TSE CHIU v. 郭健 AND OTHERS

CACV 109/2021

[2022] HKCA 576

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 109 OF 2021

(ON APPEAL FROM DCEC NO. 1141 OF 2018)

________________________

________________________

____________________

JUDGMENT

____________________

Hon Yuen JA (giving the Judgment of the court):

Introduction

1.1.  On 19 February 2021, DDJ Charles Wong (“the judge”) gave judgment in DCEC 1141/2018 (“the Judgment”) in favour of the Applicant (“Mr Tse”) and ordered that employee’s compensation (“EC”) in the sum of $363,280.67 with interest be paid to him by the 2^nd Respondent Mr Kwok Ka Kit Danny (“Kwok Jr”) and the 3^rd Respondent Kwok’s Int Logistics Limited (“the Company”).

1.2.  Mr Tse’s claim against the 1^st Respondent Mr Kwok Kin (“Kwok Sr”) was dismissed.

1.3.  On 16 March 2021, the judge made a Sanderson order under which Kwok Jr and the Company were ordered to pay the costs of Kwok Sr and Mr Tse.

2.  On 19 March 2021, a notice of appeal was filed on behalf of Kwok Jr and the Company.

3.  On 1 June 2021, Mr Tse’s solicitors filed a summons for security for costs of the appeal.

4.  On 25 August 2021, the Company was wound up on a petition presented by Mr Tse. On 19 November 2021, a Consent Summons was filed by Mr Tse’s solicitors and the Company’s provisional liquidators for (among other things) the dismissal of the Company’s appeal. An order in terms was made on 24 November 2021. That leaves Kwok Jr as the only appellant.

Application for security for costs

5.  Mr Tse’s application for security for costs is based upon Kwok Jr’s impecuniosity. In opposition, Kwok Jr has filed an affirmation filed on 2 July 2021 deposing to his financial situation and denying that he is impecunious.

Discussion

6.  The principles governing applications for security for costs were set out in Chung Kau v Hong Kong Housing Authority and others [2004] 2 HKLRD 650 and are well known. Under Order 59 rule 10(5) Rules of the High Court, the court of appeal may, in special circumstances, order security for costs. It is settled practice to make an order if the respondent demonstrates that the appellant would be unable through impecuniosity to pay the costs of an unsuccessful appeal, or if the respondent would be likely to encounter undue delay or be put to undue expense in enforcing a costs order. Once that is demonstrated, it would be up to the appellant to demonstrate countervailing factors, such as the merits of the appeal. The court should form a preliminary view of the merits. If they appear to go strongly one way or the other, that might by itself be a decisive factor; but where it appeared they might go either way, the court would look to the existence of other factors to tilt the balance, in the absence of which security would be ordered.

Impecuniosity or difficulty in enforcement

7.1.  It is argued on behalf of Mr Tse that the following matters show that Kwok Jr is impecunious:

(1)  although no stay of execution has been ordered, Kwok Jr has not paid any part of the EC award or interest, and the bank statements he has exhibited (which are incomplete) show that he does not have sufficient assets to pay it;

(2)  the tractor driven by Mr Tse is no longer registered in Kwok Jr’s name;

(3)  after the Judgment, Kwok Jr sold a residential property (“the Property”) to his wife Madam Lam Yan Wa Rebecca (“Madam Lam”).

7.2.  As far as the Property is concerned, the land office records provided in the Application Bundle show the following:

-  in 2016, Kwok Jr and one Kwok Yim Ting (“KYT”) purchased the Property from the developer for $2,989,000. It was mortgaged to Bank of China (“BOC”);

-  in 2018, the Property was assigned to Kwok Jr and KYT as tenants in common, with Kwok Jr holding 99% and KYT holding 1%;

-  on 28 February 2020, Kwok Jr and KYT entered into a Sale and Purchase Agreement under which KYT would sell her share of the Property to him for $43,000; this agreement was completed on 30 March 2020, whereupon Kwok Jr became the sole owner of the Property, subject to an All Moneys Mortgage in favour of BOC with Madam Lam as borrower (there is no evidence of the sum outstanding under this Mortgage);

-  a month after the Judgment, on 4 March 2021 Madam Lam made an application for ancillary relief in matrimonial proceedings FCMC1844/2021, which was filed against the Property on 10 March 2021;

-  however, a day after the ancillary relief application, on 5 March 2021, Kwok Jr and Madam Lam entered into a Sale and Purchase Agreement (“SPA”) under which Kwok Jr would sell the Property to her for $4 million; it was stated in the SPA that she had paid him a deposit of $90,000 before the SPA, and that the sale and purchase would be completed on 31 March 2021; the SPA was registered on 26 March 2021;

-  on 24 March 2021, Mr Tse obtained a charging order nisi against the Property, which was registered on 25 March 2021 (the court file reveals that a charging order absolute was made on 19 January 2022 at a hearing before a master at which neither Kwok Jr nor Madam Lam appeared);

-  meanwhile, completion under the SPA did not take place on 31 March 2021 (this was confirmed by Kwok Jr’s solicitors in a letter to Mr Tse’s solicitors dated 28 May 2021);

-  on 10 May 2021, a consent summons was signed by Kwok Jr and Madam Lam under which both parties were to retain assets under their own names, and it was agreed (among other things) that Kwok Jr would transfer the Property to Madam Lam for $4 million within 3 months after the decree absolute, and that the applications for ancillary relief made by the parties against each other be dismissed (the court file reveals that no decree, whether nisi or absolute, has yet been made).

8.  First and foremost, we note that Kwok Jr has failed to pay any part of the award or interest even though there is no stay of execution. The bank statements he has exhibited do not reveal sufficient funds for payment of the award and interest which, as at 15 March 2021, already amount to more than $419,000.

9.  As for the Property, even if one puts aside the case of dissipation alleged by Mr Tse,

-  the important point is that Kwok Jr has not disclosed what is due to BOC under the All Moneys Mortgage (under which the borrower is Madam Lam), which takes priority to the charging order. Without this information, one might as well not include the Property (or any proceeds) as Kwok Jr’s assets;

-  further, as to delay in enforcement, there is no indication as to when any proceeds of sale under the SPA would be available. The completion date set out in the SPA has expired without completion taking place. The transfer date under the Consent Summons follows the date of the decree absolute, but to date there has not even been a decree nisi.

10.  Accordingly, we are satisfied that it has been demonstrated that Kwok Jr is impecunious or at least that Mr Tse would be likely to encounter difficulty or delay in enforcement.

Merits of the appeal

11.  The next issue is whether Kwok Jr has shown countervailing factors such as the merits of his appeal.

12.1.  Essentially, Mr Tse’s case was that in July 2014, he was introduced to Kwok Sr. He orally agreed with Kwok Sr to work as a cross-border container tractor driver, with his pay to be calculated per delivery. However, Mr Tse alleged the oral agreement was that he would work for both Kwok Sr and his son[1], and that “since [Kwok Jr] ran his business in the name of [the Company][2], so far as Tse was concerned, he was under the employment of all three respondents”[3] (emphasis added).

12.2.  Mr Tse started work on 1 August 2014 as the designated driver of a tractor registered in Kwok Jr’s name. He received delivery instructions from Kwok Sr and/or Kwok Jr via a WeChat group. His work dates were decided by “the respondents”[4]. If he wished to take leave, he sought Kwok Jr’s approval[5].

12.3.  As for pay, Mr Tse regularly received monthly payments in cheques or cash from the Company or its bookkeeper, even before it received payments from its customers[6]. He received payment for deliveries he made, and he also received half of the fees paid by customers referred by him to the Company[7]. He would not get paid if he failed to record delivery or failed to produce delivery notes, which he was obliged to produce to the Company[8]. Receipts (some entitled “salary receipts”) bore the Company’s name. Some of the Company’s monthly statements stated that money was paid to him as “wages”.

12.4.  Mr Tse never received payment directly from Kwok Sr or Kwok Jr. Mr Tse also made some money for himself on the side buying and selling petrol across the border. No MPF contributions were made by anyone, nor were there payments in lieu of statutory holidays, annual leave or sick leave[9].

13.1.  Mr Tse was injured in an accident on 6 June 2017. He made a claim for EC against Kwok Sr, Kwok Jr and the Company which was formulated in his Re-Re-Amended Application[10] as follows.

“On 6 June 2017, personal injury by accident arising out of and in the course of employment was caused to the Applicant, an employee employed by the Respondents. The 1^st and 2^nd Respondents [Kwok Sr and Kwok Jr] were carrying on business in the name of 大眾貨櫃運輸公司. The 1^st Respondent is the father of the 2^nd Respondent. As to the 3^rd Respondent [the Company], the Applicant’s salaries were from time to time paid by the 3^rd Respondent during the material time. Alternatively, the 1^st and 2^nd Respondents were the employers of the Applicant (as particularized in Paragraph 3 below) and the subcontractors of the 3^rd Respondent”. (Emphasis added).

13.2.  The Amended Answer[11] filed on behalf of all 3 Respondents pleaded the following material points:

(1)  Kwok Jr is a director of the Company [§2(b)];

(2)  the Company is a company incorporated with limited liability under the laws of Hong Kong carrying on the business of logistics [§2(c)];

(3)  Kwok Sr and Kwok Jr denied they had employed Mr Tse through any servant or agent or authorised person/company, either directly or indirectly [§3(a)];

(4)  in July 2014, Kwok Jr in the capacity of director of the Company had on behalf of the Company negotiated and reached a cooperation agreement with Mr Tse to work as an independent contractor [§4] and Mr Tse was not the Company’s employee [§5].

14.  At trial, both sets of litigants were legally represented, with all respondents represented by the same counsel and solicitors.

15.  The judge formulated the issues before the court as follows[12]:

(1)  whether Mr Tse was an employee of the respondents or an independent contractor of the Company;

(2)  if Mr Tse was an employee, which respondent(s) was/were the employer(s)?

(3)  whether the accident happened in the course of Mr Tse’s employment with the 1^st, the 2^nd, and/or the 3^rd respondent?

16.  The judge found that Mr Tse was not an independent contractor of any of the respondents, and that he was employed by Kwok Jr and the Company, but not by Kwok Sr.

17.  On appeal, three grounds have been advanced. Ground (1) is a general complaint without particulars. Ground (3) complains against the judge’s findings of fact that Mr Tse was not in business on his own as an agent or contractor. At this stage, it cannot be said that this ground is so strong as to be a sufficient countervailing factor.

18.  Ground (2) focuses on Issue (2) above. It states that the judge erred in law in finding that Kwok Jr together with the Company were Mr Tse’s employers, without considering the fact that Kwok Jr was only an officer of the Company supervising Mr Tse on behalf of the Company which was an independent legal entity. Kwok Jr could not be ruled an employer at the same time when the Company was found to be the employer as well.

19.1.  It appears to us at this stage that this is a strong ground of appeal. Although it would appear that the Company was not incorporated until 27 April 2015[13], about 6 months after Mr Tse started work, the judge did not consider this to be material enough to be mentioned in the Judgment. He noted that the tractor was registered in Kwok Jr’s name[14] but found that it was provided by Kwok Jr to Mr Tse “for the business of [Kwok Jr] and [the Company]”. There was no analysis of what was Kwok Jr’s own business, separate from that of the Company.

19.2.  A company can only act (eg give instructions for delivery) through human servants or agents. When Kwok Jr’s acts were mentioned in the Judgment, the judge did not specify whether those acts were done by Kwok Jr in his individual capacity, or in his capacity as a director of the Company. Sometimes, the finding was only that “R2 or R3” did an act[15] which is ambiguous. The judge also found[16] that Mr Tse’s “work dates were decided by the respondents and it is obligatory for him to accept works assigned to him by the respondents” (emphasis added), presumably including Kwok Sr. However, the judge concluded from that that it was Kwok Jr and the Company who had a high degree of control over Mr Tse’s work[17].

19.3.  Further, when the word “人工” (salary) was written on receipts chopped with the Company’s chop, and Kwok Jr sought to explain that by stating that it was Mr Tse who had requested that he should not be included as staff for tax purposes, the judge found that the significance of this evidence suggested that “but for Tse’s request, R2 and R3 were set to include Tse as their employee”. The inclusion of Kwok Jr in that conclusion appears to be unjustified, for the receipts were the documents of the Company, not Kwok Jr.

20.  In light of the above, we find that Kwok Jr has advanced sufficient merits on a preliminary view to act as a countervailing factor.

Order

21.  The summons is accordingly dismissed. As far as costs is concerned, given that Kwok Jr’s opposition to the summons was primarily based on his financial position and there was less discussion on the merits of the appeal, we do not think that it would be appropriate to order costs in his favour. Accordingly, we make no order as to costs of the summons save that Mr Tse’s own costs are to be taxed in accordance with legal aid regulations.