SECRETARY FOR JUSTICE v. MICHAEL REID SCOTT

Judgment Summary (English Version)

Judgment Summary (Chinese Version)

FACV No. 15 of 2004

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

 FINAL APPEAL NO. 15 OF 2004 (CIVIL)

(ON APPEAL FROM CACV NO. 199 OF 2003)

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FACV No. 16 of 2004

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 16 OF 2004 (CIVIL)

(ON APPEAL FROM CACV NO. 401 OF 2003)

_____________________

Between :

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FACV No. 8 of 2005

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

 FINAL APPEAL NO. 8 OF 2005 (CIVIL)

(ON APPEAL FROM HCAL NO. 38 OF 2004)

_____________________

Between :

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Chief Justice Li :

1.  I agree with the judgment of Sir Anthony Mason NPJ. 

Mr Justice Bokhary PJ :

2.  I agree with the judgment of Sir Anthony Mason NPJ. 

Mr Justice Chan PJ :

3.  I agree with the judgment of Sir Anthony Mason NPJ. 

Mr Justice Ribeiro PJ :

4.  I agree with the judgment of Sir Anthony Mason NPJ. 

Sir Anthony Mason NPJ :

Introduction

5.  These three appeals raise important questions concerning the validity of provisions of the Public Officers Pay Adjustment Ordinance, Cap. 574 and the Public Officers Pay Adjustments (2004/2005) Ordinance, Cap. 580, which purported to reduce the pay of public officers, and specifically the questions whether the Ordinances are in breach of art.100 of the Basic Law and also, in the case of Cap. 580, whether it is in breach of art.103 of the Basic Law. 

6.  The two Ordinances were introduced as austerity measures following the South East Asian economic crisis which occurred in the later part of 1997 and had a profound impact on Hong Kong.  The Ordinances were part of measures adopted to address what was regarded as a structural problem facing the Territory's public finances, which had resulted in persistent fiscal deficits. 

7.  Appeals FACV Nos 15 and 16 of 2004 arise out of two separate judicial review proceedings brought by Mr Lau Kwok Fai Bernard ("Mr Lau") and Mr Michael Reid Scott ("Mr Scott") respectively.  The two appeals concern Cap. 574.  The third appeal FACV No. 8 of 2005 arises out of additional judicial review proceedings brought by Mr Scott and concerns Cap. 580. 

8.  Mr Scott is a public officer employed by the Hong Kong Government on civil service terms of appointment at civil service rank.  He was appointed before 1 July 1997.  Mr Lau, who was also appointed before 1 July 1997, at the time when he commenced judicial review proceedings, was a Senior Inspector in the Hong Kong Police Force. 

9.  Appeals FACV Nos 15 and 16 are brought by the appellant, pursuant to the grant of leave by the Court of Appeal, after that Court (Rogers VP and Le Pichon JA with Ma CJHC dissenting) had held, overruling the judgments of Hartmann J at first instance on 10 June 2003 ("the June judgment") and 7 November 2003 ("the November judgment"), that s.10 of Cap. 574 was unconstitutional in that it was in breach of art.100 of the Basic Law.  The Court of Appeal rejected an argument that Cap. 574 was in breach of art.103. 

10.  Appeal FACV No. 8 of 2005 is brought by the appellant, pursuant to the grant of leave by the Appeal Committee under the "leap-frog" provisions of s.27D(2) of the Hong Kong Court of Final Appeal Ordinance, Cap. 484, after Hartmann J, in light of the Court of Appeal judgment in the other cases, held on 4 February 2005 ("the February judgment"), as he was bound to, that s.15 of Cap. 580 was inconsistent with art.100 of the Basic Law, there being no material difference between s.10 of Cap. 574 and s.15 of Cap. 580.  Hartmann J, however, rejected an argument that the Ordinance was inconsistent with art.103 of the Basic Law. 

11.  In granting leave to appeal to this Court, the Court of Appeal stated that Appeals FACV Nos 15 and 16 raised the following question of great general or public importance:

"Whether section 10 of K Cap. 574 K, by seeking to vary the contracts of employment of public officers to allow for reductions in pay, is in breach of Article 100 of the Basic Law in that the variation has resulted in the conditions of service of public officers being less favourable than before 1 July 1997."

The third appeal raises a like question in relation to s.15 of Cap.580.  The third appeal also raises the discrete question, namely whether the failure to conduct a Pay Trend Survey ("PTS") in 2003 was a breach of art.103 of the Basic Law.  Mr Scott's argument that it was, an argument which was rejected by Hartmann J in the February judgment, is relied upon by Mr Scott to support the judgment in his favour on Cap. 580. 

The Basic Law

12.  It is convenient to set out arts.100 and 103 of the Basic Law as they are relevant to the questions which arise.  Article 100 provides:

"Public servants serving in all Hong Kong government departments, including the police department, before the establishment of the Hong Kong Special Administrative Region, may all remain in employment and retain their seniority with pay, allowances, benefits and conditions of service no less favourable than before." 

Article 103 provides:

"The appointment and promotion of public servants shall be on the basis of their qualifications, experience and ability.  Hong Kong's previous system of recruitment, employment, assessment, discipline, training and management for the public service, including special bodies for their appointment, pay and conditions of service, shall be maintained, except for any provisions for privileged treatment of foreign nationals." 

The Legislation

13.  The Preamble to Cap. 574 states its object as follows:

"An Ordinance to adjust with effect on and from 1 October 2002 the pay of public officers paid in accordance with civil service pay scales or the ICAC pay scale by reducing the pay pertaining to each point on those pay scales by -

(a) in the case of points on those scales the monthly salary pertaining to which is, on 30 September 2002, below $15,520, 1.58%;

(b) in the case of points on those scales the monthly salary pertaining to which is, on 30 September 2002, $15,520 or above but does not exceed $47,590, 1.64%;

(c) in the case of points on those scales the monthly salary pertaining to which is, on 30 September 2002, above $47,590, 4.42%;

with effect on and from the same date to adjust the pay of certain public officers whose pay is determined in accordance with or by reference to a point on one of those pay scales or whose pay is adjusted in accordance with or by reference to adjustments to one of those pay scales by the corresponding percentages; to provide that with effect on and from the same date the amounts of the allowances payable to certain public officers that are determined in accordance with or by reference to a point on one of those pay scales or which are adjusted in accordance with or by reference to adjustments to one of those pay scales are to be determined or adjusted in accordance with or by reference to points on those scales as so adjusted; and for connected purposes."

14.  Part 2 of the Ordinance relates to "Civil Servants".  Sections 4(1) and (2) provides:

"4. Adjustment of pay of civil servants

(1) The civil service pay scales are, on 1 October 2002, adjusted by reducing the pay pertaining to each point on each of the civil service pay scales by the relevant percentage with each result, if it is not a multiple of $5, rounded up to the nearest $5.

(2) The pay payable to a civil servant in accordance with the civil service pay scales as adjusted under subsection (1) is payable with effect on and from 1 October 2002."

Section 2 defines "pay" as including "salary, wages, a consultancy fee, a training allowance and an honorarium".  The relevant percentage is also defined in s.2, but nothing turns on this. 

15.  Part 3 of the Ordinance relates to "Public Officers other than Civil Servants" and provides for corresponding adjustments to the pay of ICAC officers (s.5) and of certain public officers who are not civil servants or ICAC officers (s.6). 

16.  Part 5, with its heading "General Provisions", consists of two provisions, ss 9 and 10.  Section 9 provides:

"9. Future adjustments

The adjustments made by this Ordinance to the pay, and the amounts of any allowances, payable to public officers do not prohibit or affect any adjustment to the pay or the amounts of any allowances payable to public officers made after 1 October 2002." 

Section 9 makes it clear that the adjustments made by the Ordinance were a "one-off" exercise, confined to this single reduction of pay. 

Section 10 provides:

"10. Express authority for adjustments

The contracts of employment of public officers are varied so as to expressly authorize the adjustments to pay and the amounts of the allowances made by this Ordinance."

The immediate purpose of s.10 was to vary the contracts of employment in order to provide contractual authority for the statutory adjustment to the pay scales and the allowances effected by the operative provisions of the Ordinance.  The ultimate purpose of s.10 was to avoid any doubts that might otherwise arise as to the legal effect of the statutory adjustment on the public officers' contracts of service. 

17.  The effect of Cap. 580 was to further reduce the pay of those public officers whose pay had already been reduced pursuant to Cap. 574.  The second reduction was to be effected in two tranches, the first on 1 January 2004, the second on 1 January 2005.  Section 15 of Cap. 580 provides:

"The contracts of employment of public officers are varied so as to expressly authorize the adjustments to the pay and the amounts of the allowances made by sections 4 to 13."

Section 4 of Cap. 580 was, in form, similar to s.4 of Cap. 574, providing for an adjustment of the pay of civil servants on civil service pay scales by a reduction in the pay scales, while ss 5 to 11 provide for the adjustments of pay of other civil servants, of reference civil service pay scales and of pay of public officers other than civil servants.  The purposes of s.15 were similar to those of s.10 of Cap. 574.  I shall refer to ss 4 to 6 of Cap. 574 and ss 4 to 11 of Cap. 580 as "the operative provisions". 

18.  The term "public officer" is not defined in either Cap. 574 or Cap. 580.  It is, however, defined in s.3 of the Interpretation and General Clauses Ordinance, Cap. 1 as a person holding an office or emolument under the Government, whether temporary or permanent.  The term "public servant" has the same meaning. 

19.  In no instance did the reductions in the pay scales effected by Cap. 574 and Cap. 580 reduce the pay and the allowances of a public officer below the level of the pay and allowances payable to a public officer of the relevant grade or rank immediately before 1 July 1997.  The appellant relies strongly on this aspect of the operation of the legislation as indicating that there was no contravention of art.100.  It was this feature of the legislation that led Hartmann J to the conclusion in the June and November judgments that there was no contravention of art.100. 

The terms of appointment of public servants in Hong Kong

20.  Hartmann J, in the June judgment, found that the employment of public officers in Hong Kong has at all times been governed by provisions contained in a letter of appointment and an accompanying memorandum of conditions of service.  Although the memoranda were by and large similar in their standard provisions, they differed in order to meet different terms of appointment.  As at June 2002, over 200 differing sets of memoranda remained in force. 

21.  Hartmann J, on the basis of an affirmation by Ms Jessie Yip Yin Mei, a Deputy Secretary for the Civil Service, found that two standard clauses appeared in the memoranda.  Before the resumption of sovereignty, the first was to the effect that the public officer was subject to "Colonial Regulations, Government Regulations and Circulars, Departmental Instructions and to any Ordinances or Regulations" relevant to his employment.  Since the resumption of sovereignty, this first clause has been to the effect that the officer is subject to "Executive Orders issued from time to time by the Chief Executive for the administration of the public service and to regulations and directions made under those orders".  The appellant has not argued that the first standard clause, as it stood before 1 July 1997, provided contractual authority for reducing civil service pay by unilateral Executive action. 

22.  The second standard clause, both before and after 1 July 1997, has been to the following effect:

"Notwithstanding anything contained in this Memorandum or in the covering letter of offer of appointment, the Government reserves the right to alter any of the officer's terms of appointment, and/or conditions of service set out in this Memorandum or the said covering letter should the Government at any time consider this to be necessary."

The appellant has accepted that, in respect of public officers employed before June 2000, the general power to alter terms or conditions contained in the memoranda do not extend to the unilateral alteration by the Executive of a condition or term as to remuneration.  Only from June 2000 were the memoranda amended to include an express provision that adjustments of pay might include a "pay increase, pay freeze or pay reduction".  It was estimated at 30 September 2002 that in excess of 167,000 public officers, including both respondents, were employed on terms that were not subject to that express provision. 

23.  It is common ground between the parties that, under the respective contracts of service, the entitlement of public officers to pay is ascertained by reference to a point on the published Government pay scales relevant to the rank or grade of the individual officer which have been adjusted on an annual basis. 

The respondents' arguments based on art.100 of the Basic Law

24.  It is convenient to consider initially the questions which arise in relation to art.100 and leave for later consideration the questions which arise under art.103 and are based on facts relevant to those questions. 

25.  Before I turn to the majority judgments in the Court of Appeal (which the respondents seek to uphold), it is necessary, first, to state shortly the separate argument, based on art.100, which the respondents presented to the courts below and to this Court.  The argument is that art.100 binds the Government to a constitutional undertaking to refrain from exercising any pre-existing potential power (as opposed to legal authority) to vary the conditions of service of previously existing public servants to their disadvantage.  According to the respondents, although the legislature had the power before 1 July 1997 to legislate in such a way as to reduce the pay of Hong Kong public officers, the effect of art.100 was to preclude the exercise of that power thereafter in relation to public officers appointed before 1 July 1997.  Hence any legislative attempt to reduce the pay of such public servants, even if the reduction did not take the level of pay below that prevailing immediately prior to 1 July 1997, would contravene art.100.  The respondents acknowledge that this reading of art.100 placed such public officers in a more favourable position than they were in before 1 July 1997.  This was, they said, no more than the natural consequence of the correct reading of the constitutional guarantee.  On this argument, the operative provisions of both Ordinances, as well as ss 10 and 15, would contravene art.100. 

The Court of Appeal's conclusion on the art.100 issue

26.  Although the majority in the Court of Appeal did not accept the respondents' interpretation of art.100, the majority nevertheless concluded that s.10 of Cap. 574 and s.15 of Cap. 580 altered the conditions of service of public officers employed before 1 July 1997 in such a way that they were less favourable than they were before that date.  The consequence, so the majority held, was that ss 10 and 15 contravened art.100 of the Basic Law. 

27.  The first step in the majority reasoning was that, in Hong Kong, the relationship between the Government and its public officers has for a long time been regarded as a matter of contract.  This proposition was accepted by Cons J in Choi Sum & Others v. The Attorney General [1976] HKLR 609 at 612 and confirmed by the Court of Appeal in Lam Yuk Ming & Others v. Attorney General [1980] HKLR 815. 

28.  The second step in the majority reasoning was that, although there have been in existence for many years administrative mechanisms for reviewing and adjusting public service pay annually, prior to 1 July 1997 the employment contracts of public officers did not include provisions that salaries might be reduced.  The third step in the majority reasoning was that the Government could only reduce the salary of a public officer unilaterally pursuant to his contract if there was an express or implied term to that effect. 

29.  The fourth step in the reasoning addressed the important question whether the legislature can validly enact legislation to effect a reduction of public officers' pay, in the absence of contractual authority for such a reduction.  On this question, the majority appeared to consider that, if such legislation were valid, it would have worked a fundamental change in their conditions of service and may have resulted in frustration of their contracts. 

30.  At this point in their reasoning, the majority focused attention on ss 10 and 15 and characterised these provisions as introducing into the contracts of service a "condition" that pay could be reduced.  This condition, it was said, formed no part of the conditions of service of public officers appointed before 1 July 1997.  In the view of the majority, it was the introduction of this new condition that made the conditions of service of such public officers "less favourable" than they were before 1 July 1997 because the new condition enabled the employer to reduce pay by a unilateral decision, something that could not have been achieved before that date.  It was the introduction of the new condition, not the actual reduction in pay, that resulted in a contravention of art.100. 

31.  It is this distinction that led the majority to declare s.10 of Cap. 574 and s.15 of Cap. 580 unconstitutional, without declaring unconstitutional the operative provisions of the two Ordinances which alter the pay scales.  The legislative adjustment of the pay scales effected by the operative provisions of the two Ordinances is unaffected by the Court of Appeal's declaration of invalidity.  This result, which may seem surprising in light of the argument presented by the respondents, is consistent with the majority view that it was not the reduction in pay as such, but the introduction of the new condition which made the conditions of service "less favourable" than they were before, in that the new condition enabled the employer to reduce pay by a unilateral decision, something that could not have been achieved before 1 July 1997. 

32.  It is necessary here to make the point that neither s.10 nor s.15 authorise the employer to reduce pay by unilateral Executive action.  The reduction of pay is effected by the operative provisions in each Ordinance.  The effect of s.10 and s.15 is to provide contractual authority for those operative provisions. 

33.  In his dissenting judgment Ma CJHC concluded that the Government had always had plenary legislative power so as to affect the existing contracts of service of public officers.  This power could be exercised so as to alter the conditions of service of public officers to their detriment, subject to art.100, without the need for any authority under the contract to support the legislative alteration.  This power was capable of extending to a reduction in pay so long as the reduction did not decrease pay below the levels prevailing immediately before 1 July 1997.  The effect of art.100 was to prohibit a reduction below those levels.  It was not to prohibit any reduction at all.  Subject to some variations which need not be mentioned, Ma CJHC adopted the same approach as that taken by Hartmann J in his judgments of June 2003 and November 2003. 

The appellant's case on art.100

34.  The appellant's case is that

(1) the majority in the Court of Appeal applied a literal, technical and narrow approach to the interpretation of art.100, instead of the broad, generous and purposive approach to the interpretation of the Basic Law which this Court applied in Ng Ka Ling v. Director of Immigration (1999) 2 HKCFAR 4 at 28D-I, per Li CJ and Director of Immigration v. Chong Fung Yuen (2001) 4 HKCFAR 211 at 223I-224G, per Li CJ;

(2) the word "before" in the expression "no less favourable than before" in art.100 means before 1 July 1997;

(3) the expression "conditions of service" is to be understood in the context of the constitutional, statutory and legal framework in Hong Kong to which public officers' contracts of service were subject before 1 July 1997;

(4) an element in that framework was the existence of a plenary legislative power which could be exercised so as to affect existing contracts, including public officers' contracts of service, this being a power which is presently exercisable, subject to art.100; and

(5) neither s.10 nor s.15 authorised the Government to reduce the pay of public officers' unilaterally or generally; the two sections varied the contracts of service by providing contractual authority for the adjustments of pay effected by the operative legislative provisions. 

The interpretation of art.100

35.  In conformity with what this Court said in Ng Ka Ling and Chong Fung Yuen in the passages already referred to, art.100 must be given a purposive construction.  The article is in terms similar to para. 72 in Annex I to the Joint Declaration (Elaboration by the Government of the People's Republic of China of its Basic Policies regarding Hong Kong).  In The Association of Expatriate Civil Servants of Hong Kong v. The Secretary for the Civil Service, unreported, HCAL No. 9 of 1998, 9 November 1998, Court of First Instance, Barnett J said of art.100 (at p.12):

"principally it is intended to ensure continuity of employment so that no public servant suffers as a consequence of the transition itself." 

In stating that the principal object of art.100 was to ensure that a public officer would be no worse off than he was before 1 July 1997 in consequence of the transition, Barnett J was expressing the general understanding of transitional provisions of this kind governing continuation of employment.  Continuity of employment, as provided by art.100, was an element in a more general theme of continuity reflected in the Basic Law (HKSAR v. Ma Wai Kwan, David [1997] 1 HKLRD 761 at 774E, per Chan CJHC; at 790D, per Nazareth VP; at 800J, per Mortimer VP). 

36.  The words "no less favourable than before" are significant in two respects.  First, the word "before" means before 1 July 1997 so that it is the "pay, allowances, benefits and conditions of service" immediately before that date which are identified as the standard by which the comparison of what is "no less favourable" is to be made.  Secondly, the article does not seek to prohibit or inhibit changes to pay, allowances, benefits or conditions of service of public officers appointed before 1 July 1997, except to the extent that such changes are less favourable than those entitlements before that date. 

37.  The expression "conditions of service" is apt to denote the terms of the public officer's contract of service.  The contract would ordinarily include, according to the affirmation of Ms Jessie Yip Yin Mei, a Deputy Secretary for the Civil Service, the letter of appointment and the Memorandum on Conditions of Service ("MOCS") attached to that letter, which the public officer received on appointment.  The MOCS stated that remuneration was to be ascertained by reference to the Government pay scales which were subject to annual adjustment. 

The legislative power to alter contracts of service

38.  It is not in dispute that, before 1 July 1997, apart from the legislative power exercisable by the British Parliament and reserved by Article IX of the Letters Patent 1917-1995, by virtue of the legislative powers vested in the Governor and exercisable with the advice and consent of the Legislative Council, the Government possessed plenary legislative power to make laws for the peace, order and good government of the Colony.  The scope of that plenary power necessarily extended to the public service, the relationship between the Government and public officers and the conditions of their appointment, including the alteration of a term, such as a provision governing pay, in a contract of service between the Government and a public officer, as well as the Government's public service pay scales. 

39.  One argument suggested for holding that the plenary legislative power could not extend to an alteration of a term of such a contract of service and to a reduction in the pay of public officers was that there was an implied term in the contract by which the Government undertook not to exercise such a power to legislate or, to be more precise, that the Government would not introduce legislation of such a kind.  However, no basis for implying such a term has been articulated and the authorities provide no support for such a proposition.  It is sufficient to refer to the observations of Devlin LJ (later Lord Devlin) in Commissioners of Crown Lands v. Page [1960] 2 QB 274 at 291:

"When the Crown, or any other person, is entrusted, whether by virtue of the prerogative or by statute, with discretionary powers to be exercised for the public good, it does not, when making a private contract in general terms, undertake (and it may be that it could not even with the use of specific language validly undertake) to fetter itself in the use of those powers, and in the exercise of its discretion."  

When regard is had to the wide range of possible exigencies, economic, political and social, which may confront a government and require the introduction of emergency, extraordinary or unexpected legislative measures, there is no sound basis for the implication of an undertaking that government will not introduce legislation to reduce public service pay or vary the terms of public officers' contracts of service.  Whether the Government could expressly undertake not to introduce legislation to reduce the pay to which a public servant was entitled pursuant to a contract is not a question which we have to decide. 

40.  The view, which was adopted in the majority judgment of the Court of Appeal, is that, under the contracts of service,

"pay could only be reduced and at the same time the contracts of employment remain intact if the public servants involved agreed to it." 

By this statement, the majority seem to have been referring to a reduction of pay, however brought about, including a reduction of pay by legislation.  The majority stated that the introduction of ss 10 and 15 suggested a recognition on the part of Government that, prior to the enactment of the Ordinances, the conditions of service of public officers did not include the possibility that pay could be reduced by simply passing legislation in terms of the operative provisions.  With respect to the majority in the Court of Appeal, the presence of ss 10 and 15 indicates, as the evidence demonstrates, that the Government was anxious to avoid any problems that might arise from the impact of the legislation on the contracts of service, not that the Government recognized that pay could not be reduced without provisions such as ss 10 and 15.  The sections were enacted for more abundant caution. 

41.  Moreover, there is, as I read the materials in evidence relating to the letters of appointment and the MOCS before 1 July 1997, no basis for concluding that there was an obligation expressly or impliedly undertaken by the Government not to introduce legislation for a reduction of pay.  While the materials indicate that the Government considered that there was doubt about its power to reduce public service pay simply by unilateral Executive action pursuant to the clause reserving its right to alter the terms of appointment and conditions of service, the materials provide no support at all for the view that contracts of service contained a promise or undertaking not to legislate for a pay reduction.  This conclusion has critical consequences for the approach taken by the majority in the Court of Appeal. 

42.  The plenary legislative powers enjoyed by the Legislative Council since 1 July 1997, subject to the Basic Law, are relevantly no less extensive than those that existed before that date.  These powers clearly extend to the alteration of a term in public officers' contracts of service and a reduction in their pay, subject, of course, to the provisions of the Basic Law.  Likewise, there is now no firmer basis for implying a contractual term against introducing legislation to reduce pay than there was before 1 July 1997.  If anything, the separation of powers, notably the separation of the legislative from the Executive power, effected by the Basic Law might make the case for making such an implication, if anything, even weaker. 

43.  Although Ma CJHC considered that there was an implied term in a public officer's contract of service that the contract is subject to legislation enacted in the public interest, there is no legal foundation for implying such a term in the contract.  The contract is subject to the exercise of any relevant legislative power but that is not by virtue of any provision in the contract; it is simply the natural consequence of the nature and scope of the legislative power. 

The authorities and the conclusions to be drawn from them

44.  In argument and in the judgments in the courts below, reference was made to various authorities which were said to bear on the questions just discussed.  I shall deal with these authorities briefly. 

45.  The judgment of the Court of Appeal in Lam Yuk Ming & Others v. Attorney General [1980] HKLR 815 is not opposed to the views I have expressed.  In that case, Roberts CJ said (at 831):

"Had we decided that there was a contract, but that the unilateral variation clause is inoperative, the result would have been that the Crown could not alter any term of a public officer's contract in future without his consent." 

This statement dealt with contractual variation of a public officer's contract.  It did not deal with legislative alteration.  The same comments apply to the judgment of Cons J in Choi Sum & Others v. The Attorney General [1976] HKLR 609. 

46.  On the other hand, the decision of the Privy Council in King v. Attorney General of Barbados [1994] 1 LRC 164 constitutes clear authority for the proposition that the legislature can validly enact a law for the reduction of the salary of a public servant.  In that case, the appellant was the holder of an office in the public service and was entitled to the emoluments attached to her office by virtue of an Order made in 1990 by a minister, in the exercise of powers conferred upon him by s.2 of the Civil Establishment Act 1948.  By a 1991 statute, Parliament reduced the rate of emolument payable to an officer in the public service by 8% for the period 1 October 1991 to 31 March 1993 as part of a Government austerity package.  It was accepted by the appellant that Parliament had jurisdiction to enact the 1991 statute but she claimed that the statute deprived her without compensation of property and, in this respect, contravened under ss 11 and 16 of the Constitution.  The Privy Council rejected this claim on the ground that she was not entitled to a minimum emolument because the minister had power under the 1948 Act to vary or revoke any order for the time being in force.  Lord Templeman, delivering the advice of the Board said (at 202e):

"... their Lordships can discern no possible justification for any implication that the emoluments attached to the office of the appellant in the public service shall never be reduced."

47.  Although King was not a contract case, the decision proceeded on the footing that a legislature with plenary power can validly enact a law to reduce the salary of public servants.  The minister's power to revoke an order for the time being in force was relevant only to alleged contravention of ss 11 and 16 of the Constitution.  The minister's power to revoke was not relevant to Parliament's jurisdiction to enact the 1991 Act, nor did it constitute, in any sense, authority for that Act. 

48.  So far as the validity of the law reducing a public servant's salary is concerned, it matters not whether the salary is payable under an order made pursuant to a statutory power or under a contract.  If the salary is payable under a contract, questions may arise as to the effect of the statute on the contract, but these questions do not touch the validity of the law.  I shall return to these questions later. 

49.  Mr Joseph Fok SC for the appellant argues that confirmation of the appellant's case is provided by the observation of Cummings JA in Nobrega v. Attorney-General of Guyana (1967) 10 WIR 187 relating to a Crown servant.  He said (at 206):

"In my view in order to justify a reduction in pay ... there must be an enabling term in the contract or provision in a relevant statute; failing either of these, any variation of the contract must be mutual."  (my emphasis)

Whether the words in italics refer to an enabling provision in a statute or an operative statutory provision which varies the contract or both is by no means clear.  In my view, Nobrega is not an authority which provides unequivocal support for the appellant's argument.  The argument is, however, not dependent on Nobrega for reasons already given.  

50.  It follows from what I have said about art.100, that it operates only to preclude a legislative reduction of a public officer's pay below the level of pay which prevailed before 1 July 1997.  The article does not guarantee any higher level of pay than that. This, as Hartmann J pointed out, is the answer to the respondents' submission. 

51.  Accordingly, the operative provisions in the two Ordinances, namely ss 4 to 6 of Cap. 574 and ss 4 to 11 of Cap. 580, which provided directly for the reduction of pay of various categories of public officers are valid enactments.  As already noted, the orders made by the majority in the Court of Appeal did not decide otherwise.  The declarations of unconstitutionality were confined to s.10 of Cap. 574 and s.15 of Cap. 580.  The validity of the operative provisions was not dependent on the validity of these two sections. 

The legal consequences of the validity of the operative provisions of the Ordinances

52.  The effect of the operative provisions was to adjust the relevant pay scales, reduce the pay to which public officers were entitled under their contracts of service and, to the extent necessary, vary those contracts, even if, ss 10 and 15 were ineffective to provide a contractual justification for the reduction in pay.  The Ordinances thereby altered the pay to which the public officers would otherwise have been entitled. 

53.  Although the majority in the Court of Appeal thought that this would or could result in frustration of the contracts of service, this observation does not deny the valid operation of the operative provisions of the two Ordinances.  Further, as the Ordinances proceed on the firm basis that the contracts of service remain on foot, it is impossible to say that the effect of the Ordinances is to terminate the contracts according to the doctrine of frustration.  The Ordinances have done no more than alter the pay scales.  Whether this alteration constituted a variation of a term of the contracts is by no means clear.  But the Ordinances and the arguments advanced by the parties assume that the alteration of the pay scales is a variation of the contracts of service.  The courts below have dealt with the case on this basis and this Court should proceed accordingly.  Importantly, the Ordinances have not brought about a situation in which performance of the contracts has become impossible.  The respondents do not suggest that their contracts of service have terminated. 

The validity of ss 10 and 15

54.  The object of ss 10 and 15 was to ensure that a reduction in pay did not result in a breach of the contracts of service or a termination of them by other means.  That the sections were unnecessary because the operative provisions were themselves sufficient to achieve this result does not affect the validity of the two sections. 

55.  Although the significance of the reference by the majority in the Court of Appeal to the two provisions as giving authority to the Government to reduce the pay of public officers unilaterally is not altogether clear, in my view, they mean Executive action to introduce and enact legislation reducing pay.  There is, as I have pointed out, a fundamental difference between unilateral reduction of pay by the Executive Government and reduction of pay by legislative action.  Contractual authority is required for the first but not for the second.  The majority in the Court of Appeal was mistaken in thinking that contractual authority was needed for the second.  Their thinking was based on their view, previously discussed, that the Government was under a contractual obligation not to introduce legislation reducing pay, a view which cannot be supported. 

56.  All that ss 10 and 15 provide for is the variation of the contracts of service so as to expressly authorize the specific reductions in pay brought about by the operative provisions.  This contractual variation, of course, reflects the variation effected by the legislative reduction of pay itself. 

57.  The critical question is whether the provision introduced into the contracts of service by ss 10 and 15 renders the conditions of service of the relevant public officers "less favourable" than they were before.  If the effect of the two sections was to enable the Government by its future Executive action unilaterally to reduce public officers' pay and vary their conditions of service to that extent, it could be said that the legislation introduced provisions into the contract of service which exposed public officers to detrimental Executive action to which they were not exposed before 1 July 1997 and, in this respect, rendered their conditions of service "less favourable" than they were before that date. 

58.  But that was not the effect of the two sections.  Instead, they simply varied the contracts of service so that the contracts authorized the specific legislation in question.  Because the contracts contained no implied undertaking against introducing or enacting the legislation, neither the introduction nor the enactment of the legislation required contractual authority in order to avoid a breach by the Government of the contracts of service.  So there was no need to enact ss 10 and 15.  The critical point is, however, that the two sections did not render the conditions of service less favourable than they were before 1 July 1997.  The conditions of service, both before and after that date, were exposed to a variation by way of a reduction of pay through legislative action which was not dependent for its validity on contractual authority.  In these circumstances, neither s.10 nor s.15 introduced a term into the contracts which made the conditions of service "less favourable" than they were before 1 July 1997, within the meaning of art.100 of the Basic Law. 

The respondents' case based on art.103 of the Basic Law

59.  In the February judgment, Hartmann J summarized the respondent Mr Scott's challenge, based on art.103 to Cap. 580 as follows:

"(a) In assessing any adjustment in public officers' pay, the Government is obliged to adhere to the 'system' established before the change of sovereignty.  Art.103 guarantees the continuance of that system in that it guarantees the continuance of the 'special bodies' responsible for operating that system and, in addition, guarantees that the public service system of 'employment' and 'management', which must include matters of remuneration, will be maintained. 

 (b) However, in assessing the adjustment of public officers' pay for the purpose of the 2003 Ordinance, there was a failure to adhere to the system.  That failure was a failure to conduct what is known as a Pay Trend Survey, such a survey having become an established part of the system employed for assessing adjustments to public service pay. 

 (c) Instead of conducting the Pay Trend Survey, thereby adhering to the constitutionally entrenched system, the Government purported to reach agreement with staff representatives as to the amount of the pay adjustment and the manner in which that adjustment would be implemented.

 (d) As it was, however, there was no genuine consensus reached with staff representatives.  But even if a genuine consensus was reached, that could not justify a failure to comply with art.103."

The decision not to conduct a Pay Trend Survey

60.  The Government's decision not to conduct a PTS arose out of the following events:

"(i)  In December 2001, Government announced its decision to carry out a comprehensive review of the civil service pay system.  The objects of the review were to -

'... identify ways to improve the civil service pay system having regard to best practices elsewhere, with a view to making it simpler and easier to administer, and building in more flexibility to facilitate better matching of jobs, talents and pay.'

(ii)  In April 2002, the task force given the responsibility of carrying out the review published a study.  In that study it was recommended that an improved system should be created.  In making its recommendations, the task force identified a number of criticisms of the methodology of the annual Pay Trend Survey.

(iii)  After a period of public consultation, Government accepted the recommendations of the task force and the infrastructure was set up to design an improved system.  That design process is still to be completed.

(iv)  In respect of the 2003 annual pay adjustment; that is, the adjustment reflected in the 2003 Ordinance, in September 2002 a working group was formed.  It comprised members of Government and staff representatives.  A number of meetings were held to try and reach consensus.

(v)  In December 2002, the working group was told that Government was facing severe fiscal deficit problems.  In this regard, Ms Jessie Yip, Deputy Secretary for Civil Service, in her affirmation filed for the present proceedings, made the following observations:

'The consolidated deficit was $72.4 million as at end October 2002 and it was expected that the full year consolidated deficit for 2002-03 would be much larger than the original estimate of $45.2 billion.  The Financial Secretary briefed the Legislative Council on the fiscal deficit and exchanged views on proposed measures to tackle the problem.  It was clear that the Government had to tackle the fiscal deficit resolutely and proactively; otherwise the stability of the monetary system and the economy of Hong Kong would be at stake.'

(vi) On 21 February 2003, the Secretary for Civil Service attended what has been described as an 'informal meeting' of the working group.  He put two matters in particular to the working group.  First, that it was considered inappropriate to conduct an annual Pay Trend Survey until the criticised methodology of its operation had been fully considered and, second, having regard to the state of the economy, civil service pay should not be frozen, as many staff representatives had suggested, but should be brought back to the levels at which it had stood on 30 June 1997, immediately before the change of sovereignty. 

(vii)  This informal meeting resulted in a consensus being reached.  This consensus was to the following effect; first, that civil service pay would be reduced (in two tranches) to the levels suggested by the Secretary for Civil Service; second, that the reduction would be implemented by way of legislation, and, third, as a separate exercise, Government would work in consultation with civil service representatives to improve the existing system of civil service pay including the methodology of Pay Trend Surveys. 

(viii)  On 25 February 2003, the Chief Executive in Council made orders that accorded with this consensus.  A consequential order was that there would be no annual Pay Trend Survey for the two years covered by the two-tranche reduction of pay but that thereafter Pay Trend Survey would be conducted on the basis of improved methodology."

61.  Although Mr Scott suggested that consensus reached with staff should be disregarded because it was brought about by "duress", there is no evidence which would support such a finding.  Although some staff members were reluctant to agree to a compromise and only did so grudgingly, Hartmann J accepted that there was a broad consensus and found that there was no evidence to support a case of bad faith or unfair and undue pressure on the part of the Government. 

62.  Mr Scott also criticised the Government on the ground that it was not facing severe fiscal deficit problems and that if it was, these were of its own making and should not be visited on civil servants to the exclusion of the public at large.  Hartmann J ruled that these criticisms went to the correctness of the Government's economic policies and not to any legal issue before the Court. 

63.  In this Court, Mr Scott argues that:

(1) the failure to conduct a PTS is a breach of art.103;

(2) the consensus with staff representatives cannot justify the failure to conduct a PTS;

(3) in any event, there was no consensus with staff representatives;

(4) the Government has taken a contradictory approach to art.103 as between Cap. 574 and Cap. 580; and

(5) the pay reduction effected by Cap. 580 was the result of "changed economic ideology not necessity". 

The interpretation of art.103

64.  Article 103 derives from paras 77 and 78 of the annotated version of the Joint Declaration.  These paragraphs provide as follows:

"77 & 78

The appointment and promotion of public servants shall be on the basis of qualifications, experience and ability.  Hong Kong's previous system of recruitment, employment, assessment, discipline, training and management for the public service (including special bodies for appointment, pay and conditions of service) shall, save for any provisions providing privileged treatment for foreign nationals, be maintained."

65.  The second sentence of art.103 is designed to preserve the continuity of Hong Kong's previous system of recruitment, employment, assessment, discipline, training and management for the public service, including special bodies for their appointment, pay and conditions of service, excepting provisions for privileged treatment of foreign nationals.  It is the continuity of that system that is preserved.  Preservation of that system does not entail preservation of all the elements of which the system consists.  Some elements may change and be modified or replaced without affecting the continuity of the system as a whole.  Some degree of change is to be expected in any system governing the public service, not least in the aspects of the system mentioned in art.103.  It could not have been contemplated that there was to be no change at all in the aspects of the system to which art.103 refers.  As Hartmann J pointed out in the June judgment:

"... Art.103 cannot therefore be interpreted in such a narrow way as to inhibit all introduction of new measures for the good governance of the public service and thereby for the good governance of Hong Kong, the public service being the constitutionally recognised servant of Hong Kong."

66.  The broad question is, as Hartmann J noted in the February judgment, whether the system continues or whether it is so materially changed that it becomes another system.  The more specific question is whether the failure to conduct the PTS for the purposes of Cap. 580 was such a material change that it resulted in the abandonment of the previous system, involving the prevention of the "special bodies" responsible for pay and conditions from fulfilling their protected functions. 

67.  In the November judgment, Ma CJHC recognized, correctly in my view, that what the second sentence in art.103 relevantly guarantees is the continuation of Hong Kong's system of public service "employment" and "management"?, not the continuation of any system of public service "pay and conditions of service".  Instead, it guarantees the continuation of the "special bodies", whatever they may be, responsible for public service pay and conditions of service. 

68.  It follows that while these special bodies must be maintained, they are not obliged to maintain any previous mechanism regulating pay and conditions of service, such mechanism being only an element of the system.  These bodies may change the previous mechanism regulating pay and conditions of service provided, as Hartmann J pointed out, that the change does not change the previous system of public service "recruitment, employment, assessment, discipline, training and management".  Identification of the "special bodies" requires an examination of the previous system of pay adjustment. 

The previous system of pay adjustment

69.  The previous system of pay adjustment was described in the evidence presented by the Government, in particular by Ms Jessie Yip Yin Mei in her affirmation.  It was summarized by Hartmann J in the February 2005 and that summary is sufficient for the purposes of this appeal.  For not less than 20 years before 1 July 1997, maintaining a fair comparability between civil service pay and private sector pay was one of the principles governing the mechanism by which public service pay was adjusted. 

70.  In order to give effect to the principle of fair comparability, two mechanisms were employed: 

"(i)  First, from time to time Pay Level Surveys have been conducted.  In her affirmation filed for the purposes of these proceedings, Ms Jessie Yip has described these as reviews of the pay relativities between the civil service and the private sector.  The purpose of these reviews has been, in so far as it is possible, to ensure that pay levels for comparable jobs should be broadly the same.

(ii) Second, to try and ensure that pay levels remain broadly the same, reviews have been conducted of the year-on-year movement in private sector pay.  These Pay Trend Surveys, as they are called, indicated the trends in private sector pay, whether inflationary, deflationary or static, so that they may be reflected in public service pay adjustments." 

71.  In 1979 the Standing Commission on Civil Service Salaries and Conditions of Service ("the Standing Commission"), in its report, considered that the principle of fair comparison should be an important factor but not the first principle in setting civil service pay.  Indeed, the Standing Commission recommended that, when necessary, Hong Kong's economic circumstances should be the decisive factor in determining public sector pay.  The Commission said:

"... from the point of view of the public, civil service pay must have regard to the economic circumstances of Hong Kong as a whole.  If the economy is buoyant it is right and proper that civil servants should share in the benefits.  If the economy is depressed it is equally right that civil servants should share the burden of any necessary measures to limit expenditure."  [emphasis supplied]

72.  The PTS is not the only factor taken into account in the civil service pay adjustment exercise.  Ms Jessie Yip Yin Mei, in her affirmation, stated that other factors are the state of the economy, budgetary considerations, changes in the cost of living, pay claims of the staff sides of the consultative councils and civil service morale.  Indeed, according to the evidence, accepted by the Court of Appeal, there have been many occasions when the results of the survey have not been accepted in adjusting public service pay.  In over 40% of the time between 1975 and 2000 (inclusive), the result of the PTS was not followed when adjustments to civil service pay were made. 

73.  Mr Scott, though accepting that private sector pay trends could be ignored when it was rational to do so, argues that art.103 requires the survey to be undertaken because the collection of the data is essential to the established system and the bodies responsible for collecting and analyzing the data are "special bodies" within the meaning of the article. 

74.  Hartmann J concluded, correctly in my view, that the history of the Government's use of the PTS demonstrated that the Government had a discretion to take account of the principle of fair comparison but was not bound to do so.  As the Government was able wholly to set aside a consideration of the fair comparison principle, it could be under no obligation to conduct a PTS when to do so would amount to a sterile exercise.  In other words, the conduct of a PTS was not so inherent an element in the scheme of determining pay adjustments that a failure to conduct a survey would of itself, no matter what the circumstances, constitute a breach of art.103.  In the nature of things, a provision which is designed to offer transitional protection to employees, such as art.103, is not intended to stultify the processes of government and prevent the capacity of government to reform and improve its processes when it appears that some aspect of the processes is serving no useful purpose or is not making a significant contribution to beneficial outcomes.  Mr Scott's argument attributes an operation to art.103 which is too far-reaching in preserving every aspect of the pre-existing scheme for adjusting public service pay. 

Special bodies

75.  According to Ms Jessie Yip Yin Mei, the PTS are carried out by a body called the Pay Survey and Research Unit ("the Unit').  This unit operates under the Standing Commission.  The results of the surveys are then "analyzed and validated" by the Pay Trend Survey Committee ("the Committee").  This committee is chaired by a member of the Standing Commission and has members drawn from the Standing Commission, the Standing Committee on Disciplined Services Salaries and Conditions of Service, the staff sides of the central consultative councils and the Government. 

76.  Hartmann J found that the Unit and the Committee produce gross pay indicators which are submitted to the Government so that adjustments may be made according to a settled formula in order to produce net pay indicators.  The Executive has regard to these net pay indicators in determining any pay adjustment.  The staff sides of the central consultative councils are consulted before the Chief Executive in Council reaches a final decision on any pay adjustment. 

77.  Contrary to Mr Scott's submission, the Unit and the Committee are not "special bodies" within the meaning of art.103.  There being no requirement to conduct a PTS, there can be no art.103 requirement to maintain the bodies responsible for a PTS. 

78.  To be contrasted with the Unit and the Committee are the three principal bodies with the responsibility of advising Government and making recommendations to it in relation to matters of public service pay and conditions.  These three bodies, formed before the resumption of sovereignty, are:

(i) the Standing Commission which was formed in 1979 and advises the Government in respect of all public servants other than members of the public service directorate, the disciplined services and the judiciary;

(ii) the Standing Committee on Disciplined Services Salaries and Conditions of Service ('the Standing Committee for Disciplined Services') which was formed in 1989 and advises Government in respect of all members of the disciplined services and;

(iii) the Standing Committee on Directorate Salaries and Conditions of Service ('the Standing Committee for the Directorate') which advises Government in respect of members of the public service holding directorate ranks. 

These three bodies continue to perform these functions to-day. 

79.  Immediately before 1 July 1997 the terms of reference of the Standing Commission required it to:

"... advise and make recommendations to the Governor in respect of the non-Directorate civil service, other than the Judiciary and the Disciplined Services, on whether overall reviews of pay scales (as opposed to reviews of the salary of individual grades) should continue to be based on surveys of pay trends in the private sector conducted by the Pay Survey and Research Unit, or whether some other mechanism should be substituted." 

It was therefore the responsibility of the Standing Commission to consider whether the PTS should be terminated and, if so, whether it should be replaced by some other exercise.  Mr Scott seeks to avoid this conclusion by arguing that the expression "overall reviews of pay scales" in the Commission's terms of reference did not refer to the annual pay adjustment exercise but to overall salary structure reviews which take place periodically and look to private and public sector comparative pay levels.  But, as Hartmann J stated, the expression is qualified by the words which follow:

"should continue to be based on surveys of pay trends in the private sector". 

According to the evidence, the PTS are used only in connection with the annual pay adjustment exercises.  So the expression "overall reviews of pay scales" certainly applies to those exercises, even if it be wide enough to cover other reviews as well. 

80.  As at 1 July 1997 the terms of reference of the Standing Committee for Disciplined Services require it to:

"... advise and make recommendations to the Governor in respect of the disciplined services on any matters affecting the disciplined services that require to be specially considered in relation to the machinery for the regular overall review of public service pay below the bottom point of the directorate in the general civil service; and annual pay awards for ranks and grades remunerated at levels equivalent to or above the bottom point of the directorate in the general civil service." 

Again, the expression "overall review of public service pay", must be taken to apply to the annual pay adjustment exercise. 

81.  Accordingly, Hartmann J was correct in concluding that art.103 does not guarantee the continued existence of the Unit or the Committee and that art.103's guarantee of the continuation of the public service system of "employment and management" does not require that a PTS must be conducted every time that public service pay is to be adjusted. 

Mr Scott's other arguments

82.  Mr Scott's remaining arguments do not bear on the question whether the failure to conduct a PTS was a contravention of art.103.  They are, with one exception, criticisms of the decisions made by the Government and of the justifications which it has made publicly for not conducting PTS in the relevant pay adjustment exercises.  It is unnecessary to deal with these arguments. 

83.  The exception relates to the suggestion that the Government adopted a contradictory approach in relying on a PTS to justify the pay reduction in Cap. 574 and asserting that no such survey was required in relation to Cap. 580.  The suggestion has no merit.  The Government was entitled to rely on the PTS in defending the validity of Cap. 574, even if, on the Government's view, art.103 did not require the Government to carry out the survey.  So long as art.103 did not impose an obligation on the Government to carry out the survey, it was a matter for the Government to decide whether or not the survey was to be conducted.  If it was conducted, then the Government was entitled to rely on it, without compromising its basic contention that art.103 did not require it. 

Locus standi of Mr Lau

84.  In the proceedings brought by Mr Lau, an issue of locus standi has arisen as a result of his dismissal from office after the commencement of the proceedings.  In subsequent proceedings, which have not been finally resolved, he has challenged his dismissal.  It is unnecessary for us to determine the issue of locus standi. 

Conclusion

85.  For the foregoing reasons, the operative provisions in the two Ordinances namely ss 4 to 6 of Cap. 574 and ss 4 to 11 of Cap. 580, and s.10 of Cap. 574 and s.15 of Cap. 580 are not inconsistent with arts. 100 and 103 of the Basic Law and are valid enactments of the Legislative Council. 

Costs

86.  In view of the desirability in the public interest of clarifying the important issues in these cases, I consider it appropriate that there should be no order as to costs in relation to the proceedings in this Court and in the courts below so that each party will bear its or his own costs. 

Orders

87.  FACV No. 15 of 2004

(1) Appeal allowed;

(2) Set aside the judgment and the orders of the Court of Appeal made on 29 November 2004;

(3) Restore the order made by Hartmann J on 10 June 2003 dismissing Mr Lau's application for judicial review in HCAL 177 of 2002;

(4) No order as to costs of the proceedings in this Court and in the courts below. 

88.  FACV No. 16 of 2004

(1) Appeal allowed;

(2) Set aside the judgment and the orders of the Court of Appeal made on 29 November 2004;

(3) Restore the order made by Hartmann J on 7 November 2003 dismissing Mr Scott's application for judicial review in HCAL 188 of 2002;

(4) No order as to costs of the proceedings in this Court and in the courts below. 

89.  FACV No. 8 of 2005

(1) Appeal allowed;

(2) Set aside the orders made by Hartmann J on 4 February 2005;

(3) Dismiss Mr Scott's application for judicial review in HCAL 38 of 2004;

(4) No order as to costs of the proceedings in this Court and in the courts below. 

Chief Justice Li :

90.  The Court unanimously makes the orders set out in paras 87, 88 and 89.