VINCENT ALFONSO v. HONG KONG DRAGON AIRLINES LTD

HCLA 33/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

LABOUR TRIBUNAL APPEAL NO. 33 OF 2006

(ON APPEAL FROM LABOUR TRIBUNAL CLAIM NO. 567 OF 2006)

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J U D G M E N T

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Introduction

1.  The appellant was the defendant in the Labour Tribunal (“the Tribunal”).  The Tribunal made an award on 12 July 2006 ordering the appellant to pay $232,684 education allowance to the claimant (being the difference between the maximum amount payable and the amount already paid).  The claimant is the respondent in this appeal.

2.  The appellant is a Hong Kong-based airline.  The claimant is and was one of the pilots employed by the appellant.

3.  The employment relationship is and was governed by the appellant’s “Conditions of Service” (“COS”).  The provision in the COS giving rise to the claim which is the subject-matter of this appeal is clause 24, which concerns educational allowances payable by the appellant to its eligible employees.

Background

4.  The background leading to the claim in the Tribunal (and hence this appeal) has been set out in the Tribunal’s “Reasons for Decision”.  The relevant parts read:-

“	The claimant … started his employment with the defendant on 26 July 1996.  There is no dispute that the claimant’s terms of employment are set out in [the COS].
	There is also no dispute that the claimant is entitled to claim education allowance and the provisions governing his entitlement to education allowance are set out in clause 24 of the COS.
	The claimant claims [the] balance of his entitlement to education allowance for the years 2004 and 2005 in respect of … his daughter.
	The following facts are also not in dispute:
	…
	(2)	the claimant’s maximum entitlements to education allowance were HK$147,505.00 for the year 2004 and HK$148,883.00 for the year 2005;
	(3)	the defendant had already paid education allowance to the claimant in the sums of HK$58,201.00 in respect of the year 2004 and HK$5,503.00 in respect of the year 2005;
	(4)	the colleges attended by the claimant’s daughter in the years 2004 and 2005 were tertiary educational establishments approved by the defendant;
	(5)	the colleges concerned either did not provide boarding facilities or these facilities were not available to the claimant’s daughter; and
	(6)	the claimant’s daughter was living at home during the school years of 2004 and 2005”
	(para. 2 to 5 thereof).

5.  Apart from the background set out above, the Tribunal also made the following findings of fact, namely, the claimant has incurred no extra costs for his daughter’s stay at his home in Australia, and that he has not given a declaration in accordance with clause 24 (see paras. 7 and 11 below).

The Issue

6.  The gist of the issue between the parties in this appeal (and in the claim before the Tribunal) is whether the appellant is liable to pay the maximum amount of education allowance.

Clause 24a of the COS

7.  The determination of that issue depends on the true meaning of clause 24a of the COS.  Clause 24a is consisted of 4 paragraphs.  Because of the facts involved in this appeal, only the third paragraph of clause 24a is directly relevant (“the 3^rd para. of cl. 24a”).  It begins as follows:-

“	[Children’s Overseas Education Allowance] will … be applicable to children being educated at Company approved tertiary educational establishments with boarding facilities in the Officer’s domicile”.

The part of the 3^rd para. of cl. 24a which has been given different meanings in this appeal by the parties states:-

“

Where such tertiary educational establishments do not provide boarding facilities, or these facilities are not available, the full allowance will be paid provided that the Officer is liable for the full costs of providing alternative accommodation for the children.  A declaration to this effect will be required from the Officer” (emphasis supplied) (“proviso to cl. 24a”).

8.  It is also necessary to consider the other provisions in clause 24.  In brief, clause 24b is about Hong Kong Education Allowances whereas clause 24c is about education allowances payable for overseas fee-paying day school education.

9.  Further to the above provisions, clause 24d refers to “Overseas Education Allowance” and “Hong Kong Primary School Allowance / Hong Kong Secondary School Allowance / Overseas Fee Paying School Allowance” respectively.   Clause 24d(i), which concerns Overseas Education Allowance, is as follows:-

“	Subject to the conditions stipulated under 24a., reimbursement for overseas education allowance is the actual amount of school fees including boarding fees payable against receipts up to a maximum of Pound Sterling 3,483 per term per child on the basis of three terms per year” (emphasis supplied).

The Tribunal’s Construction of the Proviso to Cl. 24a

10.  As stated above, the Tribunal decided in the claimant’s favour.  The Tribunal’s decision was (or must have been) based on the following:-

(a)	“full allowance” therein means the maximum amount of allowance stated in clause 24d(i);
(b)	“alternative accommodation” includes living at an overseas home (para. 45 to 47, Reasons for Decision);
(c)	there is no evidence anyone other than the claimant was liable to pay for (to contribute to) the daughter’s costs for living at home.  Further, the claimant’s claim that he was liable for the full costs is accepted (para. 44, Reasons for Decision);
(d)	clause 24d(i) can be ignored because it is only applicable to cases involving school fees including boarding fees payable against receipts, and not to a case falling within the proviso to cl. 24a (para. 32 and 33, Reasons for Decision).

11.  The Tribunal also found that the lack of a declaration from the claimant is irrelevant because the appellant has not required one from the claimant.  If the claimant had been required to do so, he should have no difficulty to comply with it.

True Meaning of the Proviso to Cl. 24a

12.  It is implicit in the construction given to the proviso to cl. 24a by the Tribunal that the provision is not reimbursement in nature.  Because the claimant supports that construction in this appeal, likewise this is also what he contends.

13.  The wording of all the other provisions of clause 24 compels the conclusion that the allowances payable thereunder are intended to be mere reimbursements.

14.  Clause 24b is concerned with Hong Kong Education Allowances (for children educated in Hong Kong) whereas clause 24c is concerned with Overseas Fee Paying School Allowance (for children educated in such day schools).  The allowances payable thereunder are defined in clause 24d(ii) as:-

“	The actual amount of school fees paid or 90% of the prevailing Hong Kong English Schools Foundation Fees, whichever is the lesser” (emphasis supplied).

15.  The allowance payable under clause 24a (leaving aside the proviso to cl. 24a for present purpose) is defined in clause 24d(i) (which has been set out in para. 9 above).  It is expressly stated to be a reimbursement.

16.  What then is the intention of the proviso to cl. 24a?

(a) Surrounding Circumstances

17.  The court in Investors Compensation Scheme v. West Bromwich Building Society [1998] 1 WLR 896, 912-3 (applied by the Court of Final Appeal in Ying Ho Co. Ltd. and Others v. The Secretary for Justice (2004) 7 HKCFAR 333) stated the applicable principles regarding the interpretation of contractual documents:-

“	The result has been, subject to one important exception, to assimilate the way in which such documents are interpreted by judges to the common sense principles by which any serious utterance would be interpreted in ordinary life. Almost all the old intellectual baggage of ‘legal’ interpretation has been discarded. The principles may be summarised as follows.
	(1)	Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract.
	(2)	The background was famously referred to by Lord Wilberforce as the ‘matrix of fact’, but this phrase is, if anything, an understated description of what the background may include. Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next, it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man.
	(3)	The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent. They are admissible only in an action for rectification. The law makes this distinction for reasons of practical policy and, in this respect only, legal interpretation differs from the way we would interpret utterances in ordinary life. The boundaries of this exception are in some respects unclear. But this is not the occasion on which to explore them.
	(4)	The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. The background may not merely enable the reasonable man to choose between the possible meanings of words which are ambiguous but even (as occasionally happens in ordinary life) to conclude that the parties must, for whatever reason, have used the wrong words or syntax (see Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] 3 All ER 352, [1997] 2 WLR 945.
	(5)	The ‘rule’ that words should be given their ‘natural and ordinary meaning’ reflects the common sense proposition that we do not easily accept that people have made linguistic mistakes, particularly in formal documents. On the other hand, if one would nevertheless conclude from the background that something must have gone wrong with the language, the law does not require judges to attribute to the parties an intention which they plainly could not have had. Lord Diplock made this point more vigorously when he said in Antaios Cia Naviera SA v Salen Rederierna AB, The Antaios [1984] 3 All ER 229 at 233, [1985] AC 191 at 201:
		‘	... if detailed semantic and syntactical analysis of words in a commercial contract is going to lead to a conclusion that flouts business commonsense, it must be made to yield to business commonsense.’”
	(emphasis supplied).

18.  It is therefore necessary to also look at the background leading up to the current version of clause 24 in order to answer the question posed at para. 16 above.

19.  While clause 24a has remained the same, clause 24d(i) was differently worded before September 2000.  The previous clause 24d(i) read:-

“	Pound Sterling 2,987 per term per child on the basis of three terms per year”.

Hence, Overseas Education Allowance was stated to be a fixed sum.

20.  The Tribunal recorded the appellant’s case as to how the amendment to clause 24d(i) came about:-

“

The defendant’s case is that the defendant had reached an agreement with Dragonair Pilots Association (‘DPA’) on behalf of its members in about May 2000.  The defendant agreed to increase the maximum level of Hong Kong Primary / Secondary School Allowance and to grant air-tickets to a destination other than Hong Kong for purpose of family reunion while DPA agreed to have overseas education allowance payable against receipts up to the maximum amount.

The claimant was and is a member of DPA … ” (para. 18 to 19, Reasons for Decision).

21.  No finding has been made by the Tribunal regarding the above, but it is accepted by the parties in this appeal that the correspondence relating to the above agreement were known to them prior to, and at the time of, the current version of clause 24d(i).

22.  Some of the correspondence have been shown to the Tribunal.  A “DPA Mini-Notes” dated 10 April 2000 from the DPA to its members stated (among other things):-

“	CHILD EDUCATION ALLOWANCE :
	The DPA has no objection to the Company’s proposal to increase the Local Education Allowance to 90% of the ESF fees.  This is tied in to accepting the Overseas Allowance paid on receipt, up to the current maximum … ” (emphasis supplied).

A letter dated 19 May 2000 from the appellant’s general manager operations to the president of the DPA was similarly worded:-

“	EDUCATION
	The company is prepared to increase the maximum level of the Hong Kong Primary/Secondary School Allowance for B-scale officers to 90% of the prevailing ESF fees.
	…
	Overseas CEA for B-scale officers is henceforth to be payable against receipts up to the current maximum” (emphasis supplied).

23.  According to the statement of the claimant lodged with the Tribunal, the current version of clause 24 became effective on 1 October 2000 (see also para. 28, Reasons for Decision).

24.  Subsequently, on 10 September 2001, the defendant’s personnel manager – personnel issued an internal memorandum to the expatriate flying staff.  The Tribunal noted:-

“	The internal memorandum only referred to ‘overseas primary and secondary education with boarding facilities’ without mentioning overseas tertiary education … ” (para. 31, Reasons for Decision).

25.  It is trite law that the contracting parties’ subsequent act cannot be used as a legitimate aid in the construction of the contract: Chitty on Contracts (1999) 28^th Ed., para. 12-124 citing James Miller & Partners Ltd. v. Whitworth Street Estates (Manchester) Ltd. [1970] AC 572, 603.  The 10 September 2001 memorandum belongs to this category.

(b) Is the Proviso to Cl. 24a Reimbursement in Nature?

26.  I agree with the appellant’s submissions and disagree with those of the claimant regarding the true meaning of the proviso to cl. 24a.

27.  The first point is, except the proviso to cl. 24a, the rest of clause 24 expressly states that the allowances payable thereunder are reimbursements.

28.  Secondly, the background which brought about the amendment to clause 24d(i) was that, on the one hand, the appellant agreed to an increase of the Hong Kong education allowance to 90% of the prevailing Hong Kong English Schools Foundation fees, on the other, members of the DPA agreed to an overseas education allowance which is payable against receipts (see paras. 18 to 23 above).

29.  Such a change must have been the intention behind the amendments to clauses 24d(i) and (ii).

30.  Consequently, the appellant’s employees whose children are educated at approved tertiary educational establishments with boarding facilities (and where school fees and boarding fees have to be paid) will be reimbursed for such payment against receipts.

31.  It does not make commercial sense that other employees whose children are educated at approved tertiary educational establishments without available boarding facilities should somehow be afforded (at least potentially) more favourable treatment.  On the contrary, to construe the proviso to cl. 24a as conferring a benefit which is reimbursement in nature will make commercial sense because all eligible employees will be given equal treatment.

32.  The background leading to the amendments to clause 24 does not compel the conclusion that the proviso to cl. 24a was intended to confer a benefit better than the rest of clause 24.  More importantly, the wording of the proviso to cl. 24a does not do so either.

33.  The words “full allowance” in the proviso to cl 24a can mean:-

(1)	“full” as meaning the maximum amount payable; or
(2)	“full” as meaning reimbursement of both schools fees and the costs of providing boarding (or, according to the appellant, alternative accommodation (as the case may be)).

34.  Whatever the true meaning of those words may be, as the appellant correctly points out, it is always necessary to turn to clause 24d(i) in order to find out what “Overseas Education Allowance” encompasses.

35.  Hence, contrary to the Tribunal’s decision (see para. 10(d) above), clause 24d(i) cannot be ignored when determining the true meaning of clause 24a (in particular, the proviso to cl. 24a).  Insofar as the Tribunal intended to say that only the reimbursement part of clause 24d(i) should be ignored, that line of reasoning fails to take into account the principles set out in West Bromwich Building Society (see para. 17 above).

36.  The claimant also lays emphasis on the opening words of clause 24d(i):-

“	Subject to the conditions stipulated under 24a … ”.

I understand the claimant to contend, based on those words, that the proviso to cl. 24a should prevail over clause 24d(i).

37.  I agree with the appellant that those words cannot advance the claimant’s contention.  The word “condition” in clause 24d(i) can only mean the conditions prescribed by clause 24a (including the proviso to cl. 24a), that is, the conditions within which an employee must bring himself in order to qualify for the payment of allowance.  The phrase “full allowance” does not fall within such category.

38.  Accordingly, I construe the proviso to cl. 24a as conferring a benefit which is reimbursement in nature.

(c) Does Living at Home Amount to Alternative Accommodation?

39.  The appellant submits that, because of the Tribunal’s finding that the claimant has not incurred extra costs, it is unnecessary to consider whether the proviso to cl. 24a is applicable to an employee’s children who is living at home overseas, even if there is evidence extra costs have been paid by the employee.

40.  Despite the above, the appellant argues that an overseas home which already exists before an employee’s children begin their education at an overseas educational establishment without available boarding facilities does not fall within the proviso to cl. 24a.  This is because that provision requires alternative accommodation to be “provided”.  That word indicates that a pre-existing home does not fall within the meaning of “alternation accommodation” in that provision.

41.  By virtue of the conclusion reached with regard to the claimant’s challenge to the facts found by the Tribunal (see paras. 42(b) and 44 below), I agree that it is unnecessary for this aspect to be determined in this appeal.  I will only observe that the appellant’s above argument appears to have substance (without making a definitive decision thereon).

Claimant’s Challenge to the Findings of Fact

42.  The challenge is related to two findings of fact made by the Tribunal:-

(a)	the claimant has not given any declaration that he was liable for the full costs of providing alternative accommodation to his daughter;
(b)	the claimant agreed that he had not incurred extra costs for his daughter living at home overseas.

43.  In view of the conclusion reached above regarding the true meaning of the proviso to cl. 24a and the challenge set out in para. 42(b) above, there is no need to consider the challenged set out in para. 42(a) above.

44.  The claimant has referred to various parts of the claimant’s testimony given before the Tribunal in support of his challenge set out in para. 42(b) above.  Despite those references, I agree with the appellant that the Tribunal was entitled to make the finding that he has not incurred extra costs, based on the totality of the materials placed before it.  I therefore disagree that the finding of fact is so flawed as to amount to an error of law.

Conclusion

45.  In view of the true meaning given above to the proviso to cl. 24a, and the Tribunal’s finding that the claimant has not incurred extra costs for his daughter living at home overseas, the Tribunal has erred on a point of law.

46.  In exercise of the power conferred by s. 35(1)(a), Labour Tribunal Ordinance (Cap. 25), I will allow the appeal.  The award is accordingly set aside.

Costs Order

47.  The parties agree that costs should follow the event.  There will therefore be a costs order that the costs of this appeal are to be paid by the claimant to the appellant to be taxed if not agreed.