Xu Yi Jun v. Gf Capital (Hong Kong) Ltd

HCA 2563/2017

[2019] HKCFI 2410

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2563 OF 2017

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BETWEEN

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J U D G M E N T

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Introduction

1.This is an appeal by both parties against a decision of the then Deputy Master Jenkin Suen (“Master”) in respect of the plaintiff’s summons seeking summary judgment against the defendant for the payment of the 2016 “Guaranteed Bonus” in the sum of HK$7.8m and interests and costs (“O14 Summons”). 

2.As seen in the decision handed down on 20 November 2018 (“Decision”)[1], the Master exercised his right  of his own motion and made two determinations as a matter of law under Order 14A of the RHC on the construction of clause 6 (“Clause 6”) of the employment contract by letter dated 31 December 2015 between the plaintiff (P) and the defendant (D) (“Employment Contract”)[2].    

3.It was determined by the Master that in respect of the construction of Clause 6 that[3]:

(1)  D can only invoke the relevant part of Clause 6 to forfeit the 2016 Guaranteed Bonus in the sum of HK$7,800,000 if there was a finding before the Due Date of 31 March 2017, that P was engaged in gross misconduct (“Determination 1”);

(2)  In any event, such relevant part of Clause 6 was rendered void by section 70 of the Employment Ordinance, Cap 57 and hence D cannot rely on the same (“Determination 2”).

(collectively “Determinations”)

4.It was further ordered that, amongst other things, subject to the Determinations, D be granted leave to defend P’s claim, and that D had to pay P’s costs incurred up to 25 June 2018, and such costs were to be assessed summarily.  Costs incurred after 25 June 2018 were to be costs in the cause with certificate for counsel.

5.P issued a notice of appeal on 3 December 2018 seeking final judgment be entered against D (“P’s Notice”).  This was followed by D’s notice of appeal on 4 December 2018 seeking an order that the Determinations in relation to Clause 6 be set aside (“D’s Notice”).

6.At the hearing, Counsel Mr Edward Alder appeared for P and Counsel Ms Queenie Lau appeared for D.

Clause 6

7.Clause 6 is under the heading of “Guaranteed Bonus” and sets out as follows:

“In addition to the annual bonus and sign-on bonus referred to in clauses 4 and 5 above, we will grant you a guaranteed bonus of HK$7,800,000 (“2016 Guaranteed Bonus”) for the calendar year ending 31 December 2016. The 2016 Guaranteed Bonus is payable to you irrespective of your performance of the performance of the Group during the calendar year. Any annual bonus in excess of the 2016 Guaranteed Bonus shall be calculated and payable to you in accordance with clause 4 above. The 2016 Guaranteed Bonus will be vested in the following calendar year and payable in full on the payment date of your monthly basic salary in March 2017 (the “Due Date”). If your employment with the Company is terminated voluntarily by you without cause or you have been found guilty of any gross misconduct, in either case before the Due Date, any outstanding payments of the 2016 Guaranteed Bonus will be forfeited[4].” (emphasis added)

8.It is common ground that the “Due Date” for the payment of the 2016 Guaranteed Bonus was by Friday 31 March 2017.  It is also not disputed that “relevant part of Clause 6” referred to in the Determinations (“Relevant Part”) refers to the last sentence in italics set out in the preceding paragraph.  There are two cases or situations or conditions stated in the Relevant Part, namely:

(1)  [P’s] employment with [D] is terminated voluntarily by [P] without cause (“Case (1)”);

(2)  [P] [has] been found guilty of any gross misconduct (“Case (2)”)

Background

9.The background has been set out in paragraphs 2-9 of the Decision and some of the information hereunder are extracted therefrom.

10.D is a company regulated and licensed by the Securities and Futures Commission in Hong Kong to conduct regulated activities including advising on corporate finance.

11.P was employed as the Managing Director of the Structured Finance Department of D in Hong Kong pursuant to the Employment Contract.  P’s employment with D commenced on 1 March 2016 and was terminated on 13 August 2017.  

12.D’s alleged reasons for P’s termination were :

(1)  On 20 April 2016, P, in performance of her duties as Managing Director of D’s Capital Structured Finance Department, sent a proposal in respect of “Project Fiber” to the Structured Finance Committee (“SF Committee”) for review.  Project Fiber was a project involving a loan to a Hong Kong company to fund its investment in a target company by way of purchase of a convertible bond.  In P’s proposal, she recommended that the loan be approved.  The loan was worth HK$120m (“Loan”).

(2)  On 21 April 2016, on the basis of P’s recommendation, the SF Committee approved Project Fiber and on 22 April 2016, D made the Loan to the borrower.

(3)  On 13 October 2016, the Securities and Futures Commission ordered the target company to cease trading.  It became apparent to D at the time that the borrower would default on the Loan.  It also became apparent to D that P may not have properly discharged her duties in respect of Project Fiber.  D then commenced an investigation into Project Fiber including P’s conduct.

(4)  In around early March 2017, D’s senior management decided to delay payment of the 2016 Guaranteed Bonus to P pending D’s completion of the investigation into P’s conduct in Project Fiber or before P carried the tasks to ensure a smooth restructuring of the defaulted Loan.

(5)  On 10 May 2017, D’s Risk Management Department completed its investigation into Project Fiber and identified failings by P.

(6)  On 12 May 2017, a copy of the report prepared by D’s Risk Management Department was sent to P.  P did not respond.

(7)  On 14 June 2017, P resigned.  Her last working day with D was 13 August 2017.

13.P issued a claim in the Labour Tribunal under LBTC 2013/2017 (L.R. No 12-2017-0777).  On 5 September 2017, the Tribunal Officer transferred the claim to the High Court.  Directions were later given for the filing of pleadings.

14.P’s statement of claim was filed on 19 January 2018 (“SOC”)[5]. It is P’s case that:

(1)  Under Clause 6, the 2016 Guaranteed Bonus was to be paid in full by the Due Date, or 31 March 2017;

(2)  in breach of Clause 6, D has failed to make payment by the Due Date;

(3)  on 14 June 2017, in acceptance of D’s repudiatory breach, P tendered her resignation and terminated her employment with D on 13 August 2017 with two months’ notice under clause 13.1 of the Employment Contract;

(4)  in addition to being a breach of Clause 6, D’s failure to pay the 2016 Guaranteed Bonus by the Due Date and any purported deduction against that are in breach of section 11(e) or section 23 of the Employment Ordinance on the time of payment of end of year payment and wages respectively and also section 32 on restriction on deductions from wages.

15.D has filed a defence disputing P’s claim in essence that P is not entitled to the bonus by virtue of a gross misconduct in respect of a matter which occurred prior to the Due Date, and D has pleaded particulars of alleged gross negligence of P in the transaction “Project Fiber”.  In the affirmation of D’s present Managing Director Mr Leo Ye Yong  filed in opposition to the O14 Summons, a copy of an amended defence and counterclaim which D was proposing to file had been exhibited (“AD&C”)[6]. Subsequent to the Determinations, D had obtained leave to file the AD&C which has now been filed.

16.By its counterclaim, D has averred that P was in breach of express contractual duties, implied common law duty of fidelity to act faithfully and in the best interest of D and to exercise reasonable care and skill in the performance of P’s duties and the duty of care as an employee to exercise reasonable skill and care in her employment in relation to matters in respect of Project Fiber, and that D has suffered loss and damage substantially exceeding the amount of P’s claim.

The relevant legal principles

17.As set out in paragraph 58/1/2 of the Hong Kong Civil Procedure 2019 Ed, the nature of an appeal from a master is a rehearing.  This Court is not bound by the Decision but can give the Decision the weight it deserves and can adopt the Master’s reasoning in this Court’s own judgment without setting out the reasoning itself.

18.As for the relevant principles for summary judgment under Order 14 of RHC, these are well established and have been summarised in paragraph 10 of Transcorp Holdings Ltd v Chan Koon Chow, HCA 2719/2016, 01.12.17 as follows:

“The principles relevant to the grant of summary judgment are well established. The starting point is that a plaintiff must demonstrate that the defendant has no defence, before the defendant is charged with the burden of showing that he has a credible defence (Ju Yan Di Emperory Genesisy v Yau Wai Han [2015] 1 HKLRD 822). Upon a plaintiff discharging that burden, it is then for the defendant to show that there are triable issues, or an arguable defence. The courts have emphasized that summary judgment is only for clear cases. True as it is that the court will not take the defence on its face value but will test it against the evidence disclosed, the Court of Appeal made it clear in Re Safe Industries Ltd [1994] HKLY 183 that the test at the summary stage is as simple as whether the defendant’s assertions are believable, and that a mini trial on factual disputes will not be conducted (Paul Y Management Ltd v Eternal Unity Development Ltd, unreported, CACV 16/2008, at para 19).”

19.The Master has highlighted a few salient points in relation to the relevant principles on applications for summary judgment under Order 14 and also on applications under Order 14A of the RHC in paragraphs 10-15 of the Decision.

20.There is no dispute over the above general principles on applications for summary judgment under Order 14 of RHC or for determinations under Order 14A of the RHC.

The present appeals

P’s appeal

21.P acknowledges that D may refer to the draft AD&C and that D’s claims raise a triable issue that cannot be dealt with summarily.  However, it is submitted on behalf of P that this Court must nonetheless (a) consider whether the Master was correct to make the two Determinations and (b) determine what orders should be made upon P’s O 14 Summons.

22.Mr Alder submitted that this Court should agree with the Determinations for the reasons given by the Master, and to go further to enter judgment in the amounts sought by P (with no stay of enforcement) on the grounds that :

(1)  it follows from the Determination 1 that P is entitled to judgement;

(2)  D’s unliquidated claim may not be set-off because set-off is (i) statutorily excluded, and (ii) contractually excluded; and/or

(3)  D’s unliquidated claim does not meet the requirements of equitable set-off.

D’s appeal

23.In D’s appeal, it is seeking that :

(1)  the Determinations be set aside, and that the true construction of Clause 6 is that in order for the bonus in question not to be payable, there must be gross misconduct before the Due Date but not necessarily a finding of gross misconduct before the Due Date;

(2)  costs of the O14 Summons be to D.

Whether the Determinations should be set aside

Determination 1

24.As submitted by Ms Lau, the principles of the construction of contracts are well-established.  As Lord Hoffmann NPJ said in Jumbo King Ltd v Faithful Properties Ltd & Others (1999) 2 HKCFAR 279 :

“The construction of a document is not a game with words. It is an attempt to discover what a reasonable person would have understood the parties to mean. And this involves having regard, not merely to the individual words they have used, but to the agreement as a whole, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve[7].”

25.As pointed out by the Master, in the present case, neither parties has suggested that further evidence is required on the background or factual matrix in order to enable the court to undertake the exercise of determining the issue of construction as a question of law[8].

26.Ms Lau submitted that where a term of contract is open to two possible constructions, the Court is entitled to adopt the interpretation which is most consistent with business common sense: Sinoearn International Ltd v Hyundai-CCECC Joint Venture (2013) 16 HKCFAR 632 at paragraph 76.  Further, if the language is capable of more than one construction, it is not necessary to conclude that a particular construction would produce an absurd or irrational result before having regard to the commercial purpose of the agreement: Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900, at paragraph 43.

27.Ms Lau further submitted that business common sense and the commercial purpose of the Employment Contract support D’s proposed construction of Clause 6 in that:

(1)  The commercial purpose of Clause 6 of the Employment Contract is to enable P to enjoy the 2016 Guaranteed Bonus provided that she did not voluntarily terminate her employment without cause, and she was not guilty of gross misconduct.

(2)  P’s entitlement to the 2016 Guaranteed Bonus was subject to the two cases in the Relevant Part.

(3)  The key for present purposes is the commercial purpose of those cases and the way in which, applying business common sense, the two cases referred to in the Relevant Part should be interpreted.

(4)  In the Relevant Part, regarding “you have been found guilty of any gross misconduct”, ie Case (2), the important point is the existence of gross misconduct rather than a “finding” of gross misconduct. 

(5)  When a “finding” of gross misconduct may be made is rather arbitrary.  This shows that what should be important is whether there was in fact gross misconduct before the Due Date.

(6)  It would not make any business sense if P could have engaged in gross misconduct before the Due Date, yet be able to pocket the 2016 Bonus, simply because no “finding” of gross misconduct had been made by the Due Date.  The emphasis should not be on there being a “finding”.

(7)  The present factual situation is an instructive example.  By the Due Date, P had already engaged in gross misconduct and was being investigated for misconduct with respect to Project Fiber, although the relevant report concerning her misconduct was not issued until later.  It would make no sense if D had to pay the 2016 Bonus on the Due Date to P despite that, which would fly against the purpose of the last sentence of Clause 6.

(8)  There is no clawback provision in Clause 6 (unlike for example Clause 5), and the matter would not be resolved by, for example, D seeking to claw back the 2016 Guaranteed Bonus from P at some later date.

28.In other words, D’s construction of the phrase “in either case before the Due Date” in Clause 6 refers to “gross misconduct”, rather than the phrase “found guilty”[9].

The natural and ordinary meaning of the Relevant Part

29.The Relevant Part refers to “in either case” and clearly refers to the two cases mentioned earlier, namely Case (1) and Case (2)

30.Before one comes to the Relevant Part, one has to read Clause 6 as a whole.  Clause 6 is expressed to be “in addition” to the annual bonus and sign-on bonus in clauses 4 and 5.

31.Clause 5 provides for the payment of a one off “Sign-on Bonus” payable in full on the payment date of P’s 1^st monthly basic salary and P is only required to repay the entirety of the amount in the event P terminates her employment voluntarily with D without cause within 12 months from the commencement date.  The sign-on bonus is not subject to any claw back under any other circumstances.  In other words, there is no equivalent provision similar to the Relevant Part, and P is only required to repay the entirety in the event of her own voluntary termination of the employment without cause within 12 months of her commencing to work for D.

32.Clause 4 sets out P’s monthly basic salary and P’s entitlement to an annual bonus, the amount of which is at the discretion of the Board at the end of each calendar year.

33.Clause 6 is said to be in addition to and in my view linked to the discretionary annual bonus to P for the calendar year ending 31 December 2016, namely the effect of Clause 6 is that notwithstanding the discretionary nature of the annual bonus for that calendar year, and irrespective of P’s performance or the Group’s performance, P is guaranteed an amount for her 2016 annual bonus, in that (i) if the 2016 annual bonus exceeds the guaranteed amount, any excess will be paid to P in accordance with clause 4, and (ii) if the 2016 annual bonus falls short of the guaranteed amount, any outstanding payments or, in other words, any shortfall, will be vested in the following calendar year, ie 2017 and payable in full on the Due Date.

34.Clause 6 thus provides for payment of (i) P’s annual bonus at the discretion of the Board at the end of each calendar year, and (ii) for the calendar year of 2016, if P’s annual bonus falls short of the guaranteed amount of HK$7,800,000, “any outstanding payments” or the shortfall be paid on or before the Due Date.

35.The Relevant Part then refers to the forfeiture of “any outstanding payments of the 2016 Guaranteed Bonus”, namely (ii) above, or the shortfall.  It does not refer to the forfeiture of (i), ie the amount of the annual bonus which P was entitled to under clause 4 at the end of the calendar year of 2016, ie 31 December 2016. 

36.D’s interpretation appears to be on the premise that the phrase “before the Due Date” is read into the two cases at the end of each case and if so, the Relevant Part would read :

“If your employment with the Company is terminated voluntarily by you without cause before the Due Date or you have been found guilty of any gross misconduct before the Due Date.”

37.If the phrase “before the Due Date” only qualifies those words immediately preceding thereto, ie “any gross misconduct” in Case (2), as argued by Ms Lau, and then “found guilty” can be thereafter, then the phrase would equally qualify only the word immediately preceding thereto in Case (1), ie “cause”, which would mean that the cause has to be before the Due Date but the termination can be thereafter.  This does not make sense nor can be its natural meaning.

38.In any event, on the plain reading of the Relevant Part, the Relevant Part provides for forfeiture in either Case (1) or Case (2) and the words “before Due Date” clearly qualifies the two cases or situations, in other words, the “termination” in Case (1) or the words “found guilty” in Case (2), and not the word “cause” in Case (1), or the words “any gross misconduct” in Case (2). 

39.On my construction of the Relevant Part, the natural and ordinary meaning is that the phrase “before Due Date” qualifies either of Case (1) or Case (2), and in Case (2), the natural and ordinary meaning is that P has to be found guilty before the Due Date of any gross misconduct. 

Whether the natural and ordinary meaning of the Relevant Part flouts the business or commercial common sense

40.Ms Lau argued that the important point in Case (2) is clearly the “existence” of gross misconduct rather than a “finding” of gross misconduct, and that it would not make any business sense if P could have engaged in gross misconduct before the Due Date, yet be able to pocket the 2016 Guaranteed Bonus simply because no “finding” of gross misconduct had been made by the Due Date.

41.However, on D’s interpretation of Case (2), provided that the gross misconduct existed prior to the Due Date (with or without knowledge of D prior to the Due Date), there would not be any cut-off date for the “finding”, which could then be made some time long after the Due Date.  In other words, D can simply declare there is “existence” of gross misconduct without any evidence, and then will have an indefinite period after vesting date and payment date to make a finding.  In my view, D’s interpretation cannot be said of business or commercial common sense, as there would not be any certainty as to when the “finding” would be made and that D could withhold payments from P for an indefinite period while investigating concerns which were alleged to have happened prior to the Due Date.

42.Further, as said earlier, if, as proposed by D, the phrase “before the Due Date” only qualifies those words immediately preceding thereto, ie “any gross misconduct” in Case (2), then the phrase would equally qualify only those words or the word immediately preceding thereto in Case (1), ie “cause”, which in my view does not make sense and in any event lacks business sense.

43.It was further submitted on behalf of D that there is no clawback provision in Clause 6, unlike for example clause 5 and that the matter would not be resolved by, say, D seeking to claw back the 2016 Guaranteed Bonus from P at some later date. However, as pointed out by Mr Alder, if D considers that it has some cause of action for damages against P, it is open for D to sue P.

44.Further, as said by the Master, the right to forfeit outstanding payments of the 2016 Guaranteed Bonus would only be meaningful if D would not pay the 2016 Guaranteed Bonus in full even on the Due Date, and that this reinforces the objective intention for the two cases or events giving rise to forfeiture to crystallize before the Due Date[10].

45.Having considered all the above and in any event, I find that D’s interpretation of the Relevant Part would not make any business sense or serves any commercial purpose.  On the other hand, the natural and ordinary meaning of the Relevant Part, as found earlier by this Court, does not in my view flout any business or commercial common sense. 

The contra proferentem rule

46.Ms Lau further submitted that the contra proferentem rule is in favour of D in that Clause 6 about the payment of the 2016 Guaranteed Bonus clearly benefits P and thus the contra proferentem rule should assist D.  However, in the present case, as said by Ms Lau, there is no evidence as to who has put Clause 6 forward.  

47.In any event, although the payment of the bonus benefits P, the Relevant Part clearly benefits D, as it affords D the right to forfeit P’s outstanding payments of the 2016 Guaranteed Bonus. In my view, the rule does not assist D.

Conclusion on Determination 1

48.In light of the above, D’s appeal against Determination 1 must fail.  In my view, Determination 1 is correct. 

Determination 2

49.The issue is whether the 2016 Guaranteed Bonus falls under the definition of “wages” or an “end of year payment” (“EOYP”).

50.The Master applied the reasoning of Cheung J in Peter David Rice v Baring Securities (HK) Ltd [1997]1 HKC 76, HCA 7617/1996, 31.12.96, and in making Determination 2, the Master was of the view that the 2016 Guaranteed Bonus was a EOYP.

51.It is argued by Mr Alder that the 2016 Guaranteed Bonus was not a EOYP but “wages”, in that the bonus was a unique form of one-off arrangement for 10 months of work done that complements or partly replaces the annual discretionary bonus, but once only – in subsequent calendar years only the annual bonus is payable, which is fully discretionary.  A normal annual discretionary bonus is not a EYOP because it is specifically excluded from section 11A of the Employment Ordinance.

52.EYOP is defined in section 11A as :

“end of year payment (年終酬金) means any annual payment (whether described as “thirteenth month payment”, “fourteenth month payment”, “double pay”, “end of year bonus” or otherwise) or annual bonus of a contractual nature, but does not include any annual payment or any annual bonus, or any proportion thereof, which is of a gratuitous nature or which is payable only at the discretion of the employer.” (emphasis added)

53.In the present case, as said earlier, clause 4 of the Employment Contract provides for an annual bonus the amount of which shall be at the discretion of the Board at the end of each calendar year.  The annual bonus is not an EOYP, as it is specifically excluded under section 11A due to its discretionary nature.  As I have said earlier, the 2016 Guaranteed Bonus is in my view linked with the annual discretionary bonus in clause 4, since Clause 6 provides for any annual bonus in excess of the guaranteed amount of HK$7.8m be paid in accordance with clause 4 and that, as said earlier in this judgment, that the “shortfall”, or the amount of the annual bonus falling short of the guaranteed amount of HK$7.8m will be vested and payable in full on the Due Date.  In my view, the 2016 Guaranteed Bonus is a guaranteed non-discretionary amount for the annual bonus for 2016, and is thus an EOYP.

54.Even if it is an one-off arrangement as argued by Mr Alder, based on the reasoning of Cheung J, as he then was, in the Rice case, the fact that the bonus is not of recurring nature would not necessarily mean it is not an EOYP.  Hence, according to section 11E of the Employment Ordinance, it must be paid within 7 days of the Due Date.

55.Further, section 70 of the Employment Ordinance, which is under the heading “Contracting out”, provides:

“Any term of a contract of employment which purports to extinguish or reduce any right, benefit or protection conferred upon the employee by this Ordinance shall be void”.

56.Whether the 2016 Guaranteed Bonus is characterised as “wages” or EOYP or not, I accept that the Relevant Part still falls foul of section 70 of the Employment Ordinance and is unenforceable.  I therefore agree with Master’s Determination 2.

Conclusion on D’s appeal

57.In light of all said above, D fails in seeking an order to set aside the Determinations, as sought in paragraph 1 of D’s Notice[11].

Whether final judgment should be entered against D

58.P seeks final judgement in P’s Notice if Determination 1 is held to be correct, as it is common ground that D’s finding of P’s alleged gross misconduct is after the Due Date, and since neither Case (1) or Case (2) exists before the Due Date, there is no forfeiture of any outstanding payments of the 2016 Guaranteed Bonus under Clause 6, and that the 2016 Guaranteed Bonus should be paid not later than 7 days after the Due Date in accordance with section 11E of the Employment Ordinance.  

59.However, D relies on its defence of equitable set-off, in that it is seeking a set off of such amount that is awarded to it under the set-off and the Counterclaim against any liability it is found to have towards P.

60.P’s stance is that D’s unliquidated claim may not be set-off because set-off is (i) statutorily excluded, (ii) contractually excluded, and/or (iii) does not meet the requirements of an equitable set-off.

61.As submitted by Mr Alder, the principles of equitable set-off are summarised in Townearn Industrial Ltd v Golden Globe Holdings Ltd [2003] 1 HKC 186 per Mayo JA at paragraph 28.  Further, the Court has considerable flexibility where a defence of set-off is sought to be raised in answer to an application for summary judgment: Hong Kong Civil Procedure 2019 at paragraph 14/4/14 to 14B.

62.The Master had in the Decision[12] set out the relevant principles approved in Shenzhen Baoming Ceramics Co Ltd v Companion-China Ltd [2002] 2HKLRD 288[13].

63.Mr Alder accepts that but for the statutory and contractual context and provisions in this case, D would perhaps have an arguable case of equitable set-off under the principles set out above.

64.First of all as earlier stated, I am of the view that the 2016 Guaranteed Bonus is an EOYP, and P’s arguments in this regard are :

(i)  in the contractual context, the wording of Clause 6 excludes set off;

(ii)  in the statutory context, set-off is impermissible.

65.It is submitted on behalf of P that the parties had contractually excluded set-off in the body of Clause 6 because the parties agreed that the 2016 Guaranteed Bonus was:

(i)  payable to P irrespective of her performance;

(ii)  payable in full.

66.Mr Alder further submitted that, even though Clause 6 does not expressly exclude ‘set-off’ by name, the provisions therein could not mean payable subject to deduction of claims for compensation for P’s poor performance.

67.However, Ms Lau submitted that :

(i)  the reference that the bonus was “payable to P irrespective of her performance” would only mean that the 2016 Guaranteed Bonus was not performance-related, and

(ii)  the reference to the bonus “payable in full” is similar to the English case cited at paragraph 10 of the case relied on by Mr Alder, ie Cheong Nin Investment Co Ltd v Tokyo Shop Ltd, HCA 309/2004, 09.12.04, in which the English Court of Appeal held that a reference to payment being “without any deduction” was insufficient to exclude the tenant’s equitable right of set-off.

68.Having considered the above and the cases cited in Cheong Nin, in those cases where set-off was held to be contractually excluded, the wording was arguably far clearer than Clause 6.

69.Insofar as the statutory context is concerned, as pointed out by Ms Lau, sections 11E and/or sections 23 of the Employment Ordinance stipulate the time for payment of EOYP or for wages and do not go to the question of whether set-off is permissible. 

70.I agree with the Master the starting point is the authority of Derham on the Law of Set-Off and as said by the Master, an equitable set-off is a substantive defence if the defence is available, and it would not be a case of the employer making a deduction from wages to which the employee was entitled, rather the set-off would render it unconscionable for the employee to regard the employer as being liable to pay wages to the extent of the cross-claim, so as to impute the employer’s right to claim wages, and that the Master was of the view that this would similarly apply to the 2016 Guaranteed Bonus[14].

71.Having considered all the above, I accept that D has raised an arguable defence of equitable set-off and I agree with the Master that D should have unconditional leave to defend.  I see no reasons why conditions should be imposed. 

72.In the above circumstances, I have come to the view that P’s appeal also fails.

Conclusion

73.In light of the above, I dismiss both P’s Notice and D’s Notice.  Since neither party has succeeded, I make no order as to costs.

Mr Edward Alder, instructed by Tanner De Witt, for the plaintiff

Ms Queenie Lau, instructed by Simmons & Simmons, for the defendant