Kan Kin Tong v. Man Leong Fire Services Ltd
Read the full judgment text of DCCJ 3973/2021 on BabelCite. This District Court judgment was delivered on 5 May 2023.
1. This is the plaintiff’s claim against the defendant, his ex-employer, for unpaid bonus and other sums allegedly owed to him upon his resignation and termination of employment. I shall refer to the plaintiff and the defendant respectively as P and D in this judgment.
Cites 5 cases
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[2023] HKDC 513 IN THE DISTRICT COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION CIVIL ACTION NO 3973 OF 2021 (transferred from HCA No 2261 of 2018) ------------------------
(By original action) ------------------------
(By counterclaim) ------------------------
------------------------ JUDGMENT ------------------------ Introduction 1.This is the plaintiff’s claim against the defendant, his ex-employer, for unpaid bonus and other sums allegedly owed to him upon his resignation and termination of employment. I shall refer to the plaintiff and the defendant respectively as P and D in this judgment. 2.P, a fire services installation technician, had worked for D, a fire services installation contractor, since 2006. On 4 July 2017, after working for D for 11 years, P tendered one-month notice of resignation with termination of employment became effective on 3 August 2017. After that he commenced business with his own company Wang Fai Engineering Ltd (“Wang Fai”), also as a fire services installation contractor. 3.D perceived P (and Wang Fai) as its direct competitor; their relationship turned sour. D refused to pay P what the latter claims to be his share of profit and other payments due under the employment contract. This led to the present action. 4.D counterclaims against P (the 1st defendant by counterclaim) and Wang Fai (the 2nd defendant by counterclaim) for alleged loss and damage suffered as a result of the abrupt departure (as described by D) of P from his employment with D, payment in lieu of 8 days’ notice and damages to be assessed in respect of breach of fiduciary duties, etc. 5.P initially commenced the claim against D in the Labour Tribunal (LBTC 2464/2018) on 15 August 2018. On 7 September 2018 the action was transferred to the High Court (HCA 2261/2018) upon D’s application. P claimed against D for a sum of around $1.9 million (later amended to become $2.2 million). D counterclaimed against P for a total sum in excess of $5.7 million and/or damages to be assessed, plus account for profits. Subsequently the action was transferred to the District Court on 2 August 2021; D’s counterclaim was amended and reduced to $710,000 odd and/or damages to be assessed, plus account for profits as pleaded in the Amended Defence and Counterclaim (“ADCC”) [A/10-33]. [In this Judgment: $ = HK$] 6.Shortly before trial, D issued a summons on 26 October 2022 (“the Striking Out Summons”) seeking to strike out certain parts of P’s witness statement dated 14 January 2020 (“P’s WS1”) and supplemental witness statement dated 24 August 2022 (“P’s WS2”). P opposed the Summons. 7.This court heard the parties’ arguments on the Striking Out Summons at the commencement of trial. P is represented by Ms Christine Yip of counsel. D’s counsel Mr Victor Chiu in the course of his submissions withdrew part of the striking out application in respect of certain paragraphs. Upon parties’ submissions, I decided to hear de bene esse the evidence sought to be struck out, and reserve my decision until judgment. 8.It would be logical to first set out the background, details of the parties’ claim/ counterclaim and the procedural history for a better understanding of this case and the evidence sought to be struck out by D in considering the Striking Out Summons. Background P’s Employment with D 9.The background facts on employment details and work and payment arrangements, in particular what had been paid to P over the years, between P and D during the course of his employment with D are largely undisputed. 10.P and Mr Szeto Yuen Sun (“Szeto”), the director and boss of D, became acquainted as work colleagues when they were both engaged in fire services installation works and worked for the same engineering consultant company back in early 2000s. D was incorporated in November 2003 by Szeto and obtained approval and registration as a licensed fire services installation contractor in July 2004. Szeto left the previous employment in March 2005 and started his own business with D. 11.Soon after in early 2006 Szeto invited P to work for him/D. P accepted the employment offer, left his previous employment and commenced working for D in July 2006. 12.Szeto and P discussed and agreed the terms of employment; there was no written employment contract. All terms of employment were agreed verbally. 13.P was employed by D in the position of Engineer. His main duty was to handle and manage different fire services installation projects. It is common ground that P was responsible for sourcing projects, compiling quotations for tendering purposes, material procurement, project running, management of his team, liaison with the suppliers and sub-contractors, negotiating with customers on prices, payments, etc. In other words, P had to manage the projects from inception to completion. P’s Earnings 14.Initially P was paid a monthly basic salary of $10,000 plus 20% of the net profits from the projects sourced by P, plus $1,000 monthly stationery and transportation allowance. 15.Over the 11 years of P’s employment with D up to termination in 2017, P’s earnings comprised (i) a monthly basic salary plus (ii) a percentage of the net profits. The monthly basic salary had increased only slightly from $10,000 in 2006 to $13,000 in 2014, and up to $15,000 at the time of termination of P’s employment in 2017. The percentage net profit part, calculated and paid half-yearly (ie in January and July every year) was gradually increased from the initial 20% by later agreements (in writing) to a progressive increasing scale of 20-40% in 2014, and up to 45-50% as from 2016 (and up to the time of termination of P’s employment). The percentage would increase with the amount of net profit. The Bonus 16.It is important to note that D in his case refers to the percentage net profit payable to P as bonus, which D argues was discretionary in nature, ie payment of which was subject to the sole discretion of D. 17.On the other hand, P argues that this is a non-discretionary share of the net profit to which he was entitled as part of his remuneration/ wages under the employment, and refers it as share profit. 18.I will refer to this percentage net profit as “bonus” in this Judgment, following the Chinese agreements entitled Bonus Agreements (“花紅協議”) which set out the employees’ entitlement to the same and the calculations. 19.On its own pleaded case as set out in the ADCC [A/16; ADCC para 7A], D describes the “bonus” as an “incentive for the employees to work hard” provided by D to reward its employees. 20.For the purposes of monitoring the works/income/expenses on projects handled and managed by P and calculating the bonus, D maintained and compiled an individual ledger account for P (“Ledger Account”), also other individual ledger accounts for other employees respectively on the projects managed by them. D recorded all income and expenses of the projects handled by the P in the Ledger Account. By the end of each 6-month period in the end of June and December every year, the net positive balance carried down in in the Ledger Account would be taken as the net profit of the projects (after deducting all expenses/overhead cost paid), of which the applicable agreed percentage would be applied in calculating the bonus payable, usually paid to P in early January and July every year. 21.There is no dispute that D received payments on work projects from clients according to progress of the contract works in the following manner:
22.There was thus usually a not insubstantial time gap between completion of works and receipt of full payments or contract sums from clients. This accounted for deferred receipts of income by D generated from P’s completed works, and further deferred receipts by P of his bonus/share profit. The Bonus Agreements 23.Throughout the employment period, P was paid the bonuses half-yearly in January and July of every year. 24.Initially in 2006, the bonus was verbally agreed to be 20% of the net profit generated from P’s projects. 25.In around May 2008, the bonus percentage was orally agreed and changed to a progressive scale ranging from 20-40%, ie increasing with the amount of net profit. 26.Later a written Chinese agreement entitled “花紅協議” dated 2 January 2014 (“2014 Bonus Agreement”) was agreed and signed by D and P together with 4 other employees. [B1/257]. It provides that the employees would be entitled to 20-40% bonus, the applicable percentage increasing with the 2-year net profit target of $400,000-$800,000 or above. 27.In early 2016, D and the 5 employees, including P, signed a revised bonus agreement effective on 1 January 2016 and for a duration of 2 years (“2016 Bonus Agreement”) [B/259-260] similar to the 2014 Bonus Agreement. It increases the bonus percentage to 45-50%, based on half-yearly net profit target of $200,000-$4,500,000 or above. 28.In both the 2014 and 2016 Bonus Agreements, the half-yearly payment of the bonus is stated to be “for reference only and is subject to the final decision of (D)” (“以上計算方法只作為公司評估發放花紅的參考 (是否發放，由公司作最終決定)”), and that “(D) provides only one bonus payment system, there is no other incentive payment or commission” (“本公司只有一種花紅制度，沒有其他獎勵方法 (包括佣金)…”). 29.The 2016 Bonus Agreement is almost identical to that of the 2014 Bonus Agreement apart from the increased bonus percentages based on different net profit targets, and the addition of words to the effect that “the purpose/goal is for (the employees) sharing of 50% of profits with (D) (“目的是共同分享公司的成果能達到各方50%”). 30.It also introduces a new item of “overhead cost” (“公司承擔員工支出”), fixed at $340,000/year, to be borne by each employee, ie overhead cost of $170,000 ($340,000/2) would be deducted from the net profit in the ledger account before calculating the net profit and amount of bonus payable to the employee at the end of the 6-month period. 31.The 2014 and 2016 Bonus Agreements are silent as to the conditions for payment of the bonus, or the circumstances under which D would exercise its discretion not to pay the bonus, or the employee not be entitled to the bonus payment. 32.P and the other 4 employees (who signed the 2014 and 2016 Bonus Agreements) received the half-yearly bonuses in accordance with the (oral and written) bonus agreements through the years. There was never an occasion in which his bonus was increased, decreased or not paid at the discretion of D or Szeto. 33.On 3 July 2017, P received from D payment of half-yearly bonus in the sum of $1,240,000 based on the net profit balance shown in the Ledger Account as at end-June 2017. 34.On 4 July 2017, P tendered his resignation with one-month notice, with termination taking effect on 3 August 2017. 35.Evidence reveals that prior to his resignation, P had incorporated his company Wang Fai which has been engaged also in fire services installation business since he left the employment of D after July 2017. The Plaintiff’s Claim 36.P claims, as pleaded in the Amended Statement of Claim (“ASOC”), that as at the date of termination of his employment with D on 3 August 2017, the Ledger Account recorded a net profit in respect of his completed contract works in the total sum of $3,730,636. Among these completed works, invoices had been issued for $2,702,636 (“Category 1”), and those for which invoices were pending to be issued amounted to $1,028,000 (“Category 2”). [A/6; ASOC paras 6.1, 6.2] 37.P claims in accordance with the 2016 Bonus Agreement 50% of the net profit out of these completed works as his bonus/share profit in the sum of $1,865,318 ($3,730,636 x 50%). 38.P also claims for the refund of the following 3 sums which he says had been wrongfully deducted by D: [A/5-6; ASOC paras 4.1-5.2]
The Defence and Counterclaim The Defence 39.D disputes both liability and quantum of P’s claim for bonus/ share profit. 40.D argues that the bonus, as set out in the 2014 and 2016 Bonus Agreements, was only a discretionary bonus, to which P might or might not be entitled subject to the discretion of the employer. 41.It also claims and pleads that it was an implied term of the agreements that “an employee whose employment contract with the Defendant is determined on his own and/or by the Defendant on good cause will cease to be entitled to any bonus payment” [A/18; ADCC para 9]. D argues that P upon termination of his employment should cease to be entitled to any further bonus under the 2016 Bonus Agreement. 42.Further or alternatively, D claims that it had exercised its discretion not to grant P any bonus for reasons that: (1) P left the employment with D of his own volition; (2) P incorporated Wang Fai in direct competition with D’s business; this amounted to breach of his fiduciary duties owed to D; and (3) the works/projects in respect of which P claims bonus had in fact not been completed at the time of P’s departure, and required to be handled and followed by other employees of D. [A/26; ADCC para 23] 43.In relation to the claims of wrongful deductions, D pleads that:
44.D further pleads that it had on 28 November 2017 reached a verbal settlement agreement with P as follows: In consideration of D paying P’s tax due in the sum of $350,000, P agreed not to claim any outstanding bonus or remuneration against D. P however reneged on the agreement shortly afterwards and paid tax himself on 29 November 2017. D argues that by reason of the settlement agreement, P is estopped from continuing the present action or claiming any outstanding bonus payment against D [A/28-29; ADCC paras 24-25]. The Counterclaim 45.D counterclaims against P and Wang Fai, due to P acting in breach of good faith and his fiduciary duties owed to D by incorporating and operating business of Wang Fai in direct competition with D, for the following:
46.D’s counterclaims and the calculations are unclear and to some extent contradicted and not supported by the evidence of Szeto as set out in his Supplemental Witness Statement dated 16 August 2022, which supersedes and replaces his Witness Statement dated 13 February 2020. 47.However, these matters became water under the bridge as D had in the course of trial effectively abandoned the whole of its counterclaim. Mr Chiu confirmed D’s final position in relation to its counterclaim as follows:
The Defendant’s Striking Out Summons 48.It is common ground that D compiled the Ledger Account and kept records of all supporting invoices, expenses and income records. 49.P’s case is that D had failed to make proper discovery of all relevant documents based on which the Ledger Account was compiled. P issued a Summons for discovery on 11 October 2022. D had been resisting discovery until the direction hearing fixed on 3 November 2022 when it finally conceded to the discovery order sought by P (“the Discovery Order”). 50.In support of his claim, P has adduced in evidence P’s WS1 and P’s WS2, and attached with the latter the following appendices:
51.Appendix C and Appendix D were further revised by P upon further discovery made by D pursuant to the Discovery Order and during trial. The latest version of Appendix D [A/144(c-g)] was revised and submitted on day 6 of trial. It contains a list of more recent expenses incurred and paid after May 2018 and up to November 2022 (“Revised Appendix D”). 52.On the other hand, incorporating the information contained in Appendices A, B, C and D and further documents disclosed by D pursuant to the Discovery Order, D compiled and submitted on the 2nd day of trial a comprehensive table (“D’s Table”) [A/181A-C]. It sets out details of income and expenses (including relevant invoices numbers, details of cheque receipts and payments, etc) on projects and works which P alleges he had completed at the time of termination of his employment with D. D has inserted in this table 3 new columns stating the progress of projects/works which it alleges (i) P had completed; (ii) P had not completed/were in progress; and (iii) were under DLP. 53.Initially D argues that the projects/works set out in D’s Table, based on Appendices A-D and alleged to be completed by P, were not all works of/ projects managed by P. D further claims that any bonus, if adjudged payable by this court, should only be based on those projects/works (i) that had been completed, but not those (ii) P had not completed/were in progress; or (iii) were under DLP as shown in D’s Table. 54.Subsequent to P’s testimony and in the course of Szeto’s testimony, D submitted a further revised version of D’s Table (“Final Table”) [A/181D-F], incorporating the parties’ current agreement and disagreement. 55.The Final Table was incorporated and adopted in Szeto’s Supplemental Witness Statement. Counsel for both parties agree that for the purposes of assessing quantum, it would suffice for this court to refer to the Final Table only, but not the previous different versions of Appendices and D’s Table. 56.In the Striking Out Summons, D seeks to strike out paragraph 17 and the first sentence of paragraph 18 of P’s WS1 and paragraphs 21 to 31, 47 to 51, and Appendices A, B, C and D of P’s WS2, mainly on the ground that they contain material facts not pleaded in the ASOC. 57.In the course of the hearing, D withdrew its objection/ application to strike out in relation to paragraph 17 and the first sentence of paragraph 18 of P’s WS1 and paragraphs 47 to 51 of P’s WS2. These paragraphs contain evidence of P’s last day of work (agreed subsequently by the parties to be 31 July 2017) and P’s challenge of D’s claim for 8 days’ payment in lieu of notice and alleged loss of profits and damage of D resulted from P’s resignation and termination of employment. 58.The remaining evidence sought to be struck out under paragraphs 21 to 31 and Appendices A, B, C and D of P’s WS2 concern matters under the heading of calculation of bonus alleged to be due and payable by D to P after termination (“離職後拆賬佣金計算”). It contains evidence on and illustrates, with reference to Appendices A, B, C and D, the timeline between invoices issued and payments received and calculations of the net profit balance and half-yearly bonus payable based on the Ledger Account. 59.It is obvious that for the purposes of this action and P’s claim, the nature of the bonus and its quantum are the key issues in dispute, which P has pleaded in the ASOC. 60.P has pleaded in the ASOC the total sum of his share profit claim being $1,865,318, calculated from the total net profit of $3,730,636 x 50% [A/6; ASOC para 6.1]. Particulars of the net profit (under Category 1 and Category 2 projects as explained in the challenged evidence of P’s WS2) are provided as follows [A/6; ASOC para 6.2]:
61.The challenged evidence, in particular the Appendices, is evidence in support of P’s pleaded case which sets out the material facts. It does not go outside the scope of pleadings, and is not particulars of special damages. 62.This court heard the challenged evidence de bene esse and noted, with no surprise, that the challenged evidence was indeed a major focus of the parties through the trial and during cross-examination of P and Szeto on the following issues:
63.Upon hearing counsel’s submissions on the Striking Out Summons and the evidence of the trial, I have no doubt coming to the conclusion that the challenged evidence is directly relevant, necessary and of probative value in the court’s consideration of the central issues of the nature and quantum of the bonus/share profit claimed by P. Indeed both parties have referred extensively to the numerous revised tables, in particular the Final Table, derived from Appendices A, B, C and D. 64.Without the challenged evidence, in particular the Appendices based on which the Final Table was compiled, this court would not be in a position to consider the true nature of the bonus or assess quantum thereof. To strike out the challenged evidence would mean to deprive the court of the essential evidence central to the issues and which both parties have heavily referred to and relied upon in the course of trial. 65.I have no doubt that proper administration of justice requires admission of such relevant and necessary evidence. 66.I have considered D’s main challenge that the challenged evidence contains material facts not pleaded by P. 67.Reference is made to the following passage by Ma CJ in Kwok Chin Wing v 21 Holdings Ltd [2013] 16 HKCFAR 663 (at para 21) which succinctly summarises and defines the relationship between pleadings and evidence:
68.Prolix and argumentative pleadings containing minute details more in the nature of collateral evidence for material facts should not be encouraged, or even condemned as shown in the Court of Appeal judgment in Excel Concrete Ltd v The Concrete Procedures Association of Hong Kong Ltd & Ors [2014] HCA 308 (CACV 233/2013, 25 June 2014) (at para 13):
69.I conclude that the evidence and Appendices sought to be struck out in the Summons are in the nature of collateral evidence. They are details for the material facts to explain, and in support of, the nature and quantum of the bonus/share profit claimed to be payable by D to P, which are the key issues in dispute as defined by the pleadings. I do not agree that they raise new issues not pleaded as D seeks to argue. 70.There is no question of D being taken by surprise or prejudiced by having no chance to deal with such evidence, or that it was uncertain as to the case to be met, such as details of “projects for which invoices have been issued” (Category 1) or “projects for which works have completed before 31 July 2017 with invoices pending to be issued” (Category 2), bearing in mind that D has all along been in possession of all information, contracts, invoices, records of payments and receipts of the projects handled/managed by P. 71.In case of uncertainty, D could have of course sought further and better particulars of P’s pleaded claim, which it never did. 72.There is no question of lateness because Appendices A, B, C and D contain information retrieved from the computer records of D who all along had all such relevant information and documents in its possession. Indeed D should have properly disclosed in the first place relevant evidence and underlying documents of the Ledger Account in challenge of P’s claim, rather than resisting discovery sought by P. 73.For the above reasons, the Striking Out Summons is dismissed. This court will consider all evidence adduced by P in considering the substantive issues and his claims in the original action. The Bonus Whether contractual or discretionary in nature? 74.The first and central issue is whether the bonus was a contractual payment, being part of P’s remuneration or wages under the employment, or was a discretionary bonus the payment of which would be subject to the sole discretion of D as argued in the defence case. 75.The starting point is to look at the 2016 Bonus Agreement [B1/259-260] which provides that payment of the bonus would be subject to the final decision of the Company (D). The purpose of the bonus scheme is “to achieve sharing of 50-50 of the fruits (of hard work of the employees) with the company” (“目的是共同分享公司的成果能達到各方50%”). 76.It is never P’s case that the 2016 Bonus Agreement was not binding on him, as D seeks to challenge. The central issue is one of construction and consideration of the document by taking into account all factual background and circumstances. 77.There is no mention of any specified conditions (other than the net profit targets) under which the employee would be entitled to the bonus, or circumstances under which D would exercise discretion not to pay the bonus. Szeto in his testimony admits that he did not tell or mention to the staff about any bonus payment conditions, deduction or no payment scenarios, and the staff never asked. 78.The guiding principle in construing a contract is to look at the document as a whole by taking into consideration the factual and legal background against which the contract was concluded and the practical objects which it was intended to achieve. Per Lord Hoffmann NPJ in Jumbo King Ltd v Faithful Properties Ltd & others [1999] 2 HKCFAR 279 (at 296 D-I):
79.The factual background is largely undisputed. 80.P, and all other employees of D, had over the years since 2006 and until the time of his resignation been paid half-yearly bonuses based on the agreed percentages on the achieved net profit. 81.Szeto confirmed that through the 11 years of P’s employment D had never made any deduction to P’s bonus entitlement which was paid in accordance with the prevailing bonus agreement. There was only one exception in 2009 when business was not good and D was under financial pressure, Szeto had paid P $40,000 short of his bonus of $300,000, but that had nothing to do with exercise of discretion under the bonus agreement. 82.D never had disputes with all its employees on payment of bonuses which were paid punctually all along in accordance with the bonus agreements. There was only one occasion when D refused to pay bonus to a former employee (surnamed Lee) and disputes arose due to suspected criminal act of embezzlement of that employee. Both counsel agree that this incident bears no relevance to the court’s consideration of the nature of the bonus in P’s case. 83.P’s evidence is that when he first worked for D, he did not earn much, but only something close to the basic salary. He had to wait for at least a few months to a year for profits/income receipts to accumulate in the Ledger Account as it took time for clients to pay upon completion of works. In the initial few years, the bonus received by P was not substantial. 84.He worked hard over the years as D’s business flourished. Evidence shows that P earned progressively much higher half-yearly bonuses of $1.2 to $1.4 million [B2/547] during the last 2 years of his employment in 2015 to 2017, ie annual total income in excess of $2 million. P’s evidence [A/119; P’s WS2 para 2], as supported by the Ledger Account evidence, is that in year 2015/16, of his total income of $2,748,210, the main bulk was the bonus of $2,570,000; his annual basic salary and allowance came to a total of only $175,000 in that year. 85.P was thus mainly remunerated by the bonus, calculated as a share of the net profit of the projects handled/managed by him. The monthly basic salary of $13,000 or $15,000 is nominal compared to the bonus payments. The total annual basic salary and allowances of $160,000-$180,000 accounted for less than 10% of his income. The bonus payment accounted for more than 90% of his income. 86.The 2014 and 2016 Bonus Agreements both state clearly that D “provides no other incentive payment or commission other than the subject bonus system”. 87.The same remuneration/ bonus system worked well and went on smoothly for more than 10 years for P. He had worked hard and was earning progressively higher income over the years, and so did the employer D. 88.Szeto’s evidence is that all his employees were happy with the favourable bonus system. Other than P (who had resigned in July 2017), all other employees had continued to work for D for more than 12 years until now. The employment/work relationship between P and D, or P and Szeto, went well until P tendered his resignation. The relationship turned sour, even hostile, as can be seen in this litigation. 89.Contract sums of the projects were invoiced and received in accordance with work progress. Szeto agreed that there were always delays, ranging from several months to a year, in receiving payments from clients upon issue of invoices. 90.Regarding expenses, P’s evidence is that there was usually frontloading of expenses eg in buying work materials or paying subcontractors. D would record all direct (eg material, labour costs) and indirect costs (eg fuel/parking expenses, manpower cost of the employee’s team) as soon as they were incurred, so as to arrive at a realistic net profit balance in the Ledger Account and avoid overpaying half-yearly bonuses. 91.By the end of each 6-month period, the positive balance in the Ledger Account, after deducting all expenses paid, would be taken as the net profit of the projects, and would be shared between P and D in accordance with the agreed percentage. 92.The 2016 Bonus Agreement introduced a new item of overhead cost of D to be borne by the employees, such that P and the other 4 employees entering into the agreement each had to bear $170,000/half-year. Szeto’s evidence is that the overhead cost included all operating expenses and general office manpower cost of D such as utilities, rental, insurance and staff cost (“燈油火蠟、租金、保險費、人工”). 93.Such overhead cost would be first deducted from the employees’ respective net profit before calculating their half-yearly bonus entitlement. 94.It becomes apparent at once that the half-yearly overhead cost ($170,000) borne by P was much higher than his basic salary entitlement for 6 months, which totals only $90,000 ($15,000 x 6). 95.Cost of P’s team staff, a worker named吳德英 (transliterated “Ng Tak Ying”) (“Ng”), including monthly salary and double-pay, etc was also recorded as P’s project expenses and deducted from the Ledger Account. 96.It is common ground between the parties that the objective of the bonus scheme was, as pleaded by D, an “incentive for the employees to work hard, so that the harder they worked the more they could earn” [A/17; ADCC para 7A]. Szeto also emphasized during cross-examination that the purpose was to encourage employees to work hard and for them to share with the employer/D the fruits of hard work (“鼓勵同事分享成果”, “每間公司都想多勞多得”). Such objective was shared and agreed by P who gave evidence that it had all along been the case as was stated clearly and agreed from day one when he commenced working for D that employees should “work more earn more” (“加入公司時講明多勞多得”, “付出幾多，得到幾多，由頭到尾都無變”). The clear agreed objective is evidenced in the 2016 Bonus Agreement as being “to achieve sharing of 50-50 of the fruits (of hard work of the employees) with the company” (“目的是共同分享公司的成果能達到各方50%”). 97.Against this background, it is clear that the bonus, despite its label, is by nature a share of profit/ commission based on work done, and a crucial part of P’s income when working for D. P had all along received this agreed percentage of bonus as of right based solely on the amount of net profit generated from his work projects after deducting the expenses. Indeed it accounted for over 90% of his income in the few years before he left the employment of D. 98.Despite the statement of the bonus being subject to the sole discretion/final decision of D (“是否發放，由公司作最終決定”), there is no provision in the 2016 Bonus Agreement as to the conditions/scenarios under which D could exercise its so-called “discretion” not to pay the bonus, or to pay an amount different from the prescribed percentages. 99.The bonus payment mechanism was straightforward, essentially mathematical calculation based on a simple subtraction of “expenses” from “income” times the applicable percentage of 45 or 50%. 100.Evidence shows that D kept a transparent system of record in the Ledger Account of all income and expenses of the projects handled by P as well as the bonus payments made every 6 months. The ledger accounts were accessible by the respective employees to enhance “mutual monitoring” (of work) (“互相監察”) according to Szeto. 101.It is apparent that such monitoring was intended for objective and accurate records and calculations of the bonuses payable to employees towards the end of the 6-month period, rather than for arbitrary bonuses subject to the employer’s discretion. 102.The bonus, comprising a major/ more than 90% portion of P’s income, was most unlikely subject to the discretion of the employer, especially when no mention had ever been made nor the employees ever been informed of the circumstances under which it would be deducted, or not paid in total. It would be wholly unreasonable for D not to have mentioned any bonus payment criteria or condition for exercising its discretion, had there been intended any discretion at all. 103.It is common ground that the bonus payment had been paid to employees and P all along since he commenced employment in 2006. Initially there was no written agreement, until the 5 employees (including P) were asked by Szeto to sign the 2014 Bonus Agreement when the “discretion” element first featured. 104.P’s evidence is that nobody had paid attention to this wording of “discretion” because it had been the mutually agreed objective of “work more earn more” (多勞多得). The half-yearly bonuses had been paid punctually to all employees including himself all along for many years. No one would ever imagine, let alone agree, that the bonus would not be paid or not paid in full. 105.On the other hand, Szeto’s evidence is that the “discretion” element was in fact suggested by/ originated from P at the time the 2014 Bonus Agreement was first discussed. Szeto did ask P what it meant, to which P replied that D could decide to “pay or not pay” (“可比可唔比”). But the employees did not ask and D never mentioned how and under what circumstances D would exercise the discretion against payment of bonuses. 106.Such evidence concerning P acknowledging or even suggesting D would have the discretion not to make bonus payment, not stated in Szeto’s witness statements, is categorically by P. 107.I take the view that it was wholly improbable for P or other employees not to have clarified how the discretion would be exercised, had there really been such a discretion or that it was indeed the intention of the parties. It was even more improbable for P to have suggested or agreed to place his hard earn bonus at the mercy of D, when it accounted for more than 90% of his income. 108.Had the half-yearly bonuses been discretionary in nature, the 5 employees who signed the bonus agreements would run the risks of not being paid, in which case their overhead cost liability (of $340,000 per year for each employee) would grossly exceed the annual basic salary of $180,000. 109.I found Szeto’s evidence wholly unreasonable and defying all common sense, and have no hesitation rejecting it. It could not have been any party’s intention that D could decide unilaterally, especially without stating in advance under what circumstances, not to pay the bonuses. 110.P’s evidence is reasonable and is supported by past dealings of the parties in that the bonus was an incentive payment based solely on the net profit balance of the Ledger Account, calculated from P’s completed works and receipts of income after deducting expenses. As P rightly pointed out, the spirits of “work more earn more” (多勞多得) of the bonus agreements had remained the same all along, and the bonus, more in the nature of “share profit” as P argues, formed a major part of more than 90% of his wages/income, not bonus at D’s discretion (“付出幾多，得到幾多，由頭到尾都無變… 對我哋嚟講係收入”). 111.I have considered the evidence in the light of the legal principles stated in Wong Huey Lan v Colgate Palmolive (HK) Limited [2002] HKCFI 436, in which DHCJ Lam (as he then was) in assessing whether a local employees incentive payment plan was discretionary and fell outside the end-of-year payment definition under s 11A of the EO (which has the same exclusions as s 2(1) of wages), found that the true nature of the payment made to the employee was “a formulaic incentive payment” rather than a discretionary bonus, such that it could not be regarded as payable “only at the discretion of the employer”. The court considered it relevant to take into account how the parties themselves regarded the payment and their intention in determining whether it could be properly regarded as “only payable at the discretion of the employer”. 112.On the overall evidence, I found that despite the “discretionary” labels put in the 2014 and 2016 Bonus Agreements, the bonus system in the present case was in fact a formulaic incentive payment scheme and contractual in nature. Its calculations are based on the amount of work done/income received. The use of the label as “a discretionary bonus” does not carry the ordinary meaning. It does not sit well with the factual matrix and past dealings, and is wholly contradictory to the stated objective of “employer/employee sharing 50-50 the fruits of hard work” (“目的是共同分享公司的成果能達到各方50%”). 113.The bonus also forms part of the contractual remuneration for work done, and falls within the statutory definition of “wages” under s 2 of the Employment Ordinance, Cap 57 (“EO”) which includes “all remuneration, earnings, allowances,… commission,… however designated or calculated,… payable to an employee in respect of work done or to be done under his contract of employment” (emphasis added) Rational exercise of discretion, if any 114.Even if I was wrong and that D had retained certain degree of discretion in the payment of the bonus, there is an implied duty for the employer to exercise such discretion reasonably, in good faith, in a manner that is not perverse, and is contractually enforceable. See ICAP v Elaine Chan [2010] HKCFI 1039 (at para 67). 115.In Clark v Nomura International plc [2000] IRLR 766 (at paras 40, 41), Burton J dealt with a contract which provided for a “discretionary bonus scheme which is not guaranteed in any way and is dependent upon individual performance”. It was found that even if the employer had unfettered (which nevertheless was not accepted in that case) or absolute discretion regarding payment of the bonus, its exercise would be subject to the test of “irrationality or perversity (of which caprice or capriciousness would be a good example) ie that no reasonable employer would have exercised his discretion in this way”. 116.In the present case, D’s reasons for refusing payment of the bonus to P were that: (i) P left the employment with D of his own volition; (ii) P had incorporated Wang Fai which operated business in direct competition with D immediately after P had left service; and (iii) the projects in P’s alleged claim for bonus had not been completed by the time of termination of P’s employment, and had required to be handled and followed by other employees of D. 117.D contends that it was an implied term of P’s contract of employment with D that “an employee whose employment contract… is determined on his own and/or by the Defendant on good cause will cease to be entitled to any bonus payment” [A/18; ADCC para 9]. D relies on P’s resignation to be one of the reasons for its exercise of the discretion not to pay P the bonus. 118.Parties do not dispute that either party, P or D, was entitled to terminate the employment by giving one month’s notice. This is a presumed right of parties to an employment contract in accordance with s 6 (Termination of contract by notice) and s 7 (Termination of contract by payment in lieu of notice) of the EO. 119.That was in fact the basis of D’s counterclaim (later abandoned) for 8 days’ payment in lieu of notice, when D originally argued that P had left employment 8 days before the notice period expired on 3 August 2017. D withdrew this claim during trial, and did not dispute P’s clear evidence that the latter had attended work up to 31 July 2017. P had thereafter taken 3 days of annual leave until termination took effect on 3 August 2017. 120.I cannot see any justification for such an alleged implied term that in order to be paid the bonus, P had to remain in employment, or “continue to be loyal to and work for D” as argued by Mr Chiu, or that P would, upon resignation or termination, immediately lose his right to be paid the bonus. No such condition was specified in the Bonus Agreements; Szeto’s evidence is that it was ever discussed. 121.The bonus, as I have found, was actually remuneration based on the work already done and completed by calculating the total money received from clients after deducting expenses paid on the projects handled/managed by P. 122.In order for a term to be implied into a contract, the following conditions must be satisfied, as stated in Kensland Realty Ltd v Whale View Investment Ltd & Another [2001] 4 HKCFAR 38 (at para 23):
123.There is no restrictive covenant in the employment contract. I cannot see in the present circumstances of this case how an employee upon termination of one employment should be prohibited from engaging in business or work of his own expertise in another employment or capacity. That was in fact what Szeto had done (in starting business with D) when he left his previous employment in 2005. 124.An employee in those circumstances should not be restrained from seeking alternative employment or soliciting or doing business with the customers of a former employer. In Balston Limited v Headline Filters Limited [1990] FSR 385 (at 413), even in the case of a former director, in the absence of any actual competitive commercial activity on his part while remaining as a director, the court found that the setting up of a business, and taking preliminary steps to investigate or forward the intention to use such business to compete with the company after his directorship had ceased, did not constitute conflict or breach of his fiduciary duty. 125.D also argues that P by engaging in the business of Wang Fai had breached the implied term not to disclose or make public any trade secret or confidential information which he obtained by reason of his employment with D. 126.There is no evidence of P making use of any trade secret or confidential information of D, or for that matter, what specifics of trade secret or confidential information of D had been obtained by P whilst he was in employment with D, in the business of Wang Fai. It should not be mixed up with knowledge or know-how which he had honestly acquired in the course of his employment, to which D did not have a proprietary right and was not protected. P would be entitled to use his knowledge or experience, as long as it was not acquired surreptitiously, nor was it information entrusted to him expressly or impliedly in confidence, to pursue alternative career or his own business. (See Faccenda Chichen Ltd v Fowler [1986] ICR 297 (CA) (at 309A-B) (per Neill LJ)) 127.The alleged breach of fiduciary duties/ duty of fidelity and good faith and/or misuse of confidential information by P/Wang Fai was the basis of D’s counterclaim for account of profits, which was in my view based on a wrong footing and unsubstantiated by evidence. There is no basis for D to maintain this alleged breach of duties by P being the reason for not paying P the bonus after its withdrawal of the counterclaim. I do not see why P should be penalized and not paid the bonus that he had worked for because he had decided to leave the employment of D in exercise of his legal right and freedom provided under s 6 of the EO. 128.I found that the alleged implied terms of P having to remain in employment or being prohibited from working in competition with D after resignation in order to be entitled to be paid the bonus contended for by D are neither reasonable nor equitable. They also contradict the express term of the bonus agreements that the employees should be rewarded for what they had worked hard for (“多勞多得”). 129.I also take the view that by exercising the discretion, if any, to serve the purpose of restraint of trade in the absence of any express restrictive covenant and alleging breach of fiduciary duties and good faith, D’s exercise of discretion was unreasonable and irrational. 130.In coming to this conclusion, I have considered the authorities of Joanne Kay Wood v Jardine Fleming Holdings Ltd HCA 12524/1998, dated 16 February 2001 and Keen v Commerzbank AG [2007] ICR 623 referred by D’s counsel. DHCJ Woolley in the former case (at p10) considered the rationale of Burton J in Clark v Nomura International plc (supra) regarding exercise of discretion and concluded that the question was “to see whether there are any grounds to say that the decision not to pay a bonus was so irrational that no reasonable employer would have exercised his discretion this way”. There is no question that the burden of establishing that the discretionary bonus payment made by the employer being irrational or perverse was a very high one. The nature of the bonuses referred to in the authorities cited by D was nevertheless clearly of a discretionary nature. In Joanne Kay Wood (supra), it was clearly stipulated in the employment contract that 131.“… You have no contractual entitlement to bonus… at (the employer’s) discretion…” The defendant employer was not satisfied with the plaintiff’s performance, terminated her employment and exercised the discretion not to pay any bonus. In Keen (supra), the bonus scheme was found to be of a discretionary nature; it also provided clearly that “no bonus was payable if on the date of payment the employee was no longer employed” by the defendant bank. 132.The decisions of no bonus payable in D’s cited authorities Joanne Kay Wood (supra) and Keen (supra) were thus premised on clearly written employment contract terms and against different factual background. They are in my view wholly distinguishable and not applicable to the present case. 133.The bonus in the present case was a formulaic incentive payment and in the true nature of a share profit calculated on the income received on projects/works already completed by P before his departure. Even if D had retained any discretion, I am of the view that it was irrational and unreasonable for D to exercise its discretion not to pay bonus to P after he left employment, and that no reasonable employer would have exercised its discretion in this way. 134.I conclude that P should be entitled to payment of the bonus under the 2016 Bonus Agreement. The amount of bonus was calculated based on income received on the projects/works already done and completed by P minus the cost and expenses paid on the projects/works as recorded in the Ledger Account, with no room for consideration by the employer of any other factors/elements of a discretionary nature. Timing of bonus accrual 135.Following from the above, on the question of time reference for calculating the amount of bonus payable to P, I found that it should be the time of receipts by D of income from the projects/work completed by P, ie up to 17 May 2018 being the last receipt on the projects completed by P, as shown in the Final Table. This is consistent with P’s evidence that there was normally a gap of a few months up to a year for D to receive payments from clients after work was completed and invoices issued. 136.This would also deal with D’s contention that bonus, if any, should be paid only up to the date of termination on 3 August 2017, or 31 December 2017, ie expiration of the 2-year period under the 2016 Bonus Agreement. These suggested time references are unreasonable in that they have ignored the undisputed evidence of a time gap of a few months up to a year between work completed and income received by D. P’s unchallenged evidence is that he had initially earned only basic salary, and waited for some months and up to a year for the accumulation of profit in order to be paid the bonus. 137.The bonus received by P on 3 July 2017 was calculated upon income received within that half year (January to June 2017) in respect of work done and finished a few months up to a year earlier. There had always been an element of deferral of a few months to a year for D to receive income from clients, and even later for P to receive payment of bonus. There is no reason why P, upon termination of employment, should be ripped off the fruits of his hard work done and projects already completed and on which receipt of income was deferred for a few months to a year, and was received by D thereafter. 138.For the same reason, I consider D’s argument on no bonus payable after expiration of the 2016 Bonus Agreement artificial and unreasonable in the circumstances. The income pending to be received, and eventually all pocketed by D without paying P his share of net profit, would be unjust enrichment to D. 139.Regarding D’s argument that as at the time of termination of P’s employment, some of the projects had in fact not been completed and required other employees to follow, it goes to quantum and will be dealt with in the section that follows. It does not justify D not to pay any bonus to P after termination of his employment. Amount of Bonus Payable/ Quantum 140.P’s case, which is found reasonable and accepted by this court, is that he should be entitled to be paid bonus for those projects/works completed by him during his employment. The related income was received by D after termination of P’s employment up to May 2018, consistent with the evidence of a time gap between completion of works and payments of a few months to a year. P agrees that he should bear the expenses and overhead cost incurred and paid (after his departure) on those projects/ works completed. 141.P’s bonus claim consists of Category 1 and Category 2 finished works/ projects, namely those (1) for which invoices had been issued; and (2) for which invoices were pending to be issued at the time of termination. The Ledger Account Evidence 142.The Ledger Account evidence disclosed in this action is far from satisfactory. Numerous tables were prepared and adduced as Appendices A, B, C and D, and superseded by the subsequent different revised versions at different stages and in the course of trial (as explained earlier in this Judgment), until day 5 of trial when defence witness Szeto gave evidence, the Final Table further revised by D was submitted. 143.Ms Yip submitted that the late discovery of evidence in P’s WS2 and revisions of the Appendices were mainly due to the inadequate discovery by D and its uncooperative attitude upon specific discovery sought by P until one month before trial. 144.It should however be noted that P should shoulder the blame also for making a late application for specific discovery only 2 months before trial. 145.It was also noted, not without disapproval of this court, that D did not admit until submission of the Final Table that all projects and invoices listed in Appendix A, the original table compiled by P based on information retrieved from D’s computer records, were P’s projects. This is contrary to D’s long-held stance that many of the listed projects were not P’s projects as deposed by Szeto in his Affirmations and submitted by its counsel Mr Chiu in the course of trial. I repeat that D had all along had possession of the relevant projects/invoices/payment/income records and should be in a position to verify such matters instead of mounting on the unwarranted challenges. Income Received 146.Parties agree that, as shown in the Final Table and the Ledger Account, there was a carried forward net profit of $52,803.29 immediately after deduction of net profit of $2,830,000 calculated up to 4 July 2017 at [B2/545, 547], based on which the last bonus was calculated and paid to P. 147.Parties initially came up with different figures of gross income received after P’s departure on invoices/projects handled by P. Towards the end of trial, P agreed to take out 3 receipts on invoices 19572, 20760 and 18030 (under items 70a, 91 and 113a of the Re-Revised Appendix D) [A/144(e-g)], hence a deduction of $17,180. Finally, parties (with reference to the Final Table) [A/181F] were able to agree that the total income received by D cover a period from 4 July 2017 (Item 2) to 17 May 2018 (Item 110) [A/181 D-F], rounded to $3,453,513. 148.Of the total agreed income receipts of $3,453,513, D argues that almost half of the listed projects had not been completed by the time of P’s departure, such that the total income received in respect of projects “in progress” ($1,076,634.65) and “under DLP” ($317,286.61) should be excluded from the profit for calculating bonus, even if adjudged payable to P. 149.D therefore agrees gross income under the Ledger Account only to the extent of $2,059,591.74 ($3,453,513 - $1,076,634.65 - $317,286.61), which should be further subject to deduction of expenses incurred and paid subsequently as explained in the following section under expenses. 150.I have considered all evidence and heard the testimony of P and Szeto in court. I found P a frank and honest witness who gave straightforward and firm answers to most questions, in particular details and work progress of the projects personally handled by him. 151.P was cross-examined and re-examined at length on the projects alleged by D to be “in progress” and “under DLP”. He strikes this court to be having clear personal knowledge of the projects handled by him and could, for most of the disputed projects, immediately recall the project status and details when asked. His recollection was shown to be correct and supported by evidence of DLP letters and letters of award indicative of work status and payments progress. This resulted in further revisions and agreement of parties based on the Final Table submitted by D during the testimony of defence witness Szeto. 152.When being asked at length about details of or invoices related to the 16 projects disputed to be “in progress”, P gave clear evidence and explained that they had all reached practical completion with reference to documentary evidence on payments received up to 95-100% of contract sums. In relation to one invoice no 20759 under project item 91 of the Final Table, P admitted that the works were done on some variation orders and were not handled by him, such that the income receipt should be excluded from the Ledger Account. 153.Ms Yip has submitted and attached to her written closing submissions a summary (Annex I) of P’s evidence and submissions on the disputed invoices under the “in progress” and “under DLP” columns of the Final Table. P’s evidence is that the normal works/projects duration was about 1 month and up to 38 days. Clients would normally make payments to D up to 95% (leaving 5% retention money only) to the full contract price (100%) when works had been completed and invoiced. 154.On the other hand, Szeto when giving evidence on projects alleged by D to be “in progress” or “under DLP”, invariably stated that reference should be made to the relevant DLP letters or letters of award (some of which D has not disclosed despite P’s specific discovery application). Szeto did not have personal knowledge of these matters as he mainly monitored progress of payments of projects of all team heads (including P). He did not personally manage or work on these projects handled by P. As in D’s initial arguments, later withdrawn, on projects not handled/managed by P, Szeto could not give clear or firm evidence. He replied time and again upon cross-examination that one would have to look at the underlying contracts, invoices and payment records. His evidence is vague and uncertain. 155.D initially also challenged that some of the projects in the Final Table were in quotation stage only, certainly not completed; but D later agreed that they were all projects in progress/under DLP. 156.In my view, D cannot validly challenge P’s claim in a vacuum and argue that the disputed projects had not been completed. D’s challenge is not supported by proper and full discovery of the relevant DLP letters and letters of award, and not based on his personal knowledge of work progress. 157.D’s counsel Mr Chiu has also submitted and attached to his written closing submissions a summary (Annex 1) setting out D’s submissions in relation to the disputed invoices on projects alleged to be “in progress”. It is noted that D’s argument that those projects being “in progress” is based on nothing more than his inference of work progress from the dates of the related invoices. For the projects/works likely to have been completed, D adopts the fallback position that they were “under DLP”, and argues that they should still be excluded from the total income in the Ledger Account for the purposes of calculating bonus payable to P. 158.My overall assessment of the evidence is that P’s evidence is clear and firm, and is supported by documentary evidence of invoices and DLP letters. 159.Szeto’s evidence is on the other hand based mainly on his reading of the invoices, DLP letters and letters of award, but not his involvement in or personal knowledge of works progress of the disputed projects. His evidence is not reliable. 160.I found P’s evidence reasonable and mostly supported by invoices and payments records indicative of work progress. I accept that those projects challenged to be “in progress” were in fact completed or “under DLP” as explained in P’s Annex I. His evidence is reliable, and is preferred to that of D’s witness Szeto. 161.I accept the submissions of Ms Yip as set out in Annex I attached to her closing submissions that the invoices issued on the disputed projects/works alleged by D to be “in progress” as listed in the Final Table had in fact been completed or “under DLP” by the time of termination of P’s employment. 162.For projects/works “under DLP”, P explained, which is not disputed by Szeto, that the contract works had been completed though a final payment of 5% retention money would be retained by the clients for a 1-year period during which further touch-up/follow up work (“執漏”) might or might not be required. P’s evidence is that such further touch-up/follow up work would usually carry further expenses of no more than 1% of the contract price. 163.I found that for the purposes of calculating bonus entitlement of P upon termination of his employment, the works/projects “under DLP” should be regarded as “completed” by P, though the final 5% would be received by D later upon expiration of DLP. Income received later on the invoices issued on those projects/works should be included as profit in the Ledger Account. 164.It follows that the total income of $3,453,513 as agreed between the parties is accepted and adopted to be the gross income on the works/projects completed by P before termination of his employment with D. 165.Such income should however be subject to deduction of expenses paid later on the completed projects, which I shall deal with in the following section. Expenses Deduction 166.P accepts to be deducted those expenses related to the works/projects under his claim (shown under the “Expense (Accept/確認)” column of the Re-Revised Appendix D [A/144(c-g)]) in the total sum of $931,340, paid during the period from 3 July 2017 (Item 1) to 6 May 2018 (Item 109). 167.Regarding projects/works expenses eg for purchase of work materials and those payable to subcontractors, P’s evidence, largely unchallenged, is that these would usually be settled and cleared every month (“開支月月清”) and recorded in the Ledger Account - punctual payment is important in making subcontractors satisfied and keeping their good relationship with D. This is good business practice and would boost the company’s business. It is also important for the expenses to be paid and recorded immediately so that they would be deducted from the profits accumulated in the ledger accounts of the employees, and would avoid the risks of D making overpayment of bonus to them calculated on the net profits. P further stated that by the time of completion of works/projects, normally more than 90% of the expenses had been paid, same with the works/projects that had been completed or in DLP at the time when he left D. 168.P argues that as he has only included those works/projects completed by the time of termination in his claim for bonus, expenses incurred subsequently and paid on the on-going projects required to be handled by other employees after his departure should not be included in the Ledger Account or deducted from the accumulated income. 169.I consider it reasonable, in quantifying P’s claim herein, to deduct from the Ledger Account the expenses established to be incurred after P’s departure on the works/projects listed under his claim for bonus. 170.D’s original pleaded case on the expenses incurred and paid during the period from 4 July 2017 to end-December 2017 relating to projects previously handled by P is set out in Appendix II of the ADCC [A/39-42]. Total alleged expenses sought to be deducted from the Ledger Account was $1,013,712.05. Discounting the car purchase payment (UL6675) of $105,000 being not related to projects/works expenses, D’s claim for deduction of expenses was $908,721.05 ($1,013,712.05 - $105,000) - this is lower than the expenses eventually admitted by P in the sum of $931,340, which has already taken into account Items 108 and 109 on expenses incurred and paid later on the respective dates of 2 May and 5 June 2018. 171.After closing of P’s case at trial, Mr Chiu submitted the Final Table based on which D seeks deduction of further expenses from accumulated profit in the Ledger Account. There was since some minor adjustment to the accepted and disputed expenses. The final figure argued and sought by D for deduction of expenses came to a total of $2,649,955, made up of the following:
172.D’s final claim for deduction of expenses has thus increased more than double from its original pleaded case. Notably D has included a list of expenses paid on projects allegedly left undone by P after end-2017 up to November 2022 (ie more than 5 years after P’s departure) in excess of $1.28 million under the disputed expenses column (Items 87-118 in the Final Table) [A181E-F]. The Comfort Building (“CB”) and Shanghai Street (“ST”) Projects Expenses 173.The disputed items of expenses relating to the CB Project listed in the Final Table [A/181F], totalling $471,463, are as follows:
174.The disputed items of expenses relating to the ST Project listed in the Final Table [A/181F], totalling $440,105, are as follows:
175.D therefore argues that expenses totalling $911,568 ($471,463 + $440,105) should be deducted from the Ledger Account for works required to be completed on the CB and ST Projects after P’s departure. 176.It is noted however that D’s claim for expenses to be deducted in respect of the CB and ST Projects had changed substantially during the action. The total expenses claim of $911,568 was only put forward on day 5 of trial during Szeto’s testimony in court. 177.D’s pleaded case is that the abrupt departure of P had resulted in a loss in the the CB and ST Projects, claimed at $264,750, as D had to engage other contractors to complete the outstanding works [A/28: ADCC para 23C]. In arriving at this loss figure, D has seemingly taken into account income received/to be received on these projects. 178.Without seeking to amend its pleadings, D’s witness Szeto in his Supplemental Witness Statement dated 16 August 2022 suddenly increased the claim for loss in respect of the CB and ST Projects to $415,895, adding to the claim an additional “loss of expected profit” claim which is not pleaded. 179.Towards the end of the trial, D sought the deduction based on “expenses” only. Szeto in the witness box gave evidence to the effect of amending and increasing substantially the claim for expenses in respect of the CB and ST Projects to $911,568. D no longer claims for “loss of expected profit” nor takes into account income received/to be received. 180.D’s counsel Mr Chiu confirmed that D does not counterclaim against P for such alleged loss anymore but only seeks to deduct the total expenses of $911,568 from any accumulated profit in the Ledger Account in calculating net profit and bonus (50%) should this court adjudge it payable to P. 181.The basis and amount of D’s claim in respect of the CB and ST Projects has substantially changed, and not pleaded. Such changes cast doubt on genuineness of D’s claim. This is also in breach of the rule of pleadings as remarked in the CFA judgment in Kwok Chin Wing v 21 Holdings Ltd [2013] 16 HKCFAR 663 (at para 21): “… it will be the pleaded issues that define the scope of the evidence, and not the other way round”. 182.P’s evidence is that these items of expenses relate to work/projects carried out after his departure but not his completed works/projects. 183.I note that the expenses listed under Items 114-118 were invoiced and paid during September 2019 to November 2022, some 2 to 5 years after P had left his employment in August 2017. Payments were made by D shortly after the dates of invoices. 184.I also note under Item 118, not without curiosity, that payment of a rather substantial sum of $375,500 was made on the same date as the invoice date of 9 Nov 2022. 185.The state of the evidence, and D’s substantially changed case during trial as set out above, raises the query, as argued by P, that D was trying to inflate and put in all recently incurred expenses under the CB and ST Projects in order to reduce P’s claim for bonus herein. 186.I found D’s final position on the expenses deduction wholly unreasonable in that the last income receipt accepted for P’s claim was up to 17 May 2018 only, whilst the main bulk of subsequent expenses, allegedly incurred on P’s completed projects, were paid during end-2019 (Item 114) to end-2022 (Item 118). It is wholly unreasonable and unbelievable for D to have continued to incur and pay substantial cost and expenses on the CB and ST Projects in the past few years up to November 2022, but without any corresponding income receipt after May 2018. 187.On the overall evidence, I do not accept D’s claim for deduction from the Ledger Account the high expenses of $911,568 paid in respect of the CB and ST Projects all allegedly due to the abrupt departure of P. 188.P only claims income received up to 17 May 2018 on the projects/works completed prior to his departure. I consider it reasonable to allow deduction for expenses relating to the CB and ST Projects under items 94 and 99 paid in February and March 2018 respectively in the total sum of $95,963 ($86,500 + $9,463), but not further expenses paid in November 2018 or after (Items 113 to 118). Other Disputed Expenses 189.I deal with the other items of expenses in dispute, totalling $807,047, with reference to the Final Table [A/181 D-F] as follows:
190.For reasons explained above, this court accepts P’s claim for unpaid bonus based on income receipts by D after end-June 2017 on the projects listed in the Final Table up to May 2018, in the total sum of $3,453,513. After deduction of the agreed expenses of $931,340 and further expenses paid on the CB and ST Projects in the sum of $95,963 which I found should be deducted, the bonus payable (50% of the net profit) to P is calculated as follows:
The Wrongful Deductions 191.Apart from the unpaid bonus, P claims for sums wrongfully deducted by D as follows:
192.These are essentially factual disputes between P and Szeto who mainly had oral dealings regarding these sums involved without written records or documentary evidence. Assessment of validity of the claims will turn on credibility/ reliability of the witnesses, inherent probabilities and the relevant circumstantial evidence. (1) Car Purchase Deduction 193.Evidence shows that a sum of $125,000 (stated to be for car PA2722/the Car) was deducted and recorded in the Ledger Account on 9th November 2015 [B2/511]. 194.P’s case is that in about September 2015 Szeto bought a new car and agreed to sell to P and another colleague surnamed Wong his old car PA2722/ the Car owned by Szeto at the agreed price of $250,000. Deductions of $125,000 each were made from the ledger accounts of P and Wong respectively, representing half of the agreed purchase price. It is not disputed that thereafter the expenses relating to the Car were regarded as work-related expenses and deducted from the Ledger Account. 195.P argues that the deduction of his share ($125,000) for the car purchase had resulted in a reduction of $62,500 of the bonus ($125,000 x 50%) paid to him for that half year. He seeks refund of $62,500 when eventually no transfer of ownership of the Car was effected. 196.D’s pleaded case is that the Car was all along a company car owned by D and denies any agreement of sale to P (and another employee). It argues that the deduction to the Ledger Account was made because the Car was reserved for the exclusive use of P. 197.On the other hand, D pleads [A/24; ADCC para 20A] that outstanding purchase payment of “the Car” (defined in the SOC to be PA2722) was used to offset the long service payment entitlement of P as follows:
198.Szeto attempts to explain in his Supplemental Witness Statement that by “purchase… of the Car”, he had meant another car UL6675 which ownership was transferred to P in late July 2017. He further states that there was yet another car KP4270, which P also had exclusive use together with UL6675. Szeto also claims (contrary to D’s pleaded case) that P’s long service payment was set-off against (i) outstanding purchase price of another car UL6675 (instead of the Car) and (ii) expenses relating to cars UL6675 and KP4270 [A/166-167; para 33-35]. 199.Despite Szeto’s evidence that it was the usual practice of D to deduct purchase price of company cars from staff’s ledger accounts as it was regarded as part of the operating cost to be borne by the staff, no evidence has been adduced, and no record is shown in the Ledger Account, to support any previous deduction of purchase price of any other cars which P had used for his work prior to November 2015. 200.I consider D’s case wholly unreasonable and unfair to P in that the employees were made to bear the purchase price of a work vehicle whilst D retained ownership thereof. D would have the discretion to sell the vehicle and pocket the resale value (which, not being income from projects, would not be added back to the ledger accounts of the staff). This would be unjust enrichment to D. 201.Also on P’s case (which is admitted by Szeto in his testimony) that the registered owner of the Car was Szeto but not D, whatever agreement there might have been between Szeto and P for the latter to use the Car for work, any payment of the purchase price should be privy to P and Szeto. Had there been an agreed sale, P should have paid the purchase price to Szeto in the latter’s personal capacity. 202.The deduction of $125,000 (being 50% of the purchase price) from the Ledger Account for purchase by P of Szeto’s Car was thus wrong. The deduction had resulted in D paying $62,500 less bonus to P, amounting to an unjust enrichment to D. 203.I conclude that P should be entitled to claim for a refund/ the lost bonus of $62,500 (resulted from the deduction of $125,000) in the Ledger Account. (2) Tax Payment Deduction 204.P’s case is that he had agreed with D on a deduction of $169,931 in his Ledger Account in July 2017 in return for D’s agreement to pay his salaries tax of financial year 2016/17. He however found out after termination of his employment that D had not reported and paid his tax as agreed. He therefore paid the salaries tax himself and now claims in this action against D for refund of the Tax Payment Deduction [A/130; P’s WS2 para 38]. 205.There is no record of the alleged deduction of $169,931 in the Ledger Account. 206.P’s testimony on the circumstances of the Tax Payment Deduction is as follows:
207.D simply denies the initial agreement for deduction of $169,931 for tax, and argues that had there been such an agreement, P should have, instead of claiming $169,931, claimed for the shortfall in the actual bonus received, which D calculates at $175,000 as follows:
208.D however gives no explanation why P was paid $1,240,000 only, a sum (be it $175,000 or $169,931) less than the agreed bonus based on 50% of the net profit, which shortfall is apparent in light of the Ledger Account records. 209.P’s evidence is logical and is supported by contemporaneous records of the summary of income recording his actual income ($2,739,143) and a handwritten figure of the initially reported income of $615,000, and the 2 related tax demand notes. 210.Szeto gave evidence of an oral agreement of settlement discussed through a Mr Wong Yu Ki (another employee) on his behalf (with Szeto by his side overhearing the conversation) with P over the phone on the evening of 27 November 2017. P had allegedly agreed to forgo all outstanding bonus claims in return for D’s payment for P of the revised tax in the sum of $344,464. 211.I found D’s evidence unreasonable and unconvincing. It would be wholly unreasonable for P to agree to forgo all outstanding bonus claims which he had estimated in excess of $1-2 million or more, in return for D’s payment of the revised tax in the sum of $344,464, especially when a sum of $169,931 had already been deducted from the bonus towards tax payment. 212.I do not accept D’s case that a settlement agreement had been reached with P regarding payment of the revised tax in offsetting all bonus claims P might have against D. The crucial witness Wong Yu Ki through whom D had allegedly made the oral settlement agreement with P was not called to give evidence in support. 213.I accept P’s evidence on this matter, and found him entitled to the refund of Tax Deduction Payment of $169,931. (3) MPF Deduction 214.After termination, P did not get MPF payment which had allegedly been offset against the long service payment received by him from D. 215.Adduced in evidence is a Receipt of Long Service Payment in the sum of $121,667 signed by P on 31 July 2017 [B1/274] (“Receipt”). 216.P’s case is that D had wrongfully obtained the accrued benefit of $104,516.39 from his MPF account purporting to be offsetting against the long service payment paid by D to P. However, P had never received the long service payment; he therefore claims for refund of the MPF Deduction. [A/6; ASOC para 5.2] 217.Szeto admits when giving evidence in court that D had not paid P long service payment as such. D’s case is that the long service payment ($121,667) had been offset by the outstanding payment of $55,000 towards P’s purchase of UL6675 (being purchase price of $105,000 - part payment of $50,000) plus some other expenses relating to the 2 cars UL6675 and KP4270. 218.Evidence shows that ownership of UL6675 was transferred by D to P on 31 July 2017 [B1/275], on the same day as P’s signing of the Receipt. This goes to support that there was likely some offsetting arrangement between the long service payment and the purchase payment of UL6675. 219.It is however noted that Szeto’s explanation of the offsetting arrangement is inconsistent with D’s pleaded case and Szeto’s evidence stated in the Supplemental Witness Statement. Also as pointed out by Ms Yip, some of the expenses of the 2 cars UL6675 and KP4270 was shown to be deducted and recorded in the Ledger Account. Further, the figures of the total alleged expenses of the 2 cars plus the outstanding purchase payment of UL6675 do not tally with the amount of the long service payment alleged to be offset. 220.P has not given a satisfactory explanation why he had signed the Receipt if he had in fact not received the long service payment. He said that he was given the Receipt by D on 6 July 2017 upon his resignation. He was asked to sign on it so that D would claim back the employer’s MPF contributions; but he did not receive any long service payment. 221.I am not satisfied that P has discharged the burden of proof in relation to this claim premised on the unpaid long service payment, which he had somehow acknowledged to have received by signing the Receipt. I do not accept P’s claim for MPF Deduction. Conclusion on the Wrongful Deductions Claims 222.I conclude that P should be refunded for the Car Purchase Deduction ($62,500) and Tax Payment Deduction ($169,931), but not the MPF Deduction ($104,516.39). Total refund should thus be $232,431. Conclusion 223.For the reasons set out above, I uphold P’s claim and enter judgment against D for the bonus claim and refund of wrongful deductions in the total sum of $1,445,536 ($1,213,105 + $232,431). 224.Regarding interest, I accept Ms Yip’s submissions that P should have interest on the judgment sum from the date of commencement of the Labour Tribunal Claim (LBTC 2464/2018) lodged by P on 15 August 2018, at 8% pa to the date of judgment, and thereafter at judgment rate until full payment. Costs 225.There is no reason why costs should not follow the event. On the original action, I make a costs order nisi that D shall pay P’s costs of the whole action, including all costs reserved, on the High Court scale up to 2 August 2021 (date of transfer of HCA2261/2018 to the District Court), and thereafter on the District Court scale, with certificate for counsel, on party-and-party basis, to be taxed if not agreed. 226.D has lodged and maintained a wholly unmeritorious counterclaim, initially pleaded in excess of $5.7 million plus account for profits, which it eventually withdrew during trial. I am of the view that the unreasonable counterclaim should not have been raised or pursued at all. Much unwarranted costs were incurred. I consider it reasonable to exercise the discretion of this court to order costs on an indemnity basis under O 62 r 5 and 28(3) of the Rules of the District Court (Cap 336H) in respect of the counterclaim. 227.I therefore make a costs order nisi that D (the plaintiff by counterclaim) shall pay the costs of the counterclaim to P and Wang Fai (the 1st and 2nd defendants by counterclaim) including all costs reserved, on the High Court scale up to 2 August 2021 (date of transfer of HCA2261/2018 to the District Court), and thereafter on the District Court scale, with certificate for counsel, on indemnity basis, to be taxed if not agreed. 228.I also grant a costs order nisi for P against D in respect of the Striking Out Summons which I have dismissed. Whilst I am of the view that D’s application in trying to shut off from this court the abundant highly relevant and necessary evidence which both parties heavily relied on at trial in arguing the central issues was unwarranted, P was also in my view guilty of delay in seeking the Discovery Order and adducing substantial evidence by way of P’s WS2. I do not consider it appropriate to grant costs in favour of P on an indemnity basis as sought. 229.I order that D shall pay to P costs of the Striking Out Summons, with certificate for counsel, on party-and-party basis, to be taxed if not agreed. 230.Lastly, I thank counsel for their assistance.
Ms Christine Yip instructed by H L Wong & Co, for the plaintiff (by original action) and for the 1st and 2nd defendants (by counterclaim) Mr Victor Chiu instructed by Tonys Lawyers, W L Yuen & Co, for the defendant (by original action) and for the plaintiff (by counterclaim) | ||||||||||||||||||||||||||||||||||||||||||||
Cases cited in this judgment