AHMED ISRAR v. RICHPAC LOGISTICS LTD

DCEC 1583/2024

[2025] HKDC 1822

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

EMPLOYEES’ COMPENSATION CASE NO 1583 OF 2024

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IN THE MATTER OF AN APPLICATION BETWEEN

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DECISION ON COSTS

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The Summons

1.  The Applicant (“A”) claims employees’ compensation in this action under the Employees’ Compensation Ordinance (Cap 282) (“ECO”) in respect of an injury at work accident he met on 15 September 2023 (“Accident”) in a warehouse at 50 Yau Pok Road, Yuen Long, New Territories, Hong Kong (“Warehouse”).

2.  He sues his employer RichPac Logistics Limited as the 1^st Respondent (“R1”) and United Power Locals Company Limited as the 2^nd Respondent (“R2”) who, as pleaded in the Application in §3(3), “jointly managed” the Warehouse with another company (Wing Tat Logistics (Group) Limited (“Wing Tat”)).

3.  The other company Wing Tat is not a party to this action and does not feature in these proceedings.

4.  R1 has not entered an appearance in these proceedings nor attended any hearing.

5.  By a summons filed on 3 April 2025 (“Summons”), R2 seeks to strike out A’s claim against R2 on the alternative grounds that: (i) they disclose no reasonable cause of action; (ii) and/or are scandalous, frivolous or vexatious; (iii) and/or otherwise an abuse of the process of the court, and for costs of and occasioned by the Summons and of the action against A.

6.  By an order by consent dated 9 May 2025, leave was granted to A to discontinue these proceedings against R2.

7.  What remains in issue between A and R2 is one of costs.

8.  A’s initial proposal (as stated in his solicitors’ letter dated 26 February 2025) was no order as to costs as between A and R2 upon discontinuance. The initial costs proposal was rejected by R2.

9.  A’s present position is that he should have costs of the action against R2 because he would not have sued R2 in the first place had R2 properly and reasonably responded to A’s written enquiries made pre-action.

10.  R2 argues that upon discontinuance of the action against R2, A shall pay the costs of the whole action including the Summons to R2.

11.  This Court has read the following affirmations filed by the parties:

(i) Two Affirmations of Au Siu Yan filed on 3 April 2025 and 6 June 2025 on behalf of R2 in support of the Summons and on costs; and

(ii) 2^nd Affirmation of Mang Chek Yuen filed on 29 July 2025 on behalf of A on costs.

12.  I have considered the written submissions and authorities submitted by A’s solicitors Messrs Joseph Leung & Associates and those of R2’s counsel Mr Kwan Ping Kan instructed by Messrs Au & Associates.

Legal Principles

13.  Regarding the costs upon discontinuance of an action, under Order 21 rules 3 & 5, Rules of the District Court, the starting point is that the party seeking to withdraw its action should pay the costs of the other party. The burden of persuading the court to depart from the general rule rests on the party who seeks to withdraw. Good reason ought to be shown for departure (Hong Kong Civil Procedure 2025, Vol 1, §21/5/12A). It is also trite that, save in exceptional circumstances, the court cannot and will not go into the merits of the claim: Kam Pak Li Investments Ltd v Li Sui Yee & Ors [2021] HKCFI 2734 at §5.

14.  The court has a wide discretion on costs and that discretion should be exercised judicially.

Background / Procedural History

15.  A commenced the action by filing the Application on 29 July 2024 against R1 as the employer, and R2 who allegedly “jointly managed” the Warehouse with Wing Tat.

16.  According to A’s solicitors, R2 was sued apparently based on A’s knowledge that the Warehouse was managed and/or owned by R2.

17.  R2 has not filed an Answer herein. It filed a List of Earnings on 16 April 2025 denying that it was the employer of A nor the principal contractor of R1, and that it has no information in relation to the earnings of A.

18.  Solicitors for A and R2 exchanged correspondence and evidence on the issue of R2’s capacity and whether it should be sued and made a party to this action since 8 months before and till after commencement of action. A brief chronology of the exchange relevant to my consideration on costs is as follows:

9.11.2023	Letter from A to R2 demanding periodical payment
14.11.2023	R2’s reply letter denying that A was its employee and providing contact details of R1 who was the occupier conducting business in the Warehouse
20.11.2023	Form 2 submitted by R1 in its capacity as the employer of A [Note: no mention of R2]
17.5.2024 & 27.6.2024	A’s two letters to R2 requesting for confirmation whether it was the principal contractor, and that failing the latter’s reply employees’ compensation action would be commenced against it [Note: no reply from R2]
9.7.2024	Labour Department’s letter confirming no information available regarding any principal contractor apart from the employer (R1) in respect of the Accident
29.7.2024	Application (suing both R1 and R2)
27.9.2024	Letter from R2 to A querying the basis for A suing R2 in this action
[Further exchange of correspondence between A and R2 on 30 September 2024, 18 October 2024 and 23 October 2024 ensued without clarification on the issue of R2’s capacity.]
26.2.2025	R2’s letter to A denying that it was the employer nor the principal contractor, but a landlord of R1 who was a tenant of the Warehouse, enclosed with the tenancy agreement made between R2 and R1 dated 21 June 2023
26.2.2025	A’s letter to R2 confirming A’s agreement to discontinue this action against R2 with no order as to costs
21 & 27.3.2025	Further open and “without prejudice” correspondence between A and R2 on arguments on costs of this action upon discontinuance against R2
3.4.2025	R2 filed the Summons seeking to strike out A’s claim with costs
16.4.2025	R2 filed its List of Earnings and List of Documents

19.  R2’s solicitors have by the 2^nd Affirmation of Au Siu Yan disclosed their 2^nd “without prejudice” letter dated 21 March 2025 to A offering to settle and accept costs to be paid by A at $80,000 (including counsel fees) per their bill of costs totalling $86,860 attached thereto.

Discussion

20.  There is no evidence, other than perhaps information provided by A to his solicitors, pointing to R2’s involvement in A’s employment or the Accident. It is A’s duty to properly investigate his claim before commencing an action and sue the proper persons in the court action.

21.  A’s pleaded case against R2 as the person “jointly managed” the Warehouse, not being the employer nor principal contractor would not found a claim under the ECO against R2, and is fundamentally flawed.

22.  On the other hand, A had prior to commencement of the action made repeated written requests to R2 to seek confirmation whether the latter was a principal contractor. R2 had chosen not to reply nor give a definite reply, until long after commencement of the action. Neither had R2’s solicitors, other than asking A for the basis of his claim against R2, clarified R2’s position as a mere landlord upon taking over conduct on behalf of R2 in September 2024. They only clarified for the first time, after lengthy exchange of correspondence for some 5 months, by letter dated 26 February 2025 that R2 was not a principal contractor but a landlord of R1 who was the tenant of the Warehouse.

23.  Upon R2’s said letter, A had confirmed immediately on the same day to discontinue the action herein against R2.

24.  A’s solicitors had explained the importance and the requirement of identifying and suing the principal contractor, if any, in order to safeguard A’s interests with regard to his potential application to the Employees’ Compensation Assistance Fund Board for relief payment under section 16(3) of the Employees’ Compensation Assistance Ordinance, Cap 365. Hence A’s numerous attempts pre-action to seek confirmation from R2 whether it was the principal contractor, and failing R2’s proper confirmation, issue of these proceedings against R2.

25.  Whilst R2 was under no duty to reply to A’s enquiries or assist A’s conduct of the intended prosecution against R2 in the action, parties and potential parties are encouraged to engage in constructive exchange and provide answers and documents in support to enhance settlement and avoid litigation which should be the last resort. Such are the spirits of paramount importance of the pre-action protocol under the CJR in furtherance of the underlying objectives of efficient and costs effective case management.

26.  The chronology of exchange between A and R2 and the prompt agreement of A to discontinue the action against R2 on 26 February 2025 demonstrate the high likelihood that had R2 properly and constructively responded to A’s repeated requests and confirmed its position not being a principal contractor but the landlord of R1, A would most likely not have sued R2.

27.  There was nothing to prevent R2 from confirming its position as such before commencement of the action upon A’s written requests, or the latest upon its solicitors taking over conduct. Litigation involving R2 could have been avoided.

28.  I take great exception to the litigation conduct of R2 in issuing the Summons on 3 April 2025 under Order 18 rule 19 seeking to strike out A’s claim with an affirmation in support when A had already agreed to discontinue the action on as early as 26 February 2025. Costs of the Summons, the further affirmations and engagement of counsel by R2 were unnecessary.

29.  It was also wholly unnecessary for R2 to file its List of Earnings and List of Documents in the action on 16 April 2025 given A’s previous agreement regarding discontinuance.

30.  R2’s dilatory reply to A’s repeated written requests and aggressive litigation conduct in issuing the Summons and filing documents in defence have generated and added to costs unnecessarily.

31.  Such litigation conduct, defeating the underlying objectives of efficient and costs-effective case management, enhancing settlement and taking litigation to be the last resort, must be discouraged, or even sanctioned.

32.  The substantial costs that have been incurred by both parties are likely wholly disproportionate to the relatively simple issue of R2’s capacity and whether it should be sued. The issue was instantly and adequately dealt with by a simple confirmation as that contained in R2’s letter dated 26 February 2025.

33.  Along this line, I have perused R2’s two statements of costs in respect of the action (claimed at $79,640.33) and the Summons (claimed at $92,807.62) attached to R2’s written submissions. I take the preliminary view that R2’s costs claimed are grossly excessive, in particular I consider the engagement of counsel in the action wholly unwarranted.

34.  I further note that at the time when R2 first produced the bill of costs dated 21 March 2025 requesting for payment of costs by A, R2 had not taken any active steps in defence of the action nor even filed one pleading therein. Yet counsel was engaged and its costs had run up to $86,860 as stated in the bill of costs.

35.  R2’s costs are wholly unreasonable and should be subject to close scrutiny. I however need not go into details of the costs claimed and stated in light of the orders I make hereunder.

Order

36.  Taking all matters in the round, I am satisfied that A has shown good reason and I exercise my discretion, upon consideration in particular of R2’s unreasonable litigation conduct, to depart from the general rule that the party withdrawing the claim should bear the costs.

37.  In respect of the costs of the action as between A and R2, I consider it appropriate to make no order as to costs.

Costs of the Summons

38.  As to the costs of the Summons filed on 3 April 2025, I have expressed my view that its issue was wholly unnecessary when A had by 26 February 2025 already confirmed his agreement to discontinue the action against R2.

39.  I was tempted to consider costs sanctions of the Summons against R2 in view of its unreasonable litigation conduct. However, as the affirmations and written submissions filed pursuant to the Summons are focused on the issue of costs of the whole action rather than striking out, I consider it appropriate also to make no order as to costs.

40.  The above costs order in respect of the Summons is nisi and shall become absolute in the absence of application by any party to vary the same by way of written application within 14 days from the date of this order.

41.  For the avoidance of doubt, as the Summons was not served on R1 who took no part in it, I further order that there be no order as to costs of the Summons as between R2 and R1.