Caidao Capital Ltd v. Harmen Christiaan Overdijk and Others

HCA 2114/2017 &

HCA 2911/2017 &

HCA 2912/2017

[2026] HKCFI 1326

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NOS. 2114 OF 2017, 2911 OF 2017 AND 2912 OF 2017

________________________

________________________

(Consolidated pursuant to the Order of Master S. Lo dated 24^th January 2018)

________________________

J U D G M E N T

________________________

A.  INTRODUCTION

1.This is an employment dispute between Caidao Capital Limited (“CCL”) and two of its former employees, Mr Harmen Christiaan Overdijk (“Mr Overdijk”) and Mr Lodewijk Lamaison Van Den Berg (“Mr Lamaison”).[1] These proceedings were commenced in the Labour Tribunal and were later transferred to the High Court and consolidated.

2.In the present case, there is a significant amount of discovery[2] and witness evidence[3] directed at matters which I do not believe have a material bearing on the relief sought. My function is to adjudicate on the claims advanced and, importantly, make a determination of the actual relief sought by the parties. Although many complaints have been made by CCL, this is not a summary dismissal case where the court is asked to review employee conduct and determine whether dismissal was justified. As sensibly agreed, it is unnecessary to make findings on all of CCL’s numerous complaints, especially when they are not relevant to the relief sought.

3.That exercise would be unhelpful and disproportionate. I have carefully considered the submissions made by both parties and will focus on the core facts which I consider are directly relevant to resolving this dispute. In doing so, I have not overlooked CCL’s numerous complaints. With these observations in mind, I now turn to the factual background.[4]

B.  FACTUAL BACKGROUND

4.Ms Ming Lee (“Ms Lee”) was the Chief Executive Officer (“CEO”), director and sole shareholder of CCL. CCL was previously known as Sal. Oppenheim (Hong Kong) Limited (“SOHK”). In 2008, it obtained Securities and Futures Commission (“SFC”) licenses for types 4[5] and 9[6] activities. Ms Lee completed a management buyout of SOHK in 2010. Since 2011, CCL has engaged in a variety of hedge fund, private equity fund and direct investments for its clients.

5.In late 2013 and early 2014, Ms Lee discussed with Mr Overdijk and Mr Lamaison about the prospect of joining CCL. The latter were colleagues at EFG’s private bank. The discussions were about establishing a new wealth management department within CCL to be known as “Caidao Wealth” led by them. They would be able to leverage their existing client connections at a new, albeit smaller, platform with SFC licenses in place. They would pay the initial costs of establishing Caidao Wealth. After it became a profitable business unit within CCL, they would receive a share of the profits generated by that business. They eventually agreed to join.   

6.On 1 September 2014, Mr Overdijk and Mr Lamaison commenced employment with CCL under the title “Investment Manager, Managing Partner”. Their employment was governed by two written agreements dated 31 May 2014 (“Employment Agreements”) which provided for termination by either side by giving 6 months’ written notice.

7.Clause 2(a) of the Employment Agreements provided that they were wholly responsible for the financial costs of Caidao Wealth and that their salary was “solely commission based and not fixed”.  

8.Clause 2(c) provided for a Transaction and Fee Revenue Share (“TFRS”) calculated in the manner set out in an Addendum to the Employment Agreements (“Addendum”). Clause 2(c) also stated that the TFRS will be paid “quarterly not later than two weeks (10 business days) after the actual receipt of the relevant funds by the Company”.

9.The Addendum provided for allocation of the revenue earned by Caidao Wealth in different scenarios. The scenario in paragraph 1 of the Addendum (“90/10 split”) is the most relevant one[7] in this case:

“If the revenue is earned by the Company solely as a result of the introduction of your own connections and all work in relation to such client is done solely by you and any employee(s) hired by the Company exclusively to assist you:

a. your team’s P&L will receive a Share equal to ninety percent (90%) of the revenue received;

b. you will then be entitled to a Share equal to fifty percent (50%) of the net income generated by your team (defined as your share of revenues noted [in (a) above] less associated costs incurred by your team).”

10.In other words, Caidao Wealth’s P&L would be credited with a 90% share of the total revenue earned by CCL solely as a result of clients being introduced by the Defendants where the work done for that client was solely by them. From this 90% share of revenue, the associated costs incurred by Caidao Wealth would be deducted leaving a net income figure to be shared equally by Mr Overdijk and Mr Lamaison.

11.Paragraph 6 of the Addendum stated that in the event of any dispute, CCL’s determination of the share and the timing of payment shall be final and binding upon the parties.

12.Clause 6 of the Employment Agreements provided that upon their departure from CCL, Mr Overdijk and Mr Lamaison would be entitled to continue to directly deal with clients that were solely introduced by them. In other words, they would be entitled to retain all of their original clients if their employment did not work out as planned.

13.Mr Overdijk and Mr Lamaison respectively served as a Responsible Officer and SFC Licensed Representative of CCL. They reported to Ms Lee who was in charge of CCL’s overall affairs.

14.On 1 September 2014, the 3^rd Defendant, Asia Independent Capital Limited (“AIC”), entered into a Service Level Agreement (“SLA”) with CCL. AIC was jointly owned and controlled by the 1^st and 2^nd Defendants. Between September and November 2014, AIC paid HK$650,000 to CCL to set up Caidao Wealth.

15.In April 2015, CCL agreed that Mr Overdijk and Mr Lamaison would each receive a monthly payment of HK$100,000 on account of the TFRS eventually payable to them. The parties agreed that it would be sensible for them to receive regular cash flow during their employment instead of waiting for TFRS payments to be made. The monthly payments were to be set-off against their final TFRS entitlements.

16.The monthly payments continued from April 2015 until December 2016 for Mr Overdijk, and until November 2016 for Mr Lamaison. Accordingly, they respectively received a total of HK$2.1m and HK$2m in monthly payments during their employment.

17.In September 2015, the SFC commenced an audit of CCL which was completed by 11 July 2016 (“the SFC Audit”). The SFC Audit was originally scheduled to commence in April 2015, but it eventually did not start until September 2025.

18.The SFC Audit was a matter of concern to Ms Lee who took regulatory compliance seriously. Mr Tang Tze-Hong (“Mr Tang”) assisted CCL in performing internal audits to prepare for it. Ms Lee was concerned that certain aspects of the work performed by the Defendants were unsatisfactory from a compliance angle and would be called into question in the SFC Audit. By way of example, the areas of concern included an insufficient operations manual and the unsatisfactory quality of the minutes of the investment and fiduciary committees. She was concerned about the regulatory and reputational risk to CCL if adverse findings were made.

19.On 28 December 2015, the SFC wrote to CCL indicating that a limited review of business activities had been completed. The SFC highlighted four matters which required attention, namely, business introduction arrangements, professional investors, know your client and investment compliance checking. CCL responded in January and February 2016. On 11 July 2016, and in light of CCL’s responses, the SFC confirmed that it did not have further comments. As such, the SFC Audit was closed.

20.In the meantime, in January 2016, there were discussions between Ms Lee and the Defendants in relation to, among other matters, a re-negotiation of the revenue share from a 90/10 to 80/20 split.

21.This proposal had the effect of less revenue being booked into Caidao Wealth than was originally agreed under the Addendum, with the consequence of less TFRS being payable to the Defendants. In broad terms, the reason for Ms Lee’s proposal was because there were issues of corporate governance, client documentation, compliance and internal communication which she considered to be unsatisfactory. These matters were, according to her, highlighted in CCL’s preparation for the SFC Audit. It is common ground that the parties did not reach an agreement on the revenue split in January 2016.        

22.On 21 April 2016, there was a CCL management meeting attended by Ms Lee, the Defendants, Mr Dieter Pfundt (“Mr Pfundt”) and Mr Tang. Mr Tang prepared the minutes and circulated them to the attendees. In the concluding section, the following matters were recorded among the “agreed actions”, namely, (i) to cancel the SLA with immediate effect; (ii) to restate the revenue split to 80/20 with an effective date of 1 January 2016; and (iii) to make a payout to AIC.    

23.On 24 June 2016, Mr Lamaison e-mailed Ms Lee to inform her that the Defendants did not agree with the 80/20 split. He attached a revised employment agreement instead. The revisions show some amendments being made to the main body of the agreement, but with the 80/20 split confirmed in paragraph 1 of the Addendum to the draft revised agreement. Mr Lamaison also raised issues in relation to the termination of the SLA. The revised employment agreement was not signed by CCL.

24.On 14 July 2016, Ms Lee responded by referring expressly to the agreement reached in the 21 April 2016 management meeting on the change in revenue share to an 80/20 split. Ms Lee also indicated that she had no option but to withhold payment for the time being due to what she described as being a change in stance on the SLA cancellation.    

25.On 26 August 2016, the Defendants agreed with other partners to set up a new company and applied to the SFC for relevant licences. According to the Defendants, Ms Lee was orally informed about their wanting to set up a new business. From the documentary evidence, it appears that Deacons had already been engaged earlier in February 2016 to advise on obtaining new type 4 and type 9 SFC licences and had issued a bill for HK$120,000 to CCL for that advice. There is no dispute that CCL itself did not instruct Deacons to give that advice, and it is likely that this advice was given to Mr Overdijk who confirmed in his evidence that he had met with Deacons. It does seem clear that the Defendants had in mind the possibility of leaving CCL at around the time of when the discussions on the 80/20 split started in January 2016.

26.On 5 September 2016, Mr Overdijk e-mailed Ms Lee to say that she had not paid Defendants in accordance with their written contracts. He said that the payments due under the revenue share was approximately HK$1.3 million and constituted part of their wages. He stated that the Defendants had concluded that “it is better that we part ways and bring our business relationship to an End”.

27.On 14 September 2016, Mr Tang e-mailed an SLA cancellation notice which Mr Overdijk had signed. The agreed amount of HK$916,000 was to be paid as follows (i) HK$300,000 before the end of September 2016; (ii) HK$300,000 before the end of December 2016; and (iii) HK$316,000 before the end of March 2017. CCL would also pay AIC “final expenses” of HK$65,700 by the end of September 2016. The e-mail referred to the fact that the 80/20 split had been called into question by the Defendants, but that this had now been agreed and CCL should be able to proceed with quarterly payments going forward.

28.There is no dispute that the first two payments for the SLA cancellation were made, but the third payment of HK$316,000 was not.

29.On 20 September 2016, the Defendants submitted notices of resignation expiring on 20 March 2017 but it is not in dispute the Defendants left their employment before that date.

30.On 28 November 2016, Mr Lamaison e-mailed Ms Lee at 3:34pm confirming that CCL was entitled to the 80/20 split until the official date of their departure of 20 March 2017, and that there was an agreement of leaving a reserve of HK$1 million in CCL until there was a reply from the SFC or January 2018. Ms Lee replied at 3:57pm as follows:

“2. Final Payments. Final 2015 payment and Full year 2016/1^st quarter 2017 payments will only be made upon satisfactory completion of independent audits by Stuart and insurance that no FRR calculations are breached”.

31.Mr Lamaison replied as follows at 4:27pm:

“2. This is clear and agreed. We will leave the CW business and files behind in good order and this can be confirmed by Stuart, hopefully sometime in December. Once we agreed on the payments Tze can give his views and comments on a payment schedule where is made sure CCL is not breaching any FRR calculations”.

32.On 29 November 2016, the Defendants e-mailed Ms Lee which referred to the fact that the parties “do have a principle agreement” to pay for the 20% revenue share and ongoing costs until 20 March 2017.  

33.On 8 December 2016, Mr Lamaison agreed to make payment in lieu of notice for the balance of his notice period. He calculated that the payment in lieu of notice was approximately HK$449,078, and requested that this be set-off against the amount of TFRS which the Company owed him. Further, on 12 December 2016, Mr Lamaison sent e-mails to various clients whom he had introduced to Caidao Wealth. He also removed his office desktop computer and took it home, but he returned it upon demand on 15 December 2016.

34.Compliance meetings were held on a quarterly basis at CCL’s offices, including one on 24 January 2017. On 25 January 2017, Complyport issued a report entitled “Wealth Management Practices Audit for CAIDAO CAPITAL Limited” which raised compliance issues at CCL (“Complyport Report”).

35.The purpose of the Complyport Report was to “assess the sufficiency of and compliance with applicable SFC requirements” in relation to client documentation for the period between January 2015 to December 2016.[8] The summary of findings was that there was (i) a persistent failure to properly document rationale supporting client investment decisions undertaken; (ii) an incomplete record of investment committee meeting notes and (iii) an inconsistent application of investment committee recommendations to client investment activity.

36.On 2 February 2017, Mr Overdijk claimed constructive dismissal the basis that the CCL had failed to promptly pay him his salary and it had decided to unilaterally suspend the monthly payment of HK$100,000. He also requested CCL to pay him HK$979,662 being the outstanding share of TFRS alleged to be owing to him.

C.  THE PARTIES’ CASES 

37.CCL’s claim against Mr Overdijk is on the basis that he wrongfully terminated his employment on 2 February 2017 prior to the expiry of his contractual notice period on 20 March 2017. In other words, Mr Overdijk prematurely left his employment without making the requisite payment of wages in lieu of notice to CCL for the period between 3 February and 20 March 2017. For that reason, CCL claims for wages in lieu of notice for HK$292,337.65 against Mr Overdijk.[9] This calls for consideration as to whether Mr Overdijk was entitled to claim constructive dismissal on the basis of non-payment of wages.  

38.CCL denies constructive dismissal and submits that Mr Overdijk was not entitled to “wages” in the first place. The monthly payments received by him were only on account for TFRS, and ultimately, CCL submits that he was not entitled to any TFRS at all. CCL says the parties reached an agreement that TFRS would only be payable upon satisfactory completion of an independent audit by Mr Stuart Somer (“Mr Somer”). However, the Complyport Report issued in January 2017 showed that there were significant compliance deficiencies. CCL relies on this report to contend that no TFRS was payable since the audit was not passed.

39.As for Mr Lamaison, CCL submits that he could not properly terminate his employment contract on 8 December 2016 by agreeing to pay wages in lieu of notice. CCL contends that Mr Lamaison was also not entitled to any “wages” and therefore the option of making payment in lieu of notice was not available to him. However, as in the case with Mr Overdijk, CCL still maintains a claim for wages in lieu of notice against Mr Lamaison for HK$760,175.68 in respect of 13 December 2016 to 20 March 2017.[10] CCL’s claim for wages in lieu against Mr Lamaison, and for that matter Mr Overdijk as well, is self-evidently inconsistent with its position taken at trial that neither of them was entitled to any wages.

40.CCL also seeks recovery of HK$2,100,000 and HK$2,000,000 which is the total of the monthly payments paid to Mr Overdijk and Mr Lamaison, respectively, by CCL on account of the TFRS.[11] CCL’s case is that they have no entitlement to receive any TFRS since it did not make any determination as to the amount of TFRS owing to them under paragraph 6 to the Addendum to the Employment Agreements.   

41.Moreover, CCL seeks recovery of HK$600,000 against all Defendants.[12]  The pleaded basis for this claim is that the two HK$300,000 payments to AIC made in September and December 2016 constituted a “profit share payout” to which the Defendants were not entitled to receive for similar reasons advanced above.    

42.CCL also seeks other damages[13] against all Defendants for HK$895,766.31 and claims for loss of revenue of HK$2,757,054.10 as well. No particulars were pleaded in the Statement of Claim in support of these amounts, and there is no averment of how these losses are attributable to any specific alleged breach of contract.

43.At trial, CCL has raised various ‘breaches’ against the Defendants in respect of matters revealed by the internal audit, the compliance manual, the operations manual, the investment manual, and missing or inadequate call memos. However, it is evident that these breaches do not sound in actionable loss, and they were not used as grounds to justify the summary dismissal of the Defendants in these proceedings.

44.The Defendants deny that CCL is entitled to the relief sought. In addition, they counterclaim for the outstanding TFRS payments. Mr Overdijk counterclaims for damages equivalent to the payment in lieu of notice for a period of 46 days, being the remaining number of days in his notice period up to 20 March 2017 as at 2 February 2017. AIC also counterclaims for the HK$316,000 which it says is outstanding from CCL under the SLA Cancellation Agreement.

D.  WITNESSES

45.The approach towards fact-finding and the credibility of witnesses is well-established. I have set out the relevant principles in Leung Chin Sing, Rabo and Another v Ko Chun Hay, Kelvin [2021] HKCFI 2242 at [41]: -

“These principles were referred to in Hui Cheung Fai v Daiwa Development Ltd (HCA 1734/2009, 8 April 2014) at [77-80] by DHCJ Eugene Fung SC, and helpfully summarized by Recorder Yvonne Cheng SC in Joint and Several Trustees of the Property of Yeung Wing Sing v Yeung Wing Sing [2021] HKCFI 2018 at [26] as follows:

“(1) contemporaneous written documents and documents which came into existence before the problems in question emerged are of the greatest importance in assessing credibility;

(2) in deciding whether to accept a witness’ account, importance should also be attached to the inherent likelihood or unlikelihood of an event having happened, or the apparent logic of events;

(3) regard should be had to the consistency of the witness’ evidence with undisputed or indisputable evidence, and the internal consistency of the witness’ evidence;

(4) care should be taken in drawing conclusions about truthfulness and reliability solely or mainly from the appearance of a witness or from the assessment of a witness’ character;

(5) witnesses’ credibility should be tested by reference to the objective facts proved independently of their testimony, and regard should be had to their motives and to the overall probabilities.”

46.In the present case, there was an abundance of contemporaneous documentary evidence in the form of e-mails and other documents sent between the relevant individuals. There were also minutes and internal records of meetings produced. As to be expected in heavily documented case, I have found the contemporaneous documents arising before the disputes emerged to be of the greatest weight.

47.Ms Lee, Mr Somer and Mr Pfundt testified on behalf of CCL.  

48.Ms Lee gave very detailed witness statements. She was a knowledgeable and articulate witness, with substantial experience in the field. I accept that she was legitimately concerned about the SFC Audit and especially about the performance of the Defendants insofar as regulatory and compliance issues were concerned. In the light of the SFC Audit, it seems to me that these concerns were genuine and they played an important part in her proposing a revised revenue share in early 2016. Nevertheless, my distinct impression of her evidence is that it was prone to exaggeration as she sought to portray the Defendants in the worst possible light regardless of the circumstances. One such example is her evidence about an alleged failure by the Defendants to comply with a ‘clean desk’ policy supporting her belief that they had acted improperly whilst employed at CCL. This simply did not follow. Further, much of her witness statements consisted of unnecessary narrative and allegations which distracted from the real issues. I bore the above in mind and approached her evidence with care especially where it was not supported by contemporaneous documentary evidence.

49.Mr Pfundt was, in my view, a straightforward witness. Having said that, as with Ms Lee, his witness statement was very long and strayed into unnecessary areas. He did strike me as a person speaking with a wealth of experience at financial institutions. Mr Pfundt was a long-time acquaintance of Ms Lee whose evidence was supportive of her. To that extent, he was not disinterested. He acted as a consultant for CCL but did not receive any payment and had no formal title in CCL. Though he had some familiarity with CCL’s affairs, he was not frequently at CCL’s offices as he was based in Germany. Mr Pfundt confirmed that he had not read some of the key documents in the present case. Moreover, it was clearly Ms Lee who had the deepest involvement in this case with the most personal knowledge of events. As such, I am unable to attach significant weight to the evidence of Mr Pfundt in arriving at my decision.

50.Mr Somer is the principal of S2 Compliance Limited (“S2”).[14]  S2 has worked with CCL as a regulatory and compliance consultant since 2007, under its former name, SOHK. Mr Somer has extensive experience in regulatory compliance, and has been in Hong Kong since 1996. He has gained substantial experience with SFC regulatory requirements. Mr Somer gave factual evidence on behalf of CCL. I have no reason to doubt his experience in the area. Mr Somer also attended quarterly compliance meetings with Ms Lee and the Defendants and thus had personal knowledge over CCL’s compliance issues at the time. I am unable to agree with Mr Sadhwani’s submission that Mr Somer was an evasive and dishonest witness. I think it was an unfair criticism of Mr Somer that he would invite counsel to refer to his witness statement in response to questions that he considered were already covered. Having heard his testimony, Mr Somer was justified in doing so on a number of occasions. I do not think he was being evasive. Having said that, I did have some serious difficulty over his evidence as it pertained to the independence of the Complyport Report which was one of the major issues explored during cross-examination.

51.Mr Overdijk was, in my view, a credible and honest witness. He answered questions directly to the best of his ability. I think he had a fairly solid recollection of events despite the passage of time. To his credit, he accepted points which were against his case when they were put to him by Mr Hart. Importantly, when dealing with the 21 April 2016 management meeting minutes, he accepted that the points mentioned in the conclusion were agreed, including the 80/20 revenue split effective from 1 January 2016.

52.Mr Lamaison was a satisfactory witness. I tend to think that his recollection of events was comparatively not as sharp as Mr Overdijk perhaps due to the passage of time, but overall, his evidence was credible. His evidence in relation to his e-mail of 28 November 2016 was that the Defendants intended to leave the files in good order and that this was to be confirmed by Mr Somer. He also stressed that what he agreed to was an independent audit to be conducted.    

53.Mr Tang was employed as a finance director of CCL on a full-time basis between November 2010 and June 2012, and on part-time basis at CCL up to November 2016. He left CCL to join the Defendants’ new business from around February 2017. Mr Tang gave evidence in a straightforward manner. I believe that he was an honest witness.

54.Mr Hart invited me to place little or no weight on the witness statements of Mr Overdijk and Mr Lamaison on the basis that they were largely identical. He relied on the proposition that where witness statements are presented to the court which are substantially identical, it will often be unlikely that the court will be able to place any weight at all on either witness statement: see Ho Sin Ying v Chan Yui Ling (HCA 90/2010, unreported, 13 July 2012) at [58] per DHCJ Saunders.

55.It is not, however, an inflexible rule of law that no weight must be placed on both witness statements if they are identical. The court still needs to make findings of fact based on its own assessment of the credibility of witnesses: Chan Chung Yee v Chan Wah Cho, Joe and Another [2018] HKCFI 611 at [37] per DHCJ Anthony To. I agree that witness statements should cover what is in the personal knowledge of each witness to the best of their own personal recollection. To extent to which a court will place little or no weight on witness testimony will depend on the specific facts and circumstances. I agree that there was a significant degree of duplication in the witness statements of Mr Overdijk and Mr Lamaison. However, context is important. A good portion of the duplication were on non-controversial or background matters, or matters that could be gleaned from the documentary evidence. Moreover, given the abundance of documentary evidence, I do not believe that this is a case which turns on the individual recollection of specific events. Further, having heard their testimony, even though they were colleagues, I did not form the impression that their oral evidence was rehearsed or co-ordinated. For these reasons, I decline to place no weight on their witness statements.        

56.Mr Sadhwani invited me to draw an adverse inference against CCL by reason of its failure to call Ms Ada Fong and Ms Helena Wang (“Ms Wang”). This was lightly touched upon in written closing submissions. I do not think anything material in this case turns on their evidence which is not covered by other witnesses. In addition, it is unclear to me precisely what adverse inference I am invited to draw. Therefore, I decline to do so.    

E.  FINDINGS AND ANALYSIS ON THE MAJOR ISSUES

E1.  The TFRS Variations

57.An agreement to vary is no different from any other contract in terms of its formation. It requires an offer, acceptance, intention to be legally bound and consideration. Offer and acceptance may be inferred by the conduct of the parties. These principles apply to employment contracts as well: Chong Cheng Lin Courtney v Cathay Pacific Airways Ltd [2011] 1 HKLRD 10 at [35] per A Cheung J (as he then was).

58.On the facts, there are two major aspects to be considered in terms of variations to the employment contracts: -

(1)  what was agreed with respect to the monthly payments of HK$100,000 which were paid by CCL; and

(2)  whether there was a variation of the revenue split used to calculate the TFRS payable.

59.I will first deal with the monthly payments.

60.Between 1 September 2014 and April 2015, the agreed position insofar as the TFRS is concerned was set out in the Employment Agreements and in the Addendum. Clause 2(c) of the Employment Agreements provided for a quarterly payment of TFRS to the Defendants, and under the Addendum a 90/10 revenue split applied to clients introduced solely by the Defendants for the purposes of TFRS calculation.

61.However, in April 2015, the parties agreed that the Defendants would be entitled to receive HK$100,000 monthly on account of the TFRS. This was in light of the position, which is common ground, that the Defendants should be entitled to some regular payments for their living expenses. It was not suggested that the monthly payments were to be made only for a limited period of time. The Defendants had throughout their employment generated net revenue for CCL through clients introduced by them.

62.Against this background, it is clear to me that the monthly payments were intended to continue throughout their employment, unless a contrary agreement was subsequently reached. As a matter of fact, and reflective of this position, at least 20 monthly payments to the Defendants were made by CCL from April 2015 onwards.

63.At the same time, there was no amendment made to the other terms of the Employment Agreements, and in particular, to the quarterly basis on which TFRS was supposed to be paid to the Defendants. This meant that CCL was still contractually obligated to pay TFRS to the Defendants as agreed, although the monthly payments could be set-off against the overall TFRS due and payable to the Defendants.

64.I also find that the monthly payments, and their continuation, was a separate question from the appropriate revenue share, whether it was the 90/10 split or the 80/20 split. This is reflected by the fact that even when the parties were negotiating the revenue share in January 2016, CCL still continued to make monthly payments to both Defendants. In other words, the agreed monthly payments of HK$100,000 were to continue even though there were discussions about revising the revenue share. There was no agreement reached to stop making the monthly payments.      

65.I next turn to the revenue split.

66.As borne out in the documentary evidence, I find that the parties started negotiating on this issue in January 2016 but with no consensus immediately reached. Various proposals and associated justifications were set out at that time. I find that the issue was later resolved at the 21 April 2016 management meeting which recorded that it was an agreed action that the revenue split would be 80/20 effective from 1 January 2016. The minutes of this meeting were prepared by Mr Tang, who circulated them to all attendees, including the Defendants.

67.Although the Defendants appeared to have some later misgivings over the revised revenue split, it is clear to me that it was agreed that the 80/20 split would be effective from 1 January 2016. In reaching this conclusion, I have taken the following matters into account.

68.First, this is the clear effect of the minutes of the 21 April 2016 management meeting. I have no reason to doubt the accuracy of these minutes which were prepared by Mr Tang.

69.Second, the rationale for a reduced revenue split had been all along been explained by Ms Lee since January 2016, if not earlier. In view of her insistence and the clear expression of her views, it is inherently probable that some form of agreement was reached at the 21 April 2016 management meeting to resolve matters going ahead.

70.Third, in my view, the subsequent communications by the parties support the existence of such an agreement. Relevantly, Ms Lee herself expressly referred to the agreement reached in the 21 April 2016 management meeting on the 80/20 split in her e-mail of 14 July 2016. In my view, this contemporaneous response is important since it directly refers to an agreement having been reached on 21 April 2016. Further, Mr Tang in his e-mail of 14 September 2016 stated the 80/20 split had now been agreed. On 28 November 2016, Mr Lamaison also confirmed that CCL was entitled to the 80/20 split until the official date of their departure. The next day the Defendants confirmed that they had an in principle agreement with Miss Lee on the 20% revenue share. These matters, collectively, support the existence of a prior agreement.     

71.Mr Sadhwani argued that the 80/20 split only amounted to “an agreement in principle” subject to conditions being fulfilled, including the continued monthly payments. He reasoned that the monthly payments stopped in late 2016, and therefore, the 80/20 split was not valid. He also sought to challenge the existence of the agreement and pointed out that the 21 April 2016 management meeting minutes were not signed.

72.I am unable to accept these submissions. The minutes of the 21 April 2016 management meeting record that it was an “agreed action” that the 80/20 split would be effective from 1 January 2016. In my view, these minutes do not reflect a conditional agreement of the sort alleged by the Defendants. They do not say that if the monthly payments were discontinued that the parties would revert back to a 90/10 split.

73.The context of the meeting is important. Its purpose was to discuss a number of issues, including the proposed cash reserves level, the proposed payout of HK$916,000, the revenue split of 80/20, and the cancellation of the SLA effective from 31 December 2015. Ms Lee explained that she had assumed all the legal risk associated with the company, and that it was reflected in the current revenue split. She also stated that it was envisaged that Caidao Wealth would require minimal support from CCL to assist in the new business, but the time required from Ms Lee had been greater than expected. It was against that context in which it was recorded that the revenue split was agreed to be restated to 80/20 effective from 1 January 2016. In light of Ms Lee’s concerns as recorded, it is inherently probable that such an agreement was reached to address her concerns. There is nothing in the minutes to suggest that was conditional upon the monthly payments continuing.       

74.As to the accuracy of the minutes, the fact that the minutes were not signed by the Defendants is immaterial in my view. If the Defendants considered that the minutes did not accurately record what had been agreed, they could have voiced their objection but they did not. The later correspondence I have drawn attention to also confirms that the Defendants treated the 80/20 split as still being applicable. I find that CCL’s refusal to make monthly payments starting in late 2016 does not have the effect of negating the existence of the prior agreement as to the 80/20 revenue split. These were, as I have mentioned, separate issues.

75.It is also important that, as pointed out by Mr Hart, that the 21 April 2016 management meeting was not dealt with in the witness statements of the Defendants. In addition, Mr Overdijk fairly accepted in his cross-examination that the actions were agreed at the meeting. Mr Sadhwani sought to re-open this answer in re-examination but this was objected by Mr Hart and I disallowed the question. Mr Overdijk’s evidence was clear.

76.Overall, I find that Ms Lee’ concerns about legal risk and her time commitment to Caidao Wealth were openly ventilated and were a justification as to why the revenue split should be adjusted downwards. These negotiations ultimately did lead to the 80/20 split being agreed.  

77.I find that the parties agreed to, and did, vary the Employment Agreements to the extent that, effective from 1 January 2016, the revenue share which was to be booked to Caidao Wealth’s P&L under paragraph 1 of the Addendum was reduced from 90% to 80%. No issue of a lack of consideration was raised by the Defendants. As a consequence, with effect from 1 January 2016, the total amount of TFRS to which the Defendants may have been entitled was consequently reduced.

E2.  Whether TFRS Conditional Upon Passing the Audit

78.The next major issue to consider is whether the parties agreed that the payment of TFRS to the Defendants was conditional upon the passing of an audit to be conducted by Mr Somer.

79.Mr Hart focuses on the exchange of e-mails on 28 November 2016. He submits that the Defendants were not entitled to any payment of TFRS since they had agreed to make payment conditional on passing an internal audit to be conducted by Mr Somer. CCL contends that since the audit was not passed, the Defendants are not entitled to payment of TFRS. In this regard, CCL relies on the Complyport Report which identified a number of significant compliance deficiencies.

80.In response, Mr Sadhwani made the threshold submission that there was no consensus reached that the passing of the audit was a condition of the Defendants receiving TFRS payments. He submitted that there was no true consensus of the sort alleged to exist by Mr Hart.

81.This point is relevant because the Defendants are claiming for TFRS payments which they say are outstanding. On the other hand, CCL relies on the agreement alleged in support of their position that the Defendants have no entitlement to receive any TFRS payments, and yet further, that the Defendants are even obliged to return the monthly payments they had received during their employment.

82.On 28 November 2016, Ms Lee proposed that the final TFRS payments[15] will only be made upon satisfactory completion of independent audits by Mr Somer, and insurance that no FRR calculations are breached. I take the reference to “insurance” to mean “assurance” or “confirmation”. Mr Lamaison said in his e-mail of 4:27pm when he said that the point is “clear and agreed”. There is, I think, no dispute that this e-mail was sent on behalf of both Defendants. He indicated that the Defendants would leave the Caidao Wealth business and files behind “in good order” and this could be confirmed by Mr Somer. Once the payments were agreed, Mr Tang could give his views and comments on a payment schedule where CCL is not breaching any FRR calculations.

83.It is fundamental that the approach to identifying whether an agreement has been reached is an objective one. Moreover, it is important to have regard to the overall factual matrix and context and purpose of the discussions which are said to lead up to the agreement. One important feature is that in the lead up to 28 November 2016, it was clear that the Defendants wanted to receive their TFRS payments as soon as possible.

84.It is extraordinary, in my mind, to suggest that the Defendants who had been working at CCL for a period of more than 2 years since September 2014 would have agreed to the prospect of receiving no TFRS for their work up to that point. In my judgment, that is both contrary to commercial common sense and does not make sense in the context in which the e-mail exchange took place. Caidao Wealth generated a significant amount of revenue and profit for CCL during their employment, and the TFRS which were expected to be paid to the Defendants was not trivial. Yet Mr Hart contends that this is the clear effect of what the Defendants had agreed, and that I should uphold that agreement even if the result is harsh.

85.The burden of proving the variation rests on CCL. Overall, I am not satisfied that it has discharged that burden. I am unable to accept that by saying that the final payments will only be made upon satisfactory completion of independent audits, it was made sufficiently clear that it was intended that the Defendants would forfeit their TFRS if the audit was not passed. What was meant by “satisfactory completion of independent audits” was not made clear in Ms Lee’s e-mail of 28 November 2016, and no formal agreement was drawn up afterwards. The completion of an audit and the passing of an audit are two different things. It was certainly not made clear to the Defendants that they would stand to lose the entirety of the TFRS earned during their employment, and as a consequence the Defendants would be obliged to return all monthly payments received to that point, if the audit to be performed by Mr Somer was not returned with satisfactory results. Instead, what was clear is that everyone had agreed that the 80/20 split would continue to apply until the Defendants had left their employment. In my view, it would have taken unequivocal language to suggest that the Defendants had agreed to wholly relinquish their accumulated TFRS entitlements and to risk their entitlements being erased if the audit somehow returned unsatisfactory results. I do not consider that this was the effect of this e-mail exchange or that there was a true consensus reached in this regard.  

86.In my judgment, the focus of what was agreed was on the timing of the payment of the outstanding TFRS payments. Under the Employment Agreements, TFRS payments were meant to be made quarterly. But as a matter of reality, this was not done and the Defendants had by this time already submitted their notices of resignation and they wanted to receive the outstanding TFRS payments as soon as possible. It seems clear to me that the purpose of the exchange was to deal with the timing of the final TFRS payments in that they were deferred until after the completion of the audit by Mr Somer, and as such, it would not be payable quarterly or immediately upon the departure of the Defendants. In other words, the Defendants would have to wait until the audit was actually performed by Mr Somer to a satisfactory degree of completion before the Defendants could expect to receive their final TFRS payments. This, of course, might take some time and there might be some follow-up issues. But this is a far cry from saying that it was clearly agreed that the Defendants’ entitlement to TFRS was on condition of the passing of the audit or that any irregularity or deficiency in the audit, with an undefined scope, would disentitle the Defendants to TFRS entirely. I have no hesitation in concluding that if that had been made clear, the Defendants would have firmly rejected that proposal. I accept Mr Sadhwani’s submission that there was no consensus reached that the passing of the audit was a condition of receiving TFRS payments. Moreover, on CCL’s case as formulated, one would ask what exactly would constitute the passing of an audit to a “satisfactory” level and what would be precise scope of the audit. None of this was made clear in the e-mail exchanges or in evidence. These issues seem to me to be of importance which were not clearly set out fairly and squarely to the Defendants.

87.Mr Lamaison testified that in his e-mail response he did not actually agree that passing the audit was a condition to receive the outstanding TFRS payments, and that there was a case of misunderstanding. I accept his evidence as honest and truthful but I have not found it necessary to rely on his subjective understanding in the analysis above. But his response in saying that the Defendants would leave the business and files in good order does not suggest to me that they agreed to have their TFRS payments conditional upon the passing of the audit.    

88.Overall, having reviewed the documentary evidence and heard the testimony of the witnesses, I find that Ms Lee’s reliance on this e-mail exchange to be opportunistic and I formed the view that she was trying to take advantage of the response by Mr Lamaison in order to unjustifiably avoid making TFRS payments to the Defendants.

E3.  Whether Complyport Report was an Independent Audit

89.Further, for the reasons below, I also accept Mr Sadwhani’s submission that the audit that was performed by Mr Somer did not qualify an “independent” audit such that its results could be relied upon to deny the TFRS payments to the Defendants. This is so even if there was indeed a consensus, contrary to what I have decided above, reached that final TFRS payments were conditional on the passing of an independent audit.  

90.Objectively speaking, it seems clear to me that an independent audit is one that is conducted by an external third party impartially and where its findings are free from influence by the entity which is being audited. Of course, it is natural that an entity being audited may provide access to information, documents and records to the third party performing the audit. However, it seems to me that an essential characteristic of an “independent audit” is that the party being audited does not control the narrative and does not seek to influence relevant findings.

91.On the evidence, it is clear CCL sought to influence the findings made in the Complyport Report. This is evident from the following:  

(1)  On 11 January 2017, Mr Somer e-mailed CCL’s Ms Wang attaching a copy of CCL’s trade log for the period between January 2015 to November 2016. Mr Somer asked Ms Wang to call him so that he could explain how they would complete the document together. The assessment of trade logs was an item recorded in the final report as justifying the conclusion that investment activity for client accounts was not in many cases adequately supported by client documentation.   

(2)  On 16 January 2017, Ms Lee stated in an e-mail to Mr Somer that during a trip taken by Mr Lamaison, he only wrote one call memo. She suggested that this could be added to Mr Somer’s audit for 2015. In addition, she said that she was still working on more deficiencies for Mr Somer to include. Clearly, this indicates that Ms Lee was actively engaged in the process of identifying deficiencies to be included in the report by Mr Somer and making proactive suggestions.  

(3)  On 17 January 2017, Mr Somer stated that he would try to give Ms Lee the draft report late the next day. Mr Somer appreciated that this might have been too late for submission to the Labour Tribunal, but suggested that Ms Lee could supplement it with an additional report later in the week. This indicates a common understanding that CCL would be using the report to advance a position against the Defendants in the Labour Tribunal.    

(4)  On 24 January 2017, Ms Lee wrote to Mr Somer referencing a draft document which I assume was a copy of the draft report. Ms Lee gave 9 different points of feedback in this e-mail, including adding “independent” in the draft report’s description of the audit conducted by Complyport. Ms Lee made it clear that she intended to use the report in the Labour Tribunal case.

92.Mr Somer’s understanding of an independent audit was that it involved a review of a prescribed set of documentation to determine its quality, completeness and correctness. He also explained that it was market practice to provide a draft report to senior management before issuing a final report to guard against possible miscommunication or matters which may have been overlooked. The broad tenor of his evidence was that the audit report was prepared objectively, and not for the purpose of demonstrating the lack of fitness of anyone in particular.

93.I had serious difficulty with Mr Somer’s evidence where he disagreed that the purpose of the report was in conjunction with the Labour Tribunal proceedings. It is clear that before the report was finalised Mr Somer knew that it would be used to support CCL’s position in its intended litigation with the Defendants. This much is made clear in his e-mail of 17 January 2017, and Ms Lee’s e-mail of 24 January 2017.

94.Moreover, from Appendix 1 of the Complyport Report, there is a list of documents which were reviewed for the purpose of the audit. However, there were certain types of documents that were not listed as having been reviewed in Appendix 1. Given the purpose of the report was to assess the sufficiency of client documentation with SFC requirements, it seems unusual to me that documents such as investment management agreements, KYC documents and risk questionnaires were not included in the review. I agree with Mr Sadhwani that one would expect such documents to be reviewed in an audit of client documentation. Their omission suggests to me a blinkered focus on certain types of documents which were likely to lead to negative results.

95.Further, as Mr Sadhwani submitted, it is also notable that there were no sections in the report indicating what areas of client documentation that were regarded as being positively in compliance with applicable SFC requirements. The inference is that the report was prepared in an imbalanced manner since I would expect an independent audit to record and state areas which were reviewed in which there was satisfactory compliance, and not just pointing out deficiencies.     

96.It does seem clear to me that Ms Lee sought to influence both the presentation and findings of the report. This was with a view to bolster the prospect of her litigation in the Labour Tribunal against the Defendants.

97.Taking all of the above considerations together, I find that the Complyport Report did not constitute an independent audit. Accordingly, even if there was a consensus reached on 28 November 2016 that TFRS payments were conditional on the passing of an independent audit, I conclude that CCL is not entitled to use the results of this audit to deny the Defendants their TFRS payments.

98.Before leaving this topic, I should mention that Mr Sadhwani attempted to demonstrate that the conclusions reached in the audit were flawed and unreliable. I mean no disrespect by not setting out his submissions in detail in this regard. In the light of my conclusions above, I think it is neither appropriate nor necessary to engage in an analysis over whether each of findings made in the Complyport Report is justified.  

99.As I have mentioned at the outset, this is not a case where CCL sought to summarily dismiss the Defendants on the basis of the conduct reviewed in the audit. In that sense, I do not see that it is profitable for me to ‘audit the audit’. Moreover, I have already decided that Ms Lee’s concerns over client documentation were genuine during the earlier stage when the revenue share was being re-negotiated. This was an important part of the context which led to the reduction in revenue split to 80/20. However, I reject the suggestion that the results of this audit are a proper basis to deny the Defendants their final TFRS entitlements, as varied by the 80/20 split effective from 1 January 2016.

E4.  Whether the Defendants Earned “Wages”

100.CCL submits that the monthly payments of HK$100,000 paid to Mr Overdijk and Mr Lamaison from April 2015 onwards did not amount to “wages”. The payments were only advances on account of the TFRS, and were not paid pursuant to any entitlement to wages. Mr Hart stresses that CCL never made a determination of the TFRS payable to the Defendants. Moreover, he points out that the Defendants did not have a fixed salary and that their remuneration was solely commission based.

101.The significance of this argument relates to whether the Defendants validly terminated their employment. Mr Hart submits that since Mr Overdijk did not have any “wages” owing to him he had no legitimate grounds to claim for constructive dismissal. Since there were no “wages” owing to him, he had no basis to terminate his employment prior to the expiry of the notice period on 20 March 2017. As for Mr Lamaison, Mr Hart accepts that an employee may unilaterally seek to terminate his employment by agreeing to pay wages in lieu of notice. There is no requirement to reach a bilateral agreement with the employer in this regard (Kao, Lee & Yip v Lau Wing (2008) 11 HKCFAR 576). But he submits that option was not available to him since he never earned “wages” in the first place. As such, Mr Lamaison was also obliged to serve out the notice period. CCL submits that the termination of employment contracts by both of them was wrongful.

102.In response, Mr Sadhwani submitted that the Defendants were entitled to resign or end their employments early by making payment in lieu of notice. The lack of a fixed salary did not mean that the Defendants were not entitled to wages, especially when the TFRS prescribed a means by which the amount could be calculated. The true nature of the monthly payments were commission based-wages, and the reality was that the monthly payments kept the Defendants working for CCL. It was also argued that it was unreasonable to say that the Defendants would not receive any remuneration during their employment with CCL.

103.Section 2 of the Employment Ordinance defines “wages” as:

“all remuneration, earnings, allowances including travelling allowances and attendance allowances, attendance bonus, commission, overtime pay, tips and service charges, however designated or calculated, capable of being expressed in terms of money, payable to an employee in respect of work done to be done under his contract of employment”.

104.The starting point is that the statutory definition of “wages” is a broad one which refers to a wide variety of different types of employee remuneration which are capable of being expressed in terms of money. As Ma CJ observed in Cathay Pacific Airways Ltd v Kwan Siu Wa Becky and Others (2012) 15 HKCFAR 615 at §24, wages can encompass much more than basic salary. There is a focus on the substance of what is being earned by the employee in respect of work done by the employee instead of how it is “designated or calculated”. This reflects the reality that employees may earn their remuneration in different ways.   

105.In the present case, the “salary” to which the Defendants were entitled was described in Clause 2(a) of the Employment Agreements as “solely commission based”. The statutory definition of “wages” expressly includes “commission” as constituting wages. Accordingly, even if one focuses purely on the language used in the Employment Agreements, it seems clear to me that the TFRS falls within the statutory definition of “wages”. But it is not just the contractual description that matters. After all, the Defendants were working for CCL in return for their agreed profit share based on the turnover and profits of Caidao Wealth. In this sense, their earnings are similar to commission-based wages and the means to calculate TFRS were contractually agreed and they were not purely gratuitous. I agree with Mr Sadhwani that the lack of a designated fixed salary does not mean that the Defendants did not earn “wages” from their employment.

106.Clause 2(c) of the Employment Agreements provided that the TFRS would be paid quarterly. As a matter of fact, it was not. But it is common ground that it was agreed from April 2015 each Defendant would receive a monthly payment of HK$100,000 on account of TFRS. These monthly payments were made continuously for a period of at least 20 months.

107.The Defendants naturally expected that such payments would continue throughout their employment. Although the monthly payments would eventually be set-off against the TFRS, the basis upon which the Defendants were entitled to receive those monthly payments was the continuing work they performed under their employment contract. Bearing in mind the broad statutory definition of wages, it seems to me that these monthly payments constituted part of the remuneration or earnings which the Defendants had earned from their employment.

108.Further, CCL’s submission that the Defendants did not earn wages is inconsistent with its own case seeking wages in lieu of notice against both Defendants. This is not only CCL’s pleaded case as it was also the its position advanced through its solicitors at the material time. For instance, Mr Hart’s e-mail to Mr Lamaison of 12 December 2016 requested wages in lieu of notice of HK$1,786,338 to be paid. I find it difficult to reconcile CCL’s claims for wages in lieu of notice with CCL’s own contention that the Defendants were not entitled to any wages in the first place.

109.Moreover, although it is by no means conclusive, it is also telling that the parties had through their correspondence did refer to the monthly payments as being the salary of the Defendants. In addition, MPF payments were made in respect of the monthly payments.

110.Mr Hart submits that where an employer has a discretion to determine the commission payable, the court cannot determine the basis and rate of commission. This would involve transferring to the court the exercise of a discretion vested in the employer. Mr Hart relied on Kofi Sunkersette Obu v A. Strauss & Co. Ld. [1951] A.C. 243, 250.

111.In my view, there is a fundamental difference between this case and Kofi Sunkersette Obu. The commission which was to be paid in by the company in that case was entirely left to the discretion of the company. As such, it is entirely understandable why the Privy Council refused to determine the rate and basis of commission payable. However, in the present case, according to Clause 2(c) of the Employment Contracts, the TFRS “will follow the guiding principles and calculated as set out in the Addendum hereto”. The basis of TFRS calculations in various scenarios is expressly set out in the Addendum. Various TFRS calculations have been put forward. It is therefore incorrect to suggest that the TFRS payments were entirely left to the discretion of CCL. Moreover, and in any event, it was never specifically pleaded by CCL that TFRS payments were entirely discretionary in nature.   

112.Putting aside whether this has been properly pleaded, I do not agree that the lack of a formal determination by CCL of the amount of TFRS payable to the Defendants makes a difference to the analysis. Under the Employment Agreements, a TFRS determination by CCL was not a condition of payment. The method of calculation is clearly set out under the Addendum. CCL’s determination under paragraph 6 of the Addendum is only final and binding between the parties as to timing and amount if there was any dispute between them. This does not mean that in the absence of a TFRS determination by CCL that no TFRS was payable to the Defendants. This is not a case where there was a genuine difference between the parties as to the amount payable, or where there was a difference in timing of payment which could be resolved by CCL’s determination. Instead, CCL says that nothing is payable at all. That is an extreme position to take. Paragraph 6 of the Addendum does not confer upon CCL the discretion to simply refuse to make a TFRS determination to avoid making TFRS payments to the Defendants.

113.For the above reasons, I conclude that the Defendants were entitled to “wages” during their employment. Consequently, I do not agree that it was not possible for Mr Overdijk to claim for constructive dismissal on the basis of non-payment of wages. I also do not agree that it was not possible for Mr Lamaison to terminate his employment contract by agreeing to pay wages in lieu of notice.

E5.  Mr Overdijk’s Claim for Constructive Dismissal

114.The issue of whether Mr Overdijk was entitled to terminate his employment on 2 February 2017 turns on whether there were sufficient grounds for constructive dismissal have been established.

115.An employee may terminate his contract of employment without notice or payment in lieu of notice in circumstances where his employer’s conduct amounts to a repudiation or fundamental breach going to the root of the contract, or shows an intention no longer to be bound by one or more of the essential terms of the employment contract. Circumstances which have been found sufficiently serious to warrant the employee terminating the contract include a failure to pay wages and other benefits, and also conduct on the part of the employer which undermines the trust and confidence of the employment relationship.

116.Section 10A of the EO gives statutory recognition to the right of employees to treat themselves as constructively dismissed on the grounds of outstanding wages for the period of one month or more from the date when such wages were due.

117.Mr Overdijk’s case is that he checked his bank account and discovered that he was not paid any wages for January 2017. Moreover, CCL remained in breach of its obligations by not paying him TFRS payments after having deducted the monthly payments. Mr Overdijk concluded that CCL had no intention of paying him or complying with the terms of the employment contract. As such, he accepted the repudiatory breach by CCL and terminated his employment on 2 February 2017 pursuant to sections 10 and 10A of the EO by written notice to CCL.

118.Since CCL did not make any monthly payment to Mr Overdijk for January 2017, and it did not pay him his TFRS payments after deducting the monthly payments, I find that Mr Overdijk was entitled to claim constructive dismissal. I have decided that these monthly payments did constitute “wages”. I do not agree that there was any valid justification for CCL to cease making the monthly payments and I also disagree that Mr Overdijk was not entitled to his final TFRS payments.

E6.  AIC’s Claim for HK$316,000

119.On AIC’s claim for HK$316,000, on 14 September 2016, Mr Tang sent an e-mail to the Defendants and Miss Lee. This e-mail stated:

“ … there doesn’t appear to be much to disagree on in relation to the accrued 916k balance that CCL owes AICL. I believe Harmen and Ming have already discussed the below so I trust that the addition of the payment schedule below helps to alleviate any uncertainties as to timing of flows”.

120.I accept Mr Sadhwani’s submission that the e-mail recorded an agreed payment schedule between all parties pursuant to which CCL was obliged to pay AIC the total amount of HK$916,000 in three separate instalments. These consisted of HK$300,000 in September 2016, HK$300,000 in December 2016 and HK$316,000 in March 2017.  

121.As a matter of fact, CCL made the first two payments of HK$300,000 in September and December 2016. In my judgment, this amounted to confirmation and partial performance of the payment obligations set out in the payment schedule. Mr Hart submitted that the payment of HK$300,000 in December 2016 was a gesture of good faith and in the hope that the Defendants would complete their documentation and depart as good leavers. That may be so, but Ms Lee’s subjective motivation for making the payments does not appear to me to be relevant. Objectively, it is clear to me that the payment was made pursuant to the agreed payment schedule.

122.Mr Hart further relied on the fact that the audit was not passed as a justification to say that AIC was not justified in receiving the HK$300,000 in December 2016, and was not entitled to receive the further HK$316,000 payment due in March 2017. As explained above, I do not accept this is a valid reason to not make payment. I find that AIC is entitled to the payment of HK$316,000 from CCL.

E7.  Other Complaints Made by CCL

123.CCL has made other complaints in these proceedings. These include the fact that Mr Lamaison allegedly sent e-mails to clients on 12 December 2016, at which date he remained employed by CCL. There is also a complaint that Mr Lamaison took his desktop computer from CCL’s office on that day, but was later returned on 15 December 2016. There were also suggestions of deletions of emails by Mr Overdijk, and allegations of various “breaches” by the Defendants including a lack of a derivatives assessment for a large CCL client, and various failures in terms of corporate documentations and client memos. I have considered Mr Hart’s submissions on these matters, but I do not consider that the resolution of these complaints has an important bearing on the relief sought by either party in these proceedings. Nor do I see that that they result in actionable loss. I also record that insofar as contact with CCL clients are concerned, there was no dispute that Clause 6 of the Employment Agreements governed the position.     

F.  DETERMINATION OF THE CLAIMS

F1.  CCL’s Claims

124.Mr Overdijk was entitled to claim constructive dismissal, and Mr Lamaison has already agreed that his wages in lieu of notice should be set-off against his TFRS entitlements. I dismiss CCL’s claims for wages in lieu of notice against both Defendants.

125.I do not consider that there is any valid basis for CCL to seek repayment of the HK$2.1m and HK$2m respectively received by Mr Overdijk and Mr Lamaison in monthly payments. These monthly payments were received on a valid and agreed basis and were intended to be set-off against the TFRS payments at the end of the day. I reject this claim.

126.CCL seeks recovery of HK$600,000 against all Defendants. This represents the two HK$300,000 payments made to AIC in September and December 2016. These payments were made to AIC in accordance with an agreed payment schedule. In my judgment, CCL was obliged to honour its obligations under that agreed payment schedule. There is no valid basis for CCL to effectively renege upon that and seek repayment from any of the Defendants. I reject this claim.

127.CCL makes a claim for HK$878,606.31. This is described in the Statement of Claim as “waived termination fees” but no further particulars provided. I have reservations as to whether the court should even entertain this claim in the absence of properly pleaded particulars.

128.Mr Hart produced a Table A to his closing submissions which set out the particulars of certain unpaid invoices by 35 CCL clients as at 20 March 2017. This showed that CCL invoiced their clients HK$1,667,169.20 out of which HK$788,562.89 was settled, leaving an outstanding balance of HK$878,606.31. These particulars do not appear in the Statement of Claim and do not appear to have been addressed in any of CCL’s witness statements despite their literally running to hundreds of pages. As a result, there was no cross-examination of any of CCL’s witnesses by Mr Sadhwani on this claim. I doubt whether it is appropriate to entertain this claim for this further reason. In any event, I am not satisfied that the Defendants should be responsible for these unpaid invoices by CCL clients. On the basis of the available information, and even accepting Table A at face value, I do not know what are the reasons for non-payment by CCL clients. It seems to me that this is a matter between CCL and its clients. I am not satisfied that there is a proper legal or factual basis that the Defendants should be liable for the amount claimed. I reject this claim.      

129.CCL seeks to claim the audit fee against the Defendants. Complyport issued an invoice to CCL for HK$17,160 for audit fees. I accept the amount involved but the legal basis for this claim against the Defendants is not clear to me. I reject this claim.

130.CCL claims HK$2,757,054.10 as being loss of revenue outstanding to CCL based on the amounts outstanding from clients following the departure of Mr Overdijk and Mr Lamaison. The position here is similar to CCL’s claim for the HK$878,606.31. No particulars were set out in the Statement of Claim, and how this figure was derived was not explained in CCL’s witness statements. Mr Hart produced a Table B to his closing submissions which explained the figures.[16]  This is a list of unpaid invoices for clients who terminated their accounts with CCL, and it comprises of unpaid management fees and also a claim for loss of revenue of 3 months reflecting the notice which CCL says that the clients were obliged to give to CCL. I am not satisfied that the Defendants should be responsible for these unpaid invoices by CCL clients. On the basis of the available information, and even accepting Table B at face value, I do not know what are the reasons for non-payment by CCL clients. It seems to me that this is a matter between CCL and its clients. I am not satisfied that there is a proper basis that the Defendants should be liable for the amount claimed. I reject this claim.    

131.There is a suggestion that Mr Overdijk unilaterally accepted notices of terminations provided by clients and waived the 3 months’ notice period provided in the relevant investment management agreements. Mr Hart submitted that the notice period should only start to run after 20 March 2017, and it was only at this stage when CCL would have considered whether to agree to waive the relevant notice periods. It appears that the 20 March 2017 date presupposes that the Defendants were obliged to serve out the entirety of their own notice periods, which is a case I have not accepted. Further, I accept Mr Sadhwani’s submission on the evidence that after the 27 January 2017 quarterly compliance meeting, Mr Somer advised that Mr Overdijk should inform the clients about their closure of their accounts and the waiving of the notice period before Mr Overdijk left CCL, and these documents should be included in the client file. Mr Somer said that he could not recall specifically whether he did so advise, but it is extremely likely that he said that based on usual practice. I find that CCL’s case for waiver of notice periods is difficult to reconcile with the above evidence.          

F2.  The Defendants’ Claims

132.I find that the Defendants are entitled to payment of TFRS in accordance with the Employment Agreements and its Addendum but with the TFRS revenue split was varied with effect from 1 January 2016 onwards from a 90/10 to 80/20 ratio. Credit must be given for amounts already paid to the Defendants whether by monthly payments or otherwise.

133.In closing submissions, Mr Sadhwani submitted that in the event that the Court finds that the parties agreed to the TFRS variation to an 80/20 split, the Defendants would still be entitled to damages to be awarded, but the amount should be reduced accordingly. I agree.

134.This was not a split trial. Accordingly, all issues of liability and quantum should be dealt with a trial. However, Mr Sadhwani’s quantum case met with difficulty. With the greatest of respect, this appears to be a case where no detailed thought has been given to presenting and proving quantum in a clear and intelligible manner.

135.Mr Overdijk’s pleaded case is that the total balance of TFRS owing to him as at December 2016 was HK$1,040,116.63. This excluded the TFRS for the October to December 2016 quarter which is said to be also due to him. The particulars in support of the HK$1,040,116.63 sum are set out in Annexure 2 of the Re-Re-Amended Defence and Counterclaim (“RRADC”). These particulars are said to be calculated based on the figures set out in the spreadsheet at Annexure 1 of the RRADC.

136.Mr Lamaison’s pleaded case is that the total balance of TFRS outstanding and due to him as at 12 December 2016 was HK$1,140,116.63. His case is that the payment in lieu of notice due from him to CCL for the balance of his notice period of 97 days was HK$430,283.27. These sums based on the calculations set out in Annexure 2 of the RRADC, which are based on the Annexure 1 figures.

137.Annexures 1 and 2 are referred to in the witness statements of Mr Overdijk, Mr Lamaison and Mr Tang.[17]  However, none of them actually explained how the figures and calculations in Annexures 1 and 2 are arrived at. Accordingly, the court has not been assisted by any factual evidence to understand Annexures 1 and 2. This was not helpful.

138.Annexures 1 and 2 are far from self-explanatory.

(1)  There are two different spreadsheets in Annexures 1.

(2)  The spreadsheets cover different time periods. The first one deals with the period between June 2014 up to July 2017, although there are no revenue figures for October 2016 onwards. The second spreadsheet deals with the period between January 2015 up to December 2016, although there is no revenue figure for December 2016. There is no evidence before me to explain why these differences exist or what is the relevance of having these two spreadsheets.

(3)  Moreover, there are different “revenue” and “grand total” figures for the period between October to December 2015 in the two spreadsheets. There is no evidence before to explain why this is the case. Mr Lamaison was asked by Mr Hart to compare the two spreadsheets in cross-examination because they contained different numbers even for the same months. Mr Lamaison could not explain the difference.

(4)  There are also different “grand total” figures between May to September 2016 in the two spreadsheets.

(5)  Annexure 2 seeks to show the cumulative balance of the TFRS outstanding and due to the Defendants at various points in time. It is unclear to me how the Quarterly Profit Share is derived at, and there is no evidence before me to explain this.

(6)  It is not apparent how the Quarterly Profit Shares in Annexure 2 are said to be derived from Annexure 1. For example, in Annexure 2, the Quarterly Profit Shares for April to June 2015 and July to September 2015 are stated to be HK$715,425.26 and HK$1,447,685.32 respectively. But these are clearly not the sums of the “grand totals” of those individuals months based on either of the spreadsheets in Annexure 1.

(7)  As Mr Hart has pointed out, the Quarterly Profit Shares stated in Annexure 2 for October to December 2015, January to March 2016, April to June 2016, and July to September 2016 also cannot be derived from the “grand totals” listed in the spreadsheets in Annexure 1. They appear to be substantially more than the “grand totals” for those months, and I do not know why that is the case.

(8)  If the Quarterly Profit Shares stated in Annexure 2 are flawed, it necessarily follows that the remaining calculations in Annexure 2 showing the cumulative balance are flawed as well.   

139.Prior to closing submissions, I expressly reminded the parties that quantum issues are important and I expected to receive assistance on these issues. I informed the parties that if I was unable to understand the basis of calculations and that I may proceed on the basis that there is no intelligible basis upon which I could award damages.

140.In Mr Sadhwani’s written closing submissions, and despite my express reminder, I did not receive any meaningful assistance to understand the basis upon which Annexures 1 and 2 were prepared, or how the calculations were arrived it. Instead, there were two new detailed calculation tables presented in his written closing (“Closing Tables”).[18] 

141.It was said that these had been previously submitted at the Labour Tribunal stage. The fact is, however, Annexures 1 and 2 remain the basis of the pleaded case in the High Court. No application to further amend the RRADC was made to provide updated figures. Mr Hart objected to the Closing Tables given that these figures had not been pleaded, mentioned in witness evidence or during oral testimony.

142.I agree with that submission. These proceedings have been ongoing since 2017, and there is no satisfactory reason why further clarity has not been given to the quantum case of the Defendants. It is wholly unacceptable to expect the court to calculate for itself what the entitlements of the Defendants are, and equally objectionable for figures which are not pleaded to be raised in closing submissions.

143.The Closing Tables are not reconcilable with Annexures 1 and 2. For example, in the Closing Tables, the figures for “revenue” for the period from December 2014 are different from those stated in Annexure 1. Moreover, the Quarterly Profit Share stated in the Closing Tables for the quarters of October to December 2015, April to June 2016 and July to September 2016 are different from that stated in Annexure 2.

144.Oral closing submissions took place on 3 March 2025. On 11 March 2025, the Defendants filed a summons (the “Defendants’ Summons”) seeking leave to file further submissions on damages calculations (“Further Submissions”). Mr Hart opposed the application principally on the ground that the trial had already concluded, and there was no justification for late submissions.

145.I have reviewed the Further Submissions on a de bene esse basis. They state that the damages calculations in the Closing Tables are based on the second spreadsheet in Annexure 1.

(1)  The explanation for the difference in revenue figures in the Closing Tables and Annexure 1 is that (i) for January to December 2015, the spreadsheet was prepared on the basis of a 90/10 split; (ii) but from January 2016 onwards, it was prepared on an 80/20 split basis which does not reflect the Defendants’ position. However, this is not clear from the spreadsheet.

(2)  The explanation for the difference in the “grand total” figures in Annexure 1 and the “Profit” column in the Closing Table is that the monthly payments of HK$100,000 were included in the “Human Resources” expenses row in Annexure 1 when calculating the “Grand Total”. However, in the Closing Tables, the monthly payments were deducted after calculating the Quarterly Profit Share and the 50% split between the Defendants.

146.I will allow the Defendants’ Summons to rely on these submissions but since the Defendants are seeking an indulgence from the court, I will order that costs of and occasioned by that Summons be payable by the Defendants to CCL, to be taxed if not agreed.

147.I will not allow reliance on the Closing Tables. I firmly reject this. I asked for assistance in understanding the figures pleaded, and I did not ask for new figures to be presented. Fundamentally, there is no answer to Mr Hart’s point that these figures are not pleaded, covered by any of the witnesses for the Defendants, or even mentioned in oral testimony. The fact that these spreadsheets may have been submitted to the Labour Tribunal is irrelevant. It is the pleadings in this case which govern the matter, and the figures and calculations pleaded are in Annexures 1 and 2 and not those contained in the Closing Tables.

148.I find it highly unsatisfactory that the issue of quantum appears to have been given little, if any, thought by the Defendants. Moreover, in order to understand the Closing Tables, one needs to have regard to the Further Submissions. But I consider that the explanations given there are matters of evidence, not submissions. Specifically, I have no evidence as to whether the “revenue” figures stated in the spreadsheets in Annexure 1 are gross revenue figures, whether they represent 90% gross revenue, or 80% gross revenue. From Mr Hart’s closing submissions, I note that he has proceeded on the basis that the “revenue” figures listed in Annexure 1 represent gross revenue generated, and not 90% or 80% of gross revenue.[19]  I have no evidence as to which one is correct. The explanations given by way of Further Submissions ought to have been dealt with in evidence, but it was not.

149.I have given careful consideration to whether the Defendants should be awarded only nominal damages on the basis that there is no admissible or intelligible basis upon which the TFRS calculations may be worked out. I am mindful, however, that I have decided that the parties have agreed to an 80/20 revenue split with effect from 1 January 2016 onwards. This may have an impact on the figures claimed. I am also mindful that there does appear to be no dispute that there were positive gross revenue figures for Caidao Wealth in 2015 and 2016. Whether this translates into TFRS being owed by CCL is another matter.

150.In the end, I have reluctantly decided to hold a further hearing to decide on precise relief to be awarded on the 1^st and 2^nd Defendants’ counterclaim in the light of this judgment. No new evidence will be allowed and the Defendants will not be allowed to run a case which is not pleaded. The parties are directed to see whether figures can be agreed in advance of that hearing. This includes both the TFRS figures and also the payment in lieu of notice calculations. Parties are expected to approach this sensibly and with proportionality in mind. The court expects assistance of the parties, and will not be performing detailed calculations by itself. My provisional view that there is no reason why CCL should bear the costs of this further hearing.

G.  DISPOSITION

151.The Plaintiff’s claims are dismissed.

152.I enter judgment in favour of AIC against CCL for HK$316,000. I make an order nisi as to interest on this sum at the rate of 1% above HSBC’s best lending rate from 1 April 2017 until the date of judgment. There will be a further hearing to decide on the precise relief to be granted, if any, on the 1^st and 2^nd Defendants’ counterclaim. As to costs, I make an order nisi that CCL pay the 1^st to 3^rd Defendants the costs of these proceedings, including all costs reserved, to be taxed if not agreed.

153.The Defendants’ Summons is allowed. I make an order nisi that costs of and occasioned by that Summons be payable by the Defendants to CCL, to be taxed if not agreed.

Mr Andrew Hart (Solicitor Advocate), of Hart Giles, for the Plaintiff

Mr Kamlesh Sadhwani, instructed by Tanner De Witt, for the 1^st to 3^rd Defendants