FLYING GOOSE GARMENT FACTORY LTD. v. CHEUNG CHUN CHU

Labour Tribunal Appeal No. 16 of 1989

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. The Appellant appeals against a decision of the Labour Tribunal awarding the sum of $22,452 to the Respondent as severance pay due under section 31B of the Employment Ordinance, Chapter 57.

2. The Appellant raises only one narrow point of law; that the Presiding Officer was wrong to find that the Appellant was liable to the Respondent on the ground that, although the Appellant was not otherwise liable to pay the Respondent severance pay, it incurred that liability because continuity of employment with two other employers had not been broken. The Presiding Officer decided this on the basis that those two other employers 'operated closely' with the Appellant and all three companies were 'associates in the loose meaning of the term'.

3. That conclusion, reached by a judicial officer operating a very busy court without the assistance of counsel, is entirely understandable, but, unfortunately - I say unfortunately because my sympathies are entirely with the Respondent - it is wrong.

4. Section 31K of the Employment Ordinance provides that a change of employment to an 'associated company' shall not break the continuity of the period of employment. The section goes on to provide that companies are associated if one is a subsidiary of the other, or both are subsidiaries of another company.

5. The authorities, interpreting similar statutory provisions in England, establish that the provision stating which companies are associated is exhaustive. Southern Electricity Board v. Collins [1970] 1 Q.B. 83; Umar v. Pliastar Ltd. (1981) ICK 727.

6. There is no direct evidence in this case of any constitutional link at all between the Appellant and the other two companies and it cannot be said that the Appellant is associated with them within the exhaustive definition. There is so room for a finding of association 'in the loose meaning of the term'.

7. But this is not the end of the matter. I am concerned about the facts of this matter, and I will outline these to indicate why I feel this way.

8. The proceedings in the Labour Tribunal taken by the Respondent were against Flying Goose Garment Factory - the Appellant - (which I will refer to as 'Flying Goose'), Lucky Horse Garment Factory Limited ('Lucky Horse') and Famous Horse Garment Factory Limited ('Famous Horse').

9. The Respondent's letter claiming severance pay was dated 21 November 1988 and addressed to 'Mr. Li Chunk-man, Lucky Horse, Garment Factory Ltd.'.

10. In her statement to the Labour Tribunal, the Respondent names the three companies as defendants, says she was first employed on 1 March 1983, was employed in the production of garments as officer i/c Upper Wear Department', she had a written contract of employment with. Lucky Horse, and was interviewed by Li Chuck-man for employment. She says her last working day was 17 November 1988.

11. The Respodent says that she worked in Siu Ying Industrial Building. However, during 1987, assistance was needed by Famous Horse Garment Factory in Canton Road, and she also worked there. Sometime in 1988, she says that the Upper Wear Department in the Siu Ying Building wanted to make a change in the production papers so that there were deemed to be issued by Flying Goose Garment Factory Ltd., but production steps remained unchanged.

12. It its statement to the Tribunal, Flying Goose says that the Respondent was employed by it from 1 July 1988.

13. Lucky Horse says that it employed the Respondent from 25 February 1983, but, with her consent, she was transferred to Famous Horse on 1 April 1987.

14. Famous Horse says that the Respondent was employed by it from l April 1987 until, on 1 July 1988, she was transferred to Flying Goose with her consent.

15. All three statements were made by the same person; Mr. Chan Sik-leung.

16. No new contracts were entered into consequent on these 'transfers'.

17. In the proceedings in the Tribunal, the three companies were represented by Mr. Chan Sik-leung, who was personnel manager for all three companies. He told the Tribunal that Lucky Horse and Famous Horse were 'affiliated' but Flying was an independent entity.

18. Mr Chan gave evidence before the tribunal. He said that since 1982 he was personnel manager of Lucky Horse and Famous Horse. Flying Goose was set up in 1987 and he became personnel manager of that company as well. He said that Flying Goose had a business relation with Lucky Horse and Famous Horse. Famous Horse took orders. Production work would be done by Flying Goose. Sometimes work of production would be given to Lucky Horse. Flying Goose sometimes took orders from customers and would ask Lucky Horse and Famous Horse to do the production work. He said Flying Goose rented different floors as workshop at Tong Mei Road from Lucky Horse. He then changed this and said Flying Goose rented the same factory building as Lucky Horse from another company. When the Respondent was transferred from Famous Horse to Flying Goose, there was no formal termination of service. There were no wages is lieu of notice given. She was just transferred to Flying Goose with her consent. This was effective from 1 June 1988. There was no pay increase, he said; then he said there was an increase in pay; then he said no, there was no increase in pay. The Respondent was not told of the reason for her dismissal at the time of dismissal to avoid embarrassment. Cross-examination was directed at this witness by the Respondent designed, it would seem, to show that other workers were transferred to Flying Horse and then dismissed. The witnesses answers were inconclusive.

19. Leung Miu-kam also gave evidence. She was the production manager for both Flying Goose and Lucky Horse, and, occasionally, she works 'at' Famous Horse 'as all three companies are in business contact'. Some evidence from this witness seemed to indicate that others workers were dismissed by Fying Horse at about the same time as the dismissal of the Respondent. She said that work would be supplied to Lucky Horse by both Flying Goose and Famous Horse.

20. Lee Cheuk-wah said in evidence that he was also production manager for Flying Goose and Lucky Horse.

21. According to the witness Lain Yiu-yee, there was yet another production manager invelved, Mr Wong Shang. When this witness was asked what certain goods had to do with Flying Goose, he said that, after taking orders, Mr Wong decided which company should manufacture the goods.

22. The contract of employment between Lucky Horse and the Respondent contains the interesting provision that the Respondent 'agrees absolutely to any transfer requested by [Lucky Horse] during [her] employment'.

23. Flying Goose was incorporated on 17 July 1987, with its registered office at 64 Tong Mai Road, 12th. Floor, Kowloon.

24. Lucky Horse was incorporated on 1 December 1981, and its registered office is at 1145-1153 Canton Road, 13th. Floor, Kowloon, although its letter-head bears an address in Tong Mei Road coinciding with that of Flying Goose.

25. Famous Horse was incorporated on 23 March 1976, and its registered office is the same as that of Lucky Horse.

26. The annual returns for the three companies indicate that Lucky Horse and Famous Horse have common directors and shareholders, while those of Flying Goose are different.

27. There were no complaints about the Respondent's work for well over five years, but, very soon after she starts to work for Flying Goose, fault is found. Within a month or so, documents bearing the name of Lucky Horse and Famous Horse recite complaints about work for which it is said the Respondent is responsible. She is then dismissed.

28. In Umar v. Pliaster (supra) Browne-Wilklinson J. had this to say at page 731:

29. '... although an industrial tribunal's job is to adjudicate on the matters brought before it by the parties, in oases such as this where there is a history of name-changing and employer-changing without affecting the substance of the job and where there are proved connections between successive employers, the industrial tribunal should be astute to see that it gets through to the true facts of the cast so far as is possible in the difficult circumstances that exist.'

30. In Hong Kong, where the Tribunal's function is not limited to adjudicating on the matters brought before it, but is largely inquisitorial, this dicta applies with greater force. The Presiding Officer is required by section 20(3) of the Labour Tribunal ordinance, Chapter 25, to investigate any matter which he may consider relevant to the claim, and he has ample powers to enable him to do this.

31. It seems to me that there is room for considerable suspicion that there is more to the link between Flying Goose and the other two companies than simple, arms-length business connections. If the persons said to be the directors and shareholders of Flying Goose are divorced from any interests in Lucky Horse and Famous Horse, it is very strange that the three companies employ the same people to do essentially the same work and work is switched around regularly. If there are no intertwined financial interests, one must wonder how the expenses of each company are allocated in order to ascertain the profit to which is entitled.

32. By section 3 of the Employment Ordinance, the onus of proving the contract is not a continuous one is on the employer.

33. I believe there should be further inquiry into this matter. In saying this, I intend no criticism of the Presiding Officer. As I have said, the Labour Tribunal is a busy court, most of the investigation in these proceedings were directed at the cause for dismissal and, without counsel's assistance, it is not surprising that the Presiding officer came to the conclusion that he had enough before him to establish that the three companies were associated.

34. Apart from further inquiry into the real relationship between Flying Goose and the other two companies, I think there should also be further investigation and evidence on the precise nature of the arrangement under which the Respondent was transferred to Flying Goose. It is unlikely in the extreme that the Respondent would have agreed to this if she had known that she would lose any accrued rights to severance pay on dismissal. It may be that further evidence may show that there was an implied term that Flying Goose would assume responsibility for the Respondent's accrued rights. Such evidence may also reveal that an estoppel operates to prevent Flying Goose from denying a sufficient association with Lucky Horse and Famous Horse, or that that it is estopped from denying that it was clearly contemplated by the parties that the Respondent's employment would be regarded as continuous if she transferred to Flying Goose. It may also, be that further inquiry will reveal a transfer of business as contemplated by paragraph 5 of the First Schedule or a change in the ownership of a business as mentioned in section 31. The records that the three companies are required to keep under Part XI of the Ordinance may reveal relevant evidence. On the face of it, there seems no sensible reason for the transfer of the Respondent if this was not as a consequence of a transfer of business to Flying Goose; she continued to do much the same kind of work.

35. Accordingly, I set aside the award made in the Respondent's favour and remit this matter to the Tribunal with the direction to conduct further inquiry and hearing on the lines I have suggested, although this is not to be taken, of course, as limiting the Presiding Officer to those lines. He has far more experience than I have in these matters, and may decide that other avenues of inquiry may be fruitful. I also appreciate that, as I have said more than once, the Tribunal has other matters to deal with, and I leave it to the discretion of the Presiding Officer to determine the practicable extent of such further inquiry. After such further inquiry and hearing, the Tribunal may make such further order, within its jurisdiction, as it sees fit.

    As to costs, although the Appellant has successfully maintained the point of law on which the appeal was brought, I am satisfied that the matter should be remitted and, to that extent, it can be said that the Respondent has been successful. I think the justice of the matter would be served by making no order as to costs and I make an order nisi to that effect.