LO WAI KEUNG v. HANNOVER RUCK SE

HCLA 7/2024

[2024] HKCFI 2032

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

LABOUR TRIBUNAL APPEAL NO 7 OF 2024

(ON APPEAL FROM LABOUR TRIBUNAL CLAIM NO 666 OF 2023)

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D E C I S I O N

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Background

1.  This is an application made by the Claimant (“Employee”) for leave to appeal on a question of law against the Decision of the Labour Tribunal (“Tribunal”) of 5 March 2024 (“Decision”). By the Decision, the Tribunal dismissed the Employee’s claims for damages, loss of income, loss of benefits and unpaid entitlement of share awards under a share awards/stock options scheme operated by the Defendant company (“Employer”) for its employees (“Scheme”), all of which the Employee claims to be payable to him as a result of the Employer’s unlawful termination and breach of his contract of employment.

2.  The application is made under section 32 of the Labour Tribunal Ordinance (Cap 25) (“Ordinance”), on the ground that the Decision is erroneous in law. The Employee contends that there were errors in law in: (1) the Tribunal’s construction of the relevant clause of the contract of employment providing for the duration of the employment; and (2) the Tribunal’s finding that the Employer’s termination of his employment was termination without notice, to constitute an event of an “extraordinary cancellation without notice” under the Scheme. As a result, this finding disentitles the Employee from claiming the share awards for 2016 to 2020 which the Employee claims are due to him under the Scheme.

3.  Under section 32 of the Ordinance, any party dissatisfied with an award, order or determination by the Tribunal on the ground that the award, order or determination is erroneous in point of law, or outside the jurisdiction of the Tribunal, may apply to the Court of First Instance for leave to appeal. In considering whether to grant leave to appeal, the Court must be satisfied that the intended grounds of appeal are genuine grounds based on errors of law, for which leave can be given (Karchoud, Leila Bent Mohamed v The Incorporated Trustees of The Islamic Community Fund of Hong Kong HCLA 61/2001, 30 January 2002), and that there is an arguable ground of appeal (Chan Kwok Hung v Hotel Panorama Company Ltd, HCLA 30/2009, 19 November 2009).

4.  Having duly considered the Decision and the submissions made by the Employee, I consider that there are arguable grounds of appeal, and will grant leave for the following reasons.

Construction of the provision on duration of employment

5.  The Employee argued before the Tribunal and on this application for leave to appeal that the contract of employment between the Employer and himself (“Contract”) was for a fixed term, and not to expire or be terminated until he attains the age of 65. On his case, the Employer’s purported notice of termination of the Contract, dated 29 December 2020 and claimed to take effect on 31 December 2020, was served before the Employee attained 65 years of age. As such, the Employee claims that the purported termination was unlawful.

6.  The Contract is contained in or evidenced by the letter dated 19 January 2009 from the Employer to the Employee. The relevant clause of the Contract on which the Employee relies (“Duration Clause”) states as follows:

“Duration of Agreement: This agreement will commence on 1 January 2009 and will continue unless and until terminated by either party giving to the other not less than 6 months’ notice in writing.

Notwithstanding the previous paragraphs, this contract shall end upon attainment of age 65.”

7.  The second half of the above clause is referred to hereinafter as the “Notwithstanding Clause”.

8.  On the Employee’s case, the proper construction of the entire Duration Clause is that the Notwithstanding Clause is the prevailing and effective clause which governs the term, ie duration, of his employment, such that the Contract and the employment cannot be terminated before he attains age 65. According to the Employee, the effect of the Notwithstanding Clause is that the employment under the Contract is for a fixed term and that the Contract will automatically be terminated upon his attainment of 65 years of age, but not before. At the time of the notice of termination, he had not yet attained 65 years of age.

9.  The Contract expressly states that in the event of any dispute, the laws of Hong Kong shall apply. Hence, it is not necessary to consider how the Notwithstanding Clause should be interpreted or understood under US law or German law (as the Employee has attempted to do).

10.  In support of his construction of the Duration Clause and the Notwithstanding Clause, the Employee seeks to rely on the decision of the court in Bank of China (Hong Kong) Ltd v Chan Fook Wing & Anor HCMP 420/2004 (“BOC Case”), to argue that the Notwithstanding Clause has the effect of overriding the preceding provisions, as if the preceding provisions do not exist.

11.  A review of the judgment in the BOC Case, which referred to and explained the judgment of the Court of Final Appeal in Official Receiver & Trustee in Bankruptcy of Chan Wing Hing & Anor v Secretary for Justice (2006) 9 HKCFAR 545 (“Chan Wing Hing”), shows that the authorities do not establish any rigid rule of construction. It is trite, that the object sought to be achieved in interpreting any contract is to ascertain what the mutual intentions of the parties were as to the legal obligations each assumed by the contractual words in which they sought to express them. Hence, to ascertain the intention of the parties in the context of contract interpretation, the terms of the contract have to be read as a whole. In Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900, Lord Clarke said that the process of construction is “one unitary exercise”, and that the Court must have regard to all the relevant surrounding circumstances.

12.  It is true that in Official Receiver & Trustee in Bankruptcy of Chan Wing Hing & Anor v Secretary for Justice, the Court of Final Appeal considered the meaning of section 30A(1) to (3) and (10) of the Bankruptcy Ordinance, and held that the provisions after the word “notwithstanding” in subsection (10) have an overriding effect on the preceding provisions under section 30A(1), (2) and (3). However, as the court correctly and duly noted in the BOC Case, the Court of Final Appeal was not laying down a rule of construction that any provision in a statute or in a contract which may appear after the word “notwithstanding” has, or does not have, overriding effect on the preceding provision. The provisions of a clause must be read with the rest of the provisions, and the contract itself must be read as a whole, before the meaning and effect of the clause can be properly understood. There is no rule of law, that because there is a clause which contains the word “notwithstanding”, everything which precedes the word or the clause should be ignored and need not be considered, as if the preceding clause does not exist - which is what the Employee suggests. In order to find the “overriding effect” of the notwithstanding provision, the entire clause must be considered, to construe how the preceding clause operates with the notwithstanding provision, and how the notwithstanding clause affects and prevails over the preceding provision.

13.  In the particular and proper context of the Duration Clause, even though the provisions in the Notwithstanding Clause have a prevailing effect, considered as a whole, the Duration Clause does not have the effect or meaning contended by the Employee. Even giving the overriding effect to the Notwithstanding Clause, read as a whole, the Duration Clause only means that the Contract and the employment thereunder will automatically continue until it is terminated by 6 months’ notice, but when the conditions specified in the Notwithstanding Clause are satisfied by the Employee attaining the age of 65 years, then the Contract and the employment cannot continue, and the termination by 6 months’ notice no longer applies. Before the Employee attains the age of 65 years, either party may still terminate the Contract by service of 6 months’ notice. The Notwithstanding Clause prevails over the Duration Clause which governs the continuation of the Contract, to the extent that even if no 6 months prior notice had been served or had expired when the Employee attains 65 years old, the Contract still terminates, and ends in any event and notwithstanding. Put in another way, the Notwithstanding Clause has the effect that the Duration Clause does not prevent the Contract from coming to an end, upon the condition of the attainment of age 65 being satisfied, and despite the fact that the Contract was to continue and no 6 months’ notice had been served.

14.  Such construction not only gives ordinary meaning to the usage of the plain language of the Duration Clause as a whole, but accords with business common sense. The construction put forward by the Employee, that the Duration Clause can be ignored altogether because of the existence of the Notwithstanding Clause, means that there is no right at all for either party to terminate by notice - even if there was misconduct or failure to comply with the terms of the Contract. Such construction makes no commercial sense, as no reasonable employer would have intended, or be willing, to give up a right to terminate on the ground of conduct, during the entire term.

15.  Further, the construction contended by the Employee would render the Duration Clause and the termination provision by 6 months otiose.

16.  By comparison, if the parties had intended the Contract to be a fixed term contract (for 21 years - when the Employee would have attained 65 years of age), they could easily have so stated in the Contract, but had not done so.

17.  The Tribunal did refer to the rules of contract interpretation, at paragraphs 18 and 19 of the Decision, and to the Court of Final Appeal decision in Chan Wing Hing. Applying the relevant rules of construction, the Tribunal arrived at the same conclusion as found above, at paragraphs 23 and 24 of the Decision.

18.  On the construction of the Duration Clause and the Notwithstanding Clause, I do not consider that there is any reasonable prospect of success in arguing on appeal that the Tribunal had erred in law.

The Employee’s right to the Share Awards

19.  The Employee’s claim is that the Tribunal had erred in finding that the Contract and the employment had been terminated by the Employer without notice. This was in the context of the Tribunal’s determination of the Employee’s claim for his “unpaid entitlement of Employees’ Share Rewards/Options scheme accounted for the years from 2017 to 2020” (paragraph (4) of the Employee’s prayer for relief in his Statement of Claim filed in the proceedings before the Tribunal).

20.  It was not disputed before the Tribunal that the Employer purported to terminate the Contract by its letter of 10 December 2020 (“Letter”), stating that the employment would be terminated on 31 December 2020. However, the Letter stated that the payments to be made by the Employer to the Employee upon termination of his employment include a sum of $1,723,042 as “payment in lieu of 6 months’ notice”. The termination payments further included a cash payment in respect of the 2016 to 2019 share awards and dividends under the Scheme (which payment the Employer later claimed to be erroneous).

21.  The Scheme is governed by conditions (“Scheme Conditions”) which provide for the Employee’s rights and entitlements to share options (“Share Awards”) by virtue of his employment. The Scheme Conditions provide (inter alia) that the grant of Share Awards is discretionary, and set out the terms of allocation of Share Awards. On the Employer’s case in the proceedings, Share Awards allocated in 2016 would not vest under the Scheme Conditions until March 2021, which was after the termination of the Employee’s employment on 31 December 2020. The Employer further claims that the Employee was not entitled to the Share Awards because the termination of his employment was based upon “extraordinary cancellation without notice”, or for reasons of conduct, being disentitling events as provided for under clause 4(1)(ii) of the Scheme Conditions.

22.  It is pertinent to note that the Scheme Conditions provide that the conditions for the grant of Share Awards are governed exclusively by German law, and further contain a jurisdiction clause, which states that “the place of performance and jurisdiction for all financial liabilities in connection with” the Scheme is, “in so far as is legally permissible”, Germany - where the Employer’s registered office is situated.

23.  The Tribunal considered that notwithstanding the existence of the jurisdiction clause, there were sufficient reasons for the Tribunal to assume jurisdiction over the claims made by the Employee in respect of his employment and the Contract, which is governed by Hong Kong law. She further found that as the Employer had not disputed the jurisdiction of the Tribunal in its Defence, and had only raised jurisdiction at the trial, the Employer had waived any right to object and had submitted to the jurisdiction of the Tribunal. The Tribunal accordingly proceeded to consider the claims made by the Employee to the Share Awards, as part of his claim for damages in respect of the Employer’s breach of the Contract and the unlawful termination thereof.

24.  Under section 7 of the Ordinance, the Tribunal has jurisdiction in respect of claims specified in the Schedule to the Ordinance, and section 7 (2) states that no claim within the jurisdiction of the Tribunal shall be actionable in any court in Hong Kong. The claims in the Schedule include any claim for a sum of money, whether liquidated or unliquidated, which “arises from” the breach of a term, whether express or implied, of a contract of employment, for performance in Hong Kong, or from the failure of a person to comply with the provisions of the Employment Ordinance (Cap 57). The claims are wide in categorization, and the purpose is to provide employees with access to an expeditious and costs-saving manner of resolution of claims before the tribunal, so long as such claims arise out of or relate to a contract of employment, for performance in Hong Kong, or from a breach of the Employment Ordinance.

25.  Having assumed jurisdiction over the Employee’s claims to the Share Awards, the Tribunal found that the Contract was terminated by the Employer’s payment in lieu of notice, which in the Tribunal’s judgment imputed a choice by the Employer to immediately bring the Contract to an end, without requiring the Employee to work during the period of notice, and to make payment of wages in lieu of notice instead. According to the Tribunal, this constituted a “termination without notice”.

26.  The Tribunal further found on the evidence that the Employee had failed to follow approval procedures and guidelines in relation to various insurance products of the Employer, causing the Employer to sustain damages, such that the termination was caused by his misconduct.

27.  Apparently for these reasons only, the Tribunal found that as the Employee’s termination falls within clause 4(1)(ii) of the Scheme Conditions which excludes the Employee’s entitlement to the Share Awards, the Employee had no claim to the Share Awards for 2016 to 2020. The Tribunal did not consider or rely on the Share Awards being discretionary, or as not having been vested at the date of termination of the Contract.

28.  The Employment Ordinance makes clear distinction in sections 6, 7 and 9 between termination of contracts of employment by notice, termination by payment in lieu of notice, and summary dismissal without notice. Although a payment in lieu of notice terminates the contract with immediate effect, it does not equate to summary dismissal and termination without notice as provided for under section 9 of the Employment Ordinance. A payment in lieu of notice is unilateral, and serves as an alternative to giving the notice period. However, by making payment of wages for the contractual period of notice, the employer serving the notice acknowledges the employee’s contractual entitlement to service of the agreed notice, irrespective of any conduct or reason which might have entitled the employer to summarily dismiss the employee under section 9 of the Employment Ordinance.

29.  Since different consequences follow from the distinct methods for the termination of the contract, the courts have made it clear that the employer must make an election, bear the consequences of its election and make its election clear to the employee if it considers that it has grounds to terminate the employee under section 9 but nevertheless makes payment to the employee (Allidem Mae G v Kwong Si Lin [2006] 1 HKC 252, Chak Chong-Chi v Maxim’s Caterers Ltd, unreported, HCLA 25/1992, 21 September 1992).

30.  On the authorities, it is reasonably arguable that the Tribunal erred in law, in equating termination by payment in lieu of notice with summary dismissal without notice. The Letter can be reasonably understood to be the Employer’s choice to terminate the Contract by making payment in lieu of the 6 months’ notice provided for in the Contract, and there was no indication in the Letter of any conduct on the part of the Employee which would have entitled the Employer to terminate the Contract without notice.

31.  An appeal on this ground of error of law has reasonable prospects of success. Further arguments can be made on the appeal, and I will not make further observations at this stage.

Disposition

32.  For the above reasons, I grant leave to the Employee to appeal, but only on the question of law as to whether the termination of the Contract was without notice, and the effect this may have on the Employee’s claims for damages in respect of the Employer’s alleged breach of the Contract of employment. The costs of the application for leave to appeal will be in the cause of the appeal.