YEUNG WAI HON AND OTHERS v. HO & PARTNERS ARCHITECTS ENGINEERS & DEVELOPMENT CONSULTANTS LTD.

HCLA 6/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

LABOUR TRIBUNAL APPEAL NO. 6 OF 2002

(On appeal from Labour Tribunal Claim No. LBTC 9086 of 2001)

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J U D G M E N T

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1. This is an appeal brought by the Defendant against the Order and Award made by a Presiding Officer of the Labour Tribunal on 16th January 2002 in favour of the Claimants.

2. The appeal was heard by me in Chinese as the Claimants appeared in person without legal representation. However, since the appeal turns on the proper construction of the terms of three employment contracts of essentially identical terms, which are all in English, it is much more preferable and convenient for this judgment to be written in English. At the end of this judgment, I will give a direction relating to the interpretation of this judgment for the benefit of the Claimants when this judgment is handed down.

3. The three Claimants were work supervisors. They were employed by the Defendant, the architect employed by the Hong Kong Housing Authority in relation to a certain residential development in Tin Shui Wai. The 1st and 2nd Claimants' employment related to Area 106 Phase 1, whereas that of the 3rd Claimant related to Area 110 Phase 1. Each of them signed a written contract of employment in English with the Defendant. For all practical purposes, the terms of each contract were the same. In particular, each of them contained the following clauses:

"2) Your contract period is up to the substantial completion date of the captioned project (which is tentatively on 05/06/2001 [or in the case of the 3rd Claimant, 20/08/2001]). Subject to the progress of the project, your contract may be further extended. The extension of the contract will be confirmed before the expiry of the above contract.

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4) Either party has to give 4 weeks written notice or payment in lieu for termination of employment during the contract."

4. It is the Claimants' case that the projects did not complete on or before 5th June 2001 and 20th August 2001 respectively; the contracts of employment were accordingly extended indefinitely without a new tentative substantial completion date being fixed; and therefore when they were respectively told that the projects had completed and their contracts had come to an end there and then on 20th August 2001 and 11th September 2001, they were each entitled to 4 weeks' written notice or payment in lieu.

5. This argument was accepted by the learned Presiding Officer by way of construction of the written employment contracts in question, who therefore gave judgment in favour of the Claimants for the respective payments in lieu of notice that they claimed against the Defendant.

6. This brings me to the proper construction of the contracts. Although extrinsic evidence was received by the Presiding Officer at the hearing below relating to the parties' discussions about their employment relationships and the terms of employment when the Claimants were hired by the Defendant respectively, in construing the contracts, one must not pay any undue regard to the parties' pre-contractual negotiations and discussions save in so far as the same constituted the objective background or factual matrix of the contracts; and one must disregard their subjective understandings of the terms of the contracts.

7. One important background fact of the present case is that the Claimants were employed as work supervisors in a construction project. The contracts must be understood in this light. In particular, the phrase or term "substantial completion" must be understood in this context.

8. Substantial completion is a well-known term and concept in the building and construction industry. As explained in Keating on Building Contracts (6th ed.) 78-79, in the ordinary lump sum contract the employer cannot refuse to pay the contractor merely because there are a few defects and omissions. If there is substantial completion he must pay the contract price subject to a deduction by way of set-off or counterclaim for the defects. See the leading case of Hoenig v. Isaacs [1952] 2 All ER 176. In order to determine what is substantial completion, one test to be applied is whether the work was "finished" or "done" in the ordinary sense even though part of it is defective. The term, and related terms like "practical completion", are widely used in contracts in the building and construction field: See for instance, Big Island Contracting (HK) Ltd. v. Skink Ltd. [1990] 1 HKC 69; Golden Sand Marble Factory Limited v. Hunnewell Limited [2001] HKCU 75.

9. Substantial completion, or for that matter, practical completion, is very often required to be certified by the architect or engineer. Moreover, very often, the defects liability period commences from the date of substantial completion or practical completion.

10. It follows from the above discussion that by definition, the date of substantial completion cannot be fixed beforehand. By the nature of things, before the work is substantially completed, only an estimated date of substantial completion can be given. The ascertainment or determination of the date of substantial completion is as a general rule achieved by a process of certification.

11. On the material and evidence before the Tribunal, it would appear that a similar arrangement was followed in the present case, and it was the job of the Defendant to certify substantial completion of the construction works by the contractors concerned.

12. Given this objective context, I turn to the proper construction of the relevant clauses in the employment contracts. In my judgment, each of the contracts was for a specific purpose and project. It was to last until the substantial completion of the project concerned. Clause 2 set this out very clearly - "Your contract period is up to the substantial completion date of the captioned project". The estimated or "tentative" date of substantial completion in clause 2 was provided - as the contract expressly said - "tentatively". In my judgment, the date, no doubt a target date in one sense, was, in another sense, no more than the best estimate at the time the contract was entered into of when substantial completion would be achieved, and was by no means intended to be a definite date of substantial completion or the date when the contract was to come to an end.

13. As for the date when the contract was to come to an end, clause 2 specifically provided that this would take place on the substantial completion date of the project in question. As analyzed above, the substantial completion date of the project could and would only be ascertained or determined by the process of certification. This was not a date known definitely to the parties at the time when the contract was made. But this would not make the contract of employment an uncertain one, or for that matter, the date of termination of the contract uncertain. Nor, more importantly in the present context, would this turn the tentative date of substantial completion given in the contract into the actual date on which the contract period was to expire.

14. Clause 2 went on to provide for the extension of the contract. In my judgment, this obviously referred to the extension of the contract beyond the substantial completion date. This must follow from my preceding construction of the earlier part of clause 2. Since the original contract period was up to the substantial completion date, an "extension" of the contract must be a reference to extending the original contract period beyond the substantial completion date. Furthermore, given my above construction, i.e. that the tentative substantial completion date given in the contract was not to be equated with the eventual certified substantial completion date unless they coincided with each other, an extension of the contract must be construed as a reference to an extension of the employment relationship beyond the certified substantial completion date, rather than an extension of the employment relationship beyond the original tentative substantial completion date.

15. For this reason, I do not agree with the learned Presiding Officer when he said in his judgment that the Claimants' contracts "were extended but there were no further written contracts and that there were no new definite substantial completion dates fixed before the expiry of the written contracts."

16. With respect, there was a mixing-up of the tentative substantial completion date mentioned in clause 2 with the actual certified substantial completion date. It was by reference to the latter date, rather than the former date, that one should determine the original contract period. Confusion crept in when one treated the tentative substantial completion dates as the original expiry dates of the contracts in question, which led to the erroneous conclusion that, when the Claimants continued to carry out work for the Defendant beyond the tentative substantial completion dates, their contracts "were extended".

17. In my judgment, on the facts of the present case, there was never any extension of the Claimants' employments within the meaning of the three contracts on their proper construction. When the contractors in question did not achieve substantial completion on or before the tentative substantial completion dates, and when the Claimants continued working for the Defendant thereafter, the original contract periods simply did not expire. In fact they did not expire until substantial completions were achieved by the contractors respectively. There was no question of any extension of the contracts beyond the original contract periods. And there was no question of fixing a new contract expiry date following an extension of the original contract period under any of the three contracts.

18. Since the Claimants were asked to leave on the actual dates of substantial completion respectively for the projects (but see below in relation to the 3rd Claimant), there was clearly no extension of the written contracts. They were simply required to leave upon the expiry of the original contract periods. The giving of 4 weeks' notice or making of payment in lieu of notice provided under clause 4 is simply irrelevant on the facts as there was no "termination of employment during the contract". In each case, employment was terminated upon the expiry of the agreed contract period.

19. Nothing in section 5 or 6 of the Employment Ordinance (Cap. 57) changes the legal position:

"5(1) Every contract of employment, which is a continuous contract, shall, in the absence of any express agreement to the contrary, be deemed to be a contract for 1 month renewable from month to month.

(2) Notwithstanding that it is proved that a contract of employment is for a period in excess of 1 month such contract shall be deemed to be a contract for 1 month renewable from month to month unless the contract is evidenced in writing signed by each of the parties thereto.

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6(1) Subject to subsections (2), (2A), (2B), (3) and (3A) and sections 15 and 33, either party to a contract of employment may at any time terminate the contract by giving to the other party notice, orally or in writing, of his intention to do so.

(2) The length of notice required to terminate a contract of employment shall be -

(a) in the case of a contract which is deemed by virtue of the provisions of section 5 to be a contract for 1 month renewable from month to month and which does not make provision for the length of notice required to terminate the contract, not less than 1 month;

(b) in the case of a contract which is deemed by virtue of the provisions of section 5 to be a contract for 1 month renewable from month to month and which makes provision for the length of notice required to terminate the contract, the agreed period, but not less than 7 days;

(c) in every other case, the agreed period, but not less than 7 days in the case of a continuous contract."

20. Given that the contracts in question expressly provided for the durations or contract periods of the employment relationships, and since they were all in writing signed by each of the parties to the contracts, section 5(1) and (2) of the Ordinance does not apply, and the contracts in question are not deemed to be contracts for one month renewable from month to month.

21. In the circumstances, if the employment was sought to be terminated by either party prior to the contractual expiry date, the agreed period of notice or a minimum period of 7 days, or payment in lieu of notice, had to be given or made as per section 6(2)(c) of the Ordinance. However, no such statutory notice or payment in lieu was required in relation to its termination by the effluxion of time, as the contract came to an end because the contract period had expired, but not because of termination by "either party" to the contract as provided in section 6 of the Ordinance. See also Ironmonger v Morefield Ltd. [1988] IRLR 461; Wiltshire County Council v National Association of Teachers in Further and Higher Education [1980] IRLR 198.

22. For all these reasons, I disagree with the construction placed by the learned Presiding Officer on the contracts and thus the results he reached based on his construction of the contracts.

23. But this is not the end of this appeal. It is quite plain from the evidence and material presented before the Tribunal below and from the submissions made to me in this appeal that the respective cases of the Claimants go beyond the proper construction of the written contracts. In essence, the Claimants all say that when the respective contracts were negotiated, the true agreements reached by the parties orally were that the respective contracts were all for a fixed term, i.e. up to the tentative substantial completion date. For any extension beyond that date, that would be subject to further agreement between the parties. And they were told that for any such extension, they would be given a new tentative substantial completion date as the new contract expiry date. They say this was important to them, for without a fixed termination date, they would not know when their employment would come to an end and could not make arrangement for any new employment accordingly.

24. Yet, so the Claimants allege, when the tentative substantial completion dates came and went, and they were asked to continue working for the Defendant (which they agreed to), the Defendant did not fix any new tentative substantial completion dates despite their requests. They therefore argue that the contracts as extended became contracts for an indefinite period, and thereafter they could not be asked by the Defendant to leave without notice or payment in lieu.

25. As regards the alleged oral agreements, they have no place in the proper construction of the written contracts, and the parol evidence rule prevents them from being taken into account in finding out the agreements between the parties. In my construction of the written contracts above, I took no account of the alleged oral agreements.

26. However, if what they say happened amounted to common mistakes between the parties respectively, in that their true oral agreements were not correctly reduced to writing, there would be scope for arguing rectification of the written contracts so as to bring them in line with the oral agreements. See Spry, Equitable Remedies (5th ed.) 607 et seq.

27. And if the written contracts could be so rectified, then I could see further scope for arguing that first, the original contracts were fixed term contracts expiring on the tentative substantial completion dates given in the contracts; second, they were extended by agreement upon the expiry of the same; third, as no new tentative substantial completion dates (or any other dates) were fixed as the new contract expiry dates, the same became contracts for an indefinite period; and therefore fourth, they could only be brought to an end by notice or payment in lieu as provided in the contracts. Of course, in step three, one could counter-argue that in the absence of a new tentative substantial completion date being fixed by the parties upon the extension of the contracts, the true agreements of the parties were that the contracts were to come to an end upon actual certified substantial completion. That would of course depend on the facts.

28. Indeed all these are simply factual allegations by the Claimants. The Defendant does not agree with them. The Tribunal has made no finding on any of these factual disputes, and they cannot be decided on this appeal. For this reason, I cannot simply allow this appeal and order that judgment be given for one party against another. The matter has to be remitted to the Tribunal for further hearing, so that all necessary findings can be made, and the proper conclusions drawn by applying the relevant legal principles to the facts as found.

29. In relation to the 3rd Claimant, there is an additional reason for remitting his claim to the Tribunal for further determination. Under his contract, the tentative substantial completion date was 20th August 2001. According to a letter dated 27th September 2001, the Defendant certified the substantial completion dates for several sections of the project in question, the latest of which dates was 25th August 2001. This certification did not apply to work shown on drawing no. SK-376. There is no evidence as to what this drawing involved and when the work covered by it was substantially completed. There is no evidence on whether there were other sections in the project which had a later substantial completion date than 25th August 2001.

30. The learned Presiding Officer, however, seems to have treated the substantial completion date as 11th September 2001, which was apparently based on a letter dated 9th October 2001 from the Fire Services Department. But that date was the date of acceptance test and inspection of fire service installations and equipment by the department. In the absence of concrete documentary evidence from the Defendant as architect or any other source relating to the substantial completion date of the whole project in question, I see no warrant in treating 11th September 2001 as the substantial completion date.

31. On the facts as they are presently known, it is possible that substantial completion of the whole project was achieved by the contractors on a date prior to 11th September 2001. If that was indeed the case, then the fact that the 3rd Claimant continued to work for the Defendant after that date (i.e. the actual substantial completion date) until 11th September 2001 when he was asked to leave by the Defendant could support an argument that regardless of the proper construction of the written contract, and regardless of whether his written contract could be rectified, the 3rd Claimant's original contract had indeed been extended beyond the actual substantial completion date, and as no new termination date was fixed, the extension was an indefinite one, and therefore the contract as extended could not be unilaterally brought to an end by the Defendant without notice or payment in lieu. Of course, this possible argument, which is unique to the claim of the 3rd Claimant, would depend on the facts. This is an additional reason for remitting the case of the 3rd Claimant to the Tribunal for further hearing and determination.

32. For all these reasons, I make an order that the appeal be allowed, the Order and Award made by the Tribunal below be set aside, and the respective claims of the three Claimants against the Defendant be remitted to the Tribunal for further hearing and determination along the lines indicated in this judgment.

33. As for costs, both sides are in agreement that in the eventuality of my allowing the appeal and remitting the matter to the Tribunal for further hearing and determination, which is what is actually happening, there should be no order as to costs. I agree that this would be a fair order to make, particularly bearing in mind that the Defendant is only partially successful in this appeal in that it fails to persuade me that judgment should be entered in its favour in respect of the Claimants' claim.

34. In the circumstances, I make no order as to costs in respect of the costs of this appeal: This means that each party will bear his/its own costs of this appeal.

35. I direct that this judgment be orally interpreted by a court interpreter to the 3 Claimants in Cantonese on the date when this judgment is handed down or on such other date as may be fixed with the Court Registry.