Introduction

Consideration is one of the essential elements in the formation of a binding contract. In the context of employment, work performed by an employee under an employment contract is the consideration of the employee in return for remuneration.

It is not uncommon for an employee to be employed by two companies within the same group under two separate employment contracts. What if the work performed by the employee for employer A overlaps with his employment contractual duties for employer B? In other words, in performing his obligation under employment contract B, the employee is in fact performing his existing obligation under employment contract A. Can the work performed by the employee still be regarded as valid consideration for the purpose of employment contract B since such work is discharging the employee’s existing obligation under employment contract A?

In AIM Global Holdings Ltd. & Ors. v Chien Kun Allen & Rising Dragon Global Ltd. [2023] HKCFI 1126, the Court of First Instance (“CFI”) affirmed that work performed by an employee under an existing employment contract for one employment would amount to valid consideration given by the employee for another employment.

Background

Ms Liu was the chairwoman, sole shareholder and a director of AIM Global Holdings Limited (“AIM”), a company incorporated under the laws of the British Virgin Islands. AIM’s only operation was to hold shares of its PRC operating subsidiary, Shanghai Weicon Optical Co. Ltd. (the “PRC Subsidiary” and together with AIM, the “Group”). Ms Liu, AIM and the PRC Subsidiary were the plaintiffs in this case (collectively the “Plaintiffs”).

Ms Liu intended to sell the business of the PRC Subsidiary (the “Transaction”). She engaged Mr Chien to deal with the preparation of the Transaction and to bring in potential purchasers. The parties entered into the following agreements:

1.       A services agreement made between Ms Liu and Rising Dragon Global Limited (“Rising Dragon”), a company wholly owned by Mr Chien, under which Rising Dragon was engaged to provide consultancy services regarding the Transaction;

2.       An employment agreement made between AIM and Mr Chien, under which Mr Chien was appointed as AIM’s director, acting Chief Executive Officer and Chief Finance Officer (the “Hong Kong Employment Agreement”);

3.       An employment agreement made between the PRC Subsidiary and Mr Chien, under which Mr Chien was appointed as the PRC Subsidiary’s director, acting Chief Executive Officer and Chief Finance Officer (the “PRC Employment Agreement”); and

4.       A deed of share award as entered into between AIM, Mr Chien and Ms Liu, thereby certain shares in AIM would be granted to and vested in Mr Chien upon conditions specified therein.

Later, disputes arose between the parties and the Plaintiffs sued Mr Chien and Rising Dragon. In this article, we will focus on the employment issue arising from this case.

Employment issue

Under the Hong Kong Employment Agreement, Mr Chien was required to provide services not only to AIM but also to the Group, which includes the PRC Subsidiary. In other words, his duties to the PRC Subsidiary under the PRC Employment Agreement were already covered by the Hong Kong Employment Agreement. Therefore, work performed by Mr Chien under the PRC Employment Agreement would be merely discharging his existing obligation under the Hong Kong Employment Agreement.

The Plaintiffs’ case was Mr Chien’s duties to the PRC Subsidiary under the PRC Employment Agreement overlapped with those under the Hong Kong Employment Agreement, hence the PRC Employment Agreement should be void for total failure of consideration. The Plaintiffs argued that Mr Chien’s performance of his duty under the Hong Kong Employment Agreement would involve him providing services under the PRC Employment Agreement, where Mr Chien had already received payment under the Hong Kong Employment Agreement. By entering into the PRC Employment Agreement, AIM would receive no additional benefit and Mr Chien would suffer no additional burden. Hence, there had been a total failure of consideration in relation to the PRC Employment Agreement.

Decision and reasoning

On the facts of the case, the CFI held that there was no complete overlap of the work and services rendered under the PRC Employment Agreement and the Hong Kong Employment Agreement, where:

1.            the duty to “負責召集和主持辦公會議，協調、檢查和督促各部的工作” (as required under the PRC Employment Agreement) or anything equivalent was not found in the Hong Kong Employment Agreement; and

2.            Mr Chien’s involvement in a meeting with Ms Liu and other senior members of the PRC Subsidiary in discussing certain projects fell within his duties under the PRC Employment Agreement but not the Hong Kong Employment Agreement.

The CFI also confirmed the legal position that actual performance of a contractual duty owed to a third party can be valid consideration. In Pao On v Lau Yiu Long [1980] AC 614 (UKPC from Hong Kong) at 632B-C, the Privy Council held that:

“Their Lordships do not doubt that a promise to perform, or the performance of, a pre-existing contractual obligation to a third party can be valid consideration. In New Zealand Shipping Co. Ltd. v A. M. Satterthwaite & Co. Ltd. (The Eurymedori) [1975] A.C. 154, 168 the rule and the reason for the rule were stated:

‘An agreement to do an act which the promisor is under an existing obligation to a third party to do, may quite well amount to valid consideration ... the promisee obtains the benefit of a direct obligation.... This proposition is illustrated and supported by Scotson v Pegg (1861) 6 H. & N. 295 which their Lordships consider to be good law.’ ”

As a result, even if there was a complete overlap of the Hong Kong Employment Agreement and the PRC Employment Agreement, Mr Chien’s performance of the Hong Kong Employment Agreement amounted to valid consideration in support of the PRC Employment Agreement, since the PRC Subsidiary had obtained the benefit of a “direct obligation” that could be enforced by the PRC Subsidiary against Mr Chien.

Takeaway

It is not uncommon for group companies to enter into dual employment with the same employee. If an employee is employed under a dual employment arrangement and there is an overlap of duties, the performance of duties under one employment can constitute valid consideration in support of another employment. Where employers enter into dual employment contracts with the same employee, employers should ensure that there is valid consideration under each employment contract. If in doubt, it is advisable to seek legal advice.