SUZUYA INTERNATIONAL (HK) CO LTD v. CHUNG CHUN HEI

DCCJ 5251 and 6016 of 2004
(Consolidated)

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO.  5251 OF 2004

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BETWEEN 

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  IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO.   6016 OF 2004

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JUDGMENT

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1.  For the sake of convenience, I will simply refer to Suzuya International (HK) Co. Ltd. as the Plaintiff and Madam Chung Chun Hei as the Defendant 

2.  The Defendant originally laid claim against the Plaintiff in the Labour Tribunal. The Plaintiff subsequently commenced action in the District Court (DCCJ 5251 of 2004). The Labour Tribunal claim was then transferred to the District Court (DCCJ 6016 of 2004). The 2 cases were consolidated to be tried together. The claim by the Defendant appears as the Counterclaim in the consolidated action.

3.  It is common ground that the Plaintiff employed the Defendant as its Human Resources and Administration Manager from 2 July 2001 to 5 March 2002 under what will be described herein as “the 1^st Employment Contract” (Bundle C, page 9 to 10). It is also common ground that from 6 March 2002 the Plaintiff employed the Defendant as its Assistant General Manager under what will be described herein as “the 2^nd Employment Contract” (Bundle C, page 16 to 17). One of the points in dispute is whether the 2^nd Employment Contract came to an end by effluxion of time on 4 March 2004 or by way of constructive dismissal on 16 September 2004.

4.  The Plaintiff claims the sum of $130,600 comprising:

a)      $29,000, being the amount of $1000 per month for 29 months (November 2001 to March 2004) that the Defendant wrongly claimed to be entitled to and did receive;

b)      $91,600, being what should have been deducted from the Defendant’s salary during the aforesaid 29 months to reimburse the Plaintiff for paying upfront the Defendant’s share of contribution to the retirement scheme registered under the Occupational Retirement Schemes Ordinance, Cap. 426 (“the ORSO Scheme”). The Defendant’s share of contribution is calculated at 5% of her monthly salary of $40,000 from November 2001 to March 2002 and $68,000 from April 2002 to March 2004 and

c)      $10,000, being auditors’ fees incurred as a result of the Defendant’s failure to file for the Plaintiff an Employer’s Tax Return regarding the Defendant.

5.  To put it simply, the Defendant says that amounts in Paragraph 3 a) and b) were perks or extras offered by Mr. Okada (“PW1”), Managing Director, substantial shareholder and de facto boss of the Plaintiff. Regarding Paragraph 3 c), the Defendant says that PW1 took over from her the responsibility of filing the tax returns.

6.  The Defendant counterclaims for $636,881.14 or $623,281.14 with an Order that the Plaintiff do pay $13,600 as employer’s contribution (from 1 May to 31 August 2004) into the ORSO Scheme. The Counterclaim is based on her entitlement under the 2^nd Employment Contract and, to a large extent, proceeds on the basis that employment ended only on 16 September 2004.

7.  I mention the above to give some flavour of what this case is about before going into details.

8.  Having considered all the evidence in this case, I preferred and accepted the evidence of Defence. I dismiss the Plaintiff’s claims. I make awards in favour of the Defendant as follows:

a)	Arrears of wages	$ 53,230.10
b)	Payment in lieu of notice	215,750.00
c)	Gratuity bonus	33,388.00
d)	Sickness allowance	195,869.22
e)	Medical expenses	NIL
f)	ORSO Scheme contribution	NIL (No Order)
	(or an Order that the Plaintiff do pay his employer's share into the ORSO Scheme)
g)	Annual leave pay	40,800.00
		539,037.32

9.  I order that the Plaintiff pay interest on the aforesaid sum of      $539,037.32 at judgment rate from 16 September 2004 (date of constructive dismissal of the Defendant) until full payment.

10.  I make an order nisi regarding costs. The Plaintiff is to pay the Defendant’s costs for the whole proceedings in the District Court. There will be certificate for counsel. Pursuant to Section 44A of the District Court Ordinance, Cap. 336, I also order the Plaintiff to pay the Defendant’s costs for the whole proceedings in the Labour Tribunal. All costs are to be taxed if not agreed.

11.  I now explain my decision.

12.  Plaintiff’s case

The material aspects of the Plaintiff’s case are:

a) Under the 1^st Employment Contract (Bundle C, page 9 to 10), the Defendant received monthly pay of $40,000, $28,000 as basic salary and $12,000 as position allowance. It is the practice of Japanese corporations to divide pay into such 2 components;

b) After satisfactory completion of 3 months’ probation, the employment of the Defendant was confirmed by letter (Bundle C, page 13.This letter will be known hereafter as “the Confirmation Letter”). Her pay for the month of October 2001 was made by autopay into the Defendant’s bank account after deduction of 5% for her contribution to the ORSO Scheme i.e. $38,000 was made by autopay and $2,000 deducted;

c) Around November 2001, the Defendant asked PW1 for her pay to be made by cash cheque. She explained that this was for her own tax planning, that she had established a company for that purpose and that the cash cheque would be deposited into the company’s bank account. The Defendant said that she would make out a requisition form every month for the cash cheque to be issued as “consultancy fee” rather than “salary”. Such requisition form had to be signed by PW1 before the Plaintiff’s Accounts Department would issue the cheque.

PW1 asked the Defendant whether such arrangement would cause the Plaintiff any problem. The Defendant assured PW1 that it was lawful and that the Plaintiff would not be affected. Relying on such assurances, PW1 acceded to the request;

d) The Defendant then made out such requisition form for the first time and presented it to PW1 (Bundle C, page 15). PW1 noticed the total sum to be $41,000 (and not $40,000 i.e. $28,000 basic salary and $12,000 position allowance). PW1 asked the Defendant about it. The Defendant explained that the extra $1,000 was the Plaintiff’s contribution to the Mandatory Provident Fund (“MPF”) for the Defendant that the Plaintiff had to pay. Trusting the Defendant, PW1 accepted this explanation and signed the form;

e) Around March 2002 the Defendant told PW1 that her previous employer offered to employ her at $68,000 per month. The Defendant asked the Plaintiff to match that offer or she would leave the Plaintiff. With reluctance, PW1 agreed to increase pay to $68,000 and that the Defendant should have the new title of Assistant General Manager. There was no discussion on other perks or benefits. PW1 instructed the Defendant to “make contract for 2 years”. The 2^nd Employment Contract thus came into being (Bundle C,  page 16 to 17);

Before PW1 signed the 2^nd Employment Contract, he noted that “HK$47,600 plus HK$20,400” and “fixed for two (2) years” were in bold. The Defendant answered affirmatively to PW1’s query whether the other terms were the usual terms;

f) Around the time of the 2^nd Employment Contract, the Defendant prepared a “consultation agreement” (“Consultation Agreement”, Bundle C, page 18) for PW1 to sign. The Defendant explained that the Consultation Agreement was just to record the “consultancy fee” payment method since November 2001. Though the Consultation Agreement was signed around March 2002, it was backdated to 1 November 2001;

g ) The Defendant prepared and PW1 signed requisition forms (for cash cheques for the Defendant) from November 2001 to March 2004 (Bundle D, page 319 to 373). The amount in each form included the $1,000 mentioned in Paragraph 4(a) above and was without the deduction mentioned in Paragraph 4(b). The forms for November 2001 to March 2002 were for $41,000 each. There were 2 forms for each month from April 2002 to March 2004 - one for $41,000 and one for $28,000;

h) The Defendant was responsible for compiling and preparing all Employer’s Returns to the Inland Revenue Department, Hong Kong (“IRD”). PW1 left this work to the Defendant completely;

i) In early September 2003, the Plaintiff received a letter from IRD dated 9 September 2003 (Bundle C, page 19 to 21). Point 3 of the letter (“Point 3”) enquired about the relationship between the Plaintiff and the Defendant. The Defendant informed PW1 about this letter. The Defendant said she would deal with Point 3. PW1 left that matter with the Defendant and told her to liaise with the Plaintiff’s auditors to reply to IRD.

There was a meeting involving PW1, the Defendant and Mr. Ip (“PW2”), a partner of the accountancy firm that acted as auditors for the Plaintiff (“the Auditors”). It was agreed that the Defendant would deal with Point 3 and the Auditors would deal with the other points raised by IRD.

Around October 2003, the Defendant supplied copies of the Consultation Agreement and the 1^st Employment Contract to PW2 upon the latter’s request. This was the first time PW2 had sight of such documents.

The Defendant prepared a response (Bundle C, page 42 to 43. See also Bundle D, page 104 to 105) and passed it to PW2. The Auditors incorporated this response in their reply to IRD (Bundle D, page 107 to 122. See also Bundle C, page 44 to 48).

There were subsequent enquiries from IRD about the Defendant to which the Auditors replied (Bundle D, page 149, page 227 to 228, page 296 to 395, 402 to 407. See also Bundle D, page 106). For their services, the Auditors charged the Plaintiff $10,000 (Bundle D, page 506 to 508);

j) Around January or early February 2004, PW1 orally informed the Defendant that her employment (under the 2^nd Employment Contract) would finish at the end of March 2004. PW1 said that he wanted to retain the Defendant but then her pay would be reduced due to business considerations. The Defendant said that she would leave if the reduction was too much;

k) Around 9 February 2004, the Defendant informed PW1 that she wanted to take leave for her pre-marriage check-up and marriage. The Defendant submitted a leave application form to commence leave from 29 March until 16 April 2004 (Bundle D, page 123. See also Bundle C, page 22).

PW1 expressed his concern that the Defendant’s employment would then have come to an end (on 31 March) during her absence. The Defendant said she understood. She further said she would return to Hong Kong after 16 April and would then discuss with PW1 her new contract and remuneration. The Defendant also asked PW1 to pay her salary and allowance for the month of April 2004. As a gesture of goodwill of the Plaintiff and also by way of a marriage gift, PW1 agreed but stressed that the payment was for 1 month only and was on a gratuitous basis;

l) Around March 2004, the Defendant presented for PW1’s signature a letter (“the Letter”) to Hang Seng Life Limited that administered the ORSO Scheme. PW1 asked what it was and was told that it was something that should have been done in the past. Relying on the Defendant, PW1 signed the Letter (Bundle C, page 23). The Letter instructed Hang Seng Life Limited to add a new member category named “Staff with Special Benefits”.  An employee of the Plaintiff in this new member category would have 100% vesting interest regardless of years of service or years of participation in the ORSO Scheme. The Letter further instructed Hang Seng Life Limited to transfer the Defendant to this new member category with effect from 1 April 2004; 

m) Around April 2004, Dora Liu (“DW2”) prepared for PW1’s signature a cheque to pay the Defendant for April 2004.DW2 was the Defendant’s assistant at the Plaintiff. Without giving too much thought to the matter, PW1 signed the cheque (see also Bundle C, page 91 to 92). Around this time, PW1 telephoned the Defendant several times saying he needed to meet her as soon as possible to discuss renewal of her employment contract. The Defendant replied that it was not convenient due to her health condition;

n) On 4 May 2004, PW1 suddenly discovered that the Defendant had turned up at the office the day before. The Defendant had taken away the cheque for her April pay as well as documents of the Plaintiff. As PW1 had been wanting to meet and discuss with the Defendant, PW1 telephoned the Defendant to complain about her not informing him in advance of her visit;

o) On 10 May 2004, PW1 went to the home of the Defendant. A letter was given the Defendant (referred to hereinafter as “the May Letter”. Bundle C, page 24 to 26). In essence, the letter stated that the 2nd Employment Contract had expired on 31 March 2004; there was need to discuss extension/ renewal of contract and that the April pay was made on an “entirely non-binding basis” with the intention that once the Defendant returned from marriage leave there would be such discussion. The letter noted that the Defendant had taken away documents from the Plaintiff and asked for their return. The letter also asked for documents recording the Defendant’s change of marital status;

p) The wife of PW1 went to the Defendant’s home on 12 May 2004. Another letter was given the Defendant (Bundle C, page 27 to 28). The letter contained terms of (further) employment suggested by the Plaintiff. The letter mentioned that company files relating to the Defendant were missing. The Defendant was asked to help clarify this last matter and

q) At all material times, it was the Defendant’s responsibility to prepare and file Employer’s Returns for the Plaintiff to IRD and to arrange for deduction of salary for staff contribution to the ORSO Scheme.

13.  The thrust of the Plaintiff’s defence to the Counterclaim is that the 2^nd Employment Contract was for “a fixed term of 2 years which came to an end on 31st March 2004” (see paragraph 11(2) of Amended Reply and Defence to Counterclaim, Bundle A, page 51.1). In any case, the Plaintiff argued that oral notice of termination was given the Defendant around January or February 2004. In submission, Counsel for the Plaintiff argued that assuming the 2^nd Employment Contract was not for a fixed term of 2 years and was not terminated by notice, there was nonetheless no contract of employment after 31 March 2004 in that a material term, salary, had yet to be agreed.

The 2^nd Employment Contract was “made and entered into on March 06, 2002”. As I understood it, the insistence on the date of 31 March 2004 is because Clause 13 of the 2^nd Employment Contract stated “Date of joining the Company on April 01, 2002”.

14.  I should at this juncture explain references herein to documents in the Bundles C and D. Bundle C contains (copies of) documents referred to by witnesses in their written statements (as contained in Bundle B). Bundle D contains copies of all agreed documents. Hence, there is duplication of some of the documents in Bundles C and D. I try to make references as much as possible to Bundle C because the witnesses were often examined or cross-examined on documents in that Bundle.

15.  Defence case

           Salient features of the Defence case are:

a) Same as paragraph 12(a) above;

b) Same as paragraph 12(b) above;

c) In October 2001 immediately after PW1 signed the Confirmation Letter, the Defendant negotiated with PW1 hoping for an increase in pay. PW1 very quickly made it known that there was little room for increase and that the Defendant, despite her short period of employment at the Plaintiff, was already commanding one of the higher salaries among the staff. PW1 was concerned that if other employees knew about any increase for the Defendant, they would follow suit and ask for more.

PW1 then mentioned giving the Defendant an extra $1,000 per month and that the Plaintiff would pay the Defendant’s share of contribution to the ORSO Scheme. PW1 said that the Defendant’s pay would be made by cash cheque to keep it secret from other employees. PW1 continued to say that there was no need to document this new arrangement. PW1 told the Defendant to write a requisition form (for cash cheque) for her increased pay and to book the payment as “consultancy fee”, explaining that the (purpose for) requisition could not be left blank in the form;

d) The Defendant then made out the requisition form for the first time without writing in the purpose for requisition. She presented the form to PW1 for signature. PW1 told her to write in “consultancy fee” as the purpose for requisition. The Defendant did so in front of PW1 who then signed the requisition form;

e) Around February or March 2002, the Defendant approached PW1 for further increase in her pay package. PW1 said he was prepared to promote the Defendant to Assistant General Manager and increase her pay to $68,000 per month, being $47,600 as salary and $20,400 as position allowance. PW1 was, however, concerned over the Defendant’s repeated requests for pay increases. He therefore insisted that there would be no further increase for the next 2 years. PW1 instructed the Defendant to prepare the necessary contract. The Defendant prepared a draft. PW1 checked it. The draft went back and forth between the 2 and the terms (like termination notice, 100% vesting interest of the Defendant in the ORSO Scheme) were ironed out.  The 2^nd Employment Contract was then entered into.

Upon signing the 2^nd Employment Contract, PW1 asked the Defendant if she was prepared to receive her pay by cash cheque. If so, the Defendant would continue to get the extra $1,000 and the Plaintiff would continue to pay the Defendant’s share of contribution to the ORSO Scheme. Since this meant the Defendant getting more, she agreed.

PW1 suggested that from 1 April 2002, the Defendant should make out 2 requisition forms each month for her pay, one for the previous $41,000 and the other for $28,000. The amounts would be booked as “consultancy fee” as before. PW1 thought such arrangement would keep the Defendant’s pay increase secret from other employees;

f) Sometime in 2003, possibly around August or September 2003, “the exact time” of which the Defendant could not recall (see Bundle B, page 31, paragraph 21, cf. Re-Amended Defence and Counterclaim, Bundle A, page 47-6, paragraph 10(2)), the Defendant received an enquiry from the Auditors passed on to her by the Plaintiff’s Accounts Department. As the Defendant understood it, the Auditors asked for documentary proof of “consultancy fee” booked by the Defendant’s Department.

The Defendant then discussed the matter with PW1 who suggested preparing a consultation agreement lest IRD made enquiries. The Defendant had not drafted any consultation agreement before. Since PW1 appeared anxious about the matter, the Defendant asked for assistance in drafting from an accountant friend of hers. The Consultation Agreement was then prepared and filed away as part of the Plaintiff’s records;

g) The Defendant was responsible for filing the Plaintiff’s Employer’s Returns to IRD for the year ending March 2002. However, for the years thereafter, the Employer’s Returns were approved and filed by PW1 himself.

The Plaintiff used a computer system at the Human Resources and Administration Department to generate the Returns. The system was already in place when the Defendant joined the Plaintiff. Management of the system was outsourced to another company. Technicians from this outsourced company would be present to help the Defendant generate the Returns. The Defendant would then sign and file the Returns.

After March 2002, PW1 told the Defendant that he would be responsible for signing the Returns and that the Defendant was just to pass on his instructions regarding the Returns to the outsourced company. The Defendant thought PW1 must be acting under advice. She did as PW1 instructed. After the Returns were generated, the Defendant passed them on to PW1 reminding him that she had not checked or confirmed the contents. The Returns were eventually signed by PW1. The Defendant made copies for the Plaintiff’s records and arranged filing with IRD. Save in the limited sense just explained, the Defendant was not responsible for Returns relating to periods after March 2002

Consultancy fees would not be processed by or through the Defendant’s Department. Such fees would therefore not show in her Department’s computer system. The Defendant did not know how the Plaintiff would report to IRD about “consultancy fees” paid to the Defendant;

h) Around September 2003, the Plaintiff received a letter of enquiry from IRD. The Defendant helped to answer that part of the enquiry concerning herself (Bundle C, page 42 to 43). It was, however, up to the Plaintiff or PW1 to decide how to respond to IRD.

PW1 and his wife felt that the IRD enquiry was  because pay to the Defendant was booked as “consultancy fee”. PW1, his wife and the Defendant agreed that the pay should revert to “salary” for accounting purposes. The Auditors advised that it would be better to defer such change until end of the fiscal year (i.e. after 31 March 2004) lest the change aroused suspicion of IRD. It was therefore agreed that from 1 April 2004, the Defendant’s pay would be booked as “salary” and that she would no longer be entitled to the extra $1,000 or payment by the Plaintiff of her share of contribution to the ORSO Scheme;

i) Around January 2004, PW1 began to remark on a number of occasions that he considered the Defendant’s pay  too high. There was, however, no formal discussion on the matter;

j) On 12 February 2004, PW1 approved the Defendant’s application for leave for pre-marriage check-up and marriage;

k) On 8 March 2004, PW1 and the Defendant met. PW1 produced the 2^nd Employment Contract and asked, inter alia, whether Clause 2 meant that the Defendant’s monthly pay would revert to the previous amount of $40,000 from 1 April 2004. The Defendant gave her view that the pay stated in the 2^nd Employment Contract would continue unless a new agreement was arrived at. The Defendant also mentioned that if the Plaintiff wanted to terminate employment, there was the need to give 3 months’ notice or payment in lieu applying the figure(s) stated in the 2^nd Employment Contract.PW1 said he would have to review his position and would discuss with the Defendant at a later stage. There was, however, no further discussion and the Defendant went on her leave;    

l) The Defendant prepared the Letter for PW1’s signature (Bundle C, page 23. See also paragraph 12 k) above). The Defendant had explained to PW1 what the Letter was all about. The Defendant denied that in March 2004 she knew the 2^nd Employment Contract was coming to an end and hence took such a step to advance her own interest;

m) Due to the agreement as stated in paragraph 15 h) above, the pay for the Defendant for April 2004 was made by cheque in the sum of $60,293.33 after adjustments for sick-leave and contribution to the ORSO Scheme (Bundle C, page 91 to 92);

n) The Defendant was on sick-leave from 16 April to 15 September 2004 (sick-leave certificates in Bundle C, page 75 to 88). The Defendant had been forwarding to the Plaintiff her sick-leave certificates.

Even during sick-leave, the Defendant kept contact with DW2 and PW1 through e-mails and telephone calls;

o) The Defendant’s Department had to handle the payroll for a) head office staff, with 30 April being the deadline and b) retail staff, with 5 May being the deadline.

Towards the end of April 2004, PW1 asked the Defendant to help prepare the Plaintiff’s payroll. Pursuant to this request, DW2 delivered to the Defendant on 28 April the relevant documents for the head office staff including draft payroll summary and attendance report. On 30 April, the Defendant faxed back to DW2 the payroll summary with her comments. DW2 discussed the payroll summary with PW1. Upon receiving PW1’s approval, the finalised version was printed for PW1’s signature. On the afternoon of the same day, PW1 went to DW2’s office and left with DW2 the pay cheque for the Defendant. PW1 did not give any instruction on the handling of the cheque.

On 3 May, PW1 asked DW2 if the Defendant had looked at the payroll for the retail staff which DW2 was preparing. Later that day, the Defendant called DW2 asking if the draft payroll summary was ready for her review. The Defendant suggested that in order to save time, she would go to the office that afternoon to collect the relevant documents. The Defendant did show up and collected both the documents relevant to preparation of the payroll and her pay cheque for April 2004.

On 4 May, PW1 went to the office of DW2 and asked if the Defendant had collected her pay cheque. He also asked when the Defendant would finalise the payroll summary. Later that day, the Defendant forwarded the payroll summary to DW2. DW2 discussed it with PW1 who approved it. This approved summary was forwarded to Accounts Department for their further handling (see Bundle B, page 63 to 68);

p) By a letter dated 16 May 2004 (Bundle C, page 29 to 30), the Defendant responded to the 2 letters from PW1 (see paragraph 12 o) and p) above). By this letter the Defendant indicated, inter alia, that she disagreed the 2nd Employment Contract ended on 31 March 2004; the Defendant made reference to the work she did for the Plaintiff during her sick-leave; the Defendant said that she found it offensive the mention that files were found missing from the Plaintiff and the Defendant insisted that she would only discuss any new remuneration package as well as produce documentation on her change of marital status when her health became better and

q) On 16 September 2004, the Defendant returned to the Plaintiff. PW1 told the Defendant that she was no longer an employee of the Plaintiff and she was asked to leave. The Defendant left.

16. Matters considered

The dramatis personae of this case are PW1 and the Defendant. Both of them are highly educated and sophisticated people. This is all the more so for PW1. He heads a not insubstantial business with undertakings in Hong Kong, Indonesia and Japan. There are at present some 45 retail shops in Hong Kong and Macau with around 270 employees in Hong Kong. Both PW1 and the Defendant were essentially saying that he (or she) trusted the other party.

17.  As I understand it, the main purpose of calling PW2 was to rebut the pleaded Defence stance that around August or September 2003 the Auditors enquired about documentation regarding “consultancy fee” booked for the Defendant. PW2 said that the Auditors would not do any review of the Plaintiff’s books, accounts, supporting documents etc. in August or September. In cross-examination, PW2 said that such field visits would be conducted around April or May. He went on to explain it was normal procedure to ask for supporting documents “but may not be against consultancy fees”. PW2’s impression was that the Auditors did not ask about “consultancy fees”. PW2 went on to say that it was possible in the audit process for the Auditors to ask Accounts Department of the Plaintiff why there were no supporting documents for amounts concerning the Human Resources Department. PW2, however, had no impression the Auditors did so ask..  

18.  This Defence stance can be seen in paragraphs 19 to 21 of the Re-amended Defence and Counterclaim (Bundle A, page 47-6 to 47-7). The evidence of the Defendant was that it was not PW2 who made the enquiry. The enquiry was made by subordinates or juniors of PW2.  It was also clear that the Defendant was not certain when the enquiry was made or when the Consultation Agreement was entered into. In her written statement adopted as part of her evidence, the Defendant said “Sometime in the course of 2003, possibly around August/ September 2003 (the exact time I cannot now recall)…” (Bundle B, page 31, paragraph 21 and 22. See also paragraph 15 f) above). I noted the same uncertainty in Court when the Defendant orally gave her evidence on this aspect.     

19.  I think it probably true that PW2 would not conduct field visits himself. There is nothing to explain the basis for PW2’s impressions stated in paragraph 17 above. PW2’s evidence did not preclude the probability of those conducting field visits asking for documentation regarding “consultancy fees”. I have already noted the uncertainty of the Defendant regarding the date of enquiry of the Auditors or the preparation of the Consultation Agreement. I do not think PW2’s evidence helpful to the Plaintiff.

20.  DW2 began employment at the Human Resources and Administration Department of the Plaintiff sometime in December 2001. She worked as the assistant of the Defendant. On 14 April 2004 DW2 gave one month’s notice of termination of employment. She last worked at the Plaintiff on 13 May 2004. She gave evidence before me and adopted her written witness statement (Bundle B, page 62 to 68). Matters stated in paragraph 15 o) above proceeded mainly from DW2. Counsel for the Plaintiff did not cross-examine her at all.  I do not think DW2 was mistaken in her evidence or that she lied about it. I accept the evidence of DW2.

21.  I do not accept the evidence of PW1. I considered material aspects of his evidence improbable, to say the least:

a) PW1 acceded to the tax- planning scheme of the Defendant (see paragraph 12 c) above). The Defendant did not explain much about her scheme to PW1 and PW1 did not ask because he considered it personal to the Defendant.

I do not see any reason for PW1 to be so accommodating. By this time, the Defendant had been with the Plaintiff for just over 3 months. No employee at the Plaintiff had ever asked for cash cheque in payment of salary. No salary had ever been booked as “consultancy fee”. Accommodating the request of the Defendant meant meddling with the books of account and records of the Plaintiff.

I do not think that PW1 had to go through business or law school before appreciating that accommodating the Defendant might have far-reaching and undesirable consequences for the Plaintiff, example vis-à-vis the Plaintiff’s own auditors, the taxing authorities or even the Defendant, if relations turned sour. PW1’s experience in the business world and his common sense would have told him so much. I refuse to accept that PW1 went along with the Defendant because the Defendant appeared loyal to the Plaintiff and PW1 trusted her;

b) PW1 spotted the extra $1,000 in the first requisition form submitted by the Defendant. PW1 accepted the explanation that that was the Plaintiff’s contribution to MPF for the Defendant (see paragraph 12 d) above).

PW1 became Managing Director of the Plaintiff in April 1997.He himself is not on the ORSO Scheme or MFP. He told me that about 20% of the staff in Hong Kong were in the ORSO Scheme and the rest in MPF. Whilst I do not expect PW1 to know the finer details of either pension scheme, I do consider that PW1 would know at least this:  for the ORSO Scheme, each of the Plaintiff and the relevant employee would contribute monthly 5% of salary to the scheme. It was a regular and integral part of the operation of the Plaintiff involving a regular expense. How could PW1 as Managing Director and substantial shareholder of the Plaintiff not know this? I reject the PW1’s evidence that he only learned this in 2001.

PW1 also said that the Defendant’s request for the $1,000 was the first time that any employee had so asked money for MPF. Surely, the request would have sounded warning bells. What about the around 80% of employees already on MPF? Would the Plaintiff have to pay them as well or was the Plaintiff already paying them? Why was the Plaintiff paying the money to the employee direct and not MPF itself? I reject PW1’s evidence when he again said he simply trusted the Defendant;

c) It was clear that PW1 was concerned about the terms of the 2^nd Employment Contract, particularly in relation to the remuneration package. He was also concerned that the Defendant was yet again asking for a raise. Busy as PW1 might have been, I do not believe he would simply note the monetary amounts in bold, get confirmation that the contract contained the “usual terms” and then signed it (see also paragraph 12 e) above). I noted that the 2^nd Employment Contract contained merely 2 pages. It would not take a person like PW1 too long to go over it. I prefer the Defendant’s version as more probable viz. there were discussions and negotiations on the terms of the contract, the draft contract went back and forth before the 2^nd Employment Contract was settled upon and signed;

d) PW1 said he signed the Consultation Agreement in circumstances described in paragraph 12 f) above. I consider it incredible that PW1, based solely on trust of the Defendant and the desire to help her in her tax planning, would permit the simultaneous existence of 2 different contracts (the Consultation Agreement and the 2^nd Employment Contract) in relation to the same person i.e. the Defendant. This was particularly so when the Consultation Agreement was backdated. I would have thought that any backdating of documents would have led someone like PW1 to insist that enough was enough and refuse to have anything to do with the Consultation Agreement;

e) The Defendant’s pay under the 1^st Employment Contract was divided into 2 components. Despite this, there was only 1 requisition form for cash cheques. On the Plaintiff’s case, I fail to see why for the 2^nd Employment Contract the Defendant would want to use 2 requisition forms. She was, after all, only concerned with getting her money. There was nothing to be gained for the Defendant in using 2 requisition forms as opposed to one. I think it more probable that the idea of using 2 forms proceeded from PW1 because he considered the arrangement would better hide the increase in pay to the Defendant;

 f)       PW1 said that around January or February 2004, he informed the Defendant that the 2^nd Employment Contract would finish at the end of March that year (see paragraph 12 j) above). It is the Plaintiff’s case that the employment would terminate by effluxion of time come end of March. However, i) pre-marriage check-up and marriage leave was granted beyond March to 16 April 2004; ii) PW1 signed the Letter and iii) the Defendant’s pay for April was effected (see respectively paragraph 12 k), l) and m) above).

Regarding the leave, PW1 explained it went beyond what he (and also the Defendant, according to Plaintiff’s case) considered the termination date of employment so as to make it more convenient to the Defendant and also as a gesture of goodwill. PW1 proceeded on the basis that the Defendant would return and a new contract would be ironed out. I do not quite understand this explanation particularly since PW1 said in evidence that he considered the Defendant had no status in the Plaintiff starting April 2004. It makes no sense to say that though employment is terminated, the Defendant would apply for leave beyond termination date and the Plaintiff would approve the same.

The Letter is a simple 1-pager document. PW1 had the presence of mind to ask the Defendant what it was all about. I refuse to accept that simply because PW1 trusted the Defendant, he signed the Letter without reading or appreciating its contents. I cannot help but think that PW1 was playing this leitmotif of trust too much and too often (see also paragraph 12 c) to f) above).

PW1 explained the April pay was a gesture of goodwill and a wedding gift for the Defendant. I do not think PW1 would be so magnanimous in expressing goodwill and making a wedding gift to the Defendant.

PW1 said he did not consider the payment as salary. PW1 said he did not know how this gift would be effected but that his staff would carry it out. How would PW1’s staff know about such an arrangement? How would they know the way to effect the gift? How would payment be entered in the books of the Plaintiff? There was no evidence that PW1 gave instructions to anyone in the office that the Defendant’s employment terminated on 31 March 2004. Was PW1 prepared to let it appear as if the Defendant’s employment continued and that she was simply receiving her pay for April? If so, why? I find PW1’s evidence concerning the April pay or this alleged gesture of goodwill/wedding gift not worthy of credence;

g)      According to PW1, he signed the cheque for the Defendant’s April pay without giving it too much thought. It was clear from the evidence that he gave this cheque to DW2 without any instruction. PW1 was at least irritated that the Defendant went to the office to collect the cheque unannounced. It seemed that he wanted to make use of the occasion (of the Defendant collecting the cheque) to discuss with her renewal of employment. I wonder why PW1 did not leave instructions with DW2 regarding the cheque e.g. to arrange for the Defendant to collect the cheque on notice to himself and

h)      I already indicated that I accept the evidence of DW2. I reject PW1’s evidence that he was surprised the Defendant came to the office and, without permission, took away documents of the Plaintiff (see also paragraph 12 n) and o) above).

22.  PW1 said he thought the 2^nd Employment Contract came to an end on 31 March 2004. I do not think he was telling the truth. Approval of the Defendant’s leave extending to middle of April 2004, the signing of the Letter, payment made to the Defendant for April 2004, requesting the Defendant to handle payroll matters and take away relevant documents in April/ May 2004 all indicated that in PW1’s mind employment was not terminated but continued.

23.  The Defendant was subjected to lengthy cross-examination. I confess that at times I queried in my mind whether such prolix questioning was called for. In any event, the longer the Defendant was cross-examined, the better she came across as a witness. Having said that, I should mention that I think she was not too forthcoming when she said she did not appreciate the difference between an employee and a person engaged as a consultant (not an employee). I consider, however, that she was really more interested in her fiscal rewards rather than anything else. The Defendant’s evidence about doing work for the Plaintiff/ PW1 during her sick-leave is confirmed by DW2.

24.  The Defendant was prepared to agree that she did not see how the cash cheque/ consultancy fee exercise could keep her pay secret. She said she did not really understand how it would work. My view is that she did not care about confidentiality so long as she got what she wanted. The 2^nd Employment Contract bestowed on the Defendant at least an increase in pay of over $25,000 per month. Why would PW1 again offer something extra ($1,000 and the Plaintiff paying everything towards the ORSO Scheme)? Whether secrecy was achieved or what it was that PW1 really had in mind might remain mysteries. However, it does not follow that the Defendant cannot be believed.  

25.  Counsel for the Plaintiff criticised the Defendant on quite a number of aspects including the Defendant asking for a raise only after (and not before) the Confirmation Letter was signed; the way the Defendant handled the cash cheques she received; the Defendant’s belated production of her marriage certificate and the Defendant not being able to be specific on the amount of income she reported in her own tax return or the formula she adopted in calculating that income. These and other points raised can be found in Counsel’s closing submission both oral and written. I will simply say that, save as mentioned before, I do not find the Defendant “evasive, unhelpful and utterly unnatural” (see, for example, paragraph 38 of Appendix to written closing submission).

26.  This is trial of a civil matter. The standard for assessing evidence is on balance of probabilities. I accept the evidence of the Defendant and prefer her evidence to that of PW1. As indicated earlier, I also accept the evidence of DW2.

27.  Dismissal of Plaintiff’s claims

Having come to such a conclusion on the evidence, it follows that the Plaintiff’s claims must be dismissed and I so order.

28.  Counterclaim

I now turn to consider the Defendant’s Counterclaim. As earlier indicated, the Counterclaim is mainly based on the 2^nd Employment Contract. It is apposite at this point to refer to its relevant clauses:

“

…

2. The Signer’s basic salary shall be HK$47,600 plus HK$20,400 position allowance per month and the package shall be fixed for two (2) years.

3. The Company will pay the Signer a gratuity bonus which is not less than one (1) month’s salary upon completion of each year of service and will be paid not later than Chinese New Year of each year.  Such bonus will be calculated on a pro-rata basis as the Signer leaves the Company.

 …

5. The Company guarantees to provide the Signer with two (2) years of employment under the same terms and conditions. In case of termination of employment by the Company before two years of employment, the Company is required to compensate to the Signer a lump sum which is equivalent to the remaining balance of 2 years’ remuneration of the Signer. The Signer will be eligible for 100% vesting entitlement on any form of the Company’s provident fund contribution upon leaving the Company.

…

 The employment contract may be terminated by either side by giving three (3)  months’ prior written notice or payment (including bonus) in lieu of notice. The right of termination can be exercised by the Company upon completion of the two years’ employment, whereas the Signer may exercise such right upon completion of one year of service.

…

9. Annual leave shall be applied at least one month in advance and is subject to the approval of the Company. No accumulation of Annual Leave is allowed unless with Management’s approval and it is granted as follows:

Completed 1^st whole year of service……..….9 days

Completed 2^nd whole year of service……….10 days

Completed 3^rd whole year of service……….11 days

……….and like up to a maximum of 14 days per year.

…”

29.  The main line of defence to the Counterclaim is that in accordance with the terms of the 2^nd Employment Contract, employment terminated by effluxion of time with 31 March 2004 being its last effective date (2 years from 1 April 2002. See also paragraph 13 above). One has therefore to focus on interpretation of the 2^nd Employment Contract. The approach I adopt is that stated in the words of Lord Hoffmann NPJ in Jumbo King Ltd. V Faithful Properties Ltd. & Others (1999) 3 HKLRD 757, 773-774:

 “…The construction of a document is not a game with words. It is an attempt to discover what a reasonable person would have understood the parties to mean. And this involves having regard, not merely to the individual words they have used, but to the agreement as a whole, the factual and legal background against which it was concluded and the practical objects it was intended to achieve. Quite often this exercise will lead to the conclusion that although there is no reasonable doubt about what the parties meant, they have not expressed themselves very well. Their language may sometimes be careless and they may have said things which, if taken literally, mean something different from what they obviously intended. In ordinary life people often express themselves infelicitously without leaving any doubt about what they meant. Of course in serious utterances such as legal documents, in which people may be supposed to have chosen their words with care, one does not readily accept that they have used the wrong words. If the ordinary meaning of the words makes sense in relation to the rest of the document and the factual background, then the court will give effect to that language, even though the consequences may appear hard on one side or the other. The court is not privy to the negotiation of the agreement – evidence of such negotiations is inadmissible – and has no way of knowing whether a clause which appears to have an onerous effect was a quid pro quo for some other concession. Or one of the parties may simply have made a bad bargain. The only escape from the language is an action for rectification, in which the previous negotiations can be examined. But the overriding objective in construction is to give effect to what a reasonable person rather than a pedantic lawyer would have understood the parties to mean. Therefore, if in spite of linguistic problems the meaning is clear, it is that meaning which must prevail…” 

30. It is clear that the interpretation exercise is to ascertain the intention of the parties at the time the contract was entered into. Negotiations of the parties, their stated individual intentions, their words or action after the contract are all not relevant or admissible for purposes of the interpretation exercise (see Chitty on Contracts, 29th ed., Volume I, paragraph 12-126. See also paragraph 22 above).

31.  Counsel for the Plaintiff did not argue that the 2^nd Employment Contract was not legally binding in its entirety. He argued that its last effective date was 31 March 2004. He argued alternatively that if it did not so expire, there was no legally binding contract beyond this March date because an essential term, remuneration, had not been agreed upon.

32.  I see no clear words in the 2^nd Employment Contract to say that it would last 2 years only. I consider that it would have been a simple exercise to put in words to that effect. Clause 6 and 9 make provision for periods beyond 31 March 2004.

33.  One might point to Clause 2 which provided that the Defendant’s “basic salary shall be HK$47,600 plus HK$20,400 position allowance per month and the package shall be fixed for two (2) years. ” One might also point to Clause 5 which provided that the Plaintiff guaranteed to provide the Defendant “… with two (2) years of employment under the same terms and conditions.”

PW1 appreciated the work of the Defendant and wanted to secure her employment. The Defendant was willing to stay on provided she was appropriately remunerated. PW1 was concerned over frequent requests by the Defendant for increase in pay. The parties wanted to enter into a formal written contract of employment. I find this to be the background against which the 2^nd Contract of Employment was entered into.

I consider that both Clause 2 and that part of Clause 5 merely provided for the fixing of the remuneration package for a particular period and not the duration of employment itself. They echo and reinforce one another and are meant to address the concern of PW1 over repeated requests for increase in remuneration.

Adopting the approach mentioned in paragraph 29 above, I am satisfied that the remuneration package mentioned in the 2^nd Employment Contract was intended to continue beyond 31 March 2004 until employment was terminated or parties came to some other agreement. If remuneration beyond the end of March was at large or there was merely an “agreement to agree”, I agree that there would then be no binding contract beyond March. My present interpretation of the 2^nd Employment Contract means, however, that Counsel also fails on this point.

34.  I now turn to consider the various items of Counterclaim. I should say at the outset that the Employment Ordinance, Cap.57 (“the Ordinance”), to a very large extent governs the relationship of employment between the Plaintiff and the Defendant. The 2^nd Employment Contract is a “continuous contract” under the Ordinance. I think Counsels for both parties appreciate and accept so much. Section 70 of the Ordinance provides thus: “Any term of a contract of employment which purports to extinguish or reduce any right, benefit or protection conferred upon the employee by this Ordinance shall be void.” The employer can of course confer more and better benefits on the employee.

35.  Payment in lieu of notice 

PW1 mentioned that he told the Defendant sometime in January or February 2004 that the 2^nd Employment Contract would terminate by lapse of time come end of March. I have already rejected such evidence for reasons explained. In any event, I consider this at most an erroneous expression of PW1’s interpretation of the contract and not any notice of termination. Clause 5 of the 2^nd Employment Contract provided that within the first 2 years the Plaintiff could terminate employment only by paying off the Defendant and not by advance notice. There is a difference between the two. In the latter case, the Defendant has to carry on working until the end of the notice period (unless waived by the employer). In the former case, the Defendant gets the money and is immediately free, as of right, from the Plaintiff. The Defendant will be better off in this scenario.

The termination by notice mode only starts to kick in for the Plaintiff after 31 March 2004. Defence took the point that, in any event, the 2^nd Employment Contract stipulated notice of termination in writing. I do not think the parties made it a condition that termination notice must be in writing. I am willing to hold that provided it was made clear employment was terminated, it did not matter whether the notice was in writing or merely oral.

36.  Did the May Letter constitute notice of termination? I do not think so. At best it expressed PW1’s view that the 2^nd Employment Contract had ended earlier. In any event, I find that PW1 had all along considered the 2^nd Employment Contract continuing (see paragraph 22 above). PW1 was merely playing a game of bluff in the May Letter.

37.  I do not discern anything else from PW1 or the Plaintiff capable of being interpreted as notice of termination. What happened to the Defendant on 16 September 2004 constituted constructive dismissal of her (see paragraph 15 q) above).

38. The Defendant is entitled to 3 months’ “payment (including bonus) in lieu” (Clause 6 of the 2^nd Employment Contract. See paragraph 28 above). I construe reference to bonus to mean 3 months’ pro rata of the annual “gratuity bonus” i.e. ¼ of $47,000 (see paragraph 39 below as to why the figure of $47,000 is adopted). The other components of this payment will be the basic salary and position allowance i.e. $68,000. The Defendant is thus entitled to payment in lieu of notice in the sum of $215,750 ([$68,000  x 3] + $11,750).

39.   Gratuity bonus

Clause 3 of the 2^nd Employment Contract provided for this (see paragraph 28 above).Section 11AA(1) of the Ordinance, provides thus:  “It shall be presumed that an annual payment or annual bonus is not of a gratuitous nature and is not payable only at the discretion of the employer unless there is a written term or condition in the contract of employment to the contrary.” This section is relevant to the “gratuity bonus” under consideration. I do not think the word “gratuity” as a prefix to “bonus” and that the amount is “not less than one (1) month’s salary” are sufficient to rebut the statutory presumption. I hold that the Plaintiff is contractually bound to pay the “gratuity bonus” of at least 1 month’s “salary” and I order that this bonus be calculated at 1 month’s “salary” for each year (12 months) of service.  This “salary” must mean the basic salary of $47,000 (see Clause 2 of the 2nd Employment Contract and paragraph 28 above).

40. The claim for gratuity bonus is for the period 1 January 2004 to 16 September 2004. (In the exercise of calculating this bonus, I do not see the Plaintiff disputing the commencement date.) The Defendant appeared at the office of the Plaintiff on the morning of 16 September ready and willing to work. She was told to leave. I take the view that her last date of employment was 16 September. The Plaintiff is entitled to gratuity bonus for the period claimed. The amount of gratuity bonus is in the sum of $33,388 ($47,000 X 260/366; 2004 was a leap year).

41. Medical expenses

The claim is based on a staff-handbook. This handbook was not referred to in the 2^nd Employment Contract (or the 1^st Employment Contract). According to the Defendant, she seemed to have first seen this handbook after October 2001. She seemed to have found it from a file in her Department. It was a handbook of the year 2000. She even said that parts of the handbook were outdated.

It may be that the Plaintiff had been paying medical expenses of the Defendant or arranging for such payments to be made by an insurance company, Mitsui Sumitomo Insurance Co.(HK) Ltd.  I fail to see, however, any contractual obligation to do so based on the handbook. I dismiss the claim for medical expenses.

42.  The ORSO Scheme claim

The ORSO Scheme was set up with and administered by the Hang Seng Life Limited. I do not consider that any contribution made to the ORSO Scheme is earmarked for any particular employee. There is just a pool of funds pending distribution.  

Under Clause 5 of the 2^nd Employment Contract (see paragraph 28 above), the Defendant may be entitled to the Plaintiff’s share of contributions in the ORSO Scheme. This is, however, a far cry from saying that contributions that should have been made for a particular period are to be paid direct to the Defendant or that the Plaintiff is to be ordered to pay into the ORSO Scheme. The Defendant’s entitlement is to claim against the pool of funds in the ORSO Scheme. Counsels did not really assist me on this aspect of the Counterclaim. The relevant evidence can only be described as sketchy. He (or in this case, she) who alleges must prove. The Defendant has failed to satisfy me that she is entitled to the relief claimed under this head. 

43.  Annual leave pay

The Defendant’s employment with the Plaintiff commenced on 3 July 2001. I find the last day of employment to be 16 September 2004 (see paragraph 40 above).

44.  Under the Ordinance and for a continuous contract of employment (as in the case of the 1^st and 2^nd Employment Contract), annual leave with pay is earned after employment for not less than 12 months. Clause 9 of the 2^nd Employment Contract is consistent with this in that it provided for annual leave with pay on completion of a “whole year of service”.

45.  It is clear from the written final submissions of Counsels that parties agree annual leave with pay in this case is earned after completion of 12 months’ employment commencing on 3 July. The written final submissions of Counsels indicate agreement that “leave year” (see Section 41A of the Ordinance) is the period of 12 months commencing on 3 July and that “appropriate day” (see Section 41A of the Ordinance) is 3 July of each year. It is also clear that parties agree that up to 2 July 2003 there were 7 days of annual leave outstanding to the Defendant.

46.  The Defendant remained in employment up to and including 16 September 2004. The Defendant has thus earned her full entitlement to annual leave for the 12 months ending 2 July 2004. This entitlement is, as indicated by Counsels’ written submissions, 11 days (see also Clause 9 of the 2^nd Employment Contract, which provided for 11 days annual leave for the “Completed 3^rd whole year of service” and Clause 13, which provided that “the length of service is counted from July 03, 2001”).

47.  The Defendant’s employment for the following 12 months commencing 3 July 2004 lasted about 2.5 months only. Is the Defendant entitled to pro rata annual leave? The 2^nd Employment Contract does not cater for this. I cannot see anything suggesting contractual obligation on the part of the Plaintiff to pay pro-rata annual leave pay. Section 41D of the Ordinance does not avail the Defendant because although the Defendant’s employment ceased “otherwise than on the expiration of a leave year,” the termination did not occur “at least 3 months after the appropriate day” (i.e. 3 July 2004).The Defendant cannot succeed in her claim for pro rata annual leave.

48.  In the outcome, the Defendant is entitled to a total of 18 days (7 days + 11 days) of annual leave pay. In order to determine the Defendant’s daily pay, Counsels divided her monthly pay (basic salary plus position allowance making the sum of $68,000) by 30 (days). This proceeds on the basis that she is paid for every calendar day in the month. The Defendant is paid on a monthly basis. Unless there is anything to indicate otherwise, I accept that the Defendant is paid for every day of the month regardless of whether she is required to work. There is nothing in this case to indicate otherwise. The Defendant is entitled to the sum of $40,800 under this head ($68,000 x 18/30).

49.  The Plaintiff maintained that in the calculation of pro-rata annual leave entitlement, there is no rounding up of fractions of a day to one day (see Bundle A, page 93, paragraph 10 and calculation in written final submission of Counsel for the Plaintiff). I am not clear the basis for such insistence. Be that as it may, I will consider this point on the assumption that parties have contractually agreed that it be so.

50.  I refer to Section 41AB and 41F of the Ordinance.

Section 41AB deals with the situation where the employer elects to use a particular 12 month period as the leave year for calculating annual leave. Section 41AB(4) provided to the effect that where an employee is already in employment when the employer made such election, then in calculating the employee’s pro rata entitlement up to the day preceding the commencement of the elected 12 month period “any fraction of a day  resulting from the calculation shall be counted as a full day’s leave”.

Section 41F deals with the situation where the employer closes down his business for the purpose of granting annual leave. Section 41F(4)(b) provides that in calculating the employee’s entitlement of annual leave “where the result is not a whole number, the result shall be rounded up to the next whole number.”

I do not think legislature intended the rounding-up exercise applicable to only the 2 situations just mentioned. What good reason can there be for such restriction? I am of the view that the maxim expressio unius est exclusio alterius is not applicable here. Legislature must have intended that in the calculation of pro rata annual leave any fraction of a day is counted on its own as a full day’s leave. Any provision in the contract of the parties providing that a fraction of a day is not to be given effect as a full day is void pursuant to Section 70 of the Ordinance (see also paragraph 34 above).  However, since I have decided that the Defendant is not entitled to pro-rata annual leave, the point under discussion has now become academic.

51.  The Plaintiff argued that the “pre-marriage check-up and marriage leave” taken by the Defendant should be used to reduce the entitlement to annual leave. It is clear that such leave was granted without any condition attached. It is not in dispute that it was only later that someone wrote on the leave application form the words “approved only upon the presentation of marriage certificate” (see Bundle C, page 22). I do not see anything arising out of the addition of such words. I did not hear Counsel for the Plaintiff argue that such leave was somehow invalid and thus the Defendant had to account for the same. I see no legal basis for saying that because the Defendant was granted extra or special leave (see PW1’s statement at Bundle B, page 91, paragraph 4) then her entitlement for annual leave should be diminished accordingly. I lament that acts of generosity can go unrequited.

52.  Sickness allowance and arrears of wages

The main difference of the parties is in their method of calculation.

The Plaintiff’s approach is simple and straight forward : the Defendant will be given sickness allowance (4/5 pay) for the period covered by sick leave/ medical certificates. This is regardless of  whether the period includes rest days or holidays. For example, if the certificates cover the whole month of May then the Defendant will be entitled to $68,000 x 4/5 i.e. $54,400. I understand that this is the approach adopted in the Labour Tribunal.

The approach of the Defence is a bit convoluted: even though rest days or holidays fall within the period covered by the certificates, the Defendant will be entitled to full pay for rest days as well as holidays and sickness allowance (4/5 pay) for the other days. Having said that, I note  a difference between the calculation of Defence Counsel in his written final submission and that of the Defendant herself (Bundle B, page 75 to 82). The difference is in the treatment of Saturdays when the Defendant had only to work  ½ day. The approach of the Defendant is that the full pay for that day be divided into two ½ shares. She will get 4/5 of one ½ share by way of sickness allowance and the whole of the other ½ share. Defence Counsel’s approach is simply to calculate pay for that (whole) day at 4/5 rate. I proceed on the basis that Defence Counsel’s approach must mean abandonment of any other approach indicated by the Defendant herself.

53.  Calculations of Counsels in their written final submissions show no dispute on the method of ascertaining daily pay i.e. by dividing monthly pay of $68,000 by the number of calendar days in the relevant month (see also paragraph 48 above). The Defendant is therefore paid for every calendar day of the month.

54.  To put it simply, sickness allowance is pay made to an employee on a “sickness day” (see generally Part VII of the Ordinance). “Sickness day” is defined under Section 2(1) of the Ordinance to mean “a day on which an employee is absent from his work by reason of his being unfit therefor on account of injury or sickness.” This definition presupposes there is the need to work that day. The corollary is that when there is no need to work, then that day does not qualify as a “sickness day” and considerations of sickness allowance are irrelevant. The Defendant is entitled to full (and not only 4/5) daily pay for rest days and holidays (when there is no need to work) within the sick leave period covered by sick leave or medical certificates.

55.  PW1’s evidence (see Bundle B, page 94, paragraph 13) was that the Defendant had been overpaid for April 2004 in the sum of $2,039.99. PW1 asked for refund or reimbursement. This was mentioned by Counsel for the Plaintiff in his written final submission (“Explanatory Notes on P’s calculations”). Nowhere in the pleadings is this request for refund, reimbursement or credit ever mentioned. I do not think the Plaintiff is entitled to raise this at trial. In any event, the amount $2,039.99 is based on calculations which do not provide for full day’s pay for rest days or holidays (within the period covered by sick leave or medical certificates). PW1 also said that “the Company has taken into account the practice contained in the Internal Memo…” (see Bundle C, page 187).  There was nothing to indicate that “the practice contained in the Internal Memo” became a contractual term binding on the parties. In any event, the practice would yield benefit to the employee less than that conferred by the Ordinance and would be void pursuant to Section 70 of the Ordinance. There is nothing else to indicate calculations by the Defendant for April 2004 (Bundle C, page 91. See also page 92) are incorrect. I make no deduction for the $2,039.99.

56.  The Counterclaim for sickness allowance (and arrears of wages) is from 1 May to 16 September 2004.

57.  For each of 3 and 4 May, the Defendant asked for ½ day full pay and ½ day sickness allowance. This is on the basis that the Defendant did ½ day work at home  for the Plaintiff (see Bundle C, page 93). It was clear that the Defendant was on sick leave for those days. She had every right not to do any work. I regarded her so working as merely voluntary in nature. She can only claim sickness allowance for those days.

58.  For each of these 5 months, the Defendant claimed 1 day full pay for 1 Saturday on the basis that it was the Plaintiff’s “practice that one Saturday per month would be fully paid rest day”. I am not satisfied that on such evidence the Defendant can legally insist on those Saturdays being treated as rest days.

59.  1 May was a statutory holiday (Labour Day. Section 39 of the Ordinance) and there were 5 Sundays (rest days. Part IV of the Ordinance). The Defendant is entitled to full day’s pay for these 6 days and sickness allowance for the balance of 25 days for that month. 26 May was a general holiday, it being Buddha’s Birthday. General holidays are prescribed by the General Holidays Ordinance, Cap 149. General holidays are holidays for banks, educational establishments, public offices and government departments. Private businesses like the Plaintiff are not obliged to grant any general holiday. The evidence in this case is not clear whether the Plaintiff was contractually bound to grant a holiday on 26 May. I treated that day as a sickness day for which the Defendant was entitled to sickness allowance. 

60.  For May 2004, the Defendant is entitled to 25 days of sick leave allowance of $43,870.96 calculated as $68,000 x 25/31 x 4/5. She is entitled to 6 days arrears of wages of $13,161.29 calculated as $68,000 x 6/31.

61. 22 June was a statutory holiday (Tuen Ng Festival. Section 39 of the Ordinance) and there were 4 Sundays (rest days. Part IV of the Ordinance). The Defendant is entitled to full day’s pay for these 5 days and sickness allowance for the balance of 25 days for that month.

62.  For June 2004, the Defendant is entitled to 25 days of sick leave allowance of $45,333.33 calculated as $68,000 x 25/30 x 4/5. She is entitled to 5 days arrears of wages of $11,333.33 calculated as $68,000 x 5/30.

63. 1 July was a statutory holiday (Hong Kong Special Administration Establishment Day. Section 39 of the Ordinance) and there were 4 Sundays (rest days. Part IV of the Ordinance). The Defendant is entitled to full day’s pay for these 5 days and sickness allowance for the balance of 26 days for that month.

64.  For July 2004, the Defendant is entitled to 26 days of sick leave allowance of $45,625.80 calculated as $68,000 x 26/31 x 4/5. She is entitled to 5 days arrears of wages of $10,967.74 calculated as $68,000 x 5/31.

65. There were 5 Sundays (rest days. Part IV of the Ordinance) in August 2004. The Defendant is entitled to full day’s pay for these 5 days and sickness allowance for the balance of 26 days for that month.

66. For August 2004, the Defendant is entitled to 26 days of sick leave allowance of $45,625.80 calculated as $68,000 x 26/31 x 4/5. She is entitled to 5 days arrears of wages of $10,967.74 calculated as $68,000 x 5/31.

67. There were 2 Sundays (rest days. Part IV of the Ordinance) for September before termination of employment on 16 September. The Defendant is entitled to full day’s pay for these 2 days and for 16 September when she turned up at the Plaintiff’s office ready and willing to work (i.e. total of 3 days). This leaves a balance of 13 days.

By July 2004, the Defendant had already accumulated the maximum 120 paid sickness days provided for in the Ordinance (Section 33(2) of the Ordinance). For April 2004, the Defendant took 9.5 days sick leave (Bundle C, page 91).She is entitled to sickness allowance for 102 days up to the end of August 2004. The Defendant is only entitled to claim sickness allowance for 8.5 days in September (thus exhausting her accumulated 120 paid sickness days – 9.5 + 102 + 8.5). She is entitled to sick leave but without any pay for 4.5 days in September 2004.

68.  For September 2004, the Defendant is entitled to 8.5 days of sickness allowance of $15,413.33 calculated as $68,000 x 8.5/30 x 4/5. She is entitled to 3 days arrears of wages of $6,800 calculated as $68,000 x 3/30.

69.  Section 33(2) of the Ordinance provides that the maximum number of sickness days on which the employee is entitled to sickness allowance is 120. Section 37 provides that the employer has to keep a record of such days.  The record has to divide the days into Category 1 and Category 2. The first 36 days will be recorded under Category 1 and any day in excess goes under Category 2.  The bulk of the Defendant’s present claim for sickness allowance is based on her accumulated days under Category 2.

70.  Section 33(5) of the Ordinance provides as follows:

“An employer shall not be liable to pay sickness allowance to an employee in respect of any sickness day –

(a)     subject to subsection (5A), unless such day is a day specified in the appropriate medical certificate as a day on which, in the opinion of the medical practitioner…by whom the certificate is issued, the employee was, is or will be…unfit for work on account of sickness or injury…”

71.  Section 33 (5A) provides as follows:

“Where an employee takes paid sickness days entered in category 2…he shall, if so required by his employer, produce to the employer, in respect of each such sickness day, a medical certificate that is issued by a medical practitioner…attending the employee as an out-patient or in-patient in a hospital.”

72.  In the Summary of his written final submission, Counsel for the Plaintiff asked for a medical certificate under Section 33 (5A) i.e. one issued by a medical practitioner attending the Defendant as an out-patient or in-patient in a hospital in relation to sickness days from 23 to 27 May 2004.

73.  Medical certificates produced by the Defendant can be seen at Bundle C, page 75 to 88. Certificates complying with Section 33 (5A) commence at page 81 and start from the sickness day on 28 May 2004. On my above calculation of sickness days taken by the Defendant, she only started taking her Category 2 days in early June 2004. Even if Section 33 (5A) is applicable, its requirement has been satisfied.

74.  In any event, I do not think that the request under Section 33 (5A) is properly made during final submission at trial some 2 years later. It must be made in such time and under such circumstances that the request can reasonably be met.

75.  I end by referring to what I consider a curious provision in the 2^nd Employment Contract. It is Clause 12 which provided as follows:

 “ The Company reserves the right to amend and alter any points of above terms and conditions without prior notice or agreement by the employee.”

76. One is entitled to wonder why parties bothered entering into the 2^nd Employment Contract if Clause 12 was intended to be given effect to. Neither Counsel addressed me on this Clause. I tend to think there is consensusthat Clause 12 can be ignored as being nonsensical and the less said about it the better.