KAO LEE & YIP (a firm) v. LAU WING AND ANOTHER

FACV No. 7 of 2008

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 7 OF 2008 (Civil)

(ON APPEAL FROM CACV No. 121 of 2006)

_______________________

_______________________

J U D G M E N T

_______________________

Mr Justice Bokhary PJ:

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

Mr Justice Chan PJ:

2.  I agree with the judgment of Mr Justice Ribeiro PJ.

Mr Justice Ribeiro PJ:

A.    The issues and the decisions below

3.  The appellant is a firm of solicitors which employed the respondents as assistant solicitors.  On 19 August 2005, each of the respondents wrote tendering her resignation, seeking to terminate the employment by giving three months’ notice and by undertaking to make payment in lieu in respect of part of that notice period. 

4.  The appellant asserts that they were not entitled to end their employment unilaterally in the manner sought.  On 21 September 2005, it commenced proceedings in the High Court seeking declarations that the respondents had not validly determined their employment and are in breach of their employment contracts, claiming damages and an account of profits.

5.  Burrell J[1] dismissed the appellant’s action upon a determination under Order 14A that the respondents had lawfully terminated their employment.  He also held that the action was liable to be struck out under Order 18 r 19 as disclosing no reasonable cause of action or as vexatious.  The firm’s appeal to the Court of Appeal was dismissed.[2] 

6.  Two principal issues fall to be determined on this appeal.  The first arises in relation to both respondents:  Does termination of a contract of employment pursuant to section 7 of the Employment Ordinance (Cap 57) require the agreement of both employer and employee (as the appellant argues) or can such termination be effected unilaterally (as the respondents contend)?

7.  The second issue, which only concerns the 1^st respondent, is as to the scope and effect of section 6(2A)[3]:  Does that provision operate to invalidate a notice of termination where an employee includes one or more days of annual leave to which he or she is entitled as part of the notice period?

B.     The facts

8.  The respondents were engaged on materially identical terms set out in letters of employment respectively dated 9 October 2003 and 7 July 2004.  It was stipulated that the employment was terminable by either party by three months’ notice in writing.

9.  On 19 August 2005, the respondents each wrote to the appellant firm tendering their resignation.  They acknowledged that a three-month notice period was required and indicated that they wished “to shorten [the] notice period by way of payment in lieu of notice for the period from 20 September 2005 to 18 November 2005 (both dates inclusive)”.  In other words, they were giving three months’ notice and proposing to attend for work during the first of those three months, undertaking thereafter to pay to the firm wages in lieu to cover the remaining two months.  On the same day, they each wrote a second letter asking to be informed of the exact amount of the payment in lieu required to cover those two months.  That request was quite understandable since the Ordinance adopts an extended definition of “wages” subject to the exclusion of certain benefits,[4] leaving room for possible doubt as to the amount payable.

10.  The appellant’s response on the following day was to assert that “it is not possible for the firm to accept your unilateral early termination” citing a need for their services in the litigation department.  As no reply was forthcoming from the firm as to the amount of payment in lieu required, the respondents each wrote again on 2 September 2005 setting out their own calculations and enclosing cheques for the sums arrived at, stating that they would immediately make good any shortfall in the event of any error in the calculation.  The letters also indicated a willingness to facilitate a smooth hand-over of work.  They also referred to provisions of the Ordinance relied upon, including sections 7 and 70.

11.  The appellant, however, rejected the tendered payment and stated in its letter of 5 September 2005: “... we cannot condone or accept any unilateral early termination in blatant disregard to your duties and the interests and well-being of the firm and our clients”, adding a warning that legal action would be commenced and a complaint made to the Law Society “should you insist upon proceeding with the unilateral early termination of your employment contracts ...”  The further correspondence between the parties does not require discussion.  The respondents worked out the month following their letter of resignation and then left the firm.

C.    Termination under section 7

12.   The respondents were obviously seeking to terminate their employment contracts pursuant to section 7(2).  That subsection takes effect in the context of the following provisions:[5]

Section 6

(1)    Subject to subsections (2),  ... either party to a contract of employment may at any time terminate the contract by giving to the other party notice, orally or in writing, of his intention to do so.

(2)    The length of notice required to terminate a contract of employment shall be –

...

(c)     in every other case, the agreed period, but not less than 7 days in the case of a continuous contract.

Section 7

(1)     ... either party to a contract of employment may at any time terminate the contract without notice by agreeing to pay to the other party a sum equal to the amount of wages which would have accrued to the employee during the period of notice required by section 6.

(2)     Either party to a contract of employment, having given proper notice in accordance with section 6, may at any time thereafter terminate the contract by agreeing to pay to the other party such proportion of the sum referred to in subsection (1) as is proportionate to the period between the termination of the contract and the time when the notice given would have expired.

13.  The arguments bearing on whether section 7 establishes a unilateral or bilateral mode of termination focus upon (i) the construction of the Ordinance; (ii) the views of the majority in the 1974 decision of the Full Court in Yip Wan-chiu v Magnificent Industrial Ltd [6] and the policy underlying section 7; and (iii) the legislative history surrounding that section.

C.1    Construction of the Ordinance

14.  The appellant’s argument that section 7 lays down a bilateral mechanism for termination rests on the words “agreeing to pay”.  They are said to import the requirement of an “agreement” between employer and employee regarding the proposed cessation.  Section 7 is said to make it a condition that one party’s offer to terminate in this manner must be accepted by the other party.  Since it rejected the respondents’ offers to terminate in accordance with section 7(2), the firm contends that there was no valid termination and that the respondents ended their employment unlawfully.

15.  In my view, the true construction of section 7 heavily favours the contrary conclusion, namely, that the mechanism is unilateral.  It is true that “to agree” is a term often used to mean “to reach consensus with some other person or persons”.  Indeed, that may well be its primary meaning.  However, as a matter of language, that is plainly not its only meaning.  As the courts below held, a person may state that he agrees to do something in a context where his statement means that he promises or undertakes to do it, without implying consensus with any other person.  In my view, that is the meaning intended by section 7.  Thus, section 7(1) provides that either party to the contract of employment may at any time terminate the contract by agreeing to pay the necessary sum to the other party.  These words are apt to describe a termination brought about by either party promising or undertaking to pay without having to secure or wait for the cooperation of the other.

16.  This view is reinforced by the wording of other provisions of the Ordinance where they refer to the mechanism of termination under section 7. 

17.  Thus, when providing relief for an employee who lawfully terminates his employment because an employer has failed to pay wages due, section 10A(2) states:

“Where a contract of employment is terminated under subsection (1), the contract shall be deemed to be terminated by the employer in accordance with section 7 and the employer shall be deemed to have agreed to pay to the employee the sum specified in section 7.”

18.  Similarly, when dealing with sums which an employer may deduct from payments due to the employee on termination, section 25(3) provides that the employer :

“... may deduct from any sum payable under subsection (1) to an employee who terminates his employment otherwise than under section 6, 7 or 10 such sum as the employee would have been liable to pay if he had terminated his employment under section 7.”

19.  In each of these examples, the Ordinance does not speak of the parties terminating under section 7, which one might expect if such termination requires mutual agreement.  Instead, the italicised words refer to just one of the parties – the employer in section 10A(2) and the employee in section 25(3) – as the person deemed to have effected the termination under section 7.

20.  Section 7(2) itself provides a powerful indication that the statutory intention is that the section 7 mechanism is unilateral.  It enables either party to terminate by first giving notice under section 6 and then completing the process of termination by agreeing, in accordance with section 7(1), to make payment in lieu in respect of the balance of the notice period.  The giving of notice under section 6 is unquestionably a unilateral act.  It cannot sensibly be postulated that the second part of the combined method of termination under section 7(2) can only proceed with the consent of the other party.  On the contrary, section 7(2) expressly provides that either party, having initiated the procedure by giving proper notice may at any time thereafter proceed to complete the process by agreeing to make the requisite payment.

C.2    Yip Wan-chiu and the policy underlying section 7

21.  Yip Wan-chiu[7] came before the Full Court in 1974 because of the Commissioner of Labour’s concern about certain court decisions holding that an employee suing for wrongful dismissal was claiming unliquidated damages for breach of the employment contract and so was subject to a duty to mitigate.  Thus, in Yip Wan-chiu itself, Madam Yip was an employee paid for piece-work with an average income of $600 per month.  She was dismissed without notice or payment in lieu and the employer held liable by default.  When it came to the assessment of damages, she acknowledged that she had not sought alternative employment for two months when, apparently, such employment would readily have been available.  The District Judge found that she had failed to mitigate and so awarded her only nominal damages of $40.00. 

22.  The Commissioner thought that this was wrong in law, taking the view that the then section 6(1) of the Ordinance – a provision materially identical to section 7(1) today – had altered the common law so as to provide, in a case like Madam Yip’s, the remedy of one month’s wages by way of liquidated damages.  That was an untenable view, as all three members of the Full Court held.  The section was not addressing the remedy for breach of the employment contract but concerned with establishing a lawful mode of termination.  Accordingly, the appeal against the award of merely nominal damages was unanimously dismissed. 

23.  The relevance of Yip Wan-chiu to the present appeal lies in the Full Court’s discussion of the nature of termination under the section.  The appellant in the present case relies on the conclusion reached by McMullin J (with whom Pickering J agreed) that it required the parties’ mutual consent :

“The option offered by s 6 is however one of mutual agreement. I understand that section to mean that the parties must agree through the ordinary process of offer and acceptance before the option can become effective.”[8]

His Lordship added:

“It is an option available to the employee as to the employer but it can be exercised only by mutual agreement. The agreement is the heart of the matter. Where there is no such agreement the parties are relegated to their rights under the Common Law and the remedy available to them is the ordinary action for damages for breach.”[9]

24.  However, those comments were made obiter and were not adopted in several subsequent decisions in which the reasoning of Huggins J, dissenting on this point, was preferred.[10]  It is therefore to the Full Court’s reasoning that I now turn.

25.  McMullin J, for the majority, offered two reasons for holding that mutual agreement was necessary.  The first was that construing the section as permitting unilateral termination might result in the employee falling between two stools and being deprived of a remedy altogether.  His Lordship stated:

“Although I was at first drawn to the idea that the words ‘by agreeing to pay’ in s 6 were to be understood as meaning: ‘by offering to pay’; or ‘by undertaking to pay’, yet on reflection it seems to me that such an interpretation raises a very real difficulty.  Where the offer has been accepted no problem arises for then there is an agreement on which the defaulting party may be sued.  But where, for example, the employee refuses to accept the offer or undertaking and later, being perhaps unable to find other employment, wishes to pursue a claim against the employer he may find himself barred out of any approach to the Courts either by way of the statute or of the Common Law.  For, as to the former he may be met with the answer that the offer having been refused and the situation of the parties having altered the employer was under no obligation to renew it; while as to the Common Law, the answer would be that there could be no action for breach since the contract had been lawfully terminated at the instant when the employer had done all that the Ordinance required of him by merely offering or undertaking to pay.”[11]

26.  With respect, I am unable to accept that reasoning.  It proceeds on the footing that in terminating under section 7 there is an offer to pay which has no legal effect unless it is accepted, that is, that the section envisages the parties entering into a fresh contract.  It then postulates a possible refusal of the offer with the employee thereafter finding himself without a cause of action.  But that approach misapprehends the argument that the section permits unilateral termination.  If termination under section 7 is unilateral then, by definition, it takes effect without the agreement of the other side.  If an employer ends the contract under the section, there is no question of the employee choosing to reject any offer.  The party terminating makes an unconditional promise to pay the wages in question and thereby brings the employment to an end.  The promised sum becomes, by statute,[12] due to the other party and is enforceable as a statutory debt.  Additionally, contravention of section 25 wilfully and without reasonable excuse now constitutes an offence punishable by fine and imprisonment.[13]

27.  The second reason given by McMullin J for preferring a bilateral interpretation rests on the fact that payment under the section is confined to payment of “wages” as defined in the Ordinance and does not cover certain fringe benefits.  His Lordship reasoned that allowing an employer to terminate unilaterally by agreeing to pay such wages was likely to result in the employee receiving less than he would if he were allowed to work out the notice period.  I am, with respect, unconvinced by this argument.  True it is that an employee whose contract is brought to an end under section 7 may in some cases receive less in terms of wages and fringe benefits than if he had been given notice under section 6.  But section 7 possesses its own logic and the employee may in other cases end up receiving more.  He receives the section 7 payment and is relieved from having to attend for work during the notice period.  He at once becomes free to seek new employment and if a new job is secured during what would have been the notice period, he receives additionally the wages and benefits of such fresh employment. 

28.  I note in passing that in the Court of Appeal, Yuen JA[14] expresses the view that with the enactment of section 8A[15] in response to the Yip Wan-chiu decision, the basis for McMullin J’s second reason is destroyed.  Her Ladyship suggests that section 8A takes effect by confining the employee’s remedy in the case of a wrongful termination to liquidated damages for lost wages, removing any right to damages for benefits falling outside the statutory definition of “wages”, so that no greater benefit accrues to the employee who recovers compensation for wrongful termination without notice as compared with an employee whose employment is terminated under section 7. 

29.  That point was not argued before this Court and it is unnecessary to decide whether her Ladyship was correct.  I would however wish expressly to leave that question open.  Although the point equally did not call for decision in Archer v The Hong Kong Channel Ltd,[16] Litton PJ in that case evidently contemplated the possibility that a claim for wrongful termination in respect of losses going beyond loss of wages may be sustainable notwithstanding section 8A.  I would also point out that it is in principle clear, as held by the House of Lords in Malik v Bank of Credit and Commerce International (SA) (In liquidation)[17] and applied by the Court of Appeal in Hong Kong in Semana  Bachicha v Poon Shiu Man,[18] that where an employer terminates an employee’s contract, whether lawfully or unlawfully, any distinct breach of contract (such as a breach of the implied obligation of trust and confidence) remains available to the employee as a separate cause of action.  Thus, where breach of such an independent obligation occurs alongside a breach involving a wrongful termination, both causes of action are maintainable and the employee’s remedy is not confined to a claim for lost wages under section 8A.  The question I would leave open is whether an employee who suffers loss beyond loss of wages (as defined in the Ordinance) by reason of a single breach involving the wrongful termination of the contract is confined by section 8A to a remedy for lost wages or whether, on the contrary, a common law claim for unliquidated damages in respect of the additional loss is maintainable.

30.  In my view, the reason articulated by Huggins J for rejecting a bilateral reading of the section is compelling.  His Lordship stated:

“I think it contemplates a unilateral termination by one party or the other, for it is only one party to the contract who has to ‘agree’ to do something, i.e. to pay money, and I understand that to mean ‘indicate his willingness to pay’ or ‘promise to pay’.  It would not have required a statute to lay down that a contract of employment, like any other contract, can be terminated by mutual consent and I find nothing in the section which is indicative of a situation involving such consent.”  (Italics supplied)[19]

31.  It is beyond question that at common law, contracts can be terminated simply by mutual consent and without any payment or compensation passing between the parties.  In an employment context, situations no doubt arise where both employee and employer agree, for whatever reason, that it would be best to bring the employment relationship to an end without more.  Equally, of course, they may decide to part company on such terms as they choose to agree.  As Huggins J noted, all of this can be achieved without any statutory intervention and so militates against the conclusion that section 7 is intended to regulate termination by mutual agreement. 

32.  Counsel for the appellant was driven to submitting that the legislature’s intention in enacting a bilaterally operated section 7 was to fix a minimum sum for buying one’s way out of a contract of employment.  I do not agree.  Section 7 applies both to employers and employees.  Where an employee wishes to leave without giving notice and his employer consents to him doing so, it makes no sense to construe the Ordinance – which is generally aimed at protecting employees – as nonetheless forcing the employee to pay notice period wages to his employer as the minimum price of buying his way out.  In any event, such a reading of section 7 is plainly inconsistent with section 8(a) which provides:

“Nothing in section 6 or 7 shall be taken ... to prevent either party to a contract of employment from waiving, at the time notice is required to be given for the purposes of section 6(2), (3) or (3A), his right to notice or to payment in lieu of notice...”

33.  Since section 8(a) permits either party to waive payment in lieu under section 7, the latter section obviously does not lay down a peremptory minimum price for termination by mutual consent.  The legally untoward consequences of interpreting section 7 as establishing a consensual mode of cessation give powerful support for the conclusion that the means of termination it establishes is unilateral.

C.3    The legislative history

34.  The legislative history of section 7 itself tends to support a unilateral rather than a bilateral interpretation.  As Yuen JA points out,[20] the section had originally provided that either party could terminate by “paying” wages in lieu of notice.  Such wording clearly suggests a unilateral mechanism as “payment” does not require mutual agreement.  The wording was changed in 1971[21] from “paying” to “agreeing to pay” because, as indicated in the Explanatory Memorandum to the Bill, it was considered desirable to enable the parties to terminate without having to make payment there and then, it being provided that payment should be made up to seven days after “agreeing to pay”.  There is no reason to think that, in making this change, the intention was to change the unilateral mechanism originally indicated.  The amendment was aimed merely at giving 7 days after termination to make the payment.

35.  Counsel for the appellant sought to rely on a different piece of legislative history in support of his bilateral reading of the section.  After the Full Court’s decision in Yip Wan-chiu, the Commissioner of Labour moved an amendment resulting in the enactment of section 8A (set out in Section C2 above).  It was argued that since the legislature enacted this section specifically in response to Yip Wan-chiu and did so without seeking to modify in any way the view of the majority that termination under section 7 requires the mutual consent of the parties, the legislature must be taken to have given its blessing to that interpretation as an instance of what Bennion calls “tacit legislation”.[22]

36.  I do not accept that argument.  As Yuen JA points out,[23] the Commissioner of Labour explained during the Second Reading that the Bill sought to respond to the Full Court’s decision that the remedy for wrongful dismissal was an award of unliquidated damages with an attendant duty to mitigate (which had led to harsh consequences in Yip Wan-chiu).  Section 8A’s aim (as is self-evident) was to provide for a liquidated sum by way of remedy so as to eliminate the duty to mitigate.  The legislation was therefore introduced to deal with the ratio decidendi of the Full Court’s decision.  There is no basis for taking the legislature to have considered in any shape or form the divided views of the Full Court on the obiter question of whether section 7 required the consent of both parties.  It is therefore impossible to suggest that the legislature’s intent was tacitly to confer legislative force on the non-binding views of the majority.  The courts have certainly not taken the view that the controversy was settled after passage of section 8A.  As indicated in Section C2 above, the majority dictum in Yip Wan-chiu has not been adopted in several subsequent decisions.  Moreover, in Archer v The Hong Kong Channel Ltd,[24] Litton PJ expressly left the question open.

C.4    Conclusion as to termination under section 7

37.  For the foregoing reasons, it is in my view overwhelmingly clear that section 7 establishes a mode of termination which may be operated by either party without requiring the consent of the other.

D.    The effect of section 6(2A)

38.  As previously noted, this issue arises only in respect of the 1^st respondent.  The provisions as to effecting termination under sections 6 and 7 have been set out in Section C above.  Section 6(2A) addresses the length of notice required and qualifies the provisions of section 6(2) as follows:

“Without prejudice to section 41D, annual leave to which an employee is entitled under section 41AA shall not be included under subsection (2) in the length of notice required to terminate a contract of employment.”

39.  Pursuant to her contract of employment, the 1^st respondent was entitled to 3 weeks’ (meaning 16½ working days’) paid annual holiday which was to be taken with the prior consent of the firm’s partners.  She tendered her resignation on 19 August 2005, which was a Friday.  It had previously been arranged that she would take the following Saturday morning off as part of her annual leave entitlement.  Accordingly, so the appellant argues, in purporting to calculate her three months’ notice period as including the Saturday morning when she would be on leave, the notice given by 1^st respondent was invalid: it was half a day short.  She had therefore not “given proper notice in accordance with section 6” for the purposes of section 7(2) and, accordingly, the appellant was entitled to the declarations sought.

40.  In respectful agreement with Yuen JA,[25] it is my view that this argument fails because, properly construed, section 6(2A) is intended solely for the benefit of employees.  It is true that section 6(2A) does not expressly say that it benefits only employees to the exclusion of employers.  However, it emphasises that the dates which are to be excluded from the notice period are dates forming part of “annual leave to which an employee is entitled under section 41AA”.  Its emphasis is on preserving the statutory entitlement of the employee. 

41.  Those are not empty words.  An examination of the scheme for annual leave established by the Ordinance demonstrates that the legislative intent is to confer strong protection against that entitlement being undermined or diluted by the employer.  The entitlement to such leave is laid down by section 41AA[26] and is to be taken in the 12 month period following the year in which it was earned.[27]  There is to be no short-changing of the employee where a rest day or holiday falls within the period of annual leave since another rest day or holiday must be substituted.[28]  Similarly, where an employee is in a position of total incapacity for work by reason of sickness or injury, the employer cannot deprive that employee of his entitlement to annual leave by requiring him to take annual leave during the period of his continuing incapacity.[29]  The Ordinance makes it clear, for the avoidance of doubt, that “annual leave is, and shall be granted, in addition to the rest days, holidays and maternity leave to which an employee is entitled ...”[30] 

42.  The Ordinance also makes it plain that an employee’s accrued entitlement to annual leave is protected in the event of the employment coming to an end.  In such cases, the employer must within 7 days pay to the employee “in respect of the annual leave compensation equal in amount to the annual leave pay he would have received had the leave so due been granted immediately after such cesser”,[31] such compensation being payable pro rata if the employment terminates before expiry of the full leave-earning year.[32]  Strikingly, the Ordinance prevents an employer, save in limited situations involving the employee’s consent and payment at a higher rate, from requiring an employee to take money instead of leave.[33]

43.  The Ordinance therefore makes it clear that where an employee has earned his entitlement to paid annual leave, he has an accrued right which receives statutory protection.  The employer cannot infringe that right by purporting to make annual leave do “double duty”, whether by doubling as a statutory rest day, as maternity leave or as part of a notice period, and so forth.  Such protection is wholly for the benefit of the employee since only employees earn an entitlement to annual leave.  No such protection is needed or provided for in relation to the employer.  Section 6(2A) clearly operates as an extension of that statutory scheme of protection in favour of the employee.  Conversely, it is not intended to prevent an employee, if he so chooses, to give notice over a period which includes his accrued annual leave entitlement.  The employer does not lose out if that should happen.  Thus, if, rather than taking part of his accrued leave during the notice period, the employee gives notice and works out the full notice period, the employer is required (as we have seen), within 7 days of cessation of the employment, to pay the employee “annual leave compensation equal in amount to the annual leave pay he would have received had the leave so due been granted immediately after such cesser”.[34] 

44.  The objection may be raised that the aforesaid conclusion fails to take into account section 41AA(3)’s provision that annual leave is to be taken at times “determined by the employer after consultation with the employee concerned”.   It may be argued that it is not up to the employee to determine for himself that the time for his taking leave will fall within his notice period.  However, in my view, while section 41AA(3) applies generally during the continuance of the employment, the position changes radically where notice to terminate has been given for the purposes of section 6 or section 7(2).  The question is then no longer a matter simply of when it would be most convenient to the business for the employee to take leave, but how the employee’s entitlement to annual leave may properly be utilised in the context of the employment being brought to an end.  It is my view that the employee is entitled in law to utilise his leave entitlement as part of his notice period.

45.  That position is supported by considering the interplay between sections 7 and 41D in the context of termination.  Suppose an employee has a contractual obligation to give three months’ notice of termination and does so at a time when he has earned an entitlement to two months’ annual leave (without the period for taking it having been fixed).  Let it also be supposed that he wants to leave work as soon as possible so that he can take up or begin searching for a new job and, to this end, he gives his three months’ notice and wishes to apply his two months’ leave entitlement towards completing that period of notice.  On the view I have taken as to its construction, section 6(2A) does not stand in the way of his doing so, it being a provision not intended to prevent an employee utilising his leave entitlement in this way.  Moreover, in the context of a termination, the combined effect of sections 7(2) and 41D is to enable the employee to use his leave entitlement in this way.  Thus, the employee would be unilaterally entitled under section 7(2) first to give his three months’ notice and then to undertake to pay wages in lieu of notice in respect of the last two months.  He would also be entitled to set-off that payment against the two months’ annual leave pay due and payable to him under section 41D.  The result would be that he works out one month of the notice period and then buys himself out of the contract, applying his accrued entitlement to annual leave pay for that purpose.  In short, the unilateral mode of termination provided by section 7 allows the employee effectively to insist on using his accrued annual leave entitlement to discharge, in whole or in part, his obligations in the termination process.

46.  For the foregoing reasons, I conclude that this ground also fails.

E.   Conclusion and the relief sought

47.  It follows that in my view, the appeal must be dismissed.  I wish, however, to add a few words about the nature of this litigation and the relief sought.  As Burrell J pointed out, the respondents are two young, recently qualified solicitors who, at the material time, had approximately one and two years’ post-qualification experience.  They had not been with the firm for more than a year or two and their departure cannot have been of any great financial or other moment to the firm.  In tendering their resignations and in the correspondence which followed, they clearly showed themselves anxious, ready and willing to bring their employment lawfully to an end, honouring their contractual obligations in line with their statutory entitlements.  From the outset they offered to work out one month of their notice and to pay to the firm whatever amount was properly due under section 7.  There was thus never any reality in the pleaded claims for damages and an account.  However, instead of cooperating to ensure a smooth and lawful cessation of the relationship, the firm saw fit not only to threaten and bring court proceedings, but also to threaten a disciplinary complaint to the Law Society – on a basis which escapes me.

48.  Even if, as the firm evidently (but erroneously) believed, the respondents were wrong in their understanding of sections 7(2) or 6(2A) it is hard to see what the firm could legitimately hope to achieve in pursuing not only a court action, but also two appeals against the respondents.  When asked, Counsel for the appellant stated that his clients sought declarations of their rights.  But a declaration is a discretionary remedy which the courts will only consider granting where conduct in accordance with the declaration sought can be expected to bring about legitimate and realistic relief.  No such relief has been identified in the present case.  This is, in short, litigation which does the firm no credit.

49.  I would dismiss the appeal and make an order nisi that the costs be paid to the respondents.  I would direct that any representations concerning costs should be in writing and filed and served within 14 days of the date of this judgment and that any written representations in reply should be filed and served within 14 days thereafter.  In default of any such representations, I would direct that the order as to costs should become absolute without further order. 

Mr Justice Litton NPJ:

50.  I agree with Mr Justice Ribeiro PJ’s judgment.

Lord Scott NPJ:

51.  I agree with the judgment of Mr Justice Ribeiro PJ.

Mr Justice Bokhary PJ:

52.  By the unanimous decision of the Court, the appeal is dismissed with the order nisi as to costs set out in the concluding paragraph of Mr Justice Ribeiro PJ’s judgment.

[1]     HCA 1854/2005, 7 March 2006.

[2]     [2007] 3 HKLRD 365.

[3]     In this judgment, unless otherwise indicated, all references to numbered sections are to provisions in the Employment Ordinance which I shall call “the Ordinance”.

[4]     Sections 2, 2(2), 2(2A) and 7(4).

[5]     The provisions set out are those applicable to the facts of this case.  Section 7(1) has since been amended by Ord No 7 of 2007 so that with effect from 13 January 2008 (see LN 130 of 2007), it has become section 7(1A).  That amendment elaborates on the definition of “wages” and sets out provisions relating to the calculation of such wages over the relevant period of notice.  However, the issue as to whether this form of termination requires the agreement of both parties or can be effected unilaterally remains relevant to the amended provision.

[6]     [1974] HKLR 183.

[7]     Yip Wan-chiu v Magnificent Industrial Ltd [1974] HKLR 183.

[8]     At p 191.

[9]     At pp 192-193.

[10]    See ICAP (Hong Kong) Ltd v BGC Securities (Hong Kong) LLC [2005] 3 HKC at 159-161, in which Stone J discusses other decisions including Yeung Chi Wah v City University (CACV 2958/2001, 28 February 2002, unreported); and Vite Ltd v Chiu Oi Fan Fanny (HCA 8148/2000, 18 August 2000, unreported).

[11]    [1974] HKLR 183 at 191.

[12]    Sections 25(1) and 25(2)(b).

[13]    Section 63C.  This section was added in 1997.

[14]     [2007] 3 HKLRD 365 at 375-376, §§35-37.

[15]     Section 8A(1): “Without prejudice to section 9, 10 or 11(2), where a contract of employment is terminated otherwise than in accordance with section 6 or 7, a sum equal to the amount of wages that would have been payable had the contract been terminated in accordance with section 7 shall be payable by the party terminating the contract to the other party.”

[16]     (1997-98) 1 HKCFAR 298 at 304.

[17]     [1998] AC 20.

[18]     [2000] 2 HKLRD 833.

[19]     [1974] HKLR 183 at p 194.

[20]     [2007] 3 HKLRD 365 at 370, §§13-16.

[21]     Ord No 44 of 1971.

[22]     F A R Bennion, Statutory Interpretation: A Code (Butterworths, 4^th Ed), p 603.

[23]     [2007] 3 HKLRD 365 at 374, §31.

[24]     (1997-98) 1 HKCFAR 298 at 304.

[25]     [2007] 3 HKLRD 365 at 377, §44.

[26]     Section 41AA(1):  “Subject to this Part, every employee who has been in employment under a continuous contract for not less than 12 months shall, in respect of each leave year, be entitled to paid leave (in this Part referred to as "annual leave") calculated in accordance with subsection (2).”

[27]     Section 41AA(5)(a).

[28]     Section 41AA(6).

[29]     Section 41AA(7).  The position differs if the incapacity first occurs after the period of annual leave has begun.

[30]     Section 41AA(10).

[31]     Section 41D(1).

[32]     Section 41D(2).

[33]     Section 41E.

[34]     Section 41D.