ALI SHOUKAT v. HANG SENG BANK LTD

HCLA 112/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

LABOUR TRIBUNAL APPEAL NO. 112 OF 2004

(On appeal from LBTC 4976 of 2004)

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J U D G M E N T

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Introduction

1.  The Respondent (Claimant) was employed by the Appellant (Defendant) as a security guard under a written contract of employment.  He commenced his employment with the Defendant on 28 December 1987.  Prior to April 2000, he had taken three periods of unpaid home leave back to Pakistan totalling 213 days.  In April 2000, he was injured while on duty and suffered total permanent disability.  After exhausting all his paid sick leave, he took 892 days of unpaid sick leave from 31 December 2001 until 9 June 2004.  Of the 892 days of unpaid sick leave, 747 days were supported by medical certificates and 145 days were not.  Then he formally resigned on 10 June 2004.  He was paid his long service payment calculated in accordance with the Employment Ordinance and retirement benefit (the “Scheme Benefits”) under the Hang Seng Bank Limited Defined Benefit Scheme (the “Scheme”).

2.  The present dispute is about the amount of Scheme Benefits payable under the Scheme.  The Claimant was paid Scheme Benefits calculated on the basis of his period of employment of 16 years and 165 days less 1,105 days of unpaid home leave and unpaid sick leave.  The Claimant did not dispute that the 213 days of unpaid home leave and the 145 days of uncertified sick leave should not be taken into account in calculating his entitlement of Scheme Benefits but contended that the 747 days of certified sick leave should also be benefit earning.  The Presiding Officer found for the Claimant and ordered the Defendant to pay the balance of the Scheme Benefits in the amount of $47,865.29 to the Claimant.  Against that decision, the Defendant appeals.

3.  The Defendant’s grounds of appeal are:

(1)	the Labour Tribunal has no jurisdiction to make the award;
(2)	the Defendant is not the party liable to pay the Scheme Benefits to the Claimant under the Scheme; and
(3)	the Presiding Officer erred in construing the Trust Deed constituting the Scheme.

The Scheme

4.  The Claimant’s claim is in respect of underpayment of Scheme Benefits under the Scheme.  Thus, before considering the grounds of appeal, it is necessary to consider what is the nature of the Claimant’s entitlement under the Scheme.  The Claimant’s as well as the other employees’ entitlement to the Scheme Benefits arose out of a trust deed dated 29 March 2000 creating the Scheme and providing the Scheme Benefits (the “Trust Deed”).  The Trust Deed was made by the Hang Seng Bank Limited (the Defendant) and Hang Seng Bank (Trustee) Limited, which is the Trustee under the Trust Deed (the “Trustee”).  It should be noted that the Trustee is a separate legal entity distinct from the employer or the Defendant in this action.  The Scheme was established by the Defendant and the Trustee pursuant to Clause 2A of the Trust Deed.  Beneficiaries of the Scheme are defined in the Schedule which included the Claimant in this action.  Under Clause 2D, the Trustee holds the capital and income of the trust assets upon trust to be applied in accordance with the provisions of the Trust Deed.  Under Clause 2E, the trust assets are to be held under the legal control of the Trustee.  Thus, a tripartite relationship is created between the Defendant, the Trustee and the beneficiaries, including the Claimant.  The Defendant provides the trust asset by way of its contribution to insurance as stated in the preamble of the Trust Deed.  The legal title to the trust assets is vested with the Trustee who is under a duty to hold and apply the trust assets for the benefit of the beneficiaries. 

5.  In addition, the following clauses are pertinent. Under Clause 8E, the Trustee is liable for, inter alia, negligence, fraud or wilful disregard of the interests of the beneficiaries or for breach of trust.  Clause 17 of the Trust Deed expressly provides that no beneficiary will have any claim, right or interest under the Scheme or any claim upon or against the Trustee, the Defendant or an employer except under and in accordance with the Trust Deed.  Reading all these provisions together and in particular Clause 17, it is clear that any claim a beneficiary may have with respect to an alleged under-payment of the Scheme Benefits can only be a claim for breach of trust under the Trust Deed against the Trustee and not against his employer, i.e. not the Defendant. 

Ground (1): Jurisdiction

6.  Mr McLeish, counsel for the Appellant, submitted that the claim for Scheme Benefits is a claim under the Scheme and as such it is not a claim over which the Labour Tribunal has jurisdiction.  The jurisdiction of the Labour Tribunal is prescribed by section 7 and the Schedule to the Labour Tribunal Ordinance, Cap 25.   Section 7 provides that the Labour Tribunal shall have jurisdiction to inquire into, hear and determine the claims specified in the Schedule.  The Schedule provides:

“	(1)	A claim for a sum of money which arises from –
		(a)	the breach of a term, whether express or implied of a contract of employment … .
	(3)	Notwithstanding paragraphs 1 and 2, the tribunal shall not  have jurisdiction to hear and determine a claim for a sum of money, or otherwise in respect of a cause of action, founded in tort whether arising from a breach of contract or a breach of duty imposed by a rule of common law or by any enactment.”

7.  As analysed above, a claim for Scheme Benefits is a claim under the Trust Deed.  Any claim a beneficiary may have with respect to an alleged under-payment of the Scheme Benefits can only be a claim for breach of trust under the Trust Deed against the Trustee and not his employer.  Such a claim falls well outside the Schedule as not being a claim for a sum of money which arises from the breach of a term of a contract of employment.  Thus the Claimant may not bring an action for recovery of Scheme Benefits unless his entitlement to Scheme Benefits has been made an express term of his contract of employment or otherwise incorporated into his contract or the Trustee’s obligation to pay under the Scheme could be implied into the contract of employment as an obligation of the Defendant as employer.

8.  The letter of employment dated 22 December 1987 which was accepted by the Claimant on 23 December 1987 formed his contract of employment with the Defendant.  It sets out the terms and conditions of his employment, his salary, period of notice to terminate the employment, working hours and shift duty, the obligation to wear uniform, etc.  It is silent as to any retirement benefits or Scheme Benefits.  It does not provide for any obligation on the part of the Defendant to pay the Claimant any Scheme Benefits.   There was a total absence of evidence that the obligation to pay the Scheme Benefits had been incorporated into the Claimant’s contract of employment by any other document or by oral agreement.  There was no finding by the Presiding Officer to that effect.  Thus the Claimant’s entitlement to the Scheme Benefits was not an express term of his contract of employment.

9.  I now turn to consider whether the obligation to pay Scheme Benefits could be implied into the contract of employment.  I think the answer must be “no”.  A term will only be implied if it is necessary in the business sense to give efficacy to the contract: see The Moorcock (1889) 14 PD 64 at 68.  The implication is drawn on the basis of the presumed intention of the parties.  In the instant case, the Defendant set up a trust under a Trust Deed.  Clause 15B of the Trust Deed expressly provides that nothing in the Deed must in any way be construed as imposing upon an employer a contractual obligation as between the employer and an employee to contribute or to continue to contribute to the Trust Asset.  The express intention of the Defendant is that eligibility to the Scheme Benefits is not a contractual one.  Furthermore, Clause 18 provides that no beneficiary will have any claim, right or interest under the Scheme or any claim upon or against the Trustee, the Bank or an employer except under and in accordance with the Trust Deed.   Thus the express intention of the Defendant is that the Claimant’s rights provided under the Trust Deed is exhaustive.  Under the Trust Deed, the Trustee is charged with the obligation of paying the Scheme Benefits to eligible members while the Defendant is to make contributions to the Trustee and is under no obligation to pay any Scheme Benefits.  In the light of these express intentions, it could not have been the presumed intention of the Defendant that it shall make good any under-payments made by the Trustee.  In the circumstances, there can hardly be any room for any obligation on the part of the Defendant make good any under-payment to be implied.

10.  Accordingly, the claim for Scheme Benefits could only be a claim under the Scheme or the Trust Deed and the only person who may be sued in respect of the breach is the Trustee and not the Defendant.  Any claim for a sum of money arising from any breach of trust is outside the jurisdiction of the Labour Tribunal.  The learned Presiding Officer did not say how in his Reasons for Decision that he thought the claim came within his jurisdiction.  The flaw in his decision is that he did not identify the term of the contract which created the payment obligation before deciding there was a breach of a term of contract and assumed jurisdiction.  In the premises, the claim falls clearly outside the jurisdiction of the Labour Tribunal.  On this ground alone, the appeal must be allowed.  The award of the Presiding Officer is a nullity.

Ground (2): the Defendant is not liable to the Claimant under the Scheme

11.  In view of my analysis in paragraphs 5 to 10 above, any claim a beneficiary may have with respect to an alleged under-payment of the Scheme Benefits can only be a claim for breach of trust under the Trust Deed against the Trustee and not his employer.  In the premises, even if the claim were within the jurisdiction of the Labour Tribunal, the party liable to pay the Scheme Benefits is the Trustee and not the Defendant.  The claim must also fail on this ground and the appeal be allowed.

Ground (3): the Presiding Officer erred in construing the Trust Deed constituting the Scheme

12.  I now turn to the Defendant’s third ground of appeal.  The Claimant’s entitlement to Scheme Benefits is calculated according to the following formula as set out in paragraph 4(d) of the Schedule to the Trust Deed:

Factor   x   Final Month’s Salary   x   Eligible Service

“Eligible Service” is defined under Clause 1(a) of the Schedule to the Trust Deed to mean in essence:

“… continuous full time employment on the permanent  establishment of an Employer.”

However, this clause must be read with Clause 2(c) which provides:

“Membership shall not cease or be interrupted if a Member is granted paid leave of absence by the Bank.  Periods of one or more consecutive months of temporary release or unpaid leave authorised by the Bank or suspension from duty shall not prevent Eligible Service from continuing but shall (unless otherwise agreed with the Bank) cause the relevant Member’s Eligible Service to be reduced by an equivalent period of time.”

The combined effect of these provisions is that the continuity of employment is not affected by interruption caused by any period of unpaid leave, but such unpaid leave shall not count for the purpose of Eligible Service.  The crucial dispute between the parties is whether the Presiding Officer was right in his interpretation of the word “unpaid leave”.

13.  The Presiding Officer approached the interpretation of “unpaid leave” as follows.  He took the view that because the words “unpaid leave” has not been defined in the Trust Deed, it is vague and the contra proferentum rule applies.  He drew a distinction between sick leave certified by a medical practitioner from other kinds of leave.  Next, he adopted paragraph 3(2) and 3(3) of the First Schedule to the Employment Ordinance for the purpose of determining continuity in employment to the Trust Deed in interpreting the words “unpaid leave”.  Then he held “unpaid leave” referred to in the Trust Deed was benefit earning if supported by a medical certificate in just the same way as such leave shall not constitute any break in the continuity of employment by virtue of paragraph 3(2) and 3(3) of the First Schedule.  This is what he said in paragraph 12 to 15 of his Judgment (based on an uncertified English translation of the Judgment of the Presiding Officer in Chinese):

“	12.	…  Neither has the Trust Deed [nor] the said Handbook clearly stated whether such unpaid leave includes unpaid sick leave.  No clear definition of the aforesaid leave is given in the Trust Deed.  From the legal point of view, when the meaning is not clear or vague in the interpretation of a provision of any contract, the criterion is that such interpretation of the unclear part should be favourable to the other party.  In law[,] this is called contra proferentum rule.
	13.	[According to] law, the unpaid sick leave of the Claimant [is a period of time] during which he has a medical certificate to prove he could not return to work.  The sick leave certified and issued by a registered medical practitioner that he was not suitable for work was unlike any other unpaid leave when he did not go to work of his own choice, and when he could go back to his native land to visit his relatives or enjoy himself.  In accordance with paragraph 3(2), (3) [of the] First Schedule [to] the Employment Ordinance [defining] “continuous employment”, if an employee is incapable of work in consequence of sickness or injury, provided that any such incapability in excess of 48 hours is supported by a certificate issued by a registered medical practitioner, that hour shall count as an hour in which he has worked.  I, therefore, consider that in the calculation of the Claimant’s eligible service, the unpaid sick [leave] of the Claimant should be included by the Defendant Company due to continuous employment.  In addition, the Company should, in its calculation of the Claimant’s long service payment, include the period of the said unpaid sick leave.
	14.	[In the English text of the Employment Ordinance, the words “sickness day” is used and not “sick leave”.]  In the Chinese text, it is called “sick leave day”.  I am of the opinion that, in considering any unpaid leave, the Claimant’s unpaid [leave] supported by a medical certificate should not be included because it is a different kind of leave which the Claimant took for recuperation at home and not for enjoyment.
	15.	Having considered all the details of the present case, I have come to this judgment.  Based on the principle of ex aequi et bono, the Company should not, in its calculation of the Claimant’s eligible service, include his unpaid sickness days supported by medical certificates in the period of service to be deducted from his eligible service.  The Company’s practice of handling similar cases of its employees in the past does not mean that such practice is appropriate and fair.  Therefore, my judgment is given for the Claimant, and the Defendant Company shall include in the Claimant’s eligible service the 747 unpaid sickness days supported by medical certificates in the calculation of his retirement benefit.”

14.  With respect to the Presiding Officer, the approach he adopted was unorthodox and he erred from the very start.  In the absence of any provision in the Trust Deed that defines the meaning of “unpaid leave” in a way that is contrary to its grammatical and ordinary meaning, the Golden Rule of construction must be followed: see Lewison, The interpretation of Contracts, 3^rd Ed.  However, instead of adopting this simple approach, he took a treacherous route to reach the conclusion which he did.  The words, “unpaid” and “leave” are ordinary words.  They should be construed in their grammatical and ordinary sense, except to the extent that some modification is necessary in order to avoid absurdity, inconsistency or repugnancy.  In the context of the Trust Deed, “leave” means absence from work or duty, while “unpaid” means without pay.  Thus on a fair reading of the Trust Deed, “unpaid leave” means absence from work for which the employee received no remuneration.  It comprises of sick leave, home leave, study leave, or leave of whatever type and duration during which the employee is not paid.  Such interpretation is consistent with the ordinary meaning of the words and is the meaning which those words in the context of the Trust Deed would be understood by an ordinary reasonable reader having knowledge of the purpose for which the Scheme was set up.  This interpretation does not result in any absurdity, inconsistency or repugnancy to the Trust Deed and to its express purpose of providing relevant benefits for or in relation to employees or other individuals for whom an employer may have an obligation to provide relevant benefits.  The Scheme Benefits are rewards for an employee’s devotion for serving the employer.  On the contrary, it would be more inconsistent with and repugnant to the purpose of the Scheme to reward an employee for being absent albeit with the leave of the employer than not to award him.

15.  The second error the Presiding Officer made was to apply the contra proferentum rule of construction because of the absence of a definition for the words “unpaid leave” in the Trust Deed.  This rule applies only where there is ambiguity.  As explained above, these are ordinary words.  There is no ambiguity in the Trust Deed if these words are given their ordinary common sense meaning.  The fact that this term is not defined in the Trust Deed does not render it or the Trust Deed ambiguous.

16.  The Trust Deed and the Scheme have their own existence independent of the Employment Ordinance.  In the absence of any express reference to or incorporation of the provisions of the ordinance, the First Schedule to the Employment Ordinance is irrelevant to the interpretation of the Trust Deed.  On the contrary, the Trust Deed expressly provides that the taking of unpaid leave does not affect the continuity of Eligible Service but shall not be benefit earning.  To apply the Schedule to the Trust Deed in the way the Presiding Officer with the result that unpaid sick leave is benefit earning is contrary to the unambiguous and express intention of the Trust Deed.

17.  The Presiding Officer drew a distinction between unpaid leave supported by medical certificate and taken for medical reason and unpaid leave taken for other reasons.  While there is a distinction from the point of view of the person taking the leave, the distinction is one of no difference in the context of the Trust Deed as the fact remains that both kinds of leave are unpaid leave according to the ordinary meaning of that term.  In carving out unpaid leave taken for medical reason from unpaid leave and to hold that such unpaid leave was benefit earning, the Presiding Officer was creating an exception to “unpaid leave” in the Trust Deed.  He was making his own value judgment or policy decision for the employer as to what should have been provided for in the Trust Deed.   In other words, he was re-writing the Trust Deed.  I do not think that could be right.

18.  The Presiding Officer also erred in applying the maxim ex aequi et bono, which could only be applied when the strict rules of law are overridden by considerations of what is fair and just.  No such reliance is permissible in the present case.  It is trite law that subject to express statutory exceptions, contracts are upheld and enforced no matter how unfair they may prove to be.  A fortiori, in the case of a trust, a beneficiary is not entitled to question the generosity of the settlor.   

19.  With respect to the Presiding Officer, he adopted an erroneous approach which led him to the wrong conclusion.  The words “unpaid leave” are ordinary words and should be construed in their grammatical and ordinary sense.  That construction gives rise to no absurdity, inconsistency or repugnancy.  The Presiding Officer was probably well intentioned towards the Claimant who suffered total permanent disability in an accident arising out of and in the course of his employment.  The Presiding Officer should not have allowed that to cloud his judgment.  In any event, the Claimant has been compensated under the employee compensation regime and in a separate personal injuries action.  It is not permissible for the Presiding Officer to re-write the Trust Deed by construing those words the way he did to give the Claimant additional benefit.  The Claimant has received all that is due to him under the Scheme.  The appeal must also be allowed on this ground.

Costs

20.  For the above reasons, the award of the Presiding Officer must be set aside.  Mr McLeish made a nominal application for costs of the appeal and graciously offered no argument.  But that cannot relieve me of the burden of giving the application the proper consideration it deserves.

21.  Though costs is a matter of discretion for the court, appeals from decisions of the Labour Tribunal involving an unrepresented party often raise difficult questions of costs.  The Appellant is wholly successful and was utterly without fault.  On the other hand, but for the Presiding Officer falling into error, the Claimant would have his claim dismissed without costs.  Cases of this kind often attract great sympathy from the courts.  An employee who files an employment claim, succeeds before the Labour Tribunal or the Minor Employment Claims Adjudication Board (the “MECAB”), but loses on appeal will end up with the consequence of a costs order in the appeal which is far in excess of his claim.  The same could happen to an employer of a very small business who losses an appeal by a legally aided employee.  Their only hope under such circumstances is that the appellate court will tamper justice with mercy.

22.  I think appeals from the Labour Tribunal and the MECAB stands out from other civil litigation as a special class of their own.  The purpose of the Labour Tribunal and the MECAB is to provide a speedy, efficient and cheap means of adjudication of employment claims.  Usually, the disputes are resolved with no order as to costs.  If costs are awarded, they are not substantial as the parties are not legally represented.  Litigants have a reasonable expectation that their disputes will be resolved on a low-costs basis both at first instance and on appeal.  In my view, this benefit of low-cost employment dispute adjudication should be extended to appellate proceedings if in all the circumstances it is just to do so.  However, it is impossible to set out the circumstances when it would be just to exercise the discretion of making no order as to costs as each case depends on facts of its own.  I think the following considerations should usually be taken into account in the exercise of this discretion.  The primary consideration is whether the unsuccessful party has been guilty of unmeritorious conduct in the litigation both at first instance and on appeal.  Of secondary importance are whether the unsuccessful party is legally represented in the appeal, whether he is the appellant or the respondent and balance of hardship the order of costs may have to the parties.

23.  If the unsuccessful party to an appeal has not put forward a claim or a defence in bad faith and has not misbehaved himself in the conduct of the litigation, the appellate court should be slow in ordering costs of the appeal against him.  Bad faith in this context means putting forward a false, frivolous or vexatious claim or defence and giving false evidence which is disbelieved.  On the other hand, if he misled the Presiding Officer and obtained a judgment in his favour which led to the appeal, there is no reason why he should not bear the consequence of costs, even if such costs far exceeds his claim or the value of the claim against him.  He only has himself to blame for his misfortune.  Generally the discretion to make no order as to costs should lie in favour of the unsuccessful party who cannot afford legal representation.  This is because if a party is legally represented on appeal, he knows of the consequence of costs and he no longer litigates with the expectation of low-costs adjudication.  Likewise, the discretion should also be exercised in favour of the unrepresented respondent as he is a passive party to an appeal, provided that he has not been guilty of any unmeritorious conduct in the litigation. 

24.  The instant appeal is a special one.  The appeal was fought solely on points of law, which the Presiding Officer in the tribunal below should not have erred.  The Claimant had not put forward a claim in bad faith.  He had not put forward evidence which was disbelieved.  He had not challenged the Defendant’s evidence.  He had not misconduct himself in the litigation before the Labour Tribunal and on appeal.  He simply asked for his claim to be adjudicated on the basis of the law.   Had the Presiding Officer properly directed his mind to any of the three issues raised in this appeal, he would have dismissed the Claimant’s claim with no order as to costs.  It would cause the Claimant undue hardship if costs are awarded against him on appeal.  On the other hand, the Appellant is a party of substantial means, being one of the major banks in Hong Kong.  Such legal costs are insignificant and could have been easily absorbed in its operational expenses.  In the circumstances, I think this is an appropriate case in which I should exercise my discretion in favour of the unsuccessful party and make no order as to costs of the appeal as if this appeal were an extension of the proceedings in the Labour Tribunal.

Conclusion

25.  For the above reasons, I allow the Appellant’s appeal with no order as to costs.