LAM SIU WAI v. EQUAL OPPORTUNITIES COMMISSION

HCLA 21/2020

[2021] HKCFI 3092

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

LABOUR TRIBUNAL APPEAL NO 21 OF 2020

(ON APPEAL FROM LABOUR TRIBUNAL

CLAIM NO 2371 OF 2018)

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JUDGMENT

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1.  This is the appeal of the Defendant (“EOC”) against an Award/Order made by the Labour Tribunal on 4 December 2020 in LBTC 2371/2018 by which the claim of the Claimant (“Lam”) against the EOC was upheld. The Reasons for Decision of the Presiding Officer was given on 18 January 2021 (“Decision”).

2.  On 17 March 2021, this court granted leave to appeal against the Decision on 4 points of law.  They had since been set out in the Notice of Originating Motion filed on 31 March 2021.  They will be referred to as Grounds 1 to 4 below.

Issue

3.  Grounds 1 to 3 are underpinned by the legal arguments on whether the termination of Lam’s employment by the EOC in accordance with the terms of the employment contract (“Contract”) by payment in lieu of notice, as well as payment of all the accrued entitlements, to Lam was subject to the common law implied duty of mutual trust and confidence (“Duty”).

4.  It will be seen below that Ground 4 is of little significance in this appeal.

Background

5.  The material facts can be succinctly stated as follows.  Lam began her employment with the EOC in September 1996.  The last renewal of her employment was in February 2016 for 3 years from 1 March 2016. The letter of appointment was dated 3 February 2016.  At the time, Lam was employed as a Chief Equal Opportunities Officer. 

6.  The terms and conditions of Lam’s employment were, in addition to the letter of appointment, also set out in a document entitled “Memorandum on Conditions of Service in the Equal Opportunities Commission Office” (“MCS”).  Clause 11.3 of the MCS provided for the EOC’s right to terminate Lam’s employment without cause as follow[1] :

“For an employee who has passed the trial period or who has been appointed without the requirement to serve a trial period, his/her service may be terminated by the employer by giving him/her a minimum of three months’ notice or by paying him/her three months’ salary in lieu of notice.”

7.  Further, there was a document entitled “Human Resources & Administration Policies & Procedures” (“Manual”) which contained various policies of the EOC.  Two chapters in Part II of the Manual were relevant and produced before the Tribunal, namely, (i) Section A, Chapter A6 (“Termination of Agreement”); and (ii) Section E, Chapter E3 (“Disciplinary Policy & Procedures”). 

8.  Clause 11.3 of the MCS was echoed under Chapter A6, Clauses A6.3.1 and A6.3.4.  It should be added that the right to terminate a contract of employment, which applied to both employer and employee, was also provided under ss.6 (termination of contract by notice) and 7 (termination of contract by payment in lieu of notice) of the Employment Ordinance, Cap 57 (“Ordinance”).

9.  On 15 May 2018, Mr Michael Chan, EOC’s then Chief Operations Officer, told Lam that her employment had been terminated with immediate effect.  The first paragraph of the letter of termination, signed by Mr Alfred Chan, the Chairperson of the EOC, stated as follows :

“This letter serves to inform you that we have arrived at the decision that it would be in the best interest of the Commission for your employment to be terminated by the Commission. We come to this decision after full consideration given to your job requirements, including personal attributes needed of your Chief Equal Opportunities Officer post. Our conclusion is that your recent attitude and behaviour do not closely match with the requirements of this senior position and hence it is regrettable that we have to terminate your employment contract with the Commission.”

[emphasis added]

10.  The underlined sentence was referred by the Tribunal as the “Dismissal Reason”[2].  At the time of termination, Lam had worked for the EOC for 22 years. 

11.  It would be fair to point out that the EOC had never indicated (nor was it part of its case before the Tribunal) that the termination was due to any deficiency in work performance or misconduct on Lam’s part. 

12.  The EOC made all necessary payments to Lam arising from the termination of her service without cause, in accordance with the Contract – she was paid 3 months’ wages in lieu of notice and all benefits due to her, including cash allowance, pro rata gratuity and payment in lieu of leave. 

13.  On 7 August 2018, Lam filed a claim in the Labour Tribunal seeking :

(1)  an order of her reinstatement or re-engagement pursuant to s.32K of the Ordinance.  This claim was dismissed by the Tribunal[3];

(2)  damages at common law for loss and damage resulting from a wrongful termination by the EOC of her employment in breach of the Duty in the amount of HK$1,308,283.06 (consisting of loss of income, loss of gratuity and loss of employer’s MPF contributions calculated up to the end of the 3-year term).  This claim was upheld by the Tribunal resulting in an Award of HK$1,294,783.06 in total with interest and costs.

Respective case

14.  In paras 11 and 12 of the Decision, the Tribunal summarised the contentions of the parties :

“11. [Lam] alleged that since her termination (sic) was in bad faith, and not for a valid reason under s.32K, Employment Ordinance, the [EOC] had deprived [Lam] of the opportunity to complete her fixed term contract and to be paid in full the gratuity upon the completion of the fixed term contract. [Lam] further alleged that the [EOC’s] wrongfully termination of her employment in bad faith amounted to serious breaches of its implied obligation of mutual trust and confidence contained under her employment terms. As a result of the [EOC’s] breach of the implied duty of mutual trust and confidence, [Lam] was entitled to claim her loss and damages, including loss of her income, loss of the [EOC’s] MPF contributions and loss of remaining gratuity for her remaining period of the fixed terms contract.

12.  The [EOC] contended that the reason of termination of [Lam’s] employment was valid and a good reason. The [EOC] also contended to [Lam’s] allegation (sic) by relying on [its] statutory right under s.6 and s.7 of the [Ordinance] to terminate [Lam’s] employment.  Upon the termination, all termination payment due to her … had duly paid (sic).  Thus, [Lam] was not entitled to claim any loss and damages.”

15.  I note that the position of the EOC before the Tribunal was that there was no obligation to provide any reason or valid reason for the termination of Lam’s employment without cause[4].  However, it appears that the EOC felt obliged to defend the reason stated in the letter of termination because it was challenged by Lam. 

Decision

16.  It is evident from the Decision that the hearing before the Tribunal spanned a number of days.  Insofar as the factual issues were concerned, the Tribunal noted that important witnesses with first-hand knowledge of the termination were not called by the EOC (neither Mr Michael Chan nor Mr Alfred Chan was called to testify before the Tribunal)[5]. The Tribunal accepted the evidence of Lam and her witnesses. 

17.  In respect of the EOC’s reliance on s.7 of the Ordinance, the Tribunal took the view that those provisions only established a “mode of termination” and did not override the “duty to maintain no breach of any terms of employment contract”.  Paras 14 and 15 of the Decision stated as follows :

“14. Thus, employers can terminate their employees (sic) unilaterally under section 7 of Employment Ordinance. Employers also do not bind (sic) to give reason for dismissal under section 7 of Employment Ordinance, but just need to satisfy the requirement of notice and payment in lieu of notice. However, section 7 only establishes a mode of termination. In exercising the statutory right to adopt the said mode under section 7, the duty to maintain no breach of any terms of employment contract cannot be override. In other words, if the employer terminates the employment contract under section 7, he/she should make sure there be no breach of any express terms or implied terms of the employment contract.

15. In this case, the [EOC] did not just terminate [Lam] (sic) unilaterally by given payment in lieu of notice but they had stated they were relying on the Dismissal Reason in order to dismiss [Lam].  In lights (sic) of the parties’ argument and contention, I am of the view that the most critical issue is whether there was a good and valid reason to terminate [Lam’s] employment.  If the [EOC] did have a good reason to terminate, there would not be any breach of mutual trust and confidence implied in [Lam’s] employment terms, [Lam] will not be entitled to any loss and damages.”

18.  The Tribunal went on to hold that the EOC had the onus to prove that the reason for dismissing Lam was “good and valid”, and also to “prove the Dismissal Reason” (Decision, §§16-19).

19.  Having set out the evidence given by the witnesses for the EOC and Lam, the Tribunal concluded (Decision, §§20-37) that :

(1)  the EOC had failed to discharge the burden of proving that the Dismissal Reason was a “true and valid” reason for dismissing Lam; and

(2)  the “possible reason” for dismissing Lam was that Mr Alfred Chan was unhappy with her because she had lodged a complaint or grievance with other staff about him.

20.  The Tribunal found that the EOC had breached the Duty because Mr Alfred Chan had retaliated against Lam for her involvement in the Joint Grievance and created a pretext for dismissing her.  The Dismissal Reason was “not true”, and Lam was dismissed without “any prior warning” and in the absence of any valid reasons (Decision, §§38-42).

21.  Lam was entitled to damages, and she had discharged her duty to mitigate loss by trying to find an alternative employment.  The damages suffered as a result of the breach of the Duty comprised of: (i) loss of income for the remaining period of the contract term (with 3 months’ payment in lieu of notice deducted) in the sum of HK$1,005,731.93; and (ii) loss of gratuity in the sum of HK$289,051.13.  Lam was also awarded interest and 70% of her costs (Decision, §§43-49).

The Grounds

22.  The 4 Grounds of Appeal are as follows :

“(1)  The PO erred in law in holding that the crucial issue for determination in the Claim was whether there was a good and valid reason for the termination of the Claimant’s employment, when the Defendant terminated her employment without cause (by payment in lieu of notice) upon exercise of its contractual right in accordance with the terms of the employment contract and/or its statutory right under sections 6 and 7 of the Employment Ordinance (Cap.57) (“EO”), and the Claimant had received all payments to which she was entitled under her employment contract and/or the EO.

(2)  The PO erred in law in holding that the Defendant had the onus but failed to prove that the reason for terminating the Claimant’s employment was a valid reason, when:

(a)  the Claim did not fall within the scope of Part VIA of the EO, so that sections 32A(2), 32K, 32L and 32M did not have application to the Claimant at all and authorities decided in the context of Part VIA of the EO were distinguishable;

(b)  the Defendant had no obligation, whether under the EO (for those reasons in paragraph 2(a) above) or the employment contract or generally at common law, to give reason for terminating the Claimant’s employment without cause (by payment in lieu of notice).

(3)  The PO erred in holding that by virtue of his conclusions in paragraphs (1) and/or (2) above, the Defendant in terminating the Claimant’s employment acted in breach of its implied obligation of mutual trust and confidence owed to the Claimant, when:

(a)  the said obligation did not and could not override the Defendant’s express contractual right under the employment contract and statutory right pursuant to sections 6 and 7 of the EO to terminate the Claimant’s employment without cause (by payment in lieu of notice);

(b)  in any event, the said obligation was simply irrelevant and did not justify the award of the relief pleaded in the Claim, when (i) such relief was erroneously sought on the basis of there being a wrongful dismissal in the sense of the Defendant having failed to act in accordance with the employment contract in terminating the Claimant’s employment without cause and (ii) the Claimant never sought additional damages in law caused by the Defendant’s alleged breach of the said obligation (being a distinct and separate obligation in law).

(4)  The PO erred in holding that the Defendant was obliged but failed to conduct any disciplinary proceedings or follow its own disciplinary procedures before deciding to terminate the Claimant’s employment without cause (by payment in lieu of notice).  In this regard, the PO (i) failed to carry out his duty to investigate into the applicability of the “Disciplinary Policy & Procedures” in Part II-E3 of the Defendant’s Human Resources & Administration Policies & Procedures and (ii) failed to hold that the same did not apply to the subject decision to terminate the Claimant’s employment.”

The Duty

23.  As pointed out above, the first 3 Grounds revolve around the issue of interface between the EOC’s contractual right to terminate Lam’s employment without cause and the Duty.  The analysis should start with what the Duty is about. 

24.  To begin, the Duty is one which applies to both employer and employee.  In respect of the former, it had been held that an employer shall not “without reasonable and proper cause, conduct itself in a manner calculated and likely to destroy or seriously damage the relationship of confidence and trust between employer and employee: see Malik v BCCI [1998] AC 20, at 45F-G.

25.  The Tribunal was right that the Duty is apt to cover a great diversity of situations in which a balance has to be struck between an employer’s interest in managing his business as he sees fit and the employee’s interest in not being unfairly and improperly exploited (Decision, §39, citing Malik (at 46D)).  However, the corollary of flexibility is, inevitably, uncertainty. 

26.  In respect of the application of the Duty to termination of employment, the issue was explored in Tadjudin Sunny v Bank of America, National Association, unrep, CACV 12/2105, 20 May 2016, at §§58-60 and 62 :

“58. It is now well recognized, at least in the United Kingdom and in this jurisdiction, that there exists an implied obligation of mutual trust and confidence between employer and employee: see Malik v Bank of Credit and Commerce International SA (in compulsory liquidation) [1998] 2 AC 20 (HL); …

59. The obligation of mutual trust and confidence between employer and employee has been said to be “an overarching obligation implied by law as an incident of the contract of employment”: see Johnson v Unisys Ltd [2003] 1 AC 518 at paragraph 24, per Lord Steyn.  In the same case, Lord Hoffmann said, at paragraph 35, that the contribution of the common law to the employment revolution has been the evolution of implied terms in the contract of employment, of which the most far reaching is the implied term of trust and confidence.

60. Nevertheless, the majority of the House of Lord (Lord Steyn dissenting on this issue) held that this implied obligation of mutual trust and confidence cannot be utilised to form the platform to allow an employee to recover damages for loss arising from the manner of his dismissal, essentially for two reasons.  First, it was said that the obligation of trust and confidence is concerned with preserving the continuing relationship which should subsist between employer and employee and thus it is not appropriate for use in connection with the way that the relationship is terminated (see paragraph 46 per Lord Hoffmann, and paragraph 78 per Lord Millet).  Second, it was said that it would be an improper exercise of the judicial function to develop the common law to permit such claims to be made in the light of the evident intention of Parliament that they should be heard by the industrial tribunal and the remedy should be limited in application and extent as provided for in Part X of the Employment Rights Act 1996 (see paragraphs 55 to 58 per Lord Hoffmann, and paragraph 80 per Lord Millet).

…

62. In passing, it is of interest to note that although Lord Hoffmann considered (at paragraphs 46 and 47) that it would be inappropriate to use the obligation of trust and confidence as the foundation for a claim by an employee for damages for loss arising from the manner of his dismissal, he referred to the minority judgment of McLachlin J in Wallace v United Grain Growers Ltd (1997) 152 DLR (4^th) 1 at 44-48 and expressed the view that it is jurisprudentially possible, and a more elegant solution, to achieve that result at common law by implying a separate term that “the power of dismissal will be exercised fairly and in good faith”.”

Analysis

27.  Tadjudin is of course binding on this court.  As the law stands (and stood at the time of the Decision), the Duty cannot be applied to water down an employer’s right to terminate the employment of a worker without cause by invoking the notice provisions (contractual and/or statutory). 

28.  In respect of the treatment by the Tribunal of the interaction between EOC’s right to dismiss Lam without cause and the Duty (see para 14 of the Decision quoted in para 17 above), there was no citation of authority or analysis as to why the right to termination was subject to the Duty.  With respect, the Tribunal had overlooked the fundamental issue that the Duty was about maintaining the relationship between employer and employee, and therefore inappropriate to be applied in the termination of the same (see Tadjudin, §60). 

29.  Three further legal points should be addressed. Firstly, consistent with the above analysis on the Duty, it is reasonably well-established that a contractual right to terminate an employment (on the part of either employer or employee) can be exercised unreasonably or capriciously so long as the right is exercised in accordance with the contract, and the court is not concerned with the rightness or wrongness of a dismissal: Malloch v Aberdeen Corp [1971] 1 WLR 1578 at 1581G; Johnson v Unisys Ltd [2003] 1 AC 518 at §§38-41; Cheung Chi Keung v Hospital Authority [2006] 2 HKLRD 46 at §19.

30.  Secondly, in Tadjudin, the CA upheld an implied term in a contract of employment whereby the Bank “shall not exercise its right to terminate the Plaintiff’s employment by giving one month’s notice or by paying one month’s salary in lieu of notice in order to avoid her being eligible for performance incentive programme”[6].  In doing so, Johnson v Unisys was distinguished.  However, the CA emphasised that the issue before it was “narrow and specific”, based on the particular facts and circumstances of the case (§77(3)).

31.  I do not believe that Tadjudin can assist Lam in this appeal.  Fundamentally, it was not an authority for the proposition that the right to terminate without cause was qualified by an implied duty to exercise such right in good faith.  At the highest, it may be said that the door for further development in the common law in this regard was left ajar by the CA (see §§78-80).

32.  Speaking for myself, to imply a duty of good faith in the termination of employment without cause would have far reaching effect on the law of employment.  Reason(s) for termination may well have to be given for the exercise of such right, they may be subject to scrutiny by the Labour Tribunal and litigation complexity and costs may increase significantly, not to mention to the delay which may be caused.  Such an exercise should be one for the legislature.

33.  Further, there is considerable force in the submission of Mr Lui, who appeared for the EOC, that there is no room for judicial innovation because the right to termination without cause is provided for in ss.6 and 7 of the Ordinance. 

34.  Furthermore, the Tribunal had approached the issue on the basis that the Duty applied to the termination of Lam’s employment.  With respect, it was wrong in law.

35.  Thirdly, Mr Lee, who appeared for Lam with Mr Oh, had referred to the case of Williams v Jeffries Hong Kong Ltd,unrep, HCA 320/2011, 20 June 2013, and the judgment on damages, HCA 320/2011, 8 July 2013.  It was submitted that damages for breach of an implied duty arising out of the manner of the plaintiff’s dismissal were sought and awarded in that case.

36.  However, the judgment on liability referred to the plaintiff having been dismissed summarily for gross misconduct (§62).  The judgment also referred to the defendant’s breach of both the contract of employment and the implied duty of trust and confidence (§§66-67).  With great respect, there was no analysis or authority cited on the interaction between the 2 types of infringement.  I do not believe that William v Jeffries is of assistance to Lam’s case.     

37.  Next, I have to deal with the submission of Mr Lee that this case did not concern termination with cause or termination without cause.  Instead, it was about whether the Duty was breached. Understandably, much reliance was placed on the finding by the Tribunal that the Dismissal Reason was a pretext. 

38.  First and foremost, it was indisputable that Lam’s employment was terminated pursuant to Clause 11.3 of the MCS (and/or s.7 of the Ordinance).  She was paid according to such provisions and the payments were set off against the damages awarded to her by the Tribunal.   

39.  With respect, it was unnecessary (there was no such legal requirement) for the EOC to state any reason in the letter of termination.  Having unnecessarily stated the reason, the EOC was challenged by Lam on it and the Tribunal had found against them.  The finding reflected poorly on the EOC. 

40.  On the other hand, the relevance (or the lack of it) of the Dismissal Reason was not addressed in any satisfactory manner by the Tribunal.  It is not clear what was meant by “the [EOC] did not just terminate [Lam] (sic) unilaterally by giving payment in lieu of notice but they had stated they were relying on the Dismissal Reason” (Decision, §15 (see para 17 above)).    

41.  I agree with Mr Lui that the Tribunal did not find, as a consequence of having a reason stated in the termination letter, that the termination was not one pursuant to Clause 11.3 of MCS.  In any event, such a conclusion could not be justified.  The EOC had never argued, and the Tribunal never found, that there was dismissal for cause in this case. 

42.  If the EOC was entitled to terminate Lam’s employment without cause in accordance with the Contract, and it mattered not whether the exercise of such right was unreasonable or capricious, I fail to see how or why the stated reason had any bearing on the termination.  I can certainly understand the unhappiness it had caused Lam, and probably the regret on the part of EOC for having taken an unnecessary step, but it was of no legal relevance in this case.  As a matter of law, the EOC could not be in a different position than having given no reason for the termination. 

43.  For these reasons, I hold that Grounds 1 to 3 have been made out.  For completeness (and relevant to Ground 3(b)), it should be noted that an action for wrongful dismissal (in breach of contract) could yield no more than the salary which should have been paid during the contractual period of notice: Johnson v Unisys, §§40-41. 

44.  Further, I am inclined to agree with Mr Lui that a claim based on the manner of termination should not be quantified on the basis of the terms of the contract.  As an example, in Wallace v United Grain Growers Ltd (1997) 152 DLR (4^th) I, a case referred to (but not adopted) by Lord Hoffmann, who gave the majority judgment in Johnson v Unisys, §§39-43 (see also Tadjudin, §62, quoted in para 26 above), it was held in a minority judgment of McLachlin J that damages for mental distress and loss of reputation and prestige would have been awarded to the employee due to the manner of his dismissal. 

45.  Ground 4 concerns para 41 of the Decision :

“41. In Lam Chun Choi v Standard Chartered Bank (Hong Kong) Ltd, it was held that where the employee’s employment is terminated for reasons of performance or conduct, and the employer has a contractual disciplinary procedure, the employer must follow the procedure before terminating the employee’s employment. In our case, there is no evidence to show the Defendant had followed their contractual disciplinary procedure before the termination of the Claimant’s employment.”

46.  It appears to be part of the reasoning on breach of the Duty found by the Tribunal.  The reasoning is perplexing when the EOC had not commenced any disciplinary procedure against Lam pursuant to Chapter E3 of the Manual.  Indeed, it was undisputed that the EOC did not terminate Lam’s employment for cause (see also para 11 above). 

47.  However, Mr Lee accepted that the Tribunal did not find that the EOC was obliged, but failed, to conduct any disciplinary proceedings or to follow its own disciplinary procedures.

48.  Bearing in mind this court’s conclusion on Grounds 1 to 3, nothing more needs to be said about Ground 4.

Conclusions

49.  For these reasons, this appeal is allowed and paras 1 and 3 of the Award are set aside. 

50.  The parties are in agreement that these matters should not be remitted for rehearing before a differently constituted Tribunal (I have been referred to the principles set out in Chok Kin Ming v Equal Opportunities Commission [2017] 2 HKLRD 521, §70).  They are also in agreement that costs should follow the event.  I order that the costs of this appeal are to be paid by Lam.

51.  The EOC did not specifically ask for the costs of the hearing below.  Even if it had, I would not be inclined to award it such costs in light of the factual findings against it and the modest amount of such costs.

52.  I am grateful to counsel for their assistance.