CHAN LAI KUEN v. INTERNATIONAL BEAUTY CREATIVE SYSTEM TRAINING LTD

[English Translation — 英譯本]

HCLA 32/2007 & HCLA 33/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

LABOUR TRIBUNAL APPEALS NOS. 32 & 33 OF 2007

(On appeal from Labour Tribunal Claims
NoS. 4574 & 5865 OF 2006)

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J U D G M E N T

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1. The Employment Ordinance provides that an employer is entitled to dismiss an employee summarily pursuant to section 9 of the Ordinance if the employee has acted in serious breach of the employment contract.  An employer can also rely on the same ground to dismiss an employee who is on sick leave (see the provision under section 32K(a) of the Ordinance on “the conduct of the employee”).

2. Madam Chan, the claimant herein, was dismissed by her employer (the defendant) for the same reason.  However, she insisted that the defendant had no reason for dismissing her.

3. Having been so dismissed, the claimant brought legal actions LBTC 457/2006 [sic] and LBTC 5865/2006, claiming against the defendant for the following items:

(1) bonus;

(2) deducted wages for four days;

(3) interest;

(4) payment in lieu of notice;

(5) pay for annual leave pay;

(6) holiday pay;

(7) overtime pay;

(8) extra holiday pay; and

(9) compensation under section 32P, on the ground that she was dismissed by the defendant whilst on sick leave.

4. The cases were heard before Presiding Officer George Own.  Upon commencement of trial, the Presiding Officer expressly ruled that the claimant’s claim for compensation under section 32P should be adjourned and tried separately after a work injury assessment was made on the claimant.  Accordingly, although at trial the defendant touched on the reasons for dismissing the claimant, the Presiding Officer reminded the parties that section 32P compensation was not in issue.  Hence, the claimant neither adduced evidence or called witnesses to rebut the defendant’s case on that issue, nor made any submission on that issue.

5. However, in his Reasons for Decision handed down on 20 April 2007, the Presiding Officer unexpectedly made the following findings on the issue of section 32P compensation: 

34.   On the section 32P compensation, I indicated at the commencement of trial that the issue should be adjourned pending the issue of a certificate of assessment of work injury.  However, having dealt with the other items of claim and considered the credibility of the evidence from both parties and the documentary evidence, I am of the view that the issue of section 32P compensation can be dealt with and determined at this stage, and I set out below the reasons for my rulings on the issue.

35.   To begin with, whether the defendant company can successfully defend the claim for compensation under section 32P depends on whether the dismissal of the claimant on 8 October 2006 was for any one or more of the valid reasons specified in section 32K of the Employment Ordinance (Cap. 57).

36.   The defendant company has produced three warning letters, which in particular involve the allegation that the claimant varied the particulars of labour insurance in early 2006.  At trial, I made investigations and inquired of the claimant about the circumstances in which she signed and issued the letter dated 15 February 2006 to The Prudential Assurance Company Limited (document D-19 in 5865/06) and why she did so.  I also inquired of the defendant company about the matter and examined the insurance policy referred to in the letter D-19.  The policy, which bears the reference number 900000441451, is a labour insurance policy valid for the period from 1 November 2005 to 31 October 2006 (both dates inclusive).  The relevant insurance premium must have been paid in full, otherwise the policy would not have been issued.

37.   In response to my inquiries, the claimant said that she issued the letter D-19 upon the instructions of one Mr Tam who represented the defendant company, and that if she did not do so she might be regarded as failing to comply with working instructions.  She also stressed that she did not know very well what was going on and that she merely acted upon instructions.  Mr Tam, however, strongly took issue with the explanation, claiming that the company knew nothing about the situation and came to be aware of the cancellation of the labour insurance only when the claimant reported that she had suffered injuries at work on 22 April 2006.  I find the claimant’s explanation on the issuance of the letter D-19 totally unacceptable and unbelievable.  On any rational, logical and objective analysis, no reason or likelihood could possibly exist for the company to cancel the labour insurance which had been in force for 3½ months and in respect of which the premium had been paid in full.  Even if the defendant company had been minded to cancel the insurance policy in wholly unreasonable circumstances, it would normally have requested Miss Silvia Chung [sic], the insurance agent referred to in the letter D-19, to complete the necessary forms or follow up the matter, instead of terminating the policy rashly by means of a company letter.

38.   In my judgment, the cancellation of the insurance policy was more a personal decision and action of the claimant than the decision or instruction of the company.  And such conduct was certainly sufficient to constitute a valid reason in terms of “the conduct of the employee” under section 32K(a) of the Employment Ordinance (Cap. 57).  I believe such conduct could even constitute a ground for summary dismissal under section 9 of the Employment Ordinance (Cap. 57).

39.   For the above reasons, the claimant’s claim for compensation under section 32P against the defendant company is in my judgment bound to fail, even though at the time of trial no certificate of assessment of her alleged work injury on 22 April 2006 had yet been issued and such injury had not yet been proved to be work-related.  It is unnecessary to adjourn the claim for compensation under section 32P, and I hereby order its dismissal. 

6. The present appeal is mainly brought against the “conduct seriously in breach of contract” as alleged by the defendant and adjudged by the Presiding Officer.  The claimant submits that although at trial the Presiding Officer repeatedly decided and reminded the parties that section 32P compensation was not in issue, in the end and beyond the knowledge and expectation of both parties he delivered judgment dismissing the claim for compensation under section 32P.

7. As quoted above, the Presiding Officer stated that “I indicated at the commencement of trial that the issue [of section 32P compensation] should be adjourned pending the issue of a certificate of assessment of work injury.  However, having dealt with the other items of claim and considered the credibility of the evidence from both parties and the documentary evidence, I am of the view that the issue of section 32P compensation can be dealt with and determined at this stage”. 

8. Before he decided to deal with and rule on the issue, the Presiding Officer had never informed the parties, still less sought their views or invited them to make submissions.

9. What is more, the decision to deal with and rule on the issue was apparently made on the basis of the credibility of the evidence from the parties and the documentary evidence.  In other words, the decision was based on the Presiding Officer’s findings of fact, which in turn rested upon the credibility of the witnesses’ evidence and the documentary evidence.  However, as the Presiding Officer had previously decided to adjourn the issue, the parties did not furnish all relevant documents, the witnesses did not give evidence on the relevant facts and were not cross-examined thereon, some witnesses were not even called, and neither party made any submission on the issue.

10. This issue can be further analysed as follows.  First, the defendant company claimed that it dismissed the claimant by reason of the letter that she signed and issued to Prudential Assurance Company Limited on 15 February 2006, by which the labour insurance for all employees of the company was cancelled.  The labour insurance would, if not cancelled, have been in force from 1 November 2005 to 31 October 2006.  Its cancellation not only meant that all employees of the company were thereby deprived of labour insurance protection, but also that the company was liable to criminal prosecution as all employers were under a statutory duty to take out labour insurance for their employees.

11. The claimant’s case, however, was that she had consulted Mr Tam, the person-in-charge of the company, before she issued the letter.  She explained that the defendant company relocated its office and school premises in 2005, the real purpose of which was to close down the beauty school and convert the office into a warehouse.  It was not the first time that the company relocated its office and school premises.  During the previous relocation, the claimant contacted one Sylvia Chung, an agent or representative of the insurance company, who advised the claimant that, as the relocation merely involved a simple application to change the address covered by the policy, the defendant only had to notify the insurance company of the change in writing.  For the 2005 relocation, however, Sylvia Chung said the situation was more complicated as it involved a number of changes and the relocation would completely alter the work location and nature of work of the insured employees.  She therefore suggested that the existing policy be cancelled, followed immediately by the issuance of a new labour insurance policy which would cover all the employees at the new work location.  The claimant said she then passed on the suggestion to Mr Tam, who said she only had to act in accordance with the suggestion of Sylvia Chung.

12. Sylvia Chung did not send the new insurance policy to the defendant company immediately.  According to the claimant, on the previous occasion when the company took out labour insurance, there was also a delay of several months before Sylvia Chung issued the policy.  On this occasion, the claimant also asked Sylvia Chung when the new labour insurance policy would be issued, and Sylvia Chung told her not to worry and assured her that the policy would specify that the effective date was to be backdated to 15 February 2006, i.e. the date of cancellation of the old policy.

13. For the above reason, the claimant applied to the Tribunal for a witness summons to call Sylvia Chung.  She also requested the Tribunal to make inquiries of the defendant and Prudential Assurance Company Limited, as she believed the insurance company should possess all the relevant documents which could vindicate her by proving that she had cancelled the old policy upon the suggestion of the representative of the insurance company and with the agreement of Mr Tam.

14. However, in the absence of Sylvia Chung’s evidence and the complete documentary evidence (including all documents relating to the defendant company) from the insurance company, the Presiding Officer on his own made a hasty decision to deal with the issue of section 32P compensation.  In terms of procedure, what he did was wrong in law.

15. Furthermore, as quoted above, the reasons for the Presiding Officer’s ruling are as follows:

37.   … I find the claimant’s explanation on the issuance of the letter D-19 totally unacceptable and unbelievable.  On any rational, logical and objective analysis, no reason or likelihood could possibly exist for the company to cancel the labour insurance which had been in force for 3½ months and in respect of which the premium had been paid in full.  Even if the defendant company had been minded to cancel the insurance policy in wholly unreasonable circumstances, it would normally have requested Miss Silvia Chung [sic], the insurance agent referred to in the letter D-19, to complete the necessary forms or follow up the matter, instead of terminating the policy rashly by means of a company letter.

38.   In my judgment, the cancellation of the insurance policy was more a personal decision and action of the claimant than the decision or instruction of the company.  And such conduct was certainly sufficient to constitute a valid reason in terms of “the conduct of the employee” under section 32K(a) of the Employment Ordinance (Cap. 57).  I believe such conduct could even constitute a ground for summary dismissal under section 9 of the Employment Ordinance (Cap. 57).

The stated reason for the ruling, therefore, is that what the claimant did could not be correct “on any rational, logical and objective analysis”, and no reason or likelihood existed for the defendant company to cancel the labour insurance.

16. However, the claimant submits that the Presiding Officer had failed to consider that, similarly, “on any rational, logical and objective analysis”, no reason or likelihood existed for the claimant to cancel the labour insurance of which she, as an employee of the company, was an insured, because the cancellation would deprive the claimant of labour insurance protection.  But for the consent of and instruction by the company to “act in accordance with the suggestion of Sylvia Chung”, there would have been no reason for the claimant to cancel her own labour insurance.

17. Furthermore, as mentioned above, the claimant alleged on 22 April 2006 that she had been injured at work and hence had to take sick leave for as long as 6 months.  Had the defendant company not taken out labour insurance for her, her wages during the sick leave period would have been paid by the company and no claim could have been made to the insurer.  In this respect, apart from possibly possessing other documents, the company should at least possess documents in relation to the labour insurance claim arising from the claimant’s work injury.  However, as the Presiding Officer had decided to adjourn the issue of section 32P compensation, the claimant had no cause to ask Mr Tam questions concerning the relevant documents or to call Sylvia Chung to give evidence.

18.  It is therefore obvious that, on the issue of compensation under section 32P, the Presiding Officer could not determine the merits or otherwise of the claim unless and until he had heard the evidence from both parties, such as the evidence of the witnesses under cross-examination, and discharged his investigative duty by obtaining the relevant documents from the insurer and the defendant company.  In my view, the hasty ruling on the issue that the Presiding Officer made went against his previous decision to adjourn the issue of section 32P compensation, and the unexpected making of such a ruling in the Reasons for Decision without having informed the parties was a violation of the cardinal principles of fairness and due process of trial.

Other grounds of appeal

19. As mentioned above, the claimant made various claims in the two actions against the defendant, and the Presiding Officer mainly accepted the evidence of the defendant and its witnesses and rejected the evidence of the claimant and her witnesses. Judgment was given in favour of the claimant on the following items which were beyond dispute:

(1) annual leave pay;

(2) holiday pay.

On 20 April 2007, however, the Presiding Officer said the following when he orally delivered the reasons for decision (at 15:22:20):

In the present case, that the court believes the evidence of the two witnesses is of no real assistance in dealing with each item of claim, hence no weight will be attached thereto.

(The two witnesses referred to are the witness for the claimant and the witness for the defendant.)

20. On the other hand, in line 4 of paragraph 17 on page 7 of the written Reasons for Decision, the Presiding Officer stated that:

… I believe and accept the evidence of DW1 Pong Lai Hung for being more pertinent.

As the claimant has pointed out, the oral decision and the written Reasons for Decision are directly contradictory to each other.

21. Furthermore, on the question of the defendant’s approval of the 6-day extra holiday as claimed by the claimant, the defendant conceded that the claimant was usually required to work overtime.  The claimant then pointed out that the document C-8 in LBTC 5865/2006, namely the memo in relation to the said extra holiday, served to prove that Mr Tam had by signing promised to give her two days of extra holiday per month from October to December 2005.

22. However, the Presiding Officer did not accept the document for the reason that the records contained therein were compiled by the claimant herself and had not been endorsed by anyone at the defendant company.  He ruled that there was no telling whether those 6 days were the holiday taken in July and August 2005 and February 2006 as recorded in the document C-8.

23. The claimant’s case was that the company required that the 6 days of holiday accumulated in October, November and December 2005 could not be taken until two new employees were recruited.  However, as no new employees had reported duty by the time of the dismissal of the claimant, the claimant had not been able to take the extra holiday.  It would also be contrary to the requirement of the company to offset the extra holiday with other holidays taken (the company had suggested that paid holidays taken in July and August 2005 could partially offset the 6 days of extra holiday).  The company’s case was that: first, the paid holidays and extra holiday could not be mentioned in the same breath; second and more importantly, in July and August 2005 the company had yet to give its written approval to the 6 days of extra holiday, and so any paid holiday taken in July and August 2005 could not be used to offset the 6 days of extra holiday which the company subsequently granted.

24. The claimant submits that the Presiding Officer had applied double standards in rejecting her evidence and her witnesses’ evidence and accepting the evidence of Mr Tam for the defendant and of his witnesses.  On the one hand, the Presiding Officer required the claimant to prove that she did not take the holiday, but her holiday record was rejected on the ground that, as stated above, it was compiled by her without the endorsement of the company.  On the other hand, the Presiding Officer did not require the defendant to produce any documentary evidence or record to prove the defendant’s allegation that the claimant had already taken the 6-day holiday.  As mentioned above, the Presiding Officer never addressed the express condition as set out in the document C-8 that the holiday in question could only be taken after the company managed to recruit two new employees.  At the very least, the Presiding Officer should have inquired of the defendant company about the accuracy of the claimant’s allegation that the company had not recruited two new employees.  The Presiding Officer had not done so.  If he did so, and the defendant’s reply was that new employees had been recruited, the defendant would have to produce documentary evidence in support.  If the defendant agreed with the claimants’ allegation that no new employees had been recruited, this would show that the 6-day holiday had not been taken.  The Presiding Officer had erred in law by mixing up the burdens and standards of proof to which the parties were each subject.

25. The claimant further submits that throughout the proceedings the Presiding Officer was apparently biased against her but in favour of the defendant.   

26. Having carefully perused the transcript of proceedings referred to by the claimant, I do feel that, had an objective and impartial observer unrelated to this case been present at trial, this observer might have formed the impression that the Presiding Officer was biased in favour of the defendant but prejudiced against the claimant.  This does not mean that the Presiding Officer was actually biased in favour of one party but against the other, but at law it is sufficient, in order to establish a valid ground of appeal, to show that a neutral and objective notional observer who was reasonable and fair-minded would have formed the impression of bias.  Upon careful perusal of the transcript of proceedings and the written judgment, as well as a review of the Presiding Officer’s approach in dealing with the claims for section 32P compensation and holiday pay for the extra 6 days, I am bound to accept the claimant’s submission in this regard.

27. For the above reasons, I allow the appeal and set aside all the orders made by the Presiding Officer.  The claimant’s claims in the two cases will be remitted to the Tribunal for an early retrial before another Presiding Officer.

28. The appellant is to be awarded costs of the present appeal forthwith, to be taxed by a Master of the High Court if not agreed.