ARCHER, HAROLD DEAN v. THE HONG KONG CHANNEL LTD.

IN THE COURT OF APPEAL OF THE HIGH COURT

1997, No. 155
(Civil)

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J U D G M E N T

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Liu, J.A.:

1. Stripped of all his other capacities, the plaintiff was an employee of the defendant company under an Employment Agreement date 6 July 1990 for a period of three years commencing from even date on a salary of $40,000 per month and a housing allowance of $25,000 per month.

2. The plaintiff continued to be employed by the defendant in the same capacity and, in the absence of any evidence to the contrary, on the same terms after the expiration of the Employment Agreement. Throughout, the provisions of the Employment Ordinance, Cap. 57 applied. The plaintiff was thus liable to dismissal on payment in lieu of notice pursuant to s. 7 of that Ordinance.

3. At a meeting of the Board of Directors of the defendant company held on 17 June 1995, it was resolved that the employment of the plaintiff be terminated forthwith. The plaintiff claims that his dismissal was without proper cause, but it was the consensus before Deputy Judge Longley that the plaintiff's employment with the defendant company was nevertheless effectively terminated. The plaintiff accepted a cheque for $40,000 as one month's salary in lieu of notice at the beginning of July, the next month. The trial judge held that the plaintiff's dismissal was entirely disassociated from any of the elements prescribed by s. 31B(2)(a) or (b) of the Employment Ordinance and that therefore it was not a case of redundancy which would have attracted a severance payment.

4. However, the plaintiff complains that the trial judge was wrong in rejecting his claim for a long service payment under s. 31R of the Employment Ordinance. In order to be entitled to a long service payment, it was incumbent upon the plaintiff to establish, for a man of his age, a continuous employment by the defendant company for not less than five years. That the plaintiff was effectively dismissed as from 17 June 1995 by a resolution passed at a meeting of the Board of Directors of the defendant company convened on 17 June 1995 was not, as stated earlier, in dispute. Computing the period of employment from the date of the Employment Agreement i.e. 6 July 1990 to the date of dismissal i.e. 17 June 1995, it was less than five years. The plaintiff maintained before the trial judge that he had in fact been employed since May 1990. He also submitted that his dismissal took effect some days after 17 June 1995. It is quite unnecessary to rehearse the matters on which the trial judge deliberated for reaching his conclusion that the plaintiff did not become an employee of the defendant company until the date of his Employment Agreement on 17 June 1995. The Deputy Judge also upheld the validity of the resolution. They are primarily findings of fact. The arguments advanced to the trial judge were re-ventilated in the prosecution of this appeal, but I am not persuaded that the factual evaluation process of the trial judge is open to just criticism.

5. The main issues put to us are the Chinese New Year Bonus, the Housing Allowance, the Long Service Payment and the Leave Entitlement for half of 1995.

Lunar Year-end Bonus

6. The plaintiff took a Chinese New Year bonus for 1992. The Deputy Judge found as a fact that the plaintiff had not been authorised to award himself any Chinese New Year bonus, and accordingly the plaintiff's claim on that account was rejected. The plaintiff was ordered to repay the bonus to which he had helped himself in 1992. The plaintiff advanced to us the same arguments he submitted to the trial judge. Nothing brought to our attention is sufficient to disturb the factual finding of the seeing judge in the court below.

Housing Allowance

7. The plaintiff drew housing allowances over and above the stipulated monthly sum of $25,000 in the Employment Agreement. The Deputy Judge found that the plaintiff continued to be employed by the defendant company after the expiration of the Employment Agreement on the same terms. On the allegations and counter-allegations raised with respect to the plaintiff's claim for an increase in housing allowance, the trial judge preferred the evidence adduced on behalf of the defendant company and found the plaintiff to have met part or all of his rental increase from the company's coffers without authority. This court is disadvantaged as against the trial judge on findings of fact. The Deputy Judge proceeded to consider the evidence with great care, and the conclusion he reached after detailed analysis and proper evaluation can in no way be faulted.

Long Service Payment

8. It is unarguable that the plaintiff was employed before the Employment Agreement or that he was not effectively dismissed as at 17 June 1995. The plaintiff served the defendant company for less than five years. There is no substance in this complaint.

Leave Entitlement

9. The plaintiff's employment was terminated in June 1995. Under his terms of employment, the plaintiff was entitled to 14-day annual leave. For his almost half a year in 1995, the plaintiff was entitled to, say, 7 days. The trial judge found that the plaintiff had taken 6 1/2 days' leave in 1995. The rationale in the trial judge's approach was : under Clause 6 of the Employment Agreement no annual leave could be carried over to the following or subsequent years, and the unused annual leave would be forfeited at the end of any one leave year. The Deputy Judge therefore regarded the leave taken by the plaintiff in January 1995 as part of his 1995 leave entitlement because whatever the balance of annual leave in the previous year must have been forfeited. The plaintiff left Hong Kong on 22 December 1994 and returned to work at mid-day on 10 January 1995. Excluding public holidays, in 1995 the plaintiff was absent on leave for 6 1/2 days. Hence the Deputy Judge concluded that the plaintiff had taken 6 1/2 of the 7 days for the half year in 1995 before his dismissal. The plaintiff was accordingly allowed only half a day's annual leave in the sum of $659 (9,230 for 7 days ( 7 x 1/2 ).

10. In the plaintiff's Notice of Appeal, he was originally content with the award of $659 for half a day. In the course of the hearing before this court, the plaintiff sought leave to amend his Notice of Appeal with the view to rehashing his 7-day annual leave claim for 1995. The amount for 7 days was agreed to be $9,230. The plaintiff's application to amend was resisted. We granted leave and dispensed with re-service.

11. The plaintiff relies on paragraph 3 of the witness statement of Mrs Sheena Andrea Hardy dated 15 April 1997 and the agreed entries in his American passport. It is obvious that the plaintiff was out of Hong Kong between 22 December 1994 to 10 January 1995. From his period of absence proximate to the year of 1994, this court is invited to draw an inference that the vacation taken between the year-end in 1994 and early January 1995 would probably have come from his accrued annual leave for 1994. But for Clause 6 of the Employment Agreement, it would be more probable, so the plaintiff argues, for him to spend his 1994 earned leave instead of his unearned leave for 1995 assuming, of course, that he had a balance of his 1994 paid leave. Under s. 41AA(5)(a) of the Employment Ordinance, as an employee the plaintiff could take his annual leave earned in the previous year within a period of twelve months after the expiration of the leave year. The contrary provision in Clause 6 of the Employment Agreement for forfeiting unused annual leave at the end of each leave year should therefore have been ignored for this reason: Clause 6 of the Employment Agreement ran counter to s. 41AA(5)(a) and s. 70 of the Employment Ordinance avoided any contracting out which would lead to, inter alia, an erosion of any rights, benefit or protection conferred upon an employee by the Ordinance. Hence, there existed no apparent inhibition against the plaintiff taking his 1994 leave balance in 1995. This is a matter debated for the first time in the course of the prosecution of this appeal. Naturally, it stands to reason that for the period nearer to 1994 as between 22 December 1994 to 10 January 1995, the plaintiff would more probably have taken his 1994 leave which he had earned. But to begin with, this probability presupposes that the plaintiff had an unused balance of paid leave for 1994. It is further contended that the trial judge's reliance on Clause 6 of the Employment Agreement is indefensible and that the conclusion he reached on a misconceived legal premise cannot be supported.

12. On the other hand, there is no evidence that the parties to the Employment Agreement were concerned with any provisions of the Employment Ordinance or that they were alive to the overriding effect of its s. 70. It is highly probable that the parties conducted themselves in accordance with Clause 6 of the Employment Ordinance they had signed and treated the leave taken in January 1995 as paid leave for 1995. Balance, if any, of all previous leave must have been assumed to have been forfeited under that clause. No one raised the question of contracting out of the Employment Ordinance, not even before the trial judge. No leave record was found by the Deputy Judge to have been kept or produced at the trial. This court is told that the only reference made to paid leave at the trial was the agreed calculation of $9,230 for the 7 days claimed as set out at page 34 of the transcript. Against this scenario, it would not be unreasonable to expect the plaintiff to have regarded himself as bound by Clause 6 and taken the 1995 leave in the belief that any unused balance of his 1994 leave could not be carried over. In any case, there was no evidence that the plaintiff had any balance of paid leave for 1994. There was some faint suggestion that the plaintiff had previously over-spent his contract leave. Insofar as it was open to the trial judge to take cognizance of what must have been the mutual understanding, correct or mistaken, viz. "by virtue of the term of his employment contract, the plaintiff could not carry over the balance of leave entitlement from one year to the next", the Deputy Judge's rationale is not wholly without merit and could not be totally disregarded. It may reasonably be concluded, as the Deputy Judge did, that the plaintiff must have taken the 6 1/2 days from his 1995 leave. The trial judge found that the plaintiff took 6 1/2 days of his 1995 leave with only half a day's entitlement left in his favour. The plaintiff made no complaint of this finding in his original Grounds of Appeal. The reopening of this claim based on the validity of Clause 6 by his amended Notice of Appeal has deprived the defendant company of a fair opportunity of testing it as a joined issue by, at least, further cross-examination of the plaintiff on his 1994 leave balance.

13. In the light of the circumstances in which the parties must have then found themselves, it would seem more or equally probable that the plaintiff intended to and did take his 1995 paid leave. There is no warrant for this court to prefer the other suggested probability of the plaintiff enjoying his earned 1994 paid leave in between 22 December 1994 to midday 10 January 1995, particularly when there was no evidence whether in fact the plaintiff had to his credit any unused 1994 leave entitlement. Worst still, the matter cannot now be fully canvassed. For these reasons, we are unable to rely on one probability over another for overturning the conclusion of the trial judge that the plaintiff had only half a day's leave entitlement for his half year in 1995. After all, the Deputy Judge's approach was not against the weight of the evidence which had to be evaluated in the frame of mind of the parties as at January 1995.

14. It is not otherwise suggested that the trial judge's summation is in error, viz. "The plaintiff's claim for unpaid wages (inclusive of bonuses)(which the plaintiff quantified at $582,096) succeeds only to the extent of $457,667 which is the amount admitted by the defendant in its Defence."

15. On the findings of the Deputy Judge, the defendant succeeded in its counterclaim for unauthorised drawings by the plaintiff in respect of housing allowance to the extent of $335,970 and the 1992 Chinese New Year bonus in the sum of $40,000.

16. The Deputy Judge's computation set out below must be also correct:

"After the plaintiff's successful claim ($457,667 + $659) is set off by the defendant's successful counterclaim ($335,970 + $40,000), a balance of $82,356 remains owing to the plaintiff".

17. The trial judge gave judgment in that sum and allowed interest at 11.5 per cent per annum to run 7 days after the plaintiff's dismissal until payment. 7 days was a reasonable period for payment.

18. The plaintiff succeeded only to the extent as admitted by the defendant and the trivial sum of $659 was not significant enough to dissuade the trial judge from disallowing the plaintiff costs of the action, particularly when the dispute as to unused paid leave for 1995 could have been averted by proper supervision over the keeping of records of his own leave. The defendant succeeded substantially on its counterclaim. The costs orders made by the trial judge would seem to be well grounded, and we should not interfere.

19. In the circumstances, I would dismiss the appeal and make an order nisi that the plaintiff to pay the defendant's costs of this appeal.

Cheung, J. :

20. Apart from the claim relating to the Plaintiff's leave entitlement for 1995, I agree that his appeal should be dismissed.

21. The Plaintiff asked for one half of his annual leave entitlement for the year 1995. The Defendant conceded that the Plaintiff would be entitled to seven day leave at $9,230. However, it claimed that the seven day leave was exhausted because the Plaintiff had taken leave from 1st January to 11th January 1995.

22. The Plaintiff's case that was presented to us and in the court below was the same, namely the leave he took in the early part of January 1995 was part of his 1994 annual leave which he took from 22^nd December 1994 to 10^th January 1995. This was made abundantly clear at the cross-examination of DW2 Sheena Andrea Hardy when the Plaintiff stated that :

"... the 1994 entitlement of 14 days was commenced in December, and it is the Plaintiff's argument that that entitlement doesn't stop automatically with the calendar year, but he's taking the leave when he returns for the leave, that entire leave is plied towards his 1994 entitlement ..."

23. The Plaintiff further stated that :

"... the leave taken regarding December was indeed the 1994 leave and I don't believe that the 1995 leave which has yet to actually effect -- I've not work in 1995 yet. I could not very well go in on 1st January 1995, take 14 days leave and say 'Thank you very much, I've got my leave, now I'll work the rest of the year' ..."

(Page 140 of the Appeal Bundle)

24. There was no doubt whatsoever that the Defendant was fully aware of the nature of the Plaintiff's claim on the leave entitlement. The only defence it had advanced was that the Plaintiff could not carry his 1994 annual leave into 1995. In the evidence - in - chief of the Plaintiff, Counsel for the Defendant referred to paragraph 6.01 of the Employment Agreement and argued that the paid leave could not be accumulated. Likewise in Paragraph 11 of the Defence and Counterclaim it was pleaded that :

"(i) the Plaintiff was only entitled to 6.5 days annual leave for the period from 1st January 1995 to 17^th June 1995 pursuant to Clause 6 of the Employment Agreement;

(ii) the Plaintiff took annual leave from the Defendant for the period from 23^rd December 1994 to 11^th January 1995, which period was longer than what he was entitled to under sub-paragraph (i) hereinabove;"

In my view the only relevance of pleading the leave period from 23^rd December 1994 to 11^th January 1995 was that the leave taken in 1995 was referrable to the 1994 annual leave which it said could not be carried over to the following year.

25. It was argued by the Defendant that it was precluded from exploring whether the Plaintiff had any unused leave in 1994. This argument was clearly untenable because of the concession of the Defendant in the court below. The exchange between the learned Judge and Counsel for the Defendant was as follows :

"Court : ... Can I just clarify that your claim is not that Mr Archer exceeded his leave for 1994, but that the period he took within 1995 exceeded his allowance for 1995.

Mr Chow : Yes.

Court : Just to get this absolutely clear, you are not suggesting that he took too much leave in 1994, you are suggesting he took too much leave in 1995.

Mr Chow : Yes, that is precisely ..."

26. The Defendant clearly had the opportunity to find out from the Plaintiff whether he still had any unused leave in 1994. It had chosen not to do so, but instead relied solely on the terms of the Employment Agreement. The argument that there was no evidence that the Plaintiff had any balance paid leave for 1994 was removed by the very concession made by the Defendant. In the circumstances, it would be unreasonable to expect the Plaintiff should nonetheless adduce evidence in relation to his leave balance in 1994.

27. Once it is accepted that Clause 6 is contrary to s.41AA(5)(a) of the Employment Ordinance, then the defence fails and the Plaintiff is entitled to $9,230. For my part, I would allow the appeal to the extent that I have indicated and concur in the costs order nisi proposed.

Nazareth, V.-P.:

28. Save as to the appellant's claim in respect of leave entitlement, to which I shall come, I agree with Liu JA that his appeal should be dismissed.

29. The judgment appealed against is characterised by the care with which the judge dealt with all the issues before him. He was plainly entitled to make the several findings of fact that he made. More than that all of them seem to me to be right. Nothing the appellant has urged upon us leads me to doubt those conclusions. They dispose of the issues concerned with the Lunar New Year bonus and housing allowance claims, both of which were decided upon findings of fact.

30. Likewise, the issue concerned with the additional month's salary claimed by reference to the disputed date of termination of employment was resolved by the judge's relevant finding of fact. In any case, the appellant's contention before us that despite payment of a month's salary in lieu of notice, his employment yet did not terminate until the expiration of the month for which the payment was made, is absurd.

31. As to the claim for long service payment, it seems to me perfectly plain that notwithstanding the earlier resolution of the Board that the appellant be employed, his employment did not commence until that resolution was given effect by the two sides entering into the employment agreement. Likewise it is plain, as I have indicated, that his employment terminated immediately upon payment of a month's salary in lieu of notice. Clearly, the judge was right in determining that he was not entitled to a long service payment as his service fell short of the qualifying period of five years.

32. Turning then to the appellant's claim to 7 days' leave, this was not raised in his notice of appeal, nor before the judge below upon the basis on which he pursued it before us. The latter was that although the employment agreement provided that his leave had to be taken in the year in which it was earned, s. 41AA(5)(a) of the Employment Ordinance provides that annual leave to which an employee is entitled shall be granted by his employer and be taken by the employee within the period of 12 months beginning immediately after the expiration of the year to which it relates. It is not disputed that the leave claimed would be annual leave. Accordingly, there is a clear conflict between the provisions of the employment agreement and s. 41AA(5)(a). In this regard, s. 70 of the Employment Ordinance provides as follows:

"Contracting out

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."

33. Plainly, in my view, that part of the employment agreement which requires the appellant's annual leave to be taken within the year it is earned, is rendered void. I did not understand Mr Lawrence Ng for the respondent to dispute that.

34. Instead, he sought to demonstrate by an argument Liu JA has outlined, first that the appellant failed to establish that he had not taken some leave that would have used up the 7 days, alternatively that by in effect harmonising the operation of the employment agreement and of s. 41AA(50(a), part of the leave that the appellant took between 22nd December 1994 and 10th January 1995 must have been leave due in respect of the 1995 year. That would have had the result that the appellant would not have had an unused balance of 7 days. I cannot say that I am persuaded by that argument. It seems to me far more probable that the appellant would use his leave earned earlier before that earned later, particularly in the light of clause 6 which causes its forfeiture if not taken within the year. Upon that basis, which Cheung J has set out rather more comprehensively, the appellant would be entitled to a payment in respect of the 7 days of untaken leave for 1995 less the half day the judge found he had taken. It is agreed that the amount due in that respect would be $9,230.

35. I would accordingly allow the appeal only to that extent, set aside the order below and substitute an order that he be paid the amount of $9,230. As to costs, the respondent has succeeded in all but one very minor aspect of the entire appeal, and even in that respect only upon a new ground that not only was not taken before the judge but raised on the eve of the hearing of this appeal. In my view, clearly the respondent should have its costs of the appeal.

36. By a majority, therefore, the appeal is allowed to the extent I have mentioned but dismissed in all other respects. The order below is set aside only to the extent that the appellant's claim for a payment in lieu of 7 days annual leave was dismissed. There will be judgment for the appellant in

the sum of $9,230 and a costs order nisi that the appellant is to pay the respondent's costs of the appeal.