LEE THAI LAI v. WONG CHUNG KAI t/a KAI HING TRADING CO AND ANOTHER

HCLA 64/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

LABOUR TRIBUNAL APPEAL NO. 64 OF 2003

(ON APPEAL FROM LABOUR TRIBUNAL CLAIM NO. 213 OF 2003)

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J U D G M E N T

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1. On 16 May 2003, the Labour Tribunal heard the Claimant's claim for arrears of wages against the two Defendants. After trial, the Tribunal entered judgment against both Defendants, holding them to be jointly and severally liable for the arrears of wages. Having obtained leave to do so, the 1st Defendant, Mr Wong, now appeals to this Court against the decision of the Labour Tribunal.

2. Mr Wong used to own and operate a carpark in the New Territories. He also beneficially owned and controlled the 2nd Defendant, a limited company. The Claimant had worked in the carpark for several years. He said he was hired by Mr Wong to work in the carpark. However, he accepted that according to the documentation, such as the tax returns, the 2nd Defendant was stated to be his employer. The carpark eventually closed down, and he was asked to leave. He therefore sued both Defendants for his arrears of wages.

3. At trial, neither Defendants appeared, but Mr Wong had written to the Tribunal claiming that he was not the employer of the Claimant and that the employer of the Claimant was the 2nd Defendant as was evidenced by the documentation.

4. As I mentioned above, after hearing evidence from the Claimant at the hearing, the Tribunal held that both Defendants were responsible for the payment of the arrears of wages. In a short Reasons for Decision, the Tribunal explained its decision as follows:

"	3.	在聽取過申索人的証供後，本席滿意他是誠實可靠的証人，本席接納他的証供。本席接納他所說在1998年12月加入加興停車塲當收銀，在加入前是由加興停車塲的東主黃加興與他商談條款，他一直在停車塲工作直到2002年8月尾解僱。被解僱的原因是他工作的停車塲要關閉，但之後沒有給他再安排工作。
	4.	他說他認為第一被告是他的僱主，因為工作由加興停車塲內的主管分派及監督，而第二被告從來沒有人與他接洽，根本不認識第二被告任何人。
	5.	本席認為第二被告實是一個法人作為聘請申索人的工具，第一被告仍然是僱主，因此兩名被告應共同及個別繳付申索金額。

5. The problem with the above reasons of the Tribunal is that it does not really spell out the legal basis for holding both Defendants liable for the claim for arrears of wages. One possible basis is that the Tribunal lifted the corporate veil of the 2nd Defendant. That seems to accord best with paragraph 5 where the Tribunal opined that the 2nd Defendant was really a corporate legal entity used as an instrument (工具) for employing the Claimant, and the 1st Defendant remained the employer.

6. However, lifting the corporate veil would be problematic in the present case. The general rule of company law is that a company is a separate legal entity from its controlling shareholders and directors: Salomon v Salmon & Co. [1897] AC 22, even in a one-man company situation. The company is neither an agent nor a trustee of its shareholders in respect of the company's assets, business and affairs. The corporate veil may only be lifted in very limited circumstances. The relevant legal principles have been discussed in Gower and Davies' Principles of Modern Company Law (7th ed.) 184 et seq; Gore-Browne on Companies (44th ed.) paras 1.3.1 and 1.3.2. Without seeking to be exhaustive, the normal circumstances for lifting the corporate veil are the prevention of the corporate form from being used for the purposes of fraud, or as a device to evade a contractual or other legal obligation. On the other hand, using a corporate structure to avoid the incurring of any legal obligation in the first place is not objectionable; the court's power to lift the corporate veil does not exist for the purpose of reversing such avoidance so as to create legal obligations: China Ocean Shipping Co. v Mitrans Shipping Co. Ltd [1995] 3 HKC 123. The court cannot lift the veil merely because it considers that justice so requires: China Ocean Shipping Co. at page 128B/C to F/G (per Nazareth VP).

7. Quite plainly, in the present case, no fraud was alleged and no finding of fraud was made. More importantly, this is not a case where the corporate form of the 2nd Defendant was used as a device to evade a contractual or other legal obligation owed to the Claimant as an employee. According to the documentary evidence and the transcript of the proceedings below, the Claimant was employed from the outset by the 2nd Defendant as its employee. The 2nd Defendant was not introduced subsequently after he was employed by Mr Wong as his employee, in which event one could perhaps, provided that the evidence was there, conclude that the introduction of the 2nd Defendant into the employment relationship was a mere device to evade the contractual obligation owed to the Claimant as an employee. As has been made clear by the Court of Appeal in China Ocean Shipping Co., using a corporate structure to avoid the incurring of a legal obligation in the first place is not objectionable. In other words, it is not objectionable for Mr Wong to use the 2nd Defendant, a one-man company owned and controlled by himself, to employ the Applicant in the first place.

8. In short, if the legal basis for holding Mr Wong liable was the lifting of the 2nd Defendant's corporate veil, that was erroneous because no circumstances existed, according to the evidence before the Tribunal and according to the Tribunal's own findings of fact, to justify the lifting of the corporate veil of the 2nd Defendant.

9. Another possible explanation for the Tribunal's decision is that the Tribunal regarded the 2nd Defendant as merely acting as an agent of Mr Wong in employing the Applicant. This could sit tolerably well with the reasons given by the Tribunal for its decision, in particular, paragraph 5 of the Reasons for Decision extracted above.

10. The problems with reading the decision of the Tribunal in that way are two-fold: First, the Tribunal did not actually make any finding that the 2nd Defendant acted as the agent of Mr Wong in employing the Claimant. The Tribunal said in paragraph 5 that it regarded the 2nd Defendant as a legal entity used as an "instrument" to employ the Claimant. If agency - a very common concept at common law - was intended to be the legal basis for the Tribunal's decision, one would have expected the Tribunal to make a more explicit finding in this regard.

11. Secondly and more importantly, the use of the concept of agency in the present case has its own inherent difficulty because it should be remembered that the Tribunal eventually concluded that both Defendants were responsible, jointly and severally, for the arrears of wages. It is trite law that in an ordinary agency situation, once an agent has successfully entered into a contract with a third party for and on behalf of his principal, he drops out of the picture. He does not assume any right or contract any personal liability under the contract that has been so made between his principal and the third party. Of course, the general rule is subject to exceptions. One well-known exception is the case of an undisclosed principal. But on the facts, this exception certainly has no application in the present case. See generally Bowstead & Reynolds on Agency (16th ed.) para. 9-001 et seq.

12. Indeed no special circumstances have been indicated in the Reasons for Decision in the present case. In that situation, one would have expected the Tribunal to conclude that the 1st Defendant was alone responsible for the arrears of wages and therefore dismiss the claim by the Claimant against the 2nd Defendant. However, that did not happen. The Tribunal concluded that both Defendants were jointly and severally liable for the arrears of wages.

13. All this seriously casts doubt on whether the Tribunal has in fact proceeded on the agency route in reaching its conclusion, and if it did, whether it has correctly analysed the situation, made all the appropriate findings of fact, and come to the correct conclusion based on the agency route.

14. Lifting the corporate veil and agency aside, it is not easy to think of any other possible basis justifying the conclusion of the Tribunal. Certainly the Tribunal has not indicated any. I am not here saying that in no circumstances could one come to a conclusion that both Defendants were liable for the arrears of wages. Nor am I saying that on the facts of the present case, one could not conclude that the 1st Defendant was alone liable for the arrears of wages based on the law of agency. But based on the documentary evidence, the transcript, the findings of fact set out in the Reasons for Decision, and the reasons themselves, a viable basis for finding liability against the two Defendants cannot be identified.

15. I do not think this Court can come to a conclusion on who should be responsible for the arrears of wages of the Claimant on the material that has been placed before it. Miss Wong, counsel for the 1st Defendant, asks for a re-trial. I agree that that is the most sensible course to take.

16. In conclusion, I order that the appeal be allowed, the judgment that has been entered against the two Defendants ( - although only the 1st Defendant has appealed, the question of the 2nd Defendant's liability, if any, cannot be sensibly divorced from the question of liability regarding the 1st Defendant) be set aside, and that the claim of the Claimant against the two Defendants be remitted to the Labour Tribunal for a re-trial before another Presiding Officer.

17. As regards costs, Miss Wong, on behalf of her client, has indicated that her client does not ask for costs in the event of a successful appeal. I think that is both sensible and fair. I therefore make no order as to costs.

18. I also direct that this judgment be orally interpreted to the Claimant by the court interpreter at the time when it is handed down. If the time is not convenient to the Claimant, he should contact the Court Registry to make an alternative appointment.