PETER DAVID RICE v. BARING SECURITIES (HK) LTD

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

-----------------

-----------------

JUDGMENT

-----------------

The appeal

1. This is an appeal against the decision of Master Chu who, after a hearing under O.14A of the Rules of Supreme Court, gave judgment to the Plaintiff against the Defendant in the sum of $1.5 million.

Facts

2. The Plaintiff was a former employee of the Defendant. He took up the employment on 1st August 1994. A six months' notice of termination was served by the Defendant on 18th December 1995 terminating the Plaintiff's contract on 18th June 1996. The dispute concerns the Plaintiff's entitlement to a bonus of $1.5 million under the contract of employment. This in turn depends on the construction of Clause 6 of the contract dated 16th August 1994 ("the Contract") which reads:

"Bonus Scheme

(D) A further guaranteed bonus of HK$875,000 in July 1996, provided that payment of each these sums is conditional upon you being in employment and not being under notice at the date of payment."

Employment Ordinance

3. Under Clause 6(C) the Plaintiff would be entitled to the bonus of $1.5 million in March 1996 provided that at the time of the payment he was still in employment and not under any notice of termination. The Plaintiff's argument is that the bonus payment of $1.5 million is an "end of year payment" under Part IIA of the Employment Ordinance, Cap.57 ("the Ordinance") and the restriction on the payment is void under s.70 of the Ordinance which provides that "any term of a contract of employment which purports to extinguish or reduce any right, benefit or protection conferred upon the employee by this Ordinance shall be void."

Construction of Contract

4. The parties agreed that the Court must only look at the Contract, not any pre-contract documents, to ascertain the nature of the bonus.

5. The first task I have to do is to ascertain whether the bonus of $1.5 million is an "end of the year payment" within s.11A of the Ordinance. End of year payment is defined as:

"In this Part, unless the context otherwise requires - 'end of year payment' (年終酬金) means any annual payment (whether described as 'thirteenth month payment', 'fourteenth month payment', 'double pay', 'end of year bonus' or otherwise) or annual bonus of a contractual nature, but does not include any annual bonus, or any proportion thereof, which is of a gratuitous nature or which is payable only at the discretion of the employer;"

6. The Defendant submitted that, and this was accepted by the Plaintiff, the bonus was part of the "incentive" to the Plaintiff to encourage the continuation of his service during the first two years of the Contract. The Defendant argued that under Clause 6 the four stage payments were not intended to be end of the year payments. They were staged payments of an agreed one off bonus, albeit that they might appear to be calculated by reference to a particular rate. The Defendant argued that the purpose of Part IIA of the Ordinance is primarily directed towards Lunar New Year payments. Such payments are "annual payments" in the sense that they are contractually payable each year during the continuation of the employment. The essence of the payment is that they are recurring and are not one off.

The bonus is "end of year" payment

7. In my view, the bonus under Clause 6(C) is an end of year payment because it is an annual payment or annual bonus of a contractual nature. It is annual in nature because it was to be paid in March 1996, one year after the payment of the 1994 bonus in March 1995. Leaving aside the upfront bonus of $1,250,000 under Clause 6A, the total bonus for the two years after the Contract began was $3 million or $125,000 per month. Under Clause 6(B), five months of service attracted $625,000; under 6(C) $1.5 million for 12 months of service; and under Clause 6(D) $875,000 for the remaining seven months of service.

8. Although the word "annual" may involve recurrence, in the context of Clause 6 recurrence is not necessary. In Ryall v. Hoare [1923] 2 KB 447, Rowlatt J. construed the meaning of "annual profits or gains" under the Income Tax Act 1918. He held that:

"The word 'annual' may mean 'annually recurring,' as applied to the seasons of the year, or 'recurring over a long period of years': or it may mean 'lasting only for one year,' as we speak of certain flowers as annuals which must be sown afresh every year: or, as in the case of interest on a sum of money, it may mean 'calculated with reference to a year.'"

He concluded that:

"The word 'annual' here can only mean 'calculated in any one year,' and ; 'annual profits or gains' mean 'profits or gains in any one year or in any year as the succession of years comes round.'"

9. In Martin v. Lowry [1927] AC 312, the issue was again on the meaning of annual profits or gains under the Income Tax Act. Viscount Cave L.C. held that:

"My Lords, there are, no doubt, passages in the Act in which the word 'annual' or the word 'yearly' has an implication of recurrence; but one must have regard to the context in which the words are found, and, having regard to the context, I do not think that there is any such implication in the words 'annual profits or gains' as applying to the profits or gains arising in respect of a trade which are taxable under Sch. D of the Act."

In my view, in the context of Clause 6, the $1.5 million bonus simply means bonus in that year.

10. Mr Coleman, Counsel for the Defendant, referred to the authenticated Chinese text of the Ordinance in which annual payment was stated to be "每年酬金". He submitted that "每年" which means every year connotes a recurrent element. Reliance was made to s.10(B) of the Interpretation and General Clauses Ordinance in which it was stated that the English text and the Chinese text of an Ordinance shall be equally authentic.

11. The word "annual" can be translated as "每年的", "年度的", "一年一度的". The fact that "每年" was used does not mean such payment must necessarily be recurrent. Furthermore, the words "年終酬金" (end of year payment) clearly does not have an recurrent connotation.

Payment period

12. Section 11E of the Ordinance provides for the time of payment of "the end of year payment":

Mr Coleman submitted that the "end of year payment" must be in respect of a payment period. Payment period is defined in s.11C as:

13. Mr Coleman argued that there is no period specified in that behalf in the Contract, so the only relevant period would be a lunar year. However, that is not the period which, on the Plaintiff's case, the bonus relates to. Therefore, on the Plaintiff's case, the payment is outside the provisions of the Ordinance.

Payment period needs not be expressed

14. My first observation is that the definition of "end of year payment" does not include a specific payment period. Even if a specific payment period is required in order to constitute an "end of year payment", I agree with the submission of Mr Chan, Counsel for the Plaintiff, that the Contract did specify a payment period. Such specification does not have to be expressed or involve the use of any particular words. Under Clause 6(C), the payment period for the $1.5 million bonus was clearly a 12 months period which is either in respect of the year 1995, or in respect of the period March 1995 to March 1996. Clause 6(B) clearly stated that the bonus of $625,000 was in respect of 1994 and payable in March 1995. Although Clause 6(C) did not have the words "payable with the company's 1995 bonus" as in Clause 6(B), it does not mean that a different meaning is to be attached to Clause 6(C) as against 6(B). A repetition is redundant when the meaning or intention is clear. The meaning is clear because the $1.5 million is clearly referable to a 12 months period of $125,000 per month. Although Clause 6(C) simply refers to payment in March 1996 and did not specify any date, the latest date in which the Defendant had to pay the bonus was 31st March 1996.

Conditions of payment

15. Mr Coleman further argued that Clause 6(C) must be construed in conjunction with the proviso and as a condition of payment the Plaintiff must be in employment and was not being under any notice at the date of payment. I disagree with such a construction. Once the bonus falls within the meaning of an "end of the year payment", then any provision which seeks to extinguish or reduce that right will offend s.70 of the Ordinance.

Other arguments

16. Mr Chan in his submission also referred briefly to the infringement of s.11B(2) in that it leaves no room for proportional payment in the way prescribed by s.11F. As I have not heard full submissions on these two sections, I would not express my view on this matter. In any event, in view of my conclusion, it is not necessary to do so.

Conclusion

17. The appeal is dismissed with costs nisi to the Plaintiff.