WAAN CHUEN MING v. LAW KIN NAM t/a KAR KIN AND OTHERS

DCEC 505/2002

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

EMPLOYEES’ COMPENSATION CASE NO. 505 OF 2002

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REASONS FOR DECISION ON PRELIMINARY ISSUE
AND DECISION ON COSTS

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1.  This is a trial on preliminary issue as to whether the 1^st or the 2^nd Respondent is liable to pay employees’ compensation to the Applicant in respect of an industrial accident on 10 June 2000.  As the 1^st Respondent had not taken out an employees’ compensation policy to cover the accident, the Employees’ Compensation Assistance Fund Board applied and was joined as the 3^rd Respondent in the Application.  The 4^th Respondent is also an interested party in the proceedings, as it is the insurer of a public liability policy taken out by the 2^nd Respondent.  In the trial on 14 January 2005, I ruled that the 1^st Respondent is liable as the employer to pay employees’ compensation to the Applicant, and I also dismiss the claim against the 2^nd Respondent.  I now give my reasons for such decisions.  After the hearing, the parties have been invited to make further written submissions on the issue of costs, and I will now also give my reserved ruling on such issue.

2.  The Applicant does not seek to establish that the 2^nd Respondent was a principal contractor within the meaning of s. 24 of the Employees’ Compensation Ordinance, Cap. 282, and so the main issue is this trial is whether the 1^st or the 2^nd Respondent was the employer of the Applicant at the time of the accident.

3.  According to the Applicant, he began to work for a company known as Ko Fu Engineering Company (“Ko Fu”) in 1995 when he came to know the 1^st Respondent who was then his supervisor.  It was also during that employment that the Applicant was first asked by his employer to carry out repair work at the 2^nd Respondent’s factory at 3^rd Floor, Hong Kong Worsted Mills Industrial Building, 31-39 Wo Tong Tsui Street, Kwai Chung (“the Factory”).  In about 1996, the 1^st Respondent left Ko Fu and started his own business of sole proprietorship known as Kar Kin Engineering & Supplier Company.  Upon invitation, the Applicant changed to work for the 1^st Respondent as a casual worker.  As the 1^st Respondent subsequently became a machine maintenance contractor of the 2^nd Respondent, the Applicant went to work at the Factory from time to time upon the instructions of the 1^st Respondent.  His daily wage was $500 at the time of the accident.

4.  Pursuant to the same arrangement, the Applicant worked in the Factory on the date of the accident.  At about 1:40 pm, the Applicant and other workers were trying to reinstall the calendaring unit back to a stentering machine which was used to starch and stretch cloths.  Whilst the unit was lifted back to the machine by a pallet jack, it toppled and fell down, and as a result, the Applicant sustained multiple injuries.  So far as the employment relationship is concerned, the Applicant’s case is supported by the 2^nd Respondent.

5.  In the trial, only the Applicant gave evidence to support his own case.  The 1^st Respondent did not appear in the trial, and no evidence was called on behalf of the other Respondents.

6.  The Applicant’s evidence is challenged by the 3^rd and the 4^th Respondents, who contend that his evidence is contrary to a number of documentary exhibits.  Firstly, there were various statements given by the Applicant, the 1^st Respondent and one Mr. Ip Kam Wo of the 2^nd Respondent (“Mr. Ip”) to the Labour Department and the loss adjustors, in which the said persons apparently admitted that both the Applicant and the 1^st Respondent were the employees of the 2^nd Respondent at the time of the accident.  Secondly, the 2^nd Respondent made similar admissions in the following documents: (i) Notice by Employer to the Commission of Labour (Form 2) signed by Mr. Ip dated 17 June 2000 and the subsequent amendment notice; (ii) a letter written by one Mr. Ho of the 2^nd Respondent to Toplis & Harding (Hong Kong) Ltd. dated 16 June 2000; and (iii) Notice of Accident to Bank of China Group Insurance Co. Ltd. dated 20 June 2000.  Thirdly, there is documentary evidence to show that the 2^nd Respondent made various payments, either as wages or sick leave payments, to the Applicant for a certain period of time after the accident.  Hence, based on such evidence, it is their case that the 2^nd Respondent was the true employer of the Applicant at the time of the accident.

7.  In reply to such allegation, the Applicant explained that he gave his statements upon the instruction of the 1^st Respondent.  As the latter had not taken out an employees’ compensation policy to cover him, the 1^st Respondent made an arrangement with his friend, Mr. Ip of the 2^nd Respondent, under which the 1^st Respondent would “borrow” the policy of the 2^nd Respondent to cover the accident.  In other words, they would all claim that the Applicant was the employee of the 2^nd Respondent at the time of the accident, and so the issue of compensation would be taken care of by the 2^nd Respondent’s insurer.

8.  I find that there is some degree of truth in the Applicant’s evidence.  Firstly, the 1^st Respondent had all along been issuing invoices to the 2^nd Respondent for the maintenance work undertaken by the former at the Factory.  Such documents certainly show that the 1^st Respondent was a contractor and not just an employee of the 2^nd Respondent.  In fact, the evidence in the present case suggests that the 2^nd Respondent had a long history of relying on contractors to carry out machine maintenance work in the Factory, including Ko Fu which was the former employer of the Applicant and the 1^st Respondent, and there is no reason to suggest why the 2^nd Respondent suddenly wanted to change such practice and employed its own workers to carry out the same job.  The fact that Mr. Ip was a close friend of the 1^st Respondent also explains why he agreed to allow the 1^st Respondent to “borrow” the policy of the 2^nd Respondent to cover the accident.

9.  As further support of the Applicant’s evidence, the 1^st Respondent, in a document dated 20 March 2000, certified that the Applicant was employed by him in the period from 4 February 1998 to 10 June 1999.  This was a document predated the accident, which to me, would be a more reliable piece of evidence to show the true relationship between the Applicant and the 1^st Respondent by that time.  As there is nothing to indicate the termination of the employment relationship after June 1999, I find that the Applicant was telling the truth regarding his employment relationship with the 1^st Respondent.

10.  Interestingly enough, the records show that the 2^nd Respondent only made “sick leave payments” to the Applicant after the accident, and no record of payment of salary can be found for the period before that.  To me, it was too much to be a coincidence.  Furthermore, the 1^st Respondent signed a letter acknowledging the making of the said payments, and that such payments would be deducted from the contract sum owed by the 2^nd Respondent to the 1^st Respondent.  In my judgment, these are strong, if not conclusive, evidence to prove the following facts, namely: (i) the Applicant was an employee of the 1^st Respondent; (ii) the 1^st Respondent was a contractor of the 2^nd Respondent; (iii) the 1^st and the 2^nd Respondents were parties to the alleged fraudulent scheme which was only made after the accident; and (iv) the purpose of making the “sick leave payments” was to deceive others to believe that the 2^nd Respondent was the employer of the Applicant.

11.  The Applicant had a full-time job with Tsing Ma Management Limited at the time of the accident, but that does not preclude him from being an employee of the 1^st Respondent at the same time.  As the Applicant worked at the Factory according to the instructions given by the 1^st Respondent, and that the Applicant’s salary, calculated on a daily basis, was paid by the 1^st Respondent in the end of each month, there are ample evidence to support that the Applicant was an employee of the 1^st Respondent at the time of the accident.  Hence, I made the ruling accordingly.

12.  According to my aforesaid findings, there was actually a conspiracy involving the Applicant, the 1^st Respondent and Mr. Ip to defraud the insurer of the 2^nd Respondent.  Mr. Shum for the 2^nd Respondent seems to suggest that the practice of “borrowing” insurance policy is common in the trade.  If that is the case, such practice should stop immediately.  The participants of such scheme should realize that they are committing a criminal offence by trying to defraud the insurance company, and they are liable to be prosecuted for such crime.  As the facts of the present case disclose such possible crime, I would refer the case to the Police for investigation.

Decision on costs

13.  Such findings do have grave implication on the issue of costs.  So far as the costs between the Applicant and the 1^st Respondent are concerned, I see no reason to depart from the general principle that costs should follow the event.  In fact, the 1^st Respondent is the main culprit in the present case.  He failed to take out a policy to cover the Applicant, and it was also apparently he who initiated the plan to defraud the 2^nd Respondent’s insurer.  Hence, he should pay for the Applicant’s costs.

14.  As between the Applicant and the 2^nd Respondent, different considerations apply.  Both the Applicant and the 2^nd Defendant were parties to a conspiracy.  Although one may say that the Applicant all along should have known the true identity of his employer, he should not be criticized for initiating the claim against the 2^nd Respondent, in particular when the latter, through Mr. Ip and one Mr. Ho, admitted in so many documents that the 2^nd Respondent was the true employer.  Ultimately, employment relationship is a matter of mixed law and fact to be decided by the court, and the Applicant was only prudent to join the 2^nd Respondent as a party to the proceedings.  I would say that the 2^nd Respondent has by its own conduct caused the claim to be brought against it, and the 2^nd Respondent only has itself to blame for involving in such litigation.  Hence, I make no order as to costs between the Applicant and the 2^nd Respondent.

15.  That leaves us the costs of the 3^rd and the 4^th Respondents.  Although they failed to establish that the 2^nd Respondent was the employer, I am of the view that they were quite entitled to test the Applicant’s evidence in the trial on liability, in particular when there were numerous written admissions of the employment relationship made by the 2^nd Respondent.  They should not have been asked to concede the Applicant’s evidence, and the 3^rd Respondent, in my view, further owes a duty to the public to contest the Applicant’s evidence.  In fact, they are all victims of the conspiracy.  Had the Applicant told the truth at the outset and the 2^nd Respondent not participated in the conspiracy, I am quite sure that the 3^rd and the 4^th Respondents were quite prepared to accept the employment relationship between the Applicant and the 1^st Respondent, and they would not have incurred costs in contesting the trial on liability.  Hence, I take the view that they should entitle to costs.  For the 4^th Respondent, the case is concluded after the trial on liability and so it should entitle to the costs of the action.  For the 3^rd Respondent, it would have joined the proceedings in any event to deal with the issue of quantum, its entitlement to costs should therefore be limited to the costs of the trial on preliminary issue.

16.  For their role in the conspiracy, the Applicant and the 1^st Respondent should pay for those costs.  In my judgment, there is no reason why the 2^nd Respondent should not be liable for those costs as well.  As I have mentioned above, the 2^nd Respondent was a party to the conspiracy, and it was reasonable for the Applicant to join it as a party in the proceedings.  Further, the 2^nd Respondent should have foreseen that, by making numerous admissions, the issue of liability would have to be resolved in litigation involving itself, and the 2^nd Respondent should be responsible for the consequences of its wrongful acts.  Hence, the 2^nd Respondent should be liable jointly and severally with the other conspirators to the victims affected by the fraudulent scheme.

17.  I therefore making the following order in respect of the costs of this action:

(i)	the 1st Respondent do pay to the Applicant the costs of the trial of preliminary issue;
(ii)	there be no order as to costs as between the Applicant and the 2nd Respondent in respect of the costs of this action;
(iii)	the Applicant, the 1st and the 2nd Respondents do pay to the 3rd Respondent the costs of the trial of preliminary issue;
(iv)	the Applicant, the 1st and the 2nd Respondents do pay to the 4th Respondents the costs of the action incurred up to the date hereof.