Globe Silver Ltd v. Wong Chun Pong

DCCJ5876/2003

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO.5876 OF 2003

(Transferred from Labour Tribunal Claim No. 6515 of 2003)

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BETWEEN

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Coram : H.H. Judge Sweeney in Court

Date of Hearing : 4^th and 5^th January 2005

Date of Handing Down Judgment : 11^th January 2005

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JUDGMENT

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1.The Plaintiff's claim is for $84,000 liquidated damages under clause 3.2  of a service agreement, being a contract of employment, for the defendant's failure to give three months notice or one and a half months salary in lieu of notice ( “ a salary rebate”), before resigning from the said employment.     The  Defence claims repudiation of this agreement by the Plaintiff's unilateral imposition of a  reduction in the agreed consultancy fee and acceptance of same by the defendant and/or a subsequent oral agreement between the parties to waive clause 3.2  of the said service agreement.  The evidence between the two sides has been remarkably consistent on the events leading up to the Defendant’s resignation.

THE SERVICE AGREEMENT

2.The Plaintiff company owns and operates some seven or eight medical clinics in Hong Kong , including one known as "The Locwood  medical centre" situate at Kingswood Villas, Tin Shui Wai, New Territories.  On or about the 4th of April 2003 the Plaintiff, through its managing director Ms.Lam Mei Fong, entered into a  service agreement with the Defendant  whereby he was appointed as a medical practitioner at the Plaintiff’s said clinic for a term of two years.  The relevant provisions of the said service agreement are as follows :

(a)    the Defendant was entitled to a  consultation fee  in the sum of $56,000 per month together with bonus specified in the  Appendix to the service agreement.

(b)    clause 3.2  of the service agreement provided that                           during the term of the agreement either the Plaintiff or the Defendant may terminate the agreement by giving “not less than three months written notice to the other or one and a half months basic consultants fee in the lieu of notice or such shorter notice or lesser sum as may be mutually agreed upon.”

(c)    clause 14 of the service agreement provided that "any variation or amendment of this agreement shall be in writing signed by or on behalf of both parties ".

3.The Defendant was hired as an “ overnight doctor"  which meant that he worked the night shift at this newly- opened 24 hour clinic.  His contract stipulated that his hours of work were 11 1/2 hours per week Monday to Friday, 11 hours on Saturday and 17 hours each Sunday,  to a total of 85 and half hours per week.   He  was entitled to 17 days leave per annum ( statutory holidays included) "to be taken at such dates as the company considers convenient.”

THE PLAINTIFF’ S EVIDENCE 

4.By mid-May 2003 the anticipated demand for such an overnight service had not yet materialised due to the SARS crisis then gripping Hong Kong.    Ms. Lam, a former registered nurse, made it clear in her evidence that she ran her  clinics along strictly business lines.  She decided to implement cost-cutting measures as soon as possible.   Accordingly she initiated a round of salary reductions amongst doctors and nurses working at her various clinics, depending on their profitability.  One particular clinic was still making a profit so it’s salary levels were left untouched.  Most of the staff at her other clinics had their salary levels reduced by figures ranging  “ between a few hundred dollars and 5%”. She was asked if she had entered into negotiations with those other employees prior to implementing salary cuts and she testified " I discussed it with them over the phone and they all accepted . "

5.On the 15th of May 2003 Ms. Lam telephoned Dr. Wong and told him

our business turnover has dropped 50% so we have talked with our partners and propose that our doctors and nurses reduce their salaries a bit in order to get through the SARS period."  She says she "proposed" that his salary be reduced from $56,000.-  to $50,000.-  per month with immediate effect, i.e. that this reduction would be backdated to the 4^th of May, the start of his working month.  She says that the only response she received from Dr. Wong was "oh! "  and he left it at that  ( the defendant says he told her he  “ would have to think about it. ")

DEFENDANT’S REACTION

6.In any event, on the following day Dr. Wong told Ms. Lam he would not agree to such a  reduction of his salary and that he wished to terminate the service agreement at the end of the month.  As Ms Lam was soon to depart for a  fortnight’s trip overseas she was anxious to engage an alternative consultant to fill Dr. Wong’s shoes.  It's the Defendant's case that over the next two days he introduced a colleague, Dr. Lam Chi Yuen, to take his place and in return Ms. Lam agreed to waive any contractual claim to three months written notice or a rebate of one and a  half month’s salary.  This is denied by Ms Lam who says that she had already interviewed the said Dr. Lam and so she did not he need any introductions from the Defendant.  Accordingly, Ms Lam says that she was at all times holding out for the salary rebate in lieu of notice.

PRELIMINARY ISSUE

7.In the circumstances of this case I find I do not have to resolve the issue of who first introduced Dr. Lam to the Plaintiff’s clinics because the issue of the Plaintiff’s alleged repudiation of contract arises for resolution before the questions of contractual notice, rebate of salary or any collateral agreement on who should replace Dr. Wong.

LETTER OF RESIGNATION

8.What happened next is, however, inconsistent with Ms Lam's claim that she was at all times holding out for the salary rebate.  She testified that on the 17^th of May Dr. Wong gave her a handwritten letter of resignation (see page 20  of the documents bundle)   informing  "to whom it may concern" that he will "terminate duty since 31st of May 2003."  She says that she then inserted the words "with effect from 1^st of June 2003" and got him to initial this amendment in order to clear up any ambiguity in his letter.  I find that in so doing Ms. Lam was accepting Dr. Wong's resignation at the end of May upon an unspoken but mutually agreed "shorter notice of termination" pursuant to clause 3.2 of the service agreement.  By accepting his resignation on the 17^th of May she cannot then have been insisting on three months notice or a salary rebate.

9.To resume the chronology, Ms Wong went to the United Kingdom a week later and Dr. Wong worked out his notice until the end of May.  Dr. Wong then moved to work at another medical clinic and, apart from two salary cheques, heard no more from the Plaintiff company.

CLAIM TO THE LABOUR TRIBUNAL

10.On the 25^th. of June 2003 Dr. Wong wrote to Miss Lau acknowledging receipt of $36,100.-  arrears of salary for the month of May but claiming a balance due and owing of $17,407.-   Having failed to receive any response from the plaintiff company  Dr. Wong initiated Labour Tribunal proceedings claiming this amount on the 28^th of July 2003.  Clearly in response to those proceedings  ( but without mentioning same)  the Plaintiff's former solicitors wrote to the Defendant on the 15^th of August 2003 claiming  “liquidated damages of $84,000.-  being one and a half month's Consultancy fee in lieu of notice because you have failed to attend work in compliance with the service agreement since the 1^st of June 2003 ".

11.I find this delay of three months before making such a complaint to be also inconsistent with any previous intention to hold  Dr. Wong to the notice period or salary rebate and to be far more consistent with an intention to defend his Labour Tribunal action as vigorously as possible.  Dr. Wong replied to the solicitors by e-mail on the 20^th of August stating :

" For this case, actually, my salary was cut down from $56,000.- to $50,000.-  with immediate effect on May without my prior agreement.  In this act, I had the right to terminate the contract immediately without any prior notice.  However, as a responsible doctor for her and the patients, I decided to work till the 1^st of June 2003".

12.Ultimately, Dr. Wong was awarded $7,580 .60 by the Labour Tribunal  on the 26^th of September 2003 and the Plaintiff company’s Counterclaim in the sum of $84,000.-  ( being one  and a half months consultancy fees) was remitted to this court for trial. The Presiding Officer of the Tribunal put a stay on payment of the said sum to the claimant (this Defendant) pending the outcome of these proceedings.

13.The central issue in this trial has been whether Ms. Lam proposed to Dr. Wong that his consultancy fee be reduced to $50,000.-  per month with immediate effect and "it remained a proposal and could not take effect unless it was agreed to by him in writing" (see paragraph number 20 of Ms. Lam's witness statement), or whether it was "the Plaintiff who breached the service agreement first by reducing the consultancy fee" (  again see paragraph number 20 of Ms. Lam's witness statement where she acknowledges  that he told her this at their conversation on the 16^th of May 2003) .

14.Ms. Lam testified that when he told her on the 16^th of May that he wanted to resign at the end of the month she asked him why and he replied  “ It's because you've reduced my salary. ”  she says there was no further discussion about his salary level.  It's notable that she did not then reassure him by saying, e.g., "Oh, that was only a proposal, if you don't like it we can always discuss other figures ",  neither did she tell him that if he did not agree to this reduction she would not enforce it..... as she now claims to this Court.

FINDINGS ON EVIDENCE

15.It's clear from Ms.Lam’s own evidence that she told  Dr. Wong his salary would be reduced, he refused to accept that  reduction and that was the end of the matter, there was no further discussion on salary levels.  His resignation followed the next day " because you have reduced my salary", and she accepted same "with effect from the first of June 2003"on the following day. Accordingly, I find that Ms. Lam declared an intention to  unilaterally impose a salary reduction on Dr. Wong on the 15th of May 2003.

THE LEGAL CONSEQUENCES

16.What are the legal consequences that flow from such a declaration by an employer?  Under the Employment Ordinance, Cap 57, an employee may terminate his contract of employment without notice or payment in lieu, inter alia;

"(c) on any other ground on which he would be entitled to terminate the contract without notice at Common Law. ’’

17.What then is the Common Law position?  Lord Denning, M.R. in Western Excavating (ECC) Ltd. V. Sharp (1978) C.A. 1 Q.B. at 761 described the employee in Dr. Wong's position as having being "constructively dismissed" :

" 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 nor longer intends to be bound by one and more of the essential terms of the contract, then the employee is entitled to treat himself as discharged from any further performance.  If he does so, then he terminates the contract by reason of the employer's conduct.  He is constructively dismissed.  The employee is entitled in those circumstances to leave at the instant without giving any notice at all or....... he may give notice and say he is leaving at the end of the notice.   But the conduct must in either case be sufficiently serious to entitled him to leave at once.  Moreover, he must make up his mind soon after the conduct of which he complains: for, if he continues for any length of time without leaving, he will lose his right to treat himself as discharged.  He will be regarded as having elected to affirm the contract".

18.Did Ms. Lam's declaration constitute "a significant breach" going to the root of the contract of employment?  In the case of Rigby  V.  Ferodo Ltd. H.L(Queens bench division) I.C.R. (1988) at 29, Lord Oliver stated (at paragraphB of page 33) :

" it is common ground that the unilateral imposition by an employer of a reduction in the agreed remuneration of an employee constitutes a fundamental and repudiatory breach of the contract of employment which, if  accepted by the employee, would terminate the contract forthwith.”

19.The background to Rigby’s case is relevant insofar as that employer had been encountering serious financial difficulties in consequence of which it had proposed a 5% reduction to the union and warned that, if this were not agreed, it would have to be imposed.  In the instant case the proposed reduction  amounted to almost 11 per cent of Dr. Wong's contracted salary.  Accordingly, I find that Ms Lams unilateral declaration of intent to reduce his salary by that amount constituted a fundamental and repudiatory breach of the contract of employment.  I find that Dr. Wong accepted her breach of contract so that he also treated the contract as at an end and served notice to say he was leaving at the end of May 2003, which period of notice she accepted at the time.

20.It follows that the Plaintiffs have no sustainable claim for damages and I therefore dismiss the Plaintiff’s claim with costs nisi to the Defendant save and except those of and occasioned by the contested application to amend the Defence, which Counsel have agreed took up a half day of trial time. I further order that costs  be taxed if not agreed,  and that there be certification for Counsel.

21.IT IS FURTHER  ORDERED that  the stay on the award of $7,580.60 made by the Presiding Officer of the Labour Tribunal in favour of the Defendant in claim no.6515 of 2003 be lifted and that the Plaintiff do pay the said sum to the Defendant within 14 days from the date of Judgment.

Representation :

Ms. Peony WONG, instructed by Messrs. George Chan & Co., for the Plaintiff.

Mr. David CHAN, instructed by Messrs. Pansy Leung Tang & Chua for the Defendant.