Universal Dockyard Ltd v. Ho King Sang Nicholas
Read the full judgment text of CACV 83/1978 on BabelCite. This Court of Appeal judgment was delivered on 28 March 1979.
1. The respondent was employed by the appellants as a civil engineer. He commenced work in October 1976. But on June 6th, 1977 the appellants sent him a letter which purported to terminate his employment "in view of the necessity to make certain organisational changes". The termination of the contract was not on account of any conduct of the respondent.
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CACV000083/1978
Coram: Briggs, C.J., Huggins & Pickering, JJ.A. Date of Judgment: 28 March 1979 ----------------- JUDGMENT ----------------- 1. The respondent was employed by the appellants as a civil engineer. He commenced work in October 1976. But on June 6th, 1977 the appellants sent him a letter which purported to terminate his employment "in view of the necessity to make certain organisational changes". The termination of the contract was not on account of any conduct of the respondent. 2. The appellants purported to give the respondent one month's notice of the termination of his contract. The respondent immediately pointed out that his contract provided for a period of two months' notice. And, in addition, he drew the attention of the appellants to another term of his contract whereby, according to him, he was entitled to a gratuity at so much per month for the period of time he had worked for the appellants. 3. The appellants conceded that the correct period of notice was two months and they rectified their mistake. However, they denied that any amount of gratuity was payable since the respondent had not been in their employment for one year. The point at issue in this appeal is therefore simple. Did the parties agree that upon the termination of the contract the respondent was entitled to a gratuity per month? Or was a gratuity only payable by the appellants at the end of each year? It is common ground that though the word "gratuity" was used by the parties the word "bonus" is more applicable. 4. The trial judge found the true position to be that a bonus pro rata was payable. And he awarded the respondent a sum representing a bonus pro rata for each month the respondent had been in the appellants' employment, i.e. for ten months in all. 5. At the trial in the court below, the respondent alone gave evidence. The appellants were content to rely upon that evidence, part of which was contained in certain documents which had passed between the parties and which were referred to in his evidence by the respondent. 6. The respondent said that he had various interviews with a representative of the appellant company. He had received a letter from a well-known company, the Mass Transit Railway, in which certain terms of employment were set out. This was an offer of employment. One of the terms provided for a "gratuity" to be paid pro rata for every month he was in employment. This letter, he said, was in front of the representative of the appellants who interviewed him. His whole case was that he wanted terms of employment better than those contained in the offer of the Mass Transit Railway. However, he also admitted that the salary offered to him by the appellants was on a higher scale than that contained in the Mass Transit Railway offer. He also said that the representative of the appellants did not actually read the Mass Transit Railway offer. 7. After the respondent had commenced work, he received a written document which reads as follows:-
8. This was signed by a representative of the appellant company and it was attached to another document which set out certain "conditions of service". The respondent was requested to sign and return the portion of the agreement recorded above. This he did not do. 9. The case for the appellant company is that the above document clearly states that a gratuity is only payable upon the completion of a year's service. It does not provide for a gratuity at so much per month: it provides that a gratuity of $20,000 will be paid at the end of the first year of the contract and a second gratuity of $25,000 will be paid at the end of the second year of the contract. 10. The case for the respondent is that the contract between the parties was made partly in this document, partly orally at the interviews and partly by conduct. He said that it was his intention that his contract would be on terms more favourable to him than those provided for in the Mass Transit Railway offer. 11. He contended that the court should construe the contract to mean that a gratuity was payable pro rata if the contract of employment was terminated prior to one year. 12. The judge said he had difficulty in deciding the details of the exact terms of the contract between the parties and he seems to have been very impressed by the thought that if the contract was determined before the completion of the first year at the instance of the appellants and through no fault of the respondent, as was the case, no gratuity would be payable. The respondent said that a gratuity of 25% was mentioned at the interview with the representative of the appellants, but that a gratuity pro rata was not. However, he said, it was understood. The reason was that Mr. Leung, the representative, "should know" - presumably should know that gratuities are generally payable pro rata in contracts of employment of civil engineers. 13. The judge drew the inference from this that there had been an oral agreement between the parties that a pro rata gratuity would be paid. I do not think that such an inference can properly be drawn. 14. In my view, there was ample evidence that the respondent considered that that written document formed at least part of the contract between the parties. And the judge so found. It is true that the written document does not cover every term of the contract as was pointed out by Mr. Barretto, who appeared for the respondent. But the respondent did accept these terms as part of his contract of employment. 15. Those terms in themselves are very clear. A gratuity is to be paid upon completion of a year's service and again on the completion of a second years' service. We are asked to imply that by this written document apart from the oral evidence of the respondent, the parties intended that a pro rata gratuity was payable and that an implied term to that effect must be read into it. For the life of me, I cannot see why. The words are clear and require no 'interpretation'. 16. In the famous case of The Moorcock(1) it was held that a term will be implied if it is necessary in the business sense to give business efficacy to the contract. But that is not the case here. 17. In Shirlaw v. Southern Foundries (1926) Ltd.(2) MacKinnon, L.J. stated the test to be applied when deciding whether a term should be implied in a written contract thus:-
18. Applying that test in the present case, I do not think that the parties would have answered the "officious bystander" with words to the effect that, of course, a pro rata gratuity was intended by the parties. 19. As I have said the judge considered the terms without any qualification to be unreasonable. But, with respect, if the words are clear and unambiguous reasonableness is not the test. Mr. Poon, on behalf of the appellant, referred to the judgment of Lord Pearson in Trollope v. N.W. Metropolitan Hospital Board(3) for this proposition. At page 609 of that case appear the following words:-
20. Finally, it is wrong to imply a term in a written contract if the contract is effective without it. See French and Company Ltd. v. Leeston Shipping Company Ltd.(4) The written document clearly covered the payment of a gratuity. This was accepted by the plaintiff apparently without demur. The words are clear and must bear their ordinary meaning which is that a gratuity of $20,000 was payable on the completion of one year's service, and a second gratuity of $25,000 was payable on the completion of a second years' service. 21. This appeal must therefore be allowed with costs here and below.
Representation: W. Poon (Lau, Chan & Ko) for appellant Barretto (Edmund Cheung & Co.) for respondent (1) (1889) 14 P.D. 64. (2) (1939) 2 K.B. 206. (3) (1973) 1 W.L.R. 601. (4) (1922) 1 A.C. 451.
----------------- Coram: Briggs, C.J., Huggins and Pickering, JJ.A. Date of Judgment: 28 March 1979 ----------------- JUDGMENT ----------------- Huggins, J.A. : 22. I agree, but as we are differing from the learned District Judge I will state my reasons. 23. I understand it to have been common ground that what was described as a "gratuity" was not a gratuity at all but a bonus to which Mr. Ho would be legally entitled provided that he fulfilled the condition precedent. The issue in the case was as to the terms of that condition. Mr. Barretto on behalf of Mr. Ho contended that the condition was merely that his client should have worked for some part of the first of the two years contemplated by the contract of employment, whereupon he should be entitled "on a pro rata basis up to a total of $20,000". It is the contention of the employer that the condition for the payment of the bonus was completion of the first year's employment and that it was a case where the employee was to receive all the $20,000 or nothing. 24. The judge appears to have found, first, that there was an express term that Mr. Ho should be paid pro rata in the event of termination of his contract before the expiration of one year, although I think it was conceded that that would not apply if Mr. Ho were dismissed for reasons of his misconduct (which, I hasten to add, was certainly not the situation which has arisen). In the alternative, the judge found that even if there was no such express term there was an implied term to the same effect. 25. The learned judge was not entirely consistent as to the maximum amount of the bonus which might become payable, for he based his award on the figure of $20,000 and yet said: "I am satisfied that his total package would be $9,000 a month's salary plus a 25% gratuity". A year's salary at $9,000 a month would be $108,000 and 25% of that would be $27,000. This was a slip and it has not been contended that the 25% which is payable under some other engineers' contracts could have been claimed by Mr. Ho under any circumstances. 26. The judge then approached the issue of fact in an unusual way: instead of asking himself from the outset what had been agreed, he asked himself what had not been agreed, and he said:
The truth is that there was no discussion about what would happen if Mr. Ho were dismissed before he completed a full year. It is therefore correct that Mr. Ho did not accept that in that event he would receive no bonus at all, but whether the employer so intended or not we do not know, because no evidence was called on behalf of the Defendant: nor is it material, for the intention of the employer must be ascertained from the outward manifestations of intention. In my view the inference drawn by the learned judge from the outward manifestations which he himself found was not justified. His judgment continues:
With respect I do not think the employer was under any burden to call evidence to rebut what Mr. Ho had said. Mr. Ho had expressed his own understanding of the situation, but, although he had asserted that Mr. Leung (a director of the employer) had had the same understanding, he had indicated nothing which had been said or done by Mr. Leung which supported that assertion. On the contrary, he had indicated that he based his assertion on his belief that Mr. Leung "should know". What he "should know" is not entirely clear: was it that other engineers' contracts contained the "pro rata condition"? Or that Mr. Ho would not agree unless such a condition were included? The learned judge may well have been right in saying that Mr. Ho considered there was an understanding between him and Mr. Leung that the bonus would be paid pro rata, but the vital question was whether Mr. Leung had in fact so agreed. Counsel has been unable to point out any evidence that he had. On the contrary, the note of the calculations which were made in the course of the interview on 24th August 1976 refers to "the monthly salary and annual gratuity" and indicates that the "gratuity" was payable "per year". 27. Since the draft agreement was not drawn up until more than a month after the beginning of the employment, this was hardly a case, as suggested in the judgment, where persons acted on the basis of an unexecuted document so as to be bound by it. However, with reference to the draft the judge said:
If that was right the "pro rata condition" argued for by Mr. Barretto is in direct conflict with the terms found to have been agreed, because "completion of one year service", although ungrammatical, could mean only one thing, "payment if and when one year's service has been completed". The fact that Mr. Ho did not question the terms of the draft was some evidence that they represented what had been agreed, but the weight of that evidence would be slight if Mr. Ho was telling the truth when he said he did not regard this draft as being the "formal contract" which he was waiting for. 28. The learned judge went on to consider what would be the position on the assumption that he was wrong in finding an express term in favour of the employee. He introduced this part of his judgment thus:
I do not think the learned judge was being asked to "read such a clause into" "the agreement of 22nd of November" - or into the contract between the parties: he was being asked (by the employee) to read into the contract a "pro rata condition" in order to give business efficacy to the contract, "as otherwise the employer could always escape liability". That was not how the case had been pleaded, but, be that as it may, I see no necessity to imply the term contended for by Mr. Barretto. It is by no means uncommon to find contracts under which a bonus becomes payable only upon satisfactory completion of a specified period of employment. It is no doubt normally intended as an incentive to the employee to remain in the employment. I appreciate that, in a case where the employer is given power to determine the contract within the specified period, it is ungenerous if that power is exercised without compensating the employee for the loss of his opportunity to earn the bonus, but, with respect, I could not agree that such a contract was absurd or lacked business efficacy. Of course, a prospective employee could decline to enter into such a contract unless provision was made for the eventuality of premature determination. Mr. Ho thought he had secured such a provision, but he had not, and it is not for the courts to supply the omission, however reasonable such a term might be and however much the judges may commiserate with him in his misfortune. The law on the subject is encapsulated in the following passage from the speech of Lord Pearson in Trollope & Colls Ltd. v North West Metropolitan Regional Hospital Board 1973 1 W.L.R. 601, 609C:
The term relied upon by Mr. Barretto does not satisfy those conditions. 29. As some mention was made in the course of the argument of the payments made to some employees in Hong Kong at the Chinese New Year, I wish to add that there was no evidence in the present case concerning a custom of any kind in relation to pro rata payments. The decisions of the Labour Tribunal in relation to customary payments can have no relevance here. 28th March 1979.
----------------- Coram: Briggs, C.J., Huggins and Pickering, JJ.A. Date of Judgment: 28 March 1979 ----------------- JUDGMENT ----------------- Pickering, J.A. : 30. I concur and cannot usefully add anything to a topic which has been exhaustively covered by my brethren. Representation: Winston Poon (Lau, Chan & Ko) for Appellant. R. Barretto (Edmund Cheung & Co.) for Respondent. |