YU YIU WING v. LEAD YOUNG LOGISTIC (GLOBAL) LTD AND OTHERS

HCLA20/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE LABOUR TRIBUNAL APPEAL NO 20 OF 2012

(ON APPEAL FROM LABOUR TRIBUNAL CLAIM NO 3305 OF 2011)

---------------------------

-----------------------

D E C I S I O N

(Leave to Appeal)

-----------------------

1.  This is an application by the 2^nd Defendant (“D2”) for leave to appeal against the Order of the Presiding Officer of the Labour Tribunal (“Tribunal”) made on 30 November 2012.

2.  According to the employer’s returns filed with the Inland Revenue Department, the Claimant was, prior to the termination of his services, the employee of a firm called Lap Tak Logistics Services Company (“Lap Tak”).  The Presiding Officer decided that Lap Tak was a sham and a façade and that it was controlled by D2, a company with limited liability, and not the 1^st Defendant (D1”).  She then held that D2, 3^rd Defendant (“D3”) and 4^th Defendant (“D4”) were jointly and severally liable to pay those sums claimed by the Claimant for wages in lieu of notice, annual leave and holiday pay, and severance payment totalling $154,640.04.

3.  In her Reasons for Decision (“Reasons”), the Presiding Officer had posed 4 questions for herself:

(i) Whether Lap Tak was a sham or a facade?

(ii) If so, whether the existence of Lap Tak could result in any person in avoiding an employer’s duties?

(iii) If so, whether D1 or D2 was the “controller” of Lap Tak?

(iv) Can she then “lift the corporate veil” of Lap Tak?

4.  The Presiding Officer had referred in her Reasons to a number of authorities in relation to “lifting the corporate veil”.

5.  Initially D2’s draft grounds of appeal were based on the Presiding Officer’s error in law in that she did not make the requisite finding of fact for “lifting the corporate veil” of Lap Tak, and that she had failed to consider whether the Claimant had any employment relationship with D2.  Further, she also erred in calculating the amounts due and payable to the Claimant.

6.  During the hearing on 22 May 2012, the submissions of D2’s Counsel Mr Wong were again based on the legal principles of “lifting the corporate veil”. 

7.  Lap Tak was in fact a firm of unlimited liability, with firstly D3, and subsequently D4, as sole proprietor.  Thus those principles relating to “lifting the corporate veil” are not applicable.

8.  Upon Mr Wong realizing this, he sought an adjournment, and this Court granted leave for D2’s draft grounds of appeal to be amended and for Mr Wong to lodge further written skeleton submission.

9.  The main grounds now include the Presiding Officer erred in law by failing to consider whether Lap Tak was an agent of D1 and/or D2, failing to consider whether Lap Tak was an independent contractor with D1 and/or D2, and also she erred in calculating the average salary of the Claimant.

10.  Under section 32 of the Labour Tribunal Ordinance, any party dissatisfied with an award, order or determination by the Tribunal on the grounds that the award, order or determination is erroneous in point of law, or outside the jurisdiction of the Tribunal, may apply for leave to appeal.  The onus is on the applicant for leave to show that the intended appeal has arguable grounds of appeal (Chan Kwok Hung v Hotel Pennell Rama Company Ltd [2009] HKCU 1818).

11.  D2 is a company incorporated in Hong Kong in 1997 with limited liability, with a Mr Lau and a Madam Hui as directors.  Mr Lau and Madam Hui later incorporated a company called Lead Young Sea & Air Freight Co Limited (“LY Company”) in 2000.  They were the only directors and 2 out of 3 shareholders.

12.  The Claimant started working as a cross border truck driver for LY Company in the middle of 2000.  There were various labour disputes between the LY Company and the team of drivers employed by the LY Company and there were subsequent claims made by various drivers in the Tribunal against LY Company (“Drivers’ Proceedings”) in which the LY Company ultimately lost.  The Claimant herein did not take part in the Drivers’ Proceedings.  The judgment in the Drivers’ Proceedings was delivered on 9 November 2006.

13.  Prior to that judgment being delivered, D1 was incorporated in March 2006, and upon its incorporation, Mr Lau and Madam Hui transferred their shares in D2 to D1. Further, Mr Lau and Madam Hui transferred away all their shares in LY Company to a Mr Lui, and others.  The assets and business of the LY Company were also transferred respectively to D1 and D2. In particular, all the vehicles, including the vehicle being driven by the Claimant throughout, JM 5573, was transferred to D1.

14.  Further, there was a new arrangement for those drivers who did not take part in the Drivers’ Proceedings.

15.  The Claimant’s own evidence was that as a result of the Drivers’ Proceedings, Mr Lau indicated that he would not in future pay any salaries to the drivers in his name, and that for those drivers who wanted to continue to work for him, they must establish their own companies for this purpose.  As a result 2 limited companies were being incorporated and work were then assigned to the drivers through their respective companies.  The Claimant and 26 other drivers of LY Company became directors of one of these 2 limited companies which was incorporated in January 2007 called Lap Sung Logistics Services Limited (“Lap Shun”).

16.  Further, as some drivers were not willing to adopt the above proposal, there seemed to be another arrangement.  Lap Tak was established on 2 February 2007 with D3, and later, D4 as sole proprietor, and those drivers who were not willing to become a director/shareholder of the above mentioned 2 limited companies could then work for Lap Tak.

17.  After losing in the Drivers’ Proceedings, LY Company was eventually wound up in October 2008, as a result of which the claimants in the Drivers’ Proceedings had an empty judgment.

18.  On 1 July 2008, the Claimant started to be employed by Lap Tak, as with most of the drivers, and they were all paid through Lap Tak. The 2 limited companies were later wound up.

19.  The Claimant’s case was that he had no business connection with Lap Tak, nor did he have any contact with any staff of Lap Tak. He had never met D3, the initial sole proprietor of Lap Tak who set it up, or D4.  The Claimant continued to drive JM5573 which was owned by D1.  There was a lease agreement between D1 and D2 dated 1 April 2009, under which D2 leased the vehicles driven by the drivers from D1.

20.  The Presiding Officer found the Claimant a honest witness and accepted his evidence that, as from 2000, when he started to work for LY Company, or later as director of Lap Shun, and throughout the period he was working for Lap Tak, all arrangements for work were assigned to him by a Ms Kwok.  This was the same for all those years.  Every month, the accounts officer a Ms Sung or Mr Lui, was responsible for salary payments, but all cheques were signed by a Mr Shi, who according to the Claimant was the supervisor of the team of drivers under Mr Lau.  Mr Lui, as earlier mentioned, became a shareholder of LY Company in July 2006, although he later transferred out his shares in May 2008 before LY Company was wound up.  Anyway, according to the Claimant, all these persons were employed by D1 and/or D2.  The documentary evidence, however, showed that Ms Kwok was the employee of a Shenzhen company, called Lead Young Goods Transportation Company (“Shenzhen LY Transportation”), and Ms Kwok was the employee of another Shenzhen Lead Young Company.  Both these two Shenzhen companies bear the first 2 Chinese names of D1, namely立揚, and all their reported addresses in Shenzhen are the same, which is also the address of 2 other Shenzhen “Chin Hua” companies, bearing the first 2 Chinese names of D2 慶華.  Mr Lau is the legal representative of one of the two Shenzhen Chin Hua companies, namely Shenzhen Chin Hua Transportation Company.

21.  Lap Tak ceased business on 15 August 2011.  Its business address in Hong Kong was the registered business address of an accountants’ firm.  It had no assets.

22.  D3 and D4 are Mainland Chinese and they do not live in Hong Kong.  They did not attend the proceedings before the Presiding Officer, although D3 did send a letter to the Tribunal dated 30 April 2011 (“D3’s Letter”).  According to D3’s Letter, in 2007, Mr Lau had wanted D3 to take over the transportation business of D1, which was being run by D1’s supervisor Mr Shi, and that Mr Lau wanted to use D3’s name to set up Lap Tak.  According to D3’s Letter, all capital would be paid by D1.  D3 said she agreed to this proposal, and further agreed to Mr Shi being a signatory to Lap Tak’s bank account.  Thereafter, as no capital was in fact provided by D1, Lap Tak did not commence any business.  In D3’s Letter, D3 denied all connection with Lap Tak, and said all monies in the bank account of Lap Tak belonged to D1.  The Presiding Officer decided to ignore D3’s Letter as D3 did not attend the hearing before her.

23.  Mr Lau appeared at the hearing before the Presiding Officer, as representative for D1 and D2.  He is a director of both D1 and D2.  His evidence was that the Claimant was not an employee of D1 or D2, and that the Claimant himself was the person responsible for Lap Shun and Lap Tak.  Mr Lau denied knowing D3 or D4, and claimed that D1 and D2 had no business or investment relationship with Lap Tak.  He claimed that D3’s Letter was sent as a result of some sort of conspiracy between D3 and the Claimant.  He also denied he had any interest in the Shenzhen Lead Young companies.  He further denied Mr Shi was an employee of D1 or D2.

24.  Mr Lau’s case was that it was difficult to manage all the cross border drivers, therefore D2 had contracted out all the clerical side of the business to one of the Shenzhen LY Transportation, of which Mr Shi was the legal representative and owner.  Mr Shi was then responsible for liaising with the drivers.  The transportation work would then be assigned by Shenzhen LY Transportation to the companies set up by the drivers which were the 2 limited companies and Lap Tak.  As stated in paragraph 76 of the Reasons, Mr Lau, however, admitted that that payments would be made direct from D2 to the drivers through the 2 limited companies and Lap Tak, and said that this was because the 2 limited companies and Lap Tak did not trust Shenzhen LY Transportation.

25.  The Presiding Officer found in paragraph 105 of her Reasons that Mr Lau was not an honest witness, and she rejected his evidence.  She found in paragraph 103 that Lap Tak was managed and supervised by Mr Shi, that the Claimant’s work was arranged by Ms Kwok, and that Ms Sung and Mr Lui were responsible for the accounts of Lap Tak.  She found in paragraph 104 that Lap Tak had no assets.  She further said in paragraph 107 that she did not believe that there was no connection between Mr Lau (emphasis added) and Lap Tak.

26.  She said in paragraph 98 that she did not believe that the limited companies or Lap Tak were “owned” by the Claimant and that the group of persons who “controlled” Lap Tak was the same group of persons who “controlled” Lap Shun, of which the Claimant and 26 drivers were directors.

27.  She further said at paragraph 111 of her Reasons that she believed that D3 and D4 were “puppets” of Mr Lau.  Based on this, it seems what the Presiding Officer was saying was the Mr Lau was in fact the real employer of the Claimant through Lap Tak.  Mr Lau has, however, not been named as a defendant in these proceedings.

28.  The Presiding Officer then went on to find in paragraphs 112 and 113 that Lap Tak was a sham or a facade established to hide the real employer, to provide a screen, so that the drivers could only claim against Lap Tak, which had no assets.  She further found that Mr Shi, Ms Kwok, and Mr Lui were “used” as a front to “falsely” present to the drivers and outside world that Lap Tak had no connection with the companies held by Mr Lau, namely D1 or D2.  She then concluded in paragraph 117 of her Reasons by deciding that Lap Tak’s “corporate veil” should be lifted and found in paragraph 127 that D2 was the “controller” behind Lap Tak.

29.  There was an error in law in the Presiding Officer in applying those principles on “lifting the corporate veil” of Lap Tak, as there was no “corporate veil” to lift.  It is reasonably arguable that the Presiding Officer erred in law in not having considered the relevant issues.

30.  Having considered the amended draft grounds of appeal and for the above reasons, I am of the view that D2 has shown that the intended appeal involves arguable points of law.  I therefore grant leave to appeal.