Court orders summary judgment against employer for failure to reimburse expenses incurred for the benefit of the business

Background

The Plaintiff, Anthony Mackay, was the former Chief Executive Officer of the Defendant, Chi-X Asia Pacific Holdings Limited.

Between 2015 to 2016, the Plaintiff assisted a New York based private equity firm to acquire certain business assets from Nomura. The Defendant was incorporated to hold those assets after their acquisition. In March 2016, the Defendant began operations and the Plaintiff began working for the Defendant as its CEO. However, the Defendant did not set up any bank accounts in its name at the time. As a result, the Plaintiff paid for the Defendant’s business and professional expenses out of his own pocket and then sought reimbursement from the Defendant. Those expenses included travel, hotel and entertainment expenses as well as notary, solicitors and bank fees.

On 11 November 2016, the Plaintiff was served notice and he was placed on garden leave for the six months’ period. Between 2 December 2016 to 21 September 2017, the Defendant made some termination payments to the Plaintiff but failed to reimburse him for the aforesaid business and professional expenses as well as other contractual obligations which were owed to him.

The Plaintiff commenced legal proceedings against the Defendant for his outstanding entitlements on 20 May 2021 and applied for summary judgment on 23 August 2022.

The Decision

The Court found in the Plaintiff’s favour in respect of a number of his claims and awarded summary judgment to him. For the remainder of the claims which relate to an LTIP entitlement, unpaid bonus and unpaid accrued unused annual leave, the Court gave the Defendant unconditional leave to defend.

In respect of the claims in which the Plaintiff was successful, the Court found as follows:

Unlawful Deduction of Bank Charges

The Court described this claim as an “unedifying dispute” as the amount involved was only US$54. It represented bank charges deducted from the Plaintiff’s salary payments. The Defendant argued that the bank charges were incurred as a result of the Plaintiff choosing to have his salary paid into his bank account in Monaco. However, the Court found that it was clear from the Plaintiff’s employment contract that the Defendant had an obligation to pay the Plaintiff’s salary to his nominated bank account. There was no requirement that the Plaintiff had to hold a Hong Kong bank account. On the basis that the Plaintiff had nominated a bank account in Monaco, the Defendant was required to pay the Plaintiff’s salary into that account and such payment should be free of any bank charges which had to be borne by the Defendant. The Plaintiff was entitled to the payment of the US$54 bank charges which had been deducted from his salary plus interest thereon.

Unlawful withholding of salary

Following the termination of the Plaintiff’s employment, the Defendant withheld his salary for a period in excess of the statutory limit. Section 52(7) of the Inland Revenue Ordinance provides that an employer is entitled to withhold an employee’s salary for a period of one month where the employee is about to leave Hong Kong. However, in this case, the Plaintiff had not made any notification to the Defendant that he was planning to leave Hong Kong. In seeking to justify its position, the Defendant claimed that it withheld the Plaintiff’s salary at the request of the Inland Revenue Department (“IRD”) but was unable to produce any evidence of such a request. The Plaintiff’s solicitors’ inquiries to the IRD elicited a response that no such request had been made by the IRD that the salary be withheld for over a month. Accordingly, the Court ruled that the Plaintiff was entitled to interest which had accrued on the salary which had been withheld by the Defendant for the period in excess of one month.

Unpaid expenses

Despite the Plaintiff making numerous requests to the Plaintiff to reimburse him for the expenses which he had incurred for and on behalf of the Defendant, it refused to do so. When the Plaintiff’s solicitors sent a demand letter to the Defendant’s solicitors, no explanation was provided by the Defendant for its refusal to reimburse the Plaintiff. Neither did the Defendant seek to dispute any of the expenses which were in excess of HK$430,000.

During the summary judgment application, the Defendant suggested to the Court that the Plaintiff should not be reimbursed as the company had no written expense policy at the time the expenses were incurred by the Plaintiff. They also claimed that at a later point in time they had changed their expense policy such that some of the entertainment expenses would be excluded. The Court gave the Defendant’s arguments short shrift and after considering how past expenses were claimed and reimbursed and that the Plaintiff provided full supporting documentation for the expenses, took the view that the Defendant had no good reason not to reimburse the Plaintiff.

The Defendant also attempted to persuade the Court that there was a large volume of expenses being claimed which should be fully investigated at trial. The Court took the view that the Defendant had had the opportunity to investigate the expenses for a number of years before proceedings were initiated but failed to do so. Deputy High Court Judge Ismail was highly critical of the Defendant in seeking to assert a desire to investigate, as a way to raise a triable issue in a summary judgment application where none existed.

Points worth noting for employers

This case covers a wide range of entitlements an employee may claim against an employer upon termination of their employment where the employer acts unreasonably. Employers are reminded that all payments due to employees, including expenses upon the termination of employment should be made in full and on time to avoid any disputes.

Employers should ensure that if they want to avoid bearing the cost of bank charges for salaries paid to their employees in accounts overseas, their employment contracts should require their employees to have a Hong Kong bank account.

Any salaries withheld by an employer who is informed by the employee that he intends to leave Hong Kong can only be withheld for one month. Employers cannot unilaterally withhold payments especially where an employee has not stated that they intend to leave Hong Kong.

For all sums of money owed to employees that are not paid on time the employee is entitled to interest on the amounts at the judgment rate for the period between when the payment falls due and when the payment is eventually made, pursuant to section 25A(2) of the Employment Ordinance.