NORTON YAN-YAN SUSAN AND ANOTHER v. HONG KONG AIRLINES LTD

HCLA 8/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

LABOUR TRIBUNAL APPEAL NO. 8 OF 2010

(On Appeal from LBTC 4038/2009)

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REASONS   FOR   DECISION

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INTRODUCTION

1.  Hong Kong Airlines sought leave to appeal against Orders of the Labour Tribunal in favour of Ms Norton and Captain Dalpian.  By those Orders the Labour Tribunal awarded gratuity payments to Ms Norton and Captain Dalpian pursuant to clause 5 of their Employment Agreements with the Airlines.

2.  The Airlines’ primary contention is that, contrary to the Labour Tribunal’s award, on a proper construction of clause 5, no gratuities were due to Ms Norton and Captain Dalpian upon the termination of their employments by the Airlines.  As a subsidiary matter, the Airlines say that the Tribunal wrongly found an actionable representation or (in the alternative) estoppel by convention in relation to Captain Dalpian’s claim.

3.  I refused leave for the reasons which I set out below.

II.  BACKGROUND

4.  For the purposes of these proceedings, the Employment Agreements between the Airlines on the one hand and Ms Norton and Captain Dalpian respectively on the other may be treated as identical.

5.  The Employment Agreements contain the following provision:-

“Clause 5: Gratuity

5.1    Upon successful completion of 36 months of service [in the case of Ms Norton: June 1, 2006 – May 31, 2009; in the case of Captain Dalpian: February 23, 2007 – February 22, 2010], the Employee shall be entitled to a gratuity equivalent to 15% of his/her total salary received during the period.  The Employee is not entitled to any pro rata payment of gratuity if he/she terminate employment for whatsoever reason or if terminated by the Company in accordance with Clause 11.2 [empowering the Employer to terminate forthwith for cause] before the third anniversary of the Commencement Date [in the case of Ms Norton: June 1, 2006; in the case of Captain Dalpian: February 23, 2007].  The first lump-sum gratuity payment shall be effected upon the third anniversary of the Commencement Date.  For the avoidance of doubt, the Employee must be employed by the Company and not working out his/her termination notice period at the time of payment in order to qualify for the payment.”

6.  On 1 June 2006 Ms Norton (who had already been working for the Airlines) renewed her employment with the Airlines by signing her Employment Agreement.  By that Agreement, the Airlines re-engaged Ms Norton as a Senior First Officer.

7.  On 2 April 2009 the Airlines terminated Ms Norton’s employment without cause by giving 3 months’ notice pursuant to clause 11.1 of the Agreement.  The 3 months’ notice thus covered the period from 2 April to 1 July 2009.

8.  On 14 April 2009 the Airlines advised that Ms Norton last working and employment day would be treated as 14 April 2009 and she would receive payment in lieu of notice for the period from 15 April to 1 July 2009.

9.  Prior to his employment with Airlines, Captain Dalpian worked as a pilot for Shenzhen Airline.  Following an interview with the Airlines in September 2006, Captain Dalpian signed his Employment Agreement in February 2007.  Under that Agreement, Captain Dalpian agreed to serve as a Senior Captain with the Airlines.

10.  As with Ms Norton, Captain Dalpian’s employment was terminated without cause under clause 11.1 of his Agreement by letter from the Airlines dated 2 April 2009.  That letter gave 3 months’ notice of termination (expiring on 1 July 2009) pursuant to clause 11.1 of the Agreement.

11.  As with Ms Norton, by letter dated 14 April 2009 the Airlines advised that Captain Dalpian’s last day of employment would be treated as 14 April 2009.  A payment in lieu of notice covered the period from 15 April to 1 July 2009.

12.  At his September 2006 interview, Captain Dalpian expressed concern that the Airlines’ proposed salary was below that which he was receiving from Shenzhen Airline.  Although Captain Dalpian acknowledged that he preferred to work out of Hong Kong, he did not wish to do so at the cost of a lower salary.  In order to entice Captain Dalpian to transfer employment, the Airlines (through Mr Wang Shao Ping, its then Deputy Managing Director and Chief Operations Officer) promised that, in case of dismissal by the Airlines before the expiry of 36 months, Captain Dalpian would be entitled to a pro-rata gratuity.  Captain Dalpian asked for this promise to be incorporated into his Employment Agreement.  The Airlines showed him clause 5, which Captain Dalpian accepted as reflecting the substance of the Airlines’ promise.  Accordingly, since the total gratuity which Captain Dalpian could earn on completing 36 months’ service with the Airlines would offset the lower salary being offered, Captain Dalpian signed his Employment Agreement.

13.  The Labour Tribunal held that, since the Airlines’ termination notice of 2 April 2009 did not expire until 1 July 2009, Ms Norton was entitled to the full amount gratuity due under clause 5 of her Employment Agreement.  The Tribunal noted that, as at 31 May 2009, Ms Norton would have served the requisite 36 months service period.  Insofar as the last sentence of clause 5 was concerned, during the period from 2 April to 1 July 2009, Ms Norton would not have been “working out his/her termination notice period”.  The last sentence of clause 5 (the Tribunal said) was only relevant where an employee (as opposed to the employer) gave notice of termination under clause 11.1.

14.  In Captain Dalpian’s case, the Labour Tribunal held that he was entitled to a pro-rata payment of gratuity.  While it was correct that (even taking account of the termination notice period from 2 April to 1 July 2009) Captain Dalpian would not have served 36 months, clause 5 only excluded a pro-rata payment of gratuity where an employee (as opposed to an employer) gave notice to terminate or where an employer gave notice to terminate with cause under clause 11.2 (as opposed to notice to terminate without cause under clause 11.1).

15.  The Tribunal further held that in September 2006 the Airlines had represented that Captain Dalpian would be entitled to a pro-rata payment of gratuity where he was terminated by the Airlines through no fault of his own before the expiry of 36 months.  According to the Tribunal, that representation was actionable or (alternatively) gave rise to an estoppel by convention.

III. DISCUSSION

A.  Construction of clause 5

16.  To obtain leave to appeal, the Airlines had to show an arguable case on a question of law.  I shall assume that the construction of clause 5 is a question of law.

17.  Mr Lawrence Cheung (appearing for the Airlines) essentially argued that the Tribunal misconstrued clause 5 in two respects.

18.  First, take Ms Norton’s case.  According to Mr Cheung, since between 2 April and 1 July 2009 she would have been “working out” the termination period consequent upon the Airlines’ 2 April 2009 notice, she would not have qualified for a gratuity payment under clause 5.

19.  Second, take Captain Dalpian’s case.  Even taking into account the termination period from 2 April to 1 July 2009 consequent upon his dismissal without cause by the letter dated 2 April 2009, Captain Dalpian would not have served the Airlines for 3 years.  In those premises, according to Mr Cheung, on its true construction clause 5 (especially its second and last sentences) does not permit pro-rata payments of gratuity.  Captain Dalpian (Mr Cheung says) should not have been awarded any gratuity at all by the Tribunal.

20.  In my view, in both instances the Airlines’ case on construction is unarguable.

21.  The second sentence of clause 5 bars pro-rata payments in only two specific instances: (a) where an employee terminates employment for whatever reason and (b) where the Airlines terminates employment with cause under clause 11.2.  The implication must be that, in circumstances other than the two specified in the second sentence, pro rata payments of gratuity are possible.

22.  Neither scenario (a) nor (b) occurred in relation to Ms Norton and Captain Dalpian.  Both were terminated by the Airlines without cause under clause 11.1.  It follows that they must both at least be entitled to pro-rata gratuities.

23.  Nothing in the third and last sentences of clause 5 detracts from the foregoing conclusion based on the plain meaning of the second sentence.

24.  All that the third sentence of clause 5 says is that a lump-sum gratuity (whether calculated pro-rata or on a full rate basis) will be payable on the third anniversary of an employee’s appointment.

25.  On the other hand, the fourth sentence of clause 5 says that in order to qualify for payment an employee has to be employed and “not working out his/her termination notice period at the time of payment in order to qualify for the [gratuity] payment”.

26.  In Ms Norton’s case, if one takes account of the requisite 3 month notice period for termination in clause 11.1, she should still be deemed to have been working as at 1 July 2009.  That latter date would have been the third anniversary of her appointment and so she should be treated as literally having met the requirement of still being employed.

27.  I have not lost sight of the fact that on 14 April 2009 Ms Norton and the Airlines mutually agreed to treat 14 April 2009 as her last working day.  But all that means is that the Airlines effectively agreed to waive the apparent requirement in the last sentence of clause 5 that she be actually “employed” as at the third anniversary of her appointment to qualify for a gratuity.

28.  The only question then with Ms Norton is whether she should be treated as “working out his/her termination notice period” at the relevant time.  But (as the Tribunal found) the termination notice period mentioned in the last sentence can only refer to a 3 month period resulting from an employee’s  giving notice under clause 11.1.  Otherwise, on Mr Cheung’s suggested reading, the Airlines could always prevent an employee from becoming entitled to a pro-rata or full-rate gratuity, by simply giving notice under clause 11.1 at any time before at least 3 months from the employee’s third anniversary.

29.  That cannot be right because, for one thing, this would be contrary to the plain meaning of the second sentence of clause 5.  The Airlines could forestall the payment of a pro-rata gratuity through termination under clause 11.1, even though termination under clause 11.1 is not a specified ground for denying a pro-rata gratuity.

30.  More importantly, the construction advanced by Mr Cheung does not make commercial sense.  One asks rhetorically: What employee in his or her right mind would accept a contract where, despite having diligently worked for some period, one’s expected pro-rata or full-rate gratuity can be denied by an employer through the mere expedient of dismissal without cause?  I do not think that there would be any such employee.

31.  A gratuity presumably gives an employee an incentive to remain employed with a company.  Mr Cheung’s reading would deprive the gratuity promised in clause 5 of any value as an incentive.  The reading would render the gratuity illusory.  In contrast, if an employee chooses to resign before a given period, the issue of incentive does not arise.  The employee freely decides to leave the company prematurely and forego a gratuity.

32.  Consequently, in my judgment, the Tribunal must have been correct.  The last sentence of clause 5 can only refer to an employee serving a notice period brought about by that employee’s resignation pursuant to clause 11.1.  The reference to notice period does not symmetrically refer to a notice period brought about by the Airlines terminating the employee without cause.

33.  Move now to Captain Dalpian’s case.  As at 1 July 2009, he would not have served a period of 3 years.  So the issue in his situation concerns the payment of a pro-rata guarantee.  In light of what has been discussed above, his employment having been terminated by the Airlines under clause 11.1, Captain Dalpian should be entitled to a pro-rata payment.

34.  But, it might be argued, that pro-rata payment would be subject to the requirement in the last sentence that an employee be employed by the Airlines on the third anniversary of his or her appointment.  That anniversary would have been 22 February 2010 for Captain Dalpian.  By then the notice period would long have expired (1 July 2009) and (unlike Ms Norton on her third anniversary) Captain Dalpian cannot literally be deemed to have been “employed” by the Airlines on 22 February 2010.

35.  I have so far assumed that such a literal reading of the “employed” requirement in the fourth sentence of clause 5 is correct.  The precise reading of the “employed” requirement does not affect Ms Norton’s case.  But it does have a bearing on Captain Dalpian.  So I must now examine the correctness of my initial assumption more closely.

36.  On this, it seems to me that a literal reading of the “employed” requirement would lead to the contradiction to which I have previously alluded.  The literal reading would mean that, contrary to the second sentence of clause 5, the Airlines could prevent a pro-rata gratuity by dismissal under clause 11.1.  That clause is not a ground specified in the second sentence.  There is therefore something contradictory and wrong with the literal reading and it must be rejected on ordinary canons of construction.

37.  What then would be the correct reading?

38.  It is necessary to pay attention to all the words of the last sentence of clause 5.  That sentence begins “For the avoidance of doubt”.  That expression is typically used to clarify a doubt arising from something previously said.  That suggests to me that the fourth sentence must be read in conjunction with the first, second and third sentences of clause 5.  It clarifies doubts arising from those previous sentences.

39.  The second sentence, in particular, give rise to an obvious obscurity or doubt.  If an employee gives notice, is he or she still eligible to receive a gratuity on the third anniversary of appointment (when according to the third sentence a gratuity becomes payable as a debt)?  In my view, the last sentence only really serves to clarify such doubt arising from the second sentence.  The last sentence can thus only be relevant in one or other of the two specified situations (termination by an employee or termination with cause by an employer) mentioned in the second sentence.

40.  The result is that the last sentence cannot be read as dealing with every situation of termination beyond the two mentioned in the second sentence.  Properly construed, I do not think that the last sentence can refer to the situation where an employee ceases to be employed as a result of termination without cause by the Airlines.  Consequently, as a matter of construction, the Tribunal rightly upheld Captain Dalpian’s claim for a pro-rata gratuity.

B.  Representation and estoppel

41.  Mr Cheung argues that the representation as to an entitlement to a pro-rata bonus (which the Tribunal found as a matter of fact was made to Captain Dalpian in September 2006) was not actionable at law.  Mr Cheung also queries the Tribunal’s analysis in relation to estoppel by convention.  I shall assume that questions of law are involved here.  Nonetheless, it seems to me that these two subsidiary proposed grounds of appeal are equally untenable.

42.  In effect, the Tribunal found that the representation made to Captain Dalpian gave rise to a collateral contract at law.  In consideration of the Airlines promising to pay a pro-rata gratuity, Captain Dalpian agreed to work for the Airlines.  On that analysis, the representation found by the Tribunal must certainly be actionable.

43.  As for estoppel, the circumstances at the interview constituted a “crossing of the line”.  Captain Dalpian and the Airlines agreed as a matter of convention or understanding among themselves that rightly or wrongly, whatever clause 5 literally stated, the provision should be treated as embodying an entitlement to a pro-rata gratuity.  As a result of that mutual understanding made known to each other at the time of interview in September 2006, the Airlines became estopped from denying Captain Dalpian’s entitlement to a pro-rata gratuity.

44.  I do not think that there is anything to fault in the Tribunal’s estoppel analysis.  The estoppel by convention operates as a “shield” barring the Airlines from arguing in its defence that Captain Dalpian’s Agreement does not entitle him to a pro-rata gratuity.

IV. CONCLUSION

45.  For the foregoing reasons, I refused leave to appeal.  In my judgment, the Airlines had no viable case on its suggested questions of law.