The Protection of Wages on Insolvency Fund (the "Fund") was established in 1985 to provide timely relief in the form of an ex gratia payment to eligible employees affected by the insolvency of their employers, for example where employees' severance payments are withheld pending winding-up proceedings. Section 16(2) of the Protection of Wages on Insolvency Ordinance (the "Ordinance") provides that the Commissioner for Labour shall not make payment out of the Fund of amounts exceeding certain caps. In addition, section 31I of the Employment Ordinance provides that an employee's severance payment will be reduced by his or her Mandatory Provident Fund ("MPF") benefit.

In the case of Yung Chi Keung v Protection of Wages on Insolvency Fund Board CACV 37/2014, the applicant's severance payment was partly reduced by his MPF benefit. The Commissioner refused to make such ex gratia payment in respect of the outstanding severance payment to the applicant, on the basis that the MPF benefit received by the applicant exceeded the cap imposed by the Ordinance.

The applicant accepted that the Commissioner has a discretion as to whether to make payment or not. However, the applicant contended that, if the Commissioner should decide to make a payment, he has no discretion on the amount of payment, which must be the amount outstanding after the MPF benefit deduction, subject to the cap.

The Court of Appeal found that the object of the provisions is to provide quick relief to employees who have lost their jobs suddenly while preventing double payment. The proper interpretation of the Ordinance requires the Commissioner to use either the gross severance payment or its respective capped amount, whichever is less, as his starting point, and then reduce it by the benefit received by the employees. In the applicant's case, his severance payment was more than the cap from which his MPF benefit was deducted. Since the deduction gave rise to a negative figure, the Court of Appeal ruled that the Commissioner was correct in refusing to make any ex gratia payment.

This decision by the Court of Appeal clarifies the intention of the Fund and how payment of the Fund shall be determined.