LEE WING KIT AND OTHERS v. EAST NOBLE CONTAINER SERVICE LTD. ANOTHER

HCLA 62/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

LABOUR TRIBUNAL APPEAL NO. HCLA 62 OF 2000

(On Appeal from Labour Tribunal Claim No. LBTC 10360 of 1999
and LBTC 1778 of 2000)

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REASONS FOR JUDGMENT

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1. This is an appeal from the decision of an award made by a Presiding Officer of the Labour Tribunal Mr Chan Chan Kok on 14 July 2000 in respect of Labour Tribunal Claim No. LBTC 10360 of 1999 and Claim No. LBTC 1778 of 2000 which were ordered to be heard together. Leave to appeal was granted by Deputy Judge A. To on 5 September 2000 in respect of Grounds 3, 4, 6 and 7 only in the Notice of Application for Leave to Appeal filed by 1st and 2nd Defendants on 20 July 2000. At the hearing, Mr John Wright, who appeared on behalf of the Defendants, informed me that he would not pursue Ground 7.

2. At the conclusion of the hearing, I allowed the appeal in respect of Ground 6, I set aside the award of the Presiding Officer in part, and ordered that the claims of the Claimants for wages in lieu of notice, long service pay and severance pay be remitted to the Labour Tribunal before another Presiding Officer with the direction to conduct further inquiry and hearing on the reason for termination of the contracts of employment and whether summary dismissal was justified in the circumstances. The following are the reasons for my judgment.

3. The Claimants in Claim No. LBTC 10360 of 1999 are referred to as the 1st to 3rd Claimants. The only Claimant in Claim No. LBTC 1778 of 2000 is referred to as the 4th Claimant. I shall refer to the two Defendants, being East Noble Container Service Ltd as "East Noble" and Treasure Consultants Ltd as "Treasure".

4. In his decision, the Presiding Officer identified two issues as the only issues in dispute, and noting that the Defendants did not dispute the amount claimed but only their liability. The first issue was to which party did the Claimants, who worked as container truck drivers, render their services. The second issue was in what capacity did the Claimants render their services, whether as employees or as independent contractors.

5. On the second issue, the Presiding Officer found in favour of the Claimants and held that they were employees. Deputy Judge To had refused leave to the Defendants to appeal against this finding that there was an employer and employee relationship.

6. As for the first issue, the Presiding Officer found that East Noble was the employer of the 1st to 4th Claimants at all times. He also found that a written contract was signed by Treasure with the Claimants and that Treasure had signed the contracts as agent of an undisclosed principal, namely, East Noble. Hence, East Noble and Treasure were jointly and severally liable to the Claimants. This finding was challenged by the Defendants in Grounds 3 and 4 of their Notice of Application for Leave to Appeal.

Grounds 3 and 4

7. It was argued by Mr Wright that (1) there was no evidence to support the finding that East Noble was the employer of the Claimants during the period when they had signed a contract with a company known as Choi Hung Tak Kee Container Service Ltd ("Choi Hung") to provide service as container truck drivers; and (2) there was no evidence to support the finding that Treasure had acted as East Noble's agent when Treasure signed the contracts of employment with the Claimants subsequently. Mr Wright submitted that only Treasure and not East Noble should be liable to the Claimants and he accepted that if only Treasure is liable to the Claimants, continuity of employment is not broken for the purpose of the claims for severance pay and long service pay because of various provisions in the Employment Ordinance Cap.57. Mr Wright emphasised that the principles of separate corporate entity and privity of contract should apply.

8. Various written contracts were produced at the trial. They were stated to be "sub-contracting agreements" and it was rejected by the Presiding Officer who took the view that the parties could not alter the truth of their relationship by putting a different label on it and he found that the Claimants were employees not independent contractors as stated in those "sub-contracting agreements". Different companies had entered into such written contracts with the Claimants at different times. In the case of the 1st Claimant, he signed a contract on 1 April 1995. This contract was written on the stationery of Choi Hung but the contracting party was stated to be Choi Hung or East Noble. On 16 January 1998, he signed a similar "sub-contracting agreement" with East Noble and on 5 January 1999, a similar agreement was signed with Treasure.

9. It is pertinent to note that the written contracts were not the only evidence before the Court on the issue of the party with whom the Claimants had entered into a contract of employment. I have gone through the transcript carefully and it would appear to me that there was evidence before the Tribunal to support the finding of the Presiding Officer that East Noble was the employer of the Claimants at all material times. I refer in particular to the evidence of Mr Yau Kin Man, the 1st Claimant, the 2nd Claimant, the 4th Claimant and Mr Fan Chun Wai. Choi Hung, East Noble and Treasure are associated companies in the sense that part of the shareholding in each of these companies was held by the same shareholders.

10. According to Mr Fan's evidence, one or more of the Claimants had been employed by Choi Hung at the beginning. Later, it was decided to terminate the contracts of employment of the drivers and to re-engage the drivers on a new basis. Thus, the drivers who had their employment contracts terminated were given severance pay and they had signed "sub-contracting agreements" which stated that there was no employer and employee relationship and that they were engaged as independent contractors. The 1st Claimant was one of those who had signed a "sub-contracting agreement" which was stated to be made with East Noble or Choi Hung. There is evidence from some of the Claimants that Mr Fan had told them that Treasure was used as a consultant company or a management company for East Noble and that the drivers would still be working for East Noble notwithstanding that Treasure had signed the sub-contracting agreement with them.

11. Mr C K Kwong, who appeared for the Claimants, had also drawn my attention to the fact that the Presiding Officer had made various findings of primary fact with regard to East Noble. The Presiding Officer had found that the drivers received working instructions from the supervisor Mr Chung Kam Tat who was employed by East Noble. It was Mr Chung who was to approve the driver's applications for leave. East Noble provided the vehicles driven by the Claimants and bore the expenses in relation to the vehicles such as petrol, maintenance and insurance. East Noble also paid the fines of traffic offences of the drivers.

12. I am unable to accept the Defendants' submission that there was no evidence to support the finding that East Noble was at all times the employer of these Claimants and that Treasure was merely acting as East Noble's agent when Treasure entered into the written contracts with the Claimants in 1999.

Ground 6

13. The ground advanced here was that the Presiding Officer had failed to investigate the circumstances in which the contracts of employment were terminated and whether summary dismissal was justified. It was submitted by Mr Wright that the Defendants had actually raised an issue of misconduct on the part of the Claimants in the Statement of the Defendants filed in the Labour Tribunal. In Item No. (19) of that Statement, which is concerned with events leading to termination of employment with reasons and proof of the Defendants' refusal to pay the items claimed, it was stated that the Claimants' service attitude and performance could not meet the requirements of the company and the company therefore decided to terminate the service contracts.

14. I was taken through the relevant parts of transcript of the call-over hearing by Mr Wright and Mr Kwong. The call-over hearing was conducted by another Presiding Officer, Mr Selwyn Au. It is the practice of the Labour Tribunal that at the call-over hearing, the Presiding Officer would discuss with the parties the matters in dispute in an attempt to identify the relevant issues in contention and to assist the parties with the evidence they should adduce to support their respective contentions. At the call-over hearing, the Defendants' representative had informed the Presiding Officer that the company had found the attitude of the four Claimants very bad during their period of service and that was the reason why the "sub-contracting agreements" were terminated according to the provision for termination in those agreements.

15. The Presiding Officer then made the comment that the Statement of the Defendants was not detailed enough and he explained to the Defendants' representative what needed to be considered most in the case was the relationship between the Claimants and the Defendants, whether the Claimants were employees or independent contractors. He stated that if the Tribunal should find, contrary to the contention of the Defendants, that there was a contract of employment, what would be a sufficient reason for terminating the "sub-contracting agreement" would not be a reason for summary dismissal. There followed a further exchange between the Presiding Officer and the Defendants' representative and in the course of which the Presiding Officer had said words to the effect that the first thing the court was required to consider was the relationship between the parties and if after considering the issue it was found that there was an employee relationship, this would be a dismissal of an employee and the Defendants could not use the reason for terminating the "sub-contracting agreement" for dismissing the employee summarily.

16. What the Presiding Officer had stated is technically correct. However, what he had not enquired with the Defendants' representative is whether the reason for terminating the so-called sub-contracting agreements for alleged misconduct would be sufficiently serious to justify summary dismissal, in the event that it should be found against the Defendants that the relationship with the Claimants was one of employer and employee. If clarification had been sought from the Defendants on this, it might well be that the Defendants would have filed further witness statements regarding the circumstances in which the employment of the Claimants was terminated when they were ordered to do so by another Presiding Officer at a subsequent call-over hearing. It was probably because of the failure to ascertain from the Defendants whether the Defendants would contend that the misconduct of the Claimants was sufficiently serious to justify summary dismissal in the event that the Tribunal should find an employer and employee relationship that had led the Presiding Officer who conducted the trial, Mr Chan Chan Kok, to state on the first day of the trial that the two issues for him to resolve was whether the Claimants were independent contractors or employees and whether liability should be borne by East Noble or Treasure. No other issue was identified by the Presiding Officer and there was no enquiry into the circumstances of termination of the employment at the trial.

17. Section 20(3) of the Labour Tribunal Ordinance, Cap.25 provides as follows:

"The Presiding Officer shall investigate any matter which he may consider relevant to the claim, whether or not it has been raised by a party."

18. In the circumstances, I do not think the Presiding Officer who conducted the trial had made proper investigation on the issue whether the allegation of misconduct was sufficiently serious to justify summary dismissal. There may be an alternative defence available to the Defendants and the Defendants were not given the opportunity to substantiate this. It is on this ground that I have allowed the Defendants' appeal.

19. The Claimants' claims are in respect of wages in lieu of notice, annual leave, holiday pay, reserve fund, long service pay and severance pay. Their entitlement to wages in lieu of notice, severance pay and long service pay would be effected if summary dismissal was justified. As for the claims on holiday pay and annual leave pay, I understand from Mr Wright that he would not take any issue on the Claimants' entitlement and there was no need to ascertain whether any of the holidays fell within the notice period that should have been given if summary dismissal was not justified.

The Orders

20. I have allowed the appeal and made the following orders:

(1) The award made by the Presiding Officer on 14 July 2000 is set aside in part as follows:

(a) in respect of the 1st Claimant, the award in the sums of HK$12,298.00 and HK$68,647.00 being wages in lieu of notice and long service pay;

(b) in respect of the 2nd Claimant, the award in the sums of HK$14,260.00 and HK$55,341.00 being wages in lieu of notice and long service pay;

(c) in respect of the 3rd Claimant, the award in the sums of HK$13,773.00 and HK$29,991.00 being wages in lieu of notice and long service pay; and

(d) in respect of the 4th Claimant, the award in the sums of HK$15,300.00 and HK$61,647.00 being wages in lieu of notice and severance pay or long service pay.

(2) The claims of the 1st to 4th Claimants for wages in lieu of notice, long service pay and severance pay are remitted to the Labour Tribunal before another Presiding Officer with the direction to conduct further enquiry and hearing on the reason for termination of the contracts of employment and whether summary dismissal was justified in the circumstances.

(3) The Defendants are awarded part of their costs in the appeal and the ex parte application for leave to appeal on a gross sum basis. This is assessed at HK$40,000.00 and is to be paid by the Claimants to the Defendants.