Section 41C of the EO makes similar provisions relating to the rate of annual leave pay.

According to the EO, subject to various qualifications, 'wages' means all remuneration, earnings, allowances including travelling allowances and attendance bonus, commission, overtime pay, tips and service charges, however designated or calculated, capable of being expressed in terms of money, payable to an employee in respect of work done or to be done under his contract of employment.

Under the EO, 'tips and service charges' in relation to wages, means sums of money received, directly or indirectly, by an employee in the course of and in connection with his employment which are (a) paid or derived from payments made by persons other than the employer; and (b) recognized by the employer as part of the employee's wages.

The CA considers that ‘tips and service charges’ received by the claimant from tour participants squarely fall within the statutory definition of ‘wages’ because the defendant company provides the patrons of their package tours with its recommendation as to the amount of tips to be paid to the tour guide. In addition, the defendant company issues to its tour guides documents with information relating to "tipping" for countries to which it offered package tours.

The next question determined by the CA is whether there is a workable mode of calculation exists for working out the net tips and whether it can be said to accrue daily.

The CA considers that the discretionary nature of tips is not a bar to their forming part of an employee's wages and any discretion in the payment of a tip will be that of the tour participant and not employer. While the amount of tips received per month may vary, in the present case, these factors do not pose any particular difficulty in the way of calculating daily wages. Not only is the rate of recommended tips made on a per person per day basis, the tips the tour guide had to defray in the foreign country are also expressed in a similar fashion. And even if the tour guide does not receive his tips until the end of the tour, the net tips per day can be said to ‘accrue’ on a daily basis and are readily calculable on the same basis.

As a concluding remark, the CA considers that it is simply absurd that the basic salary is the sole income of counter sales/tour guides and the reality is that their income comprises not only the basic salary but also the net tips earned through performing their duties for the defendant company. Accordingly, the CA dismissed the appeal and held in favour of the claimant.

Current law may not protect pension benefits in bankruptcy

On 23 July 2008 the Court of First Instance handed down a wide ranging judgment in Re: Ng Shiu Fan, HCB 1201/1998. The case involved a claim by the Official Receiver ("OR") to the pension benefits of a bankrupt.

Previously it was believed that pension benefits, in particular pension benefits accruing after commencement of the bankruptcy and especially those benefits accruing after discharge of the bankruptcy, were outside the reach of the OR and therefore were not available for distribution to the bankrupt's creditors in the bankruptcy. In handing down its judgment, the court ruled that pension benefits, even those benefits accruing after discharge of bankruptcy, may vest in the OR.

Case Summary
Mr Ng petitioned for his own bankruptcy in November 1998. A bankruptcy order was made against him in December 1998, with the OR being appointed his trustee in bankruptcy in February 1999. Mr Ng was automatically discharged from bankruptcy in December 2002 pursuant to s30A(1) of the Bankruptcy Ordinance.

Mr Ng was employed as a teacher in a subsidised school. As a result of his position he was required pursuant to the provisions of the Education Ordinance to make mandatory contributions to a provident fund. Mr Ng continued to make contributions to the fund during, and after discharge from, bankruptcy.

The OR made a claim to the benefits arising from contributions to fund made before and during his bankruptcy, and after his discharge from bankruptcy. Mr Ng argued that s85(3) of the Education Ordinance prevented his fund benefits from vesting in the OR.

S85(3) provides:

"Subject to any rules made under subsection(1), no contribution or donation to or any dividend or interest on a dividend from a provident fund shall be assignable or transferable or liable to be attached, sequestrated or levied upon, for or in respect of any debt or claim whatsoever."

Both sides agreed that in the absence of s85(3), Mr Ng's benefits under the fund would vest in the OR upon his bankruptcy. The first question for the court to consider was whether s85(3) put such benefits beyond the reach of the OR.

Mr Ng also argued that the OR could only claim for Mr Ng's estate benefits accrued after commencement of bankruptcy by serving a notice within 42 days of the benefits coming to the OR's knowledge pursuant to s43A(1)(a) of the Bankruptcy Ordinance. The OR had not served such a notice. The court was asked whether a s43A notice was required in order for the OR to claim benefits accruing after commencement of bankruptcy.

Finally, the court was asked to consider what should happen to benefits vested in the OR upon Mr Ng's discharge from bankruptcy.

The Law
The court held that Mr Ng's right to be paid from the pension fund was a right capable of vesting in the OR on the commencement of bankruptcy notwithstanding s85(3). The court reasoned that the vesting of the right in the OR was not an act of "assignment" or "transfer" but an operation of law. A
non-alienation clause, according to the court, must expressly exclude pension benefits from the person's estate in bankruptcy. In reaching this conclusion, the court recognised that there are statutory provisions that do protect certain pension benefits:

• Hong Kong War Memorial Pensions Ordinance (Cap 386) provides that the pension benefits "shall not pass to any other person by operation of law"
  
• Pension Benefits Ordinance (Cap 99), which applies to non-judicial civil servants, provides that upon commencement of bankruptcy the pension shall "cease forthwith" and the Chief Executive shall have the power to decide how to deal with the accrued benefits.
• Pension Benefits (Judicial Officers) Ordinance (Cap 401) provides the same protection to judicial officers as the Cap 99.
  

Section 85(3) provides no such protection therefore the OR was entitled to claim the accrued benefits.

The court further held that it was the right to claim the benefits that was crucial and not whether benefits were, at the commencement of the bankruptcy, payable.

Following on from the finding that the right to claim the benefits was the crucial factor, the court held that benefits accruing after commencement of bankruptcy did not alter the fact that the right to claim those benefits had already vested in the OR. The effect of Mr Ng continuing to pay contributions to the fund simply increased the value of the existing right; it did not create new rights that could only be claimed by the OR by serving a s43A notice. As such, any benefits arising after commencement of the bankruptcy including benefits accruing after discharge of the bankruptcy vested in the OR. The court further held that all assets of a bankrupt, including rights to benefits of a pension fund, remain vested in the OR and should not be returned to the bankrupt upon discharge of his bankruptcy.

Although this case specifically involved statutory provident funds, there is no reason why the principal that a nonalienation clause should expressly exclude pension benefits should not apply equally to contractual provident funds.

Unsatisfactory State of Legislation

In its judgment, the court discussed the UK cases of Re Landau (A Bankrupt) [1998] Ch 223 and Krasner v Dennison [2001] Ch 76, both of which arrived at the same decision as the court in the present case. The effect of Landau and Krasner was reversed by legislative amendments. Kwan J. expressed a view that:

"the legislature [in Hong Kong] should review the current unsatisfactory state of legislation on pension schemes and give serious consideration to amending the law to extend the protection to pension benefits general in the event of bankruptcy (apart from officers in public service in a civil capacity and judicial officers, who are protected) with suitable power to the trustee to claim excessive contributions and seek income payments orders for benefits paid to a bankrupt after bankruptcy."

The "suitable power" referred to will allow the OR to claim assets of bankrupts who have sought to "contract out" of bankruptcy laws by applying their assets to pension scheme contributions.

It remains to be seen whether the legislature will follow the court's advice.

DATE APPOINTED FOR MPF AMENDMENTS

The Mandatory Provident Fund Schemes (Amendment) Ordinance 2008 was passed by the Legislative Council on 9 January 2008 and enacted on 18 January 2008. The amendments are intended to enhance the efficiency and minimise loopholes in the Mandatory Provident Fund Schemes Ordinance ("MPFSO"). A number of amendments are to become effective on a date to be appointed by the Secretary for Financial Services and the Treasury. The Secretary has appointed 1 November 2008 as the date on which those amendments become effective. The appointed date was Gazetted on 2 June
2008 (L.N. 143 of 2008).

Please refer to our previous newsletter (Issue 2008.1) for the effects of the amendments. We will be happy to provide a copy on request.

TERMINATION OF EMPLOYMENT - NO DUTY OF GOOD FAITH OWED TO THE EMPLOYEE

The Court of First Instance has rejected the notion that there is an implied term in employment contracts that the employer has a duty to act in good faith towards an employee in matters relating to termination of employment. The judgment in Ko Hon Yue v Liu Ching Leung [2008] HKCE 1314 was handed down by the Hon Chu J on 4 August 2008.

Case Summary

The plaintiff school teacher's employment was terminated in the middle of an academic year. He claimed, among other things, that the defendant was in breach of an implied term that:

"…the [employer] through itself or its servants or agents, would act in good faith towards the [employee], and would not without reasonable or proper cause, conduct itself in a manner likely to destroy or seriously damage the relation of confidence and trust between employer and employee."

The defendant employer argued that such an implied term does not exist in law and, specifically, that there is no sound legal basis for implying such a term in the context of non-renewal or termination of an employee's employment contract.

The Implied Term as Pleaded Does Not Exist in Law

Having considered a number of House of Lords’ decisions together with the Hong Kong Court of Appeal's judgment in Semana Bachicha v Poon Shiu Man [2000] 2 HKLRD 833, the court derived the following principles:

1. the common law recognises the existence of an implied term of confidence and trust in the context of employment contracts as formulated in Malik v Bank of Credit and Commerce International SA (In
   liquidation) [1998] AC20 and applied in Bachicha;
2. Although viable, the common law does not at this time recognise a duty to act in good faith towards an employee when terminating employment. Further, it was not desirable for the court to develop such a common law duty (Johnson v Unisys Ltd [2003] 1 AC);
3. The EO provides remedies for wrongful dismissal. It is not appropriate for the court to go behind legislative intent by developing common law provisions for wrongful dismissal beyond those provided for in the EO (Bachicha); and
4. An employee may acquire a cause of action based on a breach of trust and confidence before his employment is terminated. Subject to the rule against double recovery, such an employee may bring a separate action to recover his losses arising from that breach (Eastwood & Anor v Magnox Electric plc [2004] 3 WLR 322).

Applying the above principles, the court held that an implied term of good faith as pleaded by the Plaintiff did not exist in law.

The court further held that, based on the facts of this case, the Plaintiff had not acquired an independent cause of action in relation to a breach of trust and confidence prior to his dismissal.

His claim was dismissed. In view of the court's general attitude to such an implied term, it is likely that any change to the law to include such an implied term will come from legislative amendment rather than expansion of the common law. To date there has been no indication that the legislative has any intention of doing so.

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