CHEN XIANG v. BETWEEN CHEN XIANG（陳翔） Claimant and CHINA DAYE NON-FERROUS METALS MINING LTD

[English Translation – 英譯本]

CAMP 66/2017

[2018] HKCA 212

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 66 OF 2017

(ON AN INTENDED APPEAL FROM HCLA NO 24 OF 2016)

___________________

___________________

JUDGMENT

Hon Chu JA (giving the Judgment of the Court):

1.  The claimant commenced these proceedings to apply to the Court of Appeal for leave to appeal against the judgment of Au-Yeung J of the Court of First Instance dated 29^th August 2017.

2.  Having considered the documents in the present case, this Court is of the view that it is appropriate to determine the claimant’s application in the manner as provided in Order 59 rule 2A(5)(a) of the Rules of the High Court, Cap 4A, Laws of Hong Kong, by a written judgment without a hearing. 

The facts and matters in issue in the case

3.  The facts not in dispute between the parties to the proceedings show:

(1)   The claimant (“Mr Chan”) was in the employ of the defendant company between 18 May 2009 and 23 June 2014, at a monthly salary of HKD80,000 and he was entitled to a year-end payment equivalent to a month’s wages.  According to the contract of employment between the parties, any party may terminate the contract by giving 4 months’ notice.

(2)   Between March and May 2014, the defendant unilaterally made a drastic reduction in Mr Chan’s monthly salary.  Although Mr Chan knew his wages would be reduced drastically, he did not know the actual amount of the reduction and he had never agreed to it.

(3)   In April, as Mr Chan’s father was sick, he proposed to resign in order to go home to take care of his father.  The defendant advised Mr Chan to continue to work for the company after he had gone home to visit his sick father.  After Mr Chan had gone home to visit his father, he came back to the office to work after 1 May.

(4)   On 23 May 2014, Mr Chan presented a letter to the company, asking to leave the employment in 30 days.  On 19 June, the defendant paid back to Mr Chan the wages deducted between March and May.

(5)   Mr Chan formally left the employment on 23 June. 

4.  On 30 November 2015, Mr Chan filed a claim with the Labour Tribunal against the defendant for wages in lieu of notice, year-end payment, wages in arrears, reimbursement of some sundry expenses, paid annual leave and long service payment.   

5.  The present application concerns the claim for wages in lieu of notice and year-end payment.  Mr Chan’s case in this regard was that he did not agree to the reduction in wages.  However, as the negotiation between the company and himself was fruitless, he was left with no choice but to resign.  Mr Chan stated that the defendant had unilaterally reduced his wages in breach of the contract of employment, which amounted in law to constructive dismissal. Hence, he should be paid wages in lieu of notice and the year-end payment pursuant to section 10A of the Employment Ordinance.            

6.  The defendant denied any liability to pay compensation to Mr Chan.  The defendant’s case was that the company had notified Mr Chan of the reduction in wages in March 2014. Although Mr Chan indicated that he was unwilling to accept it, he did not resign as a result.  In April, Mr Chan proposed to resign for the reason that he had to go home to take care of his sick father.  At that time, the defendant advised him to consider continuing to work in the company.  After Mr Chan had gone home, he went back to the office to work on 1 May.  It was not until 23 May that he tendered his letter of resignation, asking to leave employment in 30 days (namely on 23 June).  The defendant stated that Mr Chan resigned of his own accord and he was not forced to leave the employment due to the reduction in wages by the defendant.  Even if the defendant’s unilateral reduction in Mr Chan’s wages amounted to a breach of contract, Mr Chan did not terminate the contract of employment in time but he chose to affirm the contract, which as a result continued to be valid.  Once Mr Chan had affirmed the contract, he could no longer claim against the defendant for compensation on the ground of constructive dismissal.  

The decision of the Labour Tribunal

7.  On 8 July 2016, the Deputy Presiding Officer of the Labour Tribunal, Ms Jocelyn Leung (as she then was) (“Presiding Officer”), determined after trial that Mr Chan’s claim for the two items, namely wages in lieu of notice and year-end payment, should be dismissed.

8.  The Presiding Officer held that the reduction in wages by the defendant was a unilateral variation of an important term of the contract which constituted a breach of the contract. However, Mr Chan’s conduct at the time concerned and his resignation letter showed that he had neither accepted the defendant’s breach of contract nor regarded the contract had been terminated.  On the contrary, after he had gone home to take care of his sick father, he went back to the office to continue to work, affirming the employment contract in the circumstances that the defendant had breached the contract.  As a result, he could no longer allege that his employment was terminated by way of “constructive dismissal” on the basis that the defendant had reduced his wages.  In addition, judging from the contents and the context of Mr Chan’s resignation letter dated 23 May, he did not leave his employment because of the reduction in wages by the defendant in breach of contract.  He terminated the employment contract of his own accord by giving 30 days’ notice.  As Mr Chan had terminated the contract of his own accord, pursuant to section 11F(1B)(a) of the Employment Ordinance, he was not entitled to a year-end payment.

9.  Mr Chan was dissatisfied with the decision of the Presiding Officer and asked for a review. After hearing the matter, the Presiding Officer maintained her original decision.

The decision of Court of First Instance

10.  Mr Chan applied to the Court of First Instance for leave to appeal against the decision of the Presiding Officer on the wages in lieu of notice and year-end payment.  On 10 February 2017, Au-Yeung J granted leave to Mr Chan to appeal against the decision of the Presiding Officer on the holding that Mr Chan had affirmed the employment contract where the defendant was in breach of the contract.

11.  After hearing the matter, Au-Yeung J in her judgment handed down on 29 August 2017 dismissed Mr Chan’s appeal and ordered him to pay the defendant’s costs which was summarily assessed to be $40,000. 

12.  On the issue of whether Mr Chan had affirmed the contract of employment, Au-Yeung J agreed with the Presiding Officer that it should be analysed from the following two angles: 

(1)   From the background facts of the reduction in wages, whether Mr Chan had affirmed the contract; and  

(2)   From the contents and the context of the resignation letter, whether Mr Chan had left the employment of his own accord or under the circumstances of “constructive dismissal”. 

13.  Au-Yeung J did not agree with the Presiding Officer that Mr Chan had affirmed the contract. Au-Yeung J pointed out that the unilateral reduction of wages by the employer was a fundamental breach which constituted “constructive dismissal”.  The employee had the right to treat the contract as terminated and therefore leave the employment.  However, the employee could also choose to affirm the contract in an express or implied way. If the employee had knowledge of the fact of the breach of contract and of his legal right to terminate the contract, and then expressed clearly his intention to go on with the contract, or did some unequivocal acts from which it may be inferred that he would not exercise his right to terminate the contract, then it would be treated in law as an affirmation of contract by the employee Au-Yeung J took the view that Mr Chan, in the face of the defendant’s conduct of breaching the contract by the reduction in his wages, had neither affirmed the contract in an express way, nor done some unequivocal acts, from which it might be inferred that he would give up his right to terminate the contract.  He continued to work after the reduction in wages without lodging complaints against the defendant’s breach of contract, or taking the  defendant to court, and this could only be regarded as ‘mere inactivity” in law, and insufficient to draw an inference of affirmation of contract.   

14.  Regarding the contents and context of the resignation letter, Au-Yeung J agreed with the Presiding Officer that judging from the wording, tone and context of the letter, Mr Chan did resign of his own accord instead of accepting the repudiation on the basis that the defendant had broken the contract, therefore he could not claim for wages in lieu of notice on the ground of “constructive dismissal”.  Au-Yeung J was also of the view that Mr Chan was not entitled to a year-end payment. According to provision “X” of the employment contract, it was a discretional payment rather than a 13th month pay.   

15.  Mr Chan now applies to this Court for leave to appeal to the Court of Appeal.

The statutory requirement of the application for leave to appeal 

16.  Section 35A of the Labour Tribunal Ordinance, Cap 25, Laws of Hong Kong, provides that any party may within 7 days after the date of decision of the Court of First Instance, apply to the Court of appeal for leave to appeal and, if the Court of Appeal considers that a question of law of general public importance is involved, it may grant leave.

Discussion

17.  The judgment of the Court of First Instance was made on 29 August 2017 but Mr Chan only made the application for leave to appeal on 6 December 2017, which was 3 months after the expiry of the prescribed time limit.  In deciding whether to allow the application for leave to appeal out of time, the Court shall take into account: (1) the length of the delay; (2) the cause of the delay; (3) the prospects of success of the intended appeal; and (4) the prejudice that will be occasioned to the other party if the application is allowed.

18.  Mr Chan was three months out of time in making his application. This was a serious delay.  Mr Chan explained that he neither had any legal knowledge nor the means to engage a lawyer, and he needed to spend a lot of time reading the materials of this case and seeking legal advice.  At the same time, he had to deal with another lawsuit with the respondent involving a financial dispute.  He was so busy that he was unable to make the application for leave to appeal within the prescribed time limit.    

19.  We are of the view that Mr Chan’s explanation does not constitute a good reason for being out of time. We also note that Mr Chan had been acting in person without legal representation in the legal proceedings before the Court of First Instance. The issues and the arguments he put forward before this Court are more or less the same as those raised in the Court of First Instance.  Moreover, Mr Chan put forward his objections to the judgment of Au-Yeung J in a letter to her dated 5 September 2017. In the reply letter dated 6 September 2017 from the Court, it was stated that “application for leave to appeal or appeal out of time shall be made to the Court of Appeal, and it shall not be made by letter.”  Hence, Mr Chan knew as early as September 2017 that if he intended to appeal further, he should apply to the Court of Appeal for leave.  However, he waited for three months before making the application. The delay had been unreasonable.          

20.  As this application involves delay that is serious and unreasonable, Mr Chan has to show that his intended appeal has a realistic prospect of success.  In his statement of grounds of appeal, Mr Chan put forward the following two questions, which he considers  involve questions of law of general public importance:    

(1)  “Bearing in mind an employee has been terminated by way of “constructive dismissal” and he has not reaffirmed the employment contract, whether the employee leaving the employment can be characterized as resigning of his own accord in law, in other words, whether the employee, who has been terminated in law, has a “job” to resign from?”  

(2)  “For an employee who intends to leave the employment by submitting a letter to the company, and who knows nothing of the legal principle of “constructive dismissal”, whether the employee’s legal right can or should be based upon the wording of his letter?  What weight shall the court give to the contents and wording of the letter?”

21.  We are of the view that the legal principles concerning these two questions have been clearly established in sections 10 and 10A of the Employment Ordinance and the common law.  It is evident from paragraphs 27 to 29 of the reasons for decision of the Presiding Officer and paragraphs 9, 10, 15, 18, 31 and 32 of the judgment of Au-Yeung J.    

22.  An employment contract is a type of contract governed by the general principles of contract law. The clear legal principle of contract law is that if any party to a contract refuses to perform or is in breach of a fundamental contractual obligation, it constitutes repudiation/repudiatory breach.  The other party to the contract is entitled to choose to accept the repudiation, to revoke the contract and to claim against the party in breach for compensation. But he must express to the party in breach in a clear and unequivocal manner that he accepts the repudiation.  The other party to the contract may elect not to revoke the contract and treat it as continuing.  In this way, he will be deemed to have affirmed the contract.  Similarly, he must act in a clear and unequivocal manner to show that he treats the contract as continuing.

23.  The said common law principle is applicable to an employment contract.  If an employer does a repudiatory act, causing an employee to reasonably believe that it is impossible to continue to work for the employer, the employer’s act may constitute dismissal in law or “constructive dismissal”.  In these circumstances, the employee may choose to accept the repudiation of the contract, treat himself as dismissed and the employment contract as terminated, and claim compensation from the employer. However, he must express to the employer in a clear and unequivocal way that he considers the employer’s wrongful act constitutes dismissal, accepts that the contract has been repudiated by the employer, and thus the contract terminated in these circumstances.  Apart from the common law, section 10 of the Employment Ordinance also provides that in the circumstances as described in paragraphs (a) to (c) of that provision of the Ordinance, the employee may terminate the employment contract without giving notice or wages in lieu of notice.  Among them, paragraph (c) describes the circumstances under which an employee, according to the common law, is entitled to terminate a contract without giving any notice, which includes the situation where the employer’s act may constitute “constructive dismissal”.                  

24.  On the other hand, according to common law principles, even if an employer’s act constitutes “constructive dismissal”, an employee may choose not to terminate the employment contract. If the employee’s words and conduct show in a clear and unequivocal manner that he treats the contract as continuing, he will be deemed to have affirmed the contract as continuing to be valid, and giving up his right to terminate the contract on the ground of the employer’s “constructive dismissal”.  If the employee does not affirm the contract as continuing in an express way, or what he has done is insufficient to draw an inference that he treats the contract as continuing, he will not be deemed to have given up his right to terminate the contract on the ground of the employer’s “constructive dismissal”. Even in the above circumstances, if the employee wants to exercise this right, he still must make it known to the employer in a clear and unequivocal manner that he treats the employer’s wrongful act as constituting “constructive dismissal”, he accepts that the employer has repudiated the contract, and he under the circumstances terminates the contract.  Not until the employee has exercised his right effectively in accordance with the legal requirements to terminate the contract, or the contract comes to an end under other circumstances in compliance with the conditions prescribed by law, does the contract between the parties cease.  Both the employer and the employee may terminate the contract according to the terms of the contract and the legal requirements, which include resignation or dismissal by giving notice.

25.  With regard to the circumstances under which (i) the conduct of the employer may constitute “constructive dismissal”; (ii) the conduct of the employee may be regarded as sufficiently clear and unequivocal to show his acceptance of the termination of the contract on the ground of “constructive dismissal” by the employer; and (iii) the conduct of the employee may be regarded as sufficiently clear and unequivocal to show that he treats the contract as continuing, from which an inference can be drawn that he has affirmed the contract as continuing to be valid,  they are all matters for the trial judge’s analysis of the undisputed and admitted evidence, from which an inference may be drawn and the findings of fact may be made.  Whether the employer and the employee have knowledge of the law or not is just one of the factors that the Court will take into consideration. The legal principles concerning these matters are very clear.

26.  The two questions Mr Chan has put forward involve clearly established legal principles, and do not meet the requirement of section 35A of the Labour Tribunal Ordinance that the intended appeal shall involve a question of law of general public importance.      

27.  Furthermore, Mr Chan’s arguments are not reasonably arguable.  This is because even where the drastic reduction in wages by the defendant may constitute “constructive dismissal” in law, and Au-Yeung J took the view that the conduct of Mr Chan at the time concerned was insufficient to infer that he had affirmed the contract as continuing to be valid, that did not mean that he had been dismissed as a matter of fact or that the employment contract between the parties and their contractual relationship had come to an end.  Mr Chan had not affirmed the contract and therefore he had not given up his legal right to terminate the contract on the ground that the defendant had drastically reduced his wages which amounted to “constructive dismissal”.  If he wished to exercise his right to terminate the contract, he had to express that to the defendant in a clear and unequivocal manner.  In respect of the contents and the context of the letter dated 23 May 2014, the Presiding Officer held that it showed that Mr Chan did resign of his own accord instead of exercise his right to terminate the contract on the ground of “constructive dismissal”.  This is a finding of fact made by the Presiding Officer who had taken into account the fact that Mr Chan did not know about “constructive dismissal” and the law.  Au-Yeung J agreed with this finding of fact.  We are of the view that there is no ground to interfere.  The Presiding Officer’s ruling against Mr Chan’s claim for wages in lieu of notice and year-end payment was correct and without error, and Au-Yeung J’s dismissal of the appeal was also correct.

28.  Mr Chan also submitted in his statement of appeal that as he considered that the Presiding Officer’s order that the defendant should pay costs in the sum of $685 was too low, he asked for a variation to increase the sum.  It is clear that the request does not meet the legal requirements for granting leave to appeal.     

29.  The intended appeal of Mr Chan does not meet the requirement of section 35A of the Labour Tribunal Ordinance, and it has no reasonable prospect of success.  Accordingly, we refuse Mr Chan’s application for leave to appeal out of time and dismiss his summons.  

30.  As Mr Chan fails in his application, in line with the usual practice, he shall pay the costs of the defendant.  We have considered, on a party-and-party basis, the “statement of costs for summary assessment” filed by the defendant.  We are of the view that as the factual and legal issues involved in the present application are not complicated, and they are not much different from those arguments involved in the Court of First Instance, the number of hours on communications with client and counsel, drafting and perusing documents and the related charges should be adjusted downward. We assess the costs that Mr Chan shall pay to the defendant in the sum of $28,000.

Translated by the Judgment Translation Unit of the Judiciary and vetted by Mr. P. Y. Lo, Barrister-at-law.