HK court rules on wage payment dispute, work stoppage

A Hong Kong District Court recently dealt with a wage payment dispute that began when workers stopped receiving their salaries. The workers filed complaints with the Labour Department, which led to their employer's client stepping in to pay the wages directly.

This sparked arguments about who breached the contract first - the employer who delayed payments, or the workers who stopped working.

The case explored whether payment delays justify work stoppage, and what constitutes valid grounds for stopping work.

The court had to determine if the employer's late payments or the workers' decision to stop working constituted a breach of contract.

Employer’s project structure and initial problems

The dispute involved a commercial building development where a subcontractor was responsible for electrical installations under a HK$2,173,750.00 contract.

While the contract required "Monthly progress payment, 30 days credit against invoice," the first seven invoices saw payment delays ranging from 5 to 20 days without formal complaints from the subcontractor.

By July 2019, wage issues emerged. The senior project manager discovered that workers across multiple projects weren't receiving wages. The subcontractor's financial troubles became evident when they requested advance payments to cover wage obligations.

Labour Department's looks into unpaid wages

The situation escalated between September and October 2019 when workers approached the Labour Department about unpaid wages. The contract had anticipated such problems with a specific clause allowing the main contractor to withhold payments if workers filed wage complaints.

In early October 2019, the subcontractor agreed to address the wage issues if they received HK$100,000.

Despite receiving this payment, they failed to pay their workers, leading the main contractor to directly pay HK$583,683.75 to the affected workers.

The work stoppage issue

The subcontractor sent a letter on September 30, 2019, announcing their intention to suspend works from October 1 until payment arrangements improved.

The main contractor immediately rejected this position, stating the work suspension was unjustified.

Evidence showed workers had stopped working from September 28 to October 17, 2019. During the court proceedings, the subcontractor's director admitted they could have maintained and even increased their workforce if payments had been timely.

Delayed payments and work stoppage

The court found that delayed payments alone didn't justify work stoppage. Looking at previous cases, the court explained that non-payment only amounts to contract repudiation if circumstances show an intention not to be bound by the contract.

The fact that the subcontractor had accepted previous payment delays without complaint worked against their position, the court said.

In construction cases, the court identified three scenarios that justify contract termination: when parties agree that certain breaches are fundamental, when contractors abandon their obligations, or when multiple breaches accumulate to justify ending the contract.

The final ruling determined that the subcontractor's decision to stop work without proper justification, especially after receiving multiple warnings and instructions to resume, constituted a breach of contract.

This entitled the main contractor to end the contract and claim damages while paying for completed work.