LISBETH ENTERPRISES LTD v. MANDY LUK

FACV No. 17 of 2005

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

 FINAL APPEAL NO. 17 OF 2005 (CIVIL)

(ON APPEAL FROM CACV NO. 204 OF 2004)

_____________________

Between:

_____________________

_____________________

J U D G M E N T

_____________________

Chief Justice Li:

1.  I agree with the judgment of Mr Justice Bokhary PJ.

Mr Justice Bokhary PJ:

Question of law

2.  This appeal turns on a far-reaching question of employment law.  It is clear that neither gratuitous commission nor discretionary commission is to be included in the calculation of holiday pay or annual leave pay.  But that still leaves the question of contractual commission i.e. commission to which an employee is contractually entitled.  Is contractual commission to be included in the calculation of holiday pay and annual leave pay? 

Facts

3.  Shortly stated, the facts of the case are these.  The appellant is a limited company which operates a health and beauty club for women.  It used to employ the respondent as a beauty consultant.  I will refer to the appellant employer as “Lisbeth Enterprises” and to the respondent employee as “Ms Luk”.  Ms Luk was contractually entitled to receive - and did receive - salary and commission, both payable at the end of each calendar month. 

4.  Clause 7A of the contract of employment provided as follows in regard to commission:  

“In addition to her salary aforesaid [Ms Luk] shall be entitled to commission on sales made by her (provided payment is made by the customer) in accordance with the scale below:-

Sales Range (HK$)

Up to		100,000	……………………	2.5%
100,001	-	200,000	……………………	3.0%
200,001	-	350,000	……………………	3.5%
350,001	-	550,000	……………………	4.0%
550,001	-	850,000	……………………	4.5%
850,001	-	upwards	……………………	5.0%

The above scale may be changed by [Lisbeth Enterprises] without prior notice.  If [Ms Luk’s] employment ceases for any reason whatsoever she will not receive any commission outstanding on any sales made by her prior to her last working day.”

So Ms Luk’s commission was contractual commission.  What she received by way of such commission naturally varied from month to month.  But it always formed the vast bulk of her monthly remuneration.  Indeed it was generally well over 10 times more than her salary of $5,600 per month.

5.  The holiday pay and annual leave pay which Ms Luk received while in Lisbeth Enterprises’s employ was calculated by reference to salary only.  Commission was not included in such calculation. 

Course which proceedings took below

6.  After leaving its employ, Ms Luk and two of her former colleagues in a similar position sued Lisbeth Enterprises in the Labour Tribunal, claiming additional amounts which they said that they would have received by way of holiday pay and annual leave pay if contractual commission had been included in calculating the same.  The Labour Tribunal (Presiding Officer Ada Yim) dismissed the claims.  Ms Luk’s former colleagues took the matter no further.  But Ms Luk appealed to the High Court (as I will refer to the Court of First Instance of the High Court). 

7.  Taking the view that contractual commission is to be included in the calculation of holiday pay and annual leave pay, the High Court (Andrew Cheung J) allowed Ms Luk’s appeal and remitted her claim to the Labour Tribunal for retrial before another presiding officer.  Lisbeth Enterprises then appealed to the Court of Appeal.  Sharing the High Court’s view that contractual commission is to be included in the calculation of holiday pay and annual leave pay, the Court of Appeal (Rogers VP and Le Pichon JA, Stone J dissenting) dismissed Lisbeth Enterprises’s appeal and affirmed the remitter.  By leave of the Court of Appeal, Lisbeth Enterprises now appeals to us.  It asks us to restore the Labour Tribunal’s order dismissing Ms Luk’s claim.  Ms Luk asks us to affirm the remitter.

Danger of abuse

8.  It is argued on Ms Luk’s behalf that the exclusion of contractual commission from the calculation of holiday pay and annual leave pay would open the way for abuse by employers.  As against that, it is argued on Lisbeth Enterprises’s behalf that inclusion would open the way for abuse by employees.  I do not propose to analyse these rival arguments.  Suffice it to acknowledge that, unfortunately, almost any legal position stands in some danger of abuse or attempts at abuse.  These rival arguments as to such danger neutralise one another.

Ascertaining the intention to be attributed to the Legislature

9.  On the question before the Court of whether contractual commission is to be included in the calculation of holiday pay and annual leave pay, the argument of counsel for Ms Luk came to this.  Stressing the interests of employees without regard to any view that the Legislature may have taken of any other interests, he sought to meet all arguments for exclusion by asserting that the Legislature intended inclusion.  That does not reflect the correct approach for us to adopt.  We cannot assume, without examining the relevant legislation, that the Legislature intended inclusion.  As Lord Hoffmann said in Johnson v. Unisys Ltd [2003] 1 AC 518 at p.539 F-G:

“Employment law requires a balancing of the interests of employers and employees, with proper regard not only to the individual dignity and worth of the employees but also to the general economic interest.  Subject to observance of fundamental human rights, the point at which this balance should be struck is a matter for democratic decision.”

That decision is to be found by interpreting legislation purposively, in context and as a whole.  That is how the intention to be attributed to the Legislature is ascertained.  And of course, subject to any issue as to constitutionality, the Judiciary’s role in areas covered by legislation is to decide cases on the current state of such legislation.  Whether, and if so how, the legislation is to be amended in future is a matter for the Legislature.

Paid holidays and paid annual leave

10.  I turn now to the legislation to be interpreted in the present case.  Save where otherwise indicated, all the statutory provisions cited in this judgment are those of the Employment Ordinance, Cap. 57 (“the Ordinance”).  Section 40 provides for paid holidays.  And s.41B provides for paid annual leave. 

Rate of holiday pay and annual leave pay

11.  Dealing with the rate of holiday pay, s.41 provides:

“(1) Holiday pay shall be a sum equivalent to the wages which the employee would have earned on a full working day.

(2) Notwithstanding subsection (1), where an employee is employed on piece rates or where the daily wages of an employee vary from day to day, the holiday pay shall be a sum equivalent to the average daily wage earned by the employee, and for the purposes of this subsection the average daily wage shall be the average of the daily wages earned by the employee on each day on which he worked during every complete wage period, comprising not less than 28 days and not more than 31 days, immediately preceding or expiring on the holiday or first day of the holidays.”

The rate of annual leave pay is dealt with in s.41C which provides:

“(1) Annual leave pay shall, subject to subsection (2), be a sum equivalent to the wages which the employee would have earned if he had worked every day during the period of annual leave.

(2) Where an employee is employed on piece rates or where the wages of an employee vary from day to day, the annual leave pay shall be calculated by reference to the average daily wage earned by the employee, and for the purposes of this subsection the average daily wage shall be the average of the daily wages earned by the employee on each day on which he worked during every complete wage period, comprising not less than 28 days and not more than 31 days, immediately preceding or expiring on the first day of the annual leave or on the day on which the contract of employment terminates, as the case may be.”

Thus it is statutorily provided that holiday pay and annual leave pay shall be calculated by reference to wages. 

“Wages”

12.  As to what “wages” means, the Ordinance’s interpretation clause, namely s.2(1) provides that, unless the context otherwise requires,

“ ‘wages’ subject to subsections (2) and (3), means all remuneration, earnings, allowances including travelling allowances and attendance allowances, attendance bonus, commission, overtime pay, tips and service charges, however designated or calculated, capable of being expressed in terms of money, payable to an employee in respect of work done or to be done under his contract of employment, but does not include -

(a) the value of any accommodation, education, food, fuel, light, medical care or water provided by the employer;

(b) any contribution paid by the employer on his own account to any retirement scheme;

(c) any commission which is of a gratuitous nature or which is payable only at the discretion of the employer;

(ca) any attendance allowance or attendance bonus which is of a gratuitous nature or which is payable only at the discretion of the employer;

(cb) any travelling allowance which is of a non-recurrent nature;

(cc) any travelling allowance payable to the employee to defray actual expenses incurred by him by the nature of his employment;

(cd) the value of any travelling concession;

(d) any sum payable to the employee to defray special expenses incurred by him by the nature of his employment;

(da) any end of year payment, or any proportion thereof, which is payable under Part IIA;

(e) any gratuity payable on completion or termination of a contract of employment; or

(f) any annual bonus, or any proportion thereof, which is of a gratuitous nature or which is payable only at the discretion of the employer.”

Subsections (2) and (3) referred to above deal with matters immaterial to the question of law before the Court.

“A multi-faceted thing”

13.  There are many judicial and academic statements on statutory interpretation.  And I will cite a number of them.  But lest their nature be misunderstood, I consider it advisable to preface my citation of them with a reference to an extra-judicial warning sounded by Lord Wilberforce against attempting to confine this subject in rules.  Statutory interpretation is - as his Lordship so graphically described it at 418 HL Official Report (5^th series) col. 73 (9 March 1981) - “a multi-faceted thing”. 

Interpretation clauses

14.  Interpretation clauses have a relatively short but somewhat chequered history.  In 1852 they were said by Lord St Leonards LC (in Dean of Ely v. Bliss (1852) 2 De GM & G 459 at p.471) to be of “modern origin”.  Then in 1865 the hope was expressed by Cockburn CJ (in Wakefield Board of Health v. West Riding & Grimsby Railway Co. (1865) 6 B & S 794 at p.801) that “the time will come when we shall see no more of interpretation clauses, for they generally lead to confusion”.  And in 1885 Lord Blackburn spoke (in Mayor of Portsmouth v. Smith (1885) 10 App. Cas. 364 at p.374) of what he saw as “the soundness of the objection of the old school of draftsman to the introduction of interpretation clauses”.  Interpretation clauses have survived such disapproval and ill wishes.  But even in recent times it has been said by no less a judge than Lord Reid (in Brutus v. Cozens [1973] AC 854 at p.861H) that when statutes provide definitions that “often creates more problems than it solves”.  It is neatly put in Sutherland Statutory Construction 5^th ed. (1992 Revision), Vol. 2A at p.152, para. 47.07 where it is said that “definitions themselves are often not clear and may be subject to interpretation”.

15.  Be that as it may, interpretation clauses now form an established and important feature of our statute law.  In Savoy Hotel Co. v. London County Council [1900] 1 QB 665 it was held that the Savoy Hotel was a shop.  Channell J observed (at p.669) that “the result of an interpretation clause is frequently to bring the most incongruous things within the operation of a statute”.  Sometimes that is precisely what the Legislature intended - and for discernibly good policy reasons.  This is well brought out by the comment on the Savoy Hotel case in Cross: Statutory Interpretation, 3^rd ed. (1995) at p.120.  It is there said that “[i]n spite of its seeming oddity, the effect of the decision was beyond criticism for it brought persons under 18 within the protection against excessive working hours accorded by the Shops Act 1892 under which ‘shop’ included ‘licensed public houses and refreshment houses of any kind’ ”.  On the same page the learned editors of Cross, one of them formerly First Parliamentary Counsel, observe that interpretation clauses “are responsible for a great deal of economy in drafting”.  The upshot, in my opinion, is that no useful purpose would be served by viewing interpretation clauses with hostility or suspicion.  The proper approach is to read them purposefully and with the context very much in mind.

Context

16.  As can be seen from s.2(1), “wages” does not include gratuitous or discretionary commission but, unless the context otherwise requires, includes contractual commission.  Does the context of holiday pay and annual leave pay require the exclusion of contractual commission from the meaning of “wages”?  In answering this question I begin by noting how definitions are qualified by context.  Section 2(1) contains an express statement to the effect that the definitions which it provides must give way to any different meaning that the context may require.  It has become common to the point of being routine for definition sections to stipulate qualifications of that nature.  But such qualifications are probably no more than what would be implied anyway. 

17.  “Words”, as Lord Nicholls of Birkenhead emphasises in “My Kingdom for a Horse: The Meaning of Words” (2005) 121 LQR 577 at p.579, “must always be understood, or ‘interpreted’, in their context”.  To the same effect, Lamer J (later Lamer CJC) said in Hills v. Attorney General of Canada (1988) 48 DLR (4^th) 193 at p.196 that “[w]ithout going so far as to say that a word has no meaning in itself, it is true that its real meaning will depend on the context in which it is used”.  It is therefore a canon of statutory construction that definitions are to be read subject to anything “repugnant in the context, or in the sense” (which is how Lord Selborne put it in Meux v. Jacobs (1875) LR 7 HL 481 at p.493).  This is a salutary approach, especially as the experience of legislative draftsmen appears to be that “having stipulated a meaning for a word it is extraordinarily, almost uncannily, difficult to use it only in that sense”.  So says a former legislative draftsman in his book G.C. Thornton: Legislative Drafting, 4^th ed. (1996) at p.154. 

18.  Next, I turn to what we described in Medical Council of Hong Kong v. Chow (2000) 3 HKCFAR 144 at p.157E as “the law’s tendency to construe each and every provision of a statute in such a way as to accord the same a due measure of real meaning and substance”.  This necessitates looking to see whether the exclusion of all commission from the calculation of holiday pay and annual leave pay would leave the Ordinance bereft of context in which contractual commission would be treated as wages.  Having done that, I am satisfied that such exclusion would not have that consequence.  For plainly wages would still include contractual commission which has already accrued but has not yet been paid, for example, in relation to: the time for paying wages under s.23; interest on the late payment of wages under s.25A; the manner and place of payment of wages under s.26; and liability for outstanding wages under s.65. 

Workability

19.  Counsel’s researches have not revealed any past claim for holiday pay or annual leave pay based on commission.  So Lisbeth Enterprises may well be correct in contending that Ms Luk’s claim is unprecedented.  That a claim is or may well be novel does not necessarily mean that the claim lacks legal foundation.  But the novelty or possible novelty of a claim can be - and in the present case is - a good reason for taking the precaution of examining the practicality of the claim with particular care. 

20.  Where a statute provides that a word or phrase shall have a particular meaning save where the context otherwise requires, a context in which that meaning would create an unworkable situation can properly be regarded as a context requiring some other meaning.  This is, I think, well illustrated by Floor v. Davis (Inspector of Taxes) [1980] AC 695.  In that case the House of Lords had to decide whether the words “a person having control” in paragraph 15(2) of Schedule 7 to the Finance Act 1965 extended to control by more than one person.  This depended on whether the word “person” in the singular was to be construed as including the plural.  In that connection s.1(1)(b) of the Interpretation Act 1889 provided that “unless the contrary intention appears … words in the singular shall include the plural, and words in the plural shall include the singular”.  And s.45 of the 1965 Act provided that “unless the context otherwise requires” the word “control” was to be construed in accordance with paragraph 3 of Schedule 18 to the Act.  At p.709 G-H Viscount Dilhorne said:

“If … on examination of the application of the Interpretation Act and construing ‘control’ in accordance with paragraph 3 led to paragraph 15(2) being unworkable … then it can be concluded that an intention contrary to the application of the Interpretation Act appears and that ‘control’ is not to be so construed.” (Emphasis supplied.)

21.  An employee’s commission is, putting it broadly, the employee’s specified share of what the employer receives through the employee’s efforts while at work.  And the employee’s fortunes follow that of the employer inasmuch as the employee’s commission fluctuates along with what the employer so receives.  Including commission in the calculation of holiday pay or annual leave pay would in effect be giving the employee something by way of a share in nothing.  For such an exercise to be possible, there would have to be a workable mode of calculation, probably involving an element of deeming.  If any such mode of calculation is to be found in the present law, it will have to be found in the sections dealing with the rate of holiday pay and the rate of annual leave pay, namely sections 41 and 41C respectively.  

22.  The courts below differed in their reasons for deciding in Ms Luk’s favour.  Andrew Cheung J thought that her claim was covered by sections 41(1) and 41C(1) and was “simply a question of quantification, evidence and proof”.  Quantification upon proof by evidence is appropriate for litigation or the like, but not for the simple and certain exercise that the regular payment of holiday pay and annual leave pay has to be if chaos is to be avoided.  Rogers VP and Le Pichon JA rightly recognised the necessity for a simple and certain mode of calculation.  They thought that it could be found in sections 41(2) and 41C(2).

23.  Plainly no mode of calculating holiday pay or annual leave pay based on commission is to be found in sections 41(1) or 41C(1).  Those subsections are directed to what the employee “would” have earned.  But commission involves what the employee might have earned, depending on whether the contractual requirements for entitlement to commission are satisfied.  To the extent that provision is made for holiday pay and annual leave pay based on what the employee might have earned, that is done by sections 41(2) and 41C(2) which cater for piece rates and daily wages that vary from day to day.  “Piece rates” have nothing to do with commission.  What about “daily wages”?  Perhaps the term “daily wages” applies only to wages in the sense of salary.  But let us suppose for the sake of the present argument that the term extends to commission. 

24.  What then would supply the requisite quality of dailiness?  Wages may not have to be paid on a daily basis before they can be regarded as “daily wages”.  But I do not see how wages can be so regarded unless they at least accrue and are calculated on a daily basis.  Subject therefore to the possibility that sections 41(2) and 41C(2) can be read to cover contractual commission accruing and calculated on a daily basis in amounts varying from day to day, those subsections do not cater for commission.  It follows that holiday pay and annual leave pay form a context which requires that the word “wages” be read as excluding commission save possibly for commission accruing and calculated on a daily basis in amounts varying from day to day. 

25.  It is unnecessary to express any view in relation to that possible exception.  It is irrelevant to the present case since Ms Luk’s commission accrued and was calculated on a monthly basis.  Her commission was payable according to fluctuating monthly results and on a sliding scale which moved up and down with such results.  So her commission simply could not accrue or be calculated until the end of the month arrived and that month’s results were known. 

26.  Two cases on attendance bonus have been cited on Ms Luk’s behalf.  They are Wong Ping Kong v. Tai Hing Cotton Mill Ltd [1994] 2 HKLR 107 and Wong Yin Fong v. ISS Hong Kong Services Ltd [2005] 2 HKLRD 648.  Neither provides a workable mode of calculating the commission which Ms Luk seeks to recover by way of holiday pay and annual leave pay.  In the 1994 case the Court of Appeal held that attendance bonus is to be included in the calculation of severance pay.  And in the 2005 case Lam J held that attendance bonus is to be included in the calculation of annual leave pay.  Severance pay is calculated (under s.31G) on known figures.  As for annual leave pay, the inclusion of attendance bonus in the calculation thereof is covered by s.41C(1).  This is because attendance bonus is paid for attending work every day, and the subsection provides that annual leave pay is to be a sum equivalent to the wages which the employee would have earned if he had worked every day during the period of annual leave.

Conclusion

27.  For the foregoing reasons, I am of the view that, subject to the possibility that sections 41(2) and 41C(2) are to be read to cover contractual commission accruing and calculated on a daily basis in amounts varying from day to day, no commission is to be included in the calculation of holiday pay and annual leave pay.  That possibility is, as I pointed out earlier, irrelevant to the present case since Ms Luk’ commission accrued and was calculated on a monthly basis.  The High Court set aside the award of $366 fixed costs made by the Labour Tribunal in Lisbeth Enterprises’s favour.  Both courts below awarded Ms Luk her costs to be taxed.  The parties agreed at the hearing before us that if this appeal were allowed, each party should be left to bear its or her own costs here and below.  Accordingly I would allow the appeal, set aside the remitter, restore the Labour Tribunal’s dismissal of Ms Luk’s claim and order that each party bear its or her own costs in the Labour Tribunal, in both courts below and in this Court.

Mr Justice Chan PJ:

28.  I agree with the judgment of Mr Justice Bokhary PJ.

Mr Justice Ribeiro PJ:

29.  I agree with the judgment of Mr Justice Bokhary PJ.

Sir Ivor Richardson NPJ:

30.  I agree with the judgment of Mr Justice Bokhary PJ.

Chief Justice Li:

31.  The Court unanimously allows the appeal, sets aside the remitter, restores the Labour Tribunal’s dismissal of Ms Luk’s claim and orders that each party bears its or her own costs in the Labour Tribunal, in both courts below and in this Court.

Mr D Chang SC and Mr Jeremy S K Chan (instructed by Messrs Gallant Y T Ho & Co.) for the appellant

Mr A Hung (instructed by Messrs Philip S W Chan & Co.) for the respondent