The recent decision of the Hong Kong Court of First Instance in Hu Yangyong v Alba Asia Limited [2025] HKCFI 2484 has reinforced the high threshold for summary dismissal – summary dismissal will only be justified if there is gross misconduct by an employee.

Background

By an employment agreement dated 6 April 2017 (the “Employment Agreement”), the Plaintiff was employed as the former Chief Operating Officer of the Defendant, a Hong Kong company. The Employment Agreement provided for a fixed three-year term of employment, which could not be terminated before expiry except for good cause.

Under the terms of the Employment Agreement, the Plaintiff was entitled to reimburse his out-of-pocket family expenses of up to RMB 20,000 per month upon provision of official invoices to the Defendant.  

By a letter dated 7 September 2018 (the “Termination Letter”), the Defendant summarily dismissed the Plaintiff under section 9(1)(a) of the Employment Ordinance (Cap.57) (the “EO”), citing that the Plaintiff misconducted himself and was dishonest in relation to his claims for reimbursement of expenses. The Defendant’s case was that, to fully utilise the monthly threshold of RMB 20,000, the Plaintiff:

• Submitted invoices which were not issued in the same month as his reimbursement claim; and
• Submitted “other official invoices”. For instance, the Plaintiff submitted three invoices issued on the same date by a hotel with suspicious features  – the underlying expenses did not relate to the Plaintiff’s family at all

The Plaintiff denied wrongdoing and put forward the following explanations:

• The Plaintiff was told by a staff member of the Defendant that the invoices submitted for reimbursement should be issued in the Defendant’s name. However, the Plaintiff later found it difficult to comply with this requirement as invoices for his family expenses were unlikely to be issued in the Defendant’s name
• Upon discussion with a staff member of the Defendant (“ZL”), whom the Plaintiff understood to be the person handling his reimbursement claims, ZL agreed that the Plaintiff could submit invoices from “other sources” issued under the Defendant’s name instead of the actual invoices issued for his family expenses
• In submitting his invoices, the Plaintiff relied on ZL’s representation
• The Plaintiff, at all material times, did have genuine family expenses exceeding RMB 20,000 per month which could be reimbursed under the Employment Agreement
• The Defendant’s staff reviewed both the Plaintiff’s claims and the invoices before approving them, thereby further representing to the Plaintiff that his conduct was acceptable. In reliance of this representation, the Plaintiff continued to make claims and submit invoices in the said manner

Legal Principles on Summary Dismissal

The circumstances that an employer may terminate a contract of employment without notice or payment in lieu (i.e. summarily dismiss an employee) are delineated in section 9(1) of the EO. The court also reaffirmed the general principles on summary dismissal: summary dismissal constitutes a strong and extreme measure, warranted only in exceptional circumstances. The burden of proof is on the employer to justify the summary dismissal on a balance of probabilities; however, the more serious the allegation, the stronger the evidence must be before the court. This may be the case when the employee has committed a fundamental breach of the contract of employment, for example: gross misconduct by the employee, serious dishonesty, and breach of duty of good faith and fidelity.

The Court’s findings

The court noted that, based on the unusual fact scenario, it was not easy to determine whether summary dismissal of the Plaintiff by the Defendant was justified. Nonetheless, on a balance of probabilities, the court concluded that the Defendant failed to discharge its burden of justifying the summary dismissal. The court’s reasoning was as follows:

Genuine family expenses incurred: the Plaintiff did genuinely incur monthly family expenses exceeding RMB 20,000, which he was entitled to be reimbursed under the Employment Agreement. The Plaintiff’s conduct resulted in no personal gain, nor did it cause any monetary loss for the Defendant. The Plaintiff’s conduct also suggests that he genuinely believed his conduct was permissible, however unusual it may seem.

Authority of the Defendant’s employees: the Plaintiff did, as a fact, inform ZL that he would use invoices from “other sources”, to which ZL agreed. In that conversation, ZL was found to have acted with the apparent authority of the Defendant; alternatively, the conversation at least gave the Plaintiff reasonable grounds to believe that such conduct was permitted.

Subsequent inspection and verification of the invoices: the Plaintiff’s reimbursement claims and supporting invoices were routinely reviewed and approved by relevant staff members of the Defendant. Despite the peculiarity that the majority of the Plaintiff’s submitted invoices identified the Defendant as payer, no questions were raised by the Defendant’s staff. This not only reinforced the Plaintiff’s belief that the invoices he submitted were acceptable, but the fact that the Plaintiff knew the invoices would be checked also supported his case that he was acting honestly.

Despite the irregularities with the invoices, inferences of fraud or serious misconduct are not lightly drawn. Thus, the court was not persuaded that the Plaintiff acted with dishonest or fraudulent intent.

As a result, summary dismissal was not justified, and the Plaintiff was wrongfully dismissed by the Defendant. The Plaintiff was awarded with payments he would have been entitled to receive had he not been wrongfully dismissed.

Notably, prior to issuing the Termination Letter, the Defendant had wished to terminate the Plaintiff’s employment prematurely on the basis of poor performance and change of corporate structure. Subsequently, the Plaintiff was summarily dismissed on the grounds of misconduct and dishonesty in relation to his reimbursement claims.

Implications and Significance

This case reiterates that summary dismissal would only be justified in serious situations, namely that the act(s) of the employee must go to the root of the contract, so as to indicate an unwillingness to be bound by the original terms of the contract.

This case also illustrates the risks that may arise when informal decisions from individuals with apparent authority of the company deviate from established internal policies. As such, employers should formulate clear and coherent internal policies, and regularly circulate such internal policies to employees to reinforce policy compliance.

The full judgement can be accessed here: https://legalref.judiciary.hk/lrs/common/search/search_result_detail_frame.jsp?DIS=169764&QS=%28%7BAlba%7D+%25parties%29&TP=JU

On 17 April 2025, the Court of Appeal handed down judgment in Wong Chi Hung v Lo Wing Pun and Another [2025] HKCA 370, providing significant guidance on when foreign illegality can serve as a defense to claims in unjust enrichment under Hong Kong law.

Background Facts

The defendants operated a money exchange business in Hong Kong. In June 2016, the plaintiff wished to exchange RMB 1 million he had in Mainland China into HKD. The arrangement involved the plaintiff depositing RMB into a Mainland bank account specified by the defendants, who would then deposit the equivalent amount in HKD into the plaintiff’s Hong Kong account at an agreed exchange rate.

This method of exchange, known as “match-and-knock” (對敲), is typically used by unauthorized money exchangers in Mainland China, commonly known as “underground banks” (地下錢莊), which is a colloquial expression and not a legal term. One can see from the media that in recent years, law enforcement agencies in Mainland China have cracked down on underground banks and illegal operations where individuals, for the purpose of unlawful profit, engage in cross-border remittances, foreign exchange trading, and financial payment settlements without approval from the relevant authorities.

In this case, the plaintiff duly transferred RMB 1 million to the specified account in Mainland China. However, shortly afterward, the account was frozen as part of an unrelated criminal investigation into a pyramid selling scheme. In March 2018, the entire balance in the account, including the plaintiff’s RMB 1 million, was confiscated pursuant to a Mainland court judgment, even though the plaintiff’s money had no connection to the pyramid scheme.

The defendants never paid the equivalent HKD amount to the plaintiff in Hong Kong as agreed.

Procedural History and Key Issues

At first instance, the District Court rejected the plaintiff’s claim in contract on the ground that it was unenforceable as a matter of Hong Kong public policy because of its illegality under Mainland laws. However, the Court upheld the plaintiff’s claim in unjust enrichment based on total failure of consideration.

The defendants appealed, arguing primarily that foreign illegality should bar the plaintiff’s claim in unjust enrichment for the same reasons it barred the contract claim.

The Court of Appeal’s Decision

In dismissing the appeal, G Lam JA (with whom Kwan Ag CJHC and Au JA agreed) made several significant determinations regarding the effect of foreign illegality on restitutionary claims:

1. Distinction between contractual and restitutionary claims: The Court emphasized that the obligation to restore unjust enrichment is an independent obligation imposed by law, separate from the contract between the parties. Unlike enforcing a contract, which puts parties in the position they would have been in had the contract been performed, restitution simply recognizes the ineffectiveness of the transaction and restores parties to their pre-transaction position.
2. General principles on foreign illegality and restitution: The Court held that while foreign illegality can potentially afford a defense to a claim in restitution, the fact that a contract is unenforceable due to foreign illegality does not necessarily mean that restitution will be denied.
3. Entitlement to restitution: In general, a plaintiff who has paid money to a defendant pursuant to a contract which the latter has not performed and which has been rendered ineffective due to foreign illegality should be entitled to restitution of the money.
4. Exceptions based on comity and public policy: The Court noted that restitution might be refused in exceptional cases involving egregious foreign illegality, where comity and public policy demand refusal of assistance.
5. Relevance of foreign law on restitution: The Court held that where the foreign law itself provides for restitution in such cases, this fortifies the general rule allowing recovery. Conversely, where the foreign law would be stultified by allowing restitution or expressly bars such claims, this may provide a defense to the claim in restitution, provided there is no countervailing Hong Kong public policy reason not to give effect to the foreign law.

Applying these principles, the Court found no reason in comity or public policy to deny restitution to the plaintiff, especially given that restitution would also be possible under Mainland law.

Takeaways

Generally, in cross-border disputes, foreign illegality can add layers of complexity to litigation strategy as courts have to balance comity and justice, ensuring fairness in claims.

This decision provides helpful guidance on how Hong Kong courts would approach restitutionary claims potentially tainted by foreign illegality. It strikes a balance between respecting comity and ensuring justice for parties who have parted with money under failed transactions.  The interplay between comity, justice, fairness and foreign illegality significantly impacts litigation strategy in complex cases, especially those involving restitutionary claims.

For further information or advice on cross-border transactions and restitutionary claims, please contact our Dispute Resolution team.

The full judgment can be accessed here.

The company re-domiciliation regime has taken effect on 23 May 2025. This new regime will allow an overseas company to transfer its domicile to Hong Kong while maintaining its original legal identity and business continuity.

To learn more about the new regime, please refer to the article here authored by our Partner, George Tong, and trainee solicitor, Matthew Lau.

On 21 May 2025, our Partner Iris Cheng presented a webinar for the members of the Actuarial Society of Hong Kong on “Introduction to Professional Negligence Law in Hong Kong”.  The session was attended by over 100 participants including directors, C-suite executives, senior actuaries and senior financial function personnel from various insurers, insurance intermediaries and professional advisory firms.  The webinar is well-received by the audience.

George Tong and Ada Luk, our partners in our Corporate Team, have contributed to the Practice Note for Thomson Reuters’ Practical Law Global, outlining the typical transaction process when acquiring a Hong Kong business as a going concern by way of a purchase of assets (as opposed to shares), including putting in place preliminary agreements, carrying out due diligence, obtaining deal consents and regulatory approvals, preparing the requisite asset purchase agreement and other ancillary documents, and dealing with completion and post-completion steps. The note can be accessed here: Asset Purchases Overview (Hong Kong).

We have an outstanding team of lawyers, who will be able to advise on and help you navigate through such transactions. Should you have any enquiries or require assistance in this aspect, please do not hesitate to contact us.

* Reproduced from Practical Law with the permission of the publishers. For further information, please visit practicallaw.com.