GUBERSKY, ELIZABETH BARKER v. HARRIS BOOK CO LTD

HEADNOTE

                Company Law and master and servant - a pre-incorporation - Court practice & Procedure - contract of service could not be ratified in law as section 32A of the Companies Ordinance, 1984 has no retrospective effect.

2.              Where the plaintifft's pleadings failed to disclose a post-incorporation new contract and was thus fundamentally defective, it was ruled that the defendant had no case to answer and the action was discontinued (formerly known as non-suited). Nokes v. Doncaster Amalgamated Collieries, Limited (1940) A. C., H. L. 1014 followed.

3.              The application for amending the statement of claim was refused as such amendments would in effect allow the plaintiff to introduce a new cause of action therefore a new case, which new case of a new contract appeared to be weak at the close of the plaintifft's evidence. It may well be in the interest of all the parties concerned for the parent holding company which had privity of contract with the plaintiff to be joined as a co-defendant in the event of institution of fresh proceedings.

IN THE DISTRICT COURT OF HONG KONG

HOLDEN AT VICTORIA

CIVIL JURISDICTION

ACTION NO. 1277 OF 1985

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EX  TEMPORE  RULINGS

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PRELIMINARY

1. This is an ruling or both submission of no case to answer made by Mr. Chan for the defendant and on an application by Mr. Mitchell for the plaintiff for amending the statement of claims and the particulars thereof in the event of a ruling of no case.

2. The claim by the plaintiff was commenced at the Labour Tribunal wherefrom the learned trial Presiding Officer transferred the claim to the High Court which in turn, due to increase of monetary jurisdiction for the District Courts transferred it to here. At the commencement of the trial before me, I had sounded out the views of both Counsel as to whether they would prefer the claim to be transferred back to the Labour Tribunal or be heard by me, having given my personal views then that it would appear to be in the interest of the parties to have it dealt with here since they had gone so far and in order to save further time and expenses. Both Counsel agreed that I ought to do it and I did it. As the Rules of Evidence do not apply to the Labour Tribunal, the fortune of the parties might have been different had it been dealt with there. It is therefore necessary for me to make the following observation.

3. Under the Labour Tribunal Ordinance, a presiding officer has very wide power to transfer a claim to another court for any reason as he thinks fit. The learned Presiding Officer chose to give his reasons for transfer. As I see it, all those reasons can hardly be said to be valid save and except perhaps one and that is the question of penalty or liquidated damages. In Panalpina (Hong Kong) Ltd. v. Ulrich haldemann, Hunter J. ruled in the following terms:- 

"          In my judgment the phrase 'sum of money' must be construed in the light of the fact that practically every claim for 'breach of a term...of a contract' will be for damages unliquidated in law but quantified in practice. It follows, I think that the phrase must cover such claims. I agree with Roberts, C. J. that the legislature anticipated a 'quantified' claim and a claim that was 'ascertained' or ascertainable. But I regret that I cannot agree that this makes the claim one for liquidated damages, or that it limits the tribunal's jurisdiction to such claims. This conclusion seems to me to be supported by paragraph 3. No claim 'founded in tort' can be for liquidated damages. It may contain a calculated or special damages element; but the bulk is likely to be for general damages. I am much comforted to know that the, same conclusion was reached by O'Connor, J. on. 18th December 1979 in Stewart and Others v. The Hong Kong Philharmonic Society Limited, H. C. Civil Action No. 3031/79."

4. The judgment of Hunter, J. came before the Hong Kong Philharmonic Society Limited but rafter the National Ebauch and as such judgment being the latest must have the command of the day. It can readily be seen from Panalpina that the "sum of money" is not only limited to liquidated damages generally in the pleading sense but also extends to a "quantified" claim and a sum that is either "ascertained" or ascertainable. In this case, on the face of it, 3 months wages in lieu of notice in the circumstances of the case is hardly a penalty. Even in doubt, the question of penalty or liquidated damages should have been decided as a preliminary matter of law by the learned Presiding Officer as required of him under S.16 of the Labour Tribunal Ordinance to avoid delay and prejudice to the parties interest. In fact, the matter had been delayed for over 18 months, if not almost 2 years, with unfortunate and very unsatisfactory outcome up to-date. I say no more about it with every respect.

RULING ON NO CASE

5. The submission of no case is based on the main ground that there was no privity of contract between the parties in the pleaded case of the plaintiff to which Mr. Mitchell is joining issues and submits that the pleadings are not so fundamentally defective as to amount to no case albeit not perfect. There is the further submission that as far as the second limb of a full accord as to the terms of termination of service was concerned, that consideration as an essential of pleading is not there. The main question calling for decision is really firstly whether there should be a case and secondly if there is no case, whether I should allow the application for amendment with the necessary interlocutory and consequential amendments to all the pleadings as may be necessary so that I can carry on with the case to its bitter end.

6. As rightly agreed by all concerned, it was long and well settled company law for our purpose that a subsequently incorporated company could not ratify or adopt a contract that was entered into between other parties as a pre-incorporation contract. This branch of the law equally applies to the contract of employment as will be seen later. See Pennington on Companies Law, 4th Edition, pp.88-90 and cases cited thereunder. As rightly submitted by Mr. Mitchell, subsequent conduct after the company was incorporated could in certain circumstances, if their evidence so warranted it, constitute a new contract and equally correctly pointed out by Mr. Chan such conduct must be necessarily referable to the making of a new contract (See Natal Land & Colonization Co. v. Pauline Colliery & Development Syndicate (1904) A. C. 120).

7. In Nokes (1940) A.C. 1014 at 1024 per Viscount Simon it was held where an order is made the Court under s. 154 of the Companies Act, 1929 for the amalgamation of two companies, a contract of service existing at the date of the amalgamation between a workman and the transferor company does net automatically become a contract of service between the workman and the transferee company, with Lord Romer dissenting. In giving his majority judgment, (save and except Lord Romer) Lord Simon had this to say at p.1204:-

"The word 'contract' does not appear in the section at all, and I do not agree with the view expressed in the Court of Appeal (overruling the Court of Appeal earlier decision - noted by me) that a right to the service of an employee is the property of the transferor company. Such a right cannot be the subject of gift or bequest; it cannot be bought or sold; it forms no part of the assets of the employer for the purpose of administering his estate. In short, s.154 when it provides for 'transfer' is providing in my opinion for the transfer of those rights which are not incapable of transfer and is not contemplating the transfer of rights which are in their nature incapable of being transferred. I must make it plain that my judgment is limited to contract of personal service with which the present appeal is concerned...."

And the Noble Lord further elaborated:-

"In the second place, if the Legislature really desires that the workmen should be transferred to a new employer without their consent being obtained, plainer words can be devised to express this intention. I cannot regard s.154 as plainly authorizing this result and, in my view, the appeal should be allowed with costs here and below......"

8. It is noted that in Nokes the claimant was in fact the workman as in this case.

9. In Cooke v. Rickman (1911) 2 K. B. 1125 at 1130 Banker, J, (as he then was) had observed to the effect that it would be too late for a defendant to say that consideration was not pleaded in a subsequent actions subsequent to the first in which the defendant had conceded to arrears of rent. The observation was made in the context of estoppel relying on the celebrated case of Humphreys v. Humphreys (1910) 2K. B. 531 and the facts in that case with the striking feature of admission as to liability hence consideration were different from those in this instant case. Therefore Cooks has really no application to our situations.

10. I have refreshed myself of the fundamentals of pleadings by referring to Bullen & Leake on precedents of Pleadings, pp. 120-122 and p.345 and the cases quoted thereunder suffice to put it on record as follows :-

11. The cases referred to by Mr. Mitchell were clear-cut cases where a new contract had to be inferred by post-incorporation conduct, on the part of the newly formed company contra this instant case in which I shall allude on my second ruling on application for amendments. Those cases are clearly distinguishable and distinguished.

12. It is crystal clear that the cause of action as pleaded in the plaintiff's case was based not so much on a new contract after incorporation but on whatever agreement that there had been between M.P.H. and the plaintiff which agreement with the service of the plaintiff were taken over by the defendant company that was incorporated in September 1978 and that a post-incorporation new contract was not pleaded at all, at least not expressly. On reading the pleadings with particular regard to the statement of claim and particulars thereof as a whole, it can hardly even be inferred that such a new contract was pleaded. Paragraphs 1 and 3 of the statement of claim in particular put me beyond any doubt of what I had stated. In short, the pleaded case of the plaintiff was founded on the pre- incorporation contract taken ovens adopted or rectified if one likes, by the defendant company after its incorporation. As we have seen this could not have been legally valid and enforceable. In other words, as pleaded, it is not part of the plaintiff's case of a new contract and the defect goes to the root of pleadings. The plaintiff adduced in evidence part of her case different from the, pleadings. Nor has the defendant in his pleadings conceded in any way to a new post-incorporation contract. Owning the incorporated book shop by defendant is quite another matter from having entered into a service contract with the plaintiff. Bearing in mind of the fundamentals of the pleadings which no doubt are there not only for expedient time-and-cost-saving purposes but also for the general interest of the administration of justice, and having again reminded myself of what I have above-stated, I rule that the defendant has no case to answer and the action is discontinued albeit not dismissed on the merits without prejudice to the plaintifft's rights to institute fresh proceedings.

13. I use the acrd "discontinued" instead of dismissed as an analogy to "non-suit" which is no longer used in those modern days (see Odgers' on Principal of Pleadings & Practice, 22nd Edition, pp. 298-299).

14. It is true that as far as procedure and pleadings are concerned, the District Court tends in practice to be not as formal as the High Court. Nonetheless for fundamentals, there can be no justification for any laxity in pleadings if parties are legally represented; per Black-kerr, J. in TANG Woon-kai (1970) H. K. L. R. 531-2.

2ND RULING - ON AMENDMENTS

15. Consequential to my ruling of no case, I am called upon to rule on the application for amendments and a proposed amended statement of claim was promptly handed up for the purpose. Of course, if I rule in favour of the application the vase would be re-opened as if the case were first commenced with the exception that what had been dealt with must not be repeated and what would be dealt with were to be confined to matters arising from the amendments.

16. Again I have refreshed myself of the general principals relating thereto, namely, that it is a guiding principal of cardinal importance where the interest of justice requires a court should be ready and willing to grant amendments provided that no prejudice or injustice will be caused to the other party however late the proposed amendment be and equally a court would not readily allow at the trial an amendment, the necessity for which was abundantly apparent sometime ago and not asked for (see pp.342-3 of the White Book 1985, Volume 1 - 20/5-8/9 & 25/5-8/11 & 20/5-8/12 and cases quoted therein). The overriding and perhaps the decisive factor is would it be in the interest of justice to do so.

17. In particular, I like to put on record that I have paid particular attention to last paragraph at p.343:-

"            Where the amendment has become necessary by reason of a variance between the statement of claim and the evidence given at the trial, it should be asked for at the conclusion of the plaintiff's case (Rainy v. Bravo (1872) L. R. 4 P. C. 287). After all the evidence on both sides has been taken, leave to amend will, as a rule, be refused....."

18. In Rawding v. London Brick Co. Ltd, (1971) 4 K. I. R. (Knights Industrial Report - obtainable only from the Attorney General's Chambers Library) it was held that it would be wrong to allow an amendment at the close of the evidence or even at an extremely late stage of the trial where it could result in a party being confronted with an entirely new case (emphasis by me) while fully appreciating that Rawding was a rather extreme case in which all the evidence had been closed as opposite to only plaintifft's case here and in which there was a clear element of the other side having been taken by surprise, the principal enunciated in Rawding or one of the principals that a court should be slow to allow an amendment which would result in a party being confronted with an entirely now case is relevant to our purposes. After all, pleadings are there to enable the other party to meet the plaintiff's case and it would be against the spirit of pleadings to divert from it unless for obviously good reasons. In this instant case, amendments would mean a different cause of action were to be had.

19. Granting the application for amendments would prejudice the defendant by having to go through the ordeal of an unnecessarily prolonged hearing incurring time and cost for further interlocutory matters, consequential amendments to pleadings, an adjournment be it short or long, re-opening of the plaintiff's case for further cross-examination let alone the defence case which I anticipate will take at least another week if not more for actual hearing and thus depriving the benefit of the end of the day. Above all, the evidence from which the Court may draw the inferential conclusion of a post-incorporation contract is far from clear-cut. While there is evidence from the plaintiff that Educational publisher House was her employer, the evidence to support that the defendant company The Harris Book Co. Ltd. had entered into a new contract of the employment with her was somewhat scanty. Pp. 8 & 9 of the bundles of documents Exh. P1 refer. There is no evidence therefrom that the defendant was the employer at the time of the alleged constructive dismissal. Nor the letter-heads in the name of the defendant on pp. 65, 78 & 79 etc. necessarily refer to a new contract. Nor even the Inland Revenue on p.146 as commission not salaries were the subject matter for taxation therein and as the remuneration of the plaintiff was paid in the form of consultancy fees to Pioneer Engineering Company, a company owned by the plaintiff's husband and perhaps the plaintiff jointly. Such inconclusive evidence which may appear in the first sight to be somewhat in favour of a new contract cannot really hold together when viewed in the light of the overall evidence that E. P. H. which appears to be the employer was a different legal entity from the defendant company, the former being the holding company of the latter (incidentally M. P. H. referred to on p.7 & 8 as having ceased business was yet a third company, another subsidiary of E. P. H ). It is doubtful, to say the least, on the face of the evidence as the plaintiff stands as to whether an inference can be drawn on balance of a new contract binding the defendant's company. It is net unlikely that at the end of the day a court in the function of a reasonable tribunal of facts may net drag such a conclusion. Indeed it may very well be in the interests of the plaintiff to start a fresh action whereby E. P. H. will be joined as a co-defendant to the Harris Book Co Ltd to avoid the considerable risk of losing out for want of privity of contract, even on the merits. I would think that it be in the interest of both parties as well as in the interest of justice to refuse the application to amend, in the circumstances.

OTHER OBSERVATIONS

20. Plain common sense prompts me to make these other observations that as the case was in fact discontinued by sustaining submission of no case on technicality and not on the merits that res judicata does not appear to be applicable in the context of fresh proceedings. I have this final observation to make. It is only just and fair that a court is slow to decide en technicality and prefers for obvious reason to decide on the full merits of the case, save and except when the technicality is so fundamental that the court has no choice but has to decide on it. This case is an instance that the Court's hands are so tight that the only reasonable decision is to uphold the submission of no case and to dismiss the application for amendments.

21. I should add as I have neglected to do so, that as rightly conceded by Mr. Mitchell, consideration was not expressly pleaded and that consideration is a fundamental essential of pleadings. It is crystal clear from the pleadings that I cannot come to any inferential drawing of pleading consideration. For obvious reason, the 2nd limb of the action of failure to live up to the alleged accord of terms of termination must fail for, as I rule, fundamental defect of pleading. In the event, the application for amending the statement of claims and the particulars thereof is refused.

RULING ON COSTS

22. I have heard both Counsel in their submissions on costs. I have borne in mind, as stated at p. 299 of Odgers' also referred to, that "the proper time for defendant's Counsel to submit to the judo that there is no case for him to answer is at the close of the plaintiff's case". However, I an sure what the author had in mind was that it might not be mature for Counsel to make such a submission until and unless he had heard the full prima facie case of the plaintiff. In this instant case we had a full bundle of documents and there was no notice of additional evidence to alter, vary, delete from or add to or in any way substitute what were already there in the bundle of documents and pleadings. In my opinion, a few days' costs would have been saved had Mr. Chan insisted on tackling with and requiring the Court t to dispose of the legal issues in a preliminary ruling even before the opening.

23. The above apart, I must also boar in mind albeit not as a decisive factor, of the somewhat unfortunate experience of the parties with the Labour Tribunal.

24. I agree with Mr. Chan that awarding no cost in this case would be tantamount to reading "must" "for" may into Order l8, rule 19 the striking out order which would create a precedent that cannot be right.

25. I agree with Mr. Mitchell that whatever was said before the opening between Counsel and whatever emotional remark was uttered in Court, there was nothing to prevent Mr. Chan to insist on the Court dealing with the legal issues as preliminary matter.

26. In the ciroumstances, I award costs to the defendant for the dates of July 12, 13, 15 and 16, being the hearing dates on which the submission no case was hoard with the 12th on brief fees basis and the balance on refresher basis (on the ground that even if Mr. Chan had taken the first opportunity at the commencement of the trial to take up the legal issues the plaintiff would still have been entitled to a brief fee). There will be Counsel Certificate for Mr. Chan and costs will be on the Upper Scale to be taxed if not agreed upon. There will be no order as to costs for the balance of the hearing dates. For clarity, the defend ant will be entitled to costs on the action except the hearing dates on 8-11 July inclusive.

27. Having again heard Counsel I have to make two consequential rulings. Firstly, as the case is not only one involving some law but also a rather rare one leave to appeal against all my rulings is granted.

28. I agree with Mr. Mitchell that in the event of institution of fresh proceedings, it is desirable that this case be heard by me in order to save time and costs, e.g. dispensation with opening and shortening of the plaintiff s evidence and possibly short-cutting by My somewhat familiarization with the case. The Deputy Registrar of Victoria District Court is to be informed that in such an event it is preferable that the case be listed before me for hearing.

29. I am indebted to Counsel for their useful and helpful assistance.

ADDENDUM

30. I should have added that in the context of my reference to Nokes and s.154 of the Companies Act, 1929, s.167 of the Pre-1984 Companies Ordinance was taken from s.154 of the 1929 Act and Nokes applied to Hong Kong prior to the commencement of our Companies Ordinance, 1984 and to this instant case which arose before that S. 32A of the 1984 Ordinance which was enacted to suit local conditions and which is novel to its English counterparts has no application to this case being Legislation subsequent to the event without retrospective effect. S. 32A of course enables the ratification of pre-incorporation of a pre-incorporation contract entered into between strangers.

31. The Employment Ordinance, Cap. 57, has no application to this case because the plaintiff was neither a manual worker nor her salaries at all the material times fell within the jurisdictional range of s.4(2). If applicable, the pre-incorporation contract would have been transferred with the transfer of business of the Harris Boor Co Ltd to the defendant company by virtue of Paragraph 5 of the First Schedule to Cap. 57.