HKSAR v. LI FUNG CHING CATHERINE

[English Translation – 英譯本]
HCMA 662/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MAGISTRACY APPEAL NO. 662 OF 2011

(ON APPEAL FROM KTS No. 24386 - 24396 OF 2010)

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J U D G M E N T

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1.  The appellant faced 11 summonses in the Kwun Tong Magistracy. The summonses allege two categories of offence :

(1)Failing to pay wages on due date; and

(2)Failing to pay wages within due date upon the termination of the contract of employment;

contrary respectively to Section 23 or 25 and Section 63C and 64B(1) of the Employment Ordinance, Chapter 57, Laws of Hong Kong.

2.  The appellant was represented at trial.  She pleaded not guilty to all charges.  After trial, she was found guilty by the magistrate of all the offences set out in the 11 summonses.  She was fined a total of $110,000.

3.  She appeals against the convictions. 

Prosecution case

4.  According to the magistrate, there was no dispute to the prosecution’s basic facts of the case at trial.   

5.  The body corporate involved was Tonic Electronics Limited (hereinafter referred to as “Tonic”).  The appellant was one of the three directors whose main duties included the daily operation, personnel and finance of the company.

6.  Tonic failed to pay to the 5 employees, namely, Chu Suk Yee, Fung Kin Man, To Siu Lung, Wu Kwong Hung and Yen Yuk Yin, the wages for October and November 2009.  In December 2009, the employees terminated their contracts of employment with Tonic pursuant to Section 10A of the Employment Ordinance.  As a result, the contracts of employment of Chu Suk Yee, Fung Kin Man, To Siu Hung and Yen Yuk Yin were terminated on 1 December 2009 whereas the contract of employment of Wu Kwong Hung was terminated on 5 December 2009.  He, however, didn’t receive any wages from 1 December to 4 December 2009.      

7.  On 31 December 2009, these 5 employees lodged claims at Labour Tribunal for the wages in arrears.  The company had no dispute about the claims.  Up until the trial of this case, the 5 employees still had not received their outstanding wages. 

8.  Tonic was wound up by the court on 30 June 2010.

The magistrate’s findings 

9.  The magistrate found that Tonic wilfully and without reasonable excuse failed to pay to the employees wages due to them as soon as was practicable and not later than 7 days thereafter.  The offences of this body corporate were committed with the consent or connivance of the appellant, or to be attributable to the neglect on the part of the appellant.

10.  Accordingly, he found the appellant guilty of all 11 charges.

Grounds of appeal

11.  In this appeal, the appellant has changed to be represented by Mr. Ching Y Wong, SC, who submitted six perfected grounds of appeal against convictions:

“ Reasonable excuse

1. The explanation given by the appellant at trial was indeed in accordance with and constituted what is referred to as a “reasonable excuse” under Section 63C of the Employment Ordinance, Cap. 57, Laws of Hong Kong. Therefore, the magistrate erred in finding that “Tonic Electronics Limited” (“Tonic”) delayed the payment of wages without any “reasonable excuse”.

2. Besides, in paragraph 10 of the Statement of Findings (appeal bundle page 60), the magistrate speculated groundlessly that “Tonic” could take what he regarded as “viable options” to avoid delay in the payment of wages.

3. Further, or alternatively, these inferences were not put to the appellant at trial. As a result, the appellant were not given any chance to respond to the so-called “viable options” and stated whether they were really viable. It was unfair to the appellant.

Consent, connivance or neglect

4. In any event, the magistrate found without any supporting evidence that “Tonic” delayed the payment of wages with the “consent, connivance or neglect of the appellant”. On the contrary, the appellant testified explicitly that she disagreed with the decision of the other directors. In her view, the company should not delay the payment of wages. This part of her evidence was not questioned, or could not be questioned, by the prosecution.

5. Besides, in the magistrate’s view, it was obvious that the appellant agreed to delay payment of wages at the end of the day. This conclusion has no basis at all (see paragraph 13 in the Statement of Findings, appeal bundle page 61).

Unsafe or unsatisfactory

6. Taking all circumstances of this case into consideration, the convictions are unsafe or unsatisfactory. ”

Discussion

12.  The 6 grounds of appeal can be categorized into the following 3 aspects:

(1) The magistrate should not rule that Tonic had no reasonable excuse for not paying wages on time;

(2) The magistrate should not rule that the non-payment of wages was committed with the consent or connivance of the appellant, or to be attributable to the neglect on the part of the appellant; and

(3) The convictions are unsafe or unsatisfactory.

13.  I now discuss them one by one.

Reasonable excuse (The 1^st to the 3^rd grounds of appeal)

14.  The prosecution called one witness at trial.  She was the staff member responsible for handling the accounts of Tonic.  The appellant also testified in court. The testimonies of the two of them were pertinent to the two main issues of reasonable excuse and consent or connivance. 

15.  Under cross-examination, the prosecution witness pointed out that because of the financial crisis, Tonic’s financial condition went from bad to worse.  At that time, no single staff member was paid wages by the company.

16.  The magistrate briefly outlined the appellant’s testimony as follows:

“6. …. she said since the financial crisis in 2008, the business of the company dropped 80%. As a result, the company experienced a serious financial problem. The company had adopted a number of austerity measures, such as closing down one of the factories in China and pay cut. On the other hand, the company also applied for SME loan and looked for external investors to inject capital into the company. However, the searching for investor failed and the company also exhausted its credit facilities with the banks, as a result, in October 2009, there was only a limit amount of capital left to support the daily operation of the company, including the purchase of material; payment of rents and utilities, etc. However, the company couldn’t afford to pay the wages of it’s (sic) employees. Therefore, after discussion with other directors, it was decided to delay payment of all the employees’ wages for the months of October and November 2009.”

17.  In respect of this issue, Mr. Wong, SC points out the following legal principles:

(1) Regarding whether there was a reasonable excuse, the defence bore only the evidential burden.  Once there was such evidence, the legal or persuasive burden was on the prosecution to prove beyond reasonable doubt that there was no reasonable excuse for non-payment of wages.

(2) In considering whether there was a reasonable excuse, an objective test should be adopted and all relevant circumstances should be taken into consideration when making the assessment.

18.  Mr. Wong, SC has cited the case of HKSAR v Ching Yeung Development Co Ltd [2001-2003] HKCLRT 337 in which Deputy High Court Judge Derek Pang (as he then was) pointed out when hearing a case concerning Section 23 of the Employment Ordinance that reasonable excuse means a cause which a reasonable man would regard as an excuse, and which was consistent with a reasonable standard of conduct[1].

19.  Mr. Wong, SC urges the court to accept that the law only requires a reasonable excuse and does not aim at pursuing perfection.  When making consideration, the court should have regard not only to the employees, but also to all parties affected by the payment and non-payment of wages.

20.  As far as this case is concerned, the court should consider how Tonic would be affected if the company still paid wages while it was plagued by financial difficulties. Also, the court should have regard to how the employees would be affected if the company could not carry on and had to close down.  At that time, in a state of economic depression, it would not be easy for the employees to find new jobs.

21.  In order to ease the financial hardship, Tonic had, during that period of time, adopted many measures to increase its income and reduce its expenditure. Unfortunately, some matters ran contrary to its wishes, for example:

(1) After the company had exhausted the then overdraft limits, it tried to apply for credit facilities from other financial institutions but all ended up in rejection. 

(2) It suffered setback in finding an investor to inject funds.  There was once a Mr. Luk who indicated his willingness to inject $30 million odd.  This, however, failed to materialize at the end.    

Furthermore, the court should also take into consideration that the cessation of payment of wages was a policy which applied to all alike.  It was not against any particular person and even the appellant herself was so affected.

22.  Mr. Wong, SC criticizes that these matters were not mentioned by the magistrate in his Statement of Findings and therefore, it is unknown as to whether he had taken these matters into consideration.

23.  In the Statement of Findings, the magistrate listed out some matters which, in his view, could be done but had not been done by Tonic.  Mr. Wong, SC also criticizes that on one hand, these ways to handle matters were not put forward at the time evidence was adduced, given that the appellant had no chance to respond, they became mere speculation on the part of the magistrate.  On the other hand, objectively speaking, these ways were indeed not viable.

24.  The ways put forward by the magistrate included closure of factories, retrenchment of employees and issuance of more stocks on the market for raising capital. Mr. Wong, SC submits that as the first two ways involved lay-off of employees, although the operational cost might be reduced in the long run, it, however, required a large sum of capital to accomplish.  In respect of the last one, not only did it involve many technical problems and the authority’s approval, it also required charges and expenses.     

25.  Ms. Vinci Lam, Senior Public Prosecutor for the respondent, agrees that the prosecution bore the legal or persuasive burden in regard to the issue of reasonable excuse.

26.  She has cited the case of HKSAR v Wong Yuk-tung & Another [2011] 1 HKC 409 and points out that being in parlous financial position was only a mitigating factor and it went no way towards reasonable excuse.

27.  She submits as follows:

“28. The evidence of this case shows that in October 2009, Tonic, although having financial crises, still held a considerable amount of fund. However, the board of directors decided to use the fund to maintain the company’s operation which included purchase of material, payment of water charges, rent etc. and sacrificed the staff members’ right of receiving a reasonable wage payable to them. (….)

29. Save for the employers who exploit employees deliberately, employers delay payment of wages usually due to financial difficulties. Nonetheless, if employers with financial difficulties can use this as a reasonable excuse for non-compliance of the time limit of paying wages and are exempted from culpability, the employees will get no protection of their wages, a protection to which they are entitled. It is also contrary to what is referred to in Ching Yeung Development Co Ltd (….), that the objective of the Employment Ordinance is to provide for the protection of the wages of employees, and it is in this context that the provisions of the Ordinance are to be interpreted.

30.             The respondent therefore submits that in the event an employer in financial difficulties chooses to use the remaining fund on operation and turns a blind eye to the right of the employee in receiving wages punctually, this can in no way be treated as a reasonable excuse to exempt from culpability.  Otherwise, the protection of the wages of employees by the Employment Ordinance will be completely obliterated.”      

28.  There are some similarities between the facts of HKSAR v Wong Yuk-tong & Another and those of this case.  The company involved was also afflicted by financial problems and was wound up eventually.  The appellant also made great effort in trying to salvage the situation.

29.  In delivering the judgment on appeal, Wright J pointed out that these matters did not amount to having discharged the evidential burden, especially when there was evidence in the case to show that the appellant did possess the funds to pay the outstanding wages.  These matters could only go to mitigation.[2]

30.  I agree that it is appropriate to apply the perspective of a reasonable man when considering and assessing the term “reasonable excuse” in the Ordinance.  However, one must also have regard to the legislative intent.

31.  Just like what Deputy Judge Pang pointed out in the case of Ching Yeung Development Co Ltd (above), the long title of the Employment Ordinance makes it clear that “the objective of the Ordinance is to provide for the protection of the wages of employees”, and it is in this context that the provisions of the Ordinance are to be interpreted.

32.  I also concur with the view of Pang J.  The general legislative spirit of the labour legislation is based upon the consideration that workman requires protection, that if not protected he may be exploited.

33.  Although payment of wages may be defaulted due to unscrupulous conduct of employer, the Ordinance is not directed solely against this situation.

34.  Of course, the law should not just offer protection to the employee and neglect the interest of other stakeholders, such as the interest of the employer.  Nevertheless, the legislative spirit is absolutely something not to be neglected when making consideration.  Obviously, the laws of Hong Kong are very concerned about ensuring employees get paid.  

35.  Generally speaking, default on payment is only a civil case.  The Employment Ordinance, however, criminalises the default on payment of wages.

36.  Ms. Lam also points out that pursuant to Section 265 of the Companies Ordinance, the outstanding wages of employees shall be dealt with in priority to other things during the winding up of a company.  As far as this point is concerned, I note that the Ordinance has set a limit on the amount.  It, however, shows that the legislature attaches great importance to wage protection.

37.  In respect of this issue, the magistrate made the following findings:

“9. …. After careful consideration of the Appellant’s evidence, it’s clear that she and other directors had given first priority to keep the company running when it was facing the financial crises. In the minds of the directors, whether or not employees received the wages they entitled wasn’t that important. As the Appellant’s evidence clearly indicated, when company facing the dilemma of using the capital to keep the daily operation of the company or to pay the employees their wages, company decided to use the capital for the former purpose.”

38.  Finally, the magistrate found that Tonic wilfully and without reasonable excuse failed to pay wages to the employees according to the law.

39.  This is what he stated in the Statement of Findings:

“12. …. this Court found it unacceptable for the company to choose to use the capital of the company at the material time of the offence to keep the company running instead of paying the wages of the 5 employees. It may well be the case that if part of the capital was used in paying the wages of these 5 employees, the financial problem of the company might get worse, this Court cannot accept that it amounts to a reasonable excuse. Otherwise, all companies can delay payment of wages of employees using the same excuse.”

40.  A magistracy appeal is conducted by way of a rehearing.  I   have read in detail the content of the transcript which was prepared by the appellant and which contains the testimony of the prosecution witness and that of the appellant at trial.

41.  Having regard that the company was indeed facing severe financial difficulties at the time, it also strived to increase its income and reduce its expenditure and the cessation of payment of wages was carried out non-discriminatorily, I agree with the conclusion reached by the magistrate.  The prosecution had proved beyond reasonable doubt that the conduct of the company was wilful and without a reasonable excuse.

42.  Although the Statement of Findings of the magistrate was brief, defence counsel did produce a detailed written submission at trial.  There is no reason for me to doubt that the magistrate had failed to consider the relevant evidence and submission at the time he decided the verdict.  From what the magistrate said in the Statement of Findings, it shows his grasp of the important points of the case.   

43.  In respect of Mr. Wong, SC’s criticism of the magistrate for pointing out what Tonic could do, I agree with the view of Ms. Lam that the magistrate had brought out the main point of his consideration, which was  “the company’s main concern was to keep it running”.    

44.  In a case of such nature, what the prosecution needs to prove is that there is no reasonable excuse for the defendant to act in such a way.  Whether there is other way of handling can only be, at the most, a factor for consideration in appropriate cases.  It is, however, not where the crux lies.

45.  In my view, judging on the evidence of this case, Tonic was not financially incapable of paying wages.  The appellant also agreed with this in her testimony (see transcript page 47, B-H).  Only that in the view of the decision makers, the most important thing was to keep the company running.  In so far as this case was concerned, this was by no means a reasonable excuse.

46.  In my view, the finding of the magistrate in this respect was safe and justified.  The 1^st to the 3^rd grounds of appeal fail.     

Was there consent or connivance of or neglect on the part of the appellant? (The 4^th and the 5^th grounds of appeal)

47.  Regarding this issue, the magistrate came to the following points of view and findings:

“13. The Appellant testified that she had disagreed with other directors in the course of making up the decision to delay payment of employees’ wages. It’s however obvious that she agreed to such a decision at the end of the day. At least, Court found the Appellant took no step at all in stopping the company to delay payment of employees’ wages for the months of October and November 2009.

14. …… It’s also clear beyond doubt that the breach was with the Appellant’s consent or connivance or to be attributable to the neglect on the Appellant’s part.”

48.  Mr. Wong SC, submits that:

(1) The magistrate did not reject the testimony of the appellant in which she said she disagreed with the other directors.  The magistrate however found that “it was obvious that she agreed to such a decision at the end of the day.”  Not only did the magistrate fail to explain the reason, the finding itself was also made in the absence of supporting evidence.

(2) In paragraph 10 of the Statement of Findings, the magistrate said, “and the appellant admitted that when she and other directors decided to delay payment of employee’s wages, they never considered any legal consequence at all”.  He misunderstood the evidence.   

(3) The finding of the magistrate in paragraph 13 that the “Court found the Appellant took no step at all in stopping the company to delay payment of employees’ wages ……” was not only made in lack of an evidential basis, it was also inconsistent with his earlier finding that “she disagreed with other directors”.

(4) It was grossly improper for the magistrate not to put forward any grounds for his finding.  

49.  First, I disagree that the magistrate had ever ruled that the appellant disagreed with the decision of the other directors.  In paragraph 13 of the Statement of Findings, he only quoted what the appellant said in her testimony, at no time did he say it was his finding.

50.  His findings were :

(1) The appellant agreed to this decision.

(2) She took no step to stop the company from delaying the payment of wages;

(3)This unlawful act was committed with the consent or connivance of the appellant.

51.  As far as the 2^nd point is concerned, the magistrate did not get the evidence wrong (see transcript page 44, G to I and R to V).

52.  Although the magistrate did not expand much on his reason for his conclusion, it does not necessarily mean that his conclusion was unsafe.  As assessment of credibility does not play any part in the consideration, whether the conclusion was safe or not can be evaluated by reading the transcript.

53.  Mr. Wong has listed out some relevant paragraphs of the transcript in paragraph 5.3.2(viii) of his written submission.  As pointed out by Ms. Lam, this was mentioned by the appellant at different times in her testimony.

54.  After reading the whole transcript, I am of the view that even if the magistrate was fully satisfied with the testimony of the appellant, there was nothing wrong for him to rule that Tonic failed to pay wages punctually with the consent or connivance of the appellant.  

55.  Her testimony can be outlined as follows:

(1) She objected to this decision of the company.  At the time in question, the directors were considering whether to use the fund for payment of wages and then closed down the business or to keep the company running.  She, with regard to her duty, took the view that wages had to be paid (Transcript page 42, P to T).

(2) The final decision was to delay payment of wages and she was the only director who objected to it.  However, there were no minutes kept of the meeting (Transcript page 43, B to P).

(3) As their intention was to delay payment of wages only, they did not take into account any legal liability or consequence (Transcript page 44, G to U).

(4) It was not a formal board meeting then.  Nor was there any formal voting.  She had put forward her standpoint and indicated her wish to pay wages.  However, there was a director who proposed delaying payment of wages in the hope of solving the company’s financial problem  (Transcript page 50K to 51C).

56. This is how she testified in respect of the situation at that time:

“Q: Later, one of the directors said we were looking for new investor.  Later, you people made the decision, “Oh, such being the case, no wages will be paid for the time being so as to salvage the company”, is that the case? 

A: Because, in fact if you ask me to recall exactly who assented to it and who objected to it at the time in question, I really – I have not known how to think who was called assented to it and who objected to it.  However, we verbally, however, that means the final result was that, was also not to pay for the time being, for the entire company.  We’d better delay paying all for the time being.  Well, would rather salvage the company. 

Q: Yes.

A: If a delay can be made, will pay all the delayed wages back to the colleagues.  I think that is even more – what they meant was, their opinion was that they thought it was better than you paid …. (indistinct voice) and all of them became jobless.

Q: Okay, just now you talked about – just now you talked about the situation at the time in question.  But my question is, that is, in respect of this stance, did you agree to it or does it mean this final decision to salvage the company only came up later.  In respect of the view you expressed at the material time – that is, your stance, was it also …… 

A: Basically I couldn’t express my view anymore.  It was because, just like saying that several directors approached and they all said they hoped it was enough to salvage the whole company.  I was the only one who thought of paying wages to the employees.  But could I insist, I want to ask.

Q: All right, well, at that time did you strongly, that is, object to it or indicate your stance of objection?

A: I perpetually let me tell you, I wanted to pay the employees their wages very much.  However, under certain circumstances, I could not always say I wanted to pay wages, I wanted to pay wages, I wanted to pay wages like that.

Q: So in other words, at that time didn’t, that means, such hope in your mind at that time……

A: I had voiced to say so wanted, ……

Q: Had voiced to say so wanted.

A: …… however could I insist to say – it was because I was not the sole decision-maker.”

57.  This is what the magistrate said in his Statement of Findings:

“13. The Appellant testified that she had disagreed with other directors in the course of making up the decision to delay payment of employees’ wages. It’s however obvious that she agreed to such a decision at the end of the day. At least, Court found the Appellant took no step at all in stopping the company to delay payment of employees’ wages for the months of October and November 2009. (Appeal bundle page 61; the emphases are underlined)

58.  The appellant was one of the company directors.  Being the brain of the company, her main duties included the daily operation, personnel and finance of the company.  Her objection was only an oral one.  No practical or more active act had been taken by her to stop this unlawful behavior.  Not only was she not active enough, she also failed to draw a clear line to separate herself from this decision.  In my view, the magistrate’s finding that Tonic acted with the consent of the appellant was not unsafe and thus requires no intervention.    

59.  In any event, the magistrate also held that the appellant connived at the conduct of the company.  This finding is surely safe and sound.  By this alone, the conviction is no doubt well-based.

60.  The terms used in Section 64B of the Employment Ordinance are “consent”, “connivance” and “neglect”.  It is spelt out clearly that the intention is to target the three different situations.

61.  In the ordinance, there is no definition given to the term “connivance”. Therefore, the term “connivance” should be interpreted in accordance with its usual meaning.  

62.  The New Longman Advanced Chinese Dictionary defines the word “connivance” as indulgence and non-interference of misconduct.   

63.  To connive at someone’s act, whether or not one agrees or disagrees with it is not important, what is important is one fails to stop it from happening knowingly.

64.  The term “connivance” is used in the English version of the Ordinance.  According to the Shorter Oxford English Dictionary, the definition of “connivance” includes assistance in wrongdoing by conscious failure to prevent or condemn[3]; or tacit permission[4]. The word “connive” means shutting one’s eyes to (something)[5].

65.  In the English-Chinese Dictionary of Joint Publishing, “connivance” carries the meaning of “turning a blind eye to an action one ought to oppose; and tacit permission” which corresponds with the translation given in The Oxford (one wrong character) English-Chinese Dictionary. 

66.  In my view, it is beyond doubt that the appellant connived at Tonic’s act of not paying the wages due.

67.  The magistrate’s finding was well-supported by evidence and safe.

68.  The 4^th and the 5^th grounds of appeal fail.

The finding was unsafe and unsatisfactory (the 6^th ground of appeal)

69.  In this case, there was no dispute that Tonic failed to pay wages to the five relevant employees within the statutory time limit.

70.  It was also beyond doubt that it was a deliberate act.

71.  In my view, the finding of the magistrate that Tonic did so without a reasonable excuse is not erroneous.  It is reasonable and accords with the spirit of the legislation. 

72.  The magistrate also found that the delay in paying wages was committed with the consent or connivance of the appellant.  For the reasons above, I am of the view that the finding is safe and it is substantiated by sufficient evidence.

73.  In summary, I don’t think the conviction is in any way unsafe or unsatisfactory. The 6^th ground of appeal fails.

Conclusion

74.  All grounds of appeal having failed, the appeal is dismissed and the conviction upheld.

Obiter

75.  The court wants to mention in passing that in this case, although no wages had been paid from October to December 2009, the summons read like this, “Information has been laid that you on 29 June 2010 ….”.  I have pointed this out at the appeal hearing.  Both parties indicate that at trial, they focused on adducing evidence with regard to the period in which no wages had been paid, and such being the case for the verdict of the magistrate as well.  Therefore, this should also be the basis for consideration at the appeal hearing.  In my view, this is fair.  Nonetheless, the prosecution should pay attention that when drafting the offence date in the future, it must tally with the prosecution’s facts of the case and allegation.

Translated by the Judgment Translation Unit of the Judiciary and vetted by Mr. P. Y. Lo, Barrister-at-law.