WAH KWONG CONSTRUCTION MATERIAL v. WONG MAN YIP

IN THE COURT OF APPEAL

1994, No. 54
(Civil)

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J U D G M E N T

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Mortimer, J.A.:

This is the judgment of the Court.

1. Mr Luk (L), the employee, was employed by the plaintiff (the employer). On 2nd October 1990 he was tortuously injured by a vehicle owned by the defendant (the tortfeasor). L applied for employee's compensation from the employer in the District Court under the provisions of the Employees' Compensation Ordinance, Cap 282 (the Ordinance).

2. The District Court proceedings were compromised on the basis that the employer paid compensation, interest on the compensation and L's costs. The employer incurred his own legal costs in compromising the case. There is no issue in the instant proceedings that the employer's costs were other than necessarily incurred. The tortfeasor was liable in tort to L but the employer was not. The employer therefore applied under s.25(1)(b) of the Ordinance to recover against the tortfeasor all that he had paid out including his own legal expenses. The tortfeasor agreed that the employer could recover the compensation and interest but contended before Kaplan J. that he could not recover indemnity for L's costs in the District Court proceedings nor for his own legal expenses.

3. The tortfeasor contended that the employer could not recover either L's costs or his own because such sums are not recoverable on the proper construction of s.25(1)(b).

4. The Ordinance, now much amended, is based upon the Workmen's Compensation Acts in the United Kingdom. Section 25(1)(b) reads:

"the employer by whom compensation is payable, and any person who may be called upon to pay an indemnity under section 24 in the case of an employee employed by a sub-contractor, shall have a right of action against the third party for the recovery of any sum which he is obliged to pay as a result of the accident, whether by way of compensation or indemnity or by virtue of any agreement made with the employee prior to the accident, and may exercise such right either by joining in an action begun by the employee against the third party or by instituting separate proceedings:

Provided that the amount recoverable under this paragraph shall not exceed the amount of damages, if any, which in the opinion of the court would have been awarded to the employee but for the provisions of this Ordinance"

5. In a careful and clear judgment Kaplan J. considered the available English authorities on the sections of the Workmen's Compensation Acts which were the predecessors to s.25(1)(b) and concluded that on a proper construction of the section, the employer was entitled to be indemnified not only for the compensation and interest paid to L but also for the sums paid in respect of L's costs. However, he also concluded that the words of the section did not give the employer the right to recover his own legal expenses in the District Court proceedings.

6. In reaching his decision the judge found that he was not bound by the earlier decision of this Court in Wong Leung-tak v Hip Hing Construction Ltd [1991]2 HKLR 345 in which the court decided that a principal contractor's claim for indemnity under s.24(2) against an employer did not include the costs incurred by the principal contractor in the employee's compensation proceedings on a proper construction of that section.

7. The tortfeasor now appeals, contending that the judge was wrong to construe s.25 as giving the employer the right to recover the employee's costs. The employer also cross-appeals, contending that the section provides for full indemnity so that the judge was wrong not to award indemnity in respect of its legal expenses incurred in the District Court.

8. We have had the advantage of full and lucid submissions from counsel on both sides. In the result, however, these submissions on the proper construction of the section do not permit lengthy exposition or argument.

9. A consideration of the meaning of s.25 necessarily involves reference to s.24(2). Section 24(2) provides a principal contractor with a right of recovery against a sub-contractor employer in respect of sums paid out to an employee under the Ordinance. This section provides:

"Where the principal contractor is liable to pay compensation under this section, he shall be entitled to be indemnified by any person who would have been liable to pay compensation to the employee independently of this section."

Both counsel made reference to this section on the basis that it would be strange, if not absurd, if the indemnity provided by s.24(2) was different from that provided under s.25. The reason is that s.25 provides not only the employer by whom compensation was payable but also any person who may be called upon to pay an indemnity under s.24, in the case of an employee employed by a sub-contractor, rights of recovery against a tortfeasor.

10. Mr Arjan Sakhrani Q.C., for the tortfeasor, firmly submitted that this Court is bound by its own decision in Wong Leung-tak v Hip Hing Construction Ltd (supra) to the effect that indemnity under s.24(2) recoverable by a principal contractor does not include payments in respect of the employee's costs nor his own costs in the compensation proceedings.

11. He recognises that the words "shall be entitled to be indemnified" which appear in the sections of the Workmen's Compensation Acts. upon which both ss.24 and 25 and their predecessors were originally based, were construed in England to include indemnity for costs. Three English decisions at first instance were cited to the judge, and to us, as persuasive authorities: Great Northern Railway v Whitehead (1902)18 TLR 816; Nettleingham v Powell [1913]1 KB 113; and Daily New Ltd v McNamara Ltd [1913]7 BWC 11. These were decisions on s.30 of the 1925 Act and its predecessor - the equivalent to s.25 of the Ordinance and were decisions on the meaning of the words "shall be entitled to be indemnified." The same words appeared in s.6 of the 1925 Act and its predecessors equivalent to s.24 of the Ordinance. There can be little doubt that in the Workmen's Compensation Acts the words bore the same meaning in both sections and that indemnity covered the recovery of both the amount of the award and also all costs and legal expenses related thereto.

12. Mr Sakhrani, therefore, argues that to avoid absurdity, s.25 must bear the same meaning as s.24 as decided by this Court. He further submits that the words "whether by" limit the meaning of the words "any sum" and that as the definition of "compensation" in s.3 of the Ordinance does not include costs, the section does not provide for their recovery.

13. Further, in support of his submission, Mr Sakhrani traced the legislative history of the two sections, pointing out inter alia that in the predecessor of s.24 there appeared the words:

"shall be entitled to be indemnified as regards the amount of compensation, including costs".

but that in 1969, by s.19 of the Workmen's Compensation (Amendment) Ordinance (i.e. Ordinance No.55/69) the words "including costs" were omitted - it must also be said that the section was reconstructed and the words "shall be entitled to be indemnified" appeared on their own without "as regards the amount of compensation".

14. Mr Robert Tang Q.C. opposes the appeal and supports his cross-appeal by submitting, first, that on the English authorities and the plain meaning of the word "indemnity" this Court's decision in Wong Leung-tak is plainly wrong and should not be followed in construing s.25 - even if the Court is bound by it for the construction of s.24. Therefore, submits Mr Tang, the Court can look at both sections and avoid compounding the error by construing the words of s.25 in their plain meaning and in his favour. So, Mr Tang continues, the meaning of the words "shall be entitled to be indemnified" is clear in s.24(2) beyond argument as covering costs and legal expenses, and further the words "any sum which he is obliged to pay as a result of the accident" in s.25 bear the same meaning. He contends that the following words "whether by" in the phrase "whether by compensation or indemnity" do not limit the generality of the earlier words and that any other construction would lead to anomaly.

15. It is necessary to consider and if necessary give effect to the earlier decision of this Court in Wong Leung-tak. Mr Tang rightly did not argue that the decision was per incuriam because none of the English decisions cited are binding on this Court.

16. In Wong Leung-tak the issue on indemnity under s.24(2) arose in an unusual way, as can be seen from Clough J.A.'s judgment - to which Cons V.P. and Kempster J.A. (as he then was) assented without specific reference to this point. The relevant passage appears at 3621 to 363C:

"[Counsel] for the principal contractor was not at first minded to claim that the indemnity under section 24(2) should include the costs incurred by the principal contractor in the employees' compensation proceedings. He did so only when invited to consider the matter by the court. The editor of the 9th (1926) ed. of Elliot on Workmen's Compensation indicates in the notes on s.6 of the 1925 Act that the principal contractor is entitled to include, in his claim for indemnity from his sub-contractor, the costs he has reasonably incurred in the proceedings brought against him.

The decision of Darling, J. in Great Northern Railway Co. V Whitehead [1902]18 TLR 816 is cited for this proposition. However that was a decision relating to a claim by an employer for indemnity against a negligent third party under s.6 of the 1897 Act (corresponding broadly to s.30 of the 1925 Act and s.25 of the Ordinance). The last edition of Wills does not cite the authority as applicable to s.6 of the 1925 Act, but only cites it in the notes to s.30 of that Act.

In the absence of any express provision in s.24 or of any English authority indicating that the principal contractor could claim costs incurred in the compensation proceedings as part of his indemnity under s.6 of the 1925 Act and its predecessors under the 1897 and 1906 Acts, I would not be prepared to construe s.24(2) of the Ordinance as extending the relevant indemnity to the costs incurred by the principal contractor in the employee's compensation proceedings."

17. Clough J.A. recognised the persuasive authority of the English decisions on s.30 of the 1925 Act but in the absence of direct authority on s.6 of the Act - the equivalent of s.24 of the Ordinance - he was not prepared to construe that section as extending the indemnity to costs incurred, in spite of the use of the same words in both sections.

18. In the United Kingdom there was a huge volume of litigation over many years under the Workmen's Compensation Acts. The absence of any decisions beyond first instance on the meaning of the word "indemnity" reflects a general view that it was not arguable that indemnity did not cover costs and legal expenses. Counsel agreed that this must have been so.

19. Clough J.A. indicated that on the English authority cited, he would have been inclined to find that s.30 of the 1925 Act provided full indemnity. Mr Tang submits that it is inconceivable that the same words in s.6 of the English Act bear a different meaning. I agree.

20. Is this Court bound by its decision in Wong Leung-tak on this point? At most it is obliged to follow the earlier construction of s.24(2), but the Court's decision was expressed as by default. True Clough J.A. does not expressly reserve the point for future consideration, but he does indicate that if a principal contractor was able to claim costs under s.6 of the 1925 Act, he would have been persuaded to construe the indemnity in s.24 as also extending to costs. To this extent he left the point open for further argument. In my judgment, if Cough J.A.'s words are given their appropriate effect, it is open to this Court to reconsider the construction of s.24(2) where this falls for decision if the Court is satisfied without question that the effect of the same words in s.6 of the 1925 Act is contrary to his decision.

21. For my part, therefore, I approach the construction of 25(1)(b) unfettered by the decision in Wong Leung-tak and on the basis that the words in s.24(2) do on old, unchallenged and, to my mind, completely persuasive authority that those words provide for full indemnity. The scanty report in Great Northern Railways v Whitehead reads:

"Mr Justice Darling said that having regard to the words of the section he thought the costs were recoverable. He did not think the employer would be indemnified unless he received the compensation he had had to pay and the costs he had been put to."

The courts in Hong Kong will usually attribute the same meaning to the words of an English Act introduced into Hong Kong legislation on the same topic unless there are good reasons or local circumstances which require departure. If there is such a departure clear reasons will be given. None were in Wong Leung-tak.

22. Apart from this piece of legislative history, I agree with Mr Tang's submission that the tracing of the history of s.25 is unhelpful if otherwise the words are clear indeed, such tracing could be misleading. This is demonstrated here by the appearance in the predecessor of the present s.24(2) of the words "including costs" and their later removal in 1969. The reasons for this change are obscure but there is no reason to think that the 1969 legislature intended to limit the indemnity for which there was clear authority and an established practice on the words "shall be entitled to be indemnifiedn."

23. I turn now to the construction of s.25(1)(b). The only possible ambiguity is whether complete indemnity apparently provided by the words "any sum which he is obliged to pay as a result of the accident" are limited by the words "whether by" in the phrase "whether by compensation, or indemnity ... ".

24. I start by noting that if the intention is to limit the meaning of "any sum". much clearer words could have been chosen, and that such a limitation would lead to anomalous results compared with the indemnity under s.24(2) as I would construe it. A person called upon to pay an indemnity under s.24(2) would be required to indemnity in full, whereas he would not recover the same indemnity under s.25(1)(b) against a tortfeasor. This cannot be the intendment of the section in the absence of clear words.

25. For my part, therefore, I am satisfied that the words "any sum" are not limited and that a claimant can recover not only the compensation or indemnity but also costs which he is obliged to pay as a result of the accident. In my judgment the judge was right when he decided that the employer was entitled to recover L's costs in the District Court proceedings.

26. There remains the cross-appeal. Kaplan J. refused to award the employer his own costs of the District Court proceedings. The reasons he gave were:

"Having looked at the English cases, it seems to me that certainly in the Daily News case, the amount of costs which were recoverable were the costs of the arbitration proceedings paid by the employer under the Act. It does not seem that in addition, the tortfeasor was ordered to pay the employers costs of the arbitration proceedings. These were clearly costs which were not payable by them under the Act. Having given this matter long and careful consideration, I am not satisfied that the employer's own cost of the proceedings fall within the words used in section 25(1)(b) and thus I conclude that the only sum which the employer, the Plaintiff in these proceedings, can recover against the Defendant is the costs they paid to the employee ... "

The judge may be right that in the Daily News case Coleridge J. (as he then was) did not award the plaintiff his own costs in the arbitration, but it is by no means clear. The headnote suggests otherwise and there is a sum in the total award which is unaccounted for. But this point does not turn on such flimsy considerations. The only question is whether these costs are covered by the words "any sum which he (the employer) is obliged to pay as a result of the accidents."

27. I would not construe "obliged" as "legally obliged" but this test is stringent. If proceedings are brought against a person it would be wrong to conclude that he is not obliged to defend himself and this usually obliges him to incur legal expenses. As I have said, no point is taken here whether the employer was obliged to incur his own costs in the District Court but in principle I am satisfied that the section entitles him to recover them and with respect I would so hold.

28. In the result, therefore, this construction of s.25(1)(b) gives effect, in my view, to the plain meaning of the words; it avoids anomaly in the effect of s.24(2) and s.25; it achieves consistency; and finally it provides for a just indemnity.

29. In conclusion I would add one or two further remarks. Although the tortfeasor does not take part in the compensation proceedings and cannot defend himself there, the indemnity awarded against him under s.25 is not "open ended". It is limited first by the words "any sum which he (the employer) is obliged to pay". It follows that he will be liable only for costs which the claimant has been "obliged" to incur. Secondly, the proviso to s.25, to which I have referred, provides a cap so that he will never be liable for more than the damages which the employee would have recovered from him in proceedings in tort.

30. Also, if I am wrong, that the court in Wong Leung-tak did not leave the construction of s.24(2) open for further argument, that decision is not binding on this Court for the meaning of s.25, although clearly it would produce an inconsistency. On this point, for my part, I accept Mr Tang's submission and would hesitate to compound what I regard as an error. I would still give effect to what I see as the proper construction of s.25(1)(b) in spite of this inconsistency. Nor do I think that the construction of s.25(1)(b) depends for its correctness upon a construction of s.24(2). Indeed, it was recognised by Mr Sakhrani who contended firmly that the decision is binding upon this Court for the meaning of s.24 but only persuasive for the meaning of s.25.

31. For my part, therefore, I would dismiss the appeal, allow the cross-appeal and make orders accordingly.

Nazareth, J.A.:

32. I agree and do not think that I can usefully add anything.

Penlington, J.A.:

33. I also agree for the reasons given by Mortimer J.A. that the appeal should be dismissed and the cross-appeal allowed. I am satisfied that this is consistent with the general purpose of this legislation.

34. The respondent, therefore, is to have the judgment for items 3 and 4 in the Statement of Claim and the costs of this appeal.