Lo Wai Keung v. Hannover Ruck Se

HCLA 7/2024

[2025] HKCFI 262

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

LABOUR TRIBUNAL APPEAL NO 7 OF 2024

(ON APPEAL FROM LABOUR TRIBUNAL CLAIM NO 666 OF 2023)

_____________

_____________

_______________

J U D G M E N T

_______________

Background

1.On 12 August 2024, I granted the Claimant (“Employee”)leave to appeal against the Decision of the Labour Tribunal (“Tribunal”)dated 5 March 2024 on the following question of law (“Leave Decision”):

“Whether the termination of the Contract was without notice, and the effect this may have on the Employee’s claims for damages in respect of the Employer’s alleged breach of the Contract of employment.”

2.The material facts are set out in the Leave Decision, and I do not intend to repeat them. The nomenclature of the Leave Decision is adopted.

The question for determination on appeal

3.As explained in paragraphs 30 and 31 of the Leave Decision, I considered it reasonably arguable that the Tribunal erred in law in equating termination by payment in lieu of notice with summary dismissal without notice. This arises from paragraph 46 of the Decision of the Tribunal, which states:

“一般而言，僱主選擇以代通知金終止合約(Termination by payment in lieu of wages)的方式解僱僱員是意味著僱主選擇立即終止僱傭合約關係，而不要求僱員在通知期內工作，並且向僱員支付其在通知期內應得的同等數額工資。因此，"以代通知金終止合約”是屬於“無通知終止合約”(Termination without notice)。僱主沒有向僱員提供須給予的通知期而是選擇向僱員支付代通知金從而立即終止僱傭關係。

Translated, it should read:

“Generally speaking, an employer who chooses to dismiss an employee in the form of termination by payment in lieu of wages connotes that the employer chooses to immediately terminate the contractual employment relationship, and does not require the employee to work throughout the notice period, and makes payment to the employee of an amount equivalent to the wages to be earned during the notice period. For that reason, “termination by payment in lieu of notice” belongs to “termination without notice”. The employer does not give the necessary period of notice to the employee but chooses instead to make to the employee payment in lieu of notice in order to immediately terminate the employment relationship.”

(Emphasis added)

4.On that basis, and apparently for the reasons set out in paragraphs 19 to 27 of the Leave Decision, the Tribunal found that the Employee’s termination falls within clause 4(1)(ii) of the Scheme Conditions (“Clause 4(1)(ii)”),which clause excludes the Employee’s entitlement to the relevant Share Awards.

5.Clause 4(1)(ii) is worded as follows:

“If the employment relationship with the manager ends, the manager shall retain his/her claims to the payment of the value of already allocated Share Awards following expiry of the applicable vesting period, unless termination of the employment contract is based upon … (ii) extraordinary cancellation without notice of the manager’s employment contract by Hannover Re or the subsidiary for reasons of conduct or for any other compelling reason that is the fault of the manager.” (Emphasis added)

6.At the hearing before me, counsel for the Employer Mr Charlie Liu accepted that for purposes of the appeal, the termination of the Contract was a termination “by payment in lieu of notice” within the meaning of section 7 of the Employment Ordinance, rather than a summary dismissal within the meaning of section 9 of the Employment Ordinance. Notwithstanding, it was submitted that a termination under section 7 satisfied Clause 4(1)(ii), in that it constituted an “extraordinary cancellation (of the employment) without notice”, thereby disentitling the Employee from claiming the Share Awards under the Scheme. The submission was advanced predominantly on the basis of contractual interpretation of the Scheme Conditions, which is governed by German law. There was no dispute before the Tribunal that German law was the governing law of the Scheme, although no expert evidence was called, and it is the Employer’s submission that German law is presumed to be the same as Hong Kong law in such circumstances.

7.A evident from paragraph 32 of the Leave Decision, leave to appeal was granted only on the question of law as to whether the termination of the Contract was without notice, and the effect this may have on the Employee’s claims for damages. The intended focus of this appeal was whether, in law, termination of the Contract by payment in lieu of notice, within the meaning of section 7 of the Employment Ordinance, constitutes termination with, or without, notice.

8.On appeal, Mr Liu for the Defendant does not dispute the analysis set out at paragraphs 28 and 29 of the Leave Decision, that there are clear distinctions in sections 6, 7 and 9 of the Employment Ordinance between termination of contracts of employment by notice, by payment in lieu of notice, and summary dismissal without notice, and that termination by payment in lieu of notice does not equate to termination without notice, or summary dismissal, as provided for under section 9 of the Ordinance. Counsel accepted, for purposes of the appeal, that the Employer in this case had chosen to terminate the Contract and the employment thereunder by payment in lieu of notice under section 7, and should be bound by that election and the consequences thereof.

9.Mr Liu chose to argue instead that on the facts of the case, the Employer’s termination under section 7 of the Ordinance falls within the meaning and scope of Clause 4(1)(ii) of the Scheme Conditions, as it constitutes: (1) termination without notice; and (2) termination for reasons of conduct or for any other compelling reason that is the fault of the Employee (“Clause 4 Termination”). He explained that this had throughout been the Employer’s contention and submissions before the Tribunal, as opposed to the Employee’s case that the mode of termination under Clause 4(1)(ii) is directly comparable with summary dismissal under section 9 of the Ordinance.

10.As rightly submitted by Counsel, the Tribunal came to her decision on the basis that, firstly, the Employee’s employment had been terminated without notice (paragraphs 44 to 47 of the Decision); and secondly, that the termination was based on the Employee’s conduct of non-compliance with the relevant guidelines or rules of the Employer (paragraphs 49 to 54 of the Decision).

11.Counsel pointed out that the Tribunal’s findings, that the Employee was at fault in failing to seek the necessary written approval from the Employer for various products, are findings of fact based on the evidence adduced before the Tribunal. In Chen Henry v William E Connor & Associates Ltd HCLA 51/2006, 14 May 2007, on an appeal from the Labour Tribunal, the Court explained:

“… the Labour Tribunal is a fact-finding tribunal whose finding of fact is conclusive. Section 32 of the Labour Tribunal Ordinance only permits appeal on the ground that an award of the tribunal is erroneous in point of law or outside the jurisdiction of the tribunal. Very often, an appeal from the decision of a fact-finding tribunal is dressed up as a question of law. In Kwong Mile Services Ltd v Commissioner of Inland Revenue [2004] 3 HKLRD 168, Bokhary PJ set out the approach of the appellate court in such an appeal at paragraph 37:

‘37. In an appeal on law only the appellate court must bear in mind what scope the circumstances provide for reasonable minds to differ as to the conclusion to be drawn from the primary facts found. If the fact-finding tribunal’s conclusion is a reasonable one, the appellate court cannot disturb that conclusion even if its own preference is for a contrary conclusion. But if the appellate court regards the contrary conclusion as the true and only reasonable one, the appellate court is duty-bound to substitute the contrary conclusion for the one reached by the fact-finding tribunal. The correct approach for the appellate court is composed essentially of the foregoing three propositions. These propositions complement each other, although the understandable tendency is for those attacking the fact-finding tribunal’s conclusion to stress the third one while those defending that conclusion stress the first two.’ ” (Emphasis added)

12.Counsel submits in this case that this Court is not entitled to interfere with or question the Tribunal’s finding that the termination of the Contract was based on the Employee’s conduct, or fault, and that in any event, such issue is outside the scope of the leave to appeal granted under the Leave Decision.

13.I accept the submissions made by Counsel for the Employer in this regard. The only review on this appeal is whether the Tribunal erred in law in finding that there was a termination of the Contract without notice, in circumstances when the termination had been by payment in lieu of notice, under section 7 of the Employment Ordinance. On that basis, whether there was evidence, or sufficient evidence, to support the Tribunal’s finding that the Employee was in breach of the Employer’s Guidelines and that he had been dismissed as a result of his misconduct; whether he had been informed of the claim of misconduct made against him; and whether the Employer’s conduct after the service of the letter of termination on the Employee suggested that the Employee continued to be in employment with benefits; are not relevant to this Court’s consideration of the question of law for which leave to appeal was granted.

The termination

14.What is undisputed, and is clear from the facts of the present case are that the Contract was purportedly terminated by the Employer’s Letter of 10 December 2020, stating that the employment would be terminated on 31 December 2020. Patently, this was short of the 6 months’ notice contractually required under the Duration Clause of the Contract. The Employer agreed to tender to the Employee payment in lieu of 6 months’ notice instead.

15.I accept the Employer’s contention, that the reference in Clause 4(1)(ii) to termination of the Contract based upon “extraordinary cancellation without notice” must mean without the contractual notice of 6 months as provided for in the Duration Clause. The period of notice provided for in the Letter (from 10 to 31 December 2020) does not constitute the contractual 6 months’ notice. The question is whether by electing to terminate the Contract by making payment in lieu of the 6 months’ contractual notice, which the Employer acknowledged to be the Employee’s entitlement, and made payment for such period of notice, the Employer can be said to have terminated the Contract with notice, or without notice.

16.On the issue of whether the Tribunal had erred in law, in her conclusion on the construction of Clause 4(1)(ii), that the Contract had been terminated “without notice”, neither Counsel for the Employer nor the Employee (who acts in person) can cite any authority directly on the nature of a termination by payment in lieu of notice, and whether it is equivalent to termination with, or without, notice. The most useful guidance I can find are the judgments of the English courts in Gothard v Mirror Group Newspapers Ltd (1988) ICR 729, 733 and Delaney v Staples [1992] 1 AC 687, 692, which shed some light on the nature of a payment in lieu of notice.

17.In Gothard v Mirror Group Newspapers Ltd, the English Court of Appeal was considering a case in which an employee was dismissed with money in lieu of notice. Lord Donaldson had this to say in his judgment:

“The starting point is my statement of law in Dixon v Stenor Ltd [1973] ICR 157, 158:

‘If a man is dismissed without notice but with money in lieu, what he receives is, as a matter of law, damages for breach of contract. During the period to which the money in lieu of notice relates he is not employed by his employer.’

Whilst it is open to this court to overrule this statement, I would not do so in the context in which it was made, namely, a consideration of whether an employee was still employed by the employer during the notice period when he had been paid ‘money in lieu’. If I had been confronted with the present problem, I hope and think that I should have rephrased it so that it read ‘If a man is dismissed without notice, but with money in lieu, what he receives is, as a matter of law, a payment which falls to be set against, and will usually be designed by the employer to extinguish, any claim for damages for breach of contract, ie wrongful dismissal. During the period to which the money in lieu relates he is not employed by his employer.’” (Emphasis added)

18.The above passage was referred to in Delaney v Staples, where the question was considered by Lord Browne-Wilkinson, at 692:

“Before turning to the Act of 1986, I must say a word about the nature of wages and payments in lieu of notice. The proper answer to this case turns on the special definition of ‘wages’ in section 7 of the Act. But it is important to approach such definition bearing in mind the normal meaning of that word. I agree with the Court of Appeal that the essential characteristic of wages is that they are consideration for work done or to be done under a contract of employment. If a payment is not referable to an obligation on the employee under a subsisting contract of employment to render his services it does not in my judgment fall within the ordinary meaning of the word ‘wages.’ It follows that if an employer terminates the employment (whether lawfully or not) any payment in respect of the period after the date of such termination is not a payment of wages (in the ordinary meaning of that word) since the employee is not under obligation to render services during that period.

The phrase ‘payment in lieu of notice’ is not a term of art. It is commonly used to describe many types of payment the legal analysis of which differs. Without attempting to give an exhaustive list, the following are the principal categories.

(1) An employer gives proper notice of termination to his employee, tells the employee that he need not work until the termination date and gives him the wages attributable to the notice period in a lump sum. In this case (commonly call ‘garden leave’) there is no breach of contract by the employer. The employment continues until the expiry of the notice: the lump sum payment is simply advance payment of wages.

(2) The contract of employment provides expressly that the employment may be terminated either by notice or, on payment of a sum in lieu of notice, summarily. In such a case if the employer summarily dismisses the employee he is not in breach of contract provided that he makes the payment in lieu. But the payment in lieu is not a payment of wages in the ordinary sense since it is not a payment for work to be done under the contract of employment.

(3) At the end of the employment, the employer and the employee agree that the employment is to terminate forthwith on payment of a sum in lieu of notice. Again, the employer is not in breach of contract by dismissing summarily and the payment in lieu is not strictly wages since it is not remuneration for work done during the continuance of the employment.

(4) Without the agreement of the employee, the employer summarily dismisses the employee and tenders a payment in lieu of proper notice. This is by far the most common type of payment in lieu and the present case falls into this category. The employer is in breach of contract by dismissing the employee without proper notice. However, the summary dismissal is effective to put an end to the employment relationship, whether or not it unilaterally discharges the contract of employment. Since the employment relationship has ended no further services are to be rendered by the employee under the contract. It follows that the payment in lieu is not a payment of wages in the ordinary sense since it is not a payment for work done under the contract of employment.

The nature of a payment in lieu falling within the fourth category has been analysed as a payment by the employer on account of the employee’s claim for damages for breach of contract. In Gothard v. Mirror Group Newspapers Ltd. [1988] I.C.R. 729, 733, Lord Donaldson of Lymington M.R. stated the position to be as follows:

‘If a man is dismissed without notice, but with money in lieu, what he receives is, as a matter of law, payment which falls to be set against, and will usually be designed by the employer to extinguish, any claim for damages for breach of contract, i.e. wrongful dismissal. During the period to which the money in lieu relates he is not employed by his employer.’

In my view that statement is the only possible legal analysis of a payment in lieu of the fourth category. But it is not, and was not meant to be, an analysis of a payment in lieu of the first three categories, in none of which is the dismissal a breach of contract by the employer. In the first three categories, the employee is entitled to the payment in lieu not as damages for breach of contract but under a contractual obligation on the employer to make the payment.” (Emphasis added)

19.What the above observations show is that in instances when a payment in lieu is made in the absence of the service of the contractual period of notice, the payment is regarded by the court as a payment by the employer on account of the employee’s claim for damages for the employer’s breach of contract. The employment comes to an end, and the payment in lieu is treated as damages payable to the employee in respect of the employer’s breach of contract by the latter’s failure to serve the requisite contractual period of notice.

20.If the termination by payment in lieu is equivalent to termination with proper contractual notice, the employee’s entitlement to which is recognized by and reflected in the payment in lieu made by the employer, there will be no question of any breach, and no cause for the payment of damages.

21.This is of course further amplified by the plain and natural meaning of the term “payment in lieu of notice”, namely, that the payment is made as a substitute for notice, and dispensing with notice.

22.I therefore find that as a matter of law, when the Employer terminated the Contract by agreeing and making payment in lieu of the 6 months’ notice required, it had terminated the employment without notice. There was accordingly no error in law in the Tribunal’s finding in the context of her construction of Clause 4(1)(ii) of the Scheme Conditions. As held above, the Tribunal’s finding on the second limb, that the termination was based on the Employee’s conduct, is not the subject of any permissible appeal under section 32 of the Labour Tribunal Ordinance. In any event, it is not a conclusion which can be disturbed within the limited confines described in Kwong Mile Services Ltd. On her construction of Clause 4(1)(ii), the Tribunal found that the Employee had no claims under the Scheme to the relevant Share Awards when his employment had been terminated without notice by reason of his conduct.

Disposition

23.The appeal on the question of law identified in the Leave Decision is accordingly dismissed, with costs to the Employer including certificate for counsel, to be taxed if not agreed.

The claimant/appellant appeared in person

Mr Charlie Liu, instructed by Lewis Silkin, for the defendant/respondent