LAU CHAN WAH v. PAT TAT TRANSPORTATION LTD

DCEC 1752/2014

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

EMPLOYEES’ COMPENSATION CASE NO 1752 OF 2014

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JUDGMENT

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BACKGROUND

1.  The applicant Mr Lau Chan Wah (“Mr Lau”) was a driver/delivery worker by occupation.  He worked as a driver of a lorry between Hong Kong and mainland China (mainly Shenzhen) from about 2010 onwards.  His usual work duties included driving a medium goods vehicle MA 2032 from Hong Kong to China to collect furniture and related parts from factories in Shenzhen and then drove them back to Hong Kong to deliver them to various customers within Hong Kong.  Usually after the furniture had been loaded onto the lorry in Shenzhen, Mr Lau would pick up two other workers who would board the lorry in Sheung Shui to assist Mr Lau in moving the furniture from the lorry and delivering them to the customers in Hong Kong. 

2.  As is required by the relevant legislation, Mr Lau was the registered driver of MA 2032, meaning no other person could drive this lorry to cross the Hong Kong-China border.

3.  On 16 December 2012, at about 11 pm, after the two workers had unloaded the furniture from the lorry for delivery, Mr Lau went inside the goods compartment of the lorry to check the goods that were to be delivered to the next destination.  Whilst inside the goods compartment, Mr Lau found several wooden doors tied together by a plastic rope and were leaning against the left side of the inner side of the goods compartment.  Mr Lau intended to move the doors a bit to check the delivery address marked on the crates.  In the course of doing that the doors fell forward and collapsed on Mr Lau.  As a result Mr Lau sustained serious personal injuries and was rendered tetraplegic.

4.  Mr Chung Wai Kuen (“Mr Chung”) is the sole shareholder and sole director of Pat Tat Transportation Limited (“Pat Tat”), the respondent.  Pat Tat is the registered owner of MA 2032.

5.  Mr Lau now seeks employees’ compensation pursuant to sections 7, 8, 10 of the Employees’ Compensation Ordinance (Cap 282) (the “ECO”) against Pat Tat, as its employee.

6.  Pat Tat denies that Mr Lau was its employee and claims that Mr Lau was an independent contractor working on a profit sharing basis.  Hence Pat Tat denies its liability under the ECO.

ISSUES NOT IN DISPUTE

7.  Subject to the issue of liability, the following are NOT in dispute:-

(i) Mr Lau was injured.

(ii) As Mr Lau was 42 years old at the time of the accident, his entitlement under section 7 award should be calculated on the basis of 72 months.

(iii) As Mr Lau is tetraplegic and requires the attention of another for the rest of his life, his entitlement under section 8(1)(a) is agreed by the parties to be the capped maximum of HK$462,890.

(iv) The parties agree that the court should extend the sick leave granted to Mr Lau to 3 years.

(v) The amount of medical expenses is agreed at HK$30,954.

ISSUES IN DISPUTE

8.  The following are in dispute between the parties:-

(i) Liability – whether Mr Lau was Pat Tat’s employee or independent contractor.

(ii) The amount of Mr Lau’s monthly earnings.

WHETHER MR LAU WAS AN EMPLOYEE OF PAT TAT, OR AN INDEPENDENT CONTRACTOR CARRYING ON BUSINESS ON HIS OWN ACCOUNT

Legal principles

9.  The leading case in Hong Kong on whether a person is an employee of another is Poon Chau Nam v Yim Siu Cheung [2007] 1 HKLRD 951

10.  In the words of Ribeiro PJ:-

"In the great majority of cases, deciding whether or not A is B’s employee presents little difficulty.  Most people take up jobs which are regular and stable, doing the work assigned to them, supervised by the boss and receiving regular wages and other benefits in return.  They are obviously employees.  However, in certain instances, the answer to the question whether an employer-employee relationship exists is elusive, as recognized by Lord Griffiths in Lee Ting Sang v. Chung Chi Keung v. Another [1990] 1 HKLR 764, at 766G. This has proved to be a most elusive question and despite a plethora of authorities the courts have not been able to devise a single test that will conclusively point to the distinction [between an employee and an independent contractor] in all cases."

11.  Her Honour Judge Mimmie Chan (as she then was), applied Poon Chau Nam in the case of Pun Wai Ming v Tsang Chung Kai (DCEC 946/2006) and said:-

“The modern approach to the question whether a person is an employee, as adopted in the case of Poon Chau Nam (supra) itself, is to examine all the features of their relationship against the background of the indicia of employment with a view to deciding whether, as a matter of overall impression, the relationship was one of employment, bearing in mind the purpose for which the question is asked. The passage of Mummery J’s judgment in Hall v. Lorimer [1992] 1 WLR 939 at 944, cited in the judgment of Ribeiro PJ in Poon Chau Nam, provides the most useful guidance in the task which the court undertakes:

“In order to decide whether a person carries on business on his own account it is necessary to consider many different aspects of that person's work activity.  This is not a mechanical exercise of running through items on a checklist to see whether they are present in, or absent from, a given situation.  The object of the exercise is to paint a picture from the accumulation of detail.  The overall effect can only be appreciated by standing back from the detailed picture which has been painted, by viewing it from a distance and by making an informed, considered, qualitative appreciation of the whole.  It is a matter of evaluation of the overall effect of the detail, which is not necessarily the same as the sum total of the individual details.  Not all details are of equal weight or importance in any given situation.  The details may also vary in importance from one situation to another.”

FACTUAL EVIDENCE ON RELATIONSHIP

12.  I respectfully adopt the legal principles set out in the above cases and apply them to the facts of the present case.

13.  Mr Lau used to be the husband to Mr Chung’s sister.  They are no longer married.  In about 2010, Mr Chung bought another lorry and needed an extra person to drive that lorry for his business. Mr Lau was then introduced by his ex-wife to Mr Chung.  Mr Lau’s ex-wife told Mr Chung that Mr Lau was interested in helping Mr Chung as he wished to earn a bit more than his old job as an electrician, and that she wished him to drink less.  Given Mr Lau is considered to be a relative, Mr Chung agreed to have Mr Lau as the driver for MA 2032.

14.  Mr Lau drove MA 2032 which was owned and provided by Pat Tat.  Pat Tat is responsible for paying all the outgoings of MA 2032, including petrol, licence fees, insurance, maintenance fee, tires, parking fees and penalty fees for traffic violations (only if pre-approved by Pat Tat).

15.  Mr Chung owns 5 lorries altogether which are all used for Pat Tat’s business of providing transport of goods between Hong Kong and China.  Mr Chung himself drives one of these lorries.

16.  Mr Chung would be the person receiving orders from his clients, which are mostly China factories.  He would then assign the orders to the various drivers.  There is some dispute on when Mr Chung would call Mr Lau to give him orders but I do not deem them to be material. Whether Mr Chung called the night before or whether Mr Lau would call Mr Chung after he crossed the China border to ascertain the identity of the factories does not affect the nature of their relationship: that it is Mr Chung who receives orders and distributes them to the various drivers.

17.  Mr Lau was paid fixed fees for each consignment or transport.  Each consignment covers the trip from Hong Kong to China for pickup of the goods at one location, then delivery to one destination in Hong Kong.  Mr Lau was paid a fixed fee of HK$420 for each consignment.  This is known by the parties as “車數”.  If there are extra pickup or delivery points, Mr Lau will earn HK$30 for each extra point. This is known by the parties as “點數”.  The customers would pay extra for any toll or tunnel charges.

18.  Other than the HK$420 for each consignment “車數” and each additional point of pick up or delivery “點數”, Mr Lau’s income has three other elements, being (i) extra work “額外工作”, (ii) miscellaneous “下欄”and (iii) delivery “跟車”.

19.  Extra work “額外工作” relates to delivery of loose items which may not fill up the whole truck.  They are usually calculated on a piece rate.  The entire amount of these would go to Mr Lau.

20.  Miscellaneous “下欄”relates to the return of faulty goods which are rejected or returned by the customers in Hong Kong.  Sometimes these would include loose parts or items which the customers require to be picked up together with the goods to be returned.  The entire amount of these would go to Mr Lau.

21.  Delivery “跟車” relates to the extra income that Mr Lau received when there was only one helper on board the lorry to help with the moving of the furniture.  Since each helper received HK$400 per day, if there was only one helper on a particular day, Mr Lau would get to split the HK$400 with the other helper and receive HK$200 extra that day.

PAT TAT’S ARGUMENTS

22.  Pat Tat relies on the following in support of a independentcontractor relationship:-

(i) Pat Tat has a profit sharing arrangement with Mr Lau.

(ii) Mr Lau could exclusively utilize MA 2032 to generate income for his own benefit.

(iii) Mr Lau hires his own helpers and has control over them.

(iv) Mr Lau could decline to work and thus has freedom and control over the arrangement of his work schedule.

(v) Mr Lau can decide when he has his rest days.

(vi) Mr Chung did not have control over when Mr Lau works as he can sometimes be out of contact.

PROFIT SHARING ARRANGEMENT?

23.  When the court looks at the payment arrangement between the parties, it looks at the substance rather than the label.  Throughout his evidence in court, Mr Chung was at pains to stress that he had a profit sharing arrangement with Mr Lau, in that Mr Lau would keep 30% and he would keep 70% (三七分賬). 

24.  Although Mr Chung in court stressed it is a profit sharing arrangement, the 30%/70% split is in fact based on the amount of receivables, in that Mr Chung charges his clients HK$1,400 per consignment (車數) and HK$100 per additional point of pickup or delivery (點數).  Mr Chung would then in turn be paid 30% of each, namely HK$420 per consignment (車數) and HK$30 per additional point of pickup or delivery (點數).

25.  Despite Mr Chung’s assertion that this “profit sharing arrangement” is the rule within the trade (行規) and is known to everybody, this arrangement only amounts to a payment calculated in accordance with the number of consignments or additional pickup or delivery points.  The fact that the amount paid to the driver is calculated by reference to a percentage of the amount received by Mr Chung does not on its own make it a profit sharing arrangement.

26.  If it were truly a profit sharing arrangement, Mr Lau would only be entitled to 30% of Pat Tat’s profits in the operation of MA 2032.  Even Mr Chung in his evidence could not rebut the fact that all the payment slips written by Mr Chung when he asked Pat Tat for his income only referred to the number of consignments and number of additional pickup points.  There was no exercise of calculating his income by reference to the net profits of Pat Tat.  In fact there is no evidence tendered as to the net profits of Pat Tat. 

27.  Furthermore, if the arrangement were truly a profit sharing arrangement, when the operation of MA 2032 was at a loss for a particular month, (eg February 2012 when Mr Lau was hospitalized and only 5 consignments and 16 extra delivery points were made in that month) Mr Lau would not be entitled to any income that month, since Mr Chung says the operating costs for each lorry is about HK$25,000 to HK$30,000.  5 consignments and 16 delivery points in February would only fetch him HK$8,600, which means MA 2032 operated at a loss that month.  Despite this, Mr Chung admitted that Mr Lau was paid in accordance with the number of trips he made.  This clearly indicates that the relationship is not a profit sharing relationship and that Mr Lau in no way bears any risk of his own.

28.  I therefore find that the payment arrangement between Mr Lau and Mr Chung is not a profit sharing one.  It is simply an arrangement whereby Mr Lau was paid fixed fees depending on the number of consignments and trips that he made.

EXCLUSIVE UTILIZATION OF MA 2032

29.  Mr Chung claims that since Mr Lau was the registered driver of MA 2032, he had exclusive use of it and was able to drive it for his own profits.  However, this is not a voluntary arrangement.  This is in fact a requirement under the relevant legislation for cross-border drivers that each vehicle must have one registered driver.  It is not as though this is a special arrangement where Mr Lau was the only designated driver.

30.  Furthermore, there is no evidence that Mr Lau drove MA 2032 to deliver goods for customers which are not customers of Pat Tat or generated income on his own.  As such, I do not think that this points to Mr Lau being an independent contractor.

Mr Lau hires his own helpers and has control over them

31.  Mr Chung argued that Mr Lau had the freedom to hire his own helpers and decided how many would be on board to help him.

32.  First of all I do not think the evidence supports this assertion.  Mr Lau said that Mr Chung would arrange which helpers would be available on the day and they would be picked up at Sheung Shui MTR station after he has picked up furniture from the Shenzhen factories.  There is some dispute by Mr Chung as to who would arrange for the helpers but the indisputable evidence shows that Mr Lau did not have to pay for them.

33.  This can be seen from the handwritten chit notes that Mr Lau submits to Mr Chung every month for payment.  Sometimes when there was only one helper available, Mr Lau would claim for half of the HK$200 as remuneration for having to help with the moving.  Similarly, Mr Lau would seek reimbursement from Pat Tat for money he had paid first to the helpers.  This clearly shows that Mr Lau was NOT the one who paid for the helpers.  It is unclear whether Mr Chung or the factories paid for the helpers but that is immaterial.  What is material is Mr Lau was not the one who paid or hired them.

34.  As to control of the helpers, Mr Chung said Mr Lau could decide whether he would like to have more income that month and decide on whether to have one or two helpers on board.  I accept Mr Lau’s evidence that he did not decide to have only one helper as the moving work was very strenuous.  However sometimes it was hard to have enough helpers around so he was forced to help with the moving work.  I accept his evidence that he did not voluntarily decide on having less workers.  This is because one can see from the handwritten chit notes that Mr Lau submitted to Mr Chung every month for payment that there were very few instances when Mr Lau actually claimed for the extra $200 for helping with delivery.  If it were true that he could have freely decided how many workers to have, one would have expected him to have claimed more to have extra income each month.

35.  There is no dispute that Mr Lau’s son sometimes worked as a helper on board.  However, that alone does not mean Mr Lau was the one hired the helpers.  As said above, it is clear that Mr Lau was not the one who paid the helpers.

36.  I am therefore of the view that this does not point to Mr Lau being an independent contractor.

Mr Lau could decline to work and thus has freedom and control over the arrangement of his work schedule/Mr Lau could decide when he has his rest days

37.  On the allegation that he has freedom to arrange his work schedule, I do not think there is sufficient evidence to say so other than the fact that Mr Lau could decide the order of pickup or delivery points.  However, I deem that freedom to be out of convenience and logistics rather than for Mr Lau’s personal benefit.

38.  As to Mr Lau’s rest days, there is no dispute that when Mr Lau felt that he needed a rest, he would inform Mr Chung a day or two in advance of when he wished to take the day off.

39.  Mr Lau says that there had been instances when he applied for leave but was declined due to the insufficient number of drivers to satisfy the orders of Pat Tat’s clients.  Mr Chung does not agree.

40.  Even assuming Mr Lau did have complete freedom to decide his rest days, this needs to be looked at against the background of this industry, where drivers do not enjoy statutory holidays or public holidays, work 7 days a week, often until midnight. 

41.  I am of the view that this is simply a system which has all along been accepted by Pat Tat in relation to how the drivers apply for leave.  Thus I am of the view that the fact that he would apply for leave as and when he needed is not inconsistent with an employment relationship.

42.  I am therefore of the view that this does not point to Mr Lau being an independent contractor.

Mr Chung did not have control over when Mr Lau works as he can sometimes be out of contact

43.  Mr Chung relies heavily on an incident which happened in February 2010 when Mr Lau was hospitalized and he could not be contacted for nearly 2 weeks.  There was no other evidence that Mr Lau was out of contact for extended periods of time.

44.  First of all this was an isolated incident when clearly Mr Lau had serious personal problems and was deeply troubled, which resulted in him being hospitalized.

45.  I do not think Mr Lau being out of contact in one isolated incident could point the relationship towards one of independent contractor.  Furthermore, even if he was always out of contact, it could still be consistent with an employer employee relationship in that he could be a very irresponsible employee.

46.  Therefore I am of the view that this is neutral in the determination of the relationship.

OVERALL EFFECT OF THE DETAILED PICTURE

47.  The next step of the approach is to evaluate the overall effect of all the detailed analysis of facts in the present case, by viewing it from a distance and making a considered, qualitative appreciation of the whole picture.  Not all the details in the picture are of equal weight or importance and details may vary in importance from one situation to another.

48.  The details which bear more weight in this case are first, the transportation business belonged to Mr Chung who managed it.  Mr Chung was the one who determined the charges to clients and the fixed fee payable to Mr Lau in accordance with the industry custom.  In addition, there is no dispute that Mr Lau bore no operation costs for the business carried out under MA 2032.  This is a strong indicia of an employer-employee relationship.

49.  The only financial rewards for Mr Lau were his income calculated based on the number of trips he made.  Mr Lau was not affected by how well or poorly Pat Tat’s business was in relation to MA 2032.

50.  In relation to control, there is no evidence suggesting that Mr Lau did any work other than those relating to Pat Tat’s customers.  Mr Chung was the one who told Mr Lau where to pick up from, who were the clients and which day he needed to pick the furniture up.

51.  On the relationship between the parties, Mr Lim for the applicant put much emphasis on Mr Chung having filled out Form 2 which says he was the employer and Mr Lau was an employee.  I agree with Ms Li that these subjective views taken by the parties at the time bear relatively less weight when the court is to determine what is the relationship between the parties.  What is important is the true nature of the relationship.

52.  I am thus of the view that the overall picture point to the relationship between Pat Tat and Mr Lau being an employer-employee one.  Thus, I am of the view that Pat Tat as Mr Lau’s employee is liable for the accident he suffered whilst he was at work.

THE AMOUNT OF COMPENSATION PAYABLE

Monthly earnings

53.  There are various components to the monthly income of Mr Lau:-

(i) Base salary – which comprises of the consignment and consignment (車數) and additional point of pickup or delivery (點數).  The monthly average over 11 months amount to HK$15,229.

(ii) Delivery (跟車) – the reimbursement to Mr Lau when there was only 1 helper.  The monthly average over 11 months amount to HK$745.5.

(iii) Miscellaneous (下欄) and extra work (額外工作) – There is no documentary evidence in support of miscellaneous work but the Plaintiff has asked for HK$6,500 as a combination of both miscellaneous and extra work.

54.  The respondent does not dispute the amounts claimed under base salary and delivery as part of Mr Lau’s monthly earnings.  However, they dispute the claim of HK$6,500 per month under miscellaneous (下欄) and extra work (額外工作).

55.  Ms Li for the respondent says that since there is no dispute that the respondent does not pay any part of the miscellaneous (下欄) and extra work (額外工作) income to Mr Lau, it does not form part of his monthly earnings. They say the income he got was from his own side business of bringing goods back to the mainland.

56.  Mr Lim for Mr Lau refers to the definition of “earnings” in the Employees’ Compensation Ordinance (Cap 282), which provides:-

“earnings" (收入) means any wages paid in cash to the employee by the employer and any privilege or benefit which is capable of being estimated in money and includes the value of any food, fuel, or quarters supplied to the employee by the employer if as a result of the accident the employee is deprived of such food, fuel or quarters; and any overtime payments or other special remuneration for work done, whether by way of bonus, allowance or otherwise, if of constant character or for work habitually performed and including tips if the employment be of such a nature that the habitual giving and receiving thereof is open and notorious and is recognized by the employer: but shall not include remuneration for intermittent overtime, or casual payments of a non-recurrent nature, or the value of a travelling allowance, or the value of any travelling concession or a contribution paid by the employer of an employee towards any pension or provident fund, or a sum paid to an employee to cover any special expenses entailed on him by the nature of his employment;” (emphasis added)

57.  Mr Lim submits that since the miscellaneous and extra work were of a constant character of work habitually performed and such payments were habitually given or received and was open and notorious and recognized by Pat Tat, they ought to qualify as part of “earnings”.

58.  I agree with Mr Lim’s submission. Although the miscellaneous and extra work income were paid by the Chinese factories to the drivers directly, such work was really part and parcel of the service to be provided by Pat Tat to its existing customers.  Mr Chung himself admits that the factories giving the miscellaneous and extra work to the drivers were all his existing customers.  The fact that Pat Tat is obliged to satisfy the requests for these miscellaneous and extra work can be seen from the fact that if Mr Lau declined to carry out such work, Mr Chung would have to arrange for another of his drivers to carry out the work.  This proves that such works were really part of the service provided by Pat Tat to its customers, rather than the drivers’ side business.

59.  Further, the reason why the drivers are allowed to keep 100% of the payment for these miscellaneous works is due to the fact that these can be carried out at very little cost to Pat Tat.  The drivers would not make a separate trip to Shenzhen from Hong Kong upon receiving orders to bring such goods back to Shenzhen.  Rather, they would wait to do so on the next morning when the lorries would have to go to Shenzhen for the next day’s pick up anyway.  Thus no (or very little) extra fuel would have to be used to carry out these orders for miscellaneous works.

60.  Based on the above, I do not agree that the miscellaneous and extra works are the drivers’ side business.  I agree that such income should be included in Mr Lau’s monthly earnings.

61.  As to the quantum of the income arising out of the miscellaneous (下欄) and extra work (額外工作), Ms Li says that the court should not award any of it since Mr Lau has failed to provide any documentary proof showing the monthly amount.

62.  Mr Lau has mentioned in his evidence that the miscellaneous (下欄) income is about HK$6,000 to HK$7,000 per month (based on HK$300 per day and usually there would be such works for about 20 days a month where there is such works).  This amount was not seriously challenged upon cross examination except for the fact that Mr Lau had failed to keep any records of such income.  This is why Mr Lau currently claims HK$6,500 under this head, being the mid point between HK$6,000 to HK$7,000.

63.  I accept that Mr Lau did not keep such records because he took such incomes from the Chinese factories directly. As such there was no need to show this record for reimbursement from Pat Tat. I agree there is nothing nefarious about Mr Lau having no records of such income.

64.  This amount is also consistent with Mr Lau’s evidence that he changed jobs as he wanted to earn more.  At his old job as an electrician, he was earning HK$18,000 to HK$19,000.  Mr Lau’s monthly income as a driver amount to about HK$16,000 (without the miscellaneous (下欄) and extra work (額外工作).  It is only with the amount of the miscellaneous (下欄) and extra work (額外工作) added would his monthly income be higher than his old job.

65.  I would accordingly hold that the monthly earnings arising out of the miscellaneous (下欄) and extra work (額外工作) is HK$6,500.

66.  The amount of monthly earnings taken over the last 11 months under section 11(1)(b) is thus:-

(i) Base salary –HK$15,229.

(ii) Delivery (跟車) – HK$745.50.

(iii) Miscellaneous (下欄) and extra work (額外工作) – HK$6,500 as a combination of both miscellaneous and extra work.

   Total: HK$22,474.50

67.  If one takes the last month in accordance with section 11(1)(a), Mr Lau’s income was HK$14,760 + HK$200 + HK$6,500 = HK$21,460.

68.  The figure of HK$22,474.50 is adopted as it is more advantageous to Mr Lau.

SECTION 7 AWARD FOR TOTAL PERMANENT INCAPACITY

69.  Section 7(1)(b) applies to employees aged between 40 and 56 at the time of the accident and the award is a sum equal to 72 months’ earnings.  The applicant was aged 42 at the time of the accident.

70.  The award is thus: HK$22,474.50 x 72 months = HK$1,618,164.

SECTION 8 AWARD FOR ATTENTION OF ANOTHER

71.  An award of HK$462,890 is agreed.

SICK LEAVE

72.  By agreement, the court allows the appeal against the period of sick leave granted in Form 9 to a period of 36 months.

SECTION 10 AWARD

73.  The award under section 10(1) of the ECO is: HK$22,474.50 x 4/5 x 36 months – credit of HK$134,376 previously paid, = HK$512,889.60.

MEDICAL EXPENSES

74.  Medical Expenses under section 10A is agreed at HK$30,954.

SUMMARY

COSTS AND INTERESTS

76.  Mr Lau is entitled to interest at half of the judgment rate from the date of accident is granted.

77.  He is also entitled to costs of the action, to be taxed if not agreed, with certificate for counsel.  Mr Lau’s own costs are to be taxed in accordance with Legal Aid regulations.

78.  I thank the valuable assistance given by both counsel to the court.