CHEUNG KWOK KWONG v. SHUN SHING CONSTRUCTION & ENGINEERING CO LTD AND ANOTHER

HCLA 24/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

LABOUR TRIBUNAL APPEAL NO. 24 OF 2003

(ON APPEAL FROM LABOUR TRIBUNAL CASE NO. 3909 OF 2001)

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J U D G M E N T

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1. The Claimant started working for the 2nd Defendant at a construction site in August 2000. He was paid a daily wage of $800. The Claimant mainly did tiling work. From time to time, he did other items of work at site, for which he was paid on a "per floor" basis. The Claimant's claim in the Tribunal related to outstanding wages, which he said were payable by the 1st Defendant, the principal contractor of the site, as well as the 2nd Defendant. By way of background, the 2nd Defendant fell into arrears with wages in around December 2000, and the 1st Defendant stepped in to pay the workers of the 2nd Defendant directly as from January 2001.

2. It was the Defendants' case that the Claimant was no longer the employee of the 2nd Defendant as from November 2000 when he became a subcontractor of the 2nd Defendant of the tiling work. His remuneration as a subcontractor was $2,400 per floor. The 1st Defendant thus denied liability for payment of the outstanding remuneration of the Claimant as a subcontractor for his work done as from November 2000.

3. The Tribunal found that as from November 2000, the Claimant had become the subcontractor of the 2nd Defendant, and thus dismissed his claim for outstanding wages against the two Defendants.

4. This appeal in substance raises a very narrow point. It is common ground that prior to the so-called change in status in November 2000, the Claimant was employed by the 2nd Defendant under a contract of service, at a daily wage of $800. There is no dispute by the Claimant that if there had been an agreed change of payment method (from a daily wage of $800 to $2,400 per floor), then based on all the circumstances of the case (including the implications that such an agreed change of payment would entail), the relationship between the Claimant and the 2nd Defendant as from November 2000 would be one of a contract for service, subject to one relatively minor point taken by Mr Yee, counsel appearing for the Claimant in this appeal.

5. The only issue - a very narrow one - between the parties is whether the Tribunal has found that the Claimant had agreed to changing the remuneration method from $800 per day to $2,400 per floor.

6. Mr Yee argued at the hearing that the Tribunal found that the Claimant was not aware of the change or purported change until after the 1st Defendant stepped in in January 2001, and he never agreed to the change. Throughout he thought that he was employed at a daily wage of $800, whether pre- or post-November 2000.

7. Mr Yee relied heavily on two passages that may be found in the Presiding Officer's oral judgment (bundle of documents page 44Q-S) and written judgment (page 4) respectively. They are extracted below:

Oral judgment

"法庭都明白呢位張先生可能都認為佢自己係日薪去計算，但係因為佢開始嘅時候係日薪嘅，但係陳先生同埋麥先生嘅證供顯示，呢一個咁樣嘅日薪計算喺2000年嘅11月已經改變咗成為係佢係一個判頭。可能佢未必話--呢個陳生、麥生或者同張生大家好似有一個共識話佢嘅身分係點樣樣。但係最終佢嘅身分係呢個判頭抑或係工人，法庭可以根據呢件案客觀嘅事實，係去裁定佢嘅身分。"

Written judgment

"Mr. Cheung might believe he was employed on daily basis but in fact this had been changed in November 2000. If there was dispute or no consensus on Mr. Cheung's status, I must look at the facts and test them in accordance with the established legal principles."

8. It was the Claimant's evidence at trial that after the 1st Defendant had stepped in, because the 1st Defendant did not have first hand knowledge of what work the workmen had done for the 2nd Defendant prior to the taking over of the site and therefore what daily wages were outstanding, he had agreed with the 1st Defendant to work out the amount of his outstanding wages by reference to the number of floors that had been completed. Thus working backward, the number of days of work (and thus the amount of outstanding wages) could be calculated with some degree of reliability. He maintained that, that method was only adopted out of convenience, and did not signify any change in the method of calculating remuneration, which remained $800 per day for all future work, as before.

9. From the extracts, there can be no doubt that the Tribunal did not make a finding that the Claimant had agreed to the change in method of remuneration. The Presiding Officer simply said that the Claimant might well be believing or thinking at the time that he was still being employed at a daily wage or on a daily basis. Obviously if the Claimant had agreed to the change, he could not have possibly believed or thought at the time that he was still being employed at a daily wage or on a daily basis.

10. The Tribunal nonetheless thought that this did not matter, because the true status of the Claimant was to be decided objectively, and it did not depend on his subjective belief.

11. As I read the oral judgment as well as the written judgment, the Tribunal was of the view that whether there was a change in status from employee to subcontractor was a matter to be decided objectively according to law; the belief or awareness of the contracting parties themselves did not matter.

12. To that extent I agree with the Tribunal. However, one must carefully distinguish between the parties' subjective agreement to and awareness of a change in status that was brought about by a change in contractual arrangement agreed to by the parties, and the parties' agreement to a change in the contractual arrangement that would, if agreed to by both parties, bring about such a change in status.

13. If, using the facts in the present case as an example, the Claimant did agree to changing his method of remuneration from $800 per day to $2,400 per floor, and if that new arrangement (together with its implications) - when considered together with all other relevant circumstances - would lead to, as a matter of law and application of legal principles, a change in status from an employee to a subcontractor, then the Claimant cannot be heard to say that he was not subjectively aware of the legal consequences of his agreement to a change in remuneration method, or that he did not agree to changing his status from an employee to a subcontractor.

14. However, if the Claimant never agreed to changing the remuneration method in the first place, that would be an entirely different matter. Without his agreement, any unilateral change in the remuneration method would not be binding on the Claimant, and could not be taken into account in analysing whether the contractual arrangement between the parties as from November would give rise to a new status (as a subcontractor).

15. There lies the difficulty with the finding or non-finding of the Tribunal. The Tribunal did not find, say by preferring the evidence of the 2nd Defendant's witnesses to the evidence of the Claimant, that in fact they had agreed to changing the method of remuneration from $800 per day to $2,400 per floor. No such finding was made. Instead the Tribunal said both in its oral reasons and in the written judgment that the Claimant could well be labouring under the belief throughout that he was employed by the 2nd Defendant at a daily wage or on a daily basis. In other words, the Tribunal did not reject the evidence of the Claimant in this regard. Put another way, the Tribunal thought that it could take the new remuneration method of $2,400 per floor into account in analysing the contractual arrangement between the parties as from November 2000, without rejecting the Claimant's evidence of there having been no agreement for a change in the method of remuneration, or preferring the contrary evidence of the Defendants' witnesses.

16. In my judgment, that was, with respect, erroneous. I am afraid, on the facts of this case, there was no halfway house.

17. It is plain that the new method of remuneration, if it had been agreed to, would be an important factor to take into account in analysing the parties' contractual arrangement as from November 2000, in order to decide whether the Claimant had become a subcontractor. Indeed the Tribunal placed much emphasis on this point in its analysis of the situation, which eventually led it to conclude that as from November 2000, the Claimant was a subcontractor at the site. As noted above, Mr Yee, subject to one minor argument, did not challenge the correctness of the analysis per se.

18. Mr Wong, appearing for the 1st Defendant, sought to persuade the Court that a subsequent passage in the Tribunal's written judgment contained an implicit finding that the parties had agreed to changing the method of remuneration as from November 2000. In the passage in question, the Tribunal discussed the implications of the new method of remuneration on a per floor basis.

19. I reject the argument. First, there was, at the trial, no allegation by the Defendants' witnesses that they had orally and specifically agreed with the Claimant on those "implications" - they were simply "implications". In other words, the Tribunal's discussion of those implications does not reflect any acceptance by the Tribunal of an oral agreement regarding those implications - there was simply no such oral agreement. Secondly, any such implicit finding cannot stand together with what has been said by the Tribunal in both its oral judgment and the earlier part of the written judgment that have been extracted above. There the Tribunal clearly said that the Claimant could well be labouring under the belief that he was throughout employed by the 2nd Defendant at a daily wage or on a daily basis.

20. In the circumstances, the legal analysis of the Tribunal which led to the conclusion that the Claimant was a contractor as from November 2000 was fundamentally flawed, because one of its basic premises (i.e. remuneration on a per floor basis) was false due to a lack of consensus between the parties.

21. For this reason, the appeal must be allowed, and a retrial is inevitable.

22. However, Mr Wong argued by way of a fallback position that even if the Claimant had not agreed to the change of remuneration method, yet the method of remuneration was indeed changed unilaterally - and thus wrongfully - by the 2nd Defendant; that wrongful repudiation was accepted by the Claimant by his continuing to work for the 2nd Defendant at the site; and as per the Tribunal's analysis the work arrangement at the site as from November was that of a contract for service.

23. Again I reject the argument. First, any acceptance of repudiation must be an informed one. According to the Tribunal, the Claimant may well have been labouring under a belief that he was throughout employed at a daily wage or on a daily basis. In other words, there was no finding that he was aware of the change in method of remuneration in practice. After the 1st Defendant had taken over the site in January 2001, his understanding of the change in calculating remuneration was merely for the sake of working out the amount of outstanding wages in the past, as a matter of convenience. There was simply no acceptance of repudiation. Mr Wong at the hearing expressly disavowed any intention to argue that because this was an employment contract, no acceptance of wrongful repudiation as such would be required from the innocent party to bring to an end the employment contract.

24. Secondly, the argument of Mr Wong is in any event "fact-sensitive". There is no question of this Court accepting the argument on the present evidence and findings. A retrial is required for the purpose of making all the relevant investigations and findings that may be pertinent to this argument.

25. I have referred to a "minor" argument raised by Mr Yee in relation to the Tribunal's analysis of the contractual arrangement as from November 2000. That argument would only be relevant if Mr Yee should fail in his first argument, which is not the case. In any event, I do not accept Mr Yee's argument. Counsel's point is that the per-floor payment method was in fact not new (as from November). Prior to November, the Claimant had been remunerated on a per floor basis. Therefore, so Mr Yee's fallback argument ran, there was no material change in contractual arrangement before or after November, and as the Claimant was an employee prior to November, he continued to be an employee after November.

26. The short answer is that Mr Yee got his facts wrong: whilst as I mentioned at the outset, in relation to some works other than the tiling work, prior to November 2000, indeed the Claimant had been paid on a per floor basis, yet in relation to the tiling work, prior to November he had been paid on a daily basis. Assuming that Mr Yee's primary contention was wrong and assuming that as from November, the agreed remuneration method of the tiling work was on a per floor basis, then there would be indeed an agreed change of method of remuneration, in which case the Tribunal would be quite entitled to look at the new contractual arrangement as a whole and come to the conclusion that it reflected a contract for service.

27. But my rejection of Mr Yee's fallback position does not affect the result.

28. For all the above reasons, I make an order allowing the appeal, setting aside the order made below, and remitting the claim of the Claimant to the Labour Tribunal for a retrial before another Presiding Officer.

29. As regard costs, I have heard arguments from counsel based on various assumptions about the outcome of this appeal. In my judgment, costs should follow the event, and since the Claimant is successful in this appeal, his costs must be borne by 1st Defendant subject to one exception, i.e. the costs thrown away by the aborted hearing on 22 September 2003. That hearing was adjourned to enable the transcripts of two earlier hearings to be obtained. Costs were reserved by the court. Having heard arguments from both parties and considered why the transcripts were thought to be required, and having borne in mind how much use had been made of the transcripts and whether either party required the transcripts for the advancement of their respective cases, I am of the view that the fairest order is to leave the parties to bear their own costs.

30. I therefore order that the costs of this appeal, with the exception of the costs thrown away by the aborted hearing on 22 September 2003, be paid by the 1st Defendant to the Claimant, to be taxed if not agreed. I also order that the Claimant's own costs be taxed in accordance with the Legal Aid Regulations (Cap. 91).