YUNG CHI KEUNG v. PROTECTION OF WAGES ON INSOLVENCY FUND BOARD AND ANOTHER

CACV 37/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 37 OF 2014

(ON APPEAL FROM HCAL 55/2013)

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JUDGMENT

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Hon Cheung CJHC:

1. This is an appeal from the judgment and order of Louis Chan J dated 19 December 2013 dismissingthe applicant’s application for judicial review.

The facts

2. The facts are straightforward.  The applicant was employed as a driver by Fu Ming Transport Company Limited from 6 November 1999 to 7 October 2011.  On 7 October 2011, Fu Ming commenced voluntary liquidation and dismissed all employees with immediate effect.  It failed to pay outstanding wages and termination payments to employees including the applicant.  The applicant, together with 48 fellow employees of Fu Ming, filed claims at the Labour Relations Division of the Labour Department.  They applied for ex gratia payments from the Protection of Wages on Insolvency Fund (“the Fund”) in respect of outstanding wages, wages in lieu of notice and severance payments. The Fund is a fund established under section 6 of the Protection of Wages on Insolvency Ordinance, Cap 380 (“Cap 380”).  It is administered by a board established under section 3 of the Ordinance (“the Board”).  At the ground level, the Fund is operated by the Commissioner for Labour and his department.

3. The dispute between the applicant on the one hand and the Commissioner and the Board on the other which gave rise to the application for judicial review centres on the applicant’s application for ex gratia payment from the Fund in respect of his outstanding severance payment.  It is not disputed that the applicant is owed $131,696.54 in severance payment by Fu Ming.  On the other hand, he has received payments in the total sum of $106,319.04 under a MPF (mandatory provident fund) scheme referable to the employer’s contributions.  According to the applicant’s calculation, his net entitlement to severance payment is $25,377.50 ($131,696.54 - $106,319.04) as per sections 31G(1) and 31I of the Employment Ordinance, Cap 57 (“Cap 57”). This outstanding amount is less than the statutory cap on the amount of ex gratia payment payable under the Fund in respect of severance payment as stipulated in section 16(2)(f)(i) of Cap 380.  Therefore, the applicant contends, he is entitled to be paid ex gratia payment of $25,377.50.

4. However, when the applicant made his application for ex gratia payment, the Commissioner disagreed and considered that no ex gratia payment was payable in respect of severance payment, and his decision was upheld by the Board on review.  At the hearing below, the Commissioner’s position was essentially that when applying the statutory cap set out in section 16(2)(f)(i) of Cap 380, one compares the capped amount with the gross severance payment calculated under section 31G of Cap 57, without first deducting therefrom the MPF benefit required to be deducted by section 31I of Cap 57 to work out the net severance payment payable, and adopts the lesser amount.  From this lesser amount, the MPF benefit should then be deducted to arrive at the amount of ex gratia payment payable.  In the present case, the maximum ex gratia payment payable as per section 16(2)(f)(i) was $90,848.27.  As this was smaller than the MPF benefit already received by the applicant, therefore no ex gratia payment was payable to the applicant, and none was paid.

5. Secondly, the Commissioner argued that he has a statutory discretion under Cap 380 whether to make payment in any case or type of case, and if so, the amount of payment.  The Commissioner contended that his calculations described above, particularly his treatment of the MPF benefit, simply reflected his established policy over the years in respect of ex gratia payment for severance payment.  In the evidence, he gave three reasons in support of the policy.

The judge’s decision

6. In his judgment, the judge agreed with the Commissioner’s method of calculating the ex gratia payment payable in respect of severance payment.  The judge first looked at Cap 57 and took the view that the first step to ascertain the amount of severance payment payable is to calculate the same according to the formula provided in section 31G.  However, the judge considered, the actual amount to be paid has to be reduced by the various benefits, including the MPF benefit, specified in section 31I.  Importantly, the judge agreed with the Commissioner that the section 31I amount takes effect “as a part‑payment of the severance payment entitlement to the employee so that the employer needs only to pay the balance” (para 37).  However, the judge reasoned, “the original entitlement is the amount calculated according to section 31G, not the net sum after deducting the section 31I benefit” (para 37).  The judge then turned to Cap 380.  He observed that section 16(2)(f)(i) of the Ordinance which provides for the cap does not refer to the unpaid or outstanding portion of the severance payment.  Rather, the reference to severance payment there should be construed as a reference to “the amount of severance payment before deduction of the section 31I benefit” (para 39).  The judge concluded:

“I am of the view that ‘the applicant’s entitlement to severance payment’ in section 16(2)(f)(i) of [Cap 380] should mean the sum calculated according to section 31G without any deduction therefrom of the section 31I benefit. If the entitlement in section 16(2)(f)(i) should be the net severance payment after deduction of the section 31I benefit, then section 16(2)(f)(i) should have so provided.” (para 40)

7. From there, the judge concluded that the Commissioner was correct and he therefore dismissed the application for judicial review.  Apparently, given his conclusion reached by way of statutory interpretation of section 16(2)(f)(i), the judge did not find it necessary to, and did not, deal with the Commissioner’s further argument based on discretion.

The arguments on appeal

8. In this appeal, the applicant placed heavy emphasis on section 16(1) of Cap 380 as the section providing for payment of the outstanding severance payment (net of the section 31I figure) by way of an ex gratia payment.  Mr Alan Ng, for the applicant, argued that as for section 16(2)(f)(i), it is nothing more than a cap.  Counsel accepted that in calculating the cap by reference to an employee’s “entitlement to severance payment”, only the section 31G amount, but not the section 31I deduction, should be taken into account.  That was in fact the contention of the Commissioner before the judge who accepted his argument.  But that did not matter, Mr Ng argued, because section 16(1), not section 16(2)(f)(i), is the section providing for payment of an ex gratia payment in the amount of the net severance payment outstanding. As for discretion, Mr Ng accepted that the Commissioner has a discretion on whether to make payment at all or not.  But if he should decide to do so, he has no discretion on the amount of payment, which must be the amount outstanding (net of the section 31I figure), subject to the cap.

9. For the Commissioner, Ms Roxanne Ismail SC, who, unlike her junior Mr Jonathan Chang, did not appear before the judge, clarified the Commissioner’s position on appeal regarding the two issues of statutory interpretation and discretion in this way, that is, on the proper construction of Cap 380, the Ordinance does not provide for a formula for calculating the amount of ex gratia payment.  Instead, it gives the Commissioner a discretion not only on whether to make payment at all, but also on the amount of payment.  On that basis, she accepted that section 16(1) does, as the applicant contended, refer to the payment of an ex gratia payment of an amount equal to the outstanding severance payment (net of the section 31I amount), subject to the cap.  However, she submitted that section 16(1) is only an enabling provision.  It does not require the Commissioner to pay the entire amount of the outstanding severance payment (net of the section 31I figure), subject to the cap, as ex gratia payment.  Rather, it gives the Commissioner a discretion to make payment of an amount determined by him as a matter of discretion, up to the full amount outstanding, or the cap, whichever is the less.  After all, what is in question is an ex gratia payment.

10. In short, the difference between the parties on appeal lies within a very narrow compass.  Most previous disagreements regarding the proper interpretation of sections 16(1)(a) and 16(2)(f) are gone.  The only real difference is whether section 16(1) gives the Commissioner a discretion not only regarding whether to make payment at all, but also in relation to the amount of payment (subject to the cap).

11. Put another way, the applicant’s stance is that Cap 380 provides for a statutory formula for calculating ex gratia payment, and that formula requires the payment of an ex gratia payment in an amount equivalent to the outstanding severance payment (net of the section 31I figure), subject to the cap.  On the other hand, the Commissioner contends that there is no statutory formula provided in the Ordinance to work out the exact amount of ex gratia payment.  The Ordinance only sets out the triggering conditions to engage the Commissioner’s discretion, not only in relation to whether to make payment, but also as regards the amount of ex gratia payment, subject to the cap.

The principles of statutory interpretation

12. These are matters of statutory interpretation. The parties are agreed that a purposive approach to interpretation must be adopted.  HKSAR v Cheung Kwun Yin (2009) 12 HKCFAR 568.  To that end, both sides have referred the court to relevant Hansard passages relating to the Ordinance so as to ascertain the purpose of the Ordinance.

13. The parties are also agreed that whilst a purposive interpretation is to be adopted and statutory provisions are to be construed to give effect to the intention of the legislature, that intention must be ascertained by a proper application of the interpretative process.  It does not permit the court to attribute to a statutory provision a meaning which the language of the statute, understood in the light of its context and the statutory purpose, is incapable of bearing: China Field Ltd v Appeal Tribunal (Buildings) (No 2) (2009) 12 HKCFAR 342, para 36.

The purpose of Cap 380

14. Regarding the purpose of the legislation, again the parties are in agreement.

15. The purpose of the Fund, established in 1985 pursuant to section 6 of Cap 380, is to provide timely relief in the form of an ex gratia payment to eligible employees affected by the insolvency of their employers. Employees who are owed wages and terminal payments including wages in lieu of notice and severance payments by insolvent employers may apply for ex gratia payments from the Fund.  As from 29 June 2012, termination payment now also includes pay for untaken statutory holidays and untaken annual leave.

16. The Fund is funded by an annual levy on business registration certificates.  According to the Hansard records, on the first reading of the Business Registration (Amendment) Bill 1984 which introduced the annual levy to fund the Fund, the purpose of the Fund was said to be the making of prompt payment of wages owed to the workers by insolvent employers.  The Fund would step in as soon as there was concrete evidence of an insolvency or bankruptcy and immediately pay wages owed to employees.  The employees’ rights would be subrogated to the Fund, which could pursue the recovery of the payments it had made to employees in the relevant bankruptcy and insolvency proceedings.  In other words, it was the employees’ need to immediate payment of wages in employers’ insolvency that the Fund was intended to address when the legislation was first introduced in 1985.

17. The purpose of the Fund was put this way when Cap 380 was amended to include wages in lieu of notice under the Fund, that is, “the fund is intended to be a safety net: to ensure that no employee suffers hardship while waiting for the courts to determine his share of the proceeds of his employer’s winding‑up and for the receiver to realise the assets …”

18. In 1989, in relation to a further amendment to include severance payment under the Fund, the object of the Fund was again expressed to be to “provide help quickly for employees … to tide an employee over the difficult period after the sudden loss of employment”.

19. The evidence shows that the Fund only acts as a safety net to employees.  It is by no means intended to replace or take over employers’ responsibility of making full payments to their employees in insolvency.

Severance payment

20. The provisions in Cap 380, as well as those in Cap 57 in relation to severance payment, must now be examined more closely.  Section 2 of Cap 380 defines “severance payment” by reference to a severance payment in respect of which an applicant would, on the winding up of a company, be entitled to priority under section 265(1)(ca) of the Companies  (Winding up and Miscellaneous Provisions) Ordinance (Cap 32) or would, on a bankruptcy, be entitled to priority under section 38(1)(ca) of the Bankruptcy Ordinance (Cap 6), save that the respective caps specified in those two sections shall not apply.  If one turns to the two Ordinances, one sees that they, in turn, define “severance payment” by reference to what is provided under Part VA of Cap 57 relating to severance payment.

Section 31G calculation

21. Section 31B(1) in Part VA of Cap 57 provides that where an employee who has been employed under a continuous contract for a period of not less than 24 months ending with the relevant date is dismissed by reason of redundancy or is laid off, the employer shall, subject to Part VA and Part VC, be liable to pay to the employee a “severance payment” calculated in accordance with section 31G.  Section 31G, in turn, provides for how “[s]ubject to [Part VA], the amount of a severance payment to which an employee is entitled in any case shall be calculated”.

22. Essentially, severance payment is calculated by reference to the amount of wages and the number of years of service.

Section31I reduction

23. Section 31I in Part VA reads:

“ If an employee becomes entitled to payment of a severance payment under this Part and-

(a) because of the operation of the employee's contract of employment, one or more gratuities based on length of service or one or more relevant occupational retirement scheme benefits have been paid to the employee; or

(b) a relevant mandatory provident fund scheme benefit is being held in a mandatory provident fund scheme in respect of the employee, or has been paid to or in respect of the employee,

the severance payment is to be reduced by the total amount of all of the gratuities and benefits to or in respect of the employee to the extent that they relate to the employee's years of service for which the severance payment is payable.”

24. In other words, if and when an employee is entitled to be paid a severance payment pursuant to section 31B(1), the amount of severance payment shall be calculated in accordance with section 31G.  If he happens to have received a gratuity specified in section 31I(a), or is entitled to a MPF benefit or has been paid the benefit as specified in section 31I(b), the severance payment calculated in accordance with section 31G will have to be “reduced by the total amount of all the gratuities and benefits” described above.  One may, for the sake of convenience, refer to the final severance payment payable to the employee as the net severance payment.

25. In a solvent case, whether there are section 31I benefits does not matter.  At the end of the day, an employee receives the same amount of payment, whether by way of a severance payment alone, or by way of a reduced severance payment plus the section 31I benefits.

Complications in case of insolvency

26. In case of insolvency and the employee makes an application for ex gratia payment under Cap 380, by definition, the employee has not been paid his net severance payment in full or at all.  Superficially, subject to the statutory cap, which is imposed for obvious reasons, he should be paid an ex gratia payment equivalent to the (unpaid) amount of the net severance payment.  After all, payment of the outstanding net severance payment in the form of an ex gratia payment is intended to tide the employee over the difficult period after the sudden loss of his employment.

27. However, as the Commissioner points out, the situation is not as straightforward as that.  For another employee who is owed the same amount of severance payment calculated in accordance with section 31G, if he has not received any gratuity (because, for instance, his employer has preferred to pay the first employee his gratuity but not him), or he is not entitled to any relevant MPF benefit and he has not received any (because, for instance, his employer has defaulted in making the relevant MPF contributions in respect of his employment), there will be no section 31I deduction in his case. The net severance payment, in his case, will simply be the amount calculated under section 31G.

28. If it had been a solvent case, this would not make any difference.  His employer would have to foot the bill. However, in an insolvent situation, when he goes to the Fund to seek assistance, because his outstanding severance payment is, by definition, larger than his fellow employee who has been paid a gratuity or some MPF benefit, the chances of his ex gratia payment being capped by section 16(2)(f) are higher.  And, depending on the figures involved, this would result in different treatment for the two otherwise similarly‑situated employees.

29. Take this simple illustration.  Both employees A and B are owed $80,000 in severance payment as per section 31G. A has a MPF benefit in the value of $20,000 whereas B has none.  The cap for severance payment of $80,000 is $65,000.  In the case of A, since his net severance payment outstanding is only $60,000, he gets full payment.  In other words, the total amount he gets from the Fund and his MPF benefit is $80,000 ($20,000 + $60,000).

30. However, for B, since the cap is $65,000 and his net severance payment outstanding is $80,000, he only gets $65,000 from the Fund.  Unlike A, he has no section 31I benefit.  In other words, in total, he receives $15,000 less than A during the interim period pending the recovery of money (if any) from his employer under insolvency, even though his need for money to tide over the difficult period after the sudden loss of employment is no different from A.

31. It is consideration of this sort that leads the Commissioner to argue that he must be (and he has been) given a discretion under Cap 380 regarding the amount of payment, in order to redress the unequal (and therefore unfair) treatment of employees under similar situations.  Otherwise, the Commissioner contends, the result would be quite absurd and go contrary to the intention of the scheme.

32. There is no need to multiply examples to show how injustice may result in other situations.  I can see the full force of the Commissioner’s concern.  I cannot discern from the material before the court any legislative intention to differentiate employees who are all suffering similar hardships from a sudden loss of employment in this way, when it comes to alleviating their needs for immediate money to tide them over.

A discretion intended?

33. However, it does not necessarily follow from the preceding discussion that the Commissioner should be (or has been) given a discretion under the Ordinance regarding the amount of payment.  The same result may also be achieved by giving the relevant provisions, if possible, an interpretation which would not only empower, but require, the Commissioner to make payment in such a way as to eliminate any differential treatment of the type described above.  And there is a strong case, in terms of certainty and finality – a point which I will develop, for such an interpretation.

Sections 15(1)(c) and 16(1) of Cap 380

34. Bearing all this in mind, I turn to the provisions of Cap 380.  Section 15(1)(c) provides that subject to Part V of Cap 380, an applicant to whom the liability to be paid a severance payment has arisen and the severance payment is unpaid, whether or not the severance payment is then due, may apply for an ex gratia payment from the Fund in respect of the severance payment.  In other words, the qualifying conditions to make an application are the accrual of the liability to pay a severance payment and the non‑payment of the severance payment.

35. Section 16(1) then provides:

“(1) Subject to subsections (1B) and (2) where it appears to the Commissioner that an employer has failed to pay any wages, wages in lieu of notice, severance payment, pay for untaken statutory holidays or pay for untaken annual leave, as the case may be, or all or any of them to an applicant and that-

(a) in the case of an employer who is not a company-

(i) a bankruptcy petition has been presented against him; or

(ii) he would, but for the existence of section 6(2)(a) of the Bankruptcy Ordinance (Cap. 6), be liable to have a bankruptcy petition presented against him; or

(b) in the case of an employer who is a company, a winding-up petition has been presented against that employer,

he may make an ex gratia payment to the applicant out of the Fund of the amount of the wages, wages in lieu of notice, severance payment, pay for untaken statutory holidays or pay for untaken annual leave, as the case may be, or all or any of them.”

36. Plainly, section 16(1) is the enabling provision.  If and where “it appears to the Commissioner that an employer has failed to pay … severance payment” and one of the situations described in sections 16(1)(a)(i) and (ii), and (b) applies, the Commissioner is empowered to make an ex gratia payment.

37. A second observation that may be made in relation to section 16(1) is that by the use of the word “may” in “he may make an ex gratia payment”, it gives the Commissioner a discretion.  As already mentioned, it is common ground that the Commissioner has a discretion to refuse making any ex gratia payment at all, for instance, in case of suspected collusion between employer and employee.  As described, the Commissioner goes one step further and argues that he has a discretion relating to the amount of payment as well.

38. A further observation that can be made in relation to section 16(1) is that it does speak of an amount of ex gratia payment to be made.  Indeed it says that where the triggering conditions are satisfied, the Commissioner “may make an ex gratia payment to the applicant out of the Fund of the amount of the … severance payment” (emphasis added).  Mr Ng therefore argued, first, that there is no discretion relating to the amount of payment.  It is fixed by section 16(1).  Secondly, he argued that the amount of ex gratia payment is the net severance payment outstanding, that is, the section 31G less section 31I amount, subject to the cap in section 16(2)(f)(i).

39. Ms Ismail recognised the force of Mr Ng’s argument and indeed said that section 16(1) represents the high‑water mark of Mr Ng’s case on the amount of ex gratia payment.  Instead of putting forward counter arguments by way of statutory interpretation, she sought to avoid it and argued that section 16(1) does not mandate a specific amount of ex gratia payment or provide any formula for calculating the amount of ex gratia payment.  Rather, it gives the Commissioner a discretion to determine the amount generally.  She placed reliance on the word “may”, and the fact that the payment is an “ex gratia” one, but had obvious difficulty in coping with the phrase “of the amount of the … severance payment” (emphasis added).

Section 16(2)(f)(i) – the cap and its significance

40. Before resolving this difference, I should first mention section 16(2)(f)(i), the statutory cap. Section 16(2)(f) reads:

“(2) The Commissioner shall not make any payment under subsection (1)‑

…

(f) in respect of a severance payment-

(i) of an amount exceeding the aggregate of $50,000 and half of that part of the applicant's entitlement to severance payment in excess of $50,000; or

(ii) the liability for payment of which arose more than 6 months prior to the date of application;

                 …”

41. As explained, although the parties were in disagreement before the judge (see paras 4 and 5 of the judgment), they are agreed before this court regarding how the cap is to be calculated.  Both sides now agree that the Commissioner (and the judge below) are correct in using the section 31G formula (disregarding the reduction in section 31I) to calculate the cap.

42. The parties’ agreement on how the cap is to be calculated is partly based on the use of the phase “the applicant’s entitlement to severance payment” (emphasis added) in section 16(2)(f)(i), and also partly because of the reference in section 16(2B)(a)(A) to section 31G when mentioning how an applicant’s “entitlement to severance payment” is to be calculated.  Section 16(2B)(a) reads:

“(2B) (a)Where it appears to the Commissioner that-

(i) an applicant's wages have been reduced during the period of 12 months immediately before he is dismissed or laid off; and

(ii) before the wage reduction took effect, the employer of the applicant had given an undertaking to the applicant to the effect that if the applicant was dismissed or laid off after the wage reduction, the severance payment payable to him would be calculated in a manner more favourable to him than that provided for in section 31G of the Employment Ordinance (Cap. 57),

then, for the purposes of subsection (2)(f)(i), the applicant's entitlement to severance payment may, if it is more favourable to the applicant, be calculated-

(A) subject to paragraph (c), in accordance with section 31G of the Employment Ordinance (Cap. 57); or

(B) in the manner specified in the undertaking,

whichever results in a lesser amount.”

43. It should be noted that section 31G of Cap 57 provides for the method to calculate “the amount of severance payment to which an employee is entitled” (emphasis added).

44. In my view, the parties are correct in their understanding of how the cap in section 16(2)(f)(i) is to be computed.

45. Mr Ng argued that section 16(2)(f)(i) simply provides a cap – a cap is a cap and has no other significance.  I disagree.

46. In my view, the method by which section 16(2)(f)(i) calculates the cap, that is, by reference to the section 31G figure, indicates an intention on the part of the legislature which goes beyond Mr Ng’s submission that a cap is simply a cap but nothing else.  The fact that the cap is calculated by reference to the section 31G amount suggests that what is intended to be capped is the section 31G amount.  That is to say, it is either the section 31G amount, or the capped amount calculated as per section 16(2)(f)(i), whichever is the less.

47. That the legislation has chosen to cap the section 31G amount is of significance in the present discussion once it is remembered that section 31G only gives one the gross severance payment payable.  It comes before section 31I.  One only arrives at the net severance payment payable under Cap 57 by reducing the section 31G amount with the section 31I amount, if any.  In my view, the legislature obviously treats the payments or entitlement included in section 31I as equivalent or similar in nature to severance payment, so that if they are not reduced from the amount calculated under section 31G, there will be double‑payment of what the legislature intends the employee to receive upon termination of employment by way of severance payment.  Whether one calls the section 31I amount a “part‑payment” of the severance payment calculated under section 31G is a matter of language.  The important thing is the legislature’s true intention in relation to severance payment and prevention of double‑payment.

48. The importance of all this is that in construing the provisions in Cap 380 in accordance with the legislature’s intention under the scheme to provide quick relief money to an employee who has lost his job suddenly and who has not been paid his severance payment due to him, one should also proceed on the assumption that no double‑payment of the type just described is intended.  The only difference is that where the section 31G figure exceeds the cap, the cap, instead of the section 31G figure, is used as the starting figure for working out the ex gratia payment amount.

49. In other words, where the section 31G figure does not exceed the cap, double‑payment is taken care of by simply reducing the ex gratia payment entitlement with the section 31I figure to arrive at the ex gratia payment amount.  However, when the section 31G figure exceeds the cap, the cap replaces the 31G figure as the starting point, and the concern about double‑payment is addressed by reducing the section 31I figure from the cap to arrive at the ex gratia payment amount.

The proper interpretation of section 16(1)

50. In my view, therefore, section 16(1) should be construed accordingly, that is, it requires the Commissioner to use either the section 31G figure or the capped amount calculated as per section 16(2)(f)(i), whichever is the less, as his starting point, and then reduce it by the section 31I figure (if any), to arrive at the amount of ex gratia payment payable to an applicant.

51. This interpretation rejects, on the one hand, the Commissioner’s contention that he has a general, unfettered discretion relating to the amount, which is unsatisfactory and uncertain, and which leaves too much discretion in the hands of the Commissioner for no good reason. The concern about unequal or unfair treatment amongst employees under similar situations need not be addressed by such a sweeping discretion on the part of the Commissioner.  Nowhere does the Hansard material suggest that such a general discretion is intended, nor is it indicated anywhere what purpose such a wide discretion is designed to achieve.

52. On the other hand, the interpretation described above also rejects Mr Ng’s argument that in each and every case, regardless of whether an employee has already received or is entitled to receive some section 31I benefit, he should receive nothing less than the section 31G amount less the section 31I deduction, subject to the cap, by way of ex gratia payment.  As explained, ex gratia payment is intended as a quick relief money when severance payment is unpaid. Any deduction from the severance payment otherwise payable to avoid double‑payment must therefore be deducted from the ex gratia payment otherwise payable.  Since the cap is calculated by reference to the pre‑deduction severance payment amount, any such deduction for the ex gratia payment should only be done after the cap has been calculated, and by reference to the section 31G figure or the capped amount, whichever is the less.

Support from section 24(2B)

53. This interpretation is supported by the subrogation provisions in section 24.  In particular, section 24(2B) reads:

“If-

(a) an applicant is entitled to a payment under an occupational retirement scheme or is a person for whom accrued benefits in a mandatory provident fund scheme are held; and

(b) an ex gratia payment in the form of a severance payment is made to the applicant under section 16,

the applicant's rights and remedies are, to the extent of the amount of the ex gratia payment, transferred to, and vested in, the Board for the benefit of the Fund. The Board may take such steps as it considers necessary to enforce those rights and remedies.”

54. In short, section 24(2B) deals with the situation where the employee was entitled to a certain section 31I benefit but had not received it, in circumstances where neither he nor the Commissioner were aware of the benefit at the time when the Commissioner made an ex gratia payment to the employee (ex hypothesi, without taking into account the section 31I benefit).  Section 24(2B) empowers the Board, by way of subrogation, to go after the relevant scheme for payment of the section 31I benefit.  Obviously, this right of subrogation is intended to enable the Board to recoup for the benefit of the Fund the amount of the section 31I benefit which if the Commissioner had known about before making the ex gratia payment to the employee, he would have duly and appropriately taken into account when calculating the amount of ex gratia payment.  The intention is no doubt that whether the Commissioner was aware of the existence of the section 31I benefit at the time when making an ex gratia payment, or whether he only found that out afterwards and recovery was then sought by way of subrogation, the Fund is not jeopardized and the net position remains the same.

55. This intention can only be achieved by adopting the interpretation I described above, rather than Mr Ng’s interpretation.  It can be achieved, on the other hand, without accepting the Commissioner’s contention for a general discretion, which I find to be unattractive.  The following example illustrates my point.

56. Employee A was owed severance payment of $80,000 but had a section 31I benefit of $20,000 known both to him and the Commissioner.  He applied for ex gratia payment.  The cap, in this case, calculated by reference to $80,000, was $65,000.  According to my above interpretation, since the section 31G figure of $80,000 was more than the cap, one used the cap of $65,000 as the starting figure for ex gratia payment from which one had to deduct the section 31I benefit of $20,000.  The net figure became $45,000.  In other words, the ex gratia payment the Commissioner had to make was $45,000.

57. On the other hand, if Mr Ng’s interpretation of section 16(1) were adopted, A would get ex gratia payment of $60,000, because the difference between the section 31G sum and section 31I benefit would only be $60,000, which was smaller than the cap of $65,000.

58. Employee B was in exactly the same situation as A except that the section 31I benefit was unknown both to him and to the Commissioner at the time of payment of ex gratia payment.  So the Commissioner treated his case as one without any section 31I benefits.  The cap, calculated by reference to section 31G only, was $65,000.  As (apparently) no section 31I benefits were involved, so the ex gratia payment payable to B would be $65,000, the capped amount, regardless of whether one adopts my interpretation or Mr Ng’s formula.  Subsequently, the Commissioner discovered about the section 31I benefit of $20,000.  Pursuant to section 24(2B), the Board sought and obtained recovery of the benefit from the relevant scheme.  It recouped $20,000 accordingly.  In other words, the Fund’s net outlay in B’s case was $45,000.

59. This sum of $45,000 was exactly the same amount of ex gratia payment that the Commissioner had made to A basing on the statutory formula I described above.  On the other hand, if Mr Ng’s formula had been the correct one, the Fund’s net outlays in the two cases would differ depending on whether the section 31I benefit was known to the Commissioner at the time of payment, despite the subrogation provisions in section 24(2B).

60. This, in my view, strongly suggests that Mr Ng’s understanding of the statutory formula is incorrect.  It does not, however, mean that there should be a general discretion for the Commissioner to determine the quantum.

61. Rather, it supports my view that as a matter of interpretation, there is provided for in the Ordinance a fixed formula to calculate the amount of ex gratia payment which would produce certain, equal and fair results, which are consistent with the purpose behind the Fund.

The wording of section 16(1)

62. As for the wording of section 16(1), I fully understand Mr Ng’s argument based on the words “of the amount of the … severance payment”. However, I believe the use of the word “may” in section 16(1) is wide enough to allow the Commissioner to pay an amount of ex gratia payment to an applicant which is less than his net severance payment outstanding, not as a matter of discretion, but as a matter of statutory requirement (under the formula I explained above), where the applicant has already received or has some known section 31I benefit.  In my view, there is scope for interpretation to say that “of the amount of the … severance payment” means “of the amount of the … severance payment or any part thereof”, calculated by reference to the formula I described above, but not as a matter of discretion.

The present case

63. For these reasons, which differ from the judge’s reasoning slightly and from the Commissioner’s contention, I take the view that the judge was right in dismissing the application for judicial review.  In the applicant’s case, his section 31G figure is more than the cap, from which latter figure his section 31I benefit should be deducted.  The deduction gives rise to a negative figure.  The Commissioner was therefore correct in making no ex gratia payment in relation to the applicant’s severance payment, and the Board was right in refusing his application for review of the Commissioner’s decision.

Disposition

64. I would therefore dismiss the appeal.  I would order, on a nisi basis, that the costs of the appeal be paid by the applicant to the Commissioner, to be taxed if not agreed, together with a certificate for two counsel.  I would also order legal aid taxation of the applicant’s own costs.

Hon Cheung JA:

65. I agree with the judgment of the Chief Judge.

Hon Poon J:

66. I agree.

Hon Cheung CJHC:

67. Accordingly, we dispose of this appeal as indicated in paragraph 64 above.