CABLE & WIRELESS (HONG KONG) LTD. STAFF ASSOCIATION v. HONG KONG TELECOM INTERNATIONAL LTD.

HCA7389/1991

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.7389 OF 1991

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J U D G M E N T

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1. This case arises out of a collective bargaining agreement between an employer and a registered trade union recognised by it as representing its employees. The primary and, in fact, the only real issue is whether the agreement is binding in law, or only in honour, as a "gentlemen's agreement".

2. The plaintiff is the trade union and the defendant is the employer. Originally, the plaintiff was Cable & Wireless (Hong Kong) Limited Non-Expatriate Staff Association and the defendant was Cable & Wireless (Hong Kong) Limited. By the time these proceedings were instituted in 1991, the names had been changed to those under which the parties appear.

3. The background to this case begins in 1971 when the parties entered into an agreement to ratify previously negotiated salary scales and other benefits, and to negotiate a collective agreement to "set out the formal relationship between Management and Association, to set rules of procedure, to specify major rights and responsibilities, and to provide a mechanism for the peaceful settlement of disputes and grievances".

4. This was followed by further collective agreements between the parties in 1973, 1976 and 1980. These agreements covered both substantive matters such as wages and procedural matters such as the machinery for settling disputes. Then on 28 March 1985, following negotiations, the parties entered into two agreements, one being an agreement which covered substantive matters, in particular, basic salaries by reference to salary scales and conditions of service which included such matters as bonuses, allowances, hours of work and overtime provisions for Sundays and public holidays. The other was a Procedural Agreement which covered procedural matters.

5. These two agreements were followed by a further and very similar Agreement and Procedural Agreement dated 27 April 1988. It is the latter Procedural Agreement which is concerned in this case. Its terms are set out below.

6. There is evidence that the object of splitting the original single collective agreement into two was to make it easier to deal separately with those substantive matters which were subject to periodic review, such as salary scales and the terms of the agreements bear this out. In fact, the parties made several new "substantive" agreements up to 1997. The Procedural Agreement is still subsisting.

7. None of the Agreements or Procedural Agreements ever provided for any of their terms to be incorporated into the contracts of employment of the individual employees and, in fact, none of the terms ever was so incorporated.

8. In 1990, the defendant wished to change its operations and, in particular, to integrate its activities with those of the related local telephone company, Hong Kong Telephone. In 1991, some support functions were integrated and the defendant decided to make some of its employees redundant and to offer those who remained a new remuneration package, known as the "New Telecom Package". In all 198 employees, of whom 173 were members of the plaintiff were made redundant on 27 March 1991.

9. The lay-off of so many staff caused considerable shock to the plaintiff and others, and attempts were made to negotiate. However, the defendant was adamant and proceeded with the redundancies. It is agreed that all those made redundant ultimately accepted the severance packages offered to them which consisted of their entitlements under the Employment Ordinance plus an ex gratia payment. However, on 16 August 1991, the plaintiff, through its solicitors, issued a letter before action claiming that the defendant should, in terms of the Procedural Agreement, have conducted collective negotiations with the plaintiff in respect of the redundancy terms offered to the employees. A writ was issued on 28 September 1991.

The plaintiff's claim

10. The plaintiff originally claimed various declarations and injunctions, but obviously many of these are now inappropriate because of lapse of time. The plaintiff now only seeks the first three declarations, namely :

1. a declaration that the Procedural Agreement is and was valid and binding on the defendant;

2. a declaration that the Notices of Dismissal dated 27 March 1991 issued by the defendant to the members of the plaintiff were contrary to or in contravention of the Procedural Agreement; and

3. a declaration that under the Procedural Agreement, the defendant has agreed not to dismiss any of the plaintiff's members or change the general conditions of employment without prior consultation and/or negotiation with the plaintiff in accordance with the Procedural Agreement.

The law

11. In view of the special nature of collective agreements between trades unions and employers, I think it necessary first to consider the law and the approach to be taken in deciding this issue, before looking at the agreement itself and the evidence.

12. The general common law view was that collective agreements between trades unions and employers were not legally binding between the parties to them; see Chitty on Contracts (28th Ed.) Vol.1, paras 2-161, 39-039 to 39-041. This view was upheld in Ford Motor Co. Ltd v. A.E.F. [1969] 2 QB 303. This was in effect the last English authority on the matter which was, at that time in the United Kingdom, a politically sensitive issue. Legislation then took over.

13. In 1971, under the Conservative government of the day, Parliament passed into law section 34(1) of the Industrial Relations Act which (put simply) provided that every written collective agreement was to be conclusively presumed to be intended by the parties to it to be legally enforceable, unless it contained a provision to the contrary. Then in 1974, under the Labour government, Parliament passed section 18 of the Trade Union and Labour Relations Act which reversed the position and provided that every written collective agreement was to be conclusively presumed not to be intended by the parties to it to be legally enforceable, unless it contained a provision to the contrary.

14. The position in Britain is now regulated by the Trade Union and Labour Relations (Consolidation) Act 1992 which similarly provides for a presumption against intention to make a legally enforceable contract, rebuttable only where the agreement is in writing and states specifically that a legally enforceable contract is intended.

15. There is currently no legislation on the matter in Hong Kong. In June 1997, the Employee's Rights to Representation, Consultation and Collective Bargaining Ordinance was passed into law. Section 18 thereof was in identical terms to the United Kingdom legislation of 1971. However, the Ordinance was suspended and later repealed by the Employment and Labour Relations (Miscellaneous Amendments) Ordinance, Cap.135 of 1997.

16. It is therefore necessary to look to the common law, as it applied in Hong Kong at the time the Procedural Agreement was made, and indeed still applies (see Article 8 of the Basic Law). The starting point must be the Ford Motor Co. Ltd case. I will deal below with its applicability to Hong Kong.

17. The brief history of the Ford Motor Co. Ltd case is best explained by setting out the headnote :

"In 1955 and 1967 a company and various trade unions representing employee members made agreements for regulating the procedure for the relationship between the company and the unions and the conditions of employment for employees. The agreements were signed by members of a joint negotiating committee of the company and union representatives and also by an accredited representative of each individual union; they did not contain any clear or express provision that they were enforceable at law, were composed largely of optimistic aspirations, and presented practical problems of enforcement. In 1969 the company side and a majority on the union side of the committee agreed to variations of conditions of employment, but unions in the minority dissented and declared an official strike. The company brought against the striking unions an action for injunctions. Injunctions were granted ex parte and, on an application to continue them, evidence was adduced that published reports of industrial commissions of inquiry showed that the almost unanimous climate of opinion on both sides of industry since 1954 was that no legally enforceable contract resulted from collective agreements such as those between the company and the unions.

Held, discharging the injunctions, that the company had not made out a sufficient prima facie case that the agreements were legal contracts enforceable at law, for in the absence of clear and express provision making them amenable to legal action, regard must be had to the surrounding circumstances and, although concerned with commercial relationships, the wording of the agreements, their nature, and the background adverse to enforceability against which they were reached showed that the parties did not intend that they should be binding contracts at law but that they should remain in the realm of undertakings binding in honour only."

18. Geoffrey Lane J (as he then was) had to consider whether the agreements, or any of them, between the company and the various trade unions were enforceable at law. As he put it at page 321E-H :

"The fundamental question is of course this : assuming for the moment that there does exist an agreement in the broad sense between the plaintiffs on the one hand and the two defendants on the other, are those agreements enforceable by legal process in this court or not? There is a dearth of direct authority on the point. This is perhaps hardly surprising, because most cases in this branch of the law fall plainly into one or other of two categories. Either they are commercial contracts between parties at arm's length, which are obviously intended to be enforceable at law unless the parties by express provision declare that they are binding in honour only, or otherwise they are social or domestic arrangements which are equally obviously not designed to be legally binding - the type of arrangement whereby one person says to another, "I will meet you at 7.30; you bring the food; I will bring the drink"; neither party of course envisages any action in the county court if either commodity is not forthcoming, although it would presumably be possible by express provision to make even such an agreement legally enforceable. In other words, the intention of the parties is usually obvious from the surrounding circumstances or from the express terms of the contract itself."

In that case, no assistance was to be found in the wording of the agreements themselves. His Lordship went on to say at pp.324D-325B :

"In the present case there is no express provision by the parties to provide any assistance as to their intentions. Consequently, it is necessary to look at all the surrounding circumstances to ascertain what the intention of the parties was. This, in my view, is not a case where, without further ado, the situation falls into one or other of the categories which I have mentioned previously. Consequently, one must look at all the surrounding facts in order to discover what the intentions of the parties were. On the one hand, and this is the plaintiffs Fords' case, there exists the foundations of legally enforceable contracts. There is of course ample consideration, one assumes for the purposes of this argument, that there is or was agreement between the parties in the case of the 1955, 1967 and 1969 agreements. No one, say the plaintiffs, could describe these as domestic, social or, family arrangements. They were hammered out, it is said - and I do not doubt that this is true - with great difficulty and lengthy discussions between the parties, Fords on the one hand and the unions on the other, and no doubt also between the unions themselves. They were designed, it is said, to regulate the business matters of wages, working conditions, terms, penalties, and so on. To that extent, say Fords, they are clearly commercial agreements, carrying the usual sanction with such agreements, namely, recourse to the courts should there be a breach on either side. So far there can be little quarrel with those contentions, although it should perhaps be mentioned in passing that Mr Blakeman, the protagonist of Fords, in his original affidavit and indeed in both his affidavits, remained silent as to any intention on his part or that of Fords that these agreements should have legal effect. It is fair to add that Mr Neill, as an explanation of that silence, says that what his or Fords' intention was at the making of the agreements is immaterial, and if not immaterial, irrelevant.

However, there are other matters to be considered besides those. There is no doubt that the executive officers of Fords, Mr Blakeman in particular, must have been aware of current attitudes and developments in this field, and similarly with the executive officers of the unions - that is their job and there is no reason to doubt that we are dealing on either side in this case with people who are in the top rank of efficiency, expertise and knowledge of their jobs and everything that goes to make up those jobs.

What then was the general state of opinion as it existed during these times? What sources were available to the parties? What sources were there which inevitably would have come into the hands of these men to shape their views, shape their opinions, and more importantly, shape their intentions when making these agreements? They are, so it happens, numerous."

19. His Lordship went on to consider the evidence and came to the conclusion that the climate of opinion was almost unanimous to the effect that no legally enforceable contract resulted from the collective agreements. He went on to consider that "no less important a consideration of what has been called 'extra-judicial authorities' is a consideration of the terms of the agreements themselves". Those "extra-judicial authorities" were, inter alia, "Collective Agreements" by Professor Otto Kahn-Freund in (1942/3) 6 Modern Law Review 112, 113; the Report of the Royal Commission on Trade Unions and Employers' Associations, 1965-1968, under the chairmanship of Lord Donovan; the report of a court of inquiry in 1964, under the chairmanship of Pearson LJ into the causes and circumstances of a dispute between the parties represented on the National Joint Industrial Council for the Electricity Supply Industry; the Industrial Relations handbook, dated 1961, and emanating from the Ministry of Labour, and a further article by Professor Kahn-Freund, dated 1954, in a book entitled "The System of Industrial Relations in Great Britain" (edited by A. Flanders and H. Clegg, 1954) pp.56-8.

20. His Lordship came to the following conclusion at pp.330G-331A :

"The conclusion which I have reached is this; it is necessarily a preliminary view as this of course is not the hearing of the action proper. If one applies the subjective test and asks what the intentions of the various parties were, the answer is that so far as they had any express intentions they were certainly not to make the agreement enforceable at law. If one applies an objective test and asks what intention must be imputed from all the circumstances of the case, the answer is the same. The fact that the agreements prima facie deal with commercial relationships is outweighed by the other considerations, by the wording of the agreements, by the nature of the agreements, and by the climate of opinion voiced and evidenced by the extra-judicial authorities. Agreements such as these, composed largely of optimistic aspirations, presenting grave practical problems of enforcement and reached against a background of opinion adverse to enforceability, are, in my judgment, not contracts in the legal sense and are not enforceable at law. Without clear and express provisions making them amenable to legal action, they remain in the realm of undertakings binding in honour. None of the authorities cited by Mr Neill, on behalf of the plaintiffs, dissuades me from this view. In my judgment, the parties, none of them, had the intention to make these agreements binding at law."

21. I have been referred to a learned article by a Mr Selwyn in the Modern Law Review which raised various criticisms of the decision. I would only say that whatever the validity of those criticisms the decision still stands. Geoffrey Lane J said that his view, coming as it did in interlocutory proceedings was a "preliminary view", but it remains the only recent authoritative exposition in England of the common law on the subject and in particular of the approach to be taken in deciding whether an agreement of this nature is in fact intended by the parties to be enforceable at law.

22. Reference to a "subjective test" in the decision is of course not relevant; the parties agree that the test is an objective one; see Prenn v. Simmonds [1971] 1 WLR 1381. In that case, Lord Wilberforce held at p.1385 that :

"... evidence of negotiations, or of the parties intentions ... ought not to be received, and evidence should be restricted to evidence of the factual background known to the parties at or before the date of the contract, including evidence of the 'genesis' and objectively the 'aim' of the transaction."

23. I turn to the question of the applicability of the common law as stated in Ford Motor Co. Ltd in Hong Kong. There is a dearth of authority. There is only one decided case, namely Hong Kong Aircrew Officers Association v. Cathay Pacific Airways Ltd [1994] 2 HKLR 367. That case was necessarily decided on its own facts, as must be this case and indeed any case which deals with the enforceability in law of a contract but it shows the approach to be taken by the court.

24. In that case, Jerome Chan J said that he found himself in the same position as Geoffrey Lane J in Ford Motor Co. Ltd case, having to consider the enforceability of a collective agreement. He went to hold at p.372 :

"It can hardly be disputed that the first and primary piece of evidence to consider in this issue is the document itself. The foremost task of the court is to ascertain the natural meaning of the document to seek out what the common intention of the parties was at the material time."

However, at p.373, his Lordship went on to say :

"I do not find the actual decision in Ford Motor to be of such assistance as the parties believe it has.

...

However, the range of matters considered by the court in that case is a helpful indicator as to matters that a court should and could look at in a determination of this issue. I readily accept Mr Tang's submission that actual knowledge of the persons representing the management and labour as to the overwhelming public opinion on unenforceability as well as evidence that the parties had given evidence to a royal commission previously to the same effect distinguish that case from the present. I have no hesitation to hold that the courts in Hong Kong should only look at the circumstances prevailing locally and not abroad in another domain having quite different social, cultural, economic and political environment from ours. The fact that the common law of Hong Kong is founded on English common law is of no assistance here."

25. Mr Tang, SC, for the plaintiff relies strongly on this latter passage. Deputy Judge Wesley Wong, in deciding the earlier application for amendment of the defence in this case, agreed with it in holding that one could not rely on the judgment in Ford Motor Co. Ltd to say categorically that collective agreements are not enforceable in law in Hong Kong. I cannot disagree with this view. The point is, however, that it is not for me to say whether or not collective agreements are generally enforceable or unenforceable at law in Hong Kong. I only have to decide the enforceability or otherwise of this Procedural Agreement.

26. The following passage from Jerome Chan J's judgment at p.373 is also significant, in that it sets out his view of the position of collective bargaining agreements generally :

"It must be obvious to both parties that the real weapon in the arsenal of the labour side in an industrial dispute is a strike, and not enforcement by court order the terms of contracts of employment that can be terminated by giving reasonable notice or payment in lieu. The ultimate weapon on the management side is one of dismissal, whether for cause or by reasonable notice or payment in lieu, rather than any attempt for specific enforcement by a court order of any provision of the collective agreement. The real threats behind any collective agreement are dismissal and strike. It is blatant to both sides that the solution lies not in going to the court. The solution in any industrial dispute between the management and labour over a collective agreement, as distinct from one between the employer and an individual employee over a contract of employment, is to be found at a negotiation table. It will certainly require strong evidence to ask a court to believe any realistic and reasonable party to a collective agreement will ever believe in the effectiveness of redress in a court of law for industrial disputes over such an agreement. In the absence of clear words in the collective agreement itself or cogent evidence from the surrounding circumstances indicative of the true intent of the parties to such effect, it would be illusory to conclude that parties to such an agreement intended legal interpretation and enforcement of their agreement. Hong Kong does not have any developed trade union/industrial relations legislation or environment. Industrial relations, as distinct from individual employment contracts, are not specifically regulated by law. In the premises, the assistance a court can offer in resolving industrial disputes over collective agreements effectively or satisfactorily is very limited, if existed at all. It would be naive to assume that the parties would not be aware of such facts. The acute absence of collective agreements being brought to these courts is indicative of the fact that either collective bargaining is still very much in its infancy or that parties do not see the court as being capable of providing a solution to their problem."

The approach

27. In deciding on the enforceability of the Procedural Agreement, it seems to me that I must follow the general approach taken by Geoffrey Lane J in Ford Motor Co. Ltd and later by Jerome Chan J in Hong Kong Aircrew Officers Association.

28. That approach in my view is as follows. First, it is necessary to look at the terms of the agreement itself. If they clearly show the intention of the parties to make or not to make a contract enforceable at law, that is the end of the matter.

29. If the terms of the agreement do not provide a clear answer, then it is necessary to look at the all the surrounding circumstances to ascertain objectively what the intention of the parties was. These include the background in which the agreement was made, including the climate of opinion among persons concerned with industrial relations in Hong Kong as to the enforceability of such contracts generally. This is a matter of evidence.

30. It is also necessary to consider the nature of the agreement. If it is concerned with business relations, rather than social or domestic matters, the onus is on the party who asserts that no legal effect was intended, and the onus is a heavy one. See Edwards v. Skyways Ltd [1964] 1 WLR 349; [1964] 1 All ER 494.

The Procedural Agreement

31. Since the primary issue is whether the Procedural Agreement is or is not binding in law, it is necessary to set out its terms in full. They are as follows :

"PROCEDURAL AGREEMENT

This Agreement is made between Cable & Wireless (HK) Limited and the Cable & Wireless (HK) Limited Staff Association.

Definitions

In the Agreement which follows, 'the Company' refers to Cable and Wireless (HK) Limited, and 'the Association' refers to the Cable and Wireless (HK) Limited Staff Association.

Purpose of the Agreement

The intention of this Agreement is to provide a foundation for good relationship between the Company and the Association.

Both parties recognize that the Company and its employees provide an essential public service in Hong Kong.

The Company and the Association will apply the measures contained in this Agreement to avoid and settle disputes, and they agree that any differences arising between them shall be dealt with in accordance with Articles 5, 6 and 10.

This Agreement replaces the procedural aspects of the Collective Agreement made on 28th March 1985.

Here follows the Articles to the Agreement :-

ARTICLE 1 - Recognition and Scope

The company agrees to continue recognition of the Association as the sole negotiating body representing the interests of Cable & Wireless (HK) Limited employees for negotiations on salaries and general conditions of employment.

Recognition by the Company shall be dependent both upon the Association membership being at least 50% of the total Company employees and on the Association remaining a Registered Trade Union.

Both the Company and the Association recognise that certain employees occupying sensitive positions in the Company should not take part in negotiations. It is therefore agreed that the Company may reasonably object to certain employees taking part in negotiations before they commence, and the Association shall respect such objection by withdrawing that member of the Negotiation Committee.

ARTICLE 2 - Association Security and Function

2.1 The Association shall have the right to exercise all the functions of a Trade Union in accordance with the recognised Trade Union principles and practice within the limits of this Agreement. The Company agrees to afford every assistance to the Association to enable it to carry out such functions.

2.2 The Company will allocate suitable office space for the use of the Association for their records and committee meetings and for business as a recognised representative body for such period as the Association is recognised by the Company.

2.3 The Company undertakes to provide space on bulletin boards for the posting of Association material necessary for the conduct of Association affairs but subject to the Company right to ask for the withdrawal of any matter not directly concerned with representing the Company's employees.

2.4 Representatives and delegates of the Association shall he free to express their views in good faith without fear that the individual relationship between them and the Company will be affected in any way thereby. The Company agrees not to discriminate against employees because of membership in or activity on behalf of the Association.

2.5 Such representatives will themselves be employees of the Company and the Association will keep the Company informed of the names of officials and delegates directly representing the interests of its employees through the Association.

2.6 The Company will deduct Association membership subscription only from the paysheet, provided each Association member voluntarily authorises the Company in writing on the prescribed form to deduct his/her monthly membership subscription. The Company will remit the total amount collected within seven days of collection and will also inform the Association of those members who cancel their authorisation.

2.7 The written consent of the Commissioner for Labour shall be obtained in respect of those employees who come within the provisions of the Employment Ordinance.

2.8 The company will grant paid time off for a certain number of employees to attend bona fide Trades Union Courses organised or supported by the Association and recommended by the Labour Department. This will be limited to 20 weeks per year and not more than 4 weeks per person.

ARTICLE 3 - Management Rights and Functions

It is agreed that all the rights, power, authority and regular customary functions of Management are vested in the Company. These functions include the right at its discretion :-

(a) to plan, direct and control operation including the size of the working force, the hours, methods, standards and manner of working in any department or section providing that no action taken shall be inconsistent with the terms of this or any other valid agreement.

(b) to control and regulate the use of all equipment and other property of the Company.

(c) to select supervisory personnel. Refer also to Article 4.

(d) to engage new employees, to promote, transfer or retire employees. Refer also to Article 4.

(e) to discipline and dismiss employees for cause.

(f) to make such rules and regulations as the Company considers necessary or advisable for the orderly, efficient and safe conduct of its business and to require employees to observe such rules and regulations.

(g) to establish new and different job classifications and titles other than those at present existing.

ARTICLE 4 - Filling of Vacancies

It is the policy of the Company whenever possible to fill all vacant posts by promoting staff already employed by the Company provided always that such staff are available who possess all the qualifications, ability, experience and are in all respects suitable for promotion to the vacant post. Where such staff are not available, the Company will recruit from outside.

ARTICLE 5 - Collective Negotiation

5.1 The aim of the following negotiating procedure is to resolve all issues as effectively and quickly as possible.

5.2 Both parties agree to set up a Negotiation Committee as a means of negotiating general employment conditions such as revisions to Scales of Pay, Hours of Work and Overtime/Work on Sundays and Public Holidays.

5.3 This committee shall consist of two or more authorised staff representing the Company and two or more members representing the Association. The numbers may be varied from time to time at their discretion. The Company representatives will be nominated by the Divisional Manager Personnel. Both parties will keep each other informed of the names of the delegates at least 2 working days before the meeting commences.

5.4 This Committee shall negotiate all matters to an acceptable conclusion. In the event that the Committee is unable to reach such a conclusion acceptable to both parties, then either party may notify the Committee that there is a failure to agree. The Committee will then have further 30 days to attempt to resolve the issue.

5.5 If the issue remains unresolved after 30 days, both parties may agree to attend conciliation meetings arranged by the Commissioner for Labour as provided by the Labour Relations Ordinance.

ARTICLE 6 - Grievance Procedure

6.1 The Management and the Association both agree that in the event of a grievance arising between the Company and a member or members of the Association as individual employees, the grievance shall be dealt with in the manner described below.

6.2 Should a member or members as individuals have a question or complaint arising from the interpretation of the Staff Rules and Regulations or individual conditions of service, it should be raised with his/their immediate supervisor. Every effort be made to settle the matter by this direct approach.

6.3 If the immediate supervisor cannot settle the matter within 6 working days, the employee/s may apply, in writing, to the Section Head to discuss the matter as a grievance with a copy to the Personnel Division and the Association. The Section Head will discuss the grievance with the person/s concerned and the Association representative for the Section. The Personnel Division may act in a consultative capacity at this stage.

6.4 If the grievance is not so resolved within 12 working days then at the request of the member, the matter may be referred in writing for discussion and settlement at an Association/Management meeting which has to be held within 3 working days of the matter being referred in writing.

6.5 Such Association/Management meeting shall consist of 2 members representing the Association Executive Committee and 2 members representing the Company meeting to consider the facts of the case. The Company representatives will be nominated by the Divisional Manager Personnel.

6.6 The Association and the Company will keep each other informed of the names of the delegates to represent them at the above meetings.

6.7 If the matter is not resolved at Association/Management level within 9 working days, both parties may jointly request the Commissioner for Labour to appoint a conciliator as provided by the Labour Relations Ordinance. However, if both parties agree, the above time limit can be extended.

6.8 No complaint or grievance will be accepted unless presented within 30 days after the date of origination or discovery of the facts or events upon which the complaint/grievance is based.

6.9 The normal Management channels for employees' complaints are set out in the Staff Rules and Regulations. Every employee has the right to use these channels without reference to the Association if the employee so desires. He may have his request so adjusted provided it is not inconsistent with any agreement between the Company and the Association.

ARTICLE 7 - Strikes and Lockouts

The Company and the Association agree that during the continuance of this Agreement, there shall be no lockout by the Company nor any strike or other industrial action by the Association as long as the procedures for settling grievances and disputes set out herein have not been exhausted.

ARTICLE 8 - Joint Advisory Committees

It is the wish of both parties to set up Joint Advisory Committees within the Company in order to improve the working conditions and environment of the individual Department/Section concerned. Refer to Schedule 1 of this Agreement for the Terms of Reference of Joint Advisory Committees.

ARTICLE 9 - Scales of Pay

Employees shall receive the rates of basic pay in accordance with the present and existing scales of pay of Cable and Wireless (HK) Limited unless otherwise both parties agree to amend or alter them.

ARTICLE 10 - Duration, Termination or Revision of this Agreement

10.1 This Agreement shall come into force with effect from 1st April 1988 and shall continue in force thereafter until either revised or terminated in the manner set out below.

10.2 This Agreement shall remain valid for at least 12 months, subject to Clause 10.3.

10.3 This Agreement may be amended by agreement in writing between the two parties at any time.

10.4 This Agreement may be terminated by either party giving 3 months notice, in writing to the other party. Such notice shall only be given if the parties have failed to reach agreement on its continuation or amendment using the procedures outlined in Article 5 of this Agreement."

32. There is no specific provision in the Procedural Agreement as to its enforceability, nor any clause setting out the law to be applied, from which one might infer that recourse to the courts might be contemplated. This of course matters little. However, the tone of the Agreement from its outset and in particular its preamble is generally intentional. There are, as Mr Huggins, SC, for the defendant has pointed out various other passages which contain language of policy and intention rather than obligation. I do not propose to enumerate them all.

33. Article 1 deals with recognition of the plaintiff for the purposes of negotiation, but there is no suggestion that the negotiations are intended to be binding, or even incorporated into the individual employees' contracts of employment. In fact, there was no such incorporation. In fact, the salaries and general conditions appear in the substantive Agreement and the Procedural Agreement may for this reason be seen as being one further remove away from them.

34. The major difficulties, to my mind, are those of enforcement. Many of the terms are quite uncertain. In Article 3, which, in any event, is declaratory, there seems to be some inconsistency. The defendant has the right to decide, inter alia, the size of the work force "providing that no action taken shall be inconsistent with the terms of this or any other valid agreement", but at the same time it has the unfettered right to retire employees.

35. In particular, when one looks at Article 5, the difficulties of enforcement seem to me to be overwhelming. Article 5 sets out the negotiating procedure. In particular, a Negotiation Committee is to be formed to negotiate various matters; those matters in fact are the matters specifically dealt with in the substantive Agreement. There are no provisions as to when such Committee shall meet; how or by whom it may be called to meet; and so on. The Article goes on to state that the Committee "shall negotiate all matters to an acceptable conclusion"; but in the nature of things, negotiations may break down, a fact explicitly recognised in the next sentence. In that event, of course, there is provision for notification by one party of failure to agree and a further negotiating period of 30 days. However, there is still no provision, save for reference to the Commissioner for Labour (which may never produce any agreement) as to what is to happen if the negotiations fail.

36. I find it impossible to see how either party could be forced to negotiate under Article 5, or, if forced to hold a meeting, how it could be forced to agree on anything.

37. Much the same criticism applies to Article 6. This deals with individual grievances. No doubt an employee aggrieved at being dismissed could have recourse to this Article. I am not sure, however. that that would apply to an employee whose employment was terminated under the terms of his contract; it could be argued that he has no grievance. Again there are time limits but no provision for what is to happen, apart from reference to the Commissioner for Labour, when negotiations are unsuccessful and the time limits are exhausted.

38. Article 7 is the article mainly relied on by the plaintiff. This provides for no strike or lockout as long as the procedures for settling grievances and disputes have not been exhausted. Mr Tang, SC, says that this Article is readily enforceable as providing a "cooling-off" period. He refers to sections 35-37 of the Labour Relations Ordinance, Cap.55, to illustrate how such a "cooling-off" period could be enforced. Briefly, these statutory provisions allow the Chief Executive in Council to order a mandatory "cooling-off" period of 30 days, extendable to 60 days, where industrial action is contemplated in a trade dispute and the situation is likely to cause grave consequences to Hong Kong. Provision is made for holding in contempt and punishing any person who calls, organizes, procures or finances a strike, or threatens to do so. As I understand it, the argument is also that since the parties would know of these provisions - and obviously the interruption of telecommunication services could have grave consequences - they should be taken to have made their own arrangements for such a situation rather than waiting for the Chief Executive (then the Governor) in Council to make an order.

39. The argument put forward by the defendant is that Article 7 is in any event unenforceable because it is not the union which strikes, but the employees. So an order against the union would not necessarily be effective. The plaintiff concedes this but says that normally it is the union which calls the strike, and an order could be made to prevent the union or its officers from doing this. That is recognised by the statutory provisions which provide, as any such provision must, for action against a person rather than a body corporate. In Ford Motor Co. Ltd, an ex parte injunction was granted against the unions causing or procuring, or attempting to cause or procure, unconstitutional strike action. In fact, in that case, the strike had started out as an "unofficial" one but had been later made "official" by the unions.

40. It seems to me that the answer is this. Everyone in the business of industrial relations, be it on the labour or the management side and, particularly, the British expatriate officers of the defendant at the time, would know the difference between an official and an unofficial strike. It is reasonable to expect that if both sides had intended to contract in law that there would be no procurement of an official strike so long as certain negotiating procedures were carried out, they would have done so in much more specific terms, both as to the procedures and as to who was to be bound.

41. I do not think it is necessary to look further at the Procedural Agreement. It does not to my mind clearly show an intention to create legal relations. Therefore, I must go on to consider the surrounding circumstances and in particular the evidence relating to the "climate of opinion".

The evidence

42. Evidence came from two lay witnesses and two experts on either side. There was also considerable reference to publications, most of them in fact by the same experts.

43. The plaintiff's lay witness, Mr Cheung, had been the Chairman and was at the relevant time the Secretary of the plaintiff. He explained how the various agreements had come into being and gave some evidence of the dealings between the parties over the years. There is nothing to contradict this factual evidence, and I accept that where there had been dismissals in the past these had been dealt with under the agreed procedures. It appears that such dismissals were few in number. There had never before been any major lay-off of employees.

44. So far as Mr Cheung's subjective view of the enforceability of the Procedural Agreement goes, this has to be disregarded as being inadmissible for the reasons given above.

45. Mr Cheung is a very old hand at the business of trade unionism and labour relations. He was, unfortunately, an evasive and long-winded witness under cross-examination, particularly on the question of his knowledge of the "climate of opinion". He professed to disagree with various published articles and, in particular, one which expressed a view given by a senior officer in the Labour Department, that collective agreements were "gentlemen's agreements" and not legally binding, but he could point to nothing which would support a contrary view. He accepted that this was the British view but claimed that in Hong Kong the agreements should be looked at individually and in the light of Hong Kong's special characteristics and historical factors.

46. Much of Mr Cheung's evidence was concerned with his earlier dealings with Dr Ng Sek Hong, the expert called by the defendant, because at that stage there was an objection to the admission of Dr Ng's evidence on the basis that he had earlier been consulted by the plaintiff. I refused that objection and I do not see the need to revisit the point now. However, it also appeared that according to Mr Cheung, their expert witness, Dr Chow Kwok Keung, had "pushed" the plaintiff to take these proceedings.

47. It also appeared from correspondence entered into by Mr Cheung, that he had referred to the question of whether collective bargains were enforceable as "the great argument". This was in the context of the pleadings as they then stood, before amendment, in which the defendant had simply agreed that the Procedural Agreement was "valid and binding"; Mr Cheung thought as no doubt others did that enforceability was admitted. However, his reference to the "great argument" obviously indicates that, whatever he may now seek to put forward as to the "climate of opinion", his view in the earlier stages of these proceedings was obviously that the matter was in no way settled.

48. The plaintiff called as an expert witness Dr Chow. The defendant called Dr Ng. Both of them are academics and experts in the field of industrial relations. They have collaborated in the past and it appears that Dr Ng was Dr Chow's supervisor when the latter was writing his Ph.D. thesis.

49. It is not necessary to go into the expert evidence in detail though I have to note that where either expert expresses a view as to the legal enforceability or otherwise of the Procedural Agreement, this is inadmissible and is disregarded. I also have to note that Dr Chow's view is obviously that, in the Hong Kong setting, collective bargains ought to be enforceable. That is not a matter for this court to go into. The court is not concerned with what ought to be, even if there is a "climate of opinion" as to what ought to be, but rather with the "climate of opinion" as to what is.

50. It is clear from what the experts say, what appears in the academic literature referred to, including the views expressed by a senior officer of the Labour Department, that the "climate of opinion" held by persons concerned with industrial relations in Hong Kong is, and was, that collective agreements are generally unenforceable. Dr Chow says that this is not necessarily so in all cases and I do not see that anyone can quarrel with that because the parties to such an agreement could obviously agree that it be enforceable if they wanted to. Also, where terms collectively agreed are incorporated into individual employment contracts, they will become enforceable.

51. Dr Chow gave evidence of a survey carried out by himself and Dr Ng in 1992, in which trades unions were asked to give their views. It appears that of 465 registered trade unions polled, only some 77 replied. Dr Chow's original figures fell to be modified in cross-examination. The final figures showed that out of these, only some 25 claimed to have collective bargaining agreements in existence. Of these, only 6, one of them being the plaintiff itself, claimed that its agreement was enforceable. Those unions which did not have collective bargains answered that in general such bargains were unenforceable.

52. It is quite obvious from this survey that in 1992, the vast majority of all unions did not consider collective agreements to be enforceable. The majority of those which had such agreements, did not consider their individual agreements enforceable.

53. It does appear, however, that many collective agreements were made between employers' associations and trade unions in particular trades. These were fairly informal agreements and only set norms such as minimum wages. No one would expect them to be enforceable.

54. It also appears that, of the collective bargaining agreements known to both experts and Mr Cheung, there was only one, i.e. the Procedural Agreement concerned here, which was concerned purely with procedural matters. Normally, where agreements are concerned with procedure for bargaining and the like, as well as such matters as wage scales, one agreement covers everything. That, of course, was the position between the parties before 1985.

55. It is clear, then, that the "climate of opinion" in 1988 was that generally, in Hong Kong, collective bargaining agreements were unenforceable. However, such "climate of opinion" was based largely on fairly informal agreements within specific trades and on "omnibus" agreements, where they existed, which covered substantive and procedural matters.

56. The plaintiff argues that if there was a "climate of opinion", it was based on agreements which were different from this Procedural Agreement and, so, there was no relevant "climate of opinion" which could be taken into account.

The pleadings

57. The plaintiff pleads the validity of the Procedural Agreement as follows at paragraph 6 of the Statement of Claim :

"The Procedural Agreement is and was, on a proper construction of the contract, valid and binding at all material times as between the Plaintiff and the Defendant."

Originally, the defendant simply admitted the first six paragraphs of the Statement of Claim. Deputy Judge Wesley Wong in 1997 allowed amendment and the relevant paragraph of the Amended Defence now reads :

"Paragraphs 1 to 6 inclusive of the Statement of Claim are admitted. More particularly as to paragraph 6, the Procedural Agreement is and was valid and binding in honour only but is unenforceable in law and was not intended to create legal relations between the parties. All that follows in this Amended Defence is to be read in the light of and subject to that distinction."

58. Originally, the defendant argued that the plaintiff was estopped by its simple admission from denying the enforceability of the Procedural Agreement. This is not and cannot be pursued, but now the plaintiff says that the original admission is telling as a declaration against interest of what the defendant's view originally was.

59. The plaintiff argues that "valid and binding" does not necessarily equate to "enforceable"; an agreement may be binding in honour only. Mr Huggins, SC, relies on NCB v. NUM [1986] ICR 737 in support of this. So, the admission was not necessarily an admission of enforceability. Mr Tang, SC, for his part says, and I can well see the force of this, that there is no point in asking a court for a declaration that an agreement is binding in honour only and the plaintiff's meaning was obvious.

60. The problem with the argument as to an inference to be drawn from the defendant's original pleadings is that, even if the original admission can be taken as indicative of the defendant's position at that time, it is at best an indication of a legal opinion then held or accepted as a result of legal advice. Also, insofar as it goes to a party's subjective view of the meaning of the agreement, evidence of that view would be inadmissible.

Effect of the British Legislation of 1971

61. The plaintiff also argues that when the first collective agreement was made in 1973, this was against the background of the British legislation of 1971 which provided for a presumption of enforceability. This would have been known to the British expatriate managers of the defendant at the time. They would have been expecting enforceability and this would affect their intentions at the time of the original contract. Further, there was a background of industrial action; there had been a strike earlier. (This appears in expert evidence though not specifically from Mr Cheung.) Therefore, the managers would have intended, back in 1973, an agreement enforceable against the plaintiff.

62. I do not think there is much force in this argument. The expatriate managers would have known that they were in a quite different industrial relations environment from that which prevailed in the United Kingdom in the 1970s. It appears from the expert evidence, and indeed it is common knowledge, that in Hong Kong trade unionism is and then was relatively weak. The managers would not necessarily have seen the same kind of need as a British manager would to try to fetter the power of a trade union, or formed the same kind of intention.

Onus of proof

63. The plaintiff relies on Edwards v. Skyways Ltd above, and argues that since the Procedural Agreement is concerned with business relations, rather than social or domestic matters, the onus is on the party who asserts that no legal effect was intended, and the onus is a heavy one.

64. Edwards concerned an agreement reached between the British Air Line Pilots Association and an airline company, relating to payments to redundant aircrew. The Association acted as the plaintiff's agent. The plaintiff sued on the agreement. The airline claimed that there was no intention to establish legal relations, but the court found that it had failed to establish that.

65. It seems to me that the Procedural Agreement is somewhat different in nature from a straightforward agreement made by an agent in a business matter. Obviously, it is not a social or domestic agreement. However, its subject matter was not the actual business relations between the members of the plaintiff and the defendant. The Agreement which set out the pay scales might be so regarded, though again those pay scales formed the basis of, though they were never incorporated in, the individual contracts of employment. The Procedural Agreement did not deal with business relations between the plaintiff and the defendant as such. Rather, it was intended to agree a framework for dealing with the business relations between the members and the defendant. It was at one or two removes from those actual relations.

66. I do not, therefore, see that the same considerations apply. In any event, if the Procedural Agreement can be seen as dealing with commercial relations this could be outweighed by other factors; see Ford Motor Co. Ltd.

Conclusion

67. The issue here is whether the Procedural Agreement is legally enforceable. In other words, is it in law a contract? To create a contract, there must be a common intention of the parties to enter into legal obligations, mutually communicated expressly or impliedly. See Rose and Frank Co. v. J. R. Crompton & Bros. Ltd [1923] 2 KB 261 at 293.

68. The Procedural Agreement does not, as I have found, contain any common intention to enter into legal relations, expressly communicated. Its terms do not apply a clear answer. Therefore, it is necessary to look at the all the surrounding circumstances to ascertain objectively what the intention of the parties was.

69. Further, it seems to me that the nature of the Procedural Agreement was not such that it could automatically be assumed to be enforceable. Like the agreement in Ford Motor Co. Ltd, it does not fall into one or other of the categories of commercial contracts which are obviously intended to be enforceable at law unless the parties, by express provision, declare that they are binding in honour only, or social or domestic arrangements which are equally obviously not designed to be legally binding.

70. The surrounding circumstances included the "climate of opinion" among persons concerned with industrial relations in Hong Kong that collective agreements were generally not enforceable at law. Granted that the Procedural Agreement was something new and different, I do not think this makes any difference. Persons concerned with industrial relations would not automatically draw any distinction and say that this was something so different that it must automatically be enforceable. That would include those officers of the plaintiff and the defendant who were concerned with industrial relations.

71. In the surrounding circumstances, the parties could not be presumed to intend that the Procedural Agreement was to be binding in law rather than in honour only.

72. For these reasons and the others touched on above, I find that the Procedural Agreement was not a binding contract, enforceable at law. It was a "gentlemen's agreement" binding in honour only.

73. It follows that the first declaration sought must be refused. I am asked to deal nevertheless with the second and third declarations. This is not strictly necessary, and the application of the Procedural Agreement, if I am wrong and it is legally binding, has not been fully argued.

74. I would, however, say that if I am wrong, and the Procedural Agreement is legally binding, I do not think it would have prohibited the defendant from laying off staff.

75. Article 3 recites that the company to plan, direct and control operations including the size of the working force and the power to retire employees. Ultimately, it could do these things whether or not it negotiated first and whether or not there was any substance in the negotiations, or the employer's side just sat there and maintained its fixed position.

76. Articles 5 and 6 set out the procedures. Article 5 is for dealing with negotiations about the general employment conditions such as revisions to Scales of Pay, Hours of Work and Overtime/Work on Sundays and Public Holidays. These are contained in the substantive Agreement. These matters have nothing to do with "hiring and firing"; there is nothing about those in the substantive Agreement. So the plaintiff could not have relied on the provisions of Article 5 to deal with the laying off of 198 employees.

77. Article 6 deals with grievance procedure. I can see that the 198 dismissed employees might have felt aggrieved; no one likes to lose his job; but here we come back to the question of vagueness. What is a grievance? Wrongful dismissal obviously is; but is dismissal on notice, in terms of the contract of employment? If a contract of employment allows for termination on notice or payment in lieu, the employment is terminated in accordance with the contract, and the employee gets his full entitlements under the Employment Ordinance, there is no grievance in respect of which the Labour Tribunal might make an order. It is difficult to see therefore that Article 6 would have applied in this case.

78. As I have said, I have not heard full argument on these points, and it is not necessary for me to decide them in the light of my main finding, so my views are necessarily tentative.

79. The plaintiff's claim is dismissed with costs to the defendant (nisi), to be taxed if not agreed.