WONG KAM MAN AND ANOTHER v. WANG CHEONG HONG GODOWN TRANSPORTATION CO. LTD.

HCA 11947/97

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO. 11947 OF 1997

____________

____________

_______________

J U D G M E N T

_______________

The Claim.

1. This is an action commenced by writ of summons issued on 8th November 1997 whereby the Plaintiffs claim the balance of monies due to them under an agreement in writing with the Defendant dated 23rd August 1996 together with interest and costs.

2. The Statement of Claim recites that

1. on the 23rd August the parties entered into an agreement ("the agreement") at the Labour Department whereby

(a) the Defendant agreed to pay to the 1st Plaintiff $226,843.00 by way of outstanding wages, severance payment and double pay

(b) the Defendant agreed to pay to the 2nd Plaintiff $195,644.00 by way of outstanding wages, severance payment and double pay

(c) such payments were to be paid by 24 monthly instalments on the 18th day of each succeeding calendar month commencing on 18th October 1996

(d) the monthly instalments payable to the 1st Plaintiff were $9,452.00 and to the 2nd Plaintiff $8,152.00 and

(e) the 1st and 2nd Plaintiffs agreed to waive their respective claims for payment in lieu of notice against the Defendant.

2. in breach of the agreement the Defendant paid to the 1st Plaintiff only six monthly instalments totalling $56,712.00 and to the 2nd Plaintiff only six monthly instalments totalling $48,912.00 and that thereafter the Defendant unilaterally (and indeed without informing the Plaintiffs) purported to rescind the agreement by refusing to pay to either Plaintiff the subsequent instalments due under that agreement and

3. those outstanding instalments in respect of the 1st Plaintiff are as follows:-

18th April 1997 - 18th September 1998 (18 instalments of $9,452.00 per instalment) - $170,136.00

In respect of the 2nd Plaintiff the outstanding instalments are as follows:-

18th April 1997 - 18th September 1998 (18 instalments of $8,152.00 per instalment) - $146,736.00

The Defence.

3. By Defence and Counterclaim filed on 15th December 1997 the Defendant claimed, inter alia, that

1. by his conduct as an employee in July and August 1996 the 1st Plaintiff had unilaterally terminated his employment

2. the Defendant was misled, by a mistaken opinion of an officer of the Labour Department at the meeting on 23rd August 1996, into entering the agreement with the Plaintiffs

3. that by reason of that mistake the outstanding monthly sums due to the 1st and 2nd Plaintiffs were not payable and

4. the Plaintiffs were liable to return to the Defendant those monthly sums already paid by the Defendant to the Plaintiffs in accordance with the agreement, less that part of those sums due to the Plaintiffs representing arrears of salary and pro rata share of double pay [i.e. the Defendant claims by way of counterclaim $17,468.00 from the 1st Plaintiff and $20,813.00 from the 2nd Plaintiff.]

The Issues.

4. The fundamental issue in this case was why did the parties enter into the agreement on 23rd August 19986 at the Labour Department.

5. The Plaintiffs' case is that they had been 'driver employees' of the Defendant company for many years, and as the Defendant was in arrears with their wages and was asserting some implied pressure upon them to effectively cease to be employees and instead to become independent contractors, or profit sharing partners of the Defendant, the Plaintiffs approached the Labour Department in the hope that that Department might assist in resolving matters.

6. At a meeting arranged by the Labour Department, when various issues were aired, both the Plaintiffs and the Defendant entered into the agreement which, in effect, settled the matter of the arrears of salary due to the Plaintiffs and provided an equitable arrangement for them to cease to be employees of the Defendant and thereafter to resume work as profit sharing contractors. One of the concerns of the Plaintiffs prior to this meeting was that by changing status in their work for the Defendant from one of employees to one of independent contractors, they would forfeit their rights to severance pay - such rights being earned by long service.

7. The Defendant's case (if I have understood it correctly) is that Mr. LAW a Director of the Defendant Company was misled into signing the agreement at the Labour Department by the opinions or assertions of a Madam LO of that Department (who acted as a conciliator) to the effect that by reason of a rearrangement of work in July 1996 which resulted in the Defendant requiring the Plaintiffs to carry out work limited to the locality of Hong Kong instead of cross-border work, such rearrangement of itself amounted to a termination of the employment of the Plaintiffs by the Defendant and that in consequence the Defendant was liable to pay to them not only the unpaid wages but also severance pay upon such termination.

The Evidence.

8. Both Plaintiffs gave evidence before me as did Mr. LAW of the Defendant company.

9. Somewhat to my surprise, given the nature of the Defence in this case - which I confess was somewhat unclear to me, as it plainly was to the Plaintiffs until well into the trial - the Solicitors for the Defendant had apparently not seen fit to obtain a deposition or proof of evidence from Madam LO of the Labour Department, let alone summons her as a witness.

10. Accordingly I took it upon myself, without objection from either party to this action, to call Madam LO to give evidence in the hope that she might shed some light upon an issue that went to the heart of the defence case.

11. In the event, at least to some extent, her evidence was of limited value because, not surprisingly, more than two years after the meeting in August 1996 she had some difficulty in recalling with precision the detail of the discussions that had taken place.

12. However, among the things that she could recall was the fact that the parties quite clearly agreed, at the meeting with her, on the terms which appear in the agreement, and that it was the intention of the Defendant at that meeting to terminate the Plaintiffs employment albeit that, at the very least, the possibility remained open that the Plaintiffs would thereafter work for the Defendant on a profit sharing basis.

13. It was also clear to me from Madam LO's evidence that it was her view, which found expression in the agreement later signed by the parties, that if the Plaintiffs resigned from their employment (as opposed to being dismissed from it) they would not be entitled to any severance pay or compensation.

Counsel's Submissions.

14. I have been considerably assisted in this case by Counsels' written submissions which have highlighted the matters both of law and of fact in issue. For the Defendant Mr. LEUNG has set out in his closing submissions the facts which are agreed, and (inter alia) he confirms that the terms of the agreement are not in dispute. Mr. LEUNG then summarises the Defendant's defence by saying, and I quote:

"(a) Firstly the 1st Plaintiff had by his conduct repudiated the employment with the Defendant. As such he was not entitled to receive any alleged severance payment or anything at all. This defence concerns the 1st Plaintiff only.

(b) Secondly the purported settlement agreement was entered because of the mistaken advice given by Madam LO in the meeting on 23rd August 1996."

I will refer hereinafter to those two defences as "the repudiation argument" and "the wrong advice argument".

15. In relation to "the repudiation argument", Mr. LEUNG recites the relevant extracts from Mr. LAW's evidence and says that if I accept his evidence then the acts of the 1st Plaintiff amount to unilateral termination of his employment with the Defendant, which termination equates to his resigning from his employment.

16. In his submission concerning "the mistaken advice argument", Mr. LEUNG starts off by saying that it was the Defendant's position all along that it was unwilling to pay any compensation to its drivers who elected to change from being employees to being profit sharing contractors. That concession, so it seems to me, is of considerable importance and, on the evidence before me I have no doubt whatsoever that it is correct. To my mind it has a great bearing on this case, as has a further conceded fact that the Defendant in fact paid no compensation whatsoever to other drivers who had opted to become profit sharing contractors irrespective of their length of service.

17. Mr. LEUNG invites me to say that given that attitude of the Defendant it would be surprising if the Defendant then entered into the agreement (one effect of which was to pay compensation to the Plaintiffs) unless such was influenced by advice to the effect that it had, in reality, no choice in the matter. So far as that argument goes, I agree with it. But Mr. LEUNG then submits that the advice given by Madam LO upon which the parties acted (and the only such advice) was to the effect that the alleged change in working practises which limited the Plaintiffs to local Hong Kong work and to the exclusion of cross-border deliveries, amounted to a termination of employment which attracted severance pay. But on the evidence before me was that the advice - and indeed the only advice given by Madam LO at the meeting? And was it the advice - and the only advice upon which Mr. LAW acted when he signed the argument?

18. In his closing submissions, Mr. NG for the Plaintiffs took me in some detail through the evidence of Mr. LAW the one witness called for the Defendant company and in particular his evidence concerning

(a) the reasons why the Plaintiffs had not (as other driver employees had done) opted to become profit sharing contractors instead of employees

(b) the 1st Plaintiff's alleged refusal to carry out instructions

(c) the documents and information which he had taken with him to the meeting on the 23rd August 1996

(d) the advice given by Madam LO at that meeting concerning the consequences upon the employment of the Plaintiffs of the Defendant's admitted non payment of salary to the Plaintiffs

(e) discussions at the meeting about the proposed change from an employer/employee relationship to one of company and independent profit sharing contractor and

(f) his subsequent discovery of the alleged mistaken advice given by Madam LO at the meeting and the steps that he then took to check that advice and to repudiate or rescind the agreement.

19. In dealing with the Defence advanced on behalf of the Defendant, Mr. NG submits that in relation to "the repudiation argument" the evidence in support of it is simply untrue and that, even if it were otherwise, the fact that the Defendant elected to enter into the agreement estops it from now claiming such repudiation.

20. As to "the mistaken advice argument" Mr. NG submits, inter alia, that by reason of Mr. LAW's evidence to the effect that there was no mention whatsoever of the 'July 1996 arrangements' at the meeting on 23rd August 1996, (and assuming that such evidence was true) such argument or defence must fail, because Madam LO's advice or opinion (whatever that advice or opinion might have been) cannot possibly have been based upon something which Mr. LAW says was not even raised or discussed.

Conclusion.

21. Having had the benefit of seeing the witnesses in this case and of listening to their evidence, I am left in no doubt whatsoever about the following matters:-

1. the Defendant company wished that all of its employee drivers would opt to cease being employees and become self employed, profit sharing drivers (albeit working as such for the Defendant) and that such an arrangement would be beneficial both to the Defendant (assuming that no compensation had to be paid to the drivers) and also to the driver employees themselves.

2. the Defendant company fell into arrears in payment of salary due to the Plaintiffs, who were two of the only three drivers who had not opted to change employment terms.

3. the Plaintiffs were led to believe in 1994 that the Defendant by its Director Mr. LAW would enquire of the Labour Department as to its obligations to its employees upon their opting to cease to be employees and to become profit sharing contractors and that he failed either to make such enquiries or, having made them and for reasons of his own, to communicate the response to the Plaintiffs.

4. by reason of the fact that the Defendant had fallen into arrears with the payment of the salaries due to the Plaintiffs, the Plaintiffs sought the assistance of the Labour Department.

5. the Labour Department arranged for a meeting to be held between the Plaintiffs and the representatives of the Defendant on 23rd August 1996.

6. at that meeting Mr. LAW on behalf of the Defendant company had with him details of the Plaintiffs' employment records, and such details as were necessary to calculate sums which would be payable by the Defendant to the Plaintiffs upon the footing that their employment had been terminated and that severance payments would be due to them.

7. Mr. LAW anticipated that such payments would have to be made to the Plaintiffs upon the termination of their employment and prior to their reengagement (if indeed he truly contemplated reengaging them) as profit sharing contractors.

8. the advice given by Madam LO of the Labour Department to the parties was that

(a) the Defendant could be regarded as having terminated the employment of the Plaintiffs by reason of its failure to pay the wages/salary due to the Plaintiffs for work done

(b) that the employment of the Plaintiffs would be terminated upon their opting to become profit sharing contractors and

(c) if the Plaintiffs simply opted for the self employed terms without pursuing their claims for compensation upon the termination of their employment, they would be deemed to have resigned - and no compensation would be payable to them.

9. Madam LO made such advice - and the basis for it - perfectly clear to the Defendant (in the person of MR. LAW) and indeed to the Plaintiffs.

10. Mr. LAW (whose evidence I did not accept even on the rare occasions when he chose to answer a question asked of him directly) knew full well of the implications of his signing the agreement. He knew what he was agreeing to, and the basis for that agreement; he did not have to sign that agreement if he was unhappy with it and he could have deferred signing it and sought advice from a competent independent adviser which he elected not to do.

11. having reached the inevitable (and sooner or later unavoidable) agreement with the Plaintiffs, Mr. LAW being concerned that other of his former employees might seek retrospective compensation to which they were entitled, and being concerned about the cost to his company of the compensation payable to the Plaintiffs which he had agreed, then proceeded to renege on that agreement without advising the Plaintiffs and to seek (falsely in my view) to suggest that one of the Plaintiffs had terminated his employment by a failure to obey instructions and, in addition and wholly spuriously, to suggest that he had been misled by the advice of Madam LO of the Labour Department.

12. there could be nothing further from the truth. Mr. LAW entered into the agreement with his eyes wide open; he knew full well what he was signing and why he was signing the agreement. His behaviour thereafter was to my mind wholly unacceptable. Having reached agreement with the Plaintiffs, who were long serving employees of his company, he then asked them to sign letters to confirm that they had ceased employment with that company upon the pretext of it being in their own interests to do so - and they did so. MR. LAW now seeks to use those letters as letters of resignation which, if accepted as such, might deprive the Plaintiffs of their legitimate earned rights. All that those letters amount to are confirmation from the Plaintiffs that agreement having been reached between them and the Defendant they were from the date of that agreement no longer employees of the Defendant.

22. The Defendant has, in my view, no defence whatsoever to this claim by the Plaintiffs and such defence as it has sought to put forward is, to put it kindly, wholly ill-conceived. I find for the Plaintiffs and I reject the counterclaim by the Defendant. I enter judgment for the Plaintiffs as follows:-

23. The Defendant will pay to the 1st Plaintiff the sum of $170,136.00 and to the 2nd Plaintiff the sum of $146,736.00. In addition the Defendant will pay interest on the outstanding instalments of those sums at bank prime rate plus 1% from the date that such instalments fell due to be paid in accordance with the agreement until judgment date and thereafter at judgment rate.

24. As to costs it is my view, having canvassed the matter with counsel at the close of the trial, that these should be met on a full indemnity basis by the Defendant. In addition the Defendant will pay the costs properly incurred by the calling of Madam LO as a witness in this case, such costs to be taxed if not agreed. I make these orders nisi.