Chan Chi Loi v. Cheng for and Others
Read the full judgment text of CACV 243/2003 on BabelCite. This Court of Appeal judgment was delivered on 17 December 2004.
1. The Plaintiff is a former teacher employed by Yuen Long Merchants Association Secondary School (‘the School’). The School is an aided school within the terms of the Education Ordinance (Cap. 279). It decided not to renew the Plaintiff’s contract of employment (‘the contract’). The background is fully set out in the judgment of Yeung JA which I respectfully adopt.
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CACV 243/2003 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO.243 OF 2003 (ON APPEAL FROM HCA NO. 22136OF 1998) _______________________ BETWEEN
______________________ Before: Hon Cheung , Yeung & Yuen JJA Date of Hearing: 23 November 2004 Date of Judgment: 17 December 2004 _________________ J U D G M E N T _________________
Hon Cheung JA : 1.The Plaintiff is a former teacher employed by Yuen Long Merchants Association Secondary School (‘the School’). The School is an aided school within the terms of the Education Ordinance (Cap. 279). It decided not to renew the Plaintiff’s contract of employment (‘the contract’). The background is fully set out in the judgment of Yeung JA which I respectfully adopt. The Code of Aid for Secondary Schools 2.The core issue in this case is whether ‘The Code of Aid for Secondary Schools’ (‘the Code’) applies to the contract between the Plaintiff and the School. The Code contains detail provisions on the management, financial arrangement and administration of the school. Specifically it contains elaborate procedures for the termination of a teacher’s contract. Part of contract 3.In the contract the Plaintiff agreed to be bound by the Code but there was no similar clause binding the School. In my view, despite this, the Code formed part of the contract between the Plaintiff and the School. Had the matter simply rests on the terms of the contract alone, the express inclusion of the Code for the Plaintiff and the total absence of a reciprocal observation by the School would certainly provide strong arguments that the parties had intended that only the Plaintiff was to be bound by the Code. But the matter does not end there. 4.The School is an aided school under the terms of the Education Ordinance (Cap. 279), section 3 of which defines such a school as one that receives subsidies from the Government in accordance with, among other things, the Code. In my view this puts a different complex on the case of incorporating the Code to the contract between the parties. 5.Starting with the premises that the School has to operate within the ambit of the Code in order to receive the subsidies from the government, it will take a strong case to argue that the School is not bound by the Code in its dealings with the teachers in matters affecting their contract. The matter goes beyond the point that the non-observance by the School of the Code merely constitutes a breach of its obligations with the Education Department. The very existence of the School is dependent on the observance of the Code. On this basis, I have no difficulties in finding that the Code was intended by the parties to be part of the contract term. As Chitty on Contracts 29th Ed, Vol. 1 Para. 13-004 observed :
6.In this case I just could not see how the School could comply with the Code without actually implementing its provisions when it dealt with its teachers in matters such as their termination. The only probable reason why the School’s obligation to observe the Code was not expressly included in the contract was because it was already understood by the School that it had to observe the Code in any event : it had to do so by reason of its existence as an aided school. I am not impressed by the argument that the Plaintiff could insist to have the school’s obligation expressly spelt out in the contract. The unequal bargaining power of the parties needs to be recognized. In this case the School had been acting on the basis that it had followed the Code in relation to the termination of the Plaintiff’s employment. In other words the Code was treated as part of the contract terms. While this only occurred subsequent to the formation of the contract, at the same time it must be the strongest indication that it was also the intention of the School at the time when it entered into the contract. I have no difficulties in finding on the facts of this case that must be the understanding of the Plaintiff as well. The implementation of the Code must be reciprocal when the Plaintiff himself was bound by the Code. Termination of employment 7.For the purpose of this case, the Code contains two relevant provisions on the termination of a contract of employment. They are clause 56(c) and (g).
8. In respect of the procedure under Appendix 17, the procedure is as follows :
9.Clause 3 of Appendix 18 expressly provides the above procedure ‘should be observed strictly’. 10.Clause 56(c) provides for termination by notice while Clause 56(g) deals with dismissal for reason. The two provisions are not in conflict. Which of the provision is applicable will depend on the circumstances of the case. Clause 56(c) clearly gives the School a right to terminate a teacher’s contract by notice. But, in my view, given the elaborate procedure set out in Clause 56(g), this right could only be invoked in circumstances other than those concerning the conduct or performance of the teacher. An example will be when a school has to terminate the teacher’s contract due to the drop in student enrolment. On the other hand, when the School intends to terminate the contract because of the performance of the teacher, clearly the procedure set out in Appendix 17 has to be followed. Procedure observed 11.In my view, even if this procedure had to be observed by the School, I entirely agree with the decision of Yam J that the procedure had been duly observed in this case. I further agree with the analysis of the case by Yeung JA. 12.I would, in the circumstances, dismiss the appeal and order the costs of the appeal be borne by the Plaintiff. Hon Yeung JA: 13.On 30 October 1998, the Plaintiff- Chan Chi Loi commenced proceeding in the Labour Tribunal against the 1st and 3rd defendants for breach of his contract of employment, and against the 2nd defendant for wrongful procurement of the termination of his contract of employment. 14.The Plaintiff’s total claim amounted to almost $6 million, comprising of the total loss of salary from 1 September 1998 until his expected date of retirement in 2005 together with the loss of provident fund, and the loss of profit from such provident fund over the same period. 15.The case was subsequently transferred to the High Court. 16.On 17 June 2003 Yam J (the judge) dismissed the Plaintiff’s claim with costs and he now appeals against such decision. 17.The Plaintiff, a Fine Arts graduate of the Chinese University was first employed by the 3rd defendant - Yuen Long Merchants Association Secondary School (the School) in 1982 as a temporary Art and Design teacher. 18.In 1983, the Plaintiff became a teacher on a two-year probation, teaching Art and Design, and Chinese to Form 1-3 students. In 1985, the Plaintiff became a permanent teacher under a contract from September 1985 to August 1986. The contract was renewable on a yearly basis. 19.The 1st defendants - ten of them, were members of the School Management Committee (the SMC) of the School for the academic year 1997/1998. 20.The School is a Government aided school governed by the Education Ordinance Cap. 279, (the Ordinance). 21.As a Government aided school, the School is subject to the Code of Aid for Secondary School (the Code) issued by the Permanent Secretary for Education and Manpower under the terms of which the Government gives subsidies to certain secondary schools. 22.The 1st defendants were managers and/or members of the SMC of the School appointed and registered under Part III of the Ordinance for the academic year 1997/1998. 23.The 2nd defendant- Tiu Pui Kwong (the Principal) was the Principal of the School. 24.At the end of the academic year of 1997/1998 in August 1998, the School, on the recommendation of the SMC, decided not to renew the Plaintiff’s contract. The School gave notice to such effect to the Plaintiff three months earlier, on 22 May 1998. 25.The Plaintiff claimed that the reasons for not renewing his contract were untrue and that such decision was in breach of the Code, which formed part of his contract of employment; hence both the SMC and the School were liable to him for breach of his contract of employment. 26.The Plaintiff also claimed that the 2nd defendant had wrongfully and maliciously procured the SMC and the School to terminate his contract of employment and should therefore be liable to him for damages. 27.It was not disputed that in or about May each year, the School would issue letters of offer to all teachers, stipulating that the offers were made for the academic year commencing in September of that year and that the teachers must follow and obey the Code, the Education Ordinance, other regulations and directions of the Education Department, and the terms and conditions for teachers of the School. 28.For the academic year of 1997/1998, the Plaintiff was offered a yearly contract in a Chinese letter dated 22 May 1997, containing the following terms in Chinese:
29.Annexed to the letter of offer were the terms and conditions for teachers in Chinese as follows:
30.On 22 May 1997, the Plaintiff signed a Chinese letter of acceptance in which he stated that he would comply with the Code, and other regulations and conditions. The contents of the letter of acceptance is reproduced in full as follows:
31.The relevant clauses of the Code stipulate:
32.Appendix 17 referred to in clause 56 of the Code is in the following terms:
33.It was the Plaintiff’s contention that the Code together with the Appendices formed the implied terms of his contract of employment and that he could only be dismissed strictly in accordance with the procedure laid down in Appendix 17. 34.The Plaintiff suggested that despite the fact that he had diligently and faithfully discharged his duties as a teacher, the SMC and the School had wrongfully and in breach of the express and/or implied terms, terminated his contract of employment and/or refused to renew it after it expired in August 1998. 35.The Plaintiff also suggested that such dismissal or refusal to renew was the result of wrongful and malicious misrepresentation and/or incorrect advice given by the Principal. The Judge’s Findings 36.The judge rejected the suggestion that the Code was incorporated as part of the contract of employment. The judge further found that even if the Code applied, the School was entitled to give three months’ notice to terminate the contract of employment; and further that in any event, the procedure laid down in Appendix 17 had been followed by the School in terminating the Plaintiff’s contract of employment. 37.The judge found that the Plaintiff’s performance since the start of the academic year in 1995 had been unsatisfactory and there were a lot of complaints from students and their parents to both the School and the Education Department. There were then warnings to the Plaintiff, both oral and written in the form of minutes of meeting in which the performance of the Plaintiff was discussed. 38.Despite such warnings, the performance of the Plaintiff did not improve and a decision was then made by the SMC not to renew the Plaintiff’s contract. 39.The judge concluded that the decision not to renew the Plaintiff’s contract of employment was based on good and sound reasons and that the Principal was not acting with malice when he reported to the SMC and the school supervisor the Plaintiff’s unsatisfactory performance. Grounds of Appeal 40.Mr CY Li, on behalf of the Plaintiff repeats the submission that the Code, including the Appendices, was incorporated as part of the contract of employment and hence the School must follow the provisions set out therein strictly before the Plaintiff’s contract of employment could be lawfully terminated. 41.Mr Li complains that the minutes of meeting did not meet the requirement of formal written warning as prescribed under Appendix 17 and that the complaints against the Plaintiff in the minutes of meeting were not exactly the same complaints raised against the Plaintiff in the termination letter. 42.Mr Li also suggests that in any event, the School did not demonstrate good or sufficient reasons to dismiss the Plaintiff. 43.In the circumstances, the School and the SMC were liable for breach of the Plaintiff’s contract of employment and the Principal was liable for procuring its termination. 44.The Plaintiff’s case is premised on the suggestion that there was a contract of employment subsisting until his retirement in 2005 and that the decision not to renew his contract of employment constituted a wrongful termination of such contract of employment. 45.With respect, there was absolutely no foundation for such assumption. Both the letter of offer dated 22 May 1997 and the letter of acceptance dated the same date referred to “the employment period commencing from 1st September 1997 to 31st August 1998. 46.Clause (2) of the the employment conditions also expressly provided the following:
47.In the letter dated 22 May 1998, the School informed the Plaintiff that upon the expiry of the contract of employment dated 22 May 1997, the School would not issue another letter of employment to the Plaintiff. 48.There is no contractual obligation on the part of the School to renew the Plaintiff’s contract of employment every year. The School is entitled to terminate the contract of employment in accordance with the employment conditions. 49.Clause 54 (b) of the Code stipulates that “the contract of service or letter of appointment shall not be subject to annual renewal”, and clause 55 also provides that “after which (the probationary period of two years) the employment of such teacher shall be permanent, subject to such provisions regarding termination of employment as may be contained in such teacher’s contract of service or letter of appointment.” 50.As an aided school, the School is, of course, bound to follow instructions from the Government as set out in the Code; otherwise, it may not continue to receive subsidies from the Government. However, the Plaintiff was not privy to the arrangement between the School and the Government. 51.The fact that the Plaintiff must observe the Code did not mean there was also a contractual obligation vis-à-vis the Plaintiff for the School to follow the Code. 52.The Plaintiff must observe the Code because he had a contractual obligation to do so, whereas the obligation on the part of the School to observe the Code arose out of its arrangement with the Government to which the Plaintiff was not a party. 53.Mr Li relies on The Moorcock (1889) 14 P.D. 64, and argues that in order to give business efficacy to the contract of employment in question and to reflect the true intention of the parties, there should be implied into it the necessary steps to dismiss the Plaintiff when there was no provision for dismissal in the contractual documents signed by the Plaintiff and the School. 54.Mr Li also seeks to rely on paragraph 13-004 of Chitty on Contract (29th Edition) as follows:
55.However, to imply a term that has not been expressed in the contract, the term must be so obvious that the parties must have intended it to form part of their contract. 56.MacKinnon LJ expressed the sentiment in the following words in Shirlaw v Southern Foundries (1926), Ltd [1939] 2 KB 206 at 227:
57.In the language of Scrutton LJ in Comptoir Commercial Anversois v Power, Son & Co. [1920] 1 KB 868 at 899 “…it must be such a necessary term that both parties must have intended that it should be a term of the contract, and have only not expressed it because its necessity was so obvious that it was taken for granted.” 58.I cannot conscientiously say that an officious bystander, with the necessary knowledge, would have concluded that the parties must have intended that the Code should be incorporated as the terms of the Plaintiff’s contract of employment, and therefore binds the School. 59.The parties clearly were aware of the Code. The Plaintiff had expressly agreed to be bound by its terms. If the parties had intended that the Code should be binding on the School as well, the contract of employment in question would no doubt have spelled it out expressly. 60.When a contract makes no provision for the dismissal of an employee, the common law provisions or provisions under the Employment Ordinance (Cap. 57) will of course apply, rather than the Code that, in my view, only regulates the relationship between the School and the Government. 61.There is no business necessity, in my judgment, for the additional terms as suggested by Mr Li to be implied into the contract of employment. 62.Mr Li emphasizes that the School had been acting on the basis that it had followed the Code vis-a-vis the termination of the Plaintiff’s employment and that Cheng Chun Man (the education officer) confirmed that the School could only terminate the Plaintiff’s employment in accordance with the Code. 63.Again vis-à-vis the Government, the School may well have an obligation to follow the Code in dismissing a permanent teacher, there is no basis to suggest that the School has a similar obligation vis-à-vis the Plaintiff. 64.In my view, the Code and the Appendices are intended as regulatory means to enable the Government to exercise proper control over aided schools in accordance with its policy and are not intended to have any bearing on the contractual right and obligation as between the School and the teachers it employs. 65.The basic ground of appeal advanced by Mr Li fails. 66.The Code appears to contain two clauses allowing the School to terminate a teacher’s contract of employment. 67.Clauses 56 (c), (d) and (e) refer to the termination of a contract of employment by giving three months’ notice per se whereas clause 56(g) refers to dismissal for good and sufficient reasons, and it is in clause 56(g) that there is a reference to Appendices 17 and 18. 68.Under clause 56 (c) of the Code, the School is entitled to terminate the employment of a teacher by giving three months’ notice per se. The fact that on dismissing a teacher under clause 56(g), the School has to show good and sufficient reasons and must follow the procedure laid down in Appendix 17, does not mean that in terminating a teacher’s contract of employment under clause 56 (c), the SMC is also obliged to show good and sufficient reasons and to follow the requisite procedure. 69.The Code and the Appendices are not well drafted. There are inherent conflicts in the different clauses and the Appendices and it is not easy to resolve those conflicts. 70.Despite the concession by Mr Li, I do not find it necessary or desirable to adjudicate on the issue of whether the School is entitled to rely on clause 56(c) to terminate a contract of employment by giving three months’ notice in the absence of any good and sufficient reasons if the Code does apply to the contracts of employment between the School and its teachers. 71.I would rather leave this issue to another more suitable occasion. 72.I am however, persuaded that if the Code applied, the SMC could rely on clause 56(g) in dismissing or not renewing the Plaintiff’s contract of employment by giving three months’ notice. I am also persuaded that the procedure laid down in Appendix 17 had been complied with. 73.It was after many complaints received by the School and the Education Department that the School decided to embark on an investigation on the Plaintiff’s performance. When a conclusion was reached that the complaints against the Plaintiff were substantiated, he was given warnings. 74.The Plaintiff did not improve and he was then given further written warning in the form of the minutes of a meeting. The Plaintiff was present during part of such meeting. 75.The minutes of the meeting held on 16 December 1997 set out in detail all the complaints against the Plaintiff, and his explanation to those complaints. The minutes begin with the reference to a warning given to the Plaintiff at the meeting with the supervisor, the Principal and the two Vice-Principals and it ends with the remarks that the Plaintiff must obey the School policy and aim and to adopt English as the media of instruction, otherwise he would be punished and would be dismissed. 76.The nature and the contents of minutes of meeting is detailed and unambiguous. 77.There is also no dispute that a copy of the minutes was given to the Plaintiff the same day. 78.Mr Li argues that the minutes are just records of oral warnings and do not therefore satisfy the strict requirement of “formal written warning’ of Appendix 17. 79.Mr Li’s argument on this point is artificial and most surprising. 80.I reject the argument. Appendix 17 does not specify what form the written warning should take. What is important is the substance of the minutes of meeting, rather than the exact form the written warning takes. The minutes of meeting certainly contain warning(s) embodying relevant criticisms against the Plaintiff. It is certainly in the written form. It meets the requirement of a formal written warning stipulated under Appendix 17. 81.On the evidence before the court, there are also valid bases for the judge to conclude as he did that despite such written warning, the Plaintiff had failed to show any improvement, and hence, the decision of the School to terminate the Plaintiff’s contract of employment was fully justified. 82.The complaints set out in the letter of termination may not be identical to those set out in the minutes of the meeting. It was not meant to be so although they both referred to the Plaintiff’s inability to properly supervise the students under his charge and his failure to follow instructions from the School. 83.The letter of termination refers to the written warning served on the Plaintiff on 16 December 1997 and suggests that despite such warning, the Plaintiff failed to improve on his “discipline of the students”. It further points out that the School found out a number of problems in the ways in which the Plaintiff disciplined the students, and in his work in the previous months. 84.The incidents set out in the letter of termination are just example (part) of those “problems”. 85.On the evidence, I am firmly of the view that even if the Code applies to the School; there were good and sufficient reasons for the School to terminate the Plaintiff’s contract of employment, and the steps taken by the School to terminate the Plaintiff’s contract are in full compliance with Appendix 17. The judge was certainly entitled to make such findings against the Plaintiff. 86.The Plaintiff can have no legitimate complaint. 87.In the circumstances, even if the Code applied, the Plaintiff’s contract had been lawfully and properly terminated and there was no valid basis for any of his claims against the SMC, the School or the Principal. 88.I would also add that the Plaintiff’s claim is primarily one of breach of a contract of employment and his claim, even if valid, could and should only have been directed at the School. 89.The SMC only made recommendation to the School and was not a party to the Plaintiff’s contract of employment. Despite much effort, Mr Li has not been able to identify satisfactorily the precise cause of action against the SMC or properly address the issue of how members of the SMC could be personally liable for the Plaintiff’s claim. 90.With respect, I can see none whatsoever. 91.The Principal, in the discharge of his duties, was obliged to observe the Plaintiff’s performance as a teacher and then report to the SMC to assist it in deciding if the Plaintiff’s contract of employment with the School should be renewed. It was the School that decided not to renew the Plaintiff’s contract of employment. 92.The suggestion of wrongful and malicious misrepresentation against the Principal is, in my view, completely unfounded. 93.There is no merit in the appeal. I would dismiss it with costs, such costs to be taxed, if not agreed. Hon Yuen JA: 94.I have read in draft the judgments of Yeung JA and Cheung JA. I agree with them that the order this court should make is that the appeal be dismissed with costs to the Respondents. My reasons are as follows:
(i) No basis for implying term 95.Under the common law, a term can be implied into a contract only in two situations:
In my view, neither of these situations applied in this case. The philosophy underlying both situations is the presumed intention of both parties to the contract. - (1) Not necessary to give business efficacy to contract 96.The threshold of “necessity to give business efficacy” to a contract is a high one. The contract here was a fixed term contract of employment. There were provisions for early termination in clauses 10 and 11. There is no ground for the suggestion that the contract could not work without the term the Plaintiff sought to imply. 97.If a contract can work without the term sought to be implied (Chitty on Contracts 28th ed. Vol. 1 par. 13-005), the common law does not give the court the power to imply the term just because it may be thought that it might be fairer to do so. 98.In the context of employment contracts, inequality of bargaining power is addressed by protection given to employees under the Employment Ordinance. If a contract of employment does not fall foul of the provisions of the Ordinance and if the term sought to be implied was not necessary for the contract to work, the common law does not give the court power to expand the scope of protection by implying a term into the contract. - (2) Not obvious unexpressed intention of both parties 99.As for the submission that the implied term was the “obvious but unexpressed intention” of both parties, I do not think that this can be substantiated in the present case. As I emphasized above, for a term to be implied under the common law, it has to be the presumed intention of both parties. 100.The general presumption is that the parties have expressed every term that is material to the contract (Chitty, par. 13-007). In the present case, it was clearly expressed in the contract that the Plaintiff was under a contractual obligation to the School to comply with the Code. It is immediately apparent that there was no corresponding provision that the School was also under a contractual obligation to the Plaintiff to comply with it. 101.Thus, if an officious bystander had asked the School at the time the contract was signed whether it agreed to be contractually obliged to the Plaintiff to comply with the Code, one would not expect the answer “But of course, it goes without saying” (Chitty, par. 13-007). On the contrary, it was expressly said that the Code was binding on the Plaintiff and it was not said that it was binding on the School. The parties were clearly aware of the Code at the time the contract was signed, and the difference shown in reference to the respective parties was significant. (ii) No breach of Code even if it applied 102.However, even if the Code applied, there was no breach by the School. The contract was for a fixed term of 1 year only. The Plaintiff’s employment was not terminated during that fixed term. There was nothing in the Code that required the School to renew the contract upon expiry. All that happened in this case was that the School did not renew the contract upon expiry. 103.In any event, on the facts found by the trial judge, the School was entitled to dismiss the Plaintiff under clause 56(g) and had followed the procedure laid down in Appendix 17. I agree with Yeung JA that it is not necessary in this case to consider whether the School could have terminated the employment of a teacher during the fixed term of the contract by simply giving 3 months notice under clause 56(c). I would only venture to suggest that it would be surprising if it could, because that would render clause 56(g) - which requires a lengthy procedure on top of giving 3 months notice - practically ineffectual. If it had been necessary in the present case to decide this issue, the drafting history of the Code would have had to be examined. 104.On the facts found by the trial judge, the Plaintiff’s performance was clearly unsatisfactory. It is well-established law that it is not for an appellate court to overturn a trial judge’s findings of fact unless there was no evidence on which he could have based his findings, or his findings were contrary to documentary or other incontrovertible evidence which he had overlooked. That was not the situation here. 105.As for the Appendix 17 procedure, the issue simply boiled down to whether the minutes of the meeting could be regarded as a “formal written warning”. 106.There was no specific form required for the warning under Appendix 17. Therefore the issue is whether the Plaintiff was given, in substance, a formal written warning. 107.In my view, the School did give a formal written warning to the Plaintiff. It could not be disputed that a warning was given. The document was divided into two parts, Part A being
This part ended (at page 3 of the document) with the following paragraph:
108.That the warning was written could not be disputed. The title of the document spoke for itself. It was entitled
109.So, the issue boiled down to whether the minutes was a “formal” warning. In my view, it clearly was. It was not an informal document, e.g. a personal letter from the Principal writing to the teacher unofficially. It was an official document signed by the Supervisor and the Principal, and served on the Plaintiff by the Vice-Principal. 110.Accordingly, the Plaintiff can have no complaint that the School had given him no warning of its dissatisfaction with his inability or unwillingness to maintain discipline among the students, for which failure his contract was not renewed. Even if it had been terminated during the fixed term of the contract, that would have been justified both substantively and procedurally. The appeal must therefore be dismissed. Conclusion Hon Cheung JA: 111.By a unanimous decision, the Plaintiff’s appeal is dismissed with costs to be taxed if not agreed.
Mr C Y Li instructed by Messrs W I Cheung & Co for the Appellant. Mr Wong Po Wing instructed by Messrs Raymond T M Lau & Lau & Co. for the Respondents. | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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