Kiriau v Liquidator (Trading Company (Solomons) Ltd) [1984] SBHC 13; [1984] SILR 90 (21 September 1984)

[1984] SILR 90

IN THE HIGH COURT OF SOLOMON ISLANDS

Civil Case No. 48 (6) of 1983

IN THE LIQUIDATION OF TRADING COMPANY (SOLOMONS) LTD

KIRIAU

v

LIQUIDATOR

High Court of Solomon Islands
(Sir John White ACJ)
Civil Case No. 48 (6) of 1983

21 September at Honiara
Judgment 21 September 1984

Winding-up order operating as wrongful dismissal - whether wages from continued employment rightly set off against entitlement to damages in rejecting proof of debt.

Facts:

On 11 October 1983 the company was wound up. The Applicant continued to do the same work at the same pay money. His proof of debt claiming redundancy 1 month’s pay in lieu of notice was rejected, payments were later agreed on.

Held:

The Labour Act c. 75 S.3 is declaratory of the common law as to notice. So where an employee continues to work and be paid during the period of notice following on the making of a winding-up order, the wages received must be set off against any claim for pay instead of notice.

Cases considered:

Reid -v- The Explosives Co. Ltd [1887] UKLawRpKQB 76; (1887) 19 Q.B.D. 264
Re Associated Dominions Assurance Society Ltd [1962] HCA 46; (1962) 109 CLR 516
Re Oriental Bank Corporation, MacDowall’s case (1886) 3 Ch D 366

Andrew Radclyffe for the applicant
Kenneth Brown, Public Solicitor for the respondent liquidator

White ACJ: This is an application by one Basil Kiriau a creditor of the Trading Company (Solomons) Ltd (in liquidation) seeking an order that the decision of the liquidator rejecting proof of a debt of $2220.70 be reversed.

The agreed facts were as follows. After the company was wound-up on 11 October 1983 the applicant continued to do the same work at the same pay. He was paid by the liquidator, the latter having decided to keep the shipping and travel sections of the company operating so that they could be sold as a going concern. On the 24 February 1984 the Bank Line purchased the shipping and travel divisions and Kiriau is now a shareholder and employee of the new company. It is accepted that the applicant has not lost any pay as a result of the liquidation. His proof of debt claiming redundancy payments and a month’s pay in lieu of notice was rejected.

At the beginning of the hearing the Public Solicitor, Mr Brown, intimated that he had advised the Liquidator that the redundancy payments claimed were payable and that this would be done. Accordingly no order is required. The remaining question is whether the applicant is entitled to the sum of $580.50 on the grounds that he was entitled to a month’s notice or a month’s salary in lieu thereof.

Mr Radclyffe referred to S.3 of the Labour Act (Chapter 75) which provides as follows:-

“In default of any agreement to the contrary whether express or implied every contract shall be deemed to be from month to month determinable by either party on one month’s notice or by payment of one month’s wages in lieu of notice”.

Mr Radclyffe’s submission was that as the making of a winding-up order operates as a wrongful dismissal the applicant, as an employee, was entitled to notice or in lieu thereof a month’s pay as a statutory right under S. 3. He further submitted that Reid v. The Explosives Co. Ltd [1887] UKLawRpKQB 76; (1887) 19 QBD 264 was distinguishable because in the present case the applicant had a statutory right based upon “wrong full dismissal” which must have that meaning for all purposes. He submitted that that view was supported by the concession that the effect of wrongful dismissal as the result of a winding-up order was that the applicant was entitled to redundancy payments, pursuant to the Employment Act, No.1 of 1981.

Mr Brown did not dispute that prima facie the making of a winding-up order operates as a wrongful dismissal. He submitted the principles stated in Reid’s case applied. In that case the plaintiff was employed by the defendant company under a contract providing that it could be determined by 6 months notice.

When a manager and receiver were appointed by order of the Court the plaintiff by instructions of the manager continued for more than 6 months in his former duties at the same salary. The business was then sold to another company and the plaintiff was dismissed without notice. The Court of Appeal affirmed the judgment of Manisty J. who held that the appointment of the manager and receiver operated to discharge the servants of the company and that the plaintiff could not recover. The Master of the Rollas, Lord Esher, said, at p. 267, “there is a wrongful dismissal for which an action would lie”. Then he continued, “But if from the time when the employment ceased, onwards for a period equal to the time agreed on for notice of dismissal, he had had employment of equal value to that which he has lost, he has sustained no damage”. Having been employed by the manager and continued for more than six months it was held that “he suffered no damage at the hands of the defendants” and could not recover.

Mr Brown submitted that S. 3 of the Labour Act, dealing with employment contracts which have no provisions as to notice, is simply declaratory of the law as to notice and or an amount for lost wages in lieu thereof. He pointed out that the situation which arises leaves an employer with a choice, to give an employee a month’s notice or dismiss him and pay a month’s wages. In the present case, where the dismissal was by operation of law, it was submitted that the question was as stated above whether damage could be established. There being no loss it was submitted the proof of debt was rightly rejected.

Mr Brown also drew my attention to a passage from a judgment of Taylor J in the High Court of Australia Re Associated Dominions Assurance Society Ltd [1962] HCA 46; (1962) 109 CLR 516, 518 where he said:-

“To say that a winding up order is equivalent to the dismissal of the company’s servants does not justify the further conclusion that a dismissal so brought about, also, ipso facto, terminates the contract of employment itself. No doubt where a servant is wrongfully dismissed and excluded from his employment it is not possible to keep the contract on foot and, from time to time, to sue for his wages or salary. But this is because, except in special circumstances, service is a condition precedent to the right to receive wages and from a practical point of view the only remedy of a servant wrongfully dismissed is to accept the repudiation involved in the dismissal and sue for damages for the employer’s breach of contract.”

This passage is quoted in McPherson’s Law of Company Liquidation 2 Ed. p. 150. The learned author goes on to say, at p. 151, dealing with the situation where a liquidator wishes to carryon the business and to continue the employment of servants of the company, “where this is so, he may waive the notice of dismissal constituted by publication of the winding up order, in which case the servant’s employment continues under his existing contract with the company. But this must be done in unequivocal terms, it will not (except for purposes of calculating long service leave entitlement) be enforced solely from the fact that the servant has remained in his employment after winding up, although the duration, character, and incidents of that employment may indicate that there has been no new contract with the liquidator but simply a continuation of the original one.

Cases cited include Re Oriental Bank Corporation, MacDowall’s case (1886) 32 Ch D 366, where the servant lost his claim for damages because he was employed by the company during the whole period of notice, and Reid’s case (supra). The authority cited as illustrating the last sentence in the quoted passage is Re Associated Dominions Assurance Society Ltd (supra) at p. 519, presumably from the judgment of Taylor J. (already quoted above from p. 518). (The full report is not available).

In MacDowall’s case (supra) Chitty J said, at p. 369:-

“There are cases in which the business of the company ordered to be wound up is continued; it does happen occasionally that the business is carried on with a view to the sale of the business as a going concern, so that the goodwill may be preserved. In those cases it is competent for the official liquidator ... to continue the business, and in that case to waive the effect of notice of the winding-up order - it appears to me that there must be something done in a clear and unmistakable way... In order to sustain a case of waiver of the notice it appears to me that the facts ought to be clear.”

The passage quoted from MacDowall’s is to the same effect as the passage quoted from McPherson. It was not suggested that a waiver situation arose in the present case. In MacDowall’s case it was held that waiver was not established because there was “no evidence to show that there was any agreement whatever between the liquidator, now representing the corporations, and the persons in the corporation’s employment, that they should go on under a new contract similar in terms to the old contract.”

The short point in this case is whether, as Mr Radclyffe put it, the applicant has a statutory right to the amount claimed despite the acknowledged fact that he has suffered no damage. In my opinion he does not have that right.

The Employment Act states specifically the circumstances in which an employee has a right to redundancy payments and the circumstances in which a dismissal is deemed to be because of redundancy. On the other hand S. 3 of the Labour Act simply provides that in default of any agreement to the contrary, express or implied, every contract of employment shall be deemed to be from month to month determinable by a month’s notice on either side or by payment of one month’s wages in lieu of notice. The section simply declares the term of a contract which is otherwise silent as to notice. By invoking the section an employee cannot be in a different position from an employee whose contract contains that same term or some similar term. The rights of such an employee have been conclusively determined in the cases referred to above. As in Reid’s case (supra) where the facts were very similar, so in the present case, the applicant “has sustained no damage”.

For these reasons I conclude that the rejection of the proof of debt by the Liquidator was right. Accordingly, the order sought is refused.