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Companies as Harassed Victims? Court of Appeal Explores New Legal Ground

The Hong Kong Court of Appeal (“CA“)’s recent decision in Sir Elly Kadoorie & Sons Limited v Samantha Jane Bradley [2024] HKCA 747 marks a significant development in the evolving tort of harassment, particularly its application to corporate plaintiffs. This case summary outlines the key aspects of the CA’s decision.

Background:

The plaintiff company, Sir Elly Kadoorie & Sons Limited (“SEKSL”), brought an action against the defendant, Ms. Samantha Jane Bradley (“Ms. Bradley”), a former senior employee, seeking an injunction to restrain Ms. Bradley from continuing her acts of harassment and damages for harassment. SEKSL sued on its own behalf and as a representative of its current and former officers, employees, and agents (collectively, “Representees“). The alleged harassment consisted of over 500 emails sent by Ms. Bradley between December 2020 and May 2022, containing repetitive and hostile accusations against SEKSL and associated individuals. These emails were sent after the termination of Ms. Bradley’s employment and a consultancy agreement that she subsequently entered into with SEKSL.

On 31 May 2023, the Court of First Instance dismissed SEKSL’s claims essentially on the ground that as a corporate entity, SEKSL had no standing to bring a harassment claim in its own capacity. Furthermore, the judge found that SEKSL did not have the “same interest” as the individuals it sought to represent, and therefore could not bring a representative action on their behalf. SEKSL lodged an appeal against this decision.

The Tort of Harassment at Common Law:

The CA reviewed the development of the tort of harassment in Hong Kong, noting that it has only truly emerged in the past decade. The CA summarised the elements a claimant in an action for the tort has to show as follows:

  1. The defendant, directly or through third parties, engaged in a course of sufficiently repetitive, unreasonable, and oppressive conduct that caused (or he ought reasonably to know would cause) worry, alarm, emotional distress, or annoyance to the claimant victim;
  2. The conduct complained of must, objectively, amount to harassment;
  3. The defendant either intended to cause harm or injury to the claimant victim by his harassing conduct, or was reckless as to whether the victim would suffer harm or injury as a result of the harassing conduct; and
  4. The claimant victim suffered actual damage caused by the harassment, which may include anxiety, distress, recognised psychiatric illness, and financial loss.

The CA noted that unlike jurisdictions such as the UK and Singapore, Hong Kong has not enacted specific anti-harassment legislation. As such, there remains scope for the common law tort of harassment to develop incrementally.

Availability of Injunctive Relief:

A significant aspect of the CA’s decision was its analysis of the availability of injunctive relief to SEKSL. The CA emphasised the wide and flexible powers of courts to grant injunctions, citing the UK Supreme Court’s recent judgment in Wolverhampton City Council v London Gypsies and Travellers [2024] 2 WLR 45. It held that the court has jurisdiction to grant SEKSL a “free-standing injunction” to restrain Ms. Bradley from continuing her acts of  harassment of the Representees, even if SEKSL itself cannot sue for harassment in its own capacity.

Corporate Plaintiffs and Harassment Claims:

On the question of whether a corporate entity can bring a harassment claim in its own right, the CA took a more nuanced approach than the lower court. While not definitively resolving the issue, the CA concluded that it was at least reasonably arguable that a corporate plaintiff could bring such a claim.

The CA suggested several potential ways the law could develop to allow harassment claims by corporate claimants. For instance, the concept of “worry, emotional distress or annoyance” might be extended to include the impact on relevant officers or employees dealing with the harassment. Alternatively, the damage that is necessary to complete the tort may take the form of the financial loss suffered by a company arising from counteracting harassing acts.

The CA emphasized that the boundaries of the common law tort are still being explored, and that there could plainly be scope for the common law tort of harassment to develop incrementally in Hong Kong to permit a corporate entity to bring an action for harassment in its own capacity. It rejected the notion that the tort’s development should be restricted by its original rationale of protecting individuals in densely populated areas, as proposed in Lau Tat Wai v Yip Lai Kuen Joey [2013] HKCFI 639, given the various ways modern technology enables harassment.

Decision and Orders:

The CA allowed SEKSL’s appeal and set aside the lower court’s orders. It held that:

  1. The court has jurisdiction to grant SEKSL a “free-standing injunction” to restrain Ms. Bradley from continuing her acts of harassment of the Representees;
  2. Whether the court ought to grant the injunction sought by SEKSL against Ms. Bradley can only be determined after trial, because the exercise of the court’s discretion whether to grant the injunction depends on the facts and circumstances of the case;
  3. Since both SEKSL and the Representees are entitled to invoke the court’s jurisdiction for the grant of an injunction to restrain Ms. Bradley from continuing her acts of harassment, they have the “same interest” for the purpose of representative proceedings, and SEKSL is entitled to bring the present action as a representative action on its own behalf and also on behalf of the Representees against Ms. Bradley;
  4. SEKSL’s claim for injunctive relief could not be struck out on the ground that it discloses no reasonable cause of action or is plainly and obviously unsustainable; and
  5. Since SEKSL’s claim for injunctive relief is fact-sensitive, the claim is not suitable for disposal on point of law.

This judgment significantly advances the law on the tort of harassment in Hong Kong. It reaffirms the court’s broad jurisdiction to grant “free-standing” injunctive relief and leaves open the possibility for corporate entities to bring harassment claims in their own right.

The full judgment can be accessed here.

Date:
7 November 2024
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Hong Kong Court Analyses Implied Terms in an Employment Contract & Duties of Employers

In a recent judgement Yang Zhizhong v Nomura International (Hong Kong) Limited [2024] HKCFI 2192, the Court of First Instance (“Court“) discussed implied terms in employment contracts in detail.

  1. Summary of Facts

Yang, a former Senior Managing Director of Nomura International (Hong Kong) Limited (“Nomura“), is claiming against Nomura for breach of his employment contract following Nomura’s termination of his employment. Nomura engages in investment banking activities and equity research activities in Hong Kong, and is regulated by the Securities and Futures Commission (“SFC“).

Yang was appointed as Chairman of the Investment Banking Division in 2011. In 2015, he arranged and attended a three-way meeting between he, Ms Liu (who was the Head of China Equity Research and China Strategist for Nomura) and the CEO of Huatai Securities Co Ltd (a potential applicant for an initial public offering (“IPO“) (“Three-Way Meeting“). Nomura was subsequently mandated a role in the IPO.

In 2016, the SFC carried out a routine inspection of Nomura’s business and expressed its concern about the Three-Way Meeting, which created a potential conflict of interest between Nomura’s investment banking division (which earned fees from promoting an IPO) and the research division (which was in a position to influence the investing public through its published research).  After conducting internal investigations, Nomura considered that Yang had not taken proactive steps to manage any such perceived conflicts of interest.  This eventually led to the termination of Yang’s employment by Nomura.

There had also been separation discussions between Yang and Nomura following Yang accepting an offer from HSBC, however, they did not agree on the terms eventually.

Yang alleged that Nomura breached the implied terms of his employment contract by:

1) Issuing a warning letter;

2) Refusing to grant him the discretionary bonus for the performance year 2016/17; and

3) Terminating his employment on the grounds of redundancy.

  1. The Court’s Ruling

The Court dismissed Yang’s claims and discussed amongst others, the following implied terms of his employment contract:

Mutual Trust and Confidence

The Court confirmed the test for the implied obligation of mutual trust and confidence, that is:

1) Whether the employer’s conduct was likely to destroy or seriously damage the relationship of trust and confidence between employer and employee. This is to be assessed objectively, by reference to all the circumstances;

2) Whether there was reasonable and proper cause for the conduct; and

3) Whether the conduct was calculated to destroy or seriously damage the relationship.

The issues that the Court was asked to determine was whether such implied obligation applied to (i) Nomura’s decision to issue the warning letter; (ii) Nomura’s decision not to award Yang any bonus for 2016/17; and (iii) Nomura’s decision to terminate Yang’s employment.  The Court refused to apply this obligation to Nomura’s decision to terminate Mr Yang’s employment because this duty is concerned with the preservation of the continued relationship between an employer and employee and therefore, could not be applied to the termination of the relationship.

The court further held that there was no breach of the implied term of mutual trust and confidence by Nomura in issuing a warning letter due to Yang’s misconduct, since Nomura was acting in accordance with the provisions in Nomura’s employee handbook. There was also no breach of the implied term of mutual trust and confidence by Nomura in refusing to award a discretionary bonus because by the time Nomura made its decision, it still intended to preserve an amicable relationship for the remainder of Yang’s employment during the separation discussions.

The Duty in Braganza v BP Shipping Ltd and another [2015] 1 WLR 1661 (“Braganza Duty“)

The Court confirmed the test for the Braganza Duty (i.e. a duty to exercise its discretion in good faith, rationally and for proper purposes, and not arbitrarily or capriciously or in a manner which is not bona fide, where a contract provides for an apparently unqualified power or discretion), that is:

1) Whether Nomura took into account all relevant considerations and excluded irrelevant ones; and

2) Whether the result was so outrageous that no reasonable decision-maker could have reached it.

The Court held that the Braganza Duty applied to Nomura’s decision not to grant the discretionary bonus to Yang and co-existed with the implied term of trust and confidence.

Applying the legal test, the Court found on the facts that Nomura did not act irrationally (and thus was not in breach of the Braganza Duty) in making such decision, since it had considered all relevant considerations e.g. Yang’s misconduct and his diminishing financial contributions to Nomura, and excluded all irrelevant ones.

Anti-avoidance Term

This term concerns whether Nomura exercised its right to terminate Yang’s employment (by giving three months’ notice in writing or by paying in lieu of notice) in order to avoid Yang being eligible for or receiving a bonus award.

On the facts, the Court held that although Yang’s employment was not terminated on the ground of redundancy, Nomura was entitled to terminate Yang’s contract on three months’ notice.  The termination could not have been for the purpose of depriving Yang of the discretionary bonus, because the notice of termination was given after the bonus decision had been made.

Conclusion

The Court accordingly did not find any breaches of the aforesaid implied terms on the part of Nomura.

  1. Implications

This case offers useful guidance as to the tests to construe implied terms of an employment contract, giving both employers and employees more clarity as to their respective rights and obligations.  Employers are reminded of the duty to exercise discretions in good faith, rationally and for proper purposes, even where they have sole or absolute discretions.  This is particularly relevant in their exercise of discretion as to whether or not to grant bonuses to their employees.  Employers should also note that to the extent that disciplinary proceedings are contractual in nature, they must follow the disciplinary process provided for.

The full judgment can be accessed here.

Date:
25 October 2024
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CFO’s duty to “report and protect”

On 30 September 2024, the Court handed down the Reasons for Decision (HCMP 736/2019, the “Fujian Nuoqi Case“) in relation to the disqualification order against the former CFO of Fujian Nuoqi Co., Ltd. (“Fujian Nuoqi“). The CFO was disqualified from being involved in the management of any corporation in Hong Kong for three years and was ordered to pay the Securities and Futures Commission’s (“SFC“) costs.

In the SFC’s press release dated 18 October 2024, the SFC’s Executive Director of Enforcement emphasized the importance of CFOs in safeguarding business assets, ensuring accurate financial disclosures, and reporting suspicious transactions to the boards. In particular, the SFC commented that the Fujian Nuoqi Case has made it clear that CFOs have “supervisory duty to make proper enquiry about suspicious transactions and promptly report them to the boards“.

In the Fujian Nuoqi Case, according to the SFC’s investigation, RMB225 million from Fujian Nuoqi’s IPO proceeds was withdrawn shortly after the listing of Fujian Nuoqi shares in January 2014 without proper approval and not for genuine commercial purposes. In giving the disqualification order, the Court remarked that there was a marked degree of incompetence and negligence on the part of the CFO but there was no allegation of dishonesty. It was a case where the chairman and CEO of Fujian Nuoqi withheld information from the CFO.

It may be beneficial to compare the Fujian Nuoqi Case with an earlier case (HCMP 1462/2019, the “Changgang Dunxin Case“) in which the SFC successfully obtained disqualification and compensation orders against the former CFO of Changgang Dunxin Enterprise Company Limited (“Changgang Dunxin“). In this instance, the former chairman and executive director of Changgang Dunxin had misappropriated funds from share and bond placements. The CFO not only failed to notify the auditors, the audit committee, and the board about the chairman’s misappropriation of HKD163 million but also took actions to conceal the misappropriation. As a result of his serious misconduct, he was disqualified for 10 years and ordered to repay the misappropriated sum plus interest, along with covering the SFC’s costs.

Such cases relating to the CFO’s duty to “report and protect” highlight the importance of corporate governance and the CFO’s expanding role. The scope of the CFO’s duties has expanded far beyond traditional finance, necessitating a more comprehensive grasp of new challenges and risks. Historically, the CFO’s main role centred on financial stewardship, ensuring the company’s financial health and ability to meet its obligations. Although this remains a crucial responsibility, today’s CFO must navigate a broader range of tasks. The modern CFO needs to be well positioned to address various matters beyond a company’s finances, including corporate governance, risk management, and maintaining robust internal control systems.

Date:
24 October 2024
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ARCH Community Outreach Careers Program 2024

For the third straight year, MinterEllison LLP is thrilled to be an industrial partner of the ARCH Community Outreach (“ACO“) Careers Program 2024, providing valuable job shadowing opportunities for local secondary school students to have a taste of working in the legal industry.

Following the conclusion of the ACO Careers Program 2024, our Paralegal (Pending Admission) Alan Sham and trainee solicitor Matthew Lau were invited to attend the Graduation Day and to sit on the panel of the presentation session on the 1st of September 2024, during which the students were given the opportunity to present what they have learnt throughout the Program, as well as network with representatives from various industrial partners of the Program.

We are pleased to have witnessed what the students have learnt throughout the Program, and are especially overjoyed to hear the feedback from students who have been with us during our 2-day work shadow programme on the 8th and 9th of August 2024. Participating in the ACO Careers Program is one of the many ways we at MinterEllison LLP contribute to the community, and we continue to look forward to future initiatives to foster the next generation of legal professionals.

Date:
20 September 2024
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Employer awarded HK$2 million in damages for employee’s wrongful diversion of business opportunities in breach of duties

In the recent case Green Light Multiplex Co Ltd v Lam Shi Yan [2024] HKCFI 2101, the Court of First Instance (“Court“) awarded over HK$2 million to an employer for breach of contractual and fiduciary duties by a former employee who wrongfully diverted business opportunities away.

Background

The 1st Defendant, Mr. Lam Shi Yan (“Lam“), was employed as the General Manager of the Plaintiff, Green Light Multiplex Co. Limited (the “Company“), which was originally engaged in the business of lighting components supply. Lam was hired to, among other things, expand the Company’s business into the project lighting business.

In this connection, Lam procured Abacus Lighting Limited (“Abacus“) to enter into an exclusive distributor agreement with the Company (the “EDA“). Under the EDA, the Company had the exclusive right to purchase, promote, and sell Abacus’ products and services in Hong Kong and Macau.

The relationship between Lam and the Company subsequently deteriorated in many respects. Lam alleged that Mr. Gordan Lai (“Lai“), the founder and Managing Director of the Company, stripped him of his powers and responsibilities through, for example, firing Lam’s subordinate without consulting him in advance. Lam contended that he had no choice but to resign given that the trust and confidence of the employment relationship had been undermined.

On the other hand, the Company, among other things, alleged that Lam wrongfully procured Abacus to breach the EDA, causing the Company to lose its exclusive distributorship to Pinetum Lighting Limited (“Pinetum“), a competitor of the Company which Lam later joined (although Lam denied that he had ever been employed by Pinetum). As a result, the Company lost further business opportunities in various construction projects.

In the circumstances, the Company claimed against Lam for breach of various implied terms of his employment contract and his fiduciary duties owed to the Company, which gave rise to loss of business opportunities and profits.

Implied terms of Lam’s employment agreement

Both the Company and Lam contended that certain terms had been implied into Lam’s employment contract.  The Court accepted the Company’s case that the following duties owed by Lam were indeed implied into his employment contract: (1) a duty of fidelity and good faith; (2) a duty not to divert business opportunities; (3) a duty not to solicit customers; (4) a duty not to disclose confidential information; and (5) a duty not to use information obtained in the course of or as a result of his employment with the Company to the detriment of the Company.

The Court also accepted Lam’s case that there was an implied term that he would not be demoted, provided that the change of title would lead to a fundamental change to the whole nature of the job.

Fiduciary duties owed by Lam to the Company

The Court held that in determining whether an employee who is not a director owes fiduciary duties to the employer, it is necessary to identify with care the particular duties undertaken by the employee, and to ask whether in all the circumstances he has placed himself in a position where he must act solely in the interest of his employer. It is only once those duties have been identified that it is possible to determine whether any fiduciary duty has been breached. An analysis is therefore required as to whether in all the circumstances, and by reference to the specific contractual obligations, the employee has undertaken to act solely in the employer’s interests.

Here, considering the two factors below, the Court had no hesitation in concluding that Lam, as the General Manager, owed fiduciary duties to the Company, even if he was not a director of the Company:

  1. The Company recruited Lam to, among other things, expand its business into project lighting; and
  2. The Company and Lai sought to utilise Lam’s connections with suppliers and customer in the project lighting industry.

Diversion of business opportunity and breach of duties by Lam

After considering a multitude of factual evidence adduced by the parties, it was held, among other things, that:

  1. Lam breached his duty of fidelity and fiduciary duties owed to the Company. He lied to Abacus and said that the Company would cease its lighting business. Lam actively procured and induced Abacus to terminate the EDA and to deal with another company instead, causing the Company to lose its right as the sole distributor of Abacus’ products and services in Hong Kong and Macau; and
  2. This led to a loss of multiple business opportunities and profits on the Company’s part. To this end, the Court allowed the Company’s claims in respect of the projects below and awarded damages in the sum of over HK$2 million to the Company:

Takeaways

Apart from the general duty of fidelity and good faith that all employees owe to the employer, employees of sufficient seniority may also owe fiduciary duties to their employer if they have undertaken to act solely in the interest of the employer under the employment contract, notwithstanding that they are not directors. In general, fiduciary duties are higher and stricter than duty of fidelity.

Further, even in the absence of post-termination confidentiality obligations and restrictive covenants (which are commonly provided for in employment contracts to prevent employees from joining a competitor and soliciting business from former clients immediately after termination), the Court is ready to award damages to the employer if an employee’s conduct is found to be in breach of the implied terms of his/her employment contract and/or fiduciary duties owed to the ex-employer.

The full judgment can be accessed here.

Date:
19 September 2024
Practice Area(s):
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