KAO, LEE & YIP (a firm) v. LAU WING AND ANOTHER

HCA1854/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.1854 OF 2005

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D E C I S I O N

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1. This is an application by the defendants to strike out the plaintiff’s Amended Statement of Claim under Order 18 rule 19 and for a determination of a question of law under Order 14A.  In addition there is a summons from the plaintiff seeking leave to further amend its pleading (by adding further allegations against the defendants).

2. The plaintiff is an established and well-known firm of solicitors in Hong Kong.  The defendants are two young, recently qualified solicitors who were in the plaintiff’s employ as assistant solicitors.  At the material time they had approximately one and two years' post-qualification experience.

3. The Order 14A question is in the alternative to the strike out application but I consider it more logical to deal with it first.

BACKGROUND

4. The background can be stated briefly and simply.

5. In August 2005 the defendants purported to terminate their employment with the plaintiff.  Contractually, they were required to give three months’ notice.  They relied on sections 6 and 7 of Cap.57, the Employment Ordinance to, in fact, terminate their employment in the following way.  On 19 August 2005 they gave three months’ notice in writing but stated that they would only work for one month, until 19 September 2005 and pay to the plaintiff two months’ wages in lieu of the remaining two months’ notice.  The plaintiff did not accept their notices of termination and refused to accept the cheques purporting to represent the two months’ wages.  The plaintiff submits that such a termination can only be valid if it is with their agreement.  They did not agree.

6. The parties disagree about how section 7 of Cap.57 should be construed.

7. Section 7 provides :

“S7 Termination of contract by payment in lieu of notice

(1) Subject to sections 15 and 33, either party to a contract of employment may at any time terminate the contract without notice by agreeing to pay to the other party a sum equal to the amount of wages which would have accrued to the employee during the period of notice required by section 6.

(2) Either party to a contract of employment, having given proper notice in accordance with section 6, may at any time thereafter terminate the contract by agreeing to pay to the other party such proportion of the sum referred to in subsection (1) as is proportionate to the period between the termination of the contract and the time when the notice given would have expired.”

8. In a nutshell, the plaintiff contends that the words “by agreeing to pay” mean that there must be an agreement between the plaintiff and the defendant that such money can be paid as an alternative to the defendant working out the full period of notice.

9. The Order 14A question is drafted as follows :

“… alternatively, for a determination pursuant to RHC O.14A that the Defendants’ employment by the Plaintiffs was terminated on 19 September 2005 by virtue of the Defendants each giving the Plaintiffs 3 months’ notice of the termination of such employment on 19 August 2005, and subsequently tendering payments in lieu of the period from 20 September to 18 November 2005 on 2 September 2005 and again on 17 September 2005, pursuant to the Defendants’ contracts of employment with the Plaintiffs and Sections 6 and 7 of the Employment Ordinance (Cap.57), and upon such determination an order dismissing the Plaintiffs’ claims with costs to the Defendants;”

10. Ms Teresa Cheng SC appeared for the plaintiff,  Mr Russell Coleman for the defendants.  Ms Cheng’s preliminary submission was that the court should decline to answer the question as the better course would be to let the entire matter go to trial.  I disagree with this approach for two reasons.  Firstly, I consider the question to be one which is capable of being answered simply and definitively.  Secondly, it is at the core of the entire case and its answer, at least, should bring the entire action to an end. 

ANSWER TO ORDER 14A QUESTION

(A)     The need for consensus?

11. The question is undoubtedly an interesting one and both counsel have advanced points worthy of consideration.  However, simply because there are two sides to the argument, it does not mean that the court should decline to answer it in Order 14 proceedings.  Although, Ms Cheng’s submissions are not devoid of merit or force I find myself satisfied that Mr Coleman’s construction of section 7 must be the correct one.

12. “By agreeing to pay” does not mean that there must be an offer and acceptance situation between defendants and plaintiff.  It provides both sides to the contract of employment an opportunity to cease working earlier than the contractual three months by engaging a “buy out” procedure.  By “agreeing to pay” the defendants are required to state that they will pay to the plaintiff those wages that would otherwise be due to them.  If they do not subsequently pay a very simple procedure in section 8A is triggered whereby the plaintiff can claim damages equivalent to the amount of wages not paid.

13. Under section 7(2) the employer can terminate employment immediately on payment of wages in lieu.  They do not seek the employee’s consent.  The same unilateral approach is afforded to the employee as well.  The key phrase is “by agreeing to pay to the other party”; it is not “by agreeing with the other party to pay”.  In such a context “agreeing” plainly means “being willing to”.

14. The identical question has been the subject of judicial consideration before now.  I fully agree with the following extracts.  I firstly cite the decision of Stone J in ICAP (Hong Kong) Ltd v. BGC Securities (Hong Kong) LLC [2005] 3 HKC at pp. 160 and 161.  I do so at some length because it helpfully refers to other case law and I adopt the reasoning and the conclusion in its entirety.

15. On the meaning of “agreeing” Stone J said as follows :

“122. In terms of appellate authority on the point, the researches of counsel have uncovered a decision of the Full Court in Yip Wan Chiu v. Magnificent Industrial [1974] HKLR 183, in which the point was considered and the court, by a majority, expressed the view that mutual agreement was necessary.  In Yeung Chi Wah v. City University (28 February 2004, unreported), an interlocutory appellate court considered Yip, op cit, and expressed the contrary opinion that unilateral tender was sufficient to effect a termination under s 7 : in this the court followed the dissenting judgment of Huggins J in Yip Wan Chiu, and stated that if one party wished to terminate the contract is willing to make payment in lieu of notice, that party thus is able validly to terminate the employment pursuant to s 7(1) of Cap.57.  In Yeung Chi Wah the court appeared to have taken note of the Court of Final Appeal decision in Archer v. Hong Kong Channel Ltd [1998] 4 HKC 637, although it is clear from the report in the latter case that the Court of Final Appeal did not find it necessary to resolve this issue (see the judgment of Litton PJ at 642E). …

123. The only other decision cited on the point is that of Chung J inVite Ltd v. Chui Oi Fan Fanny & Ors, unreported, chambers decision dated 18 August 2000, in which the learned judge expressed, obiter, the view that the natural and ordinary meaning of s 7(1) supported the dissenting opinion in Yip Wan Chiu, op cit and considered that the view of Huggins J was ‘more likely’.”

16. Stone J concluded that the majority decision on this issue in Yip Wan Chiu was obiter and I agree.  He continued :

“In the event the opinion which emerged was that McMullin and Pickering JJ thought that such mutuality was required, whilst in a powerful dissent Huggins J thought that the section ‘contemplates a unilateral termination by one party or the other, for it is only one party to the contract who has to agree to do something, ie pay money, and I understand that to mean ‘indicate his willingness to pay’ or ‘promise to pay’ (op cit, at 194).

127. For my own part I entirely agree with this latter view, and accordingly, if I am correct that I am not so bound, I so hold.  In passing, I should add that the researches of Mr Coleman during the hearing into Hansard revealed the legislative background to the Employment (Amendment) Bill 1971, wherein the Explanatory Memorandum is strongly supportive of the contention that the so-called ‘agreement to pay’ did not require consensus between employer and employee.  Mr Huggins but faintly attempted to persuade me that I should not look at this material upon the basis of what struck me was a strained interpretation of Pepper v. Hart principles, a contention that I rejected.”

17. The judgment of Huggins J in the Yip Wan Chiu case was as follows :

“… I think it contemplates a unilateral termination by one party or the other, for it is only one party to the contract who has to ‘agree’ to do something, i.e. to pay money, and I understand that to mean ‘indicate his willingness to pay’ or ‘promise to pay’.  It would not have required a statute to lay down that a contract of employment, like any other contract, can be terminated by mutual consent and I find nothing in the section which is indicative of a situation involving such consent.  As it seems to me what the language of the section provides is that either party may, by indicating at the time he gives notice of his intention to terminate the employment his willingness to pay a sum equivalent to one month’s ‘wages’ as defined in the Ordinance … bring the contract to an immediate end without being guilty of the breach of contract which termination without notice would otherwise have involved. …  If a contract is lawfully terminated by this novel method it will necessarily follow that no action will lie for damages for breach of contract by reason of the failure to give notice.”

(B)    A two-tier approach?

18. Ms Cheng relies on the words “at any time thereafter” in support of her argument that even if section 7 does not require a consensus the defendants’ notice was still invalid because section 7(2) requires the agreement to pay must come after a valid notice of termination has been served.

19. In the present case the defendants gave notice on 19 August and in the same letter stated they would work for one month and enclosed cheques for wages for the remaining two months.  Ms Cheng submits that by agreeing to work for only one month they did not give three months’ notice and secondly that by sending the cheques at the same time they did not agree to pay “thereafter”.

20. I disagree with both submissions.  The letter of resignation gave three months’ notice and was a proper notice.  It merely explained that section 7(2) was being deployed so that in fact only one month would actually be worked.  By explaining this and by enclosing the cheques the defendants did not fall foul of the “thereafter” provision.  It was “thereafter” albeit in the same letter.  Moreover, the cheques were not accepted by the plaintiff.  Consequently the defendants re-submitted them on their last day of work, 19 September.  This 2^nd attempt (also refused) was plainly well after the original letter.

21. In short I have come to the firm conclusion that the defendants’ written notice was valid and complied with sections 6 and 7 of Cap.57.

OTHER MATTERS

22. Four other matters were argued in the course of the applications.  I shall deal with each briefly.  On each issue I favour the stance advanced by the defendants.

(1)     D1’s notice invalid by one day?

23. Against Lau Wing the plaintiff makes an additional contention that because she was on leave on 20 August 2005 her one month calculation was deficient by one day and it is thus invalid.  This argument may have had technical merit if Ms Lau’s leave on 20 August was statutory annual leave.  In fact it was contractual leave which, I accept, does not affect the calculation and does not invalidate the notice.  Even if this is wrong the high water mark of the plaintiff’s position is that they would be entitled to one more day’s wages, about $1,500.  At best it is a technical unmeritorious point.

(2)     Jurisdiction

24. Mr Coleman submits, and I agree, that this dispute should, first of all, have been brought in the Labour Tribunal.  A liquidated or unliquidated claim for breach of a contract of employment should be commenced in the Labour Tribunal (Labour Tribunal Ordinance, Cap.25, section 7).

25. The plaintiff submits that these proceedings were properly commenced by writ because the claim contains prayers for declarations and an account which fall outside the Labour Tribunal’s jurisdiction.  In my judgment the claims for declaration and an account are window dressing.  The reality is that this is a breach of contract case.  Any judgment in their favour would answer the declarations sought.  It also seems to me that seeking “an account”, in this case, is not materially different from an exercise in quantifying damages.

26. Even if there are potential issues which come solely within the jurisdiction the Court of First Instance the claim should nonetheless have been commenced in the Labour Tribunal and, if appropriate, transferred to this court by that tribunal.

(3)     What, if anything, remains after the Order 14A question is answered?

27. By the answer to the O.14 question being in the defendants’ favour virtually all of the claim is disposed of.  All those breaches which depend on the notice of termination being invalid become unsustainable and may be struck out.  If the termination was valid, there was no breach of either express or implied terms.  There was no complaint against the defendants as at the time of the termination letter (19 August) and there can be no complaints against the defendants (relating to the circumstances of their resignation) from the effective date of termination (19 September).

28. However, by the proposed further amendments to the Amended Statement of Claim, the plaintiff makes further allegations arising out of the defendants’ conduct between 19 August and 19 September.  These, it is argued, give rise to separate and distinct claims for breach of duty and/or implied terms.  The plaintiff submits, firstly, that the survival of this part of the action means that the action is not suitable for disposal under Order 14A and secondly, that the amendments should be allowed and the whole matter proceed to trial.

29. I will summarise the new allegations in the proposed amendments.

30. It is claimed in the new paragraphs 6A and 6B that the defendants owed a duty to act in the best interest of the plaintiff’s clients and therefore not leave too suddenly or prematurely.  If their departure was in accordance with the law no claim along these lines can arise however sudden it may have been.

31. It is claimed in the new paragraphs 14(A)–(D) that, in summary form :

(A)     even if the termination was valid the defendants failed to turn up for work in the second and third months of their notice.  Also, they knew it would be difficult for the plaintiff to replace them and as they were handling important cases and had a heavy workload the plaintiff’s business was disrupted as a result;

(B)     the above factors risked the plaintiff’s clients’ interests;

(C)     they cut down on their workload and spent time, in closed rooms, preparing for their departure rather than working on their case files;

(D)     they failed to devote their full time to the interests of the firm.

32. (A) and (B) above are unsustainable if the Order 14A question is against the plaintiff.  It would be bizarre for them to pay over two months’ wages and turn up for work.  In any event the evidence suggests that they were prevented from entering the plaintiff’s premises.

33. It is arguable that (C) and (D) above remain live issues which the plaintiff could, in theory, pursue.  However, the three “other matters” ((1), (2) and (3)) dealt with above all demonstrate an unhealthy and obsessive determination on the part of the plaintiff to squeeze this case dry.  No stone has been left unturned in their efforts to bring the defendants to book.

34. In such circumstances it is desirable to bring these proceedings to a conclusion.  Whether it is by allowing the amendments and then striking them out together with the rest of the claim on the grounds of oppression or whether by simply not allowing the amendments to be made on the grounds of their being vexatious is an academic choice.  Of the two I prefer the latter.

(4)     The point of principle

35. The plaintiff contends as part of their case, that they have taken this matter very seriously. That is very apparent.  However they cite, inter alia, two reasons for so doing on which I think they have laid too much emphasis.  These two reasons, in my judgment, have little or no relevance to the issues before this court.  However the plaintiff has laid great stress upon them and so, for the sake of completeness, I shall allude to them.

36. The plaintiff firstly complains they were left in the lurch by the sudden departure of two competent, albeit young, litigation solicitors.  As a matter of principle (and law) they submit this should not be sanctioned.  Secondly, they enlarge on the point of principle by quoting two examples outside the legal profession.  Can, they ask, a surgeon put a cheque on a table in the middle of an operation and walk out; can a fireman write a cheque and leave a burning house?

37. As to being left in the lurch, I have read the lengthy affirmation evidence, primarily from the plaintiff but also answered, more succinctly, by the defendants.  I think the plaintiff’s alarms at the prospect of two young solicitors leaving in one month rather than three has been overstated.  As to the examples of the doctor and the fireman they are extreme, unrealistic and unhelpful.  Hypothetical answers to hypothetical questions do not advance this case.  They are reductio ad absurdum.

38. On the defendants’ summons under Order 18 rule 19 and Order 14A I make an order in terms of paragraphs 1 (limited to “no reasonable cause of action and/or vexatious”), 2 and 5.

39. I dismiss the plaintiff’s summons to re-amend the Statement of Claim with costs to the defendants.