In Ma King Huen v The Sincere Company Ltd [2024] HKCFI 319, applying ordinary contextual interpretation, DHCJ Ashley Burns SC, sitting in the High Court of Hong Kong, explores the impact of a listed company’s Articles of Association and its corporate division of powers on the proper understanding and application of a director’s service agreement.
Relevant Background
By way of backdrop, the Sincere Group is a household name in Hong Kong. It was founded more than a century ago, as one of the earliest department stores in the region, in Hong Kong by the Ma Family with the late Mr Ma Ying-piu at its apex.
The Sincere Group, which has been listed on the Main Board of the Hong Kong Stock Exchange, had previously been managed and operated under successive generations of the Ma Family. It was until mid-2021 that control changed from the then third generation of the Ma Family, including Mr Ma King Huen (Mr Ma), to its current controlling shareholder.
Following the change of control, Mr Ma’s directorship and employment with the relevant group entity also came to an end. That however marked the beginning of disputes regarding outstanding wages and remuneration payable to Mr Ma before his departure.
The Issues at Trial
Consistently with the relevant rules, Mr Ma’s claim was commenced in the Labour Tribunal, which was subsequently transferred to the High Court. After trial, judgment was rendered on 1 February 2024 (main judgment) and 31 May 2024 (on ancillary matters).
The trial involved a number of interesting and somewhat novel disputes surrounding Mr Ma’s employment with the Defendant company. Of particular note is the interplay, if any, between the relevant company’s Articles of Association and different organs of power with the services agreement in question.
Applying the relevant principles, the Court found in favour of the Plaintiff, and awarded damages in the sum of HK$12 million odd with interest.
Key Takeaways
Several key takeaways from the learned Deputy Judge’s detailed reasoning can be identified as follows.
- Applying ordinary principles of contractual interpretation, whilst a company’s Articlesof Association are not necessarily implied into a director’s services agreement in a “wholesale” manner, the agreement should still be read subject to and together with those provisions in the Articles of Association of the relevant company.
- It is necessary, therefore, to distinguish between different components of the remuneration framework as provided for in the services agreement, and to attempt to identify the corresponding basis and/or governing provision in the relevant company’s Articles of Association.
- One thereby identifies the relevant resolution(s) and/or recommendation(s) of the proper organ of a company which is authorised to and did approve the relevant remuneration. Such organs may include the company’s shareholders, board of directors and/or e.g. itsremuneration committee. In this process, one has to consider closely the precise ambit, functions and operations of the relevant organ having regard to its terms of reference.
The full judgment is available at https://www.hklii.hk/en/cases/hkcfi/2024/319
Michael Lok and Charlie Liu, led by Norman Nip SC (of Rede Chambers), acted for the Plaintiff. Jonathan Lee was also involved at earlier stages of the proceedings.
