YAN KWOK MAN v. TAK LEE TRADING CO

DCEC 1322/2004

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

EMPLOYEES COMPENSATION CASE NO. 1322 OF 2004

______________________

______________________

JUDGMENT

INTRODUCTION

1.  The Applicant claims compensation for injuries sustained in a traffic accident in August 2003 which allegedly arose in and out of the course of his employment.  The Respondent disputes liability.  Parties however managed to effectively agree on quantum subject to liability.

BACKGROUND

2.  The Respondent was at the material time and still is an importer and distributor of Thai foodstuff in Hong Kong.  Its shop premises are located at Kowloon City.  The proprietor of the business is Kong Tak Lee (“Kong Sr.”).

3.  The Applicant commenced his employment with the Respondent as a transportation and delivery worker in about May 2000.  There was no written contract of employment.  He was paid on a daily wage basis.

4.  The other persons then working for the Respondent included:

(1)	Kong Hoi Fan (“Kong Jr.”), son of Kong Sr.;
(2)	Lo Chui Wah (“Lo”), girlfriend of Kong Jr.;
(3)	Sin Kin Tong (“Sin”);
(4)	Pang Nam Ngan;
(5)	Jongsuk Surachot; and
(6)	Ng Skulket (“Ng”).

5.  In June 2003, a partnership was apparently formed in the name of Wing Fat Management Co. (“Wing Fat”).  According to the business registration application (Form 1(c)), all the abovementioned persons were named as partners of Wing Fat.  Simultaneously, the Respondent entered into a written agreement with Wing Fat whereby the Respondent contracted the undertaking of its transportation and delivery work to Wing Fat (“the Agreement”).

6.  On 31 August 2003 at about 9:00 pm, the Applicant has just parked the Respondent’s goods vehicle at Jordan.  He rode his motorcycle and on his way along Austin Road eastbound across the junction with Nathan Road, he met a traffic accident and was injured.  The Applicant claims that he was then on his way back to the Respondent’s shop for handing in invoices and receipts.

7.  In the Form 2 filed in July 2004, the Respondent stated that the Applicant was a self-employed driver and the accident happened when the Applicant was on his way home.

8.  The above background was not in dispute.

ISSUES

9.  There are therefore the following issues for determination:

(1)	Was the Applicant under the employ of the Respondent at the time of the accident?
(2)	If yes, did the accident arise in and out of the course of his employment with the Respondent?

WITNESSES

10.  Besides giving evidence, Kong Sr. called Sin and Ng as witnesses.  The Applicant called no other witness.

EMPLOYEE OR NOT

11.  The approach in determining whether a workman is an employee for the purpose of the Employees’ Compensation Ordinance, Cap.282 (“ECO”) has been authoritatively set out by the Court of Final Appeal in Poon Chau Nam v Yim Siu Cheung [2007] 1 HKLRD 951.  The Court (at 960E-961A, per Ribeiro PJ) cited the following passage of Market Investigations Ltd v Minister of Social Security [1969] 2 QB 173, per Cook J, which was approved by the Privy Council in Lee Ting Sang v Chung Chi Keung [1990] 2 WLR 1173:

“

The fundamental test to be applied is this: “Is the person who has engaged himself to perform these services performing them as a person in business on his own account?”  If the answer to that question is “yes”, then the contract is a contract for services.  If the answer is “no”, then the contract is a contract of service.  No exhaustive list has been compiled and perhaps no exhaustive list can be compiled of the considerations which are relevant in determining that question, nor can strict rules be laid down as to the relative weight which the various considerations should carry in particular cases.  The most that can be said is that control will no doubt always have to be considered, although it can no longer be regarded as the sole determining factor; and that factors which may be of importance are such matters as whether the man performing the services provides his own equipment, whether he hires his own helpers, what degree of financial risk he takes, what degree of responsibility for investment and management he has, and whether and how far he has an opportunity of profiting from sound management in the performance of his task.”

His Lordship continued (at 961B-F):

“

The modern approach to the question whether one person is another’s employee is therefore to examine all the features of their relationship against the background of the indicia developed in the abovementioned case-law with a view to deciding whether, as a matter of overall impression, the relationship is one of employment, bearing in mind the purpose for which the question is asked.  It involves a nuanced and not a mechanical approach……”

(Emphasis added)

12.  The question is one of fact rather than form.  Fact is objective whereas form can be artificial.

THE WORK ARRANGEMENT

13.  According to the Applicant, he worked from 9 am until after 8 pm on a working day.  He received orders from Kong Sr., Kong Jr. and Lo, but mostly the last two because Kong Sr. was often not in town.  His duties included driving one of the Respondent’s goods vehicles.  After making deliveries to the Respondent’s customers, the Applicant would bring back to the Respondent’s shop the receipts or invoices for the deliveries and sometimes cash payments received from the customers.  The Respondent would reimburse the parking fees, fuel expenses and occasional traffic penalties incurred by the Applicant.  The Applicant was paid a daily wage of HK$440 usually in cash but occasionally by cheques.  Payment was made weekly.  Lo was in charge of the payment.

14.  Evidence of the above was not seriously challenged.  I find them to be the fact in any event.

THE APPARENT CHANGE IN 2003

Changing to self-employed

15.  The Applicant admitted that in about March 2003, Lo told him that Kong Sr. proposed that all the employees should become self-employed.  A new company would be set up with the employees becoming partners.  Ng and Sin, the Respondent’s witnesses, confirmed that it was about March or April 2003 when Kong Sr. suggested the contracting out of the Respondent’s transportation and delivery work to them.  The reason given was that the business of the Respondent was not doing well then.

16.  The Respondent’s case is that the employees then signed agreements respectively with the Respondent for contracting the transportation and delivery work.  Kong Sr. arranged the document.  The Applicant denied having signed this agreement.  Sin could not give much detail about such agreement.  Neither the agreement signed by Sin nor that allegedly signed by the Applicant was produced.  The agreement apparently signed by Ng was produced though.  According to the agreement, the Respondent contracted its transportation and delivery work to Ng.  The effective date was 3 March 2003.  However, Ng did not impress me that she really understood the actual legal effect of such an agreement.

Formation of Wing Fat

17.  The Applicant claimed to have no knowledge about the development of the idea of forming a new company since March 2003.  In early 2005, he allegedly received a demand letter from the Business Registry for unpaid business registration fee of Wing Fat.  Surprised by that, the Applicant reported the matter to the police.  By then, the present application had been filed.

18.  As mentioned above, the Applicant was named as one of the partners of Wing Fat in Form 1(c).  The Applicant did not have any impression of this form but admitted that the signature did appear to be his.  He also admitted that he had been asked by Lo to sign documents during work.  In my judgment, the Applicant did sign the application form for business registration of Wong Fat.

19.  Mr Francis for the Respondent submitted that the Applicant’s alleged ignorance about the formation of Wing Fat was simply incredible.  In my view, while Mr. Francis’ scepticism is understandable, I find that even Ng and Sin, who claimed to know about the formation of Wing Fat, did not appear to know the details.

20.  As far as Ng is concerned, I am simply not impressed by her that she actually understood the apparent transformation of her employee status to being one of the proprietors of a business.  At one point, she even suggested that the Respondent no longer existed and there was only Wing Fat.

21.  Sin did not seem to bother much about the transformation either.  He was told that others such as Lo and Kong Jr. would be his partners.  However he did not know why they joined.  He did not take part in the discussion of or decision on the number of partners.  He could not tell who came up with the name of Wing Fat.  He did not pay attention to the formation of Wing Fat.  Lo asked him to sign the documents and he just did.

Operation after the formation of Wing Fat

22.  In my view, the real issue is not the uncontroversial fact of the apparent formation of Wing Fat but whether the Applicant, and the other employees, had in fact carried on such apparent partnership business, after it was formed, as contractor of the Respondent.

23.  Sin and the Applicant confirmed that there was never discussion of capital contribution or sharing of profit or loss.  There was no evidence to suggest that the question of financial risk in the operation of a business had ever occurred to the Applicant, Sin or Ng.  Sin also confirmed that there was no partners’ discussion of the business of Wing Fat after it was formed.  He had never received notice of meeting.  He did not realise the need to pay business registration fee and he had never been asked to contribute to such fee.  He also had no idea about filing tax return of Wing Fat.  Indeed both he and the Applicant did carry on with their work for the Respondent in very much the same way as before even after the formation of Wing Fat.  They continued to receive orders from Lo.  They continued to drive the Respondent’s goods vehicles for work.  Lo continued to pay them on a daily wage basis the same way as before.  Wing Fat did not have its own business address.  The one registered was actually the residential address of Lo.

24.  Ng said nothing to the contrary either.  After Wing Fat was formed, she continued to work at the shop basically as before.  When Lo asked her to work, she would return to the Respondent’s shop (though she would say it was Wing Fat’s shop).  She continued to receive instructions from Lo.  She worked 4 to 5 days at the shop per week.  She continued to receive daily wage from Lo the same way as before.

25.  The indicia of employment in the present case remained largely unchanged after the formation of Wing Fat.

Kong Sr.’s evidence

26.  Kong Sr. disagreed.  He tried to explain that the work arrangement after the formation of Wing Fat differed from the arrangement before.

27.  In terms of document, there was only the Agreement whereby the Respondent apparently contracted to Wing Fat its transportation and delivery work.  Kong Sr. caused the Agreement to be prepared.  There was no suggestion of negotiation between the Respondent and Wing Fat as contracting parties.  Except for the additional provisions regarding the mandatory provident fund and employees’ compensation insurance obligations, the terms of the Agreement were identical to those of the agreement with Ng personally in March 2003.  By the Agreement, the Respondent expressly retained control over the work arrangement with which Wing Fat was bound to comply.

28.  According to Kong Sr., the Respondent would gather the customers’ orders and give instructions to the person in charge of Wing Fat, who then assigned the work to the workmen.  In other words, after the formation of Wing Fat, the transaction between the Respondent and the workmen became indirect.  However, there was no evidence that apart from Kong Sr., who admittedly was not always in town, the Respondent had other employee who would handle the Respondent’s business.  Kong Sr.’s suggestion that his wife would be responsible for such task at the shop and that Lo only assisted in handling incoming telephone calls in Thai language was unsupported by the evidence of Sin or Ng and, in my judgment, artificial.  It is clear from the evidence that Lo remained the major person at the Respondent’s shop daily receiving orders from the Respondent’s customers and arranging the work. 

29.  Kong Sr. said that though the workmen continued to use the Respondent’s goods vehicles for work, he had some kind of financial arrangement with Wing Fat through Lo.  Reimbursement of the fuel expenses, parking fees and traffic penalties incurred by the workmen would be deducted from the Respondent’s payments to Wing Fat.  However there was no such provision in the Agreement.  There was no document such as business accounting record, which I would have expected, evidencing such financial arrangement between two truly distinct businesses.

30.  In September 2003, the Applicant returned to the shop to submit his sick leave certificates.  On that occasion, Kong Sr. issued the Respondent’s cheque to the Applicant in payment of his last 3 weeks’ wages in August.  According to his second statement, Kong Sr. explained that he did so only at the request of the person in charge of Wing Fat because Wing Fat had insufficient cash.  On the one hand, he said that he did not pay Wing Fat but the Applicant directly so as to enable the Applicant to get the money without having to wait for the clearance of the cheque from Wing Fat’s bank account.  On the other hand, to explain why the cheque was dishonoured when presented, he said he told the Applicant to wait for a couple of days and not to deposit the cheque.  This was self-contradictory.  In court, Kong Sr. even said that Wing Fat did not even have bank account.

31.  I do not prefer Kong Sr.’s evidence in this respect.

The MPF arrangement

32.  In support of the termination of the employment with the workmen, the Respondent relied on the provisions of the Agreement which expressly negated its responsibility for MPF contributions and employees compensation as well as the actual termination of its MPF contributions towards them.

33.  In Poon Chau Nam (above), the CFA considered the significance of the MPF arrangement which on its face shows that the workman agreed with the respondent to register himself as a self-employed.  Regarding the apparent arrangement between the parties, the Court of Appeal took this view (recited at 972F-973A):

“	Were the parties’ intentions not be respected by the courts to hold that there was an employer/employee relationship, there would be serious ramifications.  The employer respondent would then be liable to criminal sanction for failing to take out employees’ compensation insurance (see s.40 of the Employees’ Compensation Ordinance) and to join the MPF scheme for the employee applicant.
	……
	……a conscious decision on his part and an agreed arrangement he had made with the respondent, [it ought to] be regarded by the court, in Lord Denning’s words, as “the best material from which to gather the true legal relationship between” the parties.  Otherwise, where the parties carried out their activities in accordance with their agreed arrangement, as in the present case, but such arrangement was disregarded by the court, a wrong would be done to the respondent which might result in criminal liability being attached to him.”

34.  The CFA disagreed, referring to section 31(1) of the ECO prohibiting contracting out of the provisions of the Ordinance and held (at 973E-G):

“

If, on the facts viewed objectively and applying the indicia of employment discussed above, the person injured is properly to be regarded as an employee, the ECO applies and any agreement seeking to remove that person from its scope is void.  It may be, as Lord Denning suggested in Massey case, that where the relationship is highly ambiguous and it is not at all clear that the injured person is an employee, in the parties’ express agreement as to the status of that person may be important.  However, if there is objectively an employer-employee relationship, the compulsory statutory duty which the employer bears cannot be overridden by the express stipulation of the parties…..”

(emphasis added)

His Lordship continued to refer to the Court of Appeal judgment of Chan Kwok Kin v Mok Kwan & Anor [1991] 1 HKLR 631 at 636, per Clough JA:

“

It was for the court and not the applicant to evaluate the facts and determine the legal relationship of the applicant to the first respondent.  The applicant no doubt knew who he was working for, namely, the first respondent, but in all the circumstances we think his classification of their legal relationship and of his legal relationship with Law can have no significant value.”

35.  In line with the sentiments expressed by the court, the creation of apparent agreement between the parties with a view to categorising the workman or shifting the incidence of the MPF obligations has always been subject to scrutiny: see for instance Lee Mui Fong for herself and other members of the family of Leung Yuk Chun, deceased v Wong Kit Man and Ors, DCEC Nos. 455 and 693 of 2002, 18 November 2005; Lam Hon Keung v Pang May Ngor, Rita t/a Tin Shing (Hong Kong & China) Freight Services Co, DCEC No. 648/2003, 22 June 2005.

36.  According to the Respondent’s Answers and Kong Sr.’s statement, the employment relationship with the employees, including the Applicant, was terminated in March or April (when the agreements with the employees were signed) or at the latest June 2003 (when Wing Fat was formed and the Agreement was entered into).

37.  However, in court, the Respondent put forward a different case.  Kong Sr. said he verbally informed the employees of the termination of their employment in August 2002.  The alleged agreement entered into in March 2003 was merely a confirmation.  This contradicted his stated case, his own witnesses and clearly the Applicant.  All of them stated that the idea of transformation of their status to self-employed was raised only in about March 2003.  This also contradicted his documentary evidence.  The Respondent’s agreement with Ng provided that the effective date was 3 March 2003.

38.  As observed by Mr Wong for the Applicant, and I also believe so, Kong Sr. saw the need to bring forward the timing of the alleged termination of employment at the last minute because of the MPF record produced by the Applicant at the outset of the trial.  According to the record, the Respondent had already stopped making contributions towards the Applicant’s MPF since August 2002.

39.  Prior to his evidence in court, Kong Sr. did produce a notice apparently from the MPF Authority to the Respondent regarding such default of making MPF contributions.  Kong Sr. signed the notice on behalf of the Respondent, informing the MPF Authority that all the employees were laid off on 30 August 2007.  In my judgment, this MPF notice did more harm than use to the Respondent’s case.  It is evident that Kong Sr. stated the information and signed the notice only on 28 June 2007.  This was a self-serving document for the purpose of answering the MPF Authority’s enquiry.  In making such representation to the Authority, Kong Sr. effectively contradicted the Respondent’s case as stated in his Answer and all the statements which had already been filed on his behalf in these proceedings.

40.  The Respondent’s recent case of verbal termination of the employees in August 2002 stands no chance of being accepted by this court.  It is clear that when the Respondent started to default in making MPF contributions towards the employees in August 2002, they were still employees of the Respondent.

41.  Clearly the avoidance of the MPF and employees’ compensation insurance obligations towards the employees was the major concern of the Respondent.  Provisions to that effect were specifically added in the Agreement.  There is ample evidence in the present case that the transformation of the employees of the Respondent to become self-employed and partners of their own business was in reality artificial and a vehicle to achieve such purpose.

Conclusion

42.  For the purpose of the ECO, I have no reservation that the Applicant was always the employee of the Respondent and was so at the time of the accident.

WHETHER THE ACCIDENT AROSE IN AND OUT OF THE COURSE OF EMPLOYMENT

43.  The Applicant’s case is this:  On the day in question at about 8:30 pm, he was driving the Respondent’s goods vehicle back to the Respondent’s shop at Kowloon City.  He intended to hand in the receipts and invoices and to join the Sunday dinner with his colleagues at the shop.  However he failed to locate an available parking space or stop the vehicle to enable his colleague or Kong Sr. to come to retrieve the documents.  Upon seeing Kong Sr.’s hand signal, which he understood to mean that he should drive the vehicle back to Kwun Chung Market in Jordan, he did so with a view to returning to the shop afterwards.  He proceeded to Jordan and parked the vehicle accordingly.  He rode his motorcycle and on his way back to the shop, he met the traffic accident.

44.  Kong Sr. did not dispute the practice that the goods vehicles would be parked at Kwun Chung Market in Jordan after work.  But he disputed what the Applicant said to have happened in the evening in question.

45.  The Respondent relied on some photographs depicting the street in front of its shop to show that traffic was very light and parking spaces were ample at various points of time during the day.  The photographs were apparently taken on 3 days in November 2006, February and April 2007 respectively.  The substantial difference in time between these dates and the date of the accident caused me to take care in considering these photographs’ indicative value of the actual situation of the vicinity of the Respondent’s shop on the day in question.  In court, Kong Sr. also said that he had arranged a couple of his vehicles to park in front of the shop so as to reserve the parking spaces in case his other vehicles might return to the shop.  I wonder why he needed to do so if the parking spaces were generally ample in the vicinity as alleged.  In any event, such evidence was never mentioned until Kong Sr. testified in court.  This invites scepticism about its reliability.

46.  Even assuming that the Applicant of his own volition parked the vehicle back to Kwun Chung Market, the question of whether he indeed returned to the shop afterwards remains.  In this regard, Kong Sr. said that there was no requirement that the drivers had to hand in the receipts and invoices or cash receipts after work every day.  The shop might be close by then.  He suggested that the documents could be left in the vehicle so that the next driver picking up the vehicle could hand in the documents to the shop the following day.  He also denied that his wife would prepare dinner at the shop for the workmen.

47.  According to the Applicant, his daily working hours were from 9 am to after 8 pm.  Occasionally he might work until midnight.  His such evidence was not actually challenged.  In terms of time, the time of the accident could well be within his course of employment.  In court, Kong Sr. confirmed that in the evening in question, the shop was still open at 8:30 pm.

48.  As to whether there was a dinner that night at the shop, Ng suggested that Mrs Kong never had dinner with her colleagues at the shop.  However it should be noted that her normal working hours ended at 7 pm daily.  Sin confirmed that Mrs Kong would prepare dinner during weekdays but rarely on Sunday at the shop.  However, he did not really rule out such Sunday dinner because he simply chose not to attend.

49.  More importantly, section 5(4)(b) of the ECO provides that:

“

an accident to an employee shall be deemed to arise out of and in the course of his employment, notwithstanding that the employee was at the time when the accident happened acting in contravention of any statutory or other regulation applicable to his employment, or of any orders given by or on behalf of his employer, if such act was done by the employee for the purposes of and in connection with his employer’s trade or business;”

(emphasis added)

50.  Clearly returning to the shop merely to join the Sunday dinner, even if held, would not be a matter for the purpose of and in connection with the employer’s business, in the absence of obligation or expectation that the Applicant had to do so.  However, returning for the purpose of handing in the invoices and receipts as well as cash receipts from customers after work must fall within the ambit of section 5(4)(b).  Therefore, even if that there was no need or instruction for the Applicant to do so or he might not have made it before the shop closed that night, he would still be deemed to be in the course of his employment.

51.  Was the Applicant in fact returning to the shop or was he on his way home then?  If he was on his way home, the deeming provision under section 5(4)(b) would not avail him.  The fact that he was then riding on his own motorcycle was a neutral factor.  The Applicant described his route.  However, in the absence of remarkable discrepancy between the route chosen and the destination, the choice of route in a place like Hong Kong was probably also neutral in determining whether he was in fact heading back to the shop at the material time.

52.  After the accident, he had been hospitalised for 4 days.  According to him, His colleagues including Sin went to the hospital to pay him a visit a couple of days after his admission.  On that occasion, the Applicant handed to his colleagues the receipts and invoices which he said he was intending to hand in upon return to the shop in the night of the accident.  This part of his evidence was not really challenged.  The reasonable inference is that the Applicant indeed had those documents with him when he met the accident.  This lends weight to his case particularly when Kong Sr. suggested that the Applicant could have left the receipts and invoices inside the vehicle so that either he or his colleague driving the vehicle the following day could hand in those documents afterwards.  He would not have had to bring along those documents with him if he was then heading home.

53.  Considering all the evidence, I am satisfied on a balance of probabilities that the Applicant was in fact on his way back to the shop for handing in those documents when he met the traffic accident.  It follows that in the circumstances, the accident arose in and out of the course of his employment.

QUANTUM

54.  The monthly income of the Applicant for the purpose of assessment was agreed at HK$11,100.  The quantum shall be as follows:

(1)	Section 9 compensation
	HK$11,100 x 96 x 10%	HK$	106,560
(2)	Section 10 compensation
	HK$11,100/30 x 4/5 x 613	HK$	181,448
(3)	Section 10A compensation (agreed)	HK$	3,000
	Total:	HK$	291,008

ORDER

55.  Liability is established.  I therefore order that the Respondent do pay the Plaintiff the above compensation together with interest thereon at half judgment rate from the date of accident until today and thereafter at judgment rate until full payment.  I also make an order nisi that the Respondent pays the Applicant’s costs, including any costs reserved, which shall be taxed, if not agreed.  For the avoidance of doubt, I certify the engagement of counsel.  The Applicant’s own costs shall be taxed in accordance with legal aid regulations.  This costs order shall become absolute in the absence of appointment to argue in 14 days.