CHUNG MAN CHIU AND ANOTHER v. AD-LINK COMMUNICATIONS LTD.

HCLA 58/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

LABOUR TRIBUNAL APPEAL NO. 58 OF 2002

(ON APPEAL FROM LABOUR TRIBUNAL
CLAIM NO. LBTC 2113/2002)

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J U D G M E N T

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1. In this appeal, the Defendant challenged the award by the Labour Tribunal made on 14 June 2002. The Presiding Officer held that the Defendant was not entitled to summarily dismiss the Claimants and he awarded the Claimants wages in lieu of notice and terminal payments.

2. Leave to appeal was granted by Deputy Judge Cheung on 22 August 2002. Although several grounds were advanced at the time when leave to appeal was applied, in his Judgment dated 22 August 2002, the learned judge only granted leave in respect of one matter. In Paragraph 7 of the Judgment, the point was identified as follows,

"the Presiding Officer totally failed to deal with a complaint made by the defendant in the proceedings below, namely, that the claimants wrongfully allowed it to be represented to potential customers of the defendant that the outside company was affiliated with the defendant thereby allowing the outsider to use the defendant's resources to scout a potential client of the defendant and thereby allowing the outsider to take this business and derive financial benefit from a contract obtained by the use of the defendant's resources."

3. Further, one must also refer to Paragraph 10 of the judgment of the learned judge to understand the full impact of this alleged failure on the part of the Presiding Officer.

"...since the Presiding Officer, according to the defendant, has failed to consider this point, the Presiding Officer's finding that there was no evidence of mala fides, bad faith or conspiracy with the ex-employee or the outside company might not be valid ..."

4. Of course, I am not bound by the judgment of the learned judge because those were said in an ex parte application. However, if I may say so with great respect, after due consideration of the matter with the benefit of arguments from both parties, I am in full agreement with the learned judge with regard to the potential significance as to the alleged failure on the part of the Presiding Officer. It has to be remembered that the present case concerned employees occupying managerial positions in the Defendant's office in Shanghai. The 1st Claimant was a Creative Director and Deputy Manager whilst the 2nd Claimant was the general manager of the international division of the Defendant.

5. They had been working under the former chief executive officer of the Defendant Mr Stanley Chan. In May 2001, Mr Chan's employment with the Defendant was terminated for some unhappy reasons which I do not need to go into for present purposes. Suffice to say that the management of the Defendant harboured certain degree of wariness in dealing with Mr Chan. So much so that instruction was given by the Executive Chairman Mr Peter Chau to the staff of the Defendant (including the Claimants) that no one should have any dealings with Mr Chan. Litigation between the Defendant and Mr Chan was expected.

6. According to the Written Judgment of the Presiding Officer, it is not disputed by the Claimants that they remained good friend of Mr Chan after his departure from the Defendant.

7. The dismissal of the Claimants arose out of a transaction conducted by them on behalf of the Defendant with one company called Giants Integrated Communication ["Giant"] regarding the joint bid for an advertisement project from a mobile phone company called Sewon. I shall refer to this as the Sewon project. Mr Chan was the consultant appointed by Giant to handle that project. Again according to the Written Judgment of the Presiding Officer, the Claimants did not seriously dispute that the Defendant had given too much in return for too little in the project.

8. In a nutshell, the Defendant's case was that the Claimants acted in concert with Mr Chan to favour Giant at the expense of the Defendant in the Sewon project. If this could be established, the Claimants would have acted in breach of their duty of fidelity towards the Defendant and Mr Wong, counsel for the Defendant, did not dispute that the Defendant would have been entitled to summarily dismissed the Claimants.

9. In order to establish such contention, apart from the background and the unfavourable terms of the deal, the Defendant relied on the fact that Mr Chan was involved and the Claimants acted in breach of the express direction of Mr Chau in dealing with Mr Chan as well as the following matters,

(a) the Claimants acted in breach of established procedures of the Defendant in representing to Sewon that Giant was an affiliated company of the Defendant;

(b) the Claimants permitted Mr Chan to use the resource of the Shanghai office of the Defendant to benefit Giant.

10. The complaint of the Defendant in this appeal is that although the Presiding Officer recognized the relevance of these two matters, he did not make proper finding of facts pertaining to the same and did not consider the case of the Defendant adequately.

11. As regards the issue of affiliation, Mr Wong accepted that the Presiding Officer did not deal with the same in his Written Judgment or his oral reasons for decision given at the trial. However, he submitted that was because the Presiding Officer considered the point to be irrelevant and in fact the Presiding Officer had looked into that aspect during the trial.

12. As regards the wrongful use of the resources of the Defendant, Mr Wong submitted that it was just part and partial of the bad deal made by the Claimants for the Defendant. He submitted that the Presiding Officer had adequately dealt with that aspect of the case in his Judgment.

13. The Presiding Officer dealt with the unfavourable terms of the transaction in the following paragraphs in his judgment.

"It is the case of both claimants that they were under financial pressure to adopt an attitude of 'business comes first'. Mr Chung states that the project was a long-term investment. They must get the business first and sought to secure better clients and terms later. Mr Wong also agrees and points out that big companies had no special advantages in the market in Shanghai and must cooperate with small firms that could bring in business.

On the matter of bad deal, I tend to agree with Mr Chung and Mr Wong. Their views may not be shared by Mr Peter Chau who represents that view (sic.) and interest of the Defendant. On the whole case, apart from what Mr Peter Chau considered an exceptionally bad deal, there is no evidence of malice, corruption or favouritism. The claimants, in the usual business scenarios and under financial pressure, could only have made a wrong judgment in the circumstances but I hold that this could not constitute ground for summary dismissal nor could such situation be considered valid reason for dismissal for the purpose of terminal payment."

14. I was invited by Mr Wong to read the Chinese oral reasons for decision corresponding to these paragraphs. I cannot discern any material difference between that and the written judgment in English. I therefore need not repeat the Chinese version set out in the transcript.

15. Mr Wong submitted that what the Presiding Officer said there was that the Defendant had no evidence to prove the alleged malice, corruption or favouritism and bad deal by itself was not enough. However, it is quite plain to me that the Presiding Officer had taken into account the explanations given by the Claimants set out in the first paragraph quoted by me in Paragraph 13 above in coming to this conclusion. Hence, the Presiding Officer specifically said that he agreed with the Claimants and again referred to "the usual business scenarios and financial pressure" (which must have been derived from the explanations of the Claimants) in the second paragraph quoted.

16. In my judgment, what the Presiding Officer said amounts to this. He did not feel able to dismiss the contention of the Defendant that the exceptional bad deal could be evidence of bad faith, complicity with Mr Chan and breach of duty of fidelity. That must be correct because in the absence of good explanation from the Claimants, there comes a point where the terms of the bargain were so adverse against the interest of the Defendant that it could not be explained by mere carelessness or wrong judgment on the part of the Claimants. I am of the view that this is particularly so because of the other background factors in this case, namely involvement of Mr Chan, express instruction of Mr Chau, relationship between the Claimants and Mr Chan.

17. Hence, the Presiding Officer had to see what explanations were offered by the Claimants and it was only after taking those explanations into account, he arrived at the conclusion that those exceptionally unfavourable terms were insufficient to show bad faith on the part of the Claimants.

18. On the face of it, this is an approach which the Presiding Officer was quite entitled to adopt. However, the problem with this part of the judgment is the fact that these so called explanations of the Claimants were only given by the Claimants in their closing submissions and the Defendant was not given any opportunity to cross-examine them nor to make any comments on those matters (since the Defendant's representative had already finished with his closing submission by that stage and the Presiding Officer did not invite him to address the Tribunal on these explanations). This is quite clear from the transcript and Mr Wong did not suggest otherwise.

19. In the circumstances, Mr Ng applied at the hearing of the appeal to rely on the following additional ground of appeal,

"That the Presiding Officer had erred in law by failing to give an opportunity to the Defendant to cross-examine and/or comment on the Claimants' case; and by being too ready to accept the Claimants' case and thereby failing to maintain impartial position in the inquiry."

20. This ground was only apparent to the Defendant's lawyers after they have obtained and read the transcript. This happened only after the hearing of the application for leave to appeal. The ground was foreshadowed in the skeleton submissions for the substantive appeal filed and served by counsel for the Defendant. Whilst Mr Wong said that he was in a position to deal with this point in the context of the unfavourable bargain, he would need an adjournment if the Defendant relied on the ground in respect of the other aspects of the case. Mr Ng informed the court that the Defendant was willing to confine to the unfavourable bargain aspect in relation to this ground.

21. Having considered the submissions of counsel and taking into account of the explanation of Mr Ng as to why the ground was not advanced at the application for leave to appeal and the potential prejudice to the parties, I am satisfied that in the interest of justice, I should grant leave to the Defendant to rely on this additional ground but only on condition that the point is only taken in conjunction with the unfavourable bargain aspect of the case.

22. It is trite law that cross-examination of the witnesses of the other party is fundamental to a fair trial. This principle is applicable even in respect of trials in the Labour Tribunal (see Chan Siu Tsang and Craigengower Cricket Club, HCLA 8 of 2002, 17 July 2002; Lau Kin Chung v Dai Pai Dong Retail Shops Co. Ltd., HCLA 93 of 2001, 7 September 2002). Although a presiding officer is under a duty to investigate relevant matters, the performance of such a duty cannot normally replace the right of a party to challenge the evidence of the other party by cross-examination. This is because in the exercise of his duty to investigate, a presiding officer is obliged to maintain an impartial stance and his investigation should not go to the extent of cross-examining a witness as if he were the lawyer for the other side (see 謝林與陳德偉 HCLA 150 of 1995, 5 March 1997, p. 8).

23. In the present case, the Defendant's representative was not even given an opportunity to comment on the evidence of the Claimants with regard to their explanations, let alone cross-examination. As explained above, those explanations were pivotal in the assessment of the Presiding Officer as to whether the Defendant could establish a case of bad faith and breach of duty of fidelity. I reject the submission of Mr Wong that the absence of cross-examination in the present case did not cause any material prejudice to the Defendant. On this ground alone, the award of the Presiding Officer must be set aside.

24. I shall also deal briefly with the original ground with regard to the question of affiliation. I cannot accept Mr Wong's submission that the Presiding Officer regarded this question as irrelevant. As Mr Ng pointed out, the Presiding Officer himself identified this as a relevant issue in the course of the trial. Further, in my judgment, this question is plainly relevant to the overall consideration as to whether the exceptionally bad bargain could be adequately explained in the manner suggested by the Claimants. If it were found that the Defendant had established procedures for affiliation and the Claimants were aware of the same, a tribunal of fact may find it more difficult to accept that the representation of affiliation was a mere error of judgment. One may even say that there would not be any question of judgment being involved. Rather, it would be a clear breach of established procedures within the Defendant company which might have serious ramifications. Hence, it is essential that the Presiding Officer should make the necessary finding of facts in this regard, which he failed to do in this instance.

25. Mr Wong further submitted that this was only an isolated incident and it could be a mere wrong choice of wording by the Claimants in the presentation to the customer. I cannot accept this as a valid point. Firstly, Mr Wong has not been able to show to me that the Claimants gave any evidence to the effect that this was merely a wrong choice of wording. Secondly, we are not dealing with this misrepresentation point on the basis that it could be a careless mistake. According to the Defendant's case, this so-called mistake is evidence of mala fide on the part of the Claimants. As I said, Mr Wong conceded that if a breach of fidelity is established, the Defendant would have been justified in summarily dismissed the Claimants.

26. I therefore hold that the Defendant is also entitled to set aside the award on the first ground.

27. For these reasons, the appeal is allowed and the award of 14 June 2002 is set aside. I remit the matter back to the Labour Tribunal for retrial before another presiding officer.

28. On the question of costs, since the Defendant has succeeded in the appeal, it would normally be entitled to costs of the appeal. Mr Wong submitted that it would be fairer if the costs of the appeal should follow the result of the retrial since it is not yet decided where the substantive merit lies. Mr Wong also reminded me that the additional ground was only canvassed at the hearing of the appeal. Although cost orders nisi as contended for by Mr Wong have been made by me in similar circumstances, I am satisfied that as a matter of principle the mere fact that the case was remitted back to the Tribunal for retrial is not a good enough reason for depriving the successful appellant of the costs of the appeal. As to the grounds of appeal, although the additional ground was only put forward at the hearing, it has been foreshadowed in the skeleton argument and the Claimants have advanced arguments to resist this ground. Having done that and failed in the exercise, I see no reason why they should not pay the costs of the appeal. I therefore order that the Claimants pay the costs of this appeal to the Defendant, such costs to be taxed if not agreed.