Final Appeal No 14/2015 (Civ)

IpsofactoJ.com: International Cases [2016] Part 5 Case 10 [CFA]


COURT OF FINAL APPEAL, HKSAR

Coram

Chi K. Yung

- vs -

Protection of Wages on

Insolvency Board

Chief Justice geoffrey Ma

Justice r.a.v. Ribeiro PJ

Justice robert Tang PJ

Justice joseph Fok PJ

Lord Clarke of Stone-cum-Ebony NPJ

17 MAY 2016


Judgment

Chief Justice Ma

A INTRODUCTION

A.1 The issues in the appeal

  1. Employees under contracts of employment sometimes unfortunately find themselves made redundant.[1] The law steps in to soften such a situation in a number of ways. Part VA of the EO deals with the obligation on the part of an employer to make what are known as severance payments to the employee who has been made redundant. Severance payments are payments reflecting the length of service of an employee subject to maximum payments stipulated in the EO.[2] In the calculation of the severance payment due to a redundant employee, deductions are, however, to be made to what otherwise would be the severance payment where the employee benefits from gratuities under the relevant contract of employment based on length of service, or from an occupational retirement scheme (“OPS”), or certain benefits under a mandatory provident fund (“MPF”) scheme.[3] I shall refer to these benefits under s 31I of the EO as “the s 31I benefits”. As we shall see, the proper treatment of these benefits is of considerable importance in this appeal.

  2. Where severance payments are due to an employee but the employer fails to pay the employee, either wholly or in part, owing to insolvency, limited protection is given to the employee in the form of ex gratia payments made under the Protection of Wages on Insolvency Ordinance,[4] the statute with which this appeal is concerned. A fund has been set up under the PWIO[5] (“the Fund”) out of which the ex gratia payments are made. There are limits spelt out in the Ordinance as to the amount of ex gratia payments referable to severance payment that may be made. The relevant provision under consideration in this appeal is s 16(2)(f)(i)[6] which states that the amount of ex gratia payment referable to severance payment is capped at and therefore cannot exceed the aggregate of $50,000 plus half of the employee’s entitlement to severance payment in excess of $50,000. The Fund is administered by the Protection of Wages on Insolvency Fund Board (the 1st Respondent in the appeal).[7] The person responsible for determining and paying the amount of ex gratia payment under the PWIO is the Commissioner for Labour, to whom any application for ex gratia payment under the Ordinance is made.[8]

  3. This appeal,[9] brought in judicial review proceedings instituted by the appellant (I shall refer to him from now on as the Applicant) against both Respondents, involves the determination of the approach to be adopted in the calculation of ex gratia payments payable under the PWIO as relate to severance payments. As will be seen, the general question for determination is how the cap in s 16(2)(f)(i) is calculated. The specific question within this is how and at what stage are the s 31I benefits to be taken into account in the computation of any ex gratia payment to be made under the PWIO. This is what divides the parties :-

    1. The Applicant contends that the relevant figure representing the severance payment to which an employee is entitled for the purposes of the application of the cap in s 16(2)(f)(i) of the PWIO is a net figure, meaning the actual amount of severance payment that is due to an employee. Where s 31I benefits exist, these should be taken into account beforehand in arriving at the net figure to which the statutory cap should be applied. Once the statutory cap is applied in this way, the amount of ex gratia payment can then be ascertained.

    2. The Respondent argues on the other hand that the statutory cap in s 16(2)(f)(i) is applied to the gross amount of severance payment payable before any deductions are made; in other words, one does not take the amount of severance payment that is actually owing to an employee but only the original, gross amount of severance payment that was owing. Where s 31I benefits exist, these are deducted only after the capped figure is calculated in order to arrive at the extent of the ex gratia payment payable.

    A.2 The facts

  4. The essential facts in the proceedings were not in dispute. The Applicant was formerly employed as a driver by Fu Ming Transport Co Ltd from 6 November 1999 to 7 October 2011. On 7 October 2011, Fu Ming went into voluntary liquidation and dismissed its employees (including the Applicant) with immediate effect. Like other employees, the Applicant was owed arrears of wages, wages in lieu of notice and severance payment. He applied to the Respondent for ex gratia payments in relation to all these items.[10] Ex gratia payments were duly made in relation to arrears of wages and wages in lieu of notice, and there is no dispute about these. As regards severance payment, the Respondent was of the view that no ex gratia payment should be made in relation to this item. His decision was upheld by the Board.[11] The present proceedings were commenced to challenge this decision and to have it quashed.

  5. As regards severance payment,[12] the Applicant was entitled to a gross amount of $131,696.54. His s 31I benefits amounted to $106,319.04. The respective stances of the Applicant and the Respondent as set out above,[13] reflect the practical implications of the questions to be determined in this appeal :-

    1. The Applicant’s position is simple. The net amount of severance payment to which he is entitled – in other words, the amount he is actually owed – amounts to $25,377.50.[14] This figure being less than the statutory cap contained in s 16(2)(f)(i) of the PWIO,[15] this is, according to the Applicant, the sum payable as ex gratia payment to him.

    2. The Respondent’s method of calculation results in a quite different conclusion. The Respondent takes the gross figure of severance payment owed, that is $131,696.54 and this, he says, is the relevant figure to which the statutory cap is applied. This results in a capped figure of $90,848.27.[16] The s 31I benefits of $106,319.04 are then deducted from this to arrive at the ex gratia payment payable to the Applicant. In the present case, the Respondent contends, this results in a negative figure[17] and therefore no ex gratia payment is payable.

  6. Before leaving the facts, I would just add the point that the methodology adopted by the Respondent has been used by the Commissioner “for decades”.[18] This approach is reflected in the standard forms used by the Respondent. In the Notice of Payment,[19] issued by the Respondent to the Applicant in the present case, the Respondent’s approach is clearly set out in the part headed “Points to Note”.

    A.3 The decisions in the courts below

  7. Both the lower courts agreed with the Respondent’s position and the Applicant’s application for judicial review was dismissed. It will presently be necessary to analyze in greater detail their reasoning in Section C below. At this point, however, it is convenient to dispose of one argument raised by the Respondent in the lower courts, a point that is no longer pursued in this Court. It was at one stage contended by the Respondent that the Commissioner had an open discretion to do as he thought fit as regards the making of ex gratia payments, both as to whether to make any payment at all and if so, as to what amount, subject only to the statutory cap.[20] This argument was rejected by the Court of Appeal.[21] With respect, Cheung CJHC was correct to reject this submission. Before us, counsel for the Respondent[22] submitted that the discretion vested in the Respondent was exercisable in cases where, for example, there may be collusion, but it was accepted that the Respondent was bound to make ex gratia payments in accordance with what the PWIO required him to do. The only dispute, therefore, was what the PWIO, properly construed, prescribed as far as the calculation of ex gratia payments were concerned.

    A.4 The certified Question

  8. On 3 June 2015, the Court of Appeal granted leave[23] to appeal to this Court on the following question of great general or public importance:-

    The true interpretation of section 16(1) and other related provisions in the Protection of Wages on Insolvency Ordinance (Cap 380) regarding how the amount of an ex gratia payment should be fixed in circumstances such as the present – that is, where it is known to the Commissioner for Labour at the time of application for an ex gratia payment under the Ordinance that the employee/applicant is entitled to, or, as the case may be, has been paid one or more gratuities and/or benefits as mentioned in section 3II of the Employment Ordinance (Cap 57), or in the other similar or related circumstances.

    B THE STATUTORY SCHEME REGARDING EX GRATIA PAYMENTS UNDER THE PWIO

  9. The making of ex gratia payments in the context with which this appeal is concerned is statutory and it is therefore necessary to construe relevant Ordinances by applying well‑known principles of statutory construction. As will appear under this Section and the next, for my part, I agree with the Applicant’s position in this appeal and in turn, with respect, disagree with the approach of the lower courts. In my view, the main error of the courts below has been to misapply relevant principles of statutory construction.

  10. The present case is about severance payments. As we have seen,[24] severance payments are payable in the event of redundancy and the relevant provisions here are contained in Part VA of the EO :-

    1. The liability to make severance payments is contained in s 31B(1) of the EO. Redundancy is defined in s 31B(2).

    2. The amount of severance payment to which an employee is entitled is set out in s 31G and it is subject to the monetary limits set out therein. Calculation of severance payment under s 31G looks essentially to salary and the number of years service of the relevant employee. However, any deductions which should be made to the severance payment due to an employee to arrive at a net figure, are contained in other provisions in Part VA. It is to be noted that s 31G expressly states that its provisions are “Subject to this Part [of the EO].”

    3. Deductions to be made to severance payments are set out in s 31I, also contained in Part VA of the Ordinance. Section 31I identifies what I have earlier referred to as the s 31I benefits[25] :-

      31I.

      Severance payment to be reduced by amount of gratuities and benefits in certain cases

      If an employee becomes entitled to payment of a severance payment under this Part and-

      (a)

      because of the operation of the employee’s contract of employment, one or more gratuities based on length of service or one or more relevant occupational retirement scheme benefits have been paid to the employee; or

      (b)

      a relevant mandatory provident fund scheme benefit is being held in a mandatory provident fund scheme in respect of the employee, or has been paid to or in respect of the employee,

      the severance payment is to be reduced by the total amount of all of the gratuities and benefits to or in respect of the employee to the extent that they relate to the employee’s years of service for which the severance payment is payable.

      The deductions to be made as set out in this provision are expressly stated to be “under this Part”. The operation of s 31I is therefore restricted to the purposes of Part VA of the EO.

    4. The link between severance payments and s 31I benefits is further developed in s 31IA which allows an employer, where severance payment under the EO has been made to an employee, to make deductions (to the extent of the severance payment made) from any applicable gratuity based on length of service under the relevant contract of employment, or from an ORS, or from an applicable benefit under an MPF scheme. Further provisions in this regard are identified in s 31IA(3), namely s 70A of the Occupational Retirement Schemes Ordinance[26] and s 12A of the Mandatory Provident Fund Schemes Ordinance.[27] As in the case of s 31G and s 31I, the provisions contained in s 31IA are also expressly stated to apply “under this Part”.

  11. Where there is a failure to make severance payments owing to the employer’s insolvency, employees may apply to receive ex gratia payments. The relevant provisions in this context are contained in the PWIO:-

    1. Part 5 of the PWIO deals with payments to be made out of the Fund.

    2. The entitlement to apply for an ex gratia payment is contained in s 15 :-

      15.

      Entitlement to apply for ex gratia payment

      (1)

      Subject to this Part, an applicant to whom-

      (a)

      wages are due and unpaid;

      (b)

      wages in lieu of notice are due and unpaid;

      (c)

      the liability to be paid a severance payment has arisen and the severance payment is unpaid, whether or not the severance payment is then due;

      (d)

      pay for untaken statutory holidays is due and unpaid; or

      (e)

      pay for untaken annual leave is due and unpaid,

      may apply for an ex gratia payment from the Fund in respect of the wages, wages in lieu of notice, the severance payment, the pay for untaken statutory holidays or the pay for untaken annual leave, as the case may be, or all or any of them.

      We are of course concerned only with the aspect of severance payments in the present case.

    3. Accordingly, applications can be made where the liability to make a severance payment has arisen and the severance payment is unpaid. This immediately raises the question what is meant by a severance payment in this context of the PWIO. Severance payments are dealt with generally in the EO.[28] However, as far as the PWIO is concerned, it is clear that what must be referred to is the actual amount of severance payment that is due to an employee. The definition section of the PWIO[29] defines severance payment as follows :-

      severance payment (遣散費) means a severance payment in respect of which an applicant would, on the winding up of a company, be entitled to priority under section 265(1)(ca) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32) or would, on a bankruptcy, be entitled to priority under section 38(1)(ca) of the Bankruptcy Ordinance (Cap 6), save that the amount specified in section 265(1)(ca) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32) or section 38(1)(ca) of the Bankruptcy Ordinance (Cap 6) (as the case may be) as the maximum amount in respect of which an applicant would be entitled to priority, or any amount substituted therefor under section 265(1B) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32) or section 38(2B) of the Bankruptcy Ordinance (Cap 6) (as the case may be), shall not apply;

    4. From this definition, it is clear that the relevant severance payment (for the purposes of the PWIO) is the actual severance payment to which an employee would be entitled; quite simply it is the net entitlement to severance payment as to which an employee would be claiming in a winding up (in the case of a company) or in a bankruptcy (in the case of an individual employer), and in respect of which the employee would be able to claim priority. It is also to be noted that those provisions of the Companies (Winding Up and Miscellaneous Provisions) Ordinance Cap 32[30] and the Bankruptcy Ordinance Cap 6[31] expressly referred to in the definition – these deal with priority of certain claims in a winding up or bankruptcy – both use the term “any severance payment payable”. Priority is given to actual amounts owing, not theoretical ones.

    5. Where an employee makes an application under s 15 for an ex gratia payment in relation to unpaid severance payment, it is for the Respondent to consider the application. Where it appears to the Commissioner for Labour that an employer has failed to pay any or any part of a severance payment, that employer being insolvent,[32] an ex gratia payment may be made to the Applicant out of the Fund. Section 16(1) states :-

      (1)

      Subject to subsections (1B) and (2) where it appears to the Commissioner that an employer has failed to pay any wages, wages in lieu of notice, severance payment, pay for untaken statutory holidays or pay for untaken annual leave, as the case may be, or all or any of them to an applicant and that –

      (a)

      in the case of an employer who is not a company –

      (i)

      a bankruptcy petition has been presented against him; or

      (ii)

      he would, but for the existence of section 6(2)(a) of the Bankruptcy Ordinance (Cap. 6), be liable to have a bankruptcy petition presented against him; or

      (b)

      in the case of an employer who is a company, a winding-up petition has been presented against that employer,

      he may make an ex gratia payment to the applicant out of the Fund of the amount of the wages, wages in lieu of notice, severance payment, pay for untaken statutory holidays or pay for untaken annual leave, as the case may be, or all or any of them.

    6. Under s 16(1B), where a severance payment is “not due” at the time an application is made, the Respondent may defer consideration of it until that severance payment becomes due.

    7. It is in this context in which one then comes to consider s 16(2)(f)(i), very much the critical provision to be considered in this appeal. Section 16(2) is put in negative terms, that the Respondent is not to make any payment in the circumstances set out. Section 16(2)(f)(i) essentially sets out the financial limits of the ex gratia payment payable in respect of severance payment. That provision states :-

      (2)

      The Commissioner shall not make any payment under subsection (1) ....

      (f)

      in respect of a severance payment –

      (i)

      of an amount exceeding the aggregate of $50,000 and half of that part of the applicant’s entitlement to severance payment in excess of $50,000 ....

    8. Given the statutory definition of severance payment in s 2 and in the context set out in sub-paras (5) to (7) above, it is clear that the financial limit set out in s 16(2)(f)(i) is to be applied to the actual amount of severance payment owing to an employee. And the actual amount of severance payment due to an employee – in the words of the provision, the “applicant’s entitlement” – is the net amount due to that employee.

    9. Where, as in the present case, s 31I benefits are involved, the actual or net amount of severance payment due to an employee is the original entitlement to severance payment calculated in accordance with s 31G of the EO less the s 31I benefits. This net amount will accordingly be the figure in respect of which the financial limits in s 16(2)(f)(i) are to be applied.

  12. In my view, the system of ex gratia payments regarding severance payments is to be operated in the way set out in the previous paragraph. The Applicant’s position in this appeal accords with this analysis.[33] I have somewhat painstakingly gone through the relevant provisions in view of the contrary way both courts below had approached the exercise and of the methodology employed by the Respondent up to now.[34]

  13. I must now deal with the reasoning of the lower courts. This reasoning was supported by the Respondent in this Court.

    C THE REASONING OF THE LOWER COURTS

  14. Louis Chan J dismissed the application for judicial review and this was upheld by the Court of Appeal. The crucial effect of the lower courts’ decision was in relation to the application of the financial limits set out in s 16(2)(f)(i) of the PWIO. They took as the relevant figure as to which the limits in that provision were to be applied, the original or gross figure as to an employee’s entitlement to severance payment, namely, the figure calculated in accordance with the formula set out in s 31G of the EO. Thus, in the present case, the Respondent takes as the applicable figure the sum of $131,696.54,[35] and it was to this figure that the financial limits in s 16(2)(f)(i) had to be applied.

  15. The Judge at First Instance was of this view. The Court of Appeal agreed with the Judge but its conclusion here and its analysis of the application of s 16(2)(f)(i) are with respect in error :-

    1. The root of the error was perhaps what the Court of Appeal perceived to have been common ground between the parties. In paragraph 41 of its judgment, it is stated :-

      41.

      As explained, although the parties were in disagreement before the judge (see paras 4 and 5 of the judgment), they are agreed before this court regarding how the cap is to be calculated. Both sides now agree that the Commissioner (and the judge below) are correct in using the section 31G formula (disregarding the reduction in section 31I) to calculate the cap.

      It is far from clear how this concession came about because it would appear from both the judgment of the Court of Appeal and at First Instance that the Applicant was contending for quite the opposite (and this position was maintained by counsel in the appeal before us). Neither Mr Shieh SC nor Mr Ho SC was quite able to explain the so-called concession either. Be that as it may, it perhaps suffices to say that even if a concession had been made, this Court is not bound by it.

    2. No real analysis of the relevant provisions of the PWIO (referred to in para 11 above) was undertaken. Instead, there seemed almost to be an assumption that s 16(2)(f)(i) applied only in respect of the gross amount of severance payment (as I have used this term) due to an employee.

    3. Reliance was placed on s 16(2B)(a)(A) to support the Court of Appeal’s conclusion.[36] This provides :-

      (2B)

      (a)

      Where it appears to the Commissioner that-

      (i)

      an applicant’s wages have been reduced during the period of 12 months immediately before he is dismissed or laid off; and

      (ii)

      before the wage reduction took effect, the employer of the applicant had given an undertaking to the applicant to the effect that if the applicant was dismissed or laid off after the wage reduction, the severance payment payable to him would be calculated in a manner more favourable to him than that provided for in section 31G of the Employment Ordinance (Cap 57),

      then, for the purposes of subsection (2)(f)(i), the applicant’s entitlement to severance payment may, if it is more favourable to the applicant, be calculated-

      (A)

      subject to paragraph (c), in accordance with section 31G of the Employment Ordinance (Cap 57); or

      (B)

      in the manner specified in the undertaking, whichever results in a lesser amount.

      It was said that this provision, by its specific reference to s 31G of the EO in describing an applicant’s “entitlement to severance payment”, indicated that s 16(2)(f)(i) was to be applied to the gross amount of severance payment. This is misplaced :-

      1. It ignores the wording and context of s 16(2)(f)(i) as explained earlier.

      2. The application of s 16(2B)(a)(A) is, as can be seen from its wording, restricted to a rather peculiar factual situation. It goes no further than provide a means of calculation in the factual situation set out when a comparison has to be made between the effect of a statutory provision (s 31G) and that of an employer’s undertaking.

      3. As pointed out earlier,[37] s 31G in any event is itself expressly stated to be “Subject to this Part [i.e. Part VA of the EO]”. The deductions which should be made to severance payments under s 31I are under this Part of the EO.

    4. It also appeared to be reasoned[38] that as s 31G stated the amount of severance payment to which an employee was “entitled”, this was therefore the same entitlement to severance payment referred to in s 16(2)(f)(i). This was again in error for the same reasons set out in sub‑paras (3)(a) and (c) above.

  16. With its erroneous starting point, the Court of Appeal[39] then approached the question of how deductions were to be made in respect of the s 31I benefits in order to arrive at the appropriate amount of ex gratia payment payable under the PWIO. The Court of Appeal concluded that it was only after applying the s 16(2)(f)(i) limits to the gross entitlement to severance payment, would the s 31I benefits be deducted in order to arrive at the ex gratia payment payable. The Court of Appeal said this[40] :-

    49.

    In other words, where the section 31G figure does not exceed the cap, double‑payment is taken care of by simply reducing the ex gratia payment entitlement with the section 31I figure to arrive at the ex gratia payment amount. However, when the section 31G figure exceeds the cap, the cap replaces the 31G figure as the starting point, and the concern about double‑payment is addressed by reducing the section 31I figure from the cap to arrive at the ex gratia payment amount.

    Accordingly, on the facts of the present case, no ex gratia payment was payable; the Respondent’s position as I have earlier identified.[41]

  17. In support of this method of deducting the s 31I benefits, reliance was placed on what the Court of Appeal perceived to be the legislature’s intention behind the deductions to be made on account of the s 31I benefits; it reasoned as follows :-

    1. Since the purpose of s 31I is to reduce the amount of severance payment payable to an employee, so the same intention is to be applied in relation to ex gratia payments in respect of severance payments under the PWIO.

    2. Accordingly, since the figure arrived at after an application of s 16(2)(f)(i) of the PWIO is, in a sense, to be treated as severance payment, so the deductions to be made under s 31I should also be made to this figure. Should the s 31I benefits not be so deducted, this would result in what was termed a “double‑payment”, meaning that no account would then be taken of deductions which had to be taken into account under that provision. The Court of Appeal said this[42] :-

      47.

      That the legislation has chosen to cap the section 31G amount is of significance in the present discussion once it is remembered that section 31G only gives one the gross severance payment payable. It comes before section 31I. One only arrives at the net severance payment payable under Cap 57 by reducing the section 31G amount with the section 31I amount, if any. In my view, the legislature obviously treats the payments or entitlement included in section 31I as equivalent or similar in nature to severance payment, so that if they are not reduced from the amount calculated under section 31G, there will be double‑payment of what the legislature intends the employee to receive upon termination of employment by way of severance payment. Whether one calls the section 31I amount a “part‑payment” of the severance payment calculated under section 31G is a matter of language. The important thing is the legislature’s true intention in relation to severance payment and prevention of double‑payment.

      48.

      The importance of all this is that in construing the provisions in Cap 380 in accordance with the legislature’s intention under the scheme to provide quick relief money to an employee who has lost his job suddenly and who has not been paid his severance payment due to him, one should also proceed on the assumption that no double‑payment of the type just described is intended. The only difference is that where the section 31G figure exceeds the cap, the cap, instead of the section 31G figure, is used as the starting figure for working out the ex gratia payment amount.

      It was therefore this provision (s 31I of the EO), or rather the legislative intention behind it, that required the Respondent to make the deductions of the s 31I benefits only after the figure (capped by s 16(2)(f)(i)) had been ascertained.

  18. Reliance was also placed on the subrogation provisions contained in s 24(2B) of the PWIO to support the Court of Appeal’s analysis.[43] The relevant parts of s 24 state :-

    (1)

    Where a payment is made under section 16 to an applicant in respect of wages due to him, or in respect of any liability to pay him a severance payment, whether or not the severance payment is due when that payment under section 16 is made, all his rights and remedies with respect to those wages or severance payment, as the case may be, existing immediately before that payment under section 16 shall, to the extent of the amount of that payment under section 16, be transferred to and vest in the Board for the benefit of the Fund and the Board may take such steps as it considers necessary to enforce those rights and remedies.

    (2)

    The rights and remedies of an applicant in respect of a severance payment transferred to and vested in the Board pursuant to subsection (1) shall include the rights and remedies of the applicant in respect of so much of that severance payment as the applicant would, on the winding up of a company, be entitled to priority under section 265(1)(ca) of the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap 32) or would, on a bankruptcy, be entitled to priority under section 38(1)(ca) of the Bankruptcy Ordinance (Cap 6).

    ....

    (2B)

     

    If-

    (a)

    an applicant is entitled to a payment under an occupational retirement scheme or is a person for whom accrued benefits in a mandatory provident fund scheme are held; and

    (b)

    an ex gratia payment in the form of a severance payment is made to the applicant under section 16,

    the applicant’s rights and remedies are, to the extent of the amount of the ex gratia payment, transferred to, and vested in, the Board for the benefit of the Fund. The Board may take such steps as it considers necessary to enforce those rights and remedies.

  19. As I understand the reasoning, it was said that s 24(2B) gave support in that this provision, by referring specifically to the s 31I benefits, clearly envisaged the Respondent being obliged to make deductions on account of these benefits. Mr Ho SC submitted that s 24(2B) gave the statutory basis for the Respondent to make the deductions of s 31I benefits in the way the Court of Appeal held to represent the correct method.

  20. In my view, this approach to the way ex gratia payments are to be computed under the PWIO is wrong and the reasoning employed to arrive at this result is similarly in error :-

    1. As stated above, the starting point of the Court of Appeal’s analysis in applying the s 16(2)(f)(i) limits to the gross amount of severance payment payable, is wrong.[44] Nothing in s 16(2)(f)(i), for the reasons already discussed, requires the application of the limits stated therein to a theoretical gross sum, as opposed to an actual, net one. This is enough by itself to undermine and dispose of the approach adopted by the Court of Appeal.

    2. Further, there is simply no provision in the PWIO permitting, much less requiring, the deduction of s 31I benefits only after applying the s 16(2)(f)(i) limits to the gross sum. Section 31I, which the Court of Appeal appeared to utilize for this purpose, only applies to make deductions from severance payments for the purposes and in the context of Part VA of the EO. Nothing in the PWIO enables s 31I to be transferred to be used for the purposes of making deductions of s 31I benefits from the relevant sum arrived at after applying the limits contained in s 16(2)(f)(i). The Court of Appeal fell into error by reading into the PWIO words which were not there and also reading into the PWIO a legislative intention which is not manifested in the Ordinance; on the contrary, the legislative intention manifested by the actual language of the relevant statutory provisions in that Ordinance point to an opposite result. I accept that there ought not to be any double payment in the sense that s 31I benefits should be taken into account, but in the context of ex gratia payments under the PWIO, this is done by the calculation of the net sum of severance payment payable for the purposes of applying s 16(2)(f)(i), as we have seen earlier.

    3. Nor does s 24(2B) of the PWIO provide any support. In alluding to this provision, the Court of Appeal was of the view that it only applied in circumstances where at the time an application for an ex gratia payment was made under the PWIO, neither the applicant employee nor the Respondent was aware of the existence of s 31I benefits.[45] This is a somewhat odd analysis because nothing in s 24(2B) suggests such a restrictive application. This was in all likelihood a somewhat strained construction to justify the view reached that the s 31I benefits should only be deducted after a gross sum severance payment had been capped under s 16(2)(f)(i). The examples employed in the judgment suggest this.[46] Be that as it may, whatever the reason for this approach, it is wrong. Section 24(2B) is, in the context in which it is found, a provision dealing with subrogation. Like the earlier provisions contained in ss 24(1) and (2), s 24(2B) deals with a situation where the Respondent steps into the shoes of the employee. It applies where, for any reason, an ex gratia payment has included an element of s 31I benefits.[47] Seen in the context of subrogation, this provides no basis (as the Respondent has argued[48]) to enable deductions of s 31I benefits to be made only after applying the s 16(2)(f)(i) limits to the gross severance payment.

  21. The factor that appeared to influence the Court of Appeal most in arriving at the conclusion it did was that it saw the making of ex gratia payments under the PWIO as somehow requiring equal treatment for all employees, whether or not the employees were beneficiaries of s 31I benefits. The examples given by the Court of Appeal in its judgment all made this assumption. In other words, the Court of Appeal was anxious to reach a result that enabled all employees to be treated in the same way. If this could not be achieved, it was said that “injustice” would result.[49] The Respondent contended for its part that this would also be “absurd”.[50]

  22. The only conceivable legal basis for this line of thinking was the operation of s 31I of the EO which, as we have seen, provides for the deduction of s 31I benefits for what otherwise would be the severance payments payable. However, in my view, this is a long way short of providing a tenable justification for the view arrived at by the Court of Appeal and as submitted by the Respondent. It seeks to transfer a legislative intention in one context (dealing with severance payments in the EO) into another context (the making of ex gratia payments under the PWIO) and there is no provision in the PWIO similar to s 31I expressly permitting such a reduction. Nothing in the PWIO remotely suggests that such an approach is permissible. There is certainly no hint in the PWIO that there should be parity between all types of employees. The intention and purpose of this piece of legislation was simply to provide for the making of ex gratia payments where there has been a failure on the part of insolvent employers to pay what is due to employees by way of, amongst other items, severance payments. More important, the actual words of the Ordinance[51] point to an opposite result. On analysis, what the Court of Appeal essentially sought to do was to use what it saw as the purpose of the PWIO to construe the effect of the statute. This Court has on numerous occasions[52] stated that statutory construction requires a purposive approach to be adopted; in other words, the words of a statute must be construed in the light of their purpose. Context of course also plays an important part. However, it must always be borne in mind that context and purpose are not to be seen in isolation. Just as it would be wrong to construe words in a statute without regard to context and purpose, it is equally impermissible to ignore the actual words used in a statute in order to construe its effect. In China Field Ltd v Appeal Tribunal (Buildings)(No 2),[53] Lord Millett NPJ warned of the impermissibility of adopting an approach which would “distort or even ignore the plain meaning of the text and construe the statute in whatever manner achieves a result which they [the courts] consider desirable.” While the plain or natural meaning of the relevant text may not always be clearcut (hence the obvious need to bear in mind as a starting point context and purpose[54]), the actual words used cannot be ignored. The Court is after all an “interpreter not a legislator.”[55] As Fok PJ said in HKSAR v Fugro Geotechnical Services Ltd[56] :-

    22.

    When it is said that context is the starting point, together with purpose, in statutory interpretation, that is not to say that one puts the words being construed to one side. On the contrary, since contextual and purposive construction is a tool or aid to assist a court in arriving at an interpretation that gives effect to the legislative intention, one must always have regard to the particular words used by the legislature in expressing its will. A court cannot attribute to a statutory provision a meaning which the language of the statute, understood in the light of its context and the statutory purpose, is incapable of bearing. For that reason, one must necessarily look to the statutory language to see what meaning or meanings it is capable of bearing.

    I fear that the Court of Appeal, in ignoring the actual wording of the relevant provisions of the PWIO adopted a wrong approach in construing the Ordinance. Quite simply, if parity between employees was intended under the PWIO, the statute would and should have said so.

    D CONCLUSION

  23. In my opinion, for the above reasons, this appeal should be allowed. If the correct approach had been adopted, on the facts of the present case, the sum against which the limits in s 16(2)(f)(i) of the PWIO were to be seen, was the net amount of severance payments due to the Applicant, namely $25,377.50.[57] This being less than the s 16(2)(f)(i) limits, the Applicant is entitled to an ex gratia payment in this amount under the PWIO.

  24. I would accordingly make the following orders :-

    1. The Applicant’s appeal is allowed.

    2. As to the Applicant’s application for judicial review :-

      1. The decision of the 1st Respondent dated 23 November 2012 is hereby quashed.

      2. There be a declaration that the Applicant is entitled to be paid as an ex gratia payment under the PWIO the sum of $25,377.50 on account of severance payments.

  25. As to costs, I would make an order nisi that both Respondents pay to the Applicant the costs of this appeal, and the costs in the courts below, such costs to be taxed if not agreed. The Applicant’s own costs should also be taxed in accordance with the Legal Aid Regulations, Cap 91. Should any party wish to have a different order for costs, written submissions should be served on the other parties and lodged with the Court within fourteen days of the handing down of this judgment, with liberty on the other parties to lodge written submission in reply within fourteen days thereafter. In the absence of such written submissions, seeking to vary the order nisi, such order will stand absolute upon the expiry of the time limited for any submissions to vary.

    Justice Ribeiro PJ

  26. I agree with the judgment of the Chief Justice.

    Justice Tang PJ

  27. I also agree with the judgment of the Chief Justice.

    Justice Fok PJ

  28. I also agree with the judgment of the Chief Justice.

    Lord Clarke of Stone-cum-Ebony NPJ

  29. I also agree with the judgment of the Chief Justice.

    Chief Justice Ma

  30. The appeal is accordingly allowed. The Court makes the orders as set out in para 24 above and also makes a costs order nisi as set out in para 25 above.


[1] For the meaning of redundancy, see s 31B(2) of the Employment Ordinance Cap 57 (“the EO”).

[2] See s 31G(1) of and Table A in the Seventh Schedule to the EO.

[3] Section 31I of the EO.

[4] Cap 380 (“the PWIO”).

[5] Known as the Protection of Wages on Insolvency Fund : s 6 of the PWIO.

[6] This provision is set out in full in para 11(7) below.

[7] See ss 3 and 4(1)(a) of the PWIO. The Board did not appear in the courts below and did not appear before this Court although it is presumably to be bound by the decision of this Court, including any orders as to costs.

[8] See ss 15 and 16 of the PWIO. Given that the Board did not appear either in the courts below or before us, the Commissioner was effectively the only Respondent in the present appeal. I will simply refer to the 2nd Respondent as the Respondent.

[9] From the Court of Appeal (Cheung CJHC, Peter Cheung JA and Poon J (now Poon JA)) dismissing the appeal from the decision of Louis Chan J. The judgment of the Chief Judge in the Court of Appeal was agreed by the other two members of the court.

[10] Under the PWIO, ex gratia payments are also available in respect of arrears of wages and wages in lieu of notice (see ss 15(1)(a) and (b)), but we are concerned only with severance payments (s 15(1)(c)).

[11] The relevant decision of the 1st Respondent is stated in the Notice of Application for Judicial Review to be dated 23 November 2012.

[12] Calculated under s 31G of the EO.

[13] Paras 3(1) and (2) above.

[14] $131,696.54 – $106,319.04. This applies s 31I of the EO : see para 1 above.

[15] Referred to in para 2 above.

[16] $50,000 + (50% of $81,696.54 (this being the excess of the severance payment due to the Applicant beyond $50,000)).

[17] $90,848.27 – $106,319.04.

[18] This was the evidence of the Assistant Commissioner for Labour in an affirmation filed in the present proceedings.

[19] Dated 30 July 2012. The form is a standard form (Form 8 (Revision 2006)).

[20] See paras 5, 9, 10 and 39 of the judgment of the Court of Appeal.

[21] See paras 51 and 55 of the judgment of the Court of Appeal.

[22] Mr Ambrose Ho, SC and Mr Jonathan Chang represented the Respondent. The Applicant was represented by Mr Paul Shieh, SC and Mr Alan Ng.

[23] Pursuant to s 23(1)(a) of the Hong Kong Court of Final Appeal Ordinance Cap 484.

[24] Para 1 above.

[25] See para 1 above.

[26] Cap 426.

[27] Cap 485.

[28] See para 10 above.

[29] Section 2.

[30] Section 265(1) states :-

265.

Preferential payments

(1)

In a winding up there shall be paid in priority to all other debts –

....

(ca)

any severance payment payable to an employee under the Employment Ordinance (Cap 57), not exceeding in respect of each employee $6,000;

[31] Section 38(1) states :-

38.

Priority of debts

(1)

In the distribution of the property of a bankrupt there shall be paid in priority to all other debts –

....

(ca)

any severance payment payable to an employee under the Employment Ordinance (Cap 57), not exceeding in respect of each employee $6,000;

[32] The situations set out in s 16(1)(a) and (b) of the PWIO.

[33] See paras 3(1) and 5(1) above.

[34] A methodology that has been used “for decades” : see para 6 above.

[35] See para 10(2) above.

[36] Para 42 of the judgment of the Court of Appeal.

[37] Para 10(2) above.

[38] Paras 43 to 50 of the judgment of the Court of Appeal.

[39] As well as the Judge.

[40] At para 49.

[41] See para 5(2) above.

[42] At paras 47-48 of the judgment of the Court of Appeal.

[43] At paras 53-61 of the judgment of the Court of Appeal.

[44] See para 15 above.

[45] Para 54 of the judgment of the Court of Appeal.

[46] See paras 56-60 of the judgment of the Court of Appeal.

[47] This may, for example, happen where the extent of such benefits, or even their existence, was unknown to an applicant employee or the Respondent, or even where the existence may be known but such benefits had not yet accrued; in such a situation, the Respondent may want to make an early payment. Afterall, s 31I benefits are only deductable in the specific circumstances set out in that provision, and these circumstances may or may not actually have materialized at the time of the application for an ex gratia payment.

[48] See para 19 above.

[49] See para 32 of the judgment of the Court of Appeal.

[50] See para 31 of the judgment of the Court of Appeal.

[51] See the analysis in Section B above.

[52] See, among other cases, HKSAR v Lam Kwong Wai & Another (2006) 9 HKCFAR 574, at para 63 (per Sir Anthony Mason NPJ).

[53] (2009) 12 HKCFAR 342, at para 36; see also T v Commissioner of Police (2014) 17 HKCFAR 593, at paras 194-5 and 222 (per Fok PJ) and at para 278 (per Lord Neuberger of Abbotsbury PJ).

[54] See Fully Profit (Asia) Ltd. v Secretary for Justice (2013) 16 HKCFAR 351, at para 15.

[55] See T v Commissioner of Police at para 278.

[56] (2014) 17 HKCFAR 755.

[57] See para 5(1) above.


Representations

Mr Paul Shieh SC and Mr Ng Man Sang Alan (instructed by Kwok, Ng & Chan, assigned by the DLA) for the Appellant

The 1st Respondent was not represented and did not appear.

Mr Ambrose Ho SC and Mr Jonathan Chang (instructed by the Department of Justice) for the 2nd Respondent.


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