CHONG CHENG LIN COURTNEY v. CATHAY PACIFIC AIRWAYS LTD

HCLA 52/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

LABOUR TRIBUNAL APPEAL NO. 52 OF 2004

(ON APPEAL FROM LABOUR TRIBUNAL CASE NO. 9693 OF 2001)

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REASONS  FOR  JUDGMENT

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1.  On 14 April 2005, I allowed this Labour Tribunal appeal, set aside the orders dated 12 February 2003 and 22 March 2003 made by the Labour Tribunal, remitted the claim to the Labour Tribunal for re-trial before another presiding officer, and gave the Claimant/Appellant the costs of this appeal.  I said I would give my reasons later, which I now do.

Facts 

2.  The Claimant joined the Defendant as a cabin crew in 1979.  In May 1993, the Defendant suspected the Claimant of theft and found her explanations unsatisfactory.  By letter dated 25 May 1993, the Defendant advised the Claimant as follows:

“I write to advise that your services will be terminated with immediate effect from today Tuesday 25^th May 1993.  You will be paid one month’s salary in lieu of notice.”

3.  The Claimant’s employment with the Defendant thus came to an end on 25 May 1993.  She was paid one-month’s salary “in lieu of notice”.

4.  In 1995, the Claimant commenced a defamation action against the Defendant and another person in relation to the allegation of theft.  The action was settled in May 1998 for $3 million and agreed costs of $1.4 million, which payments were “in full and final settlement of all and any claims which the Plaintiff [i.e. the Claimant here] may have against the 1^st and 2^nd Defendants in respect of the subject matter of this action”.

5.  In November 1998, the Claimant applied to the Defendant for her entitlement (or alleged entitlement) under the Defendant’s “retirement travel concession” scheme.  The Claimant, as a former female cabin attendant, claimed her entitlement on the basis that she had completed “ten or more years service and [had] reached the age of 40”, she having reached the age of 40 in 1996.  On 1 December 1998, the Defendant granted the Claimant a CX retiree travel I.D. card pursuant to the retirement travel concession scheme, thereby granting her travel concessionary rights under the scheme. 

6.  However, on 18 January 1999, the Defendant informed the Claimant by letter that the card had been “issued in error by mistake and contrary to company policy”, and thereby denied her entitlement under the scheme.

7.  On 6 December 2001, the Claimant commenced her claim for her retiree travel benefits under the scheme, quantified in the total sum of $514,800, in the Labour Tribunal.

Labour Tribunal’s decision

8.  On 12 February 2003, after a trial on liability only, the Labour Tribunal found that the claim was time-barred and thus dismissed the Claimant’s claim.  It maintained its decision on an application for review on 22 March 2003.

9.  The Labour Tribunal’s reasons for its conclusion that the claim was time-barred may be summarized as follows.  The Tribunal took the view that the Defendant did not seek to summarily dismiss the Claimant for cause, something that was specifically provided for in the employment contract.  Instead it sought to summarily terminate the contract of employment by payment of one month’s wages in lieu of notice.  This was wrongful and amounted to a wrongful repudiation of the contract of employment given its seriousness because the contract simply did not provide for a right to terminate the employment by notice or payment in lieu of notice.  The case therefore fell within the fourth category of cases analysed by Lord Browne-Wilkinson in Delaney v. Staples [1992] 1 AC 687, 692C/D to 693D.  The Tribunal further took the view that the wrongful repudiation was accepted by the Claimant on 25 May 1993.  As a result, the contract of employment came to an end on that day. 

10.  From that premise the Tribunal reasoned that the Claimant’s cause of action for wrongful repudiation of the employment contract, including her claim for retiree travel benefits, accrued on that day, being the day of breach of contract.  In the circumstances, the Labour Tribunal concluded that the Claimant had 6 years from 25 May 1993 to claim damages, and as her claim for retiree travel benefits was only made on 6 December 2001, that claim was time-barred.

Parties’ positions on appeal

11.  At the hearing of the appeal, Mr Martin Lee SC (leading Ms Debora Poon) for the Claimant said that the Labour Tribunal was wrong.  Leading counsel essentially argued that when the contract of employment came to an end in May 1993, the Claimant had not reached the age of 40, although she had by then completed more than 10 years service.  Her entitlement under the retirement travel scheme had not yet fully accrued.  Accrual of rights would only take place in future.  Those rights did not fully accrue until 1996 when the Claimant attained the age of 40.  She claimed her rights in November 1998, which were initially recognized and granted.  The Defendant only denied her rights in January 1999, which was when the cause of action first accrued.  As the claim was commenced in 2001, it was not time-barred.

12.  Mr Robin McLeish appearing for the Defendant did not put forward any contrary argument.  Indeed counsel did not seek to uphold the Labour Tribunal’s decision at all.  Understandably, the Defendant was most dissatisfied with the finding that the Defendant was in wrongful repudiation of the contract of employment when it sought to terminate the Claimant’s employment in 1993.  For it was the Defendant’s case before the Tribunal that the Claimant had been lawfully dismissed for cause pursuant to the specific provisions in the employment contract.  Based on that position (which was rejected by the Labour Tribunal), no question of accrual of any cause of action for breach of contract (by the Defendant) in 1993 would arise, and the limitation point simply would not feature in the case. 

13.  But counsel conceded that if he was wrong and the Labour Tribunal was right regarding its finding that the Defendant never sought to dismiss the Claimant for cause in May 1993 and the termination of contract was wrongful, the further conclusion of the Labour Tribunal (that was under appeal) that the Claimant’s claim was time-barred could not be supported.  This position of counsel on the limitation point, I would simply note, was different from that advanced by the Defendant’s representative at the hearing before the Tribunal.

Wrongful breach of contract?

14.  Before I deal with the main point raised in this appeal, I would make some observations on the question of breach by the Defendant as found by the Tribunal.

15.  The Labour Tribunal specifically found that the Defendant did not seek to dismiss the Claimant for cause in May 1993.  It rejected the submission of the Defendant’s representative to the contrary at the hearing.  Understandably, given that finding, the Tribunal did not go on to determine whether there was any good ground for summary dismissal for cause if it had been attempted (contrary to its finding).  In other words, according to the Tribunal’s findings, this was not a case of an unjustified (and thus wrongful) attempted dismissal for cause – the significance of this will become apparent shortly.   

16.  Rather, the Labour Tribunal took the view that as it was not a case of dismissal (or purported dismissal), and as the contractual provisions did not otherwise provide for the termination of the contract of employment either by notice or by payment in lieu of notice, the attempted termination of contract with immediate effect by payment of one month’s salary “in lieu of notice” was “wrongful” – in the sense that the contract did not allow the Defendant to do so. 

17.  I am not sure if I agree with this analysis of the situation, although I did not hear much argument on this point at this appeal.  No doubt the Labour Tribunal did consider the position at common law, which has been discussed in Delaney v. Staples, supra.  But there was no mention of the provisions in section 5 (deeming of a continuous contract of employment to be a contract for one month renewable from month to month), section 6(2)(a) (terminating such a deemed contract for one month renewable from month to month by one month’s notice) and section 7 (payment in lieu of notice) in the Employment Ordinance (Cap. 57), which appear to apply to the facts of this case.

18.  The significance of all this in relation to the limitation point is that: if the termination of contract in 1993 by the Defendant was not wrongful, there would be no question of any cause of action against the Defendant accruing in 1993 or the Claimant’s claim becoming time-barred 6 years thereafter. 

19.  For the purpose of disposing of the appeal, I do not need to, nor do I wish to, express any definite view on this matter.  I do not have all the facts or findings before me and counsel did not address me on this point.

20.  I am prepared to proceed on the footing that the termination of the employment contract was “wrongful” as found by the Labour Tribunal.

Two questions to ask

21.  The limitation point in the present case is deceptively straightforward.  It is not. 

22.  In my judgment, on the facts as stated above, in order to determine when the cause of action regarding the right to the retirement travel benefits accrued, there are essentially two questions to ask: first, was the term of contract in question intended to survive the termination of contract by breach on the part of the employer?  If it was not, the wrongful termination of contract would bring the contract together with the term to an end and the right to sue for wrongful termination of contract including that term would accrue on the day the contract was terminated. 

23.  However, if the term was intended to survive the termination, a second question has to be asked: At the time of termination of contract by breach, did the wrongful party/employer also by words or conduct deny or evince an intention to deny the innocent party’s entitlement under the term in question or otherwise an intention no longer to be bound by it thereafter?  If he did not, that term has not been breached and there is no question of any cause of action for breach of that term arising on the date of termination of contract.  If, however, he did, there was, apart from the wrongful repudiation of the contract, also a wrongful breach or anticipatory breach of that term, and a cause of action for breach of that term accrued on the same day as the wrongful termination of contract.

(1)     Was the term intended to survive the wrongful termination of contract by the employer?

24.  All this requires elaboration.  First of all, as a matter of general principle, when a contract comes to an end by breach, it does not necessarily follow that all the terms in the contract must also come to an end at the same time.  Depending on the nature of the terms and the intention of the parties to be gathered from the contract itself and the admissible factual matrix, some of the terms may survive the termination of contract by breach.  A prime example is an arbitration clause in a contract, which continues to govern the parties’ relationship in relation to dispute resolution after the termination of the contract itself by breach.  Another good example is an exemption clause.  Furthermore, the termination of a contract by breach does not divest or discharge rights which have been unconditionally acquired prior to the termination.

25.  The position has been succinctly summarized in Chitty on Contracts (29^th ed.) vol. 1 para. 24-048 as follows:

“… from the time of discharge, as a general rule both parties are excused from further performance of the primary obligations of the contract which each has still to perform.  However, obligations for the resolution of disputes will remain in full force and effect, as may other clauses having a contractual function which is ancillary or collateral to the subject-matter of the contract.  Arbitration clauses which state without qualification that any difference or dispute which may arise under the contract shall be referred to arbitration will continue to apply notwithstanding the discharge.  Ultimately, it is a question of construction whether or not the parties intended the contractual obligation in question to survive the termination of the contract.  Moreover, in principle, only those primary obligations falling due after the date of discharge will come to an end; those which have accrued due at the time may still be enforceable as such.  Thus, while both parties are discharged from further performance of their primary obligations under the contract, “rights are not divested or discharged which have been unconditionally acquired.”  The party in breach can therefore enforce against the innocent party such rights as it has “unconditionally acquired” by the date of termination.”

26.  In my judgment, generally speaking, terms providing for post-termination benefits, such as pensions and other retirement/post-employment benefits, fall within the category of contractual terms that may potentially survive the termination of contract by breach of the employer.  By their nature and/or the provisions in the employment contract, quite likely these terms are intended to survive the termination of the employment contract – at least when the termination is not due to the fault of the employee, which is the situation under consideration.

(2)     Was there any breach or anticipatory breach of the term at the time of wrongful termination of contract? 

27.  This takes me to the second question I posed above. 

28.  Although a term (e.g. a term on post-termination benefits – such as the retirement travel concession benefits in the present case) was, on true analysis, intended to survive the termination of contract by breach by the employer, there is nothing to stop the wrongful party/employer from denying or evincing an intention to deny the innocent party’s entitlement under the term in question or otherwise an intention no longer to be bound by it thereafter, at the same time when he committed the wrongful repudiation of contract. 

29.  In that case, not only did the contract come to an end by breach (and acceptance), there was also a breach or anticipatory breach of the term that could and would have otherwise survived the wrongful termination of contract.  In that event, the cause of action for breach of that term would arise on the same day as the wrongful repudiation of contract.

30.  Moreover, in determining whether the wrongful party/employer has so denied or evinced an intention to deny the innocent party’s entitlement under the term in question or otherwise an intention no longer to be bound by it thereafter when he committed the wrongful repudiation of contract, the fact of his wrongful repudiation of contract can and should normally be relevant and taken into account together with all other relevant circumstances. 

31.  Furthermore, as I will explain shortly, what constituted the wrongful repudiation could be, depending on the facts, highly material.  Specifically, if the wrongful repudiation comprised an unjustified attempt to summarily dismiss the employee for cause, that would be of great significance to the question under discussion – see below.

32.  But if the court should come to the conclusion on the facts that the wrongful party/employer did not deny or evince an intention to deny the innocent party’s entitlement under the term in question or otherwise an intention no longer to be bound by it thereafter when he committed the wrongful repudiation of contract, then whilst the employment relationship would end, there would not be any breach or anticipatory breach of the term governing post-termination benefits and the employee’s right to the same would continue. 

33.  In that situation, there is no question of any cause of action accruing or starting to run before any subsequent denial of the post-termination benefits by the former employer.  The cause of action would only accrue when that subsequent denial of those benefits should take place.

34.  On that analysis, it does not matter whether the employee was already entitled unconditionally to the post-termination benefits at the time of wrongful repudiation.  This is not the crucial matter.  What is crucial is whether at the time of termination, the employer had evinced an intention not to honour those post-termination benefits and be bound by the relevant term thereafter: if he did, there would be a breach or anticipatory breach of the term granting those post-termination benefits, and time would start to run there and then, even if the employee had not yet been fully entitled to those rights.  If he did not, time would not start to run until subsequently when the employer did by words or conduct deny or evince an intention to deny the former employee of his or her entitlement to those rights.

Summary dismissal or purported summary dismissal for cause: different considerations apply

35.  The situation with a summary dismissal for cause or a purported summary dismissal for cause (which has subsequently been found to be unjustified) may well be very different. 

36.  In most cases, either by reason of some express wording in the contract of employment or by implication (based on the nature of a summary dismissal for cause), when an employee is summarily dismissed for cause, his or her right to post-termination benefits is forfeited at the same time (of course there can be exceptions – this will depend on the actual wording of the contract of employment or in the absence of such wording, the facts and circumstances of the case and the implication that can be inferred from the same). 

37.  In that case, if an employee has been rightly summarily dismissed for cause, he or she can have no claim to post-termination benefits.  No question of limitation will arise.

38.  But if the employer had no valid ground to summarily dismiss the employee for cause but he purported to do so, and that was accepted by the employee as a wrongful repudiation, thereby bringing the employment contract to an end, then not only was the contract of employment terminated, it would also be highly arguable that in that case, the employer has committed a breach or anticipatory breach of the term governing post-termination benefits (which ex hypothesi, could and would have otherwise survived the wrongful termination of contract). 

39.  In that event, the cause of action for breach of that term would accrue on the date of purported summary dismissal and time would start to run as from that date.

40.  In the present case, given the Labour Tribunal’s express finding that there was no summary dismissal for cause, nor was there any purported summary dismissal for cause, the preceding analysis does not apply.

Present case

41.  On the facts of the present case, it is – put at the lowest – arguable that the term governing retirement travel benefits was intended to survive the termination of contract by breach on the part of the Defendant.  The Labour Tribunal made no finding on this point. 

42.  Further, the letter of termination did not mention the Claimant’s post-termination rights or benefits at all.  Still less did it say that the Defendant was, by terminating the employment, seeking also to forfeit or deny her rights under the retirement travel concession scheme, which had not yet fully accrued. 

43.  It is therefore, again put at the lowest, arguable that the Defendant did not deny or evince an intention to deny the Claimant’s future entitlement under the term governing retirement travel benefits or otherwise an intention no longer to be bound by it thereafter when it committed the wrongful repudiation of contract in 1993; put another way, arguably the term governing those benefits did survive the termination of contract by breach.  Again the Labour Tribunal made no relevant finding here.

44.  But in the absence of any findings to the contrary by the Labour Tribunal, it must follow that it is arguable that, on the facts as found by the Tribunal, the first breach of the term governing retirement travel benefits only occurred in January 1999 when the Defendant denied the Claimant’s entitlement to the benefits.  That was when the Claimant’s cause of action for breach of that term accrued.

45.  Thus analysed, in the absence of a finding by the Labour Tribunal that the contractual provisions governing the Claimant’s entitlement to the retirement travel benefits were not intended to survive the termination of contract in 1993 or that even if they were there was a breach or anticipatory breach of them back in 1993 when the contract was terminated, it was simply not open to the Tribunal to conclude that the Claimant’s claim was time-barred. 

46.  This conclusion is of course based on the Labour Tribunal’s findings that there was no summary dismissal for cause or purported summary dismissal for cause, and that the termination of contract by the Defendant was wrongful.

Outcome

47.  For all these reasons, I concluded that the Labour Tribunal had come to the wrong conclusion on the limitation point.

48.  The above is of course without prejudice to the Defendant’s various arguments that the Claimant was not entitled to the retirement travel concession rights in the first place, or that the Claimant should be estopped from asserting those rights, which were not dealt with by the Labour Tribunal.  Understandably the Labour Tribunal did not find it necessary to deal with these issues or arguments in the light of the conclusion on limitation that it had reached.

49.  And because the Labour Tribunal had reached the conclusion that the Claimant’s claim was time-barred and therefore ordered the dismissal of her claim, the Defendant did not find it appropriate to seek leave to appeal from the Labour Tribunal’s finding that the Defendant was in wrongful repudiation of the contract of employment.  There are no express or specific provisions in the applicable appeal procedure for the filing of a respondent’s notice so as to lodge a cross-appeal, as in the case of an appeal from this court to the Court of Appeal.

50.  At the hearing of the appeal, I therefore did not find it appropriate to deal with the Defendant’s challenge against the Labour Tribunal’s finding that it was in wrongful repudiation of the employment contract – which was raised by counsel during the appeal (counsel’s argument was based on facts rather than the provisions in the Employment Ordinance that I mentioned above). 

51.  With fairness, Mr Lee on behalf of his client did not seek to hold the Defendant to that finding in the event of the appeal being successful and this Court ordering a re-trial.  On that basis, the Defendant through counsel likewise indicated to the Court that in such a re-trial, the Claimant should not be held to any (adverse) findings that the Labour Tribunal might have made at the original trial.

52.  In those circumstances, I ordered that the appeal be allowed, that the orders below be set aside, and that the claim be remitted to the Labour Tribunal for re-trial before another presiding officer.  The case raised many issues that were fact-sensitive and it would be inappropriate for the Court to deal with them on appeal. 

53.  I gave the direction that the parties shall not be bound by any determinations or findings of fact that may have been made by the Labour Tribunal at the original trial (so as to reflect the parties’ agreed position as stated above – which was only fair). 

54.  Furthermore, after hearing counsel on whether this is indeed a suitable case for adjudication by the Labour Tribunal, I further gave the direction that nothing in my order shall prejudice the parties’ right to apply to the Labour Tribunal to decline jurisdiction in this case and transfer the case to a more appropriate forum for adjudication, or the Labour Tribunal’s exercise of its power under section 10 of the Labour Tribunal Ordinance (Cap. 25) regarding declining jurisdiction.

55.  I also gave the costs of the appeal to the Claimant, with a certificate for two counsel (for the avoidance of doubt only: c.f. Order 62, First Schedule, para. 2(3)).  I have given my reasons on costs at the hearing; I shall not repeat them here.

56.  I thank counsel for their assistance and the very robust approach that has been adopted.