The Court of Appeal in Tadjudin Sunny v Bank of America, National Association (CACV 12/2015) (hereinafter, “Ms. Tadjudin” and “the Bank” respectively) upheld the Court of First Instance’s decision that the Bank, when it terminated Ms. Tadjudin’s employment, was in breach of the implied term of anti-avoidance, in order to avoid her being eligible under the performance incentive programme.

The crux of the case was whether the Court of Appeal would uphold the Court of First Instance’s finding that there existed an implied term of anti-avoidance in Ms. Tadjudin’s employment contract. It was held that the term is necessary to give effect to the common, reasonable expectation of the parties such that the Bank could not exercise its power of termination under the employment contract in order to avoid Ms. Tadjudin being eligible under its performance incentive programme. The Court of Appeal held that without the existence of this term, the performance incentive programme would become illusory and could be easily taken away by the Bank through the termination of Ms. Tadjudin’s employment. Based on the facts and circumstances of this case, it was held that an implied term of anti-avoidance existed in Ms. Tadjudin’s employment contract, but it was not held that an implied term of anti-avoidance existed in all employment contracts.

The Court of Appeal held that Mr John Liptak (an employee of the Bank and Ms. Tadjudin’s supervisor) was an agent of the Bank, and his malice and intention could therefore be attributed to the Bank. It was also noted that the decision to terminate Ms. Tadjudin’s employment was made collectively by the senior management through the manipulation by Mr Liptak, and there was no reason why Mr Liptak’s intention should not be attributed to the directing mind and will of the Bank in this situation.

In summary, this case represents the judiciary taking a more assertive role in addressing the rights between employers and employees. It also serves as a reminder that employers should be careful when dismissing employees especially where discretionary bonuses are involved because termination of employment close to the payment of a bonus may lead to a claim that there is a breach of an implied term of anti-avoidance.

In Super Worth International Ltd v Commissioner of ICAC CACV 168/2015, the Plaintiffs tried to argue that some documents seized by the ICAC were subject to legal professional privilege.

At trial, the Court of First Instance rejected this argument on the ground that those documents fell within the crime/fraud exception. It was held that those documents were aimed to facilitating the commission of a crime. However, the trial court refused to determine two outstanding issues:-

(i) whether the court should apply the lex fori (laws of the forum) or the lex causae (cause for the law) in determining legal privilege claims; and

(ii) whether legal privilege could extend to legal advice given by non-lawyers.

On appeal, the two outstanding issues were raised.

The Applicable Law

The documents concerned were from accountants in New Zealand. Therefore, it was argued that whether the law of Hong Kong, where the proceedings took place, or the law of New Zealand, where the documents originated, should be applied.

While the Court of Appeal acknowledged that the legal professional privilege is a substantive right, “it is a right originating in the public interest and its limits are informed by the domestic considerations pertaining to such public interest”. The Court further observed that “the rationale for [legal professional privilege] is not the expectation of the client. It is a facet of the rule of law and in Hong Kong the relevant legal policy for determining the limits of [legal professional privilege] when documents are seized or discovery is sought for proceedings in Hong Kong is Hong Kong law”.

Legal Privilege covering non-lawyers’ advice?

The Plaintiffs also contended that advice on tax laws given by accountants should be covered by legal professional privilege.

The Court of Appeal upheld the decision of the Supreme Court in the United Kingdom in R (Prudential plc) v Special Commissioner of Income Tax [2013] UKSC 1 rejected this argument because:-

(i) The current ambit of legal professional privilege is “a clear, readily understood and easily applied guideline”. Extending the law of legal professional privilege to cover legal advice given by non-lawyers will “remove that clarity, and leave the law in a state of real uncertainty”;
(ii) The question of whether to expand the scope of legal professional privilege should be left to the legislature instead of the judiciary.

Crime/Fraud Exception

The Court of Appeal dismissed the Court of First Instance’s finding, holding that the contents of the documents in question did not have anything to do with any criminal offence. The Court of Appeal particularly emphasized that the crime/fraud exception should not be applied too widely.

Conclusion

The legal professional privilege only applies to confidential communication between a qualified lawyer and a client. Such privilege does not extend to communication between a non-lawyer (in this case, an accountant) and a client despite the fact that the communication involves legal advice.

In Re G Ltd [2016] 1 HKLRD 167, the court sets out the powers a Hong Kong court possesses to recognise and assist foreign liquidators.

The Petitioner (“P”) sought to wind up G, a Cayman Islands company listed in Hong Kong on the grounds of insolvency. Meanwhile P sought for an early hearing of an application to appoint provisional liquidators. At the hearing on 2 October 2015, it emerged that G had issued a petition for its own winding up in the Cayman Islands and that an application to appoint provisional liquidators was to be heard on 8 October 2015. It was held that since there was no pressing need to appoint provisional liquidators immediately in Hong Kong, the judge adjourned P’s application pending the outcome of the Cayman Islands Court. On 8 October 2015, G’s application was unopposed and the Cayman Islands Court appointed KPMG in both the Cayman Islands and Hong Kong as provisional liquidators.

The court, in dismissing P’s application, stated that a company’s place of incorporation is presumably the most appropriate jurisdiction to petition of a winding-up order. However, any unregistered company may, in the court’s discretion, be wound up pursuant to section 327(3) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32), if (a) the company is dissolved, or has ceased to carry on business, or is carrying on business only for the purpose of winding up its affairs; (b) the company is unable to pay its debts; (c) if the court is of opinion that it is just and equitable that the company should be wound up.

The court also emphsised that, at common law, it is empowered to assist overseas liquidators of insolvent companies wound up in their places of incorporation with similar insolvency regimes by giving them substantially similar powers to those which domestic liquidators would have. If the foreign liquidators considered it necessary to seek recognition and assistance from the Hong Kong court, the most straightforward way would be to obtain a letter of request from the local court, and then to apply ex parte on paper for a recognition order.

In addition, if the liquidators thought it desirable to wind up the foreign company in Hong Kong and that they could satisfy the criteria for assessing such petitions, they could apply for a winding-up order, and if required, apply to be appointed as provisional liquidators in Hong Kong pending the determination of the petition.

In Wu Yim Kwong Kingwind v Manhood Development Ltd [2015] HKEC 1475, the Court imposed an adverse costs order against a party for its unreasonable refusal to attempt mediation.

The plaintiff (“P”), losing the trial, was ordered to pay 80% of the costs of the defendant (“D”). P sought to vary the costs order for the reason that D unreasonably refused to mediate.

D argued that since the subject matter of the dispute was land, it was impossible for them to compromise. Further, it was argued that P was not cooperative in agreeing on costs related to the interlocutory proceedings and had not made any settlement offer.

The Court held in favour of P and made an adverse costs order against D. The Court did not see the nature of the claim being land would keep the parties from compromising. Despite P being uncooperative, it did not mean that D could be the same. Further, even though P did not make any settlement offer, negotiation should be mutual and it was found that D did not make any offer either. Lastly, the Court pointed out that negotiations should not be seen as a replacement for mediation.

This decision indicates what the Court considers to be unreasonable excuses to refuse mediation and the possible consequences of such unreasonable refusals regardless of winning or losing at the trial.

On 11 November 2015, the Court of Final Appeal (CFA) allowed the appeal in Kam Leung Sui Kwan, Personal Representative of the Estate of Kam Kwan Sing, The Deceased v Kam Kwan Lai (FACV 4/2015), and ordered to wind up Yung Kee Holdings Limited (the Company), a company incorporated in the British Virgin Islands (BVI) and the ultimate holding company of the Yung Kee Restaurant.

During his lifetime, the late Mr Kam Kwan Sing (the older brother) accused Mr Kam Kwan Lai (the younger brother) of arrogating power to himself, which is contrary to the intention of their father, the late Kam Shui Fai (the founder of the Restaurant), to allow the brothers to co-manage the Restaurant. As such, in 2010 the older brother initiated proceedings in the Hong Kong court to wind up the Company. Both the Court of First Instance and Court of Appeal ruled that, since the Company is registered overseas, the Hong Kong court has no jurisdiction over the dispute. The older brother’s widow, Madam Kam Leung Siu Kwan, appealed to the CFA on his behalf.

Since the shareholders of the Company and its subsidiaries are based in, the businesses are located in, the income are generated in, and the events that led to the dispute occurred in Hong Kong, pursuant to section 327(c) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap.32), the CFA took the view that the Company satisfies the requirement of a sufficient connection with Hong Kong, such that the Hong Kong court has jurisdiction to hear the petition. The CFA endorsed the trial judge’s view that there existed a mutual understanding that each brother was entitled to participate in the business and had to be properly consulted. The breach by the younger brother of such understanding, which is contrary to the founder’s intention, prevented the old brother from managing the business. As a result, the CFA concluded that it is just and equitable to wind up the Company.

Meanwhile, the CFA ordered that the winding up order be stayed for 28 days to allow the parties to agree the terms on which the older brother’s shares in the Company might be purchased in the event that agreement could be reached. On 9 December, the parties agreed to apply for a 7-day extension in order to reach a consensus on the purchase price. If no such agreement is concluded before the deadline, the Company will be wound up automatically.

The Plaintiff (“P”) and the Defendant (“D”) in Chan Sang v Chan Kwok [2015] 3 HKLRD 131 were brothers. P ran a business in a shop which P and D had equal shares as tenants in common. Their father (“F”) financed P’s purchase of the shop. P alleged that D, F and he had agreed that D would be a registered co-owner of the shop for the purpose of securing repayment of the loan to F. When the loan was fully repaid, D would deregister his name. P had repaid the loan but D refused to deregister his name.

P sought a declaration that he was the sole beneficial owner of the shop and D was holding his shares on trust for P and an order that D transfer his shares to P.

The Court decided that “common intention constructive trust” could be relevant in considering the parties’ common intention as to the beneficial ownership of a property and should not be limited to the “domestic consumer context”. However, the presumption of equality would not apply outside the “domestic consumer context”; whereas, the presumption of resulting trust would apply in a “commercial context”.

In this case, P solely purchased and paid for the shop. D was registered as a tenant in common of the shop to secure P’s repayment of the loan. The loan was already repaid by P. Thus, the Court held that P was the sole beneficial owner of the shop under either the common intention constructive trust or resulting trust principles.