LAW SHU FAT AND OTHERS v. 吳光銳經營吳祐記運輸公司

HCLA126/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

LABOUR TRIBUNAL APPEAL NO.126 OF 2003

(ON APPEAL FROM LBTC 4454 OF 2003)

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J U D G M E N T

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The appeal

1. This is an appeal against the decision of the presiding officer in the Labour Tribunal, Mr Winston Leung, dated 4 August 2003 and the dismissal on review by him on 24 September 2003.

2. The 4^th and the 10^th claimants (appellants) are represented by Mr Erick Shum of counsel on the assignment by the Director of Legal Aid.  Other claimants are unrepresented but the issue before the court is the same.  They have signified that they would just rely on the submissions of Mr Shum for the two represented appellants.  

The facts

3. The facts in this case are not in dispute and the parties and in particular the respondent’s employer would like to have a legal decision in respect of a state of affairs. 

4. The 4^th claimant was employed since 1 January 1982 by one Mr Ng Yau (吳祐) trading as 吳祐記運輸公司 (Ng Yau Kee Transportation Company) (“Ng Yau Kee”) as a transportation worker.  At that time, Ng Yau Kee was run by Mr Ng Yau, being the father of the present employer (Ng Kwong Yui 吳光銳) the respondent herein.  In fact, the 4^th claimant was employed directly by Mr Ng Yau whilst he was running Ng Yau Kee.

5. I must point out here that the word “Kee” (記) in Chinese is a term of art signifying the trademark of a business undertaking.  It is usually prefixed by a person’s own name for a sole proprietorship as in this case, “Ng Yau”, or a combination of the names of two or more persons in partnership.[1]

6. The 10^th claimant was employed by Ng Yau Kee on 1 April 1994 also as a transportation worker.  However, when he was first employed, Ng Yau Kee was run by Ng Yau’s son, Mr Ng Kwong Yui (吳光銳).  The 10^th claimant was actually interviewed by Mr Ng Kwong Yui himself.  

7. Thereafter, Mr Ng Yau died on 23 November 1995, and Ng Kwong Yui became the administrator of his father’s estate by Letters of Administration dated 21 January 2000.  

8. Ng Kwong Yui admitted, and agreed by other claimants, that he started to work for his father since 1990 and he was responsible for paying the workers of their salaries and signed all company’s documents. 

9. After Mr Ng Yau died, Mr Ng Kwong Yui told all the workers including the claimants herein that Ng Yau Kee would be run by Ng Kwong Yui himself.  It was never discussed with the claimants whether their employment contracts would be changed.  Ng Yau Kee was conducted in exactly the same way as it was before, and all the claimants’ daily works had not been changed. 

10. All along up till now Ng Yau Kee has only one client and that is Central Textiles (Hong Kong) Company Limited (中央紡織(香港)有限公司) (“Central Textiles”).  Since the death of Mr Ng Yau, Ng Yau Kee has also maintained its business relationship with its one and only one client.  

11. It is not disputed by the parties that since the death of Mr Ng Yau, Ng Kwong Yui continued to run Ng Yau Kee himself until on 15 March 1999, Ng Kwong Yui registered himself as the sole proprietor of Ng Yau Kee Transportation Company.  In this new registration he stated that he started to run this company from 1 March 1999.

12. In the course of the appeal, I was told that both Mr Ng Yau and Mr Ng Kwong Yui used their own residential addresses as their business address and the two of them have different residential address.  This can be shown in the business registration record.  However in fact this Ng Yau Kee has never had a proper office.  The workers just gathered every morning at a godown in Tsuen Wan to start work.

13. Since the death of the deceased and in the application for the Letters of Administration thereof, Mr Ng Kwong Yui reported to the Inland Revenue Estate Duties Office that Ng Yau Kee has a net worth of about $386,000 odd as part of Mr Ng Yau’s estate.  This fact however, was unknown to the workers there and then. 

14. Further, the old Business Registration Certificate (“BRC”) for Mr Ng Yau shows that he was holding a certificate for the year ended 31 May 1999, i.e. from 1 June 1998 to 31 May 1999.  In this BRC, the English name stated therein was Ng Yau Kee Transportation Company.  However in the original application of Mr Ng Yau, he actually used the English name Ng Yiu Kee Transportation Company which fact apparent was not before the learned presiding officer in the Tribunal below.  Thereafter, Mr Ng Kwong Yui applied for the business registration as aforesaid on 15 March 1999 and the BRC for the year from 1 March 1999 to 28 February 2000 was in the name of Ng Yiu Kee Transportation Company Limited which was the original English spelling of Mr Ng Yau’s company name. 

15. All these boil down to this : the learned presiding officer stated in his judgment that Mr Ng Kwong Yui changed the English name of the undertaking to his own name.  This is a minor mistake and is incorrect since Mr Ng Kwong Yui’s English spelling is Yui and not Yiu.

The claims and the decision in the Tribunal

16. Be that as it may, the present claim arose when the claimants claimed for the outstanding statutory holidays and the compensation for paid holidays. 

17. In the Tribunal, the presiding officer decided that : 

(1)	Since the death of Mr Ng Yau, the respondent being his son has no responsibility to pay the claimants as aforesaid before the death of Mr Ng Yau, i.e. 23 November 1998.
(2)	The respondent would only have to shoulder the responsibility since 24 November 1998.
(3)	Further, since the claimants there and then were still in the employment of the respondent, and the respondent would still have the option to allow the claimants to take holidays as a compensation for their outstanding holidays, he would not have to pay them monetary compensation for their outstanding holidays since 24 November 1998.

18. Consequently, all the claims of the claimants were dismissed.  There are further applications for review of the decision and they were also dismissed on 24 September 2003.  

The issue in dispute

19. The main issue is whether the business of the father has been transferred to the son when the latter continued on to run the business of Ng Yau Kee by the same name, at least the same name in Chinese.  Thus, the issue is whether the business of the father has been transferred to the son pursuant to paragraph 5 of Schedule 1 to the Employment Ordinance, Cap.57. 

20. Since the date of the judgment, the 4^th claimant has already resigned due to illness on 9 October 2003.  It is also agreed between the two parties that all outstanding compensation for (a) statutory holidays and (b) annual leave together with (c) long service payment were already paid to the 4^th claimant by the respondent by calculating his contract of employment from 24 November 1998.  The only issue is the 4^th claimant’s entitlement of the aforesaid three items before 24 November 1998.

21. Similarly for the 10^th claimant, he was dismissed by the respondent on 3 May 2004 and all outstanding payments in respect of annual leave holidays and statutory holidays together with long service payment were paid for the period of employment since 24 November 1998.  Thus the only outstanding amount is the amount claimed before the death of Mr Ng Yau.

22. All other claimants also have the similar treatment. 

The decision of the Tribunal

23. In deciding that there was no transfer of business, the presiding officer considered that paragraph 5 of the First Schedule of the Employment Ordinance did not apply in this case for two reasons, namely :

“… First,  there could not be a transfer of business as Mr Ng Yau’s business ceased and Mr Ng started afresh.  Secondly, there was never a transfer from one person to another which must be the willed action of two living persons.”

It was also decided that :

“Mr Ng is the administrator of Mr Ng Yau’s estate.  However, I find it too artificial to argue that Mr Ng transferred the business in his capacity as an administrator to himself as natural person consciously.  If the old business had more liabilities than assets, as in this case, there is no good reason for anyone to take that up if a fresh one could be started.  In these circumstances, it is natural for anyone to start afresh.  The only assets required were a contract with the Central Textile (Hong Kong) Limited and the lorries.  The workers were not essential assets….”

The appellants’ argument

24. However, Mr Shum for the appellants submitted that the undisputed facts before the court supported the inference that according to paragraph 5 of the First Schedule of Cap.27, the business of Ng Yau Kee has already been transferred to the respondent Mr Ng Kwong Yui (“Mr Ng”) for the following reasons :

(1)	The business name and in particular the Chinese name of Ng Yau Kee has been transferred to the name of the respondent.
(2)	The respondent has been running the business since 1990 and his position as the one who was running the business has not been changed.
(3)	The estate of Mr Ng Yau was declared to be $530,600 and Mr Ng agreed that this net value represented the accounts receivable by the business at that time, i.e. the time of death of Mr Ng Yau.  This was inherited by Mr Ng.  There were two 24-tonne lorries owned by Mr Ng Yau for the business and he had signed forms of transfer of ownership to his son before he died.  Mr Ng had the ownership of the two lorries transferred to himself after the death of the father.  Mr Shum submitted that this is evidence that the deceased had the intention of transferring the business to his son in order to assist him to continue on to run the business.
(4)	As expected Mr Ng continued on to use the aforesaid two lorries after the death of his father and run the business as before.
(5)	Mr Ng continued on to perform the 1998 contracts with Central Textiles as before, and this contract was between Ng Yau Kee owned by his father and Central Textiles.  Further in the next year 1999 after the death of his father, he continued to enter into a new contract with Central Textiles in the name of Ng Yau Kee before the time he said he started his own business on 1 March 1999.
(6)	After the death of his father, Mr Ng continued on to employ all the employees and the status quo was as before.  Between the employer and employees there was no new discussion of their salaries and responsibility at all.
(7)	Mr Ng also admitted that since the death of his father Ng Yau Kee was run as before and there was no change at all.
(8)	He further admitted that in the year 2000 when an employer, one Mr Kwong Ming Wai (鄺明威先生) resigned from his employment, Mr Ng paid him long service payment from 1 March 1992, i.e. the date he commenced his employment with Ng Yau Kee traded by his father Mr Ng Yau.  Mr Kwong’s evidence was accepted by the presiding officer.

25. In respect of the contention that the old business had more liabilities than assets as found by the presiding officer and therefore it is his finding to the effect that Mr Ng would not be foolish enough to “transfer” his father’s business to himself, Mr Shum submitted that the actual circumstances of such a situation of more liabilities than assets have apparently escaped the attention of the presiding officer.  They are as follows :

(1)	At the time of the death of the father, there had been a personal injury case of an employee in the name of one Mr Yuen Yun Cheung (袁潤祥), which was dated back to 31 May 1996.  In other words, there was a potential liability for Ng Yau Kee.  However, on 20 November 2000, Mr Ng Kwong Yui for and on behalf of Ng Yau Kee agreed with the insurers, one HIH Insurance (Asia) Ltd, to pay HK$500,000 to the insurers to make up the amount of compensation which was not covered by the insurance policy (保單之投保不足之補償).  Thus there was a statement of the estate of Ng Yau Kee there and then in January 2003 stating that after deducting various amounts of the expenses of legal costs and the contributions made to HIH, the estate in fact has a negative value of -$27,492.82.
(2)	However, that was only certain by the end of the year 2000 and as at the death of the father in November 1998 and the application of the respondent for the business registration to run a business in the name of Ng Yau Kee in March 1999, that was not an ascertained sum.  It cannot be said, as submitted also by Mr Shum for the claimants, that there and then Mr Ng Kwong Yui was conscious of the liabilities and therefore the inference must be that he would not take up this business with negative value.
(3)	Further, even if he is conscious of the negative value, he has used the same name of Ng Yau Kee, its goodwill, its valuable contracts and commercial relationship, all the employees’ services, the modus operandi of the business, and the two lorries.  In fact shortly before the death of Mr Ng Yau, Ng Kwong Yui had already taken up the business of Ng Yau Kee when Mr Ng senior was not in a position to run the business shortly before his death.
(4)	In any event, it cannot be said that the transfer of business must be the willed action of two living persons.  From all the evidence in this case before the Tribunal the natural inference to be drawn is that the son has taken up the business of the father and by this taking up of the business which including all the accounts receivable and assets of the company including the two lorries, the business had already been transferred from the father to the son for the purposes of the Employment Ordinance.

The decision of this court

26. I accept the submissions of Mr Shum for the appellants.  This case is in fact very similar to the case of Cheng Tai Lok v. Tai Lee Transportation Co. [1995] 2 HKC 169, (per Deputy Judge Yeung, as he then was).  But this case is even stronger than Cheng Tai Lok’s case. 

27. The headnote in the case of Cheng Tai Lok reads as follows :

“The appellants had been in the employment of the respondent company since February 1975 and August 1983 respectively.  On 8 November 1993 they were both summarily dismissed.  They claimed that the dismissal was not justified and claimed for 26 days wages in lieu of notice and long service payment.

In defence, the respondent contended (a) that the respondent company, owned by Cheng Chor Leung, was only established in August 1992 and before that, the appellants were only working for another company registered in the name of Cheng Chor Leung’s father, thus they had not been employed under a continuous contract of employment to qualify for long service payment; (b) that the appellants were independent contractors and not employees and were therefore not entitled to make any claim; and (c) that the appellants were not sacked, but had left on their own.

The presiding officer of the Labour Tribunal dismissed the appellants’ claim and they appealed.

Held, allowing the appeal and remitting the case to the Labour Tribunal for retrial before another presiding officer:

(1)   On the question of long service payment, the issue was whether there had been a transfer of business to Cheng Chor Leung from his father.  The father’s company and the respondent’s company had the same English name, and there was only a slight variation in their Chinese names.  The father’s company ceased business about one year after the respondent’s business had been set up.  Before he set up his own business, he was working in the father’s business, describing himself as the person in charge or manager.  Those were clear indications that the respondent intended to make use of the goodwill of the father’s business.  On the facts present, the more probable inference to be drawn was that there had been a transfer of business from father to son; therefore the appellants’ period of service with the father’s company ought to have been included in their period of service for the respondent (at 171D, 172A-C, 173A).

(2)   The claimants were no more than labourers basically, making deliveries according to instructions from the defendant.  All the equipment and means of transport were provided by the defendant.  The place of work and the nature of the work were all decided by the defendant.  Their salaries were based on the number of items that they had delivered with a minimum pay of $ 8,000 a month.  If the presiding officer had applied the proper test, he would not have come to the conclusion that the claimants were independent contractors even if they could [*170] decide when to or when not to work as alleged by the defendant.  Market Investigations Ltd v minister of Social Security 1969 2 QB 497 and Airfix Footwear Ltd v Cope [1978] ICR 1210 considered (at 173G-H).

(3)   The presiding officer had not investigated or investigated adequately the circumstance in which the claimants stopped working for the defendant.  His decision that the claimants had not been dismissed by the defendant was unsupported by evidence.  Therefore, his decision had to be set aside and the case should be remitted to the Labour Tribunal for re-trial (at 174G-H).”

28. In my view whether there was a transfer of business is an objective test and this is more often happened under the Business Transfer Ordinance which was previously called the Fraudulent Transfer of Business Ordinance, see the case of Liu Hon Ying t/a United Speedoc Co. v. Hua Xin State Enterprise (Hong Kong) Ltd & Another [2003] 3 HKLRD 347.

29. Lastly, I must point out that in this case, Mr Ng Kwong Yui is not escaping liabilities by resisting the application of the claimants.  I was told that he just wanted a clear legal decision on his liabilities and whether paragraph 5 of Schedule 1 is applicable in this case.  If so, he would agree with the claimants on the calculation of their various entitlements.

30. Mr Andy Hung, counsel for Mr Ng, further submitted that even if there was a transfer pursuant to the Schedule, this is only applicable to long service payment and would not be applicable to annual leave and statutory holidays compensation.

31. However, I am of the view that the legal position is otherwise.  The respondent’s defence as submitted by Mr Shum was only that he was not the employer of the appellants within the meaning of sections 40 and 41AA(8) of the Employment Ordinance for the period prior to the death of his father.  This paragraph 5 in the Schedule addresses exactly the same question as to who was the employer for the said period and it is provided thereunder that the period of employment of an employee with the transferor of the business will continue as a period of employment with the transferee and the transfer of business will not break the continuity of the period of employment.

32. It will be quite odd that paragraph 5 would only continue the contract of employment for the purpose of long service payment but not for the other benefits conferred on an employee under the same contract of employment.  It is, therefore, my decision that the said paragraph 5 continued the contract of employment for all the benefits of a contract of employment.

33. For the aforesaid reasons, I have allowed the appeal with costs of the appeal and in the Tribunal below :

(a)	to the two represented appellants, to be taxed if not agreed, and their own costs be taxed according to the Legal Aid Regulations; and
(b)	to all other unrepresented appellants assessed grossly at $1,000 for each one of them.

[1] See the word jì (記 or 记) at pp. 914-915 of The Contemporary Chinese Dictionary [Chinese-English Edition 2002], Foreign Language Teaching and Research Press under “[记号] mark; sign; mark or sign that attracts one’s attention or helps someone recognise or remember something.” and “[记认] 指便于记住和识別的标志 mark for easy identification”.