CATHAY PACIFIC AIRWAYS LTD v. SUMITRA JAYASENA KELLY

HCLA 94/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

LABOUR TRIBUNAL APPEAL NO. 94 OF 2005

(ON APPEAL FROM LABOUR TRIBUNAL CLAIM NO. 12076/2002)

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J U D G M E N T

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1.  This is an appeal by the defendant against a decision of a Presiding Officer of the Labour Tribunal made on 20 December 2005.  The reasons for decision were given on 20 February 2006.

Appeal against employees’ entitlement to rebated travel after retirement

2.  The claimant used to be a cabin attendant of the defendant.  Her claim was for retirement travel benefits (“RTB”) for her husband, but her husband’s entitlement to RTB depended on her entitlement.  So the case was fought at the Tribunal on both her entitlement and her husband’s entitlement. 

3.  The Presiding Officer gave judgment on liability in favour of her claim for her husband’s RTB.  The matter as to quantum of damages has been adjourned and the defendant has reserved its position on quantum generally.  The defendant now appeals against the Presiding Officer’s decision on liability, but the scope of the appeal is confined to the claimant’s contractual entitlement to RTB.

Terms of employment

4.  The defendant employed the claimant in early 1984.  The defendant’s letter of offer of employment was dated 27 January 1984.  The first paragraph and part of the third paragraph of the letter read:

“Further to your recent interview and medical examination, I am pleased to offer you employment as a Cabin Attendant.

…

We are enclosing a copy of our Service Conditions and would ask you to sign the Appendix on the last page thereof to indicate that you are accepting our offer of employment.  …  ”

The set of Conditions of Service was dated 1 May 1981 and the claimant signed its last page on 7 February 1984. 

5.  Clause 16 of the conditions provided for free-of-charge travel, which stated that each cabin attendant would be entitled to one free return ticket.  This benefit would be extended to the spouse after 10 years continuous service.  Clause 17, which is relevant to this appeal, read:

“Rebated travel.

On completion of a minimum of a minimum of nine months’ service, Cabin Attendants will be granted travel on Company aircraft at 90 per cent rebate on a “subject-to-load” basis.  This concession will also be applicable to the Cabin Attendant’s spouse, children up to the age of 18 years and parents, but to no other relatives.

The Company has reduced-rate agreements with certain other airlines.  These generally provide rebates of 75 per cent on a “subject-to-load” basis.  Details of staff travel privileges are contained in the STAFF TRAVEL-CX AND INTERLINE RULES AND REGULATIONS BOOKLET which may be obtained from Staff Travel Office.”

The booklet referred to in this clause was not produced.  It was found by the Presiding Officer that it did not relate to RTB.  There is no appeal against this finding and nothing more need be said about it. 

6.  Clause 18 of the conditions dealt with medical benefits.  Clause 19 dealt with bi-annual and annual medical examination at the defendant’s costs.  Clause 20 dealt with medical scheme for the wife and children of a cabin attendant.  Clause 23 dealt with resignation and retirement and clause 24 dealt with retirement grant.  Nowhere in these conditions was RTB mentioned. 

7.  The Conditions of Service dated 1 January 1986 were also produced.  They contained more or less the same conditions as in the 1981 conditions, subject to a change in the numbering from paragraph 17 onwards.  The provision for rebated travel was materially the same as that in the 1981 conditions.

Staff benefits documents

8.  The next lot of documents referred to by the claimant at the Tribunal were a Staff Services Booklet and a few Staff Benefits Handbooks issued by the defendant from time to time.  The earliest one was the Staff Services Booklet issued in March 1990.  The introduction of the Booklet read:

“This booklet has been produced to help you understand the way the Staff Housing, Medical and Travel offices operate.  We have endeavoured to keep the booklet easy to read and simple to understand and we will issue amendments as they may arise.  The booklet is intended as a guide.  Should you have any questions, please do not hesitate to contact the appropriate office.

Finally, at the end of the booklet you will find a pro forma which invites you to send in any comments you may have on the booklet or general issues you would like to see improved.  Please make use of the pro forma so that we can improve our service to you.”

9.  The part that dealt with staff housing contained some detailed advice on how to negotiate for a tenancy, how to enter into a tenancy, what were the charges payable and the amount of housing allowance payable by the defendant to the cabin attendants.  On medical services, though the 1981 and 1986 Conditions of Service had excluded dental treatment (the 1986 Conditions began to provide annual dental check and cleaning service for cabin crew), the 1990 booklet referred to a company dental scheme providing basic dental care which cabin attendants were said to be “entitled to join”.

10.  The section for concession travel referred to different travel concessions that were available to cabin attendants of different lengths of service.  It also referred to the annual free-of-charge ticket.  These appeared to be contractual entitlements of the attendants.  There was a paragraph (j) at the end of this section which dealt with retirement travel.  This should be RTB.  It read:

“J Retirement Travel
1.	Dependants are eligible for half the number of rebated tickets for the retired staff number: i.e., 3 ID90 Sublo trips per year and 3 ID75 Sublo trips per year.  ID50 Nosub travel is unrestricted.”

11.  The next booklet was the Staff Benefits Handbook issued in July 1991.  Only the part on concession travel had been produced to the Tribunal.  It again referred to different travel concessions and the annual free-of-charge tickets that were available to cabin attendants of different lengths of service.  The provisions were more elaborate.  However, paragraph (j) was removed, but in the paragraph on “eligibility” was added a reference to the eligibility of retired staff, their spouses and their children to travel concession.  Such travel concession should be RTB.  There were then the descriptions of different criteria of eligibility for RTB.  They read:

“6.	Retired staff and their spouses and children under the age of 23 are eligible for concessional travel.  In the case of a single retiree, the concession will be extended to parents.  The following staff will qualify for retirement travel:
	a.	All male cabin attendants who have completed 10 or more years of service and have reached the age of 55.  Those who qualify by service but not by age, will become eligible upon reaching the age of 55.
	b.	All male cabin attendants who have completed 20 years of service and have reached the age of 50.
	c.	All male cabin attendants who have completed 25 years of service, regardless of age.
	d.	All female cabin attendants who have completed 10 or more years of service and have reached the age of 40.
	e.	All female cabin attendants who qualify by service but not by age, will become eligible upon reaching the age of 40.”

12.  There were then in both booklets a part called the “Conditions and Regulations for the Travel Concession”.  They governed the rebate percentage and class of travel, the form of payment, the suspension of travel privileges and the rebated flight and excess baggage.  They appeared to apply to all travel concessions including RTB. 

13.  The next document was a single undated page which was an excerpt of Conditions of Service that dealt with concession travel online for cabin attendants.  It again referred to different travel concessions and the eligibility for RTB, which were the same as in the July 1991 booklet.

14.  The next booklet was the Staff Benefits Handbook issued in August 1992.  It again contained sections on housing and medical benefits.  The same useful advice on housing was there as well.  The section on concession travel for cabin attendants was word-for-word the same as that in the July 1991 handbook except that a few extra pages had been produced in the August 1992 handbook and it is not known if the same pages were there in the 1991 handbook. 

15.  For the July 1993 handbook, only the part on concession travel was produced to the Tribunal.  It was again word-for-word the same as that in the August 1992 handbook except that the very last part on “refund” was expanded in the later version.

16.  In addition to the handbooks, the Presiding Officer also referred to some circulars and notices issued by the defendant to cabin attendants from time to time.  By a letter dated 10 May 1993, the defendant advised all cabin crew members of an approval by the Inland Revenue Department to changes in the benefit multiples for resignation and retirement of cabin crew.  It gave an option for the crew members to accept the new scheme or to remain in the old scheme.  The last paragraph in this letter dealt with eligibility for retirement travel benefit.  It read:

“5.	Eligibility for retirement travel benefits
The principle that cabin attendants with at least 10 years service may qualify for retirement travel benefits upon reaching retirement age remains unchanged.  Future staff, both male and female, with 10 years’ service, will be eligible for retirement travel upon reaching the age of 45.”

17.  By another letter dated 5 December 1994, the defendant announced the introduction of a new concession travel policy.  The planned implementation date was 1 January 1995.  The new policy was however issued only on 20 February 1995.  Two of the conditions of the policy state:

“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.”

18.  I emphasise that these conditions were only stipulated for the new policy.  The second condition was reiterated by the defendant in a subsequent letter issued on 27 February 1995, which formally announced the approval by the defendant’s managing director to the new policy.

19.  The defendant’s next letter dated 19 April 1995 explained the reasons for introducing the new policy.  The part relevant to this appeal read:

“…  The policy does not override provisions protecting existing Conditions of Service for Expatriates, Local Pilots and Cabin Crew.
All staff employed after 1 April 1993 will be subject to the new policy.  Those employed prior to 1 April 1993 have the option to either transfer to the new policy and obtain the improved benefits contained therein or remain on their present contractual terms with no improved benefits.  Other non-contractual items will be governed by the new policy.
…  Until access to First Class can be uniformly applied in accordance with the new policy, the Company has decided in response to feedback from staff to address the issue of ID90F travel for all Expatriate Staff and Locally Employed Pilots employed prior to April 1 1993 in the following way:
	For those who accept the new policy all additional benefits and restrictions published in the policy will apply including limitations to First Class.
	For those who do not accept the new policy present contractual terms will apply and there will be no improvement to existing conditions.  Other non-contractual items will be governed by the new policy with the exception of unlimited access to ID90F, which will be available for self and spouse only.”

20.  For those who opted for the new policy, they had to sign the form which contained the following statement:

“I hereby submit my application to accept the new Cathay Pacific Airways Limited Concessional Travel Policy offered by the Company.  I confirm that I wish to be employed under the above terms effective immediately and, in consideration of the enhanced benefits outlined in the Policy, agree that my contract of employment with the Company is hereby amended to reflect this fact.  …  ”

The Presiding Officer’s decision

21.  On these evidence, the Presiding Officer made the following findings in his reasons for decision:

“46.	The 1981 COS and the 1986 COS provided for rebated travel benefits.  I find that the Claimant is contractually entitled to rebated travel benefits not less favourable than those available to the Defendant’s cabin attendants as at the date when she joined the Defendant unless the subsequent changes were agreed by the Claimant one way or the other.  …
49.	The various Staff Benefits Handbooks were originated from the 1990 Staff Services Booklet, which clearly stated that it was not a contractual document but only a guide.
	…
51.	However, I find that the Staff Benefits Handbooks were evidence of contractual benefits enjoyed by the Defendant’s cabin attendants from time to time.  The Defendant states nowhere in the Staff Benefits Handbooks that RTB are granted at the Defendant’s discretion.  The Staff Services Booklet and the Staff Benefits Handbooks were issued to the Defendant’s cabin attendants (including the Claimant) and they continued to work for the Defendant on the understanding that they were entitled to the benefits referred to in the Handbooks.
52.	I find that RTB were available to cabin attendants in 1984 when the Claimant joined the Defendant.  The benefits were subsequently improved and their details were set out in the various versions of Staff Benefits Handbook.
53.	Documents submitted by both sides did not distinguish RTB from other types of rebated travel benefits.  I find that RTB are one type of rebated travel benefits and the Claimant is contractually entitled to such benefits.”

22.  Thus the Presiding Officer in his reasons seemed to have construed that clause 17 of the 1981 Conditions of Service had included RTB as a matter of contract.  Mr Pow, leading counsel for the claimant, preferred to read the reasons of decision in this way and I agree with him. 

Arguments on construction

23.  Mr Pow tried to support the Presiding Officer’s construction of clause 17 in the following way.  He submitted that there were many types of rebated travel service as shown in the document attached to a circular letter of the defendant dated 20 December 1995.  However, clause 17 only provided for a contractual entitlement to “rebated travel”.  It was therefore necessary to understanding the meaning of “rebated travel” by looking at the factual and legal background against which the employment agreement was concluded (see Lord Hoffman in Jumbo King Ltd v Faithful Properties Ltd and Ors (1999) 2 HKCFAR 281 and 296D-I). 

24.  Mr Pow further submitted that the Presiding Officer had found as a fact that RTB was in existence in 1984 when the claimant joined the defendant.  The Presiding Officer further found or construed, in paragraph 53 of his decision, that RTB was a type of rebated travel.  Thus, Mr Pow submitted, the claimant was entitled to RTB as a matter of contract under the 1981 and 1986 Conditions of Service. 

25.  Though Mr Pow agreed with the Presiding Officer that the booklets were not contractual documents, he supported the Presiding Officer’s ruling that the booklets contained evidence reflective of the claimant’s contractual entitlement to RTB.  He also submitted that clause 17 did not expressly provide that rebated travel was a discretionary benefit and the word “eligibility” connoted qualifications for a right. 

26.  Mr Burns, counsel for the defendant, however, argued that the Presiding Officer did not say how RTB had become a contractual entitlement.  He said even if RTB was in existence in 1984, that did not mean that the claimant was entitled to it contractually.  Mr Burns thus submitted that the Presiding Officer had misconstrued the employment agreement between the parties.

Analysis of arguments on construction

27.  I note that clause 17 of the 1981 Conditions of Service and the similar clause No. 18 of the 1986 Conditions did not say that the claimant was entitled to “rebated travel” to be defined elsewhere.  The clause in fact provided a complete definition for rebated travel which the claimant was entitled to.  It is neither necessary nor correct to look elsewhere for the meaning or content of rebated travel.

28.  Furthermore, clause 17 only provided for rebated travel for cabin attendants.  It must mean cabin attendants who were in service.  If it should have included cabin attendants who had retired, it should have said so expressly. 

29.  An employment contract which provides for a benefit to be given by the employer to the employee, like salary or allowances for housing or travelling or otherwise, would only mean that the benefits would be given when the contract is in force.  If the benefit should continue after termination of a contract, it would normally have to be expressly stipulated.  RTB was not a benefit to be enjoyed when the employment contract between the claimant and the defendant was subsiding.  It was to be enjoyed after retirement, which put an end to the contract.  Reading clause 17 in the context of the Conditions of Service as a whole, I cannot construe it to include RTB, which would only be conferred after retirement. 

30.  I agree that the Staff Benefit booklets have provided for other types of rebated travel including RTB which fell outside the definition in clause 17.  Unless it can be shown that these other types of rebated travel and RTB had been incorporated into the employment contract, they were only discretionary benefits.  There was however no evidence that they had been incorporated into the employment contract.

31.  The Presiding Officer has rightly found that the booklets were not contractual documents.  Since these other types of rebated travel including RTB were not contractual benefits; the booklets could only be evidence of their being discretionary benefits. 

32.  Regarding the notices and circulars issued in relation to the new policy for concession travel, they stated that the existing rights as protected by contract would remain so unless the employees should agree to a change.  They did not create contractual rights, they only protected the rights which were in existence.  Since RTB was not a contractual right of the claimant, these notices and circulars did not make it such a right. 

Parol evidence rule

33.  On this construction of contract point, Mr Burns further submitted that if the Presiding Officer should have decided that RTB was somehow incorporated into the employment contract after its making, there was then no evidence of its incorporation.  The Presiding Officer would have offended the parol evidence rule by referring to the booklets as evidence.  Mr Burns was no doubt correct on the lack of evidence of incorporation of RTB into the employment contract, but I doubt if the parol evidence rule is relevant.  In any case, Mr Pow does not agree that the Presiding Officer had come to his conclusion by incorporation rather than by construing clause 17.  I do not think I need to go any further on this.

34.  Mr Burns has also argued that if RTB was contemplated as a contractual benefit, it would have appeared under clauses 22 or 23 of the 1981 Conditions which dealt with the resignation, retirement and retirement grant respectively.  Since the decision of the Presiding Officer that needed consideration was the construction of clause 17 and not the likelihood of any stipulation of RTB, I do not think this other point of Mr Burns is a matter in issue at all.

Conclusion on construction

35.  In the premises I hold that the Presiding Officer had misconstrued clause 17 of the 1981 Conditions of Service (or clause 18 of the 1986 Conditions of Service) and thus fell into an error of law.  I further hold that properly construed, clause 17 of the 1981 Conditions (and clause 18 of the 1986 Conditions) do not include RTB. 

Arguments and decision on estoppel by convention

36.  Mr Pow in his written submissions, however, raised another point to oppose the appeal.  He relied on estoppel by convention and said that the defendant was estopped from denying that RTB was part of rebated travel and that the claimant was contractually entitled to it.  This argument was not relied on or mentioned at the trial below.  Mr Burns opposed this point as well.

37.  I am referred to paragraph 3-107 of Chitty on Contracts, 29th ed. which reads:

“Estoppel by convention may arise where both parties to a transaction “act on assumed state of facts or law, the assumption being either shared by both or acquiesced in by the other.”  The parties are then precluded from denying the truth of that assumption, if it would be unjust or unconscionable to allow them (or one of them) to go back on it.  Such an estoppel differs from estoppel by representation and from promissory estoppel in that it does not depend on any “clear and unequivocal” representation or promise: it can arise where the assumption was based on a mistake spontaneously made by the party relying on it, and acquiesced in by the other party. …  ”

38.  This estoppel has also been analysed by Reyes, J. in Lajom, Esperanza Cruz and Others v Cathay Pacific Airways Ltd HCA6733/1999 in paragraph 139:

“139.	There are 4 elements to an estoppel by convention:
	(1)	The parties must have been under a common, but mistaken assumption as to a state of affairs or point of law.
	(2)	The mistaken assumption must have been communicated by the parties to each other.
	(3)	The parties must have regulated their dealings with each other on the basis of their mistaken assumption.
	(4)	It would be unconscionable to allow one party subsequently to resile from that mistaken assumption.”

39.  In this case there was no evidence that the defendant had ever made any assumption that RTB was a contractual benefit of the claimant.  It never said so in the letter of appointment, the letter dated 10 May 1993 or the subsequent letters.  The letter of 10 May 1993 referred to a principle that cabin attendants with at least 10 years’ service may qualify for retirement travel benefits upon reaching retirement age and that principle remained the same and would not be changed by the approval given by the Inland Revenue Department as referred to in that letter.  It did not say that this principle was a contractual entitlement. 

40.  There was also no evidence that the defendant had acquiesced in any communication from the claimant that she had a contractual entitlement to RTB.  The Staff Benefit Booklets cannot be evidence of the defendant having harboured such an assumption.  They were guidebooks containing advice on how to obtain housing as well as a number of discretionary benefits made available by the defendant to the cabin attendants from time to time.  They never said that RTB was a contractual entitlement.  The notices and circulars also did not say that RTB, under the old policy, was a contractual entitlement.  They merely stated that whatever was protected by contract under the old policy would remain to be so protected until both sides agreed to a change.  All in all, the claimant has failed to get over the first step in estoppel by convention. 

Judgment

41.  Since RTB was not a contractual benefit and estoppel by convention did not apply, I would allow the appeal and set aside the Presiding Officer’s order and his order for costs.  I further make a costs order nisi that the costs here and below be paid by the claimant to the defendant.