TUNG WOON HING CANDICE AND OTHERS v. CATHAY PACIFIC AIRWAYS LTD

HCLA 18/2019

[2022] HKCFI 826

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

LABOUR TRIBUNAL APPEAL NO 18 OF 2019

(ON APPEAL FROM LBTC NO 824 OF 2018)

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BETWEEN

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JUDGMENT

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INTRODUCTION

1.  By notice of originating motion dated 2 January 2020, the 1^st, 2^nd, 3^rd and 5^th claimants appeal on a point of law against the decision made on 26 September 2019 by Deputy Presiding Officer Jeremy Law (the “Presiding Officer”) in the Labour Tribunal. By his decision, the Presiding Officer dismissed the claimants’ claim against the defendant for year end bonus or alternatively ex-gratia payment, of 2017.

THE CLAIMANTS’ CASE

2.  The claimants were employed by the defendant as inflight service managers and were members of the defendant’s cabin crew. Having been in the defendant’s employment for more than 30 years, they retired in late 2017, the 2^nd claimant retired in October 2017 and the remaining claimants in November 2017.

3.  As set out in the Presiding Officer’s Reasons for Decision[1], clause 8 of the defendant’s cabin crew Conditions of Service provided for an annual bonus to be paid at the defendant’s discretion:-

“The Company may, at its discretion, pay an annual bonus … In order to qualify for the bonus payment, cabin crew must be in service with the Company on 31 December of the bonus year. The bonus is normally paid at Christmas based on the December salaries of the bonus year …”

4.  The defendant’s relevant policy statement further provides that[2]:-

“3. Policy Statement

Depending on the financial performance satisfactory to the company being achieved in the relevant Bonus Year, a Bonus in a sum determined by the Company in its absolute discretion will be declared and may be payable to eligible employees in December in the relevant Bonus Year.

6. Exception

Employees who retired on or after 1 July in the Bonus year will receive the full amount of the Bonus.”

5.  The claimants adduced the defendant’s yearly announcements on bonus. As summarised by the Presiding Officer:-

“9. The Claimants adduced a number of ‘Yearly announcements on bonus payment’ letters issued by the Defendant to all eligible staff for the years 2008 to 2016 as documentary evidence … It is noted … that discretionary Year End Bonus of one month’s salary was offered to eligible staff for the year from 2010 to 2016 but not for the years 2008, 2009 and 2017. …

10. In the years 2008 and 2009, the defendant was unable to pay the usual one month’s salary as a discretionary year-end bonus but it offered a separate gratuitous ex-gratia payment …of amounts equal to half a month’s salary or $8,000.00 …”

6.  In 2008 and 2009, when ex-gratia payments were made instead of year end bonus, employees retiring on or after 1 July in those years were also eligible for payment.

7.  The claimants contended that the defendant had a long established practice of paying employees a discretionary extra sum at the end of the year, regardless of whether it was called a year end bonus or an ex-gratia payment, except in 2001 when it decided to make no extra payment at all. Further, the claimants gave evidence that, when the defendant decided to make this discretionary extra sum, it was always also paid to employees retiring on or after 1 July of the relevant year, without distinguishing them from serving employees.

8.  For the year 2017, the defendant announced that there was to be no year end bonus, and an ex-gratia payment would be paid instead, but only to employees who were on the payroll on 31 December 2017. As the claimants were already retired before 31 December 2017, they were not eligible for the payment, which was of the amount of one month’s salary up to a maximum of HK$35,000.

9.  The claimants contended that, by reason of the long established practice of not distinguishing between current employees and employees retiring on or after 1 July of the relevant year, the defendant was estopped from not paying them the extra sum at the end of 2017.

THE DEFENDANT’S CASE

10.  The defendant maintained that there was a distinction between a year end bonus and an ex-gratia payment. The evidence of Mr Knight, the defendant’s Head of Performance and Reward of the People Department was that:-

“… the Year End Bonus was a discretionary year-over-year bonus which includes leaving and current employees. Ex-gratia payment is on the other hand ‘one-off’ payment and could be changed each time it was used. The ‘rules’ governing Ex-Gratia Payment could change each time. … each time [the ex-gratia payment] is used, the Board had to approve the release of the money. The Board has to be satisfied that there were ‘factors’ or reasons to pay it. …”

11.  The defendant submitted that, unlike a year end bonus, the ex-gratia payment at the end of 2017 was to serve a specific purpose and aimed at specified group of employees:-

“… Due to the poor financial performance of year 2017, … the Defendant was unable to declare any discretionary Year End Bonus … However, the Defendant offered an Ex-Gratia Payment, … a one-off discretionary measure to assist and incentivise low to middle level employees in Hong Kong who were on the payroll of the Defendant on 31 December 2017 to continue working with the Company. It was not the Defendant’s intention to include any individuals who were not serving the Defendant as at 31 December 2017. Hence, the Claimants were not eligible to be paid the ex-gratia payment. …”[3]

12.  While the internal guideline for the 2017 ex-gratia payment was not published and communicated to those who were not eligible, the defendant pointed out that it contained a note stating that the payment was made at the defendant’s absolute discretion. It was also emphasized that the ex-gratia payment was subject to a different policy from the year end bonus and that the defendant had discretion as to who was eligible.

THE PRESIDING OFFICER’S DECISION

13.  The Presiding Officer accepted Mr Knight’s evidence and held that year end bonus was different from ex-gratia payment:-

“… Year End Bonus was declared only when the Company made profit. In years when the Company made losses, Ex-gratia Payments could be made upon approval of the Board as one off payments. The Defendant in each year addressed whether there was a discretion to be exercised to grant the Year End Bonus first. It would then consider whether there were any factors which called for declaring an Ex-gratia Payment. The Ex-gratia payment may or may not be additionally offered in a particular year. As such, there was a clear distinction between Year End Bonus and Ex-Gratia Payment. …”[4]

14.  Since the defendant had announced that there was to be no year end bonus in 2017, it was held that the claimants’ claims were for the ex-gratia payment in that year.

15.  The Presiding Officer went on to consider whether the defendant had exercised its discretion perversely or irrationally in limiting the ex-gratia payment to employees who were still in service as at 31 December 2017. Observing that the defendant was making a loss in 2017 and was concerned to motivate serving cabin crew with limited resources, he held that limiting the ex-gratia payment to employees still in service was rational and not perverse.

16.  Turning to whether the defendant was estopped from excluding the claimants, the Presiding Officer noted that estoppel by convention was in issue, and the key element to be considered was whether there was any common assumption between the parties from which estoppel could be based (Sealegend Holdings Limited v China Taiping Insurance (HK) Co Ltd [2014] HKEC 1764 and Lajom, Esperanza Cruz & Ors v Cathay Pacific Airways Ltd HCA 6733/1999).

17.  Although the defendant paid a year end extra sum to the claimants over the past 30 years except 2001, the Presiding Officer held that this in itself did not give rise to a common assumption that it would do the same for year 2017. He noted that the extra sum, whether a year end bonus or ex-gratia payment, was discretionary; and that the defendant had a discretion to decide eligibility of an ex-gratia payment.

18.  The Presiding Officer further noted that[5]:-

“… [the defendant] communicated to its employees via CEO announcements … each year as to whether the Company was in a position to pay a discretionary Year End Bonus … As Mr Knight said, if the Company made no profit in the year, no Year End Bonus would be declared. If the Year End Bonus is not declared for that year, the Defendant would consider and inform employees whether it would give any Ex-Gratia Payment to its employees. The CEO would in each announcement explain the current position of the Company, the challenges it was facing and the rationale for declaring or not declaring Year End Bonus or Ex-Gratia Payment for the year. The wording used in the announcements were carefully chosen and considered. … Looking carefully at the CEO’s announcement for 2017, it was clear that the Defendant had eligible low level employees in mind when it decided to declare the Ex-Gratia Payments. … From the Internal Guideline for 2017, the requirements of being in service as at 31 December 2017 was a [criterion] for receiving the Ex-Gratia Payment. The rationale was to incentivise serving employees to give them an assurance as to their future prospects by staying in the Company. As explained by Mr Knight, it was a deliberate decision by the CEO and senior management that the ‘leavers’ would have no entitlement to Ex-Gratia Payment. The exceptional payment was only to be made to a ‘targeted set of staff’.”

19.  The Presiding Officer then held that there was no common assumption between the parties that the defendant would make ex-gratia payments to retired employees:-

“30. … The Tribunal cannot find any common assumption from the evidence that the Defendant would indiscriminately pay all employees the same amount at the end of year 2017 as they did in year 2008 or 2009. Such finding would be inconsistent with the evidence of Mr. Knight and the documentary evidence. Nor can the Tribunal find that there was any assumption by the Defendant that they would always pay retired employees the same Ex-Gratia Payment at the end of the year. In fact, such finding of an assumption would be contrary to the CEO’s announcement read together with the Internal Guideline, which clearly set out the eligibility for the Ex-Gratia Payment.

31. As such, I find it difficult to uphold the argument that there was any assumption shared by the Defendant that it would give the same Ex-Gratia Payment to all employees of the same class without distinguishing whether they are currently employed or retired. The absence of any such previous assurance that retired employees would be included makes it difficult to find that there was any such common assumption as alleged by the Claimants. I note that the internal guidelines for issuing ex-gratia payments for year 2008 and 2009 … had previously provided that employees who retired on or after 1 July in the financial year are eligible. However, these guidelines are devised by the Defendant itself and there is a disclaimer note at the very end that the payment is made at the Company’s absolute discretion and the Company reserves the right to refuse to make a payment to an employee in any circumstances. As such, the Internal Guidelines for years 2008 and 2009 can hardly give rise to any common assumption.”

20.  The Presiding Officer took the view that there was no obligation on the defendant to communicate their decision or send the internal guideline on the 2017 ex-gratia payment to the claimants, since they were already retired and not eligible. He also held that the claimants’ being unaware of the 2017 guideline reflected that there was no common assumption.

21.  Since the key element of common assumption could not be established on the facts, the claim on estoppel by convention was not accepted and was dismissed.

GROUNDS OF APPEAL

22.  The grounds of appeal advanced by Mr Erik Shum, with him Ms Teresa Leung, for the claimants, complained that the Presiding Officer:-

(a) failed to properly understand the operation of the principle of estoppel by convention (Ground 1);

(b) took into consideration irrelevant factors (Ground 2);

(c) failed to allow claimants’ claim based on estoppel which was clearly proved (Ground 3).

23.  Pointing out that the claimants accepted the defendant had a discretion whether or not to make an extra payment, Mr Shum submitted that the claim on estoppel was only concerned with the situation where the defendant did decide to make such payment, and that the discretionary nature of an extra payment and the manner in which the discretion was exercised were therefore not relevant matters.

24.  Mr Shum contended that the Presiding Officer, in rejecting the claim on estoppel, took into account irrelevant factors by relying heavily on the fact that the defendant had a discretion in whether to make an extra payment, and by enquiring into whether the 2017 decision to do so was in good faith or was irrational or perverse. Similarly, the fact that the defendant decided not to make an extra payment in a particular year was also not relevant, and hence the reference in the Reasons for Decision[6] that no extra payment was made in 2001 was another irrelevant matter taken into account.

25.  Mr Shum contended that the Presiding Officer did not explain why the defendant’s long practice of including employees retiring in the relevant year for the extra payment did not give rise to a common assumption. He argued that the Presiding Officer neglected that estoppel by convention is established in most cases by way of conduct and dealings between the parties when performing their contract, and express communication or representation are not essential. He reiterated that the defendant’s conduct had been to include employees retiring in the relevant year when it made an extra payment. Further, it was pointed out that, despite the disclaimers in the internal guidelines for the 2008 and 2009 extra payments, the eligible recipients in these years included retiring employees.

26.  It was further argued that, once the estoppel is established by convention, the position cannot be changed unilaterally, so that the 2017 guideline excluding retiring employees from ex-gratia payment but not communicated to the claimants, did not assist the defendant. Whereas, relying on the convention, the claimants adjusted their time of retirement in reasonable expectation of being granted a year end extra sum, and it would be unjust and unconscionable for the defendant to depart from the established practice and convention.

DEFEDANT’S SUBMISSIONS

27.  Opposing the appeal, Ms Sarah Tong for the defendant submitted that the Presiding Officer, having made reference to the claimants’ contention regarding the defendant’s long practice of including retired employees when making year end extra payments, did not misunderstand their case. The estoppel claim was rejected on the facts. The Presiding Officer found that there was a clear distinction between year end bonuses and ex-gratia payments, and the claim by the claimants was for an ex-gratia payment, since there was no bonus to be paid in 2017 as the defendant had announced. Furthermore, it was found that there was no common assumption between the parties that retiring employees would always be paid an ex-gratia payment.

28.  In finding that there was no common assumption, Ms Tong submitted, the Presiding Officer did not take into account irrelevant considerations. The references to the defendant’s discretion and to year 2001 when no extra payment was made, did not form part of his reasoning in holding that there was no common assumption. It was clear that he treated these matters separately from the issue of common assumption.

29.  Ms Tong pointed out that disclaimers in the internal guidelines on the 2008 and 2009 ex-gratia payments indicated that those payments were absolutely discretionary and were not binding on it in any manner. Relying on Prudential Staff Pensions Limited v The Prudential Assurance [2011] EWHC 960, she submitted that such discretionary payment strongly negated a finding of the common assumption as contended by the claimants.

30.  Ms Tong further pointed out that there was the material before the Presiding Officer showing that the defendant did make an ex-gratia payment only to serving employees in March 2010. In any event, she submitted that even if the defendant had for many years consistently exercised its discretion in a particular way, this would still be compatible with retention of a discretion and could not give rise to an unequivocal common assumption. Referring to Unruh v Seeberger (2007)[7], she emphasized that the words and conduct relied on to establish a common assumption must be clear and unequivocal, and thus the Presiding Officer had properly considered the past dealings and conduct between the parties.

31.  Ms Tong submitted that the Presiding Officer made no error in law, and that he was entitled and correct to make a factual finding that there was no common assumption. It was impermissible to challenge his findings of fact.

DISCUSSION

32.  In Sealegend Holdings Ltd v China Taiping Insurance (HK) Co Ltd[8], citing Unruh v Seeberger (2007)[9], Au Yeung J set out the requirements for estoppel by convention as follows[10]:-

(i) The parties must enter into some legal relationship on the basis of a shared assumption of fact or law;

(ii) The content of the common assumption must be sufficiently certain to enable the court to give effect to it;

(iii) The assumption must have been communicated between the parties and acted upon;

(iv) There must be an attempt by one party to depart from the common assumption which departure would be unjust; and

(v) The other party would suffer detriment arising out of his having entered into the relevant transaction on the basis of the common assumption.

33.  Under paragraph 25 of his Reasons for Decision, the Presiding Officer rightly acknowledged that the principles regarding the elements of estoppel by convention are set out in the above cases.

34.  The Presiding Officer considered that there is no “common assumption” existed between the parties and hence no estoppel by convention can be established.

35.  In concluding that there was no common assumption the Presiding Officer had this to say[11]:

“The fact that the Claimants were unaware of any policies or guidelines on the issue of Ex-Gratia Payments also reflects that there was no common assumption as to payment of Ex-Gratia Payments. There is no evidence that the Defendant had ever communicated or represented to the Claimants that they will be paid Ex-Gratia Payment in the same way as cabin crew in service when the CEO's announcement was made. It follows that the key element of common assumption to found an estoppel by convention has not been established.”

36.  Regarding Ground 1, it is the submission of Mr Shum that, by reason of the fact that for more than 3 decades since around 1984, whenever the Respondent did declare and pay an annual year-end bonus (or extra payment by any other title or name) to cabin crew staff, all such payments had always been made invariably also to those who left employment on or after 1^st July of the relevant calendar years (“Retired Crew”) without exception. This long-established practice without exception gave rise to a convention that the Retired Crew had been treated in exactly the same way as current serving crew.

37.  Mr Shum submitted that the Presiding Officer failed to appreciate the above case clearly advanced by the Claimants but wrongly focused on the fact that the Respondent did not declare and pay any annual year-end bonus (or extra payment by any other title or name) in 2001, that the Respondent had discretion not to make extra payment, and the exercise of such discretion; which are totally irrelevant to the Claimants’ case.

38.  With respect, Ground 1 is actually a complaint that the Presiding Officer had misunderstood the claimants’ case on estoppel by convention, rather than a misunderstanding on the operation of the principle of estoppel by convention as what was stated therein.

39.  In my view, there is no question of the Presiding Officer misunderstanding the operation of the legal principles as he has correctly identified the applicable legal principles regarding estoppel by convention in his Reasons for Decision. In accordance with the applicable principles, the Presiding Officer had considered if there was a common assumption between the parties, which is an essential element for establishing an estoppel by convention, and concluded that there was not.

40.  As to whether the Presiding Officer had misunderstood the claimants’ case, I agree with Ms Tong that it is apparent from the Reasons for Decision that he had not. The Presiding Officer summarized the claimants’ case correctly under paragraph 14 of his Reasons for Decision:

“The Claimants’ evidence was that throughout their years of service with the Defendant, they have never heard of the Company making a distinction between current cabin crew and cabin crew members who retired on or after 1 July in a calendar year such that the latter class of cabin crew were denied a year-end extra sum when the former class received. They opined that the Defendant had established and communicated by its conduct to all cabin crew members a long practice and convention that it would always grant full amounts of extra sums to both current cabin crew and cabin crew who retired on or after 1 July of the calendar year pursuant the rules set out in the Policies without exception whenever it exercised its discretion to grant such extra sum.”

41.  In my view, there is no misunderstanding of the claimants’ case or the operation on legal principles on the part of the Presiding Officer. Ground 1 must fail.

42.  Under Ground 2, Mr Shum complained that the Presiding Officer wrongly apprehended the Claimants’ case and took into consideration and relied heavily on the term in the Claimants’ employment contracts that the Respondent had discretion to declare and pay any annual year-end bonus (or extra payment by any other title or name). He submitted that such discretion has never been disputed by the Claimants in the context of their present Claim and the reasons behind the exercise of the discretion by the Respondent for each year are completely irrelevant to both the Claimants’ Claim and the application of estoppel by convention. The Presiding Officer’s enquiry as to whether the Respondent exercised their discretion perversely or irrationally is irrelevant.

43.  As submitted by Ms Tong, the said term in the employment contracts did not form part of the Presiding Officer’s reasoning[12] in concluding that there existed no common assumption between the parties as alleged by the claimants.

44.  The Presiding Officer did consider if the respondent exercised their discretion perversely or irrationally but such enquiry has no bearing on the Presiding Officer’s finding that there was not any common assumption between the parties. This question might not be in issue at the trial but it will not affect the integrity of the Presiding Officer’s finding that the alleged common assumption does not exist.

45.  In my judgment, Ground 2 must also fail.

46.  Regarding Ground 3, Mr Shum submitted that the Presiding Officer never explained why the long-established practice of the Respondent of treating the current crew and the Retired Crew in the same way whenever extra payment was made by the Company for a period of over 30 years did not give rise to a common assumption that the Respondent would do the same for year 2017 when extra payment was made.

47.  Mr Shum submitted that, the Presiding Officer reasoned that the absence of any previous assurance, communication or representation by the Respondent that Retired Crew would be included in the eligible class of persons to receive ex-gratia payments made it difficult to find that there was any such common assumption as claimed by the Claimants. In making such statement, the Presiding Officer had completely neglected that the operation of estoppel by convention in most of the cases is by way of conduct of and dealings between the parties in the way they performed their contract. The Presiding Officer's reliance on the “disclaimer” in the Respondent's internal guidelines for issuing ex-gratia payment for years 2008 and 2009 was unjustified because the main factor is the Respondent's objective conduct for over 30 years and not what is contained in internal and unpublished guidelines. Further, the guidelines actually stated that the eligible recipients of the full amount of the ex-gratia payment were the same as those in the Bonus Policy.

48.  Further, Mr Shum submitted that, the Presiding Officer reasoned that the Respondent had no obligation to communicate the Internal Guideline for Issuing Ex-Gratia Payment for 2017 to staff who had already retired and hence not eligible for the ex-gratia payment when such guideline was devised. This was wrong in the context of the application of estoppel by convention which is based on conduct of the parties; in this case the making of extra payment by the Respondent to the two classes of crew indiscriminately was a long established practice. An internal guideline not communicated to affected parties would never change the position if the estoppel is applicable to the effect of adding to or varying the terms of the contract. Unilateral declaration would not change the varied position, not to speak of unpublished guidelines kept to the chest of the employer and there was not even an attempt to communicate the Internal Guideline for Issuing Ex-Gratia Payment for 2017 to the affected party.

49.  Mr Shum submitted that, the long-established practice and convention led the Claimants to form a justified and perfectly reasonable expectation that the Respondent would continue to follow such convention and grant them the full amount of all extra sums declared at the end of 2017. As a result, the crew members intending to retire would adjust their time of retirement accordingly. It was unjust and unconscionable for the Respondent to depart from the said established practice and convention to the Claimants’ detriment.

50.  The grounds of appeal of the Claimants focus on the Presiding Officer’s finding that there is no common assumption between the parties as alleged by the Claimants and hence no estoppel by convention can be established. It is a finding of facts.

51.  Under s32(1) of the Labour Tribunal Ordinance (Cap 25) (“LTO”), any appeal from the Labour Tribunal to the Court of First Instance is confined strictly to points of law only. In an appeal on a point of law, the Court of First Instance may not reverse or vary any determination made by the Tribunal on questions of fact.

52.  Although there is some force in Mr Shum’s arguments regarding the existence of a reasonable expectation of crew members who retired after 1^st July to receive the extra sum declared at the end of the year, in order to establish an estoppel by convention the Claimants have to satisfy the court that there existed a common assumption between the parties from the evidence.

53.  Mr Shum is basically suggesting that, based on the evidence that extra payments were paid to crew members who retired after 1^st July in all but one previous years, it would be a sufficient proof of the existence of a common assumption. With respect, this cannot be right.

54.  As submitted by Ms Tong, the words and conduct relied upon to establish the common assumption must be clear and unequivocal. Further, the contents of the common assumption must be sufficiently certain to enable the Court to give effect to it[13] and the respondent had unambiguously and unequivocally assented to the alleged common assumption” through its words and/or conduct[14].

55.  Considering the evidence as a whole it cannot be said that it points to only one conclusion that there must be a common assumption as alleged.

56.  The Presiding Officer is entitled to accept the evidence adduced by the respondent and conclude that there was no common assumption existed between the parties. The Presiding Officer did not commit any misdirection of law in arriving at the conclusion and his findings cannot be regarded as perverse. In my view, they are supported by evidence as explained by the Presiding Officer in his Reasons for Decision.

57.  I see no reason to disturb the findings of the Presiding Officer.

DISPOSITION

58.  The appeal is dismissed.

59.  Costs of the appeal be to the respondent to be taxed if not agreed.