WAN HO AND ANOTHER v. CHAN YING KAU AND OTHERS

IN THE SUPREME COURT OF HONG KONG

COURT OF APPEAL

LABOUR TRIBUNAL APPEAL NO.33 OF 1984

(CLAIM NO.2394 OF 1984)

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JUDGMENT

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1. The 1st defendant and the 2nd defendant, who are wife and husband respectively, for many years operated a small restaurant. In May 1980 they formed a private limited company to take over the restaurant. The shareholders were the 2nd defendant and his son. The 1st and 2nd defendants claim that they transferred the business of the restaurant, including the employees, to the company on the 16th May 1980. The company was the 3rd defendant before the Presiding Officer, but is not a party to this appeal. The business did not do well and in June 1984 owed 6 months' rent. On 20th June 1984 the owners of the restaurant premises levied destraint upon the property of the company and had it wound up.

2. The claimants are employees who worked in the restaurant. They made various claims against the defendants of which only arrears of wages, annual leave pay and severance payments need be mentioned. In respect of these the Presiding Officer made awards in favour of the claimants, and from those awards the 1st and 2nd defendants now appeal. I will deal with the grounds of appeal in the order they were raised by Mr. Ronald Tang who appeared for the 1st and 2nd defendants.

3. First, he contends, the Presiding Officer erred in joining the 2nd defendant as a defendant. He says that the original demand was addressed only to the 1st defendant and that it shows the 3rd defendant as the employer. I do not see that that precluded the Presiding Officer from joining the 2nd defendant. I need not record the other details of Mr. Leung's submission as the Presiding Officer found as a fact that the 1st and 2nd defendants ran the restaurant on their own as owners and also that the 1st and 2nd defendants were the employers all along. There was ample evidence before the Presiding Officer upon which those findings of fact could be made; indeed in my view they are quite clearly the right and proper findings of fact. I accordingly consider that the Presiding Officer was right in granting leave for the 2nd defendant to be joined and reject the first ground raised.

4. Second, Mr. Tang submits that there is no evidence to show that the 2nd defendant was a   partner of the 1st defendant in the business prior to its transfer to the company. This ground is not unrelated to the first ground. The Presiding Officer may not have used the expression "partner" but, as I have said, he found as a fact that the 1st and 2nd defendants as a husband and wife team operated the restaurant business on their own as owners. If anything, the evidence tends to indicate that the 2nd defendant rather than his wife, the 1st defendant, played the major part. His statements before the Presiding Officer are entirely consistent with such participation in the business. There is equally clearly no merit in this ground also and I reject it.

5. Third, Mr. Tang submits that the Presiding Officer was wrong in accepting against the 2nd defendant, an admission that Mr. Tang says the 2nd defendant made on behalf only of the company, the 3rd defendant, in respect of arrears of wages and annual leave pay. On my reading of the record, the 2nd defendant appeared in a dual capacity, both on his behalf and, as a representative of  the company. His admission is not recorded as having been made on behalf of the company and on its face appears to have been a personal admission made in respect of himself. Besides, the Presiding Officer was in a far better position to know. The concurrent admission by the 1st defendant was made in the following terms: "We also admit the annual leave pay claim for 1984." That was said immediately before the 2nd defendant made his admission, and could only have referred to the 1st and 2nd defendant. Having regard to the terms of the admission itself, to the context of the record and to all the related evidence in the case, I have no hesitation in rejecting this ground.

6. I come then to the fourth and principal ground argued on the appellants' behalf. It is that upon the incorporation of the limited company, the business was transferred to the 3rd defendant on the 16th May 1980. This, it is submitted, left the 1st and 2nd defendants no business to run, and consequently the employment of the employees then in service must have terminated on that day, the 16th May 1980. If the claimants have any claims against the firm (as opposed to the company) they could only be such as had already accrued prior to or on transfer.

7. In conjunction with the foregoing argument it was also submitted that on the business being transferred to the company, the employees were automatically, as part of the business, transferred to the company. In support of that contention it is pointed out first, that the 2nd defendant testified to having informed the employees that they were in the service of the company and second, that the wage book had the name of the company on the cover.

8. For the proposition that the transfer of the business effected also the transfer of employees to the company, it was also sought to rely, though not strongly, upon sections 8A(1), 31B and 31J of the Ordinance.

9. I will begin by disposing of the factual component of the foregoing submission i.e. that the 2nd defendant gave the employees notice of transfer ( I shall return later to the legal effect of any such notice) and that the wage book revealed to the employees the existence of their new employer. The Presiding Officer made findings of fact rejecting both these claims, in the case of the latter, finding that the employees did not see the cover of the wage book.

10. Proceeding then to the provisions of sections 8A, 31B and 31J, these lend no support to the appellants' submission. So far as I can see reference to those provisions is misconceived. I will waste no more time upon them.

11. Coming then to the nub of the submission, no authority whatsoever was cited for the proposition that the contracts of employment in some way terminated, upon the business being transferred to the company. It was not suggested that the contracts were frustrated; or that the contracts were terminated by due notice or by repudiation which was accented; or that there was novation. On the contrary, the 2nd defendant testified that all he did was tell the employees of the change over to the limited company after the incorporation. That, rightly in my view, was rejected by the Presiding Officer who found that no proper notice was given to the claimants that their services were taken over by the company.

12. From the evidence on record and the findings of the Presiding Officer it is clear that so far as the employees were concerned there was no change in the circumstances of their employment on or after the 16th May 1980. They continued to work as before for the 1st and 2nd defendants until the restaurant ceased operating on 19th October 1984. If indeed the 1st and 2nd defendants did intend to transfer the employees to the company, there is no credible evidence to show that they achieved their purpose.

13. On the latter point, it is in my view an elementary rule of the law of contract (and in the present context there are no statutory provisions to complicate the matter) that an employee cannot be transferred to another employer without his consent. If authority need be cited for that proposition it can be found in the House of Lords' decision in Mersey Docks and Harbour Board v. Coggins and Griffith (Liverpool) Ltd. and anor. 1947 A.C.1 cited by Mr. Thomas Lai who appeared for the 5th and 6th claimants on the instructions of the Director of Legal Aid. It is not suggested by the defendants that the employees consented to any transfer of employment.

14. Accordingly there is also no merit in this principal ground of appeal. However in the course of his submission Mr. Tang also sought to rely upon 2 other matters. First, he says the Presiding Officer in finding the 1st and 2nd defendants liable, purported to lift the veil of incorporation. It is true that having referred to his finding that no proper notice had been given to the claimants to the effect that their services had been taken over by the 3rd defendant, and to the absence of notation, the Presiding Officer went on to say that "there was adequate evidence to lift the veil of incorporation to render the 1st and 2nd defendants liable personally".

15. It is not disputed that there were no grounds which entitled the Presiding Officer to look behind the incorporation of the 3rd defendant. However it is clear from the Presiding Officer's finding that the reference to lifting the veil of incorporation was an unfortunate digression which does not affect his conclusion. Indeed he found in express terms, prior to that observation, that the 1st and 2nd defendants were all along the employers. It is equally clear from his findings that he did not accept that the claimants had become employees of the 3rd defendant. Accordingly it was not necessary for him to look behind the incorporation of the 3rd defendant. Also I do not accept as suggested by Mr. Tang, that the reference to lifting the veil of incorporation indicates that the Presiding Officer concluded that claims arising after the 16th May 1980 were the responsibility of the 3rd defendant.

16. Second, Mr. Tang suggested that a reference the Presiding Officer also made to the Transfer of Business (Protection of Creditors) Ordinance likewise indicated that he regarded claims arising after the 16th May 1980 as being the responsibility of the 3rd defendant, and that in any case that reference somehow rendered the Presiding Officer's conclusions defective. I do  not accept Mr. Tang's first suggestion. As to the second, while I accept that the Transfer of Business (Protection of Creditors) Ordinance does not have any significant bearing on this case, equally, the Presiding Officer was quite right in observing that liability of the 1st and 2nd defendants as transferors would not be absolved. At worst the Presiding Officer's observation is surplusage; it does not affect his conclusion. All he appears to have been concerned to do, and not unreasonably, was to shut out a possibility he thought might otherwise complicate the issue.

17. For the foregoing reasons I find no merit in any of the grounds raised on the appellants' behalf and I dismiss the appeal. Counsel for the appellants not having any submission to make on costs, I award costs to the respondents; and upon application by Counsel for the 5th and 6th respondents, order that those respondents' costs be taxed in accordance with the Legal Aid Regulations.