WILLIAM BARRY PREEN v. INDUSTRIES POLYTEX LTD.

IN THE SUPREME COURT OF HONG KONG

LABOUR TRIBUNAL APPEAL NO. 171 OF 1995

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J U D G M E N T

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1. On the 5th of March 1996, I dismissed the appeal by the Appellant, Industries Polytex Ltd. (Polytex). I indicated that I would give my reasons in writing and this I now do.

2. The Claimant William Barry Preen (Preen) was engaged by Polytex as the Assistant General Manager at its knitting plant in Macau. The letter of appointment in question provided the followings:

Position:

3. Assistant General Manager - Production, Knitting Division, reporting to the General Manager - Production.

Responsibility:

You will have the overall management responsibilities for the production, its related planning and control activities and quality assurance function at the Group's knitting plant in Macau,

Job Location:

4. Since your management responsibilities will be primarily concerning the production in the knitting plant, your job location will be Macau although you may also be required to attend meetings in the sales and marketing office and the group corporate office in Hong Kong from time to time. Also as the knitting plant will be running a night shift, you may also have to stay late in the plant on certain days during the week in order to endure a smooth production. In this regard, the company will provide accommodation commensurate with you position in case you have to stay overnight in Macau. The company will also be responsible for arranging or reimbursing you for the ferry tickets between Macau and Hong Kong.

5. Preen was paid a monthly remuneration of HK$61,500.00 (HK$42,000.00 basic salary and HK$19,500.00 housing allowance.) In addition, Preen was entitled to have a Macau quarter that commensurate with his position. In effect he was provided with a furnished flat of about 800 square feet to be occupied by him alone. There was no dispute that the period of the notice of termination was three months.

6. Preen commenced his employment on the 14th of March 1996 and he had been acting as the General Manager of Polytex in place of Mr. Mark Lee because Mr. Lee had not been successful in improving the production of the factory. According to Preen, Mr. Keith Or, the younger brother of the Chairman of the company returned to Hong Kong in 1994 and it was decided that he should run the factory in Macau.

7. On the 25th of July 1994, Mr. Keith Or had a meeting in his office with Preen in which a written statement was read out to Preen. Mr. Or asked for the resignation of Preen on the grounds that the factory was suffering big financial loss and the products of the factory could not satisfy the customers.

8. Preen refused to resign and indicated that he would have to be sacked. In response, Mr. Or said, "OK, If you want to work, I shall make you work downstairs." Mr. Or was referring to the dye house. Mr. Or also told Preen that he had to move out of his furnished apartment and to move to some quarters which was 1/3 the size of his flat and to share it with others. Preen suggested that those quarters were used to be shared by 4 workers from the People's Republic of China.

9. Preen found the suggestion of Mr. Or unacceptable and having reflected upon the matter, decided to hand in his resignation.

10. Mr. Or did not dispute that he had suggested to Preen to resign but he refused unless he was paid 3 months' wages. Mr. Or told Preen that he had to work out the three months' period. Mr. Or also told Preen that he had to introduce changes one of which was to relocate Preen from his furnished flat to the factory quarters with other staffs. He also told Preen to spend more time in the work place so as to give him constructive advice.

11. Preen, having left the employment of Polytex, took out proceeding in the Labour Tribunal against Polytex claiming for 84 days wages in lieu of notice together with annual leave pay and some reimbursement.

12. The learned Presiding Officer found in favour of Preen and awarded him the sum of HK$172,200.00 being 84 days of wages in lieu of notice.

13. In his reasons for decision, the learned Presiding Officer made the following findings: -

"I accept the Claimant's evidence as a truthful account over what has happened. The object of the meeting held on 25.7.1994 inside Mr. Or's office was to get the Claimant to resign on his own accord. I do not accept that the order of asking the Claimant to go to work on the factory floor was because that the management hoped that the Claimant could come up with a recommendation to improve the output of the production line in his remaining 3 months with the defendant. Nor do I accept that the company's decision to relocate the claimant's quarters was made to enable him to live closer to other staff and thereby improved the communication amongst them. In my judgment, the 2 orders were made to discourage the Claimant form working further for the defendant company. Taking into account that the Claimant used to occupy a fully furnished flat of 800 s. ft., I hold that the order of making him to move into a shared quarters of the same size constituted substantial change in his living condition. Also considering the Claimant's relatively high position in the defendant's company (he had been in effect carrying out the duty of a general manager in the factory for 1 or 1 1/2 months before the arrival of Mr. Or), the order of making the Claimant to work at the factory floor was causing a substantial change in the employment condition in the employment contract. The orders would be especially hard for the Claimant to accept when he had already been asked to resign from the job. The resignation note wrote out by the Claimant could not bind him for he had no option but to resign at that stage. I held that the Claimant had successfully proved that he was constructively dismissed by the defendant company................"

14. There was ample justification for the learned Presiding Officer to reach the findings of facts as he did. Mr. Li, on behalf of Polytex did not seek to argue otherwise.

15. Instead, Mr. Li raised certain jurisdictional points.

16. It was suggested that the Labour Tribunal did not have jurisdiction over the dispute in question because the performance of the contract between Preen and Polytex was wholly or substantially in Macau. It was further suggested that the proper law of the contract of employment in question should be Macanese law and not Hong Kong law as it was Macau that the said contract had the most substantial connection.

17. Alternatively, it was suggested that what Mr. Or did to Preen did not constitute constructive dismissal.

18. In support of the suggestion that the Labour Tribunal had no jurisdiction over the contract of employment in question because the performance of the said contract would be wholly or substantially in Macau, Mr. Li relied on the case of Matheson P.E.C. Ltd. v. Jansen [1994] 2 HKC 250.

19. With respect Jansen's case deals with a claim by the employer for the recovery of moneys advanced to the employee during the course of the employment and it was decided that the jurisdiction of the Labour Tribunal did not extend to an employment contract to be performed outside Hong Kong. The Court was then concerning with the interpretation of para. 1(a) of the Schedule to the Labour Tribunal Ordinance only. The case has no application on a claim arising from the failure to comply with the provisions of the Employment Ordinance at all. One only needs to refer to the judgment of Liu J. at Page 255 of the judgment as follows:

"Turning to the 'practical absurdity' complained of, Mr. Cheung, counsel for the Respondent, offers a further example: statutory benefits and protection under the Employment Ordinance, even for a workman employed to work outside Hong Kong, may be claimed in the Labour Tribunal under para 1(b), 4 and 5 of the Schedule of the Labour Tribunal Ordinance. If an employment contract for performance outside Hong Kong were not to fall within the jurisdiction of Labour Tribunal, it would, so counsel argues, produce the oddity that only claims for statutory benefits and protection in the Employment Ordinance under a contract of employment to be performed outside Hong Kong may be heard in the Labour Tribunal, but the pure contractual claims arising from the very same contract of employment for performance outside Hong Kong are barred from it.

It would seem that no absurdity in fact exists. Good sense requires a contract to be performed outside Hong Kong to kept away from the Labour Tribunal unless the claims arising therefrom are well-defined and can be easily identified, such as arrears of wages and statutory benefits and protection under the Employment Ordinance. A Cap. 78 overseas contract is another example."

Quite apart from the fact that Preen in fact spent part of his time working in Hong Kong although the exact nature and duration of his work in Hong Kong had not be clearly identified, the nature of the claim in Jansen's was different and such difference was of crucial importance in the decision of the Court of Appeal.

20. Section 7 of the Labour Tribunal Ordinance provides that the tribunal shall have jurisdiction to inquire into, hear and determine the claims specified in the Schedule and the Schedule includes a claim for a sum of money which arises from:

 (a) the breach of a term, whether express or implied, of a contract of employment, whether for performance in Hong Kong or under an overseas contract as defined in the Contracts for Employment Outside Hong Kong Ordinance......

 (aa)...........................

 (b) the failure of a person to comply with the provisions of the Employment Ordinance.......

Section 4 of the Employment Ordinance provides that the ordinance applies to every employee engaged under a contract of employment, to an employer of such employee and to a contract of employment between such employer and employee.

Preen's claim against Polytex was for wages in lieu of notice. The contract between Preen and Polytex contained the clause of 3 months notice of termination or wages in lieu of notice. That did not mean that the claim was not a claim under the Employment Ordinance.

21. Section 6 of the Employment Ordinance stipulates that a contract of employment can be terminated by giving the other side notice, the length of which would be the agreed period and Section 7 provides that instead of giving notice, payment of the wages equal to the wages of the period of notice would be required.

22. In my view, the effect of a constructive dismissal is the same as the summary dismissal of an employee without notice or payment in lieu and the employee is entitled to bring an action for wages in lieu of notice. Such a claim is well-defined and can be easily identified.

23. The claim by Preen was for wages in lieu of notice and it was a claim within the ambit of para. 1(b) of the Schedule of the Labour Tribunal Ordinance and therefore within the jurisdiction of the Labour Tribunal.

Even if I am wrong in my interpretation of the various sections of the Employment Ordinance or the Labour Tribunal Ordinance and the claim by Preen did not come under para. 1(b) of the Schedule of the Labour Tribunal Ordinance, I am of the view that it came under para. 1(a) of the Schedule as well.

24. Para. 1(a) deals with a claim......which arises from the breach of a term, ......of a contract of employment whether for performance in Hong Kong...........

25. Para. 1(a) does not state that it has to be a contract of employment for performance exclusively in Hong Kong.

26. The court cannot ignore that in Hong Kong, particularly in the past 10-15 years, a lot of employees, having been engaged by Hong Kong companies in Hong Kong would be required to work in Shen Zhen or elsewhere in China, some temporarily, some on a more permanent basis.

27. There are frequent incidents when employees may be required to leave Hong Kong to perform work outside Hong Kong. Does it mean that whenever an employee is required to work outside Hong Kong, the Labour Tribunal will cease to have jurisdiction over a dispute arising out of the breach of a term of the contract of employment?

28. In most cases, both the employers and the employees remain having substantial connection with Hong Kong. It will give the court very little satisfaction to conclude that just because the employees are required to perform part of their duties outside Hong Kong, the Labour Tribunal will have no jurisdiction over the dispute in the contracts of employment between such employers and employees.

I am mindful of the judgment of Liu J. in Jansen's case (supra) when he stated at Page 256:

 "In any event, performance had initially to be in Indonesia and therefore the contract in question may at best be said to be a contract to be performed partly outside and (possibly) partly in Hong Kong. That would not come within the specified relationship of a contract of employment for performance in Hong Kong in para. 1(a) of the Schedule."

In Jansen's case, the court was dealing with the question of whether the Labour Tribunal had exclusive jurisdiction over the dispute and in any event the decision on whether the Labour Tribunal had any jurisdiction over contract of employment when its performance was to take place partly outside Hong Kong was obita as the case concern an employee who worked exclusively in Indonesia.

In my view, the Labour Tribunal retains jurisdiction over disputes of contract of employment even if the performance of the contract was to take place partly outside Hong Kong if the employers and employees remained substantially connected to Hong Kong.

It was not disputed that Preen was required to attend meetings in the sales and marketing office and the group corporate office in Hong Kong from time to time as required under the contract of employment. Preen himself suggested less than 10% of his work would be done in Hong Kong. He was probably referring to his physical presence in Hong Kong to carry out his duty.

29. I cannot ignore that as a senior managerial staff, Preen must be required to keep in constant contact with the office of Polytex in Hong Kong on a regular basis even when he was physically in Macau.

30. In the modern day of technology and efficient means of communication when vast amount of information can be retrieved and dispatched literally with a touch of the tab and business transactions worth millions of dollars can be concluded over the telephone or by way of facsimile messages, the significance of the physical presence in relation to the performance of the work is sometime questionable as far as managerial staffs are concern.

31. To put it bluntly, even Preen was physically in Macau most of the time at the material time, in the light of his position in Polytex and with its group corporate office in Hong Kong, the contract of employment between Preen and Polytex could well be described as a contract for performance in Hong Kong.

32. On the evidence before me, I am satisfied that para. 1(a) and (b) of the Schedule of the Labour Tribunal Ordinance applied to the claim by Preen and the suggestion that the claim was beyond its jurisdiction failed.

33. On the question of the proper law of the contract of employment in question. Mr. Li again argued that as the contract was substantially performed in Macau, the proper law should be Macanese law.

34. As the parties had not made any express or implied choice of the proper law, it was necessary to abandon any reference to what the parties intended and look for the law with which the transaction had the closest and most real connection on objective grounds.

35. It was true that Preen had to spend most of his time in Macau. But that was only one of the relevant considerations. I cannot ignore that Polytex was a Hong Kong company and Preen was a Hong Kong resident. In fact at all material times, the management of Polytex remained in Hong Kong and Preen probably had to consult the management of Polytex often in the discharge of his daily duties.

36. The contract of employment in question was executed in Hong Kong and its terms reflected to some extent the provisions of the Employment Ordinance.

37. Preen had been provided with housing allowance in addition to his salary so that he could rent a place to live in Hong Kong. He was paid in Hong Kong into his bank account in Hong Kong dollars.

38. He was provided quarters in Macau in case he had to stay overnight in Macau and Polytex agreed to be responsible for arranging or reimbursing Preen for the ferry tickets between Macau and Hong Kong.

In fact the contract of employment in question anticipated that Preen would have to travel between Hong Kong and Macau on a daily basis and that he needed to use the flat in Macau "when he had to stay late in the plant in Macau on certain days of the week in order to ensure a smooth production" as the knitting plant would be running a night shift.

39. On the undisputed facts, I did not have the slightest hesitation in concluding that the proper law of the contract of employment between Preen and Polytex was Hong Kong law.

40. Mr. Li's argument that the Labour Tribunal had no jurisdiction over the dispute between Preen and Polytex because the proper law of the contract of employment in question was Macanese law was also rejected.

41. I deal now with the question of whether Preen had been constructively dismissed.

42. Mr. Li referred to the case of Western Excavation (EEC) Ltd. v. Sharp [1978] Q.B. 761. I have no argument with it. The Court of Appeal clearly laid down that in dealing with cases of whether an employee has been unfairly dismissed, the Tribunal should decide whether or not the employer has been guilty of conduct which under the law of contract entitles the employee to terminate the relationship. If the employer is guilty of conduct which is a significant breach going to the root of the contract of employment, or which shows that the employer no longer intends to be bound by one or more of the essential terms of the contract, then the employee is entitled to treat himself as discharged from any further performance of the contract. If he does so, then he terminates the contract by reason of the employer's conduct. It is therefore necessary for an employee who claims that he has been "constructively dismissed" to show that the employer has been guilty of repudiatory conduct.

43. In Wetherall (Bond Street WI) Ltd. v. Lynn [1978] 1 W.L.R. 220 Bristow J. said: -

 "It is the conduct of the employer which you must look at. In most cases where the employer's conduct shows an intention not to be bound, it would be apt to describe it in the terminology and by the Parliament. But it is not the epithets which his conducts, but whether it shows he does not intend to be bound, which determines whether you are entitled to treat your contract as at an end, and whether if you exercise your option to do so, you have been "constructively dismissed"."

44. The Court of Appeal in Sharp's (Supra) case did not mean to impose a rigid test and envisaged some flexibility in its application. This can be seen particularly in the judgment of Lawson L.J. at pages 772-773:

 "......I do not find it either necessary or advisable to express any opinion as to what principles of law operate to bring a contact of employment to an end by reason of an employer's conduct. Sensible persons have no difficulty in recognising such conduct when they hear about it. ............ I appreciate that the principles of law applicable to the termination by an employee of a contract of employment because of his employer's conduct are difficult to put concisely in the language of judges used in court. Lay members of industrial tribunals, however, do not spend all their time in court and when out of court they may use, and certainly will hear, short words and terse phrases which describe clearly the king of employer of whom an employee is entitled without notice to rid himself. This is what (constructive dismissal) is all about; and what is required for the application of this provision is a large measure of common sense."

Mr. Li suggested that the contract of employment only entitled Preen to have accommodation in Macau commensurate with his position and that there were other more senior staffs of Polytex who had to share quarters. His being provided with a 800 sq. ft. flat all to himself was purely a windfall due to the generosity of Polytex. Therefore, when Mr. Or suggested that he should vacate his own flat and shared quarters with other staffs of Polytex, Polytex was doing nothing wrong and was just providing Preen with what he was entitled to in accordance with the employment contract.

I do not wish to speculate as to why Preen had been provided with better accommodation in Macau than the other staffs of Polytex. But the fact remained, he had always been provided with a 800 sq. ft. flat all to himself since his employment commenced. He was therefore entitled to assume that such accommodation was in fact commensurate with his position irrespective of what accommodation that other staffs of Polytex were provided with.  Polytex was not entitled to unilaterally and without prior notice changed such accommodation conditions to the detriment of Preen. In my view, such change was an important change to the terms of employment in question. Such change not only affected the physical comfort of Preen, but also had a tremendous impact on his psychological well-being. After all, other people might question why the sudden loss of favour.

The same applied to the order that he had to work in the dyeing room full time instead of working basically in the office upstairs.

In addition, one is entitled to examine the circumstances in which the changes in the working conditions and the accommodation conditions were made.

Preen was asked to resign. He refused. He was then told that he would be given much inferior living and working conditions and the nature of his work would also changed although the exact nature of such change was not clear.

In my view, the only reasonable inference to draw was that when Preen refused to resign, effort was made to humiliate him with a view perhaps to "force" him to leave. The finding of the learned Presiding Officer that the orders were made to discourage Preen from working further for Polytex was clearly justified. In effect the changes in question did have such desired effect as Preen found it impossible to remain as a result of what Mr. Or did.

Was Mr. Or's conduct such that a reasonable employee should be expected to put up with or was Mr. Or the kind of employer of whom an employee is entitled without notice to rid himself? I do not find the question difficult to answer.

45. I cannot see how Preen could reasonable be expected to continue to work for Polytex when Mr. Or displayed such an attitude towards him to humiliate him, with the obvious intention to "force" him to leave. Such a move was clearly made with bad faith and in a disrespectful manner and it went to the root of the contract of employment.

46. In Wilson v. Racher [1974] 1 CR 423. Edmund Davies L.J. said at Page 430: -

 "Reported decisions provide useful, but only general guides, each case turning upon its own facts ..........A contract of service imposes upon the parties a duty of mutual respect."

47. Mr. Or had demonstrated a complete lack of respect for Preen on the facts as found by the learned Presiding Officer.

48. The learned Presiding Officer was correct in concluding that Preen had been constructively dismissed and the award of the wages in lieu of notice by the learned Presiding Officer in the Labour Tribunal was correctly made.

49. The appeal is therefore dismissed. I also ordered Polytex to pay to Preen the costs of the appeal in the sum of $1,000.00.

50. The sum awarded to Preen had been ordered to be paid into court and is now in an interest bearing account in pursuant to the order of P. Chan J. dated 29th of November 1995. I order that the payment in by Polytex together with interest thereon is to be paid out to Preen 14 days after the handing down of this judgment.

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