Introduction

Labour Tribunal has exclusive jurisdiction over claims arising from breach of employment contract and non-compliance of Employment Ordinance (Cap. 57). What about claims arising from employment that are subject to an arbitration agreement? In MAK v LA [2022] HKCFI 285, the Court of First Instance (“CFI”) adopted a pro-arbitration approach in interpreting an arbitration clause regarding the staff bonus scheme and granted a stay of Labour Tribunal proceedings in favour of arbitration.

Background

Under an employment contract made between the claimant (“MAK”) and his former employer (“Company”) on 12 November 2010 (“Employment Contract”), MAK might be entitled to discretionary cash bonus and might be eligible to take part in a staff bonus scheme (“Bonus Scheme”). MAK was awarded discretionary bonuses for 2016, 2017 and 2018, which included deferred share units to be vested over a period of 3 years (“Deferred Shares”).

MAK commenced proceedings in the Labour Tribunal against the Company on the basis that the Company failed to pay his discretionary bonus for 2019 and also failed to vest the unvested Deferred Shares to him upon his dismissal. The Company put forward a defence that there was an arbitration agreement for disputes regarding the Deferred Shares to be dealt with by arbitration. The Company applied to stay the Labour Tribunal proceedings for arbitration. The Tribunal transferred the proceedings to the CFI for determination.

1^st Issue: Whether the Labour Tribunal has jurisdiction
to deal with MAK’s claim?

Section 20(2) of the Arbitration Ordinance (Cap. 609) (“Ordinance”) provides that if a dispute in the matter which is the subject of an arbitration agreement involves a claim or other dispute that is within the jurisdiction of the Labour Tribunal, the court before which an action has been brought may, if a party so requests, refer the parties to arbitration if it is satisfied that:

“(a) there is no sufficient reason why the parties should not be referred to arbitration in accordance with the arbitration agreement; and

(b) the party requesting arbitration was ready and willing at the time the action was brought to do all things necessary for the proper conduct of the arbitration, and remains so.”

There was no dispute that the Company was “ready and willing” to do all things necessary for the proper conduct of the arbitration. Therefore, the CFI focused on whether (1) there was sufficient reason why the parties should not be referred to arbitration and (2) whether there was an arbitration agreement. It was accepted by the CFI that under the Labour Tribunal Ordinance (Cap. 25), a claim for a sum of money arising from the breach of a contract of employment falls within the exclusive jurisdiction of the Labour Tribunal.

On this 1^st Issue, the CFI held that MAK’s claim for the discretionary bonus for 2019 was a claim for money, which falls within the jurisdiction of the Labour Tribunal. On the other hand, MAK’s claim for the redemption of the Deferred Shares was not a claim for money and fell outside the jurisdiction of the Labour Tribunal.

2^nd Issue: Whether the CFI should refer the parties to arbitration?

Inconsistencies between the 3 Bonus Letters

The Employment Contract expressly provides that the parties shall refer to the exclusive jurisdiction of the Hong Kong courts in relation to any dispute arising from MAK’s employment.

Subsequent to the Employment Contract, the Company issued additional letters regarding the award of bonuses to MAK, including (1) a letter dated 17 May 2017 in respect of the bonus for 2016 (“2016 Bonus Letter”), (2) a letter dated 16 June 2017 in respect of the bonus for 2017 (“2017 Bonus Letter”), and (3) a letter dated 3 May 2019 in respect of the bonus for 2018 (“2018 Bonus Letter”) (collectively, “Bonus Letters”).

Whilst the terms regarding the bonus payments are similar in the Bonus Letters, there were certain notable inconsistencies:

1.       The 2016 Bonus Letter contained no arbitration clause.

2.       The 2017 Bonus Letter had an arbitration clause which provides that any dispute arising out of the 2017 Bonus Letter shall be referred to arbitration in Hong Kong and a sole arbitrator shall be selected by the Company.

3.       The 2018 Bonus Letter had the same arbitration clause as the 2017 Bonus Letter, but it was not signed by MAK.

Whether there is sufficient reason that the parties
should not be referred to arbitration?

MAK argued that the arbitration clause in the 2017 Bonus Letter and the 2018 Bonus Letter is unenforceable because there was a total failure of consideration in respect of the Bonus Letters and it is unconscionable for the Company to be allowed to unilaterally appoint a sole arbitrator.

As a preliminary issue, the CFI held that there was sufficient consideration as MAK would be eligible for the bonus payments only if he had agreed to the terms and conditions in the Bonus Letters. The CFI then held that it would not be unconscionable for the Company to unilaterally appoint an arbitrator because an arbitrator is subject to professional obligations. In any event, the parties freely agreed to the appointment of a sole arbitrator in the 2017 Bonus Letter and 2018 Bonus Letter.

How to resolve the inconsistencies between the Bonus Letters?

The CFI referred to an English case, Fiona Trust & Holding Corporation v Privalov [2007] 4 All ER 951, and ruled that a jurisdiction clause in a contract may be extended to another contract. Given that the 2016 Bonus Letter was silent on whether arbitration is applicable, there was in fact no contradicting dispute resolution clause amongst the Bonus Letters. The CFI was of the view that the arbitration clause in the 2017 Bonus Letter and the 2018 Bonus Letter was wide enough to be extended to cover disputes arising from the Deferred Shares in 2016.

Whether an arbitration agreement must be signed?

MAK argued that he should not be bound by the 2018 Bonus Letter as it was not signed by him. The CFI concluded that the Ordinance only requires an arbitration agreement to be in writing and did not require the parties to have signed on it. There was, on the face of it, a valid arbitration agreement between the parties.

All in all, the CFI found that a prima facie case of existence of a valid and binding arbitration agreement was established, and it was bound to refer the parties to arbitration.

Residual claim

MAK’s claim for the discretionary bonus for 2019 was a claim for money, which falls within the jurisdiction of the Labour Tribunal. However, the CFI took the view that the discretionary bonus for 2019 was in fact related to the Deferred Shares claim and ordered a stay pending the outcome of the arbitration. It would be in the parties’ interests to refer the matter to arbitration to save time and costs, especially given that the courts might have inconsistent findings. The CFI even went further to invite parties to consider resolving all disputes in arbitration in one go.

Takeaway

MAK v LA demonstrates the Hong Kong courts will adopt a pro-arbitration stance in appropriate cases. The general principle is that arbitration clauses would be construed in a way that makes commercial sense, and to reflect the parties’ presumed intention of entering into an arbitration agreement as commercial and reasonable businessmen.

It also confirms that Labour Tribunal does not always have exclusive jurisdiction over employment claims, especially where there is an arbitration clause. Employers and employees should carefully consider whether they want to refer their employment disputes to the Labour Tribunal or arbitration before entering into an employment contract. A properly drafted dispute resolution clause can always help to properly reflect the parties’ intention. Employers and employees should obtain proper legal advice on the pros and cons of the different modes of dispute resolution, and on dispute resolution clauses before entering into an employment contract.

 

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Important: The law and procedure on this subject are very specialised and complicated. This article is just a very general outline for reference and cannot be relied upon as legal advice in any individual case. If any advice or assistance is needed, please contact our solicitors.

Published by ONC Lawyers © 2022