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

HCLA 20/2012

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)

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J U D G M E N T

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Introduction

1. This is an appeal by the 2^nd Defendant (“D2”) against the Order of the Presiding Officer of the Labour Tribunal (“Tribunal”) made on 19 October 2012 (“Order”).  

2. The Presiding Officer gave her reasons on 30 November 2012 (“Reasons”).  According to the employer’s returns filed with Inland Revenue Department, the Claimant (“Yu”) was, prior to the termination of his services, the employee of a firm called Lap Tak Logistics Services Company (“Lap Tak”), of which the 3^rd defendant (“D3”) and the 4^th defendant (D4”) were respectively former sole proprietors.  Lap Tak had no assets.  The Presiding Officer found that Lap Tak was controlled by D2, and thus held D2 to be jointly and severally liable with D3 and D4 towards Yu.

3. The Order states, among other things, that:

(i)  D2, D3, and D4 shall jointly and severally pay to Yu a total of HK$154,640.04, plus interest from date of Order until payment;

(ii)  Yu’s claims for long service payments against D2-D4 be dismissed;

(iii)  Yu’s claims against D1 be dismissed

(iv)  D2 to D4 shall jointly and severally pay costs of HK$3,000 to Yu, plus interest;

(v)  No order as to costs as between Yu and D1

4. By a decision of this court dated 3 June 2013 (“Decision”), leave was given to D2 to appeal against the Order under section 32 of the Labour Tribunal Ordinance.

5. In the Reasons, the Presiding Officer had posed 4 questions[1] 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” behind Lap Tak?

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

6. The Presiding Officer decided that Lap Tak was a “sham” and a “façade” and that it was controlled by D2, but not D1, and she then “lifted the corporate veil” of Lap Tak, and made the Order.

7. D’s Notice of appeal sets out, among other things, the following grounds:

(i)   The Presiding Officer erred in law in lifting the corporate veil of Lap Tak when Lap Tak was only a firm of unlimited liability, with firstly D3, and then D4, as sole proprietor;

(ii)   The Presiding Officer erred in law in lifting the corporate veil of D1 and D2 by finding that D3 and D4 were “puppets” of a Mr Liu Hua Chen (“Liu”) , a director of D1 or D2;

(iii)   The Presiding Officer failed to consider the key question as to whether Lap Tak was an agent for D1 or D2;

(iv)   The Presiding Officer failed to consider that D1 and D2 were independent contractors and had no employer/employee relationship with Yu;

(v)   The Presiding Officer erred in finding that D2 was Yu’s employer;

(vi)   The Presiding Officer erred in the calculations of the payments in the Order.

Background

8. The factual background was not really in dispute.

9. D2 is a company incorporated in Hong Kong in 1997 with limited liability and of nominal capital of HK$1m, with Liu and a Madam Hsu Chiu Hui (“Hsu”) as directors.  Both of them held/hold Taiwanese passports.  Liu and Hsu later incorporated a company called Lead Young Sea & Air Freight Co Limited (“LY Company”) in 2000.  They were the only two directors of this company and they and another were the three shareholders. 

10. Yu 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 Labour Tribunal against LY Company (“Drivers’ Proceedings”).  LY Company ultimately lost.  Yu did not take part in the Drivers’ Proceedings.  The Drivers’ Proceedings resulted in various orders made between 2006 and 2007[2].

11. At the time of the Drivers’ Proceedings, D1 was incorporated in March 2006 with HK$5m nominal capital, and upon its incorporation, Liu and Hsu transferred their respective shares in D2 to D1 on 24 April 2006[3].  After such transfer, D1 became a majority shareholder of D2, holding some 90%.  Further, Liu and Hsu transferred away all their shares in LY Company to a Mr Lu Qingpao, and another[4].  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 Yu throughout, JN 5573, were transferred to D1.

12. There was also a new arrangement for those drivers who did not take part in the Drivers’ Proceedings.

13. Yu’s own evidence was that as a result of the Drivers’ Proceedings, Liu 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.  Yu and 26 other drivers of the Company became directors of one of these 2 limited companies, which was incorporated in January 2007 and called Lap Shun Logistics Services Limited (“Lap Shun”).

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

15. 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.

16. Anyway, on 1 July 2008, Yu also started to work for Lap Tak, as with most of the drivers, and they were all paid through Lap Tak. The 2 limited companies including Lap Shun were later wound up.

17. It was Yu’s case that he had no business connection with Lap Tak.  He had never met D3, the initial sole proprietor of Lap Tak who set it up, nor D4, the subsequent sole proprietor.  Both D3 and D4 were/are Mainland residents and did not appear during the proceedings in the Labour Tribunal, save that D3 had sent a letter dated 30 April 2011[5].

18. Yu’s evidence was that he continued to drive JN 5573, and whether it was LY Company, or Lap Shun, or Lap Tak, all arrangements for work were assigned to him by a Ms Kwok, and that every month, the accounts officer a Ms Sung or Mr Lu would be responsible for salary payments, but all cheques were signed by a Mr Shi, who according to Yu, was the supervisor of the tem of drivers under Liu.

19. Yu was not given any work since 18 June 2011 and his employment was later terminated on 19 July 2011[6].

Error in Calculations

20. Yu’s Counsel Mr Yip and D2’s Counsel Mr Wong both agreed that the Presiding Officer erred in her calculations of the payments set out in paragraph 1 of the Order.  They were able to agree that the total amount of payments under Items (A) to (D) should in fact be HK$136,159.77, instead of HK$154,640.04, as follows:

ITEMS	AMOUNTS
(A)Payment in lieu of notice	$27,743.36
(B)Paid annual leave	$30,393.89
(C) Salaried Holiday	$33,279.40 (amount in the Order not challenged)
(D)Severance Payment	$44,743.12
TOTAL	$136,159.77

The Issue

21. Mr Yip also agreed that the Presiding Officer erred in lifting the corporate veil of Lap Tak, as Lap Tak was not a limited company and the issue was whether the Presiding Officer’s finding that D2 was the employer of Yu could be affirmed on a different legal basis, or the case should be remitted to the Labour Tribunal for re-hearing.

22. It was not disputed by Mr Wong that this court could affirm the decision on a different legal basis, but it was his submission that the evidence clearly supported that there was no employment relationship between D2 and Yu and that there was no need for a re-hearing.

23. The issue in this appeal is thus whether there were sufficient findings of facts made by the Presiding Officer for this court to draw the inference that D2 was the employer of Yu.

24. Mr Yip referred this court to the case of Poon Chau Nam v Yim Siu Cheung [2007] 10 HKCFAR 156.  In that case, the Court of Final Appeal has said-

“The modern approach to the question whether a person is an employee is therefore to examine all the features of the relationship against the background of the indicia developed in the abovementioned case-law with a view to deciding whether, as a matter of overall impression, the relationship was one of employment, bearing in mind the purpose for which the question is asked[7].”

25. In explaining the indicia of employment, Ribeiro PJ referred to the fundamental test laid down in Market Investigations Ltd v Minister of Social Security [1969] 2 QB which was approved by the Privy Council in Lee Ting Sang v Chung and another [1990] HKLR 764.  The fundamental test is as follows:

“‘Is the person who has engaged himself to perform these services performing them as a person in business on his own account?’ If the answer to that question is ‘yes’, then the contract is a contract for services. If the answer is ‘no’ then the contract is a contract of service. No exhaustive list has been compiled and perhaps no exhaustive list can be compiled of the considerations which are relevant in determining that question, nor can strict rules be laid down as to the relative weight which the various considerations should carry in particular cases. The most that can be said is that control will no doubt always have to be considered, although it can no longer be regarded as the sole determining factor; and that factors which may be of importance are such matters as:

(1) whether the man performing the services provides his own equipment;

(2) whether he hires his own helpers;

(3) what degree of financial risk he takes;

(4) what degree of responsibility for investment and management he has; and

(5)  whether and how far he has an opportunity of profiting from sound management in performance of his task[8].”

26. In the above case, the issue was whether the injured air- conditioning worker was an employee of the defendant or an independent contractor.  

27. Mr Yip submitted in the present case the Presiding Officer made the following findings of facts:

(1)   D2 exercised control over Yu. Yu received his work instruction from Miss Kwok everyday[9]; and Miss Kwok was working for D2[10];

(2)   The lorry driven by Yu for his work, JN 5573, was provided by D2, which rented it from D1[11];

(3)   Mr Shi managed and controlled Lap Tak’s fleet of drivers (including Yu), and Mr Shi was working for D2[12];

(4)   D2’s claim that Yu was an independent contractor was clearly unbelievable.  Yu took order from Ms Kwok, and Lap Tak declared Yu to be its employee in the tax return[13], there was no evidence that Yu took any financial risk in his work, or that he hired his own helpers.  Yu was clearly an employee of D2.

(5)   Lap Tak was a company without any assets.  D2 made payment to Lap Tak directly and then Lap Tak distributed those funds to individual drivers[14].  Lap Tak was clearly a mere conduit of D2, employed by D2 to evade its responsibility under the law.

28. Based on the above, Mr Yip invited this court to affirm the conclusion of the Presiding Officer on the basis that there was a direct employment relationship between D2 and Yu.

29. As the Presiding Officer had in effect held that D2, D3 and D4 were all employers of Yu, Mr Yip further submitted that it was possible under the law for an employee to have multiple employers at the same time. He referred this court to Chan Si Mui v Kong Hung Keung & Others (HCA 4977/1991, unreported, 13 September 1994), where the then Jerome Chan J held that both the 2^nd and the 3^rd defendants were employers of the 1^st defendant who were then both held to be vicariously liable for the negligence of the 1^st defendant.

30. Mr Wong on the other hand submitted that in order for the Presiding Officer to find liability against D1 or D2, the relevant question was whether Lap Tak was an agent for D1 or D2 at the time when Yu was employed.

31. In James v Greenwich London Borough Council [2008] EWCA Civ 35, the claimant therein worked for the council through an employment agency.  There was no express contract between the claimant and the council.  The issue was whether the claimant was an employee of the council, and it was held not by the employment tribunal, and the claimant’s appeal was dismissed.  It was held by the Court of Appeal that the real question was whether it was necessary, in the tripartite setting of worker, employment agency and end-user, to imply a contract of service between the worker and the end-user to explain the provision of work by the worker to the end-user or the end-user’s payment of the worker via the agency; that the question was to be decided in accordance with common law principles of implied contract and, in some very extreme cases, by exposing sham arrangements; and that, on the facts found by the tribunal, the provision of work by the council, its payments to the agency and the performance of work by the claimant was fully explained by the express contracts each entered into with the employment agency, and it was unnecessary to imply the existence of a third contract.  

32. In the above case, the council had conceded that, while the claimant was undertaking work for the council as a housing support worker, she was subjected to a degree of control consistent with a contract of employment.  It was the council, not the employment agency, arranged all her instructions, orders and her working conditions, provided the materials used in her work and organised the procedures followed by her. However, the council contended, there was an absence of that mutuality of obligations which was required to found a contract of employment between her and the council[15].

33. It was subsequently held by the Court of Appeal in the above case that the employment tribunal was entitled to conclude that the claimant was not an employee of the council because there was no express or implied contractual relationship between her and the council.

34. As seen from the above case, in my view, the questions the Presiding Officer ought to have considered were:-

(i)   whether there was an express employment contract/ employment relationship between D1/D2 and Yu; 

(ii)   whether, in the absence of an express employment contract/employment relationship, an implied contract of employment/employment relationship between D1/D2 and Yu could be deduced from the conduct of the parties and from the work done. 

35. Whether Lap Tak/D3/D4 was an agent of D1 or D2  would be a matter for consideration under (ii) above. 

36. One of the matters complained of by Mr Wong was that the Presiding Officer seemed to be also lifting the corporate veils of D1 and D2, in finding that Liu was closely connected to Lap Shun and Lap Tak[16] and D3 and D4 were “puppets” of Liu[17]. However, as pointed out by Mr Wong, Liu was not a defendant.

37. The key question in this case is whether there was an employment relationship between D1/D2/Liu and Yu, express or implied. As for those findings of facts which Mr Yip said would support his court to find the existence of a direct employment relationship between D2 and Yu,  my comments are as follows:

(i)   In fact, the finding by the Presiding Officer in paragraph 107 in the Reasons was only that Mr Shi, Ms Kwok and Mr Lu were working for D1 or D2 (emphasis added)[18];

(ii)   Further, as noted by the Presiding Officer, the emails from Ms Sung and Mr Lu produced by Yu indicated that they were employees of a Shenzhen company, called Lead Young Goods Transportation Company (深圳立揚貨物運輸有限公司), and Ms Kwok was the employee of another Shenzhen Lead Young Company (立揚通運（深圳）公司)[19].  Both these two Shenzhen companies bear the first 2 Chinese names of D1, namely立揚.  The Presiding Officer, however, noted that address of these Shenzhen companies was the same as two other Shenzhen companies bearing the 2 Chinese names of D2慶華.  In fact, the registered offices of D1 and D2 in Hong Kong were also at the same address.  However, the fact that all these Shenzhen companies shared the same address would not necessary mean that they would share all the same staff.  Anyway, the evidence appeared to indicate that all those persons were employees of Shenzhen companies, rather than D1 or D2.

(iii)   As for Mr Shi, the Notice he issued on 25 December 2011 in relation to drivers of other companies and referred to by the Presiding Officer bore a chop of 立揚, namely to 2 characters same as D1[20].  The emails sent by Yu to Ms Sung in relation to annual preparation of financial statements of Lap Tak were sent to an email address of Ms Sung at “@leadyoung-logistics.com.cn”[21] which seemed to indicate she was a staff of D1.  Yu had produced two statements from fellow drivers, one stating that Mr Shi and Ms Kwok were administration officers of D1, and the other stating that Mr Shi and Ms Kwok were employees for D2[22].

(iv)   According to Yu’s own oral evidence, he had said he was employed by D1 since 2007, although he was paid by Lap Tak, although he later said D1 and D2[23].  There was no evidence in Lap Tak’s bank statements as to the source of the deposits, whether they were from D1 or D2, but it was Liu’s own evidence that D2 would pay Lap Tak transportation fees every month.  There was one large deposit every month and then various withdrawals.  Liu had explained that the deposits were payments from D2 for sub contractor fees payable to Shenzhen Lead Young Goods Transportation Limited Company.  The Presiding Officer found that the monthly deposits were from D2, but not for the various purposes as explained by Liu[24].

38. The Presiding Officer came to the conclusion that it was D2 and not D1 which was the real controller of Lap Tak (emphasis added).  Her  reasons were set out  in  paragraphs 118 to 126 of the Reasons were :

(i)   D2 was leasing the vehicles from D1, including JN5573 which was driven by Yu;

(ii)   D2 rented the same offices and 2 warehouses of LY Company and took over most of the LY Company’s customers, and employed the former staff and drivers of LY Company, after LY Company ceased business;

(iii)   D2 was the one which was directly depositing a sum of money into the bank account of Lap Tak every month for payments of drivers’ salaries, including Yu’s;

(iv)   The emails from Ms Sung, Mr Lu and Ms Kwok indicated that they were working in an office at an address in Shenzhen, which was also the office address of Shenzhen companies bearing same two characters as D2;

(v)   Mr Shi, Ms Kwok, Ms Sung and Mr Lu were found to be the

“manipulators/controllers” of Lap Tak and the Presiding Officer believed that they were in fact working under D2’s instructions[25].

39. To summarise, it seems clear from the Reasons that Yu was found to be not an independent contractor.  However, from the Presiding Officer’s findings that D3 and D4 were “puppets” of Liu, it seems she found that D3 and D4 were agents of Liu, in which case Liu could be Yu’s employer.  There was no finding that Lap Tak/D3/D4 was an agent of D2. Whether agent or not, the key question was whether there was an employment relationship between D2 and Yu and there did not seem to be consideration of this, or in any event, there was no clear finding on this.  In the circumstances, I am of the view that the matter be re-heard.

40. I will therefore allow the appeal and remit the matter back to the Labour Tribunal to be heard by a different Presiding Officer.

41. Costs will be in the cause of the re-hearing. This is an order nisi, which will be made final after 21 days.

42. Finally, I thank both Counsel for their submissions and assistance to the court.