CHU WAI LEONG v. LEUNG SUM KEE ET AL FRAMEWORK, PIPEWORK AND DEMOLISH ENGINEERING LTD AND ANOTHER

CACV 292/2019

[2020] HKCA 392

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 292 OF 2019

(ON APPEAL FROM DCEC NO 2270 OF 2016)

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BETWEEN

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J U D G M E N T

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Hon Kwan VP:

1.  This is an appeal of the Employees Compensation Assistance Fund Board (“the Board”) from the decision of Deputy District Judge Barbara Wong in relation to the costs awarded to the applicant against the Board in employees’ compensation proceedings on 7 May 2019 (“the Decision”). Leave to appeal was granted by the judge by consent on 21 June 2019. The hearing of the appeal on 21 April 2020 was adjourned due to the general adjournment of court proceedings announced by the judiciary for public health reasons. The parties have agreed to disposing of this appeal on paper and leave was given to the Board to lodge a submission in reply.

2.  By the Decision, the judge ordered the Board to pay the costs of the applicant incurred in relation to the following matters, to be taxed on the District Court scale on a party and party basis and that such costs be omitted from taxation of the employer’s costs as from 20 July 2018, being the date the Board was joined as the 2^nd respondent to the proceedings: (a) joint medical examination and joint expert medical report dated 23 November 2018; (b) supplemental expert medical report dated 10 January 2019; (c) mediation and negotiations for settlement; (d) surveillance; and (e) costs of negotiation culminating in the ultimate settlement offer by the Board of $300,000 (on top of the advance payment of $404,000 and inclusive of interest) made under section 28 of the Employees Compensation Assistance Ordinance, Cap 365 (“ECAO”). The judge also ordered the Board to pay to the applicant his costs of the application which resulted in the costs award.

3.  The five specific matters in the above award related to measures taken by the Board after its joinder in the proceedings.  The employer took no active part after the joinder apart from turning up on the first day of the trial on 12 March 2019 when judgment was entered against the employer by consent.

Background

4.  I will first relate the relevant background matters.  They are taken largely from the Decision at §§1 to 26.

5.  The applicant sustained an injury at work on 7 June 2015.  He was an experienced bamboo scaffolder, with nine years’ experience in erecting scaffolding and over 20 years in dismantling scaffolding.  On 11 October 2016, he filed an application for employees’ compensation against his employer, seeking compensation under sections 9 (permanent partial incapacity), 10 (temporary incapacity) and 10A (medical expenses) under the Employees’ Compensation Ordinance, Cap 282 (“ECO”).  His employer had not taken out insurance for employees’ compensation but did make periodic payments to him after the accident until 3 August 2016, in the total sum of $404,000.

6.  On 28 December 2016, the Employees’ Compensation (Ordinary Assessment) Board (“MAB”) issued a certificate of review of assessment and assessed his loss of earning capacity (“LOEC”) as a result of the injury (right calcaneum fracture resulting in right heel pain, stiffness and numbness) at 5%.  The applicant lodged an appeal to the District Court from the MAB assessment in February 2017.

7.  The applicant was examined by his medical expert Dr Tio Man Kwun Peter who provided a report on 1 January 2018.  Dr Tio was informed by the applicant that he had resumed duty in May 2017.  He worked as a “scaffolder helper” and was responsible for operating crane, so he did not have to climb or carry heavy object and would stand on level ground most of the time.  He had tried to get on the scaffolding but was worried about falling down, because when climbing his right ankle would need to be flexible and strong as he had to rely on his ankle and foot to secure his whole body.  He was unable to do so due to right ankle stiffness and weakness.  Regarding his working capacity and prognosis, Dr Tio opined that he should have difficulty in resuming his pre-injury job as scaffolding worker, it would not be advisable for him to climb up and down on scaffolds, and that his ability in walking down slopes, stairs and uneven ground would be affected.  Dr Tio assessed LOEC at 6.5%.

8.  On 12 March 2018, the applicant’s solicitors wrote to the Board making an offer “without prejudice save as to costs” (“the applicant’s 1^st Offer”) and providing a quantification of the claim for employees’ compensation.  For the claim under section 9, it was stated that in view of his injury, qualifications, previous training and experience, it was very likely he would fall within “special circumstances” stipulated in section 9(1A) of ECO and as such the formula in Hong Kong Paper Mills Ltd v Chan Hin-wu [1981] 1 HKLR 556 (“the Paper Mills Formula”)^[1] should apply in assessing LOEC.  On that basis, LOEC was calculated at 43.5% and the section 9 claim at $816,512. The offer was to accept $1,124,000 (inclusive of interest but on top of the advance payment of $404,000) plus costs in full and final settlement of the employees’ compensation proceedings.

9.  On 16 March 2018, judgment was entered against the employer on liability with compensation to be assessed, and costs in respect of liability up to 16 March 2018 were awarded to the applicant against the employer.

10.  On 20 June 2018, the Board by its solicitors made a counter-offer to the applicant, marked “without prejudice save as to costs” and pursuant to section 28 of ECAO (“the Board’s Offer”).  It was asserted that the quantification in the applicant’s 1^st Offer was “grossly excessive”.  The Board considered the adoption of the Paper Mills Formula “unmeritorious” in light of the “relatively minor nature” of the injuries and observed that the applicant should be subjected to a joint examination by an orthopaedic expert to be engaged by the Board.  The counter-offer was $120,000 inclusive of interest and on top of the advance payment of $404,000, plus costs to be taxed if not agreed pursuant to section 23 of ECAO.  The Board later gave the applicant’s solicitors a breakdown of the amount in the counter-offer showing that the section 9 claim was calculated at $93,852.

11.  When the applicant did not accept the Board’s Offer within the time specified, the Board took out a summons for joinder pursuant to section 25A(b) of ECAO.  The order for joinder was made on 20 July 2018.  The order also provided for the exchange of witness statements in relation to the assessment of compensation, and a joint medical examination by the respective experts of the applicant and the Board.

12.  In September 2018, the applicant filed his witness statement and the statement of his witness Fung Ka Wai.

13.  In the applicant’s statement dated 12 September 2018, he said “there is difficulty in climbing and going down stairs” and he “cannot climb up or down bamboo scaffoldings” as his right ankle “is stiff, weak, very inflexible”.  He cannot do moves like “riding the scaffolding”^[2] or “circling the scaffolding”^[3], and if he cannot stabilize his lower limbs and keep himself balanced by riding and circling the scaffolding, he would fall in the course of erecting or dismantling scaffolding.  Further, he would need to use both his hands to lift and move the bamboo poles and both his legs would need to be exerted with more force to bear the extra weights. He mentioned that he had tried to work as a scaffolder in April 2017 but could not handle the work and could only work as a scaffolder helper as mentioned above, at lower wages and on an irregular basis.

14.  In Fung’s witness statement dated 13 August 2018, Fung stated that the applicant worked for him occasionally from around April 2017, but as the applicant could not climb up the scaffolding due to his injury, he could not erect and dismantle scaffolding like before and could only work on the ground doing lighter work.

15.  The joint medical examination of the applicant was carried out by Dr Tio and Dr Wong Kwok Shing Patrick and they provided a joint report dated 23 November 2018.  Dr Tio maintained his assessment of LOEC at 6.5% and his opinion that the applicant should have difficulty in resuming his pre-injury job as a scaffolder.  Dr Wong agreed with the MAB assessment of LOEC at 5% and opined that the applicant “is capable of returning to his pre-accident job with modified work duties”.

16.  On 10 January 2019, Dr Tio and Dr Wong jointly provided a short supplementary report, mainly to deal with an old injury to the applicant’s elbow before the accident.

17.  On various occasions from October 2018 to January 2019, investigators engaged by the Board conducted surveillance on the applicant. Two surveillance reports dated 22 November 2018 and 15 January 2019 were prepared, with photographs and video clips.  They showed that the applicant had been working as a scaffolder and climbing up and down scaffolding.  The surveillance reports and video clips were disclosed by the Board to the applicant.  There is no evidence that the surveillance reports and video clips were shown to Dr Tio and Dr Wong.

18.  The applicant and the Board took part in mediation on 20 February 2019. No settlement was reached in mediation.

19.  On the same day, the applicant through his solicitors wrote to the employer and the Board making a sanctioned offer (“the applicant’s 2^nd Offer”) to accept $300,000 (inclusive of interest but on top of the advance payment of $404,000) plus costs (including costs of mediation and fees of the mediator) on the District Court scale.  On 26 February 2019, the applicant’s solicitors provided particulars of their quantification of the offer of $300,000.  It was stated that the applicant agreed to adopt the figure of 6.5% as opined by Dr Tio instead of applying the Paper Mills Formula in assessing LOEC and the section 9 claim was calculated at $122,008.

20.  The Board replied on 27 February, stating that “provided [the employer] accepts the Sanctioned Offer, and in the event [the employer] fails to satisfy the sum due pursuant to the terms of the order or agreement giving effect to his acceptance of the Sanctioned Offer”, the Board would offer payment of $300,000 (inclusive of interest but on top of the advance payment) plus costs to be taxed if not agreed under section 23 of ECAO.

21.  The applicant’s solicitors replied on 28 February stating that whilst they understood no judgment should be entered against the Board, the applicant would seek costs of the action, including the costs of mediation and fees of the mediator, incurred against the employer and the Board from the employer and/or the Board.

22.  On 1 March 2019, the Board informed the applicant that the employer did not accept the applicant’s 2^nd Offer.

23.  On the first day of the trial on 12 March 2019, the applicant, the employer and the Board presented a consent summons to the judge, who made an order by consent in these terms (“the Consent Order”)^[4]:

“1. Judgment on liability having been entered against [the employer] on 16 March 2018, there being final judgment entered against [the employer] whereby [the employer] do pay the Applicant HK$704,000.00, inclusive of interest and the advance payment of HK$404,000.00 which [the employer] has previously made to the Applicant;

2. [The employer] do pay the Applicant the balance of HK$300,000.00 due under paragraph 1 hereinabove within 14 days of the date hereof;

3. [The employer] do pay the Applicant’s costs of this action against [the employer] with the Certificate of Counsel, to be taxed if not agreed; and

4. The Applicant’s own costs are to be taxed in accordance with the Legal Aid Regulations.”

24.  As noted by the judge^[5], under the Consent Order, the position of the Board in relation to the costs of the proceedings was left unsettled. On 12 March 2019, the applicant made an application for costs against the Board for the costs incurred in relation to the five matters listed at the outset of this judgment.  The applicant and the Board provided extensive written submissions to the judge and made oral arguments before her over two days^[6].

The Decision

25.  The judge accepted Mr Victor Gidwani’s submissions on behalf of the applicant and ordered the Board to pay the costs of the applicant incurred in relation to the five matters.  The Decision was handed down before the judgment of the Court of Final Appeal in Wo Chun Wah v Chau Kwei Yin & Ors (2019) 22 HKCFAR 495.  In short, the judge held that once the Board had joined the proceedings, its exposure to costs is a matter based on the circumstances of the case, to be judged according to well established principles on how the discretion on costs is to be exercised^[7].  She found that from the time the Board joined in the proceedings, it should have known that the applicant’s claim in LOEC was based on 6.5% only and not on the Paper Mills Formula^[8]. The difference in financial consequence between 5% and 6.5% in LOEC would be minimal and it was questionable whether another round of examination by medical experts would be worth the expense^[9]. It was questionable whether the surveillance evidence was of any assistance to the court^[10]. The Board’s actions inflicted upon the applicant additional costs which did not arise from circumstances of the making of the applicant, so it was only reasonable that the Board should bear the applicant’s costs arising from such actions^[11].

This appeal

26.  The notice of appeal set out eleven grounds of appeal, contending that the judge had erred in principle, she had approached the matter on false factual premise, and/or was plainly wrong.  The proper order should be no order as to costs between the applicant and the Board.

27.  Mr Horace Wong, SC, who appeared for the Board in this appeal^[12], has helpfully grouped the grounds of appeal under three broad headings:

(1) the judge failed to have proper regard to the special status of the Board as a statutory body with specific duties (“Ground 1”);

(2) she failed to appreciate that the applicant’s case was, until 20 February 2019, based on the Paper Mills Formula (“Ground 2”); and

(3) she failed to appreciate the value and appropriateness of the Board’s intervention, including the value of the surveillance evidence and the additional medical opinion of Dr Wong adduced by the Board (“Ground 3”).

28.  Mr Gidwani argued that it is unreasonable for the Board to “relentlessly” challenge the costs in question, which the Board had incurred unnecessarily.  He made the point that the Board’s insistence on no order as to costs for those five items had generated more costs and it is even more undesirable for the Board to appeal against a proper exercise of discretion of costs by the judge.

Relevant legal principles on appeal

29.  I will first mention the relevant legal principles regarding an appeal as to costs, which are not controversial.

30.  It is acknowledged that costs are a matter of discretion of the primary judge and the appeal court should be circumspect in interfering with the exercise of this discretion, as it is institutionally disadvantaged from re-assessing a decision of this nature and the primary judge is the best person to exercise the discretion because he is most familiar with the conduct of the case presented before him and the impact of the success and failure on each issue canvassed before him.  In the absence of palpable error in the exercise of the discretion, the mere fact that the appeal court might have exercised the discretion in a different way is not sufficient to warrant interference with the decision on costs^[13].

31.  Examples of palpable errors are where the judge has erred in principle, or did not exercise his discretion judicially having taken into account wholly extraneous and irrelevant matters, or the exercise of discretion was not based on facts or matters connected with or leading up to the litigation, or the decision was plainly wrong^[14].

Ground 1: no proper regard for the Board’s role

32.  Wo Chun Wah v Chau Kwei Yin & Ors was concerned with the situation where the Board was joined as a party to proceedings brought against the employer for damages at common law.  It was held by the Court of Final Appeal there is jurisdiction to order costs against the Board, and, as to the exercise of the discretion, in light of the statutory role, obligations and powers of the Board under ECAO, the principle that costs normally follow the event does not apply.  The starting-point should be that there is no order as to costs.  However, the court has a wide discretion and may depart from this if the circumstances warrant a different order (at §72).

33.  Ribeiro PJ explained the reasoning for this approach:

“43. In my view, the court should not adopt as its starting-point the ‘costs following the event’ criterion and should not equate the Board with an employer conducting adversarial proceedings against the employee. The Board is a statutory authority holding the Fund as a trustee and required to consider applications for payment or relief. The Ordinance plainly requires the Board to be proactive in ensuring that the Fund’s resources are properly applied and not subject to abusive or unjustified claims. Thus section 25B requires potential claimants on the Fund to give the Board notice of proceedings instituted for compensation or damages. Section 25B(7) provides that on receiving notice, the Board ‘shall carry out such inquiries as it considers necessary to facilitate the proper carrying out of the functions of the Board in relation to the claim to which the notice relates’. As we have seen, section 25A enables the Board to apply for joinder as a defendant in the circumstances discussed in Section C.2 above. Where the employer is not present or not interested in defending, etc, joinder is to allow the Board ‘to take over the defence as if it were the employer in the proceedings’. And where the employer is present but there is no insurance cover so that the Fund is likely to be drawn on, the Board is by necessary implication, authorised, if necessary, to do likewise.

44. Thus, the Board is authorised and required to scrutinise and, if thought necessary, to intervene in order to test the validity of the plaintiff’s case whether on liability, quantum or both, in carrying out its statutory duties. Where an employee obtains an award of damages after such scrutiny or intervention it does not mean that the Board has ‘lost’ the case so as to constitute ‘the event’ justifying an award of costs against it. The ‘event’ properly viewed, is the outcome of the plaintiff’s action against the employer (whether or not actually present) and not the process involving the Board’s intervention.

45. The Board’s role was properly recognised by the trial judge:

‘In participating in the proceedings, the Board’s function is neither to contest the employee’s claim in place of the employer nor to help save public funds, but is to ensure that employees in need can obtain such damages as they are entitled to. The Board has a duty to screen out unmeritorious or inappropriate claims to ensure (inter alia) that this assistance mechanism will not be abused, its recipients will not exaggerate their claims, and public funds will not be used for improper purposes. Therefore, unless it is necessary to contest false claims or suspected fraudulent claims, the Board should not adopt an antagonistic attitude in the proceedings. It should act as a filter and adopt an impartial attitude in the proceedings so as to assist the court in coming to a correct ruling.’

46. In my view, such recognition dictates that where the Board has been joined as a party and properly carries out its ‘filtering’ or monitoring functions, the appropriate starting-point should generally be no order as to costs, irrespective of whether the Board sought to test the case as to liability, quantum or both.

47. That is the starting-point and a different costs order might be warranted on particular facts.  One naturally expects that, having intervened, the Board will behave in a responsible manner but if, in what will hopefully be a rare case, its conduct is unreasonable or misconceived or unjustifiably antagonistic, unnecessarily prolonging its intervention, or otherwise untoward, the court may, in the exercise of its discretion, consider ordering the Board to pay the plaintiff’s costs.  Factors such as those referred to in RHC Order 62 rule 5(2) set out above^[15] would be relevant.  Where such considerations may arise, ECAO section 29 offers are especially relevant and will be taken into account.  It must, however, always be kept in mind that the discretion to order costs is broad and to be flexibly exercised in the light of the specific circumstances.”

34.  Mr Wong submitted that the judge was in error in holding that the Board does not have “any special status in the exercise of the court’s discretion in awarding costs”^[16] and, in refusing to recognise the Board’s special function under ECAO, the judge had plainly failed to take into account a factor pertinent to the exercise of her discretion.  She had failed to recognise that the usual rule of costs to follow the event is not appropriate as against the Board and that the starting-point should be no order as to costs, unless the Board had acted unreasonably or its conduct was unjustifiably antagonistic. In the other grounds of appeal, Mr Wong sought to demonstrate that there was nothing on the facts to justify a departure from the appropriate starting-point of no order as to costs.

35.  Mr Gidwani argued that the guidance of the Court of Final Appeal in adopting no order as to costs as the starting-point was in relation to proceedings for common law damages where the Board was joined as a party and should have no application to employees’ compensation proceedings.  In common law proceedings, there are no express statutory provisions as to costs.  The principles for awarding costs in employees’ compensation proceedings are “fundamentally different”.  In respect of employees’ compensation proceedings, the starting-point for costs should be section 23 of ECAO, rather than no order as to costs as propounded in Wo Chun Wah.  He relied on these provisions in section 23:

“23. Costs: Payment in favour of employees

(1) Where the Board has determined an application under section 16 in favour of an applicant then in addition to any amounts of compensation to be paid from the Fund the Board shall, subject to this section, agree to pay from the Fund —

(a) the costs incurred by the applicant in making the application; and

(b) an amount equal to any costs payable to the applicant pursuant to an order of a court for costs against the employer or the employer’s insurer in proceedings claiming the compensation.

(2) The costs payable by the Board under subsection (1)(a) shall be such costs as in the opinion of the Board would be allowed on taxation of those costs by the District Court on the common fund basis.

…

(4) Where an application relates to compensation which are or have been the subject of proceedings in any court in which an order was made apportioning costs as between the Board and the employee, the Board shall only be liable for the purposes of subsection (1)(a) to pay the employee’s costs in the same proportion as was so ordered in those proceedings.

(5) The amount payable by the Board pursuant to subsection (1)(b) in respect of costs ordered by a court shall be only such amount as has been allowed, or would in the opinion of the Board be allowed, on taxation of those costs on a party and party basis.

(6) Section 37 applies in respect of a payment made from the Fund pursuant to subsection (1)(b) as if such payment were payment of an amount of compensation.”

36.  Mr Gidwani submitted that in employees’ compensation proceedings, costs are considered as part of the compensation and the Board is always liable for the employee’s costs if the employee is unable to recover from the employer and applies to the Board for payment under section 16 of ECAO.  The effect of section 23 is to make provision for costs to be borne by the Board in favour of employees, including taxation of costs, and that costs which have been paid out of the Fund are to be regarded as compensation to be recovered by the Board from the employer by way of subrogation under section 37.

37.  Hence, when the Board made an offer to the applicant under section 28 on 27 February 2019, the Board had already formed the view that the applicant was or might be entitled to apply for payment from the Board under section 16.  Counsel submitted it follows that the Board must also accept that the applicant would be entitled to costs under section 23.

38.  Mr Gidwani further argued that making no order as to costs as between the Board and the employee would in most cases result in empty judgments as the level of compensation is “usually so low”, and this would defeat the very object of ECO.  He submitted that the legislative intent of section 23 was to prevent such injustice and to ensure that compensation would not be eaten up by the employee’s own costs and disbursements. In support of this, he prayed in aid the preamble of ECAO^[17] and the record of proceedings of the Legislative Council on 17 April 2013^[18].  If the starting-point is no order as to costs, section 23 would become redundant. For good measure, he urged the court to balance the Fund administered by the Board with the Legal Aid Fund which is probably a larger public fund. The Legal Aid Fund would eventually have to bear part of the applicant’s own costs if no order as to costs is made, as the Director of Legal Aid’s first charge on any compensation that an applicant may receive would not be enough to cover the applicant’s own costs in the employees’ compensation proceedings, unlike the situation of common law damages. 

39.  In light of this legislative intent of section 23, which was not discussed by the Court of Final Appeal in Wo Chun Wah, Mr Gidwani submitted that the context and focus of the exercise of discretion on costs in employees’ compensation proceedings should be to achieve full payment in respect of statutory compensation and legal costs.  He added that the Board will not be required to pay unreasonable costs under the party and party basis, as there is safeguard in taxation by the taxing master and in legal aid taxation.

40.  Even if it is accepted that the starting point should be no order as to costs, Mr Gidwani contended that the Board’s action subsequent to its joinder justified the costs order of the judge because the Board was “agnostic”^[19] and aggressive in the defence of this case. 

41.  In my view, the meaning and effect of the provisions in section 23 are clear.  Under the statutory scheme in ECAO, to be eligible for payment under section 16, an applicant would have to prove that he is “unable to recover from an employer payment of an amount of compensation for which the employer is liable” (section 16(1)).  For the purpose of section 16, an employer is not to be regarded as liable for the payment of an amount of compensation unless, inter alia, the amount is payable “pursuant to a judgment or order of a court or tribunal of competent jurisdiction in Hong Kong” (section 16(2)(a)(i)).

42.  Where the Board has determined an application under section 16 in favour of an applicant, it is provided in section 23(1) that in addition to any amounts of compensation to be paid from the Fund, the Board shall, subject to the provisions in section 23, agree to pay from the Fund “(a) the costs incurred by the applicant in making the application; and (b) an amount equal to any costs payable to the applicant pursuant to an order of a court for costs against the employer or the employer’s insurer in proceedings claiming the compensation”.

43.  Section 23(1)(a) is not relevant for present purpose.  That leaves section 23(1)(b), the wording of which is clear.  Section 23(5) also provides expressly that the amount payable by the Board pursuant to section 23(1)(b) is “in respect of costs ordered by a court”.

44.  Hence, under section 16 and section 23, the payment which may be recoverable from the Board, in respect of both compensation and costs, must be an amount that the employer is ordered to pay by the court. As rightly submitted by Mr Wong, it is important to draw a distinction between a costs order made against the employer and a costs order made against the Board.  Section 23 provides for the former, not the latter.  The items of costs in dispute are not covered by the Consent Order, §3 of which provided that the costs which the employer was ordered to pay are “the applicant’s costs of this action against [the employer]”.  As the employer took no active part after the Board was joined as a party, the disputed items would only be covered by section 23 if they had been ordered against the employer.  There was no entitlement under section 23(1)(b) at all.

45.  The failure to make the above distinction undermines Mr Gidwani’s submission that section 23 should be adopted as the starting-point in relation to employees’ compensation proceedings where the Board was joined as a party.  I agree with Mr Wong this error underpins many of Mr Gidwani’s contentions as summarized above. 

46.  The Board’s role, functions and duties under ECAO must be the same irrespective of whether it is concerned with a common law action for damages or employees’ compensation proceedings.  The observations of Ribeiro PJ in Wo Chun Wah at §§43 to 47 quoted above apply equally to claims for employees’ compensation.  The Board has a statutory obligation in ensuring that the resources of the Fund are properly applied and not subject to abusive or unjustified claims, no matter whether the claims are for statutory compensation^[20] or common law damages.  It cannot be the intent of the legislature to permit the abuse of public funds in employees’ compensation claims.  I agree with Mr Wong there is no basis to read Wo Chun Wah so narrowly as applying the starting-point of no order as to costs where the Board is joined as a party only to proceedings for common law damages.  There is no reason in principle to distinguish the Board’s position depending on the nature of the proceedings brought by the applicant.

47.  I accept the Board’s submission that the appropriate starting-point in this instance should be no order as to costs and that the judge had failed to take into account a pertinent factor in the exercise of her discretion.  On this premise, I would consider the other grounds of appeal to ascertain whether there was anything in all the circumstances to justify a departure from this starting-point.

48.  Lastly, Mr Gidwani has also contended that the Board was unreasonable to object to the disputed items of costs because in its offer of 27 February 2019, the Board did not expressly and unequivocally state that it was going to object to those items and did not expressly ask for no order as to costs for those items.  It was unreasonable for the Board to oppose the applicant’s application for costs for those items, when the proceedings were in essence settled on the same terms as the Board’s offer on 27 February.  I think Mr Wong has a fair point that the court should not deal with this contention in the absence of a respondent’s notice, as this would appear to be a new argument not run before the judge^[21].  In any event, it is of no merit.  It is premised on a misreading of the Board’s offer of 27 February 2019.  The Board’s offer of $300,000 plus costs to be taxed under section 23 was “by way of pre-determination under section 28 of ECAO”.  Under section 28, the amount payable is a payment in anticipation of entitlement under section 16, “where it appears to the Board that a person is or might be entitled to apply under section 16 for a payment from the Fund” (section 28(1)), which would include costs payable by the employer under section 23(1)(b).  The wording of the offer and the nature of the offer indicated clearly that the offer referred to the costs payable by the employer.  There was no ambiguity and no room to contend that the Board should have clarified its stance in the way as suggested.

Ground 2: failure to recognize the applicant’s case as being based on the Paper Mills Formula

49.  The judge held that the applicant’s case of LOEC was based on 6.5% as assessed by Dr Tio and not on the Paper Mills Formula and there was no evidence that he was running a fraudulent or exaggerated case^[22].  She considered that the figure of $1,124,003 was just put forward in “without prejudice” negotiations and it had never been a claim, let alone the case that the applicant indicated he would run^[23]. Furthermore, the applicability of the Paper Mills Formula “is usually an argument between medical experts”^[24]. In this instance, Dr Tio had assessed LOEC at 6.5% and did not opine there existed the type of “special circumstances” envisaged in section 9(1A) of ECO.  From the time the Board joined in the proceedings, Dr Tio’s assessment of 6.5% was the only basis for the section 9 claim of permanent partial incapacity and the Board could not have been under any misapprehension that the applicant was running a Paper Mills Formula case^[25].

50.  I agree with Mr Wong the judge had fallen into error in a number of respects.

51.  I have set out in the background matters in some detail the information disclosed in various documents that came into existence from January 2018 to February 2019, namely, the medical reports, the correspondence between the applicant’s solicitors and the Board’s solicitors, and the witness statements.  It is fairly clear from the narrative given that until 20 February 2019, the applicant had put forward a case of LOEC based on the Paper Mills Formula and did not abandon it until the applicant’s 2^nd Offer was made on 20 February 2019.  I do not accept Mr Gidwani’s contention that the witness statements made no mention of “special circumstances” to invoke section 9(1A).  The judge had proceeded from a wrong factual premise that the applicant was not running a Paper Mills Formula case.

52.  The fact that the Paper Mills Formula was not mentioned in the application for employees’ compensation is neither here nor there.  For that matter, it was not mentioned in the application for employees’ compensation either that the applicant’s section 9 claim was based on 6.5% LOEC.  The mere fact that the claim based on the Formula was advanced in “without prejudice” negotiations does not mean the Board should not have taken this seriously, particularly when the witness statements served subsequently were apparently supportive of this claim and there was no indication that it would be abandoned until the applicant’s 2^nd Offer.

53.  In line with section 9(1A), the Paper Mills Formula applies where there are “special circumstances” of the employee, including “(i) the nature of the injury or injuries in relation to the nature of his former usual employment; and (ii) his qualifications, previous training and experience”. Whether “special circumstances” exist is a matter of fact, and whether the Formula applies in a given situation does not depend on medical evidence alone.  The opinions of medical experts are just one of the factors to be taken into consideration.  Whether Dr Tio had opined there existed the type of “special circumstances” in section 9(1A) is immaterial.  In any event, Dr Tio had given the prognosis (consistent with the information he was provided by the applicant) that the applicant should have difficulty in resuming his pre-injury job as it would not be advisable for him to climb up and down on scaffolds and his ability in walking down slopes, stairs and uneven ground would be affected. When the Formula was held to apply, the court would adopt a higher LOEC than that assessed by the medical expert^[26].

54.  The judge was plainly in error in holding that the applicant was not running a case based on the Paper Mills Formula.

Ground 3: failure to appreciate the value of the Board’s intervention

55.  Having held (wrongly) that the applicant was not running a case based on the Formula, the judge questioned the necessity of arranging “another round of examinations” by joint medical experts, given the difference in terms of financial consequence between 5% LOEC as assessed by the MAB and 6.5% as assessed by Dr Tio^[27]. She found it unnecessary to obtain surveillance evidence for the employees’ compensation claim, “since the loss of earning capacity has already been assessed at 6.5% by medical expert evidence” and there is no evidence that the surveillance evidence was shown to the medical experts^[28].  She was critical of the Board in failing to revise its offer much earlier from the information then available to a figure close to $300,000^[29] and in failing to apply to court for an order of quantification of the applicant’s claim^[30].  She therefore found the Board’s actions, which were unnecessary or of questionable value, inflicted upon the applicant additional costs which did not arise from his own making and the Board should bear the applicant’s costs arising from the Board’s actions.

56.  The judge had viewed the actions taken by the Board after its joinder from the wrong perspective, compounded by the error that there was no need for the Board to be proactive to test the validity of the applicant’s case, as he was not running a case based on the Paper Mills Formula.  The Board’s actions in arranging for joint medical examination with the participation of its appointed expert and in obtaining surveillance evidence could not be regarded as “unreasonable or misconceived or unjustifiably antagonistic, unnecessarily prolonging its intervention, or otherwise untoward”, to justify a departure from the starting-point of no order as to costs.

57.  It was entirely reasonable for the Board to engage Dr Wong to examine the applicant jointly with Dr Tio.  Whilst agreeing with the MAB assessment of LOEC at 5%, Dr Wong gave the prognosis that the applicant “is expected to have some difficulty with more vigorous use [of the right heel] such as climbing bamboo scaffold or sports activities” and opined that the applicant “is capable of returning to his pre-accident job with modified work duties”.  The surveillance evidence provided some proof that the applicant was working on a fairly regular basis as a scaffolder (not just as a scaffolder helper as asserted in the witness statements) with no apparent difficulty, contrary to the assertions in the witness statements and what the applicant had told Dr Tio earlier.  It is pertinent to note that the applicant’s 2^nd Offer was made after the surveillance reports and video clips were disclosed by the Board to the applicant.

58.  Mr Gidwani submitted that it is unfair to ask the applicant to bear the costs of the joint medical reports and the surveillance evidence that were not used in a trial and the applicant was not given a fair opportunity to answer such evidence, having made a settlement with the employer and the Board on the first day of the trial.  He contended that it is wrong to assume that the medical reports and surveillance evidence would serve their purported purpose.

59.  I am inclined to think Mr Gidwani is missing the point.  The fact that the evidence obtained by the Board was not used because the proceedings were settled does not detract from the reasonableness of these measures taken by the Board to test the validity of the applicant’s claim. For the purpose of the costs application, the court is not required to make a finding of fact whether the applicant was credible or fraudulent in running a case based on the Paper Mills Formula, and it is unnecessary to go into the reason or reasons why he chose to abandon that case.  What matters is whether the Board had acted reasonably in carrying out the investigations to test that case before it was abandoned.  I reject Mr Gidwani’s contention that the costs incurred for these investigations were unnecessary or disproportionate. 

60.  Nor do I think the judge was right to criticize the Board for not making an offer close to $300,000 sooner, or not asking the court to order the applicant to quantify his claim.  As Mr Wong has pointed out, negotiation is a two-way process.  The applicant, who knew his own circumstances and had the benefit of legal advice, saw fit to abandon his claim based on the Paper Mills Formula only close to the trial after the surveillance evidence was disclosed.

61.  Mr Gidwani submitted that if the applicant did not get his costs for the disputed items from the Board, the applicant would receive nothing out of the settlement because the compensation figure was so low that it could not pay for his own costs under the first charge of the Director of Legal Aid.  It is a matter for the applicant, after taking legal advice, what terms he should offer to settle his claim.  The Board had no part to play in the offer he chose to make.

Conclusion and costs

62.  The actions taken by the Board were appropriate and necessary in discharge of its functions to screen out what would appear to be an unmeritorious claim in LOEC.  The judge had erred in principle in not adopting no order as to costs as the starting-point, she had approached the matter on wrong factual premises and the decision to order the Board to pay the disputed costs to the applicant was plainly wrong.

63.  I would allow the Board’s appeal, set aside the judge’s order and replace it with an order of no order as to costs as between the applicant and the Board for the disputed items.

64.  The Board seeks costs of the application for costs before the judge, with certificate for counsel, and the costs of this appeal.  I would make the following orders nisi.

65.  For the costs of the application before the judge and this appeal, I would make an order there be no order as to costs so the parties would each bear their own costs.  The Decision was given before there was guidance from the Court of Final Appeal in Wo Chun Wah as to the appropriate starting-point in this kind of situation.  As I have mentioned, the judge had looked at the matter from the wrong perspective and this might well have influenced the way she assessed the pertinent circumstances.

66.  As for the applicant’s own costs in the hearing below and in this appeal, they are to be taxed in accordance with the Legal Aid Regulations.

Hon Yuen JA:

67.  I agree.

Hon Au JA:

68.  I agree.