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Submitted by // K Bowers, Partner / Solicitor Advocate; P Yeung, Senior Associate
07 December 2017

 

ALL I WANT FOR CHRISTMAS IS…MY JOB BACK!

The office Christmas party is a highly spirited event, and a great opportunity for staff at all levels to mingle and have fun, but both employers and employees should bear in mind that the office Christmas party is primarily a professional workplace event. 

With daily salacious and sensational news stories about inappropriate conduct and behaviour in the workplace attracting world-wide public and media attention, and leading to inevitable and irreparable reputational damage to both individuals and companies alike, this seasonal Alert sets out our 'top tips' for ensuring a trouble-free office Christmas party.

Tis the Season to be Jolly (within limits)

Yes, do have a few drinks. Although at most work Christmas parties, alcohol is free-flow (and often good quality), this is an offer, not a challenge.

An office Christmas party is primarily a professional workplace event. Moaning about office systems, or complaining about your boss (to your boss!) is behaviour that will not be forgotten at the office the next day.

That said, employers should be wary about the consequences of providing free-flow alcohol at work functions. In a recent case in the UK, the Fair Work Commission emphasised that employers cannot hold their employees to the same standard of conduct at work functions where the employer provides unlimited alcohol. This has consequences for the contentious issue of when an employee's intoxicated conduct at a work function will justify dismissal. Employers should therefore carefully consider how alcohol is served at work functions.

Prior to the Christmas party, employers should clearly distinguish between official work functions (the Christmas party itself) and other functions (the -often infamous- "after party") which they consider will occur in a private social setting, so as to avoid liability for any after-hours shenanigans in Lan Kwai Fong or Soho.

I Saw Mummy Kissing Santa Claus

The office Christmas party is not the place for office romance. Be professional and don't cross any (personal or other) boundaries which you would not cross in the office.

Even at the office Christmas party, employers remain liable for acts of harassment, discrimination, assault or other unwanted conduct of their employees. If these types of allegations are made during or after the party, employers should follow their usual disciplinary process and properly investigate the complaint before any action is taken.

Consequently, mistletoe is best avoided…

Santa Claus is Comin' to Town

The office Christmas party is not the venue to conduct staff appraisals or to make promises in relation to Christmas bonuses or pay rises in the New Year. Even informal comments on staff performance may be misconstrued, and could eventually lead to unwanted and unintended disputes.

In one UK case, an employee claimed that his boss had indicated at the office Christmas party that he would receive a pay rise "in due course". After the Christmas party, the employee's salary stayed the same, and the employee soon resigned and filed a claim for constructive dismissal. Although the employer won the case, this was only because the nature of the promise was too vague.

Raunchy Mr/Mrs Claus

Check the dress code.

You don't want to be the person wearing jeans and a Bridget Jones' Christmas sweater when the rest of the room is in black-tie. Make sure you know the dress code by checking in advance what your colleagues are wearing, and follow suit.

If your office Christmas party is fancy dress, do not use this as an excuse to wear that Princess Leia bikini top or Chippendales costume you bought for Halloween.

Use your common sense!

I'll Be Home for Christmas…?

Employers should consider party logistics. If the party is during a weekday after work (which is usually the case), employers should arrange transport from the office to the party venue.

If possible, employers should also consider how employees will get home after the party. If alcohol is served, employers should be mindful about drink driving so it is a good idea to provide transport home at the end of the event. If this is difficult or impractical to arrange (as it invariably will be), employers should send out an email to all staff on good practice before the Christmas party so as to discourage drink driving.

#Have Yourself a Merry Little Christmas

Despite the festive atmosphere at the office Christmas party, Facebooking about your supervisor's very annoying overuse of an annoying phrase (for instance) may drop you in hot water, or could end up with you finding yourself with a mountain of paper-work as your surprise Christmas present. Either way, mixing social media with work (especially the office Christmas party) is a very, very bad idea.

Seeing as problems with social media in the workplace are becoming increasingly common, many staff handbooks should be updated to include a comprehensive policy on what is, and is not acceptable for employees to post online. Employers should make sure that the staff handbook is up-to-date and if possible, circulated (by way of a gentle reminder) to all employees shortly before the Christmas party.

Happy Hanukkah

Both employers and employees should be culturally sensitive, and respectful of employees who, for whatever reason, may not want to drink, and make sure that there are plenty of alcohol-free alternatives.

Christmas is a Christian holiday, so employers should be mindful of different ways of celebrating the holiday season.

O Holy Night

A hangover (and last night's acute embarrassment) are not good reasons for calling in sick. Employees calling in sick the morning after the office party may be considered guilty of an unauthorised absence.

That said, if the Christmas party is held on a weeknight, employers should not expect Christmas miracles the next morning. Employers should be clear about expectations at the office the next day, the extent to which lateness will or will not be allowed, and what disciplinary action will be taken if these expectations are not met.

The Grinch who Stole Christmas

Most importantly, go to the party!

Although the office Christmas party is usually an optional event, the reality is that no one likes a Grinch and not attending the office Christmas party will not present well to other colleagues.

With all that in mind, have a very merry (and responsibly PC) Christmas!


About Us

Howse Williams Bowers is an independent law firm which combines the in-depth experience of its lawyers with a forward thinking approach.

Our key practice areas are corporate/commercial and corporate finance; commercial and maritime dispute resolution; clinical negligence and healthcare; insurance, personal injury and professional indemnity insurance; employment; family and matrimonial; property and building management; and financial services/corporate regulatory and compliance.

As an independent law firm we are able to minimise legal and commercial conflicts of interest and act for clients in every industry sector. The partners have spent the majority of their careers in Hong Kong and have a detailed understanding of international business and business in Asia.

Disclaimer: The information contained in this article is intended to be a general guide only and is not intended to provide legal advice.  Please contact pr@hwbhk.com if you have any questions about the article.

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Submitted by // K Bowers, Partner / Solicitor Advocate
28 November 2017


Court Considers Auditor's Duty to Report Transactions

Introduction 

In the recent case of Days Impex Ltd (in liquidation) & Anor v Fung, Yu & Co (a firm) & Anor [2017] HKCU 24981, the Court of First Instance considered the duty of an auditor to detect and report fraudulent activities in the course of performing auditing work. In rejecting the Defendants' application to strike out the action, the Court held that an auditor's duty is not only restricted to the provision of information and advice, but also includes detecting material irregularities in financial statements. Additionally, the Court commented on recent developments in relation to the defence of illegality and attribution, opening up the possibility of a full consideration by the Court at the trial.

Background

The Plaintiffs in this case were private Hong Kong companies (in liquidation). The Defendants were appointed as the auditors of the Plaintiff companies from 2005 to 2011. During this period, the Plaintiffs were defrauded by their director and principal shareholder through a number of fraudulent bank loans. The Plaintiffs' case was that the Defendants breached their duty of care by failing to detect the fraudulent transactions when performing auditing work for the Plaintiffs.

The Defendants disputed that they owed a duty of care to the Plaintiffs in relation to the fraudulent transactions and applied to strike out the action. In hearing the application, the Court considered:-

1. whether the scope of the duty of care owed by the auditor includes the detection of fraud; and

2. whether the Defendants can rely on the defence of illegality and attribution.

Scope of the Auditor's Duty of Care

In considering the scope of the Defendants' duty of care, the Court rejected the argument that the Defendants' duty is restricted only to the provision of information and advice. Instead, the Court held that Defendants' duty as auditors may extend to detecting material irregularities in the accounting statements.

In reaching this finding, the Court cited the English case of Barings v Coopers & Lybrand2 which says that an auditor's task includes detecting material misstatements in financial documents. The Court also referred to the case of Sasea Finance Ltd v KPMG3 which says that an auditor's duty may extend to reporting instances of fraud detected during the course of working for a client. From these cases, the Court concluded it was highly arguable that an auditor's duty is more than the provision of information and advice, and that it may extend to reporting suspicion of fraud to management, or even to relevant authorities.

Defence of Illegality and the Issue of Attribution

Significantly, the Defendants also raised the defence of illegality in applying to strike out the action. The defence of illegality prevents a claimant from pursuing a civil claim if the claim arises in connection with an illegal act by the claimant. On this point, the Court commented that the recent English case of Patel v Mirza4 ("Patel") in the Supreme Court (UK) substantially reformulated the law in this area. Consequently, the Court required an examination of the facts of the case before it could determine the issue of illegality.

A further complication is that in order for the Defendants to rely on the defence of illegality, the fraud perpetrated by the director and principle shareholder would need to be attributed to the Plaintiffs. In relation to this, the Defendants cited the case of Stone & Rolls Ltd v Moore Stephens5 ("Stone & Rolls"), which the Court in this case commented as being highly controversial, and that it was unclear whether the facts of this case could be distinguished from the case of Moulin Global Eyecare Trading Ltd (in liquidation) v The Commissioner of Inland Revenue6 ("Moulin"), where the Court of Final Appeal was critical of Stone & Rolls. Accordingly, the Court concluded that the current case was not suitable for striking out, as a closer examination of the facts is required.

Comment 

The Court in this case held that an auditor's duty of care should extend beyond the provision of information and advice, and may include the detection of material irregularities in a company's finances. Where an auditor suspects fraud in the client company, an auditor may also have a duty to report the fraud to management or to the relevant authorities. However, as this case is still at an interlocutory stage, further consideration by the Court will be required to clarify the scope of this duty.

This case is also significant for its discussion on the defence of illegality and the principle of attribution. As both points were left open by the Court for consideration at a full trial, it will be important to see how the Court treats the Patel case in relation to the defence of illegality, and whether the facts of this case can be distinguished from Moulin in relation to the issue of attribution.

The ultimate outcome of this significant case should help to clarify some important questions relating to the scope of an auditor's duty of care, the defence of illegality and the principle of attribution. Interested parties should keep an eye on the development of this case as it proceeds through the Courts.


1. Unreported, High Court Action No 348 of 1996 (Court of First Instance, 24 October 2017)
2. [2002] 2 BCLC 410
3. [2000] 1 All ER 676
4. [2016] 3 WLR 399
5. [2009] 1 AC 1391
6. (2014) 17 HKCFAR 218


About Us

Howse Williams Bowers is an independent law firm which combines the in-depth experience of its lawyers with a forward thinking approach.

Our key practice areas are corporate/commercial and corporate finance; commercial and maritime dispute resolution; clinical negligence and healthcare; insurance, personal injury and professional indemnity insurance; employment; family and matrimonial; property and building management; banking; financial services/corporate regulatory and compliance.

As an independent law firm we are able to minimise legal and commercial conflicts of interest and act for clients in every industry sector. The partners have spent the majority of their careers in Hong Kong and have a detailed understanding of international business and business in Asia.

Disclaimer: The information contained in this article is intended to be a general guide only and is not intended to provide legal advice.  Please contact pr@hwbhk.com if you have any questions about the article.

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Submitted by // K Bowers, Partner / Solicitor Advocate; P Yeung, Senior Associate
28 November 2017

 

A time-honoured tradition: something promised, something given, something performed

Background

It is a well established legal principle that consideration is a vital element in forming legally binding contracts. Consideration requires that each party to a contract provide something of value (a promise, an object, or an act) in exchange for receiving something of value. A contract that allows one party to gain from the deal without giving up anything is void and unenforceable because there has been no mutuality of obligations.

In the context of employment agreements, establishing the existence of consideration is often not an issue because the employers usually promise to provide compensation and in return employees provide their service.

In the case of Wu Kit Man v Dragonway Group Holdings Limited [2017] HKCFI 986, although the parties entered into an addendum to the employment contract which provided that the employee had a right to receive a bonus, the terms did not require her to fulfil any obligations in return. The Court held that the addendum was invalid due to a lack of consideration.

Wu Kit Man v Dragon Group Holdings Limited

In Wu Kit Man, the employee Wu was employed by Dragonway in May 2015 to assist with facilitating Dragonway's IPO on the Hong Kong Stock Exchange. Around five months into Wu's employment, the parties signed an addendum stating that:

"If the Company or its holding company ceased the listing plan or you leave the Company for whatever reason before 31 December 2016, a cash bonus of HK$350,000 will be offered to you within 10 days after the cessation or termination and in any event no later than 31 December 2016."

Wu left her employment on 21 December 2015 and claimed an entitlement to the cash bonus of HK$350,000 pursuant to the addendum. Wu was successful before the Labour Tribunal where the Presiding Officer found that the addendum was valid and binding.

Decision of the Hong Kong Court of First Instance

Upon appeal by Dragonway, the Hong Kong Court of First Instance overturned the Labour Tribunal's decision. On the facts determined by the Presiding Officer (which Wu did not dispute on appeal), the addendum did not require Wu to perform any work beyond what was required of her under the original employment contract. Accordingly, the Court found that, as a matter of law, the employment addendum was only beneficial to Wu and therefore invalid.

Implications for employers and employees

In executing employment addendums or side letters, the parties must ensure that sufficient mutual consideration has been given in addition to the consent of the parties to vary the original terms of employment. Alternatively, the agreement could be executed in the form of a deed, which is binding irrespective of the existence of any consideration.


About Us

Howse Williams Bowers is an independent law firm which combines the in-depth experience of its lawyers with a forward thinking approach.

Our key practice areas are corporate/commercial and corporate finance; commercial and maritime dispute resolution; clinical negligence and healthcare; insurance, personal injury and professional indemnity insurance; employment; family and matrimonial; property and building management; and financial services/corporate regulatory and compliance.

As an independent law firm we are able to minimise legal and commercial conflicts of interest and act for clients in every industry sector. The partners have spent the majority of their careers in Hong Kong and have a detailed understanding of international business and business in Asia.

Disclaimer: The information contained in this article is intended to be a general guide only and is not intended to provide legal advice.  Please contact pr@hwbhk.com if you have any questions about the article.

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Submitted by // K Bowers, Partner / Solicitor Advocate
28 November 2017


Joint and Several Liability of Co-Owners

Wong Tak Man Stephen v Chang Ching Wai and Another [2017] HKCU 2685

Introduction

In the recent case of Wong Tak Man Stephen v Chang Ching Wai and Another [2017] HKCU 2685, the Court (notably for the first time) decided on the proper construction of section 34 of the Building Management Ordinance (Cap. 344) ("BMO").

The Plaintiffs were the joint and several liquidators of the Incorporated Owners ("IO") of Nos. 6, 6A, 6B, 8, 10, 12, 14 & 16 Wing Kwong Street ("Building"), while the Defendants were two of the owners of the Building.

Summary

Between 2007 and 2009, the IO engaged a construction company ("Company") to perform refurbishment works at the Building ("Refurbishment Work"). Subsequently, the Company brought a claim against the IO for the outstanding payment for the Refurbishment Work and obtained a default judgment in the sum of HK$1,143,567.50, together with interest and costs ("Judgment Debt"). The IO was eventually ordered to be wound up on the basis of the Judgment Debt.

Whilst the Plaintiffs had attempted to recoup contributions from the owners of the Building to settle the relevant debts and liabilities, a substantial number of the owners (including the Defendants) had failed to contribute to the Refurbishment Work and / or the contingency fund set up by the Plaintiffs. The Plaintiffs then commenced proceedings against the Defendants seeking (1) a declaration that the Defendants should be jointly and severally liable for all debts and liabilities of the IO, and (2) an order that the Defendants should pay HK$3,649,932.77 to the Plaintiffs.

The crux of the dispute surrounded the proper interpretation of section 34 of the BMO ("Section 34"). Pursuant to Section 34, "In the winding up of a corporation under section 33, the owners shall be liable, both jointly and severally, to contribute, according to their respective shares, to the assets of the corporation to an amount sufficient to discharge its debts and liabilities." (emphasis added)

The Plaintiff submitted that each of the owners of the Building should be jointly and severally liable for the IO's debts and liabilities, and that each owner could then seek a contribution from the other owners of the Building. On the other hand, it was the defence's case that neither of the Defendants should be held liable to contribute where the provision is ambiguous. The sum payable for the Refurbishment Work and the apportionment of such sum between the owners of the Building was also questioned.

Decision

(1) Joint and Several Liability

In determining the proper meaning and effect of Section 34, and as a starting point, the Court considered the legislative background (including its context and purpose) of the current legislation. In essence, the Court was of the view that the addition of the phrase "both jointly and severally" after the phrase "the owners shall be liable" (in the current legislation, enacted in 1993 to replace the old legislation) "…must have intended to change the limit and extent of an owner's liability under the old regime" and evinces a clear intent to create a scheme of joint and several liability on the part of the owners.

(2) Apportionment of Liability

Having decided that owners of a building should be jointly and severally liable, the question arose as to the apportionment of their liability. As summarised by Hon. Kwan J in Re Incorporated Owners of Foremost Building, there are two possible and mutually exclusive interpretations of section 34:

(a) the section allows the owners to be pursued individually, but only to the extent of his / her proportionate ownership of the shares in the building; or

(b) the owners are jointly and severally liable for all of the corporation's debts and liabilities, and may be pursued individually for the whole amount. They then have the right to sue each other for contribution so that at the end of the day, they have only paid a proportion of the liability equivalent to their shares in the building.

The Court accepted the Plaintiff's submission that interpretation (b) represented the correct interpretation of the meaning and effect of Section 34.

In essence, giving effect to the legislative intent, the Court held that "…the owners are jointly and severally liable for all of the corporation's debts and liabilities, and that such liabilities are not limited to their respective shares in the building (even though they would have the right to seek contribution from other co-owners afterwards)".

Comment

This case provides an important, unprecedented clarification of the Court's interpretation of Section 34. It is particularly noteworthy for IO and owners of buildings in relation to their respective rights and obligations regarding contributions to refurbishment / renovation works done to their buildings.

 

About Us

Howse Williams Bowers is an independent law firm which combines the in-depth experience of its lawyers with a forward thinking approach.

Our key practice areas are corporate/commercial and corporate finance; commercial and maritime dispute resolution; clinical negligence and healthcare; insurance, personal injury and professional indemnity insurance; employment; family and matrimonial; property and building management; banking; financial services/corporate regulatory and compliance.

As an independent law firm we are able to minimise legal and commercial conflicts of interest and act for clients in every industry sector. The partners have spent the majority of their careers in Hong Kong and have a detailed understanding of international business and business in Asia.

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