LEUNG KIN CHI v. CHAN PUI MAN t/a CHAN WAN KEE

HCLA1/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

LABOUR TRIBUNAL APPEAL NO. 1 OF 2006

(ON APPEAL FROM LBTC 4709 OF 2005)

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J U D G M E N T

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1. This is the defendant’s appeal against the award made by the Presiding Officer of the Labour Tribunal on 23 December 2005 (“the Second Award”).

2. The background facts leading to the parties’ dispute may be summarized as follows.

Employment

3. Mr Chan Wan (“Mr Chan”), trading as Chan Wan, used to operate a metal delivery business.  The claimant was one of the daily rated delivery workers that Mr Chan employed.  He started to work for Mr Chan in 1994.

4. The defendant is Mr Chan’s son.  Prior to 1997, he was a truck owner providing his vehicle and driving service on a sub-contractor basis to his father’s business.  Since about 1997, the defendant had assisted his father in running his business when he became ill, having been diagnosed with cancer.

5. On 21 March 2000, Mr Chan died.

6. On 23 March 2000, the defendant commenced trading as a sole proprietor under the trade name “Chan Wan Kee”.

7. On 13 April 2000, the claimant confirmed in writing that, by reason of Mr Chan’s death, his employment with Mr Chan had been terminated and that there were no outstanding claims for, inter alia, holiday pay, long service payments, bonuses or other emoluments arising from that employment (“the Confirmation Letter”).  The claimant also confirmed in writing his consent to being employed by the defendant on a casual basis.

8. Later on 1 March 2002, the claimant commenced a 2-year employment contract with the defendant as a delivery worker, such contract was subsequently renewed on 15 March 2004.  The claimant’s employment with the defendant was terminated on 31 May 2005.

Proceedings before the Labour Tribunal

9. In September 2005, the claimant commenced proceedings in the Labour Tribunal, claiming for wages in lieu of notice, statutory holiday pay, annual leave pay and severance pay.  In calculating his entitlements, the claimant referred to the period of his employment with Mr Chan between : (a) 17 September 1999 and 12 April 2000 (“Period A”) for statutory holiday pay and annual leave pay and (b) 1 June 1994 and 12 April 2000 (“Period B”) for severance pay; and the period of his employment with the defendant between 13 April 2000 and 31 May 2005 (“Period C”).

10. On 17 October 1005, judgment was entered by consent against the defendant in respect of the claimant’s claim for statutory holiday pay, annual leave pay and severance pay for Period C in the total sum of HK$37,550 (“the First Award”).

11. The defendant disputed liability of the balance of claim.  On 23 December 2005, after trial, the Presiding Officer made the Second Award against the defendant totalling HK$80,586.21 thus :

(1) wages in lieu of notice in the sum of HK$3,500.00;

(2) annual leave pay for Period A in the sum of HK$17,877.04;

(3) statutory holiday pay for Period A in the sum of HK$6,000.00; and

(4) severance pay for Period B in the sum of HK$53,209.17,

Appeal

12. The defendant is not appealing against the First Award.  He only now appeals against the Second Award in respect of annual leave pay, statutory holiday pay and severance pay only.

13. For present purposes, the defendant does not challenge the following findings of facts by the Presiding Officer :

(1) that the claimant had been dismissed by the defendant and was accordingly entitled to 7 days wages in lieu of notice; and

(2) that upon his death on 21 March 2000, Mr Chan’s business had been transferred to the defendant.

14. The defendant puts forward 6 grounds of appeal, namely :

“1.   The Learned Presiding Officer failed to give any or adequate reasons for finding the Defendant/Appellant liable to pay the Claimant/Respondent the following amounts :–

(1)   Annual Leave of HK$17,877.04 for [Period A];

(2)   Holiday Pay of HK$6,000.00 for [Period A]; and

(3)   Severance Pay of HK$53,209.17 for [Period B].

2. The Learned Presiding Officer’s finding of liability on the part of the Defendant/Appellant is inconsistent with his finding of fact that, at the time of transfer the Claimant/Respondent had agreed that the estate of [Mr. Chan] was to be responsible for all emoluments of his employment with Mr. Chan.

3. The Learned Presiding Officer erred in finding the Defendant/Appellant liable for those amounts of Holiday Pay and Annual Leave that had accrued during the Claimant’s/Respondent’s time of employment with Mr. Chan.  Such finding was neither supported on the facts as found nor was there any legal basis, either under common law or statute, to make such a finding.

4. On the issue of severance pay, the Learned Presiding Officer failed to consider whether and how the provisions contained in the Employment Ordinance, Cap.57 (‘the Ordinance’) would apply.  In particular, the Learned Presiding Officer failed to properly consider Section 31L of the Ordinance in that :

(1)  Section 31L of the Ordinance provides that an employee is, upon the death of his employer, deemed to be dismissed by reason of redundancy unless, upon a change in ownership of the business, there is agreement with the employee that the new employer substitutes himself for the deceased employer and, in that capacity, either renew the employee’s employment contract or re-engage the employee under a new employment contract; and

(2)   If an employee is regarded to be dismissed by reason of redundancy, such dismissal will operate so as to break the employee’s period of continuous employment and he would, by virtue of s.31B of the Ordinance, be required to claim severance pay from the deceased employer’s estate.

5. Having failed to properly consider s.31L of the Ordinance, the Learned Presiding Officer failed to investigate whether there was agreement that the Defendant/Appellant was to substitute Mr. Chan and whether it was in that capacity the Defendant/Appellant employed the Claimant/Respondent.

6. In the absence of such agreement, the Learned Presiding Officer erred in holding that the Defendant/Appellant was responsible for the severance pay that accrued to the Claimant/Respondent during his period of employment with Mr. Chan.  In fact, the Learned Presiding Officer’s findings of fact and the undisputed documentary evidence negated the existence of such agreement.”

15. I will first look at Grounds 1 and 2.

Ground 1

16. It is trite that a court must give adequate reasons for its judgment.  Failure to give adequate reasons may amount to a ground of appeal : see English v. Emery Reimbold & Strick Ltd [2002] 1 WLR 2409, per Lord Phillips said at paragraphs 24-26 at p.2417B-G.

17. Mr Leo, counsel for the defendant, complains that the Presiding Officer had failed to explain how any why liability for annual leave pay, statutory holiday pay for Period A and severance pay for Period B arose simply because he had found that there had been a transfer of business from Mr Chan Wan to the defendant.

18. Mr Leo’s complaint will fail if the Presiding Officer’s reason, albeit very short, is correct.  Further, if the Presiding Officer’s conclusion on liability were correct even although he did not give adequate reasons, Ground 1 would become wholly academic.  And it will be wrong to allow appeal on this Ground alone.  In the circumstance, it is still necessary to examine if the Presiding Officer’s reason and conclusion on liability is correct.  And Ground 1 will bite only if it is not.

Ground 2

19. Mr Leo refers to the finding of the Presiding Officer that the defendant had told the claimant to claim against Mr Chan for all outstanding benefits arising out of his employment with Mr Chan.  Then on 13 April 2000, the claimant provided the defendant with the Confirmation Letter.  And the claimant made no claim for any outstanding benefits arising from his employment with Mr Chan until the present action.  Counsel argues that the parties had agreed that the defendant was not liable for those benefits due to the claimant that arose out of his employment.  Alternatively, there is an equitable estoppel that would prevent the claimant from enforcing his entitlement to claim for those benefits arising out of his employment with Mr Chan.

20. Mr Leo’s submissions ignore an important finding by the Presiding Officer against which the defendant makes no challenge, which is this.  The defendant asked the claimant to sign the Confirmation Letter in order to avoid his liability arising from the claimant’s employment in his father’s business.  In light of this undisputed finding, the alleged agreement cannot possibly exist.  Nor is there any room for any equitable estoppel as contended to arise.

21. Ground 2 must fail.

Effect of the transfer

22. As noted above, the Presiding Officer found that the defendant was liable for annual leave pay and statutory holiday pay for Period A and severance pay for Period even B because there was a transfer of business from Mr Chan, upon his death, to the defendant.  It is therefore convenient to first determine the effect of the transfer before turning to each of Grounds 3 to 6.

23. The Employment Ordinance, Cap. 57 (“the Ordinance”) confers on an employee various forms of employment protection and benefits.  A brief survey of the Ordinance readily shows that entitlement to much of the protection and benefits accrue upon termination of the employment contract.  Such protection and benefits include the present subject matters : annual leave pay under section 41D, statutory holiday pay under section 40A and severance pay under section 31B.  The employer is liable to the employee for those protection and benefits.

24. The question pertaining to this appeal is whether a transfer of business amounts to a termination of the employment, which entitles an employee to and renders the employer to be liable for the various employment protection and benefits that may accrue upon such termination.

25. The law, as I understand it, does not prevent an employer/transferor from terminating the employment with his employee upon transfer of business by giving him notice or wages in lieu.  In such a scenario, the employer/transferor will be liable to the employment protection and benefits that may accrue to the employee upon termination.  His liability will be determined by applying the relevant provisions in the Ordinance.

26. Difficulty may, however, arise where the employer/transferor did not terminate the employment and the employee just carries on to be employed in the business by the transferee after the transfer.

27. I will first look at the position under common law.  A transfer of business necessarily involves a change in the identity of the employer even if the employee continues his employment in the business.  Upon transfer of the business, the employment between the transferor and the employee is terminated and the employee then enters into a new employment contract with the transferee.  Thus the transfer, which effectively terminates the employment between the transferor and the employee, will entitles the employee to those employment protection and benefits that may accrue upon termination.  And the transferor, as former employer, will be liable.

28. I next look at the position under the Ordinance.  Paragraph 5 of the First Schedule to the Ordinance provides :

“If a trade, business or undertaking is transferred from one person to another, the period of employment of an employee in the trade, business or undertaking at the time of the transfer shall count as a period of employment with the transferee, and the transfer shall not break the continuity of the period of employment.”

29. The effect of Paragraph 5 was considered by Yam J in Law Shu Fat & Others v. 吳光銳經營吳祐記運輸公司, HCLA126/2003, unreported, 24 November 2004.  There, the Labour Tribunal found that there was a transfer of business to the defendant.  This finding was upheld on appeal.  Counsel for the defendant then contended that a transferee was not liable for the obligation of the transferor to pay statutory holiday pay and annual leave pay for the period of employment before transfer.  Rejecting the contention, Yam J said :

“30. Mr Andy Hung, counsel for Mr Ng, further submitted that even if there was a transfer pursuant to the Schedule, this is only applicable to long service payment and would not be applicable to annual leave and statutory holidays compensation.

31.  However, I am of the view that the legal position is otherwise.  The respondent’s defence as submitted by Mr Shum was only that he was not the employer of the appellants within the meaning of sections 40 and 41AA(8) of the Employment Ordinance for the period prior to the death of his father.  This paragraph 5 in the Schedule addresses exactly the same question as to who was the employer for the said period and it is provided thereunder that the period of employment of an employee with the transferor of the business will continue as a period of employment with the transferee and the transfer of business will not break the continuity of the period of employment.

32.  It will be quite odd that paragraph 5 would only continue the contract of employment for the purpose of long service payment but not for the other benefits conferred on an employee under the same contract of employment.  It is, therefore, my decision that the said paragraph 5 continued the contract of employment for all the benefits of a contract of employment.”

30. Mr Leo submits what Yam J said was per incuriam.  He argues that the First Schedule is limited to ascertaining whether there has been a “continuous contract” as required under the Ordinance and not who is liable under a contract of employment.  Paragraph 5 simply counts the period of employment (and not the benefits of employment) of an employee with a transferor towards his subsequent employment (if any) by the transferee.  Liability of the benefits is to be determined by the relevant sections in the Ordinance.

31. My interpretation of Paragraph 5 is this.  By virtue of the provisions in Paragraph 5, despite the change in the identify of the employer from the transferor (before the transfer) to the transferee (after the transfer), the period of employment with the transferor will count as the period of employment with the transferee with no break in the continuity of the employment.  In other words, the transfer does not have the effect of terminating the employment.  The employment just carries on with the transferee as if the transferee were the employer under the period of employment with the transferor.  Thus analyzed, Paragraph 5 has altered the common law position summarised in paragraph 27 above.  The transfer of business alone no longer has the effect of terminating the employment between the transferor and the employee.  The employment continues with the transferee replacing the transferor as the employer.

32. I now proceed to consider the impact of Paragraph 5 on the question of entitlement to employment protection and benefits accrued upon termination of the employment.  I accept Mr Leo’s submission that Paragraph 5 alone does not impose liability for employment protection and benefits.  It is imposed by the relevant sections in the Ordinance.  And under those sections, when the employment with the transferee is terminated later, the transferee as employer is liable for those employment protection and benefits that may accrue upon termination.  When calculating the period of employment in determining the quantum of such protection or benefit, Paragraph 5 comes into play.  It has the practical effect of continuing the employment upon transfer and the period of employment with the transferor shall count as the period of employment with the transferee.  Thus the transferee’s liability is to be determined by reference not only to the period of employment after the transfer but also to the period of employment with the transferor before the transfer.

33. I am unable to accept Mr Leo’s submission that Yam J’s speech in Law Shu Fat & Others v. 吳光銳經營吳祐記運輸公司 (quoted above) is per incuriam.  I would respectfully suggest that what Yam J said summarized the legal position correctly in very pragmatic terms.

34. Upon analysis, I am of the view that the Presiding Officer was correct in concluding that the defendant is liable for annual leave pay and statutory holiday pay for Period A and severance pay for Period B as a result of the transfer of business from Mr Chan to the defendant.  His reasoning may be short.  But it is not flawed.

35. Finally, Mr Leo submits that if I am against him on the interpretation and effect of Paragraph 5, then section 9 of the Transfer of Businesses (Protection of Creditors) Ordinance, Cap. 49 should apply.  Section 9, in essence, provides that no action shall be instituted to recover any debt from or to enforce any obligation against any person liable therefore under that Ordinance more than 1 year after the date on which the transfer in respect of which the liability arose took effect.

36. In my view, section 9 does not apply because no liability on Mr Chan’s part for employment protection and benefits arose upon the transfer of business to the defendant when, by virtue of Paragraph 5, it did not amount to a termination of the claimant’s employment.

37. For these reasons, this appeal must fail.  For the sake of completeness, I will deal with Grounds 3 to 6 briefly as follows.

Ground 3

38. I trust what I have said above is sufficient to dispose of this Ground.  Plainly, the defendant, as the employer, is liable for the annual leave pay under section 41D and statutory holiday pay under section 40A upon the termination of the claimant’s employment.  In calculating quantum, Period A must be included.  This Ground must fail.

Grounds 4 to 6

39. Grounds 4 to 6 may be dealt with together.  They are premised on the applicability of section 31L.  In my view, section 31L has no application to the facts of the present case.  The death of Mr Chan is neither here nor there because his business, as found by the Presiding Officer, had been transferred to the defendant upon his death.  It is the transfer of the business that matters.  Further, as I understand Mr Leo’s submission, Ground 6 will bite only if Ground 2 is successful.  As I have rejected Ground 2, Ground 6 must fail in any event.

Conclusion

40. For the above reasons, I will dismiss the appeal.  Since the claimant is absent, I will make no order as to costs.