NEGUS JOHN ALFRED v. TREND TELECOMMUNICATIONS LTD.

IN THE COURT OF APPEAL

1997, No. 70

(Civil)

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J U D G M E N T

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Yeung J.:

1. This is an appeal by the Appellant Negus John Alfred against the judgment of Cheung J. allowing the Respondent's appeal against the order of Master Cannon granting judgment in favour of the Appellant for $420,000.00, representing six months' salary inclusive of housing allowance in lieu of notice of termination of the contract of employment.

2. Having heard counsel for the Appellant, we dismissed the appeal without calling upon counsel for the Respondent.

3. The proceedings started off as an Order 14A application. The parties agreed that the only issue involved in this case concerned the interpretation of the terms of the letter of employment and the determination of the issue would finally resolve all the dispute.

4. It was not disputed that the terms of employment under which the Appellant was employed by the Respondent were contained in a letter of employment with the following relevant clauses, namely;

"(1) You will serve a probationary period of three months with effect from January 16th, 1995;

(3) Subject to satisfactory service, your appointment will be confirmed at the end of the probationary period. Salaries are reviewed annually on 1st January;

(11) Termination of your services can be effected by either party giving to the other six month's prior notice in writing or payment in lieu thereof. The Company reserves the right to terminate your engagement at any time without prior notice or payment in lieu of prior notice should you, in their opinion, be guilty of misdemeanour, misconduct or negligence."

5. By a letter dated 31.3.1995, the Appellant was dismissed. There was no dispute that this letter of termination had been served before the expiration of the 3 months' probationary period.

6. The Appellant, through his counsel contended that on true construction, clause (11) in the letter of employment would entitle him to be served a six months' notice of termination or payment in lieu.

7. Master Cannon accepted such a contention.

8. Cheung J. took the view that in the proper construction of the letter of employment, the intention of the parties was that the six months' notice was not required during the probation period. As the Appellant was dismissed before the expiration of the probation period, the Appellant was not entitled to the service of a six months' notice or payment in lieu.

9. It was against such a decision of Cheung J. that the Appellant appealed.

10. The case rested purely on the construction of the terms of the letter of employment in question.

11. In this appeal, I need simply repeat the usual canon of construction that "an agreement ought to receive that construction which its language will admit, and which will best effectuate the intention of the parties, to be collected from the whole of the agreement, and that greater regard is to be had to the clear intention of the parties than to any particular words which they may have used in the expression of their intent." See Ford v. Beech (1848) 11 QB 852 at p.866.

12. In Reardon Smith Line v. Hansen-Tangen [1976] 1 WLR 989, Lord Wilberforce stated at p. 996,

"When one speaks of the intention of the parties to the contract, one is speaking objectively- the parties cannot themselves give direct evidence of what their intention was- and what must be ascertained is what is to be taken as the intention which reasonable people would have had if placed in the situation of the parties. Similarly when one is speaking of aim, or object, or commercial purpose, one is speaking objectively of what reasonable persons would have in mind in the situation of the parties."

13. Clearly there seems to be room for improvement in the drafting of the letter of employment. But I am of the view that Cheung J. was correct in concluding that the parties intended a six months' notice or payment in lieu to apply only after the expiration of the probationary period. To construe otherwise would destroy the essence of what was clearly envisaged to be a trial period for taking on an employee.

14. If the letter of employment were to be construed in the manner as contended by Mr. Shum on behalf of the Appellant, an absurd situation would be created, whereby the Appellant on trial would be forced upon the Respondent for a much longer time than the probationary period together with, if applicable the statutory 7 days.

15. As Mr. Shum conceded, such interpretation would wholly destroy the purpose of Clauses (1) and (3).

16. In my view, a probationary period was clearly intended, and the interpretation advanced by the Appellant would not be consistent with the parties' intention.

17. I am of the view that the Judge came to a correct decision in setting aside the master's judgment for $420,000.00. There is no longer any outstanding issue.

18. The appeal was therefore dismissed with costs.

Liu JA:

19. Mr Shum's ingenious argument on clause (11) would defeat the commercial pragmatism of putting a prospective employee on trial. In the proper context of the letter of employment, the parties clearly envisaged such a probation period to run, which was, subject to a possible 7 day's statutory notice under s.6(3)(b) of the Employment Ordinance, susceptible to an instant termination. We dismissed this appeal with costs, and this is the reason I now hand down.

Nazareth V-P:

20. On its face, in respect of all service whether probationary or otherwise, clause 11 provides for termination (otherwise than for misconduct etc) only by giving six months prior notice in writing or payment in lieu thereof. But this prima facie effect makes nonsense of clauses 1 and 3, which provide for a probationary period of 3 months service and confirmation of appointment at the end of the probationary period, subject to satisfactory service. Mr Shum very properly concedes that. But he seeks to deflect the consequences of the internal conflict resulting from that prima facie construction of clause 11 by going outside the four corners of the agreement embodied in the letter of appointment, to rely upon section 6(3) and (3A) of the Employment Ordinance. He submits that whether the result of the conflict is that the contract does not make provision for the length of notice required for its termination, or does make such provision, subsection (3) or (3A), as the case may be, applies. So that no notice or payment in lieu would be required during the first month of employment, but would be during the remaining two months of the probationary period, i.e. the agreed six months' notice or payment in lieu.

21. It does not seem to me to be necessary to go beyond saying that Mr Shum appears to be entitled to rely upon extrinsic evidence once it becomes apparent that there is ambiguity, which the sort of conflict here represents (see para. 12.102 et seq. of Chitty on Contracts 27th Edn). However, as will be seen, that does not affect my conclusion.

22. Without going beyond the four corners of the agreement, it can readily be seen that all the relevant provisions can be given effect by construing clause 11 as not applying to the probationary period of 3 months. Whereas the only alternative meaning suggested, i.e. that preferred by Mr Shum, would render clauses 1 and 3 ineffective. The former must therefore be adopted (see e.g. 12.069 Chitty op.cit.). That is sufficient to resolve the matter.

23. In any case, going beyond the written agreement only serves to reinforce that conclusion. The very nature of probation and its usual factual matrix, as here, militates in the most powerful way against a 6-month period of notice or payment in lieu to determine employment within a 3-month probationary period.

24. As to section 6(3) and (3A) of the Employment Ordinance, far from supporting the meaning contended for by Mr Shum, these seem to me to emphasise the trial and readily determinable nature of probation, to which a 6-month period of notice or payment in lieu is in the circumstances diametrically opposed.

25. For these reasons and those given by my Lords and the judge, I had no hesitation in dismissing the appeal, and after hearing counsel, giving the respondent its costs. The parties and counsel having helpfully settled some loose ends left over, the conclusion of these disproportionately costly proceedings is to be welcomed.