POON CHI KWONG v. POON WING KEE (METAL)(WORK) AND ANOTHER

CACV378/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 378 OF 2003

(ON APPEAL FROM DCEC NO.675 OF 2003)

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REASONS FOR JUDGMENT

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Hon Ma CJHC :

Introduction

1. On 3 January 2002, the Applicant was injured at a construction site when in the course of removing some metal handrails, he slipped on a staircase and fell from a height. He sustained injuries to his back, thighs, knees and ankles. By a Form 2 Notice dated 8 January 2002 (later amended) given by the 2nd Respondent under section 15 of the Employees' Compensation Ordinance, Cap.282 ("the ECO"), notice was given by the 2nd Respondent to the Commissioner for Labour of the accident. In this Notice, the Applicant's employer was stated to be the 1st Respondent. Apparently, the information contained in the Form 2 Notice was provided to the 2nd Respondent by the Applicant and the 1st Respondent. The 1st Respondent appears to be a sole proprietorship managed by a Mr Poon Chi Wah who is the Applicant's brother.

2. By a letter dated 15 May 2003, the Applicant's solicitors demanded from the 2nd Respondent periodical payments under section 10 of the ECO (that is, compensation for temporary incapacity). No response was received. Accordingly, on 20 June 2003, employee compensation proceedings were commenced in the District Court against both Respondents under sections 9, 10 and 10A of the ECO by the filing of an Application. It would appear that the 1st Respondent was sued as the Applicant's immediate employer and the claim against the 2nd Respondent was on the basis it was the principal contractor of the construction site where the Applicant worked, the 1st Respondent being its sub-contractor (see section 24 of the ECO). Apart from relief under sections 9, 10 and 10A of the ECO, the Application also claimed relief under sections 10(5), 14(4) and 18(1), as well as orders for interest and costs.

3. On the same day, pursuant to Rule 17 of the Employees' Compensation (Rules of Court) Rules ("the Rules"), the Registrar of the District Court served the Application on the 2nd Respondent. Under Rule 17(2), if the 2nd Respondent had wanted to oppose the Applicant's application, an Answer had to be lodged with the Registrar within 21 days after service of the Application. In the present case, the deadline was 11 July 2003. The 2nd Respondent did not file an Answer in accordance with the prescribed form (Form 5), instead sending to the Registrar a letter dated 9 July 2003 in which its opposition to the Applicant's application was set out. In short, the 2nd Respondent was saying that the Applicant was not its employee and that its sub-contractor was one Nam Fung Engineering Company. It was alleged that the Applicant and/or the 1st Respondent were Nam Fung's sub-contractors. I should point out at this stage that the 2nd Respondent was not legally represented and this perhaps explains the wrong procedure adopted by the 2nd Respondent. If an Answer had been filed, this would no doubt have been served on the Applicant by the Registrar (although, curiously, there appears to be no express provision for this in the Rules).

4. By a summons dated 6 August 2003 expressly made under section 10 of the ECO, the 2nd Respondent was given notice by the Applicant of the hearing of his application for relief under that section. The date of hearing was stated to be 5 September 2003 before H H Judge Carlson. This summons was served on the 2nd Respondent and with it, the Applicant's affirmation deposing to the relevant facts.

5. On 5 September 2003, the solicitors for the Applicant and for the 2nd Respondent appeared before Judge Carlson. By now, the 2nd Respondent had retained solicitors, although the requisite Notice to Act was not filed until 10 September 2003. The 1st Respondent was absent at this hearing. Judge Carlson gave leave to the Respondents to file and serve on the Applicant their Answer within 28 days and gave leave to the Respondents to file their affidavit evidence within this time as well. Directions were also given for the Respondents to file and serve, again within 28 days, a list of earnings of the Applicant for the purposes of section 11 of the ECO.

6. The 28-day period expired on 3 October 2003. Neither Respondent lodged an Answer by that time nor was any affidavit evidence filed. By a letter dated 10 October 2003 from the Applicant's solicitors to the 2nd Respondent's solicitors, these very points were made.

7. On 3 November 2003, the Applicant filed and served another affirmation giving an update on his situation. No leave was at any stage granted for this affirmation to be used.

8. The substantive hearing of the summons came before H H Judge H C Wong on 6 November 2003. The matter was heard in chambers. On that day, the Applicant and the 2nd Respondent were once again represented by their solicitors. The 1st Respondent was unrepresented.

9. At the start of the hearing, the solicitor for the 2nd Respondent requested an adjournment in order to take further instructions and also sought leave to use an affirmation of one Anna Fung, the 2nd Respondent's Quality and Safety Manager. This affirmation deposed to the fact that the 2nd Respondent's sub-contractor was Nam Fung and that the 2nd Respondent had no business relationship with either the 1st Respondent or the Applicant. Further, the results of a search conducted at the Business Registration Office of the Inland Revenue Department were exhibited showing that the Applicant and Poon Chi Wah, who are brothers, were at one stage partners in the 1st Respondent. The Applicant apparently ceased to be a partner in the 1st Respondent on 1 January 2002, 2 days before the accident. The cessation of partnership was not, however, reported to the authorities until 20 November 2002. Various other points were made in Ms Fung's affirmation including the absence of discovery on the Applicant's part to support his claim.

10. As far as any explanation was concerned for the delay in both asking for an adjournment and the introduction at the latest possible stage of Ms Fung's affirmation, none was forthcoming in the form of an affidavit (which is the usual and expected practice) but by way of oral submissions. The judge was informed that the 2nd Respondent was experiencing difficulties in obtaining evidence and that the person responsible for the conduct of the litigation within the 2nd Respondent was extremely busy. There were other unconvincing excuses that were proffered.

11. The learned judge refused the adjournment and refused leave to the 2nd Respondent to use Ms Fung's affirmation. She was not satisfied with the explanations for the failure both to file an Answer and to file affidavit evidence within the time ordered by Judge Carlson. Indeed, the learned judge regarded the 2nd Respondent's deliberately ignoring the deadlines imposed by Judge Carlson on 5 September 2003 as an abuse. She said :-

"I cannot see any valid reason for the 2nd respondent to justify the 2nd respondent's delay in filing of the affirmation in opposition."

I would add that at no stage prior to the hearing had the 2nd Respondent applied either for an adjournment or for leave to serve the affirmation of Ms Fung out of time.

12. The learned judge then dealt with the merits of the application for relief under section 10 of the ECO. In doing so, despite having just refused the 2nd Respondent leave to use the information contained Ms Fung's affirmation, the learned judge allowed the 1st Respondent to give evidence of periodic payments he had apparently made to the Applicant amounting to some $108,000. This evidence, I might add, did not come from the 1st Respondent formally giving evidence (and certainly was not contained in any affidavit before the court) but instead came in the form of statements made from the 'bar table'. The 1st Respondent said initially that these payments represented salary paid to the Applicant, but later, changed this to mean that the payments were in fact loans made to the Applicant. He insisted they were not payments made in his capacity as employer.

13. After hearing submissions, the learned judge gave judgment in favour of the Applicant and ordered both Respondents within 21 days to pay a lump sum of $342,116.48 together with interest in the sum of $27,144.36 "pursuant to sections 10(1) and 10(5) of the [ECO]". Costs were awarded to the Applicant.

14. In her Reasons for Judgment, the learned judge identified the application before her as being one made under section 10 of the ECO. She looked at the evidence before her and specifically evaluated that part of the evidence relating to the payments made by the 1st Respondent to the Application. I say 'evidence' here guardedly because, as pointed out above, this came from the 'bar table' and not from the witness box.

The crux of this appeal

15. The 2nd Respondent appealed the decision made on 6 November 2003 and sought an order that it be set aside. Before us, Mr Kamlesh Sadhwani appeared for the 2nd Respondent, Mr Kenny Lin for the Applicant. The 1st Respondent, though he did not serve a Notice of Appeal, nevertheless appeared in person.

16. After hearing submissions, we allowed the appeal and set aside the decision as against both Respondents with reasons to be handed down later.

17. Early on in the course of counsel's submissions, the court formed the view that a fundamental issue had to be addressed in the present appeal regarding the true nature of the hearing that took place before Judge Wong. Was the hearing treated as one for relief under section 10 of the ECO or was it somehow regarded as an interlocutory hearing for interim payments to be made by the Respondents? This was a fundamental question and in my view preceded all the other issues raised by the parties in this appeal.

18. Before dealing with this fundamental question and going to the actual reasons for allowing the appeal, I would first like to deal with the statutory context. The relevant statute is of course the ECO. Here, I would make the following observations :-

(1) The subject matter of the Ordinance is compensation for employees who have been injured in the course of their employment:- see the Preamble.

(2) Injuries suffered by employees can be fatal or they can cause permanent or temporary incapacity, whether such incapacity be total or partial. Sections 6 to 10 deal with these various categories of injuries.

(3) Section 10 of the ECO deals with the aspect of the compensation payable for temporary incapacity, whether total or partial, of any injured worker. This is in contradistinction to a permanent incapacity which is dealt with by the provisions of section 9. It is possible to make a claim under both sections 9 and 10 (as the Applicant has done in the present case) where, for example, injury occurs and it is not clear until a later stage that the incapacity (whether total or partial) will be permanent or only temporary. Section 10 provides for payments to be made (whether on a periodical or lump sum basis) for a period of 24 months but this period can be extended for no more than 12 months, beyond which the employee would be deemed to have suffered a permanent incapacity:- see section 10(5). Where permanent incapacity is established, any payments received under section 10 will not be deducted from the entitlement under section 9:- see section 10(4).

(4) An adjudication under section 10 of the ECO is not in any sense an interim order: it finally decides the right of an injured employee to payment (whether periodical or lump sum) in respect of a temporary incapacity. This is not affected by the possibility of a review under section 19 of the ECO. The order for payment under section 10 is final until it is reviewed under section 19, which review may or may not necessarily take place.

(5) In order to determine the entitlement of an applicant to section 10 relief, it will be necessary for the court to be satisfied on the evidence of all the requisite factors set out in section 9 before an order can be made for payments for temporary incapacity. Fundamental to any entitlement to payment under this section is proving the existence of an employee-employer relationship. Where main contractors and sub-contractors are involved, it will be necessary to show the existence of an employment between the applicant and the sub-contractor:- see section 24(1) of the ECO.

(6) Accordingly, hearings for relief under section 10 should be regarded as final hearings and are not interlocutory ones. Normally, the hearing by the court of claims made under the ECO takes place in open court. While it is entirely a matter of case management for the court to decide whether or not the trial should take place in one hearing or in separate hearings, nonetheless a trial is involved and hearings should be in open court. Thus, if as in the present case, there were to be separate hearings to determine the various reliefs claimed in the Application (see paragraph 2 above), the hearings would still be part of the trial and should be in open court. And if in such separate hearings, only some of the issues in the action are determined but not all, these hearings can nevertheless still be regarded as final:- see Shell Hong Kong Ltd v Yeung Wai Man Kiu Yip Co Ltd & Another (2003) 6 HKCFAR 222, at 231-3 (at paragraphs 26-32).

(7) The observations made in sub-paragraphs (5) and (6) above are in relation to claims for employees' compensation made in court proceedings (the relevant court being the District Court). Claims for compensation under sections 7, 9 and 10 can of course equally be assessed by the Commissioner for Labour:- see section 16A(1).

19. In the present case, the learned judge thought she was dealing with an application made by the Applicant under section 10 of the ECO. That she thought this is shown by the Reasons for Judgment and the form of the order made by the court (although this was not in the form stipulated under rule 26 of the Rules), both of which expressly referred to section 10. This is hardly surprising given the form of the summons dated 6 August 2003 (see paragraph 4 above) which expressly stated it was taken out under section 10. In addition, at the hearing before the judge, the Applicant's solicitors expressly submitted that the application was based on section 10.

20. However, in spite of the fact that the hearing on 6 November 2003 should have been one to determine the Applicant's entitlement to relief under section 10, and, for the reasons given above, this was a final hearing, the judge nevertheless treated the hearing and the effect of her decision as an interlocutory one. This is shown not only by the fact that the hearing took place in chambers, but, more crucially, by the assumption on the judge's part that whatever her ruling on the question of the Applicant's entitlement to section 10 relief, it somehow thereafter remained open to the Respondents at some stage in the future to contest liability to make section 10 payments and in particular, to dispute the fact that the Applicant was an employee of the 1st Respondent.

21. In my view, this approach of the judge was erroneous. The hearing before her for relief under section 10 was not an interlocutory hearing, but a final one. It was not an available option for the court to leave open for later determination the issues that had to be decided under a section 10 claim (for example, the important question of whether the Applicant was an employee of the 1st Respondent). The court had to decide these matters there and then. By treating what ought to have been a final hearing as an interlocutory one, the judge fell into error and her decision therefore could not stand.

22. I should add this. The learned judge could perhaps be forgiven for the approach taken by her since all the parties seem to have proceeded on the basis that the hearing was indeed an interlocutory one. This misconception continued until the hearing before us. The present appeal was initially even listed before 2 judges. Whether the misconception has arisen through a view that a claim under section 10 for periodical payments is somehow an application for interim relief, I know not but I take the opportunity again to emphasize that it clearly is not. A claim for section 10 relief is a claim for final relief. I have had the opportunity of reading in draft the judgment of Lam J where he expands on two aspects of this. I respectfully agree with his analysis.

23. Mr Lin argued that the hearing before the judge should in reality be regarded as one for interim payments and the way that the learned judge approached the hearing (as if it was an interlocutory one) supported this. I cannot agree with Mr Lin's submissions. As shown above (see paragraph 19), the judge clearly thought (and said expressly) that the court was dealing with a claim under section 10 although the approach taken was wrong. At no stage was RDC Order 29 ever mentioned at the hearing. This court also declined Mr Lin's invitation to deal with the matter as though there were before the Court of Appeal an application by the Applicant for interim payments under RDC Order 29. Formalities aside, the evidence before us was incomplete and it would be much more convenient for such an application (if one were to be made) to be dealt with in the District Court.

24. In these circumstances, it became unnecessary to determine the points arising in the Notice of Appeal and as argued by Mr Sadhwani and Mr Lin in their written submissions. All I would say, however, is that while the judge was right (and certainly entitled) to deal with the 2nd Respondent's application for an adjournment and for leave to use the affirmation of Ms Fung in the way she did, especially in the light of the history of the proceedings outlined above, it was curious that the learned judge should have then relaxed the rules to hear and evaluate evidence that did not come from the witness box. In a way though, the 2nd Respondent can consider itself fortunate that the learned judge (like the parties) treated the hearing for relief under section 10 as an interlocutory one. If the judge had taken the view that it was a final one, then, given the state of the evidence before her (without any contradictory evidence from the 2nd Respondent until the very day of the hearing), she might well have decided the section 10 issue against the 2nd Respondent. I was at one stage tempted to proceed on the basis that if the court below had treated the hearing as a final one (as it might well have done), then, given the state of the evidence, there should now be a decision in the Applicant's favour. However, as the whole approach to the evidence in the court below was based to some extent on the common assumption that the hearing was an interlocutory, rather than a final, one, it would now be wrong in the rather odd circumstances of the case for this court to treat the nature of the hearing as final when everyone assumed it was an interlocutory one.

Costs

25. The ground on which the appeal has succeeded was not one that was raised by the 2nd Respondent. Nor was the true nature of the hearing ever fully or properly articulated by the parties before her. In these circumstances and given my observations in the previous paragraph, I am of the view that costs should not follow the event and that the proper order for costs, which I would make on a nisi basis, is that there should be no order as to costs both on appeal and below.

Hon Yam J :

26. I agree.

Hon Lam J :

27. I have read the draft Reasons for Judgment of the Chief Judge and I entirely agree. I will just add that it is imperative that the nature of the application and the order made by the court should be clearly understood and identified. Apart from the matters referred to by the Chief Judge, I can think of at least two important practical consequences flowing from the nature of the order:

(a) The court has the power to adjust an interim payment when making a final judgment or order pursuant to Order 29 Rule 17 of the RDC. If necessary, the court can order repayment by the plaintiff. There is no such power in respect of compensation ordered under Section 10 of the ECO. Even in the case of a review under Section 19 of the ECO, the power of the court is confined to continue, increase, diminish, convert to a lump sum or end the periodical payment (Section 19(2) of the ECO);

(b) A determination of a claim under Section 10 of the ECO is a final determination involving final resolution of the issues in dispute that are relevant to the claim. As such, the findings and the decision of the court will have implications in terms of issue estoppel and res judicata (see Wong Wang Sum v Lee Kam Engineering Co (a firm) & Another [1996] 3 HKC 627; Yeung Pui Lap v Wong Siu Fai trading as Hung Fai Electric Company HCPI 1250 of 1998, 9 October 2000; Sze Lai Man v The Wing On Department Stores (Hong Kong) Limited HCPI 464 of 1996, 15 February 2001). The same cannot be said with regard to interim payment.

28. Since the learned judge approached the matter on the wrong assumption that the question of employment was to be determined in the future, her judgment on the Section 10 claim must be set aside. I also agree with the order proposed by the Chief Judge.