MA PO CHING v. CHARMINE BEAUTY SPA

HCLA 110/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

LABOUR TRIBUNAL APPEAL NO. 110 OF 1999

(ON APPEAL FROM LBTC 2648/1998)

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J U D G M E N T

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1. The appellant operated a beauty spa and employed the claimant as a consultant under a contract of employment which provided for an end of contract gratuity. The claimant's service was allegedly terminated on 28 February 1998 without payment of the gratuity. On 30 April 1998, the appellant closed down her business and handed possession of her business premises to the landlord. In the meantime, the claimant filed a claim against the appellant on 7 May 1998 for the gratuity. The claim was served by ordinary mail on 8 May 1998 at the appellant's business address. Understandably that could not reach the appellant. On the hearing day on 25 May, the Presiding Officer heard the claim in her absence and entered an award in the amount of $131,400 against her. A year later, the appellant became aware of the ex parte award and sought to set it aside. On 9 December 1999, the Presiding Officer granted conditional leave under section 21A of the Labour Tribunal Ordinance to set aside the award on condition that the appellant pays the judgment sum into the Tribunal on or before 16 December 1999. Against that decision, the appellant appeals.

2. Service of the claim and notice of hearing was effected by the Labour Tribunal in accordance with section 13(2)(b)(iia) by ordinary post. The award could therefore be regarded as a regular judgment. With hindsight, it would have been more desirable, especially for a claim of this amount, for the Presiding Officer to adjourn the call over hearing on 25 May for personal or substituted service. Had that been done, the ineffective service would have been discovered at the hearing.

3. As the Presiding Officer granted her conditional leave to set aside the award, presumably he was satisfied on the evidence that the appellant did not have actual notice of the hearing and that she had an arguable defence, though he was not very optimistic of her chance of success. He was not satisfied with her lack of means and made it as a condition that she pays the judgment sum into the Tribunal.

4. Mr Fok, for the claimant, argued that the Presiding Officer had discretion under section 31(4) to order security to protect the interest of the claimant. Section 31(4) provides:

"On the application of a party for a review of an award or order, the presiding officer, having regard to the possibility of assets which may be available to satisfy an award being disposed of to the prejudice of any party, may make such order regarding payment into the tribunal, giving of security or otherwise as he may think fit."

5. With respect to Mr Fok, the Presiding Officer has stated clearly in his reasons for decision that the application was made under section 21A and not under section 31(4). Section 21A(1) provides as follow:

"(1) Any award or order made by the tribunal under section 21 in the absence of a defendant at a hearing may be set aside by the tribunal, on the application of the defendant, on such terms as it thinks just."

6. A Presiding Officer's power to hear a claim in the absence of the defendant is derived from section 21. Section 21A specifically provides how the Presiding Officer may set aside his order made under section 21. Section 31(4) specifically deals with review of award and not to set it aside entirely. The discretion under section 31(4) is very specific - the Presiding Officer may order payment into the tribunal or giving of security, if satisfied that there are assets available for judgment which may be disposed of to the prejudice of the claimant.

7. Any discretion, whether under section 21A or under some other provision, may not be exercised arbitrarily. Any discretion vested in the court has to be exercised reasonably and in accordance with legal principles. There are two relevant principles to consider. Firstly, where a defendant has no notice of the hearing, as result of which the judgment was obtained against him, he is entitled as of right to have the judgment set aside. It would be inequitable to require him to pay a security as a condition to defend, if the judgment was obtained through no fault of his. However, where there have been breaches of procedural rules by a defendant which resulted in the judgment against him, then a payment into court may be required to ensure the proper future conduct of the litigation (assuming he has a good arguable case). In the present case, the appellant had not received the notice of the hearing. That was through no fault of her own, except for her failure to report cessation of her business to the Business Registration Office. That could not be regarded as a breach of procedural rules or as an act aimed at avoiding or preventing service of legal process. I do not think in the circumstances, the discretion should be exercised against her.

8. The second principle is that any security ordered must be one which the defendant can afford to pay. In M.V. Yorke Motors v. Edwards [1982] 1 W.L.R. 444, the House of Lords, in an Order 14 application, accepted that it is a wrongful exercise of discretion to impose a financial condition which the defendant will never be able to meet, because to do so is tantamount to giving judgment for the plaintiff notwithstanding the court's opinion that there is an issue or question which ought to be tried. The same reasoning can be applied to the imposition of a financial condition on an order to set aside a judgment. The House of Lords also held that if a defendant wishes to avoid the imposition or limit a financial condition by virtue of his own impecuniosity, he must put forward sufficient and proper evidence before the court and make full and frank disclosure; moreover he cannot complain that the condition is difficult to fulfil only that it is impossible for him to fulfil. The appellant presented a personal net worth statement prepared by her accountant. The Presiding Officer was not convinced by the information. That is a finding of fact which I would not interfere. The Presiding Officer is probably right as the accountant who prepared the statement expressed that he had not audited, reviewed or otherwise attempted to verify the accuracy or completeness of the information contained therein. Today, she annexed to that statement the supporting bank accounts which seemed to tally with the statement. The bank statements do show that she did not have sufficient funds to make the payment whether in May 1999 when she made the application or in December 1999 when the order was made. Of course, these evidence was never before the Presiding Officer and it was open to him on the basis of the evidence then before him not to accept the personal net worth statement as disclosing the complete information.

9. However, on the basis of the first principle mentioned above, the appellant is entitled to be given unconditional leave to defend. Accordingly, I allow the appeal to the extent that the condition imposed by the Presiding Officer in his order dated 9 December 1999 be removed. I remit the matter back to the Labour Tribunal to have it restored for hearing. I make no order as to costs as between the parties, save that the respondent's own costs be taxed in accordance with Legal Aid Regulations.