MAHBUBANI SUJAL v. CATHAY PACIFIC AIRWAYS LTD

HCA 2220/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2220 OF 2005

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J U D G M E N T

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1.  I shall call the plaintiff Mrs Mahbubani and the defendant, needing no introduction in Hong Kong, Cathay Pacific.

2.  Back in 1987 Mrs Mahbubani, then Miss Desai, born in India in 1968 and then living in Bombay, applied for the position of a flight attendant with Cathay Pacific, was offered the job and accepted the offer, to start on 1 March 1988.

3.  Her employment lasted for more than 16 years, until 17 September 2004, on which date Cathay Pacific terminated her contract.  

4.  Mrs Mahbubani accepts that by the terms of her contract, being Conditions of Service introduced in 1986 (the Conditions of Service) Cathay Pacific was entitled to take that course.  Her complaint is that the root cause being her inability to undertake her flying duties by reason of injuries suffered whilst working, she should have been entitled to medical retirement rather than to have been terminated in the ordinary way.  Had her circumstances been recognized in this way, she would have benefited under two heads; the first, that she would have received upon retirement an enhanced payment from the trustees of Swire Group Retirement Benefits Scheme (the Scheme); the second, she would for the rest of her life have been entitled for herself and her family to retirement travel benefits, being flights at a discounted rate provided by Cathay Pacific under its “Concessional Travel Policy”. 

5.  As it is, she has been deprived of both rewards, because Cathay Pacific did not certify that she was entitled to medical retirement.  Her claim is that by not doing so, it has failed to exercise its discretion fairly or reasonably, in breach of an implied contractual duty it owed to her.

6.  By this action, she sues in damages to recover the resultant loss.

The Medical Situation

7.  Focal to Mrs Mahbubani’s history with Cathay Pacific and, in the fullness of time, her departure from its ranks, is that she suffered three in-flight injuries during the years 2000 and 2001.

8.  The first, on 26 April 2000, caused injuries to her back and knee when she was struck by the duty free cart whilst stacking food trays into another cart.  She was assessed and treated, given two months sick leave and subsequently assessed by the Employees Compensation Board to have suffered a permanent loss of earning capacity of 2%.

9.  Then on 18 January 2001 she was struck on the head when baggage fell from an overhead locker.  This resulted in a further ten days sick leave.

10.  The third, and perhaps most serious, was on 23 February 2001, when she went to sit down on a retractable crew seat, mistimed the manoeuvre as the seat snapped back, and fell to the floor.  The injury she suffered was to her coccyx.  She claimed to have broken or fractured it, but the medical diagnosis was mild contusion.  She was given sick leave until 10 April 2001, but in early June she complained of incapacity, caused by back and neck pains, and came off duty again on 9 June 2001.  That was to prove to be the day of her last operational flight.

11.  After that there followed several years of examinations, assessments, medication and therapy, interrupted when she became pregnant and then gave birth, for which she took unpaid leave.  That occupied the period from late 2001 to mid-2002. 

12.  Having returned to work she still could not resume flying, and was assigned to ground duties.  But this seemed not only to be beyond her also but to exacerbate her condition.  She complained of musculoskeletal pains to the extent that trigger point injections were administered during the course of 2003.

13.  When it seemed Mrs Mahbubani’s health problems were continuing, with no immediate prospect of her going back to flying, she became the subject of a medical assessment by Cathay Pacific’s Corporate Medical Department (CMD).  This followed the usual procedures where an employee has had extended or repeated absences from work for whatever reason.

14.  Dr Rose Ong at all material times has been head of the CMD.

15.  Dr Ong had the opportunity of recommending medical retirement which, generally speaking, will be made where it is established that a crew member is suffering from a permanently disabling medical condition which prevents him or her from performing the inherent requirements of the job.  But for reasons I shall come to she declined to do so, instead recommending to management that Mrs Mahbubani’s attendance problems be handled through administrative rather than medical channels.

16.  This resulted in Cathay Pacific’s decision to terminate Mrs Mahbubani’s employment on 17 September 2004, citing her prolonged absence from duties as the reason.  

17.  She was then 36 years old, 9 years before she would have expected to retire.

18.  It is the passage of events culminating in Dr Ong’s recommendation and the termination that Mrs Mahbubani by this action complains of, depriving her of the extra monetary and concessionary travel benefits giving rise to this action.  She alleges breach of an implied obligation by Cathay Pacific and its management to exercise its discretion rationally when it comes to determining the fate of an employee who has been incapacitated whilst performing her employment contract. 

19.  The better to determine this, I come to consider the terms of that contract.

The Contract

20.  It is common ground that at the point in time that Mrs Bahbubani accepted the offer of a job in 1987, the terms of contract where wholly contained in the Conditions of Service, which came into being as uniform terms of contract for cabin crew.  

21.  Nor is it disputed that a retirement benefit scheme for cabin crew spelt out in the Conditions of Service was, in 1995, wholly replaced by the Scheme.  Thus Mrs Mahbubani’s claim to a retirement grant had to be determined by the proper imposition of the Scheme having regard to her particular circumstances.

22.  The Scheme is a Trust Deed and Rules which came into being in 1992.  Associated companies in the Swire group were entitled to join, and if they did so it gave their employees certain rights and entitlements on retirement, met by the trustee appointed by the Trust Deed out of funds provided by the particular associate company in compliance with the Trust Deed.

23.  Cathay Pacific jointed the Scheme in 1995.

24.  One of the rules put in place now engages the attention of Mrs Mahbubani and is the subject of her action.  It is that an employee who retires on the grounds of ill health benefits according to a written formula.

25.  “Ill health” is defined thus:

“…

‘Ill Health’ means (i) such state of health, certified by the Employer’s medical adviser or where an Employer has appointed a Principal Medical Officer, the Principal Medical Officer as renders a Participating Employee substantially unable to discharge the daily duties for which he is currently employed or where continuance of such Employment is, in such medical adviser’s or Principal Medical Officer’s opinion, prejudicial to the Participating Employee’s health or well-being; or (ii) such physical disability which is certified by the Employer’s medical adviser or where an Employer has appointed a Principal Medical Officer, the Principal Medical Officer to be of a permanent and total nature rendering him incapable of pursuing any further financially gainful occupation for which he is suited by reason of his education or training.

…”

The Issues

26.  Was Cathay Pacific behaving properly within the terms of the contract of employment when in exercise of its discretion it declined to find Ms Mahbubani in ill health as defined?

27.  If so, that is the end of the matter. 

28.  If not, and a proper determination would have been to find her to be in ill health and to be subjected to retirement on medical grounds, she would then have been entitled to a medical retirement benefit of a further $228,582.  That much is agreed; that is what she claims first.

29.  What is not agreed and is the next matter for consideration is whether in these circumstances she would have been entitled to retirement travel benefits under the Concessional Travel Policy, the second of her claims.

The Law

30.  This can be shortly stated as there is no material dispute between counsel; Mr Wong and Mr Lo for Mrs Mahbubani and Mr Burns SC representing Cathay Pacific.

31.  Both sides recognize there is an implied term within the contract of employment that the employer act in good faith in the exercise of its discretion to discharge its function under the Scheme, to procure for Mrs Mahbubani the benefits she was entitled to.

32.  Both Mr Wong and Mr Burns referred me to the case of Mihlensted v Barclays Bank [1989] IRLR 523.  That is an English Court of Appeal case which concerned a pension scheme set up by the employer bank by way of a trust deed for the benefit of its employees, in the manner of the Scheme that is the subject of this case. 

33.  Nourse LJ drew a distinction between the role of the trustees undertaking fiduciary duties by virtue of the trust deed and that of the employer.  He said at p.525:

“If, therefore, the matter had rested on the trust deed and the rules alone, I would have held that the bank was under no obligation in regard to the plaintiff’s application for an ill-health pension.  But it was a term of her contract of employment with the bank that she should be entitled to membership of the pension scheme and to the benefits thereunder.  From that it must follow, as a matter of necessary implication, that the bank became contractually bound, so far as it lay within its power, to procure for the plaintiff the benefits to which she was entitled under the scheme.”

And Nicholls LJ nailed home the point at page 553:

“I do not think it is necessary to pursue these points of trust law.  It is unnecessary to consider what might be the position under the law of trusts if the trust deed stood alone, and the plaintiff’s rights were to be found only within the four corners of the trust deed and the rules.  It is unnecessary, because this is a case in which the plaintiff’s status as a member springs from her contract of employment with the bank.  The bank holds out this pension scheme to its staff as a valuable part of the staff’s overall remuneration package.  That being so, when one finds that under the rules of the pension scheme certain functions are entrusted to the bank, it is, in my view necessarily implicit in the contract of employment that the bank agrees with the employee that it will duly discharge those functions in good faith.  In particular, if a member of the bank staff will become entitled to payment of an ill-health pension if the bank is of the relevant opinion concerning the state of health of the employee, it is an implied term of the contract that the bank will properly consider a genuine claim by an employee that her health qualified her for an ill health pension.  To my mind it is unthinkable that the position might be otherwise.”

34.  Mr Wong emphasised that this case portrays the need for a contracting party in whom a discretion is vested to exercise that discretion fairly, honestly, reasonably and in good faith, having regard to the provisions by which such discretion is conferred, and must not be arbitrary, capricious or unreasonable in doing so.

35.  Mr Burns did not take issue with any of that.  But he submitted that the test to be applied did not extend to the court imposing its own view if it were to come to a different conclusion.  He referred me to a passage from Nourse LJ’s judgment at page 526:

“If the bank actually or effectively asked itself the correct questions, and if there was material before it on which it could properly answer them in the negative, its opinion that the plaintiff was ineligible for an ill-health pension cannot be impugned by the Court.”

36.  In determining how a pension scheme such as the Scheme should be interpreted the authorities reveal that whilst there are no special rules of construction applicable, the rules of the pension scheme should be construed not in a “detached and literal” way, but rather in a “purposive and practical” way; see for example Derby Daily Telegraph v the Pensions Ombudsman [1989] IRLR 476.

Did Cathay Pacific Exercise Its Discretion Correctly?

37.  To answer this question it is necessary to rehearse the steps taken to consider the case of Mrs Mahbubani in the months and then years following the accidents leading up to her departure from Cathay Pacific.

38.  In accordance with normal practice she was examined, assessed and treated and directed towards remedial activity such as physiotherapy and gym work by various doctors known in Cathay Pacific as Company Designated Doctors (CDD).  These are practising physicians not employed by Cathay Pacific but who are familiar with the working environment of its employees and what is required and expected of them.

39.  As the longevity of her complaints became evident she was referred to an orthopaedic specialist Dr Jason Brockwell, of the clinic well-known in Hong Kong, Quality Health Care.  She was first examined by him in October 2002 and thereafter on several occasions until March 2004.

40.  What clearly was of concern to Cathay Pacific was that although she continued to complain of a myriad of symptoms causing pain, sometimes chronic pain, which not only kept her from flying but also for the most part from ground duties to which she was assigned whilst she recovered, yet none of the reports, including those of Dr Brockwell, indicated that there was a pathological explanation.

41.  What doubtless was of material and worrying concern was the amount of time she was absent from work.  Records reveal that she had 408 days sick leave between 2001 and 2003, and this absenteeism persisted through 2004.

42.  Dr Ong made a detailed witness statement setting out the procedures when the circumstances of an employee who has been off duty frequently are considered and assessed, and then turned to consider the case of Mrs Mahbubani.

43.  I have already summarized the procedure.  In this case as with others the CMD had for consideration all the available medical records, information and reports, and opinions of the doctors including those of Dr Brockwell.

44.  Dr Ong recounted the history of the injuries, of the amount of time Mrs Mahbubani was unable to work, of how it was that even light ground duties seemed not just to be beyond her but also to aggravate her problems.

45.  Then she said at paragraphs 31 and 32:

“31. As apparent from the foregoing paragraphs [Mrs Mahbubani’s] problems were continuous, varied, puzzling, persistent and resistant to treatment.  None of the three work injuries she suffered would normally have required such a long time to recover.  In my professional opinion [she] appeared to be suffering from continuous varying somatic complaints regardless of the medical treatment she received.  Her doctors did not find any evidence supporting any serious chronic underlying disabling condition. Her slow progress to recovery had been exacerbated by her general deconditioning, post-natal depression, poor cardiovascular fitness level and over-focusing on her musculo-skeletal pain symptomology, as well as possibly other personal or psycho-social factors which [Cathay Pacific] may not be aware of.  There was always an expectation for [her] to return to work one day, although it was impossible to predict such date based on [her] medical history.  She had in fact been determined almost ready for ‘fitness to return to flying’ several times but each time when [Cathay Pacific] offered her ground accommodations during the transitional period, she would inevitably fall ill.  The CDD felt surgical intervention would not be a solution, which CMD concurred with.  In April 2004 she had been placed on a physiotherapy rehabilitation and work conditioning programme, but again, this too failed in helping her to return to work.  It was not possible to predict with any accuracy what other remedies would assist [Mrs Mahbubani] in returning to flying duties or on what time line.

32.  In summary, whilst [Mrs Mahbubani] suffered from multiple medical problems, (various musculo-skeletal problems, gynaecological, glandular and psychological conditions), which were treatable, there were others symptoms such as the multiple pains which despite specialist treatment, physiotherapy, pilates and medications, all of which failed to improve her condition so that she would be able to attend work, even light duties, on a regular basis.  She did not have any documented underlying pathology which would lead to permanent disability.  None of her doctors felt she suffered from a permanently disabling condition as everyone expected her to be able to return to flying duties at some point.  However, despite whatever improvement she apparently made, whatever accommodations [Cathay Pacific] made for her, on the recommendations of her physicians and the CDD, she repeatedly failed in returning to work.”

She went on to state at paragraph 34:

“34. Given [Mrs Mahbubani] was not suffering from a permanently disabling medical condition, I considered (and still do) [her] case to be a clear one falling outside the scope of medical retirement.”

46.  It is quite apparent from the detailed programme and studies undertaken that this decision was not arrived at lightly.  A committee called the Absence Monitoring Committee (AMC) comprising representatives of the CMD, thus medical practitioners, and senior members of the Inflight Service Department (ISD) thus management, met on three occasions, being 12 February, 24 March and 4 August 2004 to consider her case, the break of four months plus to the last meeting to give her yet further time to get, or feel, better.  That did not happen.

47.  Dr Ong went on to repeat verbatim her conclusion in the report that she made:

“In summary, this is a crew who suffers from a myriad of medical ailments, none of which are permanently disabling or precludes her from being able to perform her inherent job requirements.  She has been given very extensive sick leave (total of over 400 sick days since 2001), repeated trials of modified ground rehabilitation (2002, 2003 and 2004) all of which have failed as she sustained a [sic] over 80% sickness rate whilst on ground duty, complete failure in progressing to modified flying duties and numerous physiotherapy sessions (45 sessions in the last 5 months alone).

…

This crew does not suffer from any permanently medically disabling condition that would prevent her from being able to perform her duties as a cabin crew.  However, despite extensive medical specialist care, treatment, physiotherapy, ground accommodation duties over a period of three years, she has not been able to progress to modified flying duties and is not managing ground duties.  Her absence pattern has not improved and she is unsuccessful in returning to flying duties. Therefore, CMD recommends that this crew’s absence problems be dealt with through administrative channels.”

And then at paragraph 37:

“37. As such, on 22 July 2004 I wrote to the Plaintiff’s Team Manager in ISD as follows:

‘We would like to advise that after reviewing [Mrs Mahbubani’s] medical case, we have determined that [Mrs Mahbubani] is not suffering from a permanent medically disabling condition which prevents her from being able to perform the inherent requirements of her job as a cabin crew.

The Corporate Medical Department has interviewed the crew and assessed her situation.  It is noted the crew has been provided with the appropriate medical specialists care, extended physiotherapy, and ground accommodation. However, despite these various extensive support measure and accommodation given by the Company, this crew has been unsuccessful in being able to return to flying duties in the last 3 years.

It is our opinion that this crew’s current sickness pattern is unlikely to change in the near future.  It is our recommendation that this crew’s absence problems be dealt with through administrative channels.”

48.  This report formed part of the case study that was before the AMC at the meeting of 4 August, which was shortly followed by the termination.

Analysis

49.  Mr Wong submitted that Dr Ong and her team failed to consider the express definition of ill health in the Trust Deed.  She did not refer to it at all in her report; instead she purportedly applied guidelines that she had drawn up to assist when considering cases such as this one; of practical usefulness but having no binding effect.  She refused to grant medical retirement to Mrs Mahbubani because she was:

“not suffering from a permanent medically disabling condition which prevents her from being able to perform the inherent requirements of her job as a cabin crew”. (para.37)

50.  Mr Wong argued that by imposing the preconditions that there be a permanent medically disabling condition was unreasonable and irrational.

51.  This indicated as a prerequisite that there be an underlying medical condition, thus to exclude the possibility of chronic pain or other symptoms which are real enough, but for which there is no apparent pathological explanation.  But more particularly, the permanence of the condition that she indicated was a necessary ingredient does not in fact feature in either of the first two limbs of the definition in the Scheme.

52.  Is Mr Wong’s analysis of Dr Ong’s approach appropriate, having regard to the need for the rules in the Scheme to be construed in a purposive and practical way?

53.  First, the difficulty about recognizing the reality of chronic pain or other symptom of ill-health that has no underlying pathology is to ignore the need for an objective analysis by a physician properly qualified to consider the gravity of an illness or disability.  Particularly in a large-scale organisation like Cathay Pacific it could amount to an open invitation to the unworthy to fake or exaggerate their symptoms.

54.  Secondly, though the word permanent or similar is not included in the first two limbs of the definition, there must be implicit such an expression where one is considering the merits of retirement on medical grounds.  The time scale whilst not necessarily permanent, must at least run to the normal age of retirement.  Support for this proposition is to be found in the English Court of Appeal case Harris v Shuttleworth & Ors [1994] IRLR 547.  In that case the issue was the construction of rule 19 in an employer’s pension scheme which provided for payment of an immediate full pension:

“if the trustees are satisfied that the retirement from the service of the member … has occurred by reason of incapacity.”

55.  The Court of Appeal ruled that a proper construction of the expression ‘incapacity’ required that there be a condition which would last at least until the normal date of retirement.  Gladwell LJ said at p.553:

“I can discern no practical difference between incapacity which is likely to last until normal pension age and incapacity which is described as ‘permanent’.  I cannot think that in any of the cases in which this matter has been discussed, it has been suggested that the employee might be able to resume work after normal pension age.

…

The proper construction, in rule 19, of ‘retirement from the service by reason of incapacity’ is that the member has left the society’s service at some date before reaching normal pension age by reason of some physical or mental disability or ill health so serious that, at the time she leaves the service, it is probable that she will be unable by reason of the disability to follow her present or similar employment, with the society or any other employer, during any part of the period until she reaches normal pension age.”

56.  Clearly, if there is ongoing concern as to whether or not the employee will become fit to resume duties at some time prior to that event, then it would certainly be inappropriate to merit a medical retirement.

57.  Applying this test I find nothing inappropriate in the manner in which Dr Ong analysed the case of Mrs Mahbubani, upon which Cathay Pacific was ultimately to terminate her contract. 

58.  Over a period of three years the employee was away from work, including light ground duties, for considerable periods, during which many doctors in various fields could find no medical reasons for her not being able to undertake her duties for which she was employed in 1988.

59.  And there was no telling when she might be fit to go back to flying.

60.  Applying a purposive and practical approach and the reasoning adopted by the Court of Appeal in Harris v Shuttleworth, Dr Ong in deciding that she did not qualify for retirement on medical grounds had applied the correct test and was entirely justified in doing so.

61.  Accordingly, Mrs Mahbubani’s claim for damages fails under both heads.

The Retirement Travel Benefits

62.  Mrs Mahbubani’s claim to be entitled to the concessionary travel upon retirement having fallen away, for completeness I shall make a ruling in case I am wrong and that she should, after all, have been medically retired.

63.  Her claim is founded on the basis that the terms of the Concessional Travel Policy (the Policy) to which I have earlier made reference would have been contractually binding on the parties, rendering Cathay Pacific liable to extend the benefits therein to Mrs Mahbubani and her family post-retirement.

64.  The Policy is to be found in a document which Cathay Pacific issued to its staff members on 20 February 1995.

65.  By its opening terms it is said of it that it is designed to provide equitable and uniform travel benefits, thus to minimise the differences in current practices between various categories of staff in Cathay Pacific.

66.  Under the head “Conditions” the following are included:

“Subject to overriding commercial considerations, travel at free and rebated rates on the Company’s services may be granted to employees, retirees, widows and widowers, eligible dependents and companions, according to the conditions outlined in this policy.

Rebated travel facilities are a privilege extended by the Company, not a right and may be varied or withdrawn at the Company’s discretion.

This policy replaces all existing travel policies but does not override provisions protecting existing conditions of service for Expatriates and Cabin Crew unless agreed by the employee concerned.  Should staff elect to remain with their existing conditions of service, they will not receive improvements to other travel benefits provided by the Company.”

“Retiree” is elsewhere defined as an employee who has retired on reaching his or her normal retirement date, or who has been retired on medical grounds. 

67.  So, a person terminated, in the way of Mrs Mahbubani, would not qualify.  But I am undertaking this analysis in case that decision, and my finding no fault with it, is reversed.

68.  The travel benefits afforded a retiree of Mrs Mahbubani’s rank were significant — discounted travel for the retiree, his or her spouse and children up to the age of 23 years, until the death of the retiree.

69.  It is quite apparent from the Policy that an existing employee having contractual rights to concessionary benefits would have been required to forego those, to enjoy the benefits thereafter contained in the Policy.  He or she could not have both. 

70.  According to Mr Robert Niperess, Personal Manager of Cathay Pacific, who gave evidence on the point, the existing employees were given a form the effect of which was to transfer across.  He said that the vast majority made that election.  Currently only a few remain tied to the old arrangement. 

71.  Mrs Mahbubani was a former employee having contractual rights to rebated travel, set out in the Conditions of Service (her employment contract) at clause 18:

“18.   Rebated Travel

On completion of a minimum of nine months’ service, cabin crew will be granted travel on company aircraft at 90% rebate on a ‘subject to load’ basis.  This concession will also be applicable to the cabin crew’s spouse, children up to the age of 23 years and parents, but to no other relatives.

Cabin crew who have completed one year’s service may purchase ID90 J tickets and those with over 5 years’ service may purchase ID90 F tickets for themselves and their eligible dependants as defined above.

Upon resignation the validity of all rebated travel tickets is restricted to one month following the effective date of cessation of service.

Cabin crew who resign from the Company will, in addition to their travel concession, be permitted to purchase one rebated ticket on Cathay Pacific operated services, for their own personal use, valid for a period of three months from the date of their resignation.”

72.  It is at once apparent that the rights for someone in retirement are inferior in the Condition of Service, a one-off rebated ticket following cessation.  Presumably this is why most employees transferred to the new terms, notwithstanding that these terms were ex-contract: 

“a privilege not a right, which may be varied or withdrawn”.

73.  But Mr Nipperess said that there was nothing in the records to show that Mrs Mahbubani had transferred across.  Nor did she adduce evidence to that effect.  Indeed she said she had not signed any form.  It was her belief that these new benefits applied to her automatically.  But she could not show any justification for that belief.

74.  In the circumstances, were Mrs Mahbubani to have retired she would not have been entitled to expect travel benefits afforded by the Policy.  Her entitled would have been a one-off post-retirement rebated ticket. 

75.  Finally, even had she made the transfer across, it may have been difficult to enforce what is plainly referred to as a privilege not a right, capable of being varied or withdrawn.

The Result

76.  Mrs Mahbubani’s claims against Cathay Pacific having failed, they are dismissed.

77.  Costs, nisi, are in favour of Cathay Pacific.