case does not accord well with commercial sense and inherent probabilities in many respects 137.I have heard the plaintiff give evidence for over four days. He came across as a careful and detail-minded person. From his own evidence, it is clear that he would take steps to protect his own position in his job. If he had done or achieved something at work, he would not be shy about it and would make a point of telling his boss. 138.The weekly reports contained many entries on “follow up” on projects with business partners and discussion with Midgley. They also referred to meetings and site visits attended by the plaintiff. All of these entries make sense in the context of weekly reports. Apart from that, however, the plaintiff also made numerous records of routine administrative tasks and personal appointments, such as:-
139.One would not expect the management in the UK office to have too much interest in these office administration matters or the like. They were things which were done as a matter of routine. Nonetheless, the plaintiff chose to make a record of them repeatedly. 140.The weekly reports also contained a miscellany of other entries which can be described as minor or, in some instances, trivial. The obvious examples were:-
141.In cross-examination, he gave reasons for some of his entries:-
142.All these entries show that the plaintiff was a meticulous person and would record minor, or even trivial, tasks and seemingly insignificant information in the weekly reports for one reason or another. Against this background, it is indeed surprising that the plaintiff did not take steps to record the numerous meals which he allegedly had taken with clients and business partners. Why would he not spell out the names of the customers, potential customers or sub-contractors which he met over meals for business purpose? After all, customer calls were an area which Midgley understandably would be concerned with or interested in. 143.Naturally, in cross-examination, the plaintiff was asked about such omission. Initially, he agreed that he should have recorded meetings with business partners in the weekly reports but said that he might have forgotten about it for some of the meals. Later, he somehow altered his stance by suggesting that the weekly reports were for recording projects, not meals, and in any event Midgley did not request him to record meals and therefore he did not. 144.Overall speaking, his omission to record these meals which he alleges to have been all business related does not make sense and is out of line with his general pattern of recording almost everything. In the circumstances, the more reasonable inference to be drawn is that those meals were not for entertaining clients and business partners and hence there was nothing for him to record. 145.By way of observation in passing, I would think that it is inherently more probable that if the plaintiff was indeed having meals or drinks with the sub-contractors after site visits, they would do so in the nearby area, instead of driving all the way to Causeway Bay. 146.Separately, the allegation that the defendant would pay for its employee’s swimming and hiking expenses, such as taxi fares, as alternative physiotherapy treatment, is simply incredible and does not accord with commercial sense. 147.Lastly, the plaintiff’s account of how the alleged MPF sponsorship agreement came about is also against inherent probabilities. In cross-examination, the plaintiff confirmed a couple of times that it was Midgley who first suggested the sponsorship arrangement as compensation for the delay in increasing his salary after the probation period. Midgley is from the UK and he would not be familiar with the Hong Kong legislation on MPF. It seems inherently improbable that he would have the degree of knowledge about the Hong Kong MPF scheme to have come up with the idea himself. 148.Having heard extensive evidence from the plaintiff, one cannot help but feel that there is an air of exaggeration about his testimony, especially when he talked about how he had to work almost non-stop. The intense workload and punishing working hours, as alleged by the plaintiff, are simply not borne out by the weekly reports (at least for the period covered by the entries) and are inconsistent with the defendant’s stagnant business as revealed in its financial statements. Secondly, the plaintiff omitted to disclose material evidence earlier in these proceedings 149.The plaintiff was asked to recount events and conversations which took place some years ago. Memories would fade and understandably his recollection on some of the more minute details might not be accurate for that reason. There might be inconsistencies when he recounted the same events at different times. However, that cannot explain why he was only making entirely new revelations on material areas of dispute only at the stage of oral testimony but not before. 150.The most notable example is the omission before trial to mention his conversation with Midgley in Singapore in which the latter agreed that the defendant would reimburse the plaintiff for his swimming and hiking expenses as these were to be regarded as alternative physiotherapy treatment. It is inexplicable why the plaintiff would fail to mention this material fact in his pleadings or witness statements. 151.Furthermore, the parties have jointly prepared a Scott Schedule in which the claims are grouped into different categories and the parties have set out their respective positions with reference to each category. There, the plaintiff only stated this:-
152.In the Scott Schedule, the plaintiff did not mention hiking at all. 153.One must wonder why the plaintiff would omit to mention the express agreement made by Midgley which effectively authorised these swimming and hiking expenses. The reasonable inference to be drawn is that the alleged agreement did not exist in the first place and was a fabrication made at trial to legitimise these expenses. 154.Another example is the revelation that the plaintiff understood from Mike Fawcett that the defendant would reimburse his breakfast expenses. There is no good reason why the plaintiff had made no mention of this earlier in these proceedings but only revealed it at trial. Thirdly, the defendant’s evidence discloses a strong prima facie case and is on the whole coherent and inherently plausible 155.In contrast with the plaintiff’s case, the defendant’s case is straightforward and easy to understand. Its factual case is primarily built upon (a) the plaintiff’s claim forms and the supporting receipts and, for limited periods, the weekly reports and the Octopus card statements; and (b) Midgley’s evidence on the nature, operation and business performance of the defendant during the plaintiff’s employment. Together, such evidence discloses a strong prima facie case against the plaintiff. 156.In his submissions, Mr Liu stressed that the timing, frequency and regularity of the expenses and the location where the expenses were incurred are highly suspicious. I agree. Some of the receipts really speak for themselves, such as the Pacific Coffee and Pizza Hut receipts. 157.Furthermore, Midgley’s account of whom the defendant would entertain, how often and where appears to be credible and accords with commercial sense, when compared to the plaintiff’s account. One would think that in the normal course of things, the defendant would mostly entertain its customers (eg architects) but not its own sub-contractors (eg installers). While it is important to maintain a good relationship with the installers, the extent to which plaintiff had allegedly gone to keep them happy simply appears to be out of proportion and the allegation is thus not credible. 158.Midgley gave evidence that the defendant’s business was not performing well and there were not many projects going on at any one time. This piece of evidence is corroborated by the audited statements of the defendant in the relevant years and the weekly reports. Based on this, the defendant says that the plaintiff’s workload can hardly be described as heavy. That being the case, the expenses incurred could not have been business related. This accords with common sense. 159.On the whole, the defendant’s case, as disclosed by its evidence, is coherent and inherently plausible. Fourthly, Midgley came across as a credible witness 160.The cross-examination spanned over three days. Midgley testified in a calm, straightforward and matter-of-fact manner. He was able to explain clearly the defendant’s operation and performance and his understanding of the plaintiff’s workload. 161.It is true that the defendant’s stance taken on annual leave entitlement is difficult to grasp as its case has appeared to be changing in these proceedings. Initially, in the Labour Tribunal, Midgley accepted that the plaintiff’s entitlement was 15 days for the first year and 20 days for subsequent years. However, since the case was transferred to the District Court, the defendant’s case, as pleaded and pursued at trial, has been that his entitlement was the basic (and less generous) entitlement provided under the Employment Ordinance. Yet, in cross-examination, Midgley accepted that he had indeed reached the more generous agreement with the plaintiff. 162.But Midgley was able to put forward an explanation for the defendant’s seemingly oscillating stance. He explained that it was due to the legal advice given to the defendant that it takes the present position that the basic entitlement in the Employment Ordinance would apply. But, at the same time, he accepted what he had in fact agreed with the plaintiff. 163.In my view, the explanation is credible. It is also consistent with the defendant’s plea in the re-amended defence and counterclaim (settled by its lawyers). It denies that the parties had entered into any written employment contract. Then it goes on to state:-
164.Separately, the plaintiff revealed in cross-examination that his own breakfast expenses could be reimbursed, as that was what he had observed Mike Fawcett was doing. In examination-in-chief, Midgley confirmed that Mike Fawcett was indeed entitled to claim breakfast costs as he was seconded to Hong Kong and hence the company would cover personal expenses incurred during his stay within reason, including food. But that was because he was away from home. On the other hand, the plaintiff was a staff based in Hong Kong. On balance, Midgley’s account is convincing and accords well with commercial sense. 165.I would conclude my discussion of the evidence by the following remark. 166.Mr Liu highlighted in his closing submissions a number of inconsistencies between the evidence given by the plaintiff in the present trial and when he was before the Labour Tribunal. In my view, these inconsistencies are, on the whole, minor ones. I also take into account that they might have been due to fading memories over the details of events which happened some years ago. There are equally some minor discrepancies in Midgley’s evidence. On the whole, I do not give much weight to these minor inconsistencies when assessing the credibility of the two witnesses. FACTUAL FINDINGS 167.For the above reasons, I generally accept the defendant’s factual case as true. In particular, I make the following findings. 168.As regards annual leave:-
169.As regards the plaintiff’s alleged oral agreements:-
170.As regards the defendant’s business practice and the plaintiff’s workload:-
171.As regards the Octopus cards, taxi fares and entertainment expenses:-
172.Overall speaking, I find that in this relationship, Midgley had all along placed trust in the plaintiff. However, the plaintiff had abused the trust by seeking reimbursements from the defendant for expenses which were not incurred in the course of the defendant’s business. RULINGS 173.Based on the facts as found, I now turn to deal with, first, the defendant’s counterclaim, and then the plaintiff’s claim. The defendant’s counterclaim for the expense claims 174.I have found that the Octopus cards top-ups, taxi fares and entertainment expenses identified by the defendant in its counterclaim were not business-related expenses and were not authorised by the defendant. As such, there was simply no legitimate basis on which the plaintiff could seek reimbursement for them. By submitting the relevant claim forms and receiving reimbursement, the plaintiff was in effect misappropriating the funds of the defendant. He is liable to compensate the defendant by returning the same amounts. 175.Mr Leung advanced two arguments resisting the counterclaim. 176.First, he emphasised that the defendant’s case is based on fraud. Accordingly, the defendant has the burden of proving that when the plaintiff submitted the expense claims, he had intentionally or recklessly made a false representation of fact. But what the defendant has attempted to demonstrate is that the claims were for the plaintiff’s personal expenses, rather than business expenses. Mr Leung submitted that there is no black-and-white distinction between the two labels. Ultimately the distinction seems to come down to whether Midgley would exercise his discretion in allowing or rejecting the expense claims. Mr Leung argued:-
177.Mr Leung submitted that the defendant has simply failed to discharge the onerous burden of proving fraud since there is no evidence which shows that the plaintiff knew or was reckless about the alleged falsity of the claims when the claim was made. 178.In my view, there is no merit in this submission. As I have found, the plaintiff has been submitting claim forms for expenses totally unrelated to the defendant’s business. He must have known very well that that was the case. There is no room for ambiguity here. Consider the taxi trips he took to SCAA for his early morning swim. And the admission fees for his swimming sessions. Also in point are the meals taken by him during weekends and public holidays which were not related to work at all. It defies common sense to suggest that there could have been any doubt in his mind about the nature of such expenses. 179.Secondly, Mr Leung submitted that the plaintiff followed the established mechanism for making expense claims. He never concealed from Midgley the material facts relating to the claims, including, eg, the dates on which the expenses were incurred. It would have been fairly straightforward for Midgley to figure out, for instance, that some of these expenses were spent on weekends and during holidays. Similarly, Midgley could have easily spotted the frequency of his entertainment expense claims. But notwithstanding all these, Midgley never made any enquiry with the plaintiff. Mr Leung says that the defendant is now estopped from disputing these claims which had been approved without any query. 180.I reject this submission. Here, the plaintiff was effectively misappropriating the company’s money. When the expenses were approved, the defendant was in the dark about the plaintiff’s wrongful conduct. Midgley would not have thought that the plaintiff would commit such wrongdoing. In such circumstances, approval of the expenses does not amount to any licence for the plaintiff to carry on making these false claims. It is simply not open to the plaintiff to contend that since the defendant did not complain earlier, it cannot now claim what is rightfully its own money. 181.The defendant is therefore entitled to a total sum of $525,368.92 in respect of the false claims made for Octopus cards’ top-up ($167,000), taxi fares ($88,713) and entertainment expenses ($269,655.92). The defendant’s counterclaim for MPF contributions 182.I have found that the parties did not enter into the alleged MPF sponsorship agreement. The plaintiff ought to have made his own contributions towards the employee’s portion of his MPF account. He did not. Instead he had wrongfully arranged for the defendant to make these contributions and the latter suffered loss as a result. Subject to the issue of limitation, he should compensate the defendant for such loss. 183.The plaintiff pleads the defence of limitation. In his opening submissions, Mr Leung said that those claims arising from the MPF contributions made six years before the commencement of the Labour proceedings, ie before 27 May 2009, are time-barred. However, neither party has come up with the exact calculation. 184.I agree with Mr Leung’s submission. On the materials before me, it would appear that a sum of $1,000 was paid by the defendant towards the employee’s portion of the plaintiff’s MPF account each month from March 2007 to May 2009. Accordingly, a sum of $27,000 (ie $1,000 x 27 months) should be deducted from the counterclaim. 185.The defendant is therefore entitled to $81,250 (ie $108,250 - $27,000) in respect of the counterclaim for MPF contributions. The plaintiff’s claim for expenses in February, March and April 2015 186.In respect of the plaintiff’s claim for the last three months of his employment, I accept the defendant’s case. Accordingly, I would only allow those parts of the claims which the defendant accepts as business expenses, which amount to $21,498.60 in total (ie $1,567.60 + $1,447 + $18,484). I reject the rest of the claims for the same reasons as set out in paras 174 to 180 above. The plaintiff’s claim for untaken annual leave 187.In respect of the plaintiff’s claim for untaken annual leave, the first question is – how many days of annual leave was the plaintiff entitled to under his employment contract? 188.As revealed in the evidence at trial, during his employment, both he and Midgley in fact acted in accordance with the terms of the draft written agreement insofar as annual leave entitlement is concerned. I accept Mr Leung’s submission that the common intention of both parties was clearly that the plaintiff was initially entitled to 15 days’ of annual leave. It is also common ground that the parties reached an oral agreement that the leave would be increased to 20 days from 2008 onwards. As there was an express agreement, I reject the defendant’s contention that the plaintiff only enjoyed the basic and less generous entitlement under the Employment Ordinance. I hold that the plaintiff’s annual leave entitlement was as set out in the plaintiff’s table in para 85 above. I have already made the factual finding that the plaintiff had taken a total of 30 days’ annual leave during his employment. 189.The plaintiff now claims annual leave pay for 162 days under section 41D of the Employment Ordinance. The section reads:-
190.The defendant’s primary defence is that the plaintiff’s working hours were flexible and he had taken sufficient time off and days off and he should not therefore be entitled to any annual leave pay. 191.I do not accept this contention. As employer, the defendant has a statutory and contractual duty to grant annual leave to its employee. It might well be that the plaintiff in fact had a lot of free time in his job, especially towards the end of his employment. But it does not mean that the free time can somehow be translated into annual leave taken by him. Put it another way, the defendant’s duty to grant annual leave is not discharged by the mere fact that the employee was not fully occupied with work whilst in employment. 192.The defendant’s second line of defence is that the plaintiff is estopped from claiming annual leave pay now because all these years the plaintiff had been silent about his untaken annual leave and therefore had created an impression in Midgley’s mind that he had none. Had Midgley known about it, he would have taken steps to arrange for the plaintiff to take leave and he would not have accumulated so much unused leave. 193.I reject this contention. As remarked above, the defendant as an employer had a duty to grant annual leave. Furthermore, under section 41G of the Employment Ordinance, it also has a duty to keep a record of all periods of annual leave taken by each employee: see sub-section (a)(ii). 194.The defendant’s complaint is that the plaintiff had failed to inform it of his untaken annual leave at each year end. However, the material facts here, as accepted by Midgley, are that (a) the plaintiff did ask for Midgley’s approval when he wished to take annual leave, but (b) Midgley did not “keep tabs” on those days as approved. Had the defendant been keeping a proper record of the plaintiff’s annual leave days in compliance with its statutory duty, it could have informed itself of the total untaken annual leave over the years. 195.It is true that the plaintiff was in charge of the operation of the office in Hong Kong and was responsible for managing administrative affairs, such as human resources matters. And Midgley reposed trust in the plaintiff for handling these matters properly. However, when it comes to the personal employment benefits of the plaintiff himself, one would expect the employer to have in place at least some checks and balances and to take a more proactive role to monitor whether the employee has taken his entitlements. This is particularly so in light of the statutory duties imposed on the employer in this regard. 196.The accumulation of the unused annual leave was partly due to the defendant’s own omission to keep track of the plaintiff’s annual leave days. There is no room for an estoppel to arise in favour of the defendant. 197.The defendant’s third line of defence is that part of the untaken annual leave has been forfeited in accordance with the terms of the Handbook. Hence even if the plaintiff is now entitled to claim annual leave pay, the amount would be reduced accordingly. 198.The validity of that argument turns on whether the forfeiture clause in the Handbook was incorporated into the plaintiff’s employment contract. 199.In this context, the court’s task is to ascertain whether the parties have evinced an objective intention to incorporate the relevant clause appearing in the Handbook into the employment contract. Here, the draft written agreement contained no express clause of incorporation. But can such an intention be inferred? One should examine the character of the Handbook and the relevant forfeiture clause and consider whether it is apt to form part of the employment contract. These are matters central to the decision whether or not the inference should be drawn: Alexander v Standard Telephones & Cables Ltd (No 2) [1991] IRLR 286 at para 31; Chong Cheng Lin Courtney v Cathay Pacific Airways Ltd [2011] 1 HKLRD 10 at para 28. 200.On the one hand, clause 1.1 of the Handbook explicitly set out the purpose of the document, namely informing employees of the company’s conditions of service, its rules and benefits available to employees. As such, the terms in the Handbook are prima facie apt to form part of the contract between the plaintiff and the defendant. It is true that clause 1.1 referred specifically to C3S Group plc. However, at the same time, the defendant’s name and the plaintiff’s name were printed elsewhere in the Handbook. The objective impression was that they were all treated as part of the same group. 201.On the other hand, the Handbook contained provisions which did not appear to apply to the plaintiff. I set out below some examples:-
202.Objectively speaking, the Handbook was designed for and targeted at staff employed in the UK. It is clearly inapt to be incorporated wholesale into the plaintiff’s employment contract which was entered into and performed in Hong Kong. Furthermore, it is difficult to deduce any objective intention as to which clause should be incorporated and which should not. There are simply no discernible objective criteria for this purpose. The defendant contends that the forfeiture clause should be incorporated. If that is the case, one would ask rhetorically – should the clause providing for 25 days’ leave be similarly incorporated? 203.I conclude that objectively speaking, there was no intention on the part of the parties to incorporate the Handbook, in particular the forfeiture clause, into the employment contract. 204.Accordingly, in accordance with the employment contract, the plaintiff has 162 days of untaken annual leave. There remain two questions:-
205.On the first issue, the daily rate should be determined in accordance with section 41C of the Employment Ordinance. However, the section does not expressly spell out the method of calculation in a situation like the present one where an employee is employed on a monthly salary basis. In my view, on a proper analysis, the plaintiff was earning salary for each day of the month, including his work days, rest days, public holidays and days on which he took annual leave. As such, I agree with the defendant’s contention that in the plaintiff’s case, a year should be reckoned to comprise 365 calendar days when determining the daily rate of the annual leave pay. 206.On the second issue, the defendant has pleaded the defence of limitation. In opening, Mr Liu submitted that the plaintiff is barred from claiming any untaken annual leave pay “falling 6 years before P’s claim in the Labour Tribunal”. He did not further elaborate or calculate the exact amount representing the time-barred portion of the claim. 207.On the other hand, the plaintiff says that his entire claim is not time-barred at all. Mr Leung relied on Lo Suk Ling Villy v The Methodist Church Hong Kong CACV 355/2001, 20 December 2001, in which Leong CJCH said at para 20:-
208.Relying on this authority, the plaintiff argues that time only starts to run in respect of the plaintiff’s untaken annual leave pay when the defendant failed to make payment seven days after the date of termination, namely 3 May 2015: see section 41D. It does not start to run as soon as the annual leave accrued. 209.I am unable to accept the plaintiff’s contention. The decision in Lo Suk Ling turns on the express contractual clause providing for accumulation of leave. In that case, therefore, the employee’s rights on leave were governed by the express agreement made between her and her employer. The time at which her cause of action for leave accrued turned on the construction of the special provision. The decision is therefore not of general application where the rights are governed by reference to the provisions in the Employment Ordinance, which is the case here. (I should add that Mr Leung’s position is that in the present case, no distinction should be made between the minimum statutory leave and the contractual leave in excess of it. In other words, the entire leave entitlement should be subject to the provisions of the Ordinance.) 210.The material question is therefore this. When does the cause of action to claim annual leave pay against an employer under the Employment Ordinance accrue? 211.In the present discussion, I take it from the parties’ pleadings and counsel’s submissions that the calendar year has been regarded as “the leave year” for the purposes of the Employment Ordinance – see their respective calculations in paras 85 and 96 above. 212.Section 41AA makes elaborate provisions for annual leave. The presently relevant subsections are (5) and (8), which read:-
213.The plaintiff was entitled to 15 days’ annual leave for the leave year of 2007. Applying section 41AA(5)(a), the defendant had an obligation to grant him such leave in the course of 2008 and the latest day by which such leave should be granted fell on 31 December 2008. (In Hong Kong, in practice, many employers allow employees to take leave during the year in which the leave accrues. This is however not what the statute provides for: see, eg, Employment Law and Practice in Hong Kong (2nd ed) at para 5.086.) 214.The words “shall be granted” and “should have been granted” in section 41AA(5)(a) and (8)(a) make it plain that it is the employer’s obligation to grant leave by the expiry of the 12 months after the end of the leave year. If he fails to comply with his obligation, section 41AA(8)(a) provides a remedy to the employee by giving the latter an option. The employee can elect either to receive annual leave pay as “compensation” or to take the leave. But whichever option he takes, the employee’s right to claim against the employer for failure to grant him annual leave within the time prescribed by statute arises from the date of expiry of the 12-month period. The cause of action therefore accrues from that day onwards. 215.As a matter of statutory construction, the Ordinance does not give the employee the right to accumulate annual leave as such. That stands in contrast with an express contractual provision to that effect, such as the one in Lo Suk Ling. In the latter case, logically speaking, the right to claim such accumulated leave clearly does not arise at the time of accumulation, as otherwise the whole point of granting the right to accumulate would be defeated or seriously undermined. The right to claim instead only arises when the employee demands to take the accumulated leave but the employer refuses or upon termination of the employment (in each case, subject to any special provision in the clause). Hence the Court of Appeal’s ruling set out in para 207 above. 216.At first glance and in practice, it would appear that the employee has a similar right to accumulate untaken leave under the Employment Ordinance as it does not on its face impose any time limit for the employee to exercise his right to claim either compensation or leave under section 41AA(8)(a). However, as a matter of legal analysis, such right does not exist. What the statute confers on the employee is a right to receive annual leave, which, if untaken within the prescribed time, would be replaced by a right to claim against the employer and, coupled with that right, an option to take either money compensation or leave. As such, the right to claim is liable to be defeated by a defence of limitation if the employee has left it too long to enforce his right in respect of unused leave. 217.Here, in respect of the leave which the plaintiff earned in 2007, the defendant ought to have granted him such leave latest by 31 December 2008 but it did not do so. The plaintiff’s right to claim either the monetary compensation or the untaken leave therefore arose on 1 January 2009. That claim would be time-barred on 1 January 2015. Applying the same logic, the plaintiff’s claim earned in 2008 would become time-barred on 1 January 2016. 218.The Labour proceedings were commenced in May 2015. Accordingly, the plaintiff is now barred from claiming compensation for the 15 days’ annual leave earned in 2007. 219.The plaintiff is therefore entitled to annual leave pay in the sum of $250,027.40, calculated as follows:-
220.By way of footnote, I should add that the common position taken by the parties at the trial is that the latest monthly salary of $65,000 should be adopted in the calculation. However, it seems that strictly speaking, the calculation for each leave year should be based on the then monthly salary: 朱國瑋訴 張國民經營文利工程公司 HCLA 47/2008, 22 October 2009 at para 10, per Poon J (as he then was). But, here, I have adopted the latest monthly salary agreed by both Mr Leung and Mr Liu. CONCLUSION 221.In conclusion, the plaintiff has successfully made out his claim in the total sum of $271,526 (ie $250,027.40 + $21,498.60). On the other hand, he is liable to pay to the defendant the sum of $606,618.92 on the counterclaim (ie $167,000 + $88,713 + $269,655.92 + $81,250). His claim is therefore wholly defeated by the defence of set-off. 222.Accordingly, I order that the plaintiff’s claim be dismissed and there be judgment in favour of the defendant in the sum of $335,092.92 on the counterclaim. 223.The defendant should have interest on that sum. The parties have not made any submission on how the interest should be calculated. This being a dispute arising in a commercial context, I hold that interest should accrue at the rate of 1% over prime rate from the date of the commencement of the proceedings up to the date of this judgment and thereafter at judgment rate up to the date of payment. 224.The defendant’s factual case has prevailed and it is also the “winner” in monetary terms. I therefore make an order nisi that the plaintiff do pay the defendant’s costs of the action and the counterclaim, its costs in the Labour proceedings (if not already provided for) and the costs of the transfer (if any), to be taxed if not agreed, with certificate for counsel.
Mr Adrian Leung and Mr Newton Mak, instructed by Humphrey & Associates, for the plaintiff Mr Kelvin K H Liu, instructed by Marie Tsang, Dustin Chan & Co, for the defendant | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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