In the recent case of Mak v LA  [2022] HKCFI 285, the Court of First Instance (CFI) granted an application to stay proceedings that had been transferred from the Labour Tribunal in favour of arbitration. The application was taken out by the employer, LA, who argued that by virtue of an arbitration agreement, the employee's case at court should be stayed under s.20 of the Arbitration Ordinance (AO), and referred to an arbitral tribunal.


Mak was employed by LA. Under the employment contract, Mak was entitled to a discretionary cash bonus and participate in LA's staff profit sharing scheme (Scheme). Mak was awarded bonuses for 2016, 2017 and 2018. These bonuses comprised of shares or units under the Scheme which vested over a period of three years (Deferred Shares).

The terms of the Scheme for each year were set out in a letter each year (Scheme Letters). Mak claimed that LA failed to vest the unvested Deferred Shares to Mak on termination of employment. Mak sought, among other things, a mandatory order for LA's redemption of vested and unvested Deferred Shares that were lost on termination and for payment of the realised amount of such redeemed Deferred Shares. Some (but not all) of the Scheme Letters contained an agreement to refer any dispute to arbitration.

Mak commenced proceedings in the Labour Tribunal for the Deferred Shares and the parties then agreed to transfer those proceedings to the CFI to decide on whether they should be stayed pending arbitration.

The CFI held that there was a valid arbitration agreement, ordered the stay of proceedings and referred the matter to arbitration.

Does a Claim for Deferred Shares Fall within the Exclusive Jurisdiction of the Labour Tribunal?

The Labour Tribunal has exclusive jurisdiction to hear claims for a sum of money, whether liquidated or unliquidated, arising from, among other things, (a) breach of a term of an employment contract, and (b) failure to comply with the Employment Ordinance (EO). It does not have jurisdiction over claims founded in tort (including mixed claims founded in both contract and tort), even if they arise from a breach of employment contract or EO.In determining the jurisdiction of the Labour Tribunal, it is therefore important to look at both the pleaded causes of action and the relief sought to determine jurisdiction.

In the Mak v LA  case, the CFI held that since Mak claimed for a mandatory order for LA's redemption of the vested and unvested Deferred Shares and for payment of the realised amount, it was not a claim for a sum of money, and therefore fell outside the exclusive jurisdiction of the Labour Tribunal. This is because the value of shares (deferred or otherwise) is not fixed until they are actually redeemed, and so the sum of money is yet to be determined. 

Is there Any Discretion Whether or Not to Stay Proceedings in Favour of Arbitration?

If a claim is commenced in the CFI, or it is transferred from the Labour Tribunal to the CFI, then s.20(1) of the AO will apply, meaning the matter "shall" be transferred to arbitration so long as there is a proper arbitration agreement and the party who has requested arbitration has not already taken steps in the proceedings.

However, if a matter is within the exclusive jurisdiction of the Labour Tribunal, then s.20(2) of the AO will apply. Under this section, the Labour Tribunal "may" refer the parties to arbitration if it is satisfied that there is no sufficient reason not to refer to arbitration and the requesting party is ready and willing to do all things necessary for proper conduct of the arbitration. In other words, the Labour Tribunal has discretion, and it may choose to hear the case regardless of a valid arbitration agreement over a matter. In exercising this discretion the Labour Tribunal will need to bear in mind the comments of the Court of Appeal in Cox Adrian John v Group Employment Management Ltd [2005] HKCS 8 that in this situation:

"...if an application for stay in favour of arbitration were to be made to the Labour Tribunal in respect of a claim which comes within the jurisdiction of the Tribunal and which is also covered by an arbitration clause in the relevant contract of employment, the Labour Tribunal would probably be slow to exercise its powers of stay in favour of arbitration. The intent of the Ordinance is that there should be a relatively simple and efficient mechanism for resolving employment disputes."

In the Mak v LA  case, both parties did not focus their arguments on whether the Mak's claims fell within the exclusive jurisdiction of the Labour Tribunal. They had agreed to transfer the case to the CFI. In the CFI the Court subsequently held that the claim fell outside the jurisdiction of the Labour Tribunal, there was a valid arbitration agreement and so it was bound to order a stay.

Importantly, a party must not take any steps in the proceedings before requesting a stay, since to do so would mean that party has submitted to that court's jurisdiction. Employers should therefore apply early for a stay in proceedings. In this case, LA had claimed throughout that its submissions to the Labour Tribunal and to the CFI were filed without prejudice to its application for a stay pending arbitration and it had no intention of submitting to the jurisdiction of the tribunal or court. The CFI accepted this and did not consider that the steps taken by LA demonstrated that it had already submitted to the jurisdiction of the CFI and precluded it seeking a stay of proceedings.

How did the CFI Reconcile the Inconsistent Dispute Resolution Approaches in the Scheme Letters?

There were different approaches expressed as to dispute resolution in Mak's contract of employment and the Scheme Letters. The employment contract submitted all claims to the exclusive jurisdiction of the Hong Kong courts. However, the Scheme Letters for the 2017 and 2018 Scheme Deferred Shares contained an arbitration clause while the Scheme Letter for the 2016 Deferred Shares did not.

The CFI ultimately decided that the arbitration clause in Scheme Letter for the 2017 Scheme Deferred Shares was wide enough to extend to disputes over the 2016 and 2018 Deferred Shares. The CFI applied a presumption in favour of arbitration, and adopted a principle whereby parties are assumed to have intended disputes arising out of their relationship to be decided in the same forum, so as to extend a jurisdiction clause across claims under another agreement.

Aside from the claim for Deferred Shares, Mak also claimed US$429,139.58 in respect of the 2019 discretionary bonus and alternatively on a quantum meruit basis. These claims were not claims made under the Scheme but were governed by the terms of the contract of employment which provided for the jurisdiction of the Court. LA had sought for these claims to be stayed under the inherent jurisdiction of the CFI. The CFI ultimately considered that the ends of justice would be served by a stay of the 2019 Bonus claim, pending the determination of the tribunal in the arbitration of the Deferred Shares claim.

Take Away for Hong Kong Employers

For claims falling within the Labour Tribunal's exclusive jurisdiction the Labour Tribunal will have discretion under s.20(2) of the AO not to refer the claim to arbitration, even if there is a valid arbitration clause. The Labour Tribunal will be slow to stay proceedings in favour of arbitration, since its purpose is to provide a simple and efficient mechanism for resolving employment disputes.

However, for other incidental benefits that do not fall within the exclusive jurisdiction of the Labour Tribunal, such as deferred shares, then the Labour Tribunal must decline jurisdiction and (among other options) transfer the claim to the appropriate court. The CFI is the proper venue to determine a stay for arbitration, and it will be bound to do so by s.20(1) if there is a valid arbitration agreement, unless the party has already submitted to the jurisdiction of the court.

Although claims for a sum of money arising from a breach of the contract of employment or Employment Ordinance will fall within the exclusive jurisdiction of the Labour Tribunal, not all employment related claims will – such as claims for deferred shares. There are benefits to referring these claims to arbitration, not least the ability to keep the details relating to the claim confidential. Employers should consider whether disputes regarding these claims (that fall outside the exclusive jurisdiction of the Labour Tribunal) should be referred to arbitration; and if yes, then ensure that it has the appropriate arbitration clause in the underlying documentation.

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This Mayer Brown article provides information and comments on legal issues and developments of interest. The foregoing is not a comprehensive treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action with respect to the matters discussed herein.