CHAN WAI MAN v. KONG WING FUNG AND OTHERS

Master and servant - contract of employment - whether dismissal by employer entitling employees to wages in lieu of notice and severance payments - preservation of common law rights - whether dismissal may be avoided by consensual arrangement between employer and employee - frustration - Held: 1. On facts no consensual arrangement and potentially frustrating event only' occurred after termination of employment; 2. Termination constituted a dismissal by employer entitling employees to payment in lieu of notice and severance payments. 3. Appeal from Labour Tribunal dismissed and award of $287,342.10 upheld - Sections 7, 8A, 9, 10, 31B and 31D Employment Ordinance, Cap. 57

IN THE SUPREME COURT OF HONG KONG

(Appellate Jurisdiction)

Labour Tribunal Appeal No. 34 of 1985

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BETWEEN

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JUDGMENT

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1. On 8th October 1984 the Labour Tribunal awarded the respondents, who were former employees of the appellant, the sum of $287,342.101 under Part VA of the Employment Ordinance, Cap. 57. From that award the respondent was by this Court granted leave to appeal on 19th November, 1984.

2. The original ground of appeal was that the award was erroneous in point of law as the appellant at the material time was not the employer of the respondents. In view of the learned Presiding Officer's findings of fact and the wide definition of "employer" in Section 2 of the Employment Ordinance it was not surprising that, at the commencement of the appeal, Counsel for the appellant indicated that he would not pursue that ground of appeal. In the event the appeal proceeded on the alternative ground that the learned Presiding Officer erred in failing to direct his mind adequately or at all to the question whether the respondents were dismissed or their contract of service terminated within the meaning of the Employment Ordinance, so as to entitle them to wages in lieu of notice and severance pay. Counsel for the appellant accepted that, if the appeal were upheld, the proper course was for the original claim to be reheard before another Presiding Officer.

3. The original claim comprised claims for 1 month's wages in lieu of notice, statutory holiday pay, annual leave pay and severance pay. On this appeal the only contested payments under the award relate to 1 month's wages in lieu of notice and severance pay. Counsel for the appellant recognised that, as to the former claim, the effect of Section 8A is to remove any duty on the part of an employee to mitigate. All that an employee must prove is that the employer voluntarily terminated the contract of employment. In respect of the latter severance pay claim, I was directed to Section 31B, which creates the general right to severance pay and to Section 31D, which sets out the circumstances in which an employee shall be taken to be dismissed by his employer.

4. The evidence revealed that the Shanghai Night Club commenced business in 1981 when all but 8 of the claimants were employed by the then owners. The appellant took over the business at the beginning of 1984 and continued to employ the existing employees, together with a further 8 employees making up the remaining claimants, until 15th May 1984. At the hearing before the learned Presiding Officer there was a dispute whether the appellant took over the business and was ever the employer of the claimants. The learned Presiding Officer found that the appellant did take over the business and was the employer of the claimants. These two findings were not attacked on appeal.

5. The learned Presiding Officer accepted the respondents evidence that they were informed by the appellant on 15th May 1984 that the night club would be closed the following day for redecoration. The nightclub was never reopened. After considering the evidence the learned Presiding Officer found that the night club was closed on account of poor business and that the respondents were dismissed by reason of redundancy. Where employees are dismissed by reason of redundancy they are entitled by virtue of Section 31B(i)(a) to severance pay. Where the dismissal is without notice they are entitled to payment in lieu of notice in terms of Section 7. Accordingly the respondents claims for severance pay and payments in lieu of notice were upheld.

6. Counsel for the appellant submitted that the evidence raised two material matters the possible legal consequences of which were not considered by the learned presiding officer. First, that the appellant stated that when he took over the business it was on the basis that he would carry on as sole proprietor until (1972) 2 All E.R. 715. Where it was held that frustration may terminate a contract of employment in circumstances which would not amount to a dismissal.

7. Counsel for the respondent submitted that on the facts it was clear that the employees were dismissed due to the appellant's business suffering losses. The evidence supporting that finding was overwhelming and it was not necessary for the Presiding Officer further to investigate the possibility of any consensual arrangement or whether the employment had been frustrated by the fire. I was directed to the appellant's own evidence before the Labour Tribunal where he said that business was so bad that he had to close the night club down. It was conceded that there were negotiations for Mr. Tong Yiu to take over the business and redecoration proposals but so far as the pre-existing employment of the respondents by the appellant was concerned that clearly was terminated by dismissal. I was reminded that Section 31B(2) provides that it is sufficient if the dismissal is "mainly" and not necessarily wholly for the reasons set out therein. Counsel for the respondents submitted that on the evidence it was clear that, even if there were other factors involved, at least the main reason for termination was the financial losses suffered by the appellant. On the question of frustration, it was submitted that it simply could not arise on the instant facts for, whatever the consequences of the fire, it occurred after the termination of employment.

8. After considering the learned Presiding Officer's judgment in the light of the evidence and the submissions of Counsel, I am satisfied that the Presiding Officer properly arrived at the conclusion that the night club closed down due to losses suffered by the appellant. I appreciate that the involved dealings between the appellant, the lessors and Mr. Tong Yiu factually complicated the evidence before the Tribunal but in my view the Presiding Officer unravelled the true situation with care and skill. I appreciate the heavy burden placed on a Presiding Officer, after finding material facts, having to go on in the presence of unrepresented parties and consider the various possible legal consequences of those findings. In some cases it will be necessary for the Presiding Officer to pause and consider' on his own initiative whether a consensual agreement or frustration,negative the Chinese New Year when the lessors would find a partner for him. The appellant gave evidence that the business was carried on solely by him after Chinese New Year at a loss when he informed the lessors that he could no longer carry on. The lessors found a Mr. Tong Yiu to take over the business and indicated that the night club would have to be closed down for weeks for decoration. The appellant alleged that he explained the change of ownership to the respondents and the necessity to close down for redecoration and they agreed. Secondly, a fire occurred in the premises after they were closed for redecoration. Because of the consequential damage Mr. Tong Yiu declined to take over the business.

9. On those facts, the appellant submitted, the learned Presiding Officer was under a duty to consider whether there was an agreement between the parties for the contract of services between them to cease while the night club was being redecorated for the proposed new employer which agreement was then frustrated by the fire. If that were the position the employment of the respondents, it was submitted, was not terminated without notice in terms of Section 7 nor were they dismissed in terms of Section 31D. I was reminded that Sections 9 and 10 expressly preserve an employer's common law right to terminate employment without notice. Accordingly, the respondents rights under the Employment Ordinance were subject to an agreement of the kind put forward and the intervention of any event, such as the fire, which might invoke the common law doctrine of frustration. Counsel for the appellant agreed that neither of these two related possibilities were raised by the appellant in the Labour Tribunal. However, it was submitted that as the parties are prevented by Section 23(2) of the Labour Tribunal Ordinance, Cap.25 from being represented by a barrister or a solicitor, this imposed a duty on a Presiding Officer to consider all legal issues reasonably raised by the evidence whether or not they were raised by a party.

10. On the question of whether there was an agreement by the parties to cease employment pending redecoration and the business being resumed. by the new owner, I was referred to McAlwane v. Boughton Estates Ltd.. (1973) 2 All E. R.  where it was held that there was a dismissal entitling the employee to payment under the Redundancy Payment Act 1965 but it was recognised that it was possible for there to be a consensual termination which would not amount to a dismissal. I was also referred to Marshall v. Harland & Wolff Ltd. possibility of a dismissal. The factual reality in this case is that even if these alternatives were considered there was simply no evidence upon which he could reasonably have held that there was either a consensual agreement or frustration. The appeal is dismissed and the award confirmed.