HKSAR v. LOR WAI POR

HCMA 888/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MAGISTRACY APPEAL NO. 888 OF 2009

(ON APPEAL FROM KTS 1762/2009 to KTS 1777/2009)

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BETWEEN

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J U D G M E N T

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1.  This is an appeal against an order made by a Magistrate pursuant to section 65(1) of the Employment Ordinance, Cap. 57 “The Ordinance”. The appellant pleaded guilty to 16 Informations laid against him under the Ordinance and admitted the brief facts. The offences related to failure to pay wages by the due date and failure to pay wages in lieu of notice. By way of sentence, the Magistrate imposed a community service order of 160 hours, concurrent on each offence. Upon the prosecution’s application, he made an order under section 65(1) of the Ordinance, directing the appellant to pay a total of HK$261,270, being unpaid wages or other payments due to four employees, designated in these proceedings as PWs 1-4.

2.  This appeal against sentence is directed only to that part of the Magistrate’s order.  There is no complaint as to the community service order.

3.  The appeal has turned mainly on the proper interpretation of the term “employer” as given in section 2 of the Ordinance.  The facts of the case were undisputed and must be viewed against the legislative framework of the whole Ordinance.

4.  It was admitted that the appellant had been the sole proprietor of a company called Luen Kwong Electrical Engineering Company (hereinafter “The Company”).  In June 2000, the Company was incorporated under the name of Luen Kowng Electrical Engineering Company Ltd, (hereinafter “the Corporation”).  The appellant was a director and shareholder of the Corporation and it was expressly admitted that he was responsible for its administration and financial management.

5.  PWs 1-4, who were electricians, were employees of the Corporation.  They had been employed by the Company, that is, the sole proprietorship, and their employment had either been formally transferred to the Corporation (PWs 1, 2 and 3) or (in PW4’s case) had been transferred simply by virtue of a continuity of employment after the incorporation of the Company.

6.  In August 2007, one of the four resigned, citing unpaid wages as the reason.  In November 2007, the other three were dismissed by the appellant without notice.  Obviously the Corporation was in financial difficulties.  All four employees were owed wages; and those who were summarily dismissed by the appellant were also owed wages in lieu of notice.

7.  It was not in dispute in these proceedings that the total sum owed to the four employees was HK$261,270, that is, the amount of the order made by the Magistrate.  That order was made against the appellant personally.

8.  In February 2009, upon the application of one of the former employees, the Corporation was wound up.  Thereafter, with the assistance of the Labour Department, proceedings were commenced against the Corporation or its liquidator, and the appellant in the Labour Tribunal and, eventually, a consent order was made by the Tribunal for payment by the Corporation of the outstanding sums and, at the same time, proceedings in the Tribunal against the appellant were withdrawn.  The order was for payment by instalments by the Corporation but no such payments were made.  It is also not in dispute that at some stage, the four PWs had drawn the sums due to them from the Protection of Wages on Insolvency Fund.

9.  Eventually, the Labour Department laid the Informations against the appellant and the summonses were issued.

10.  It was also admitted before the Magistrate that, by failing to pay the outstanding wages within seven days of the relevant wage periods, or of the termination of employment without notice, the Corporation had wilfully, and without reasonable excuse, contravened sections 23, 25 and 63C of the Ordinance: these were the primary offences.  It was further admitted by the appellant personally, by his pleas of guilty and his admission of the brief facts, that the offences in question were committed with his consent or connivance or neglect as a director of the Corporation; and that he had thereby contravened section 64B(1) of the Ordinance.  Under that section, where the primary offence is committed by a Corporation with the consent or connivance of (inter alia) a director, or is proved to be attributable to any neglect by such person, then that person shall be guilty of a like offence.  By this means, the appellant admitted that he too was guilty of the offences committed by the Corporation.

11.  Section 65(1) of the Ordinance, so far as is material, provides that an employer convicted of an offence under the Ordinance shall, if the court so orders, pay any wages or other sums outstanding at the time of the conviction, and in respect of which the offence was committed.  The court is not therefore obliged to make an order for the employer to pay the outstanding wages; it is given a discretion: (“if the court so orders”).  Of course, such a discretion must be exercised reasonably in the circumstances of the case; but if the court makes an order, the employer must pay the outstanding sums.

12.  The order in this case was made against the appellant as the employer.  Thus the issues which have been canvassed before the court in this appeal are, what is the meaning of “employer”; and was the appellant an employer of PWs 1-4 and thus liable to an order under section 65(1)?

13.  The interpretation section of the Ordinance, section 2, gives a definition of employer as meaning, unless the context otherwise requires,

“any person who has entered a contract of employment to employ another person as an employee and the duly authorised agent, manager or factor of such first mentioned person”.

14.  These words are to be given their ordinary, natural meaning in the context of the whole Ordinance.

GROUNDS OF APPEAL

15.  The first ground of appeal is to the effect that the court had no jurisdiction to make the order against the appellant because he was not the employer of the employees in question.

16.  The essence of the appellant’s argument is to say that he was not in fact the employer, as defined in the Ordinance; and that at the material times stated in the Informations laid, which were after the incorporation of the Company, the employer was the Corporation.  Thus, if any order under section 65(1) was to be made, it should have been an order against the Corporation, which had not been summonsed; and not against the appellant: there was, it is argued, no jurisdiction to make the order against him personally.

17.  The appellant relies firstly on the fact that the Informations were each drafted in terms of the appellant “being a director of the [Corporation] which “wilfully and without reasonable excuse failed to pay its employees” [emphasis added]; and secondly on the admitted brief facts, setting out the prosecution case, to the effect that PWs 1 to PW4 “were employed by the [Corporation]”; and that the employment of three of the PWs had been transferred to the Corporation in 2003.  Thus it is argued on behalf of the appellant that the admitted evidence, and indeed the prosecution’s own case, was that the employer of PWs 1 to 4 at the material times was the Corporation, not the appellant personally, whether in his sole proprietorship of the Company before its incorporation, or as a director after incorporation.  It is argued that no order under section 65(1) should have been made against him personally.

“Corporate veil”

18.  Some time was spent in the Magistrate’s written reasons for the order, and in submissions, as to whether there was a “corporate veil” created by the appellant which could be “pierced”.  The Magistrate said that there was such a veil, i.e., that the appellant, acting in his personal capacity, was hiding behind the Corporation which he had created and in respect of which he was the majority shareholder and a director; the Magistrate said that he was justified in piercing this “corporate veil” and treating the appellant as if he were the Corporation had thereby liable to order under section 65(1).

19.  I do not intend to deal at any length with that issue because I consider that it is unnecessary to do so to achieve a proper construction of the definition of employer found in the section 2 of the Ordinance, and to determine the issues in the appeal.

The Respondent’s position

20.  The respondent to this appeal, the prosecution, concedes that the Corporation was the employer of the four employees in question at all material times; but it is submitted that, given the definition of the term in Section 2, the appellant was also their employer because he was the duly authorised agent, manager or factor of the Corporation.  The respondent submits that there is no bar to the Corporation and the appellant being concurrent employers of the four electricians for the purposes of the Ordinance; and that if the appellant was the employer, even if at the same time as the Corporation, then he is liable to be made the subject of an order under section 65(1).

21.  The respondent also submits that the appellant was, by his own plea, convicted under section 63C of the Ordinance, in his capacity as an employer: the Informations laid, and the consequential summonses, were laid against him personally, not against the Corporation.  Therefore, it is submitted, the order under section 65(1) was proper.  Section 63C provides:

“Any employer who wilfully and without reasonable excuse contravenes section 23,24 or 25 [that is, the requirement to pay wages etc on time] commits an offence…” [emphasis added]

However the appellant’s criminal liability was not simply based on section 63C, which created the primary offences.

22.  The appellant’s personal criminal liability was founded on section 64B(1), namely that he was a director or manager of a corporation which itself committed offences under section 63C, in respect of which he had consented or connived, or which were attributable to his neglect.  It is not necessary to place any reliance on section 63C in this regard.

The Appellant’s responsibilities in the Corporation

23.  I have earlier noted that the appellant was responsible for administration and financial management of the Corporation: (paragraph 1 of the brief facts).  That responsibility was confirmed by documents submitted on his behalf in mitigation, marked as “documents A and X”.

24.  The respondent argues that in all the circumstances, although the Corporation entered the contract of employment with PWs 1 to 4, it was the appellant who was the employer, if only concurrently with the Corporation; and he was therefore susceptible to an order under section 65(1) to pay the outstanding wages.

25.  The respondent argues that there could be a number of persons in a Corporation who could be so responsible though clearly, there would have to be some link between their role and function in the Corporation and the employment of the employee.  Thus, a personnel manager or his subordinates might be included; but the cleaning staff, plainly would not.  The crucial question, in my judgment, is whether or not the manager or agent in question was “duly authorised”.  Duly authorised in this context means authorised in relation to the employment of the employees in question.

26.  The respondent submits that if such due authorisation exists, then it is the intention of the legislation to place personal liability on such a manager or agent as an employer, in the event of conviction of an offence under the Ordinance, because the purpose of the Ordinance is to provide wide protection to employees so far as their wages are concerned; and such liability should fall personally on such an employer to achieve that purpose.

27.  The rationale behind the definition of employer, in my judgment, is to cater for situations, such as this, where a Corporate employer is wound up and employees have no remedy against the Corporation.  They nevertheless have a continuing remedy against the duly authorised manager/agent/factor who is convicted of an offence.  The inclusion of a broad range of persons who fall into the category of employer is deliberate: it is what might be called a “blunderbuss” approach and is designed better to protect the employees and thereby to achieve the objective of the legislation.  The employees acquire a far reaching protection, which is the purpose of the Ordinance.

28.  It is not difficult to conclude on the facts of this case that the appellant, responsible as he was for financial and administrative matters, was a duly authorised manager or agent of the Corporation for the purposes of its contracts of employment with employees.  It was he, when the Corporation of which he was a director and shareholder, got into financial difficulties, who fired PWs 1 to 3.  The authorisation was clear on the facts of the case, despite the fact that it may have been an authorisation derived from his own position as director of the Corporation.

29.  It follows that the appellant falls within the plain words of the definition of employer in section 2 of the Ordinance, even if his function in that regard was concurrent with that of the Corporation in respect of PWs 1-4.

30.  In my judgment, the words of the section 2 definition of employer themselves and allow for more than one employer, including, as they do, “any person who has entered into a contract of employment, and, the duly authorised agent of that person”.  [emphasis added]: That emphasised conjunction widens the scope of the definition to include the possibility of more than one person being the employer at the same time.

31.  For these reasons it is not necessary to engage in any analysis of whether any “corporate veil” should be disregarded.  The appellant was an employer in respect of these employees and had been convicted of an offence or offences under the Ordinance in respect of wages or other sums outstanding at the time of the conviction and in respect of which the offences were committed.  He was therefore susceptible to an order under section 65(1).

Ground 2:  Should the order have been made?

32.  The second ground of appeal is that even if the appellant were liable to an order under section 65(1), such an order should not in the circumstances have been made.  Various reasons were advanced.

(a)     It was argued on behalf of the appellant that since the employees had obtained payments under the Protection of Wages on Insolvency Fund, if the appellant were required under the order to make payments to them, they may thereby receive a double benefit once he paid.  It was suggested that the Magistrate had failed to consider this factor.  However, it is clear from his Reasons for Sentence, that the Magistrate did consider this possibility, and that he had regard to the subrogation provision in section 24 of the Protection of Wages on Insolvency Ordinance, Cap. 380, which would prevent such double benefit.

(b)    It was also submitted on behalf of the appellant that, as money was owed to the Corporation by certain companies, if the liquidators could obtain that money, the employees could sue the Corporation for outstanding wages.  This argument involves a high degree of speculation as to whether such funds could be recovered and I am satisfied it has no impact whatsoever on the application of section 65(1) of the Ordinance.

(c)     Next it was said that the appellant is without funds; his wife has been made bankrupt; there is no evidence that he has any money: therefore, it is submitted, he does not have the means to pay and it is unreasonable to make an order.

33.  The respondent says in this regard, that if an employer can say “I have no money and therefore no order can be made under section 65(1)” even though he has been convicted because the offences were committed with his consent, connivance or neglect (section 64B(1)), the purpose of section 65(1) of the Ordinance, namely the protection of workers with regard to the payment of wages etc, would be defeated.  I agree entirely with that.

34.  The legislative purpose of the Ordinance must not be so defeated.  The appellant has an obligation to raise the money.  If he fails to do so, consequences as to enforcement may follow.  However the Magistrate was not obliged to make a detailed assessment of the existing and potential means of an employer before making the order under section 65(1); in any event, the appellant’s means may change for the better.  The fact that the time of the conviction, an employer has no apparent means to pay the outstanding wages and other payments due to his employees, should not inhibit the making of an order under section 65(1) if it is otherwise justified.

CONCLUSIONS

35.  In the result, I am satisfied that the Magistrate had jurisdiction to make the order the subject of this appeal; and that there was no ground upon which he could properly have exercised his discretion not to make such an order.  Accordingly, the appeal against the order is dismissed.