MUHAMMAD ASGHAR v. KWOK KONG MOON formerly trading as MAKOS ENGINEERING

CACV 315/2022, [2024] HKCA 295

On appeal from [2022] HKDC163

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 315 OF 2022

(ON APPEAL FROM DCEC NO. 330 OF 2021)

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J U D G M E N T

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Hon Chu VP (giving the Judgment of the Court):

A. Introduction

1.  This is the applicant’s appeal against the decision (“Decision”)  of Her Honour Judge Levy (“Judge”)  refusing him leave to proceed with his employees’ compensation application out of time under section 14(4)  of the Employee’s Compensation Ordinance, Cap. 282 (“ECO”)  and dismissing the application with costs to the respondent.

2.  The issues raised in this appeal concern the Judge’s exercise of discretion under section 14(4)  of ECO, in particular her conclusion that there was no reasonable excuse for the delay and no reasonable justification for the applicant to proceed with the employees’ compensation application.

B.  The facts and the procedural history

3.  On 22 May 2016, the applicant met with an accident (“the Accident”)  that arose out of and in the course of his employment when he carried out renovation work at a restaurant called Casa 338 (“the Restaurant”)  and sustained personal injuries.  The Restaurant was operated by Casa 338 Catering Limited (“Casa Ltd”).

4.  On 13 February 2017, the applicant, who was privately represented by WT Law Offices (“the 1^st Lawyers”), filed an employees’ compensation application in the District Court in DCEC 288/2017 (“1^st EC Application”).  The respondent named in the 1^st EC Application is Makos Engineering Limited (“Makos Ltd”). 

5.  On 23 April 2018, the 1^st Lawyers also commenced a personal injuries action on the applicant’s behalf in the District Court in DCPI 855/2018 (“PI Action”), naming Makos Ltd as the 1^st defendant and Casa Ltd as the 2^nd defendant.   

6.  The Judge found that before commencing the 1^st EC Application and the PI Action, the 1^st Lawyers did not conduct a company search on Makos Ltd.  A company search carried out on 23 July 2018 revealed that Makos Ltd was incorporated on 22 August 2016, three months after the Accident[1]. Kwok Kong Moon, the respondent in these proceedings, was the sole founder member and sole director of Makos Ltd.  He was also the sole proprietor of Makos Engineering, which commenced business in October 2005.   

7.  On 25 October 2018, the 1^st Lawyers applied by summons in the 1^st EC Application to amend the name of the respondent to Casa Ltd. On 27 December 2018, the 1^st Lawyers filed another summons in the 1^st EC Application (“Amendment Application”)  to amend the name of the respondent to “Kwok Kong Moon trading as Makos Engineering”.  Both summonses came before the Judge on 30 January 2019.  The Judge gave leave to the 1^st Lawyers to withdraw the first amendment summons, and directed that a supplemental affirmation be filed to explain why the 1^st Lawyers brought the 1^st EC Application against Makos Ltd when it was not yet incorporated at the time of the Accident. 

8.  At the adjourned hearing of the Amendment Application on 17 April 2019, the Judge, upon the 1^st Lawyers’ application, gave leave for the summons to be withdrawn and proceeded to dismiss the 1^st EC Application. According to [5] of the Decision, the 1^st Lawyers applied to withdraw the summons because they could not explain why they “would have brought a claim against a company that did not exist at the time of the Accident”. 

9.  The applicant claimed that the withdrawal of the amendment application was without his consent.  This is disputed by the 1^st Lawyers.  It is also the applicant’s case that at the 17 April 2019 hearing the Judge had indicated that a new employee’s compensation application should be issued, instead of amending the 1^st EC Application, and that the withdrawal of the Amendment Application was made on the premise that a new application would be made.  The 1^st Lawyers, however, did not file a new application. 

10.  In July 2020, the applicant approached his present solicitors, Burke & Company (“the 2^nd Lawyers”)  for assistance.  In a bid to establish what had happened, the 2^nd Lawyers engaged in correspondence with the 1^st Lawyers seeking to obtain the papers, conducted searches of court files, and made enquiries with the Labour Department. Eventually, on 4 December 2020, the 2^nd Lawyers referred the applicant to apply for legal aid.

11.  On 16 February 2021, while the legal aid application was in progress, the 2^nd Lawyers on behalf of the applicant filed a new employees’ compensation application under DCEC 330/2021 (“the 2^nd EC Application”)  against the respondent.  On 5 May 2021, legal aid certificate was granted to the applicant in the 2^nd EC Application.

12.  On 21 July 2021, the 2^nd Lawyers filed a summons (“Leave Summons”)  applying for leave to proceed with the 2^nd EC Application out of time under section 14(4)  of ECO.  On 26 July 2021, the respondent issued a summons (“Striking Out Summons”)  applying to strike out the 2^nd EC Application pursuant to section 27 of the Limitation Ordinance, Cap. 357 and Order 18 rule 19 of the Rules of the District Court, Cap. 336H.

13.  The Judge heard both summonses on 17 January 2022.  By her decision handed down on 22 February 2022, the Judge dismissed the Leave Summons with costs and made no order on the Striking Out Summons. 

14.  By a notice of appeal dated 10 August 2022, the applicant appealed the Judge’s decision to this Court.  The notice of appeal was amended on 6 January 2023[2] and further amended at the hearing on 18 January 2023[3]. 

15.  After the commencement of this appeal, the 2^nd Lawyers came to know that Makos Engineering has ceased business and cancelled its business registration while the registration of Makos Ltd was struck off for lack of activity and failure to file annual return.  

16.  As to the PI Action, while being represented bt the 1^st lawyers, the applicant obtained leave on 4 February 2019 to amend the name of the 1^st defendant to “Kwok Kong Moon trading as Makos Engineering”.  On 18 September 2019, interlocutory judgment on liability was entered against the respondent by default.  Interlocutory judgment on liability was previously entered against Casa Ltd by default on 8 November 2018,

17.  On 29 April 2021 and after the 2^nd Lawyers came into the picture, legal aid was granted to the applicant in the PI Action.  On 8 June 2021, the Employees Compensation Assistance Fund Board (“the Board”)  was joined as the 3^rd defendant to the action to contest the issue of quantum, as neither Casa Ltd or the respondent has insurance to cover their liabilities.  At the checklist review hearing held on 7 June 2022, the applicant (represented by the 2^nd Lawyers)  applied to adjourn the assessment of damages pending this appeal.  The Board opposed the adjournment.  The adjournment was refused by the Judge.

18.  The assessment of damages took place on 31 August 2022 before Deputy District Court Judge Vincent Lung.  Both the respondent and Casa Ltd were absent.  By his judgment handed down on 12 December 2022 ([2022] HKDC 1184), Deputy District Judge Lung awarded damages to the applicant against the respondent and Casa Ltd in the sum of HK$451,000, together with interest and costs.  The Deputy Judge also granted leave to further amend the name of the 1^st defendant in the action to “Kwok Kong Moon formerly trading as Makos Engineering” to reflect the fact that Makos Engineering had ceased business.

C.  The Judge’s decision  

19.  The primary issue before the Judge was whether the applicant had shown a reasonable excuse for his failure to make the 2^nd EC Application within the time stipulated by the ECO.  The Judge rightly observed that in deciding the issue of reasonable excuse, she had to consider: (1)  the reasons for delay, (2)  the length of delay, (3)  whether there is sufficient ground to support an award, and (4)  the prejudice to the respondent: Tsang Loi Fat v Sun Fook Kong (formerly known as Sung Foo Kee Ltd) [2011] 4 HKLRD 344 at [10].

20.  The Judge was not satisfied that the applicant has a reasonable excuse for the delay.  Her main reasons are: 

(1)  Whilst the 1^st Lawyers were at fault for failing to conduct a company search on Makos Ltd before filing the 1^st EC Application, the applicant was not blameless[4].

(2)  The applicant could not establish on the evidence that Kwok deliberately incorporated Makos Ltd to avoid liability, or that he has misled the Labour Department or the court with regard to the identity of the applicant’s employer[5].

(3)  The applicant has no additional financial benefit, and thus no reasonable justification to pursue the 2^nd EC Application, when the PI Action had reached an advanced stage and there was no evidence that his employees’ compensation would likely exceed the damages to be awarded in the PI Action.  It is also not reasonable to incur legal costs for the 2^nd EC Application for the pure purpose of looking to the Board for reimbursement of costs[6].

(4)  Given that the applicant had no reasonable excuse for the delay, it was not necessary to consider the question of prejudice to the respondent or the merits of the 2^nd EC Application.

D.  This appeal

21.  In this appeal, the 2^nd Lawyers as well as Mr Lim and Ms Choi[7] act for the respondent on pro bono basis.  The respondent was absent at the hearing.  The Board, who is not a party in this appeal and the proceedings below, had put in written submissions and appeared by counsel to address us on the mechanism of payment of costs under the Employees Compensation Assistance Ordinance, Cap. 365 (“ECAO”)  with particular reference to sections 16, 20A, 20B(3)  and 23(1), which were relied on by the applicant to support his appeal.   

22.  The core submission of Mr Lim for the applicant is that the Judge erred in the exercise of her discretion and in finding there was no reasonable excuse for the applicant’s delay.  He advanced three main grounds as follows:

(1)  The Judge erred in finding that both the 1^st Lawyers and the applicant were to be blamed for the mistake in naming Makos Ltd as the respondent in the 1^st EC Application and the delay in bringing the 2^nd EC Application.  The 1^st Lawyers’ failure to carry out a company search leading to the dismissal of the 1^st EC Application and the fact that the applicant was an uneducated layman who was not advised to seek, and did not receive, any independent legal advice amount to reasonable excuse for not having issued the 2^nd EC Application within the prescribed time.

(2)  The Judge ought to have taken into account that the 2^nd EC Application would not occasion any prejudice to the respondent in that: (a)  he is aware of the accident and has notice of the employees’ compensation proceedings since he was the sole proprietor of Makos Engineering as well as the founding member and sole director of Makos Ltd; (b)  he is also a defendant in the PI Action; and (c)  there are common facts and overlapping issues in the employee’s compensation claim and the PI Action, in which interlocutory judgment on liability had already been entered against him.

(3)  In concluding that there is no reasonable justification for the applicant to proceed with the 2^nd EC Application, the Judge failed to have regard to the fact that in the likely event that the respondent had to look to the Board for payment, due to the different treatment of costs for employees’ compensation and common law claims under sections 20B(3)  and 23(1)  of the ECAO, the damages awarded in the PI Action would be wiped out by his legal costs (which he could not recover from the respondent)  by reason of the Director of Legal Aid’s first charge.  

23.  The submissions of Ms Leong for the Board are confined to the third ground of the applicant’s submissions.  She made a number of observations on the provisions in the ECAO and the PI Action.  Her main point is that the applicant would not be in any better position even if he were allowed to proceed with the 2^nd EC Application as he would not get anything in excess of what has been awarded in the PI Action.  This is because: (1)  the amount of employees’ compensation will not be in excess of the damages awarded in the PI Action and the applicant’s only reason to proceed with the 2^nd EC Application is for costs; (2)  the applicant has yet to enforce the judgment in the PI Action and it is unknown whether it will be satisfied; (3)  assuming that the judgment is not satisfied and the applicant applies for relief payment under section 20A of ECAO, upon obtaining relief payment, there will not be any unsatisfied employees’ compensation and the Board will not entertain an application for reimbursement of costs only having regard to section 23(1)  of ECAO; and (4)  any costs incurred in the past is not  recoverable from the Board whether or not the respondent is in a position to meet those costs.

E.   Our reasons for judgment

24.  Section 14(1)  of ECO provides that proceedings for recovery of compensation under the Ordinance shall not be maintainable unless the application for compensation has been made within 24 months from the occurrence of the accident causing the injury.  Section 14(4)  further provides that the court may receive and determine an application for compensation notwithstanding that it has not been made within the time prescribed in subsection (1)  if it is satisfied that there was reasonable excuse for the failure to make an application.

25.  There are two key issues in this appeal, namely whether the applicant has a reasonable excuse for his failure to bring the 2^nd EC Application within the 24 months’ period, and whether there is any reasonable justification for him to continue with the 2^nd EC Application.   We will deal with these issues in turn. 

E1.  Reasonable excuse for the delay - was the applicant at fault?

26.  On the first issue of whether the applicant has a reasonable excuse for the delay, the first point made by Mr Lim is that contrary to the Judge’s finding, no blame should be attached to the applicant.  He argued that the fault for the delay lies with the 1^st Lawyers for had they conducted a company search before the 1^st EC Application, an employees’ compensation claim would have been made against the respondent back in early 2017.  He stressed that the applicant was an uneducated layman and had not been advised to seek, and did not receive any, independent legal advice immediately after the dismissal of the 1^st EC Application.

27.  The Judge found that the 1^st Lawyers failed to conduct a company search on Makos Ltd before commencing the 1^st EC Application, this was one of the most fundamental tasks when suing a limited company, and had the search been made, the error would have been avoided[8]. Mr Lim went further and submitted that had a company search been made on Makos Ltd in the first place, the applicant would most probably have commenced an employees’ compensation claim against the correct party within the 24 months’ period.  We agree.  Had the search been made, it would be apparent that Makos Ltd was not the applicant’s employer, and it would be incumbent upon the 1^st Lawyers to take steps to identify the employer before the expiry of the 24 months’ period.   

28.  We would further observe that the 1^st Lawyers compounded the problem in failing to explain, or properly explain, to the Judge the cause for the mistake in suing Makos Ltd and further asking to withdraw the Amendment Application culminating in the eventual dismissal of the 1^st EC Application.  It must be apparent to the 1^st Lawyers that the withdrawal of the Amendment Application would not place the applicant in any better position since by then the 24 months’ period for maintaining an employee’s compensation claim had expired, and leave of the court was required for any fresh application to be brought.   

29.  As to the Judge’s finding that the applicant was not entirely blameless, her reasons are twofold[9]. First, the applicant’s evidence in the Leave Summons conflicted with his evidence in the Amendment Application, which seriously undermined his credibility.  While he did not put any blame on the 1^st Lawyers in the Amendment Application, his evidence in the Leave Summons blamed the 1^st Lawyers for suing the wrong party and further denied having instructed the 1^st Lawyers to withdraw the Amendment Application[10].  Second, the applicant had signed a statement of truth verifying the truthfulness of the 1^st EC Application.

30.  It seems to us that in doubting the applicant’s credibility and evidence in the Leave Summons, the Judge had not considered the overall circumstances of the case and the fact that the applicant was represented by the 1^st Lawyers when the 1^st EC Application was issued, and when he made the statement of truth and the affirmations in support of the Amendment Application.  Mr Lim stressed, and we accept, that the applicant is uneducated and has no knowledge of the law.  It is to be expected that he would rely and act on the expertise and advice of the 1^st Lawyers, including making proper enquiries to establish the correct party to sue, and how to progress with his claim as well as the preparation of the court documents.   

31.  We also note that it was in the applicant’s supplemental affirmation in support of the Amendment Application that he asserted that despite having been advised by the 1^st Lawyers about the risks of suing the wrong party, he decided to sue Makos Ltd because he was worried that his claim would be time barred.  As noted above (see [7]), this supplemental affirmation was filed pursuant to the Judge’s direction given at the first hearing of the Amendment Application.  The explanation given in the supplemental affirmation for suing Makos Ltd in the 1^st EC Application has to be contrasted with that given in the first affirmation.  

32.  In his first affirmation, the applicant stated that when he reported the Accident to the Labour Department on 23 June 2016, he named the Restaurant as his employer because he was assigned by Kwok Kong Moon to work at the Restaurant and he therefore believed that he was employed by the Restaurant. He later received a letter from the Labour Department dated 23 September 2016 informing him that the Restaurant denied having any employment relationship with him and stated that the renovation work was provided by a company called Makos Engineering Co Ltd.  The company search carried out by the 1^st Lawyers showed there was no company by the name of Makos Engieneering Co Ltd, but there was a company incorporated after the Accident in the name of Makos Engineering Limited, of which Kwok Kong Moon was the founder member and sole director.  The applicant concluded by saying that it was his case that Kwok had misled the Restaurant about the name of the company which provided the renovation work leading to the wrong name being given to the Labour Department and he was misled to believe that Makos Ltd was his employer.  

33.  In our view, it is not likely that the applicant, being a layman, would have independent knowledge of, let alone concern for, the time-limit under the ECO.  Also, as the Judge herself pointed out[11], when the 1^st EC Application was issued, the 24 months’ time-limit had more than one year to run and there was sufficient time for the 1^st Lawyers to make enquiries to establish the identity of the employer.  Importantly, too, the Judge found that it was in July 2018, more than a year after the 1^st EC Application was issued, that the company search was dome[12].  In those circumstances, it is difficult to understand why in February 2017 the applicant would have instructed his solicitors to risk suing the wrong party and to issue the 1^st EC Application.  There is also no explanation as to why the reason belatedly given in the supplemental affirmation was not mentioned in the first affirmation.  

34.  Mr Lim also highlighted the fact that at no point in time was the applicant advised by the 1^st Lawyers to seek independent legal advice, and the 1^st Lawyers continued to represent him after the dismissal of the 1^st EC Application until the 2^nd Lawyers came into the picture.  We would add that the applicant’s case in the Leave Summons was consistent with what was stated in the 2^nd Lawyers’ early correspondence with the 1^st Lawyers shortly. 

35.  Having regard to the above matters, while it may be said that the 1^st EC Application was issued with the applicant’s knowledge and agreement, we do not think there is sufficient basis for finding the applicant is also to be blamed for suing the wrong party or for the delay in bringing the 2^nd EC Application.

E2.  Reasonable excuse for the delay - prejudice to the respondent

36.  Mr Lim’s second point is that the Judge should have considered that the respondent would suffer no prejudice if the applicant were given leave to proceed with the 2^nd EC Application. 

37.  On the materials before us, we agree that no real prejudice would occasion to the respondent by the delay in the commencement of the 2^nd EC Application.  First, he has knowledge of the Accident right from the beginning.  Second, he was the sole proprietor of Makos Engineering and also the sole shareholder and sole director of Makos Ltd.  He has all along known that the applicant is pursuing an employees’ compensation claim against his employer.  Third, the circumstances of the Accident are well covered in the Labour Department documents and all the medical reports and records are available.  The delay has not led to any loss of evidence.  Fourth, throughout the applicant’s case is that he was assigned by the respondent to work at the Restaurant.  This is not disputed by the respondent.  Further, in opposing the Leave Summons or in his Striking Out Summons, the respondent’s affirmations never dispute that he was the applicant’s employer at the time of the Accident.  Fifth, he has not defended the PI Action and interlocutory judgment had already been entered against him at the time of the hearing before the Judge.  Sixth and importantly, the respondent did not point to any relevant prejudice in his evidence filed in opposition to the Leave Summons, other than asserting that the 2^nd EC Application should be struck out. 

38.  Although the Judge acknowledged that whether there was prejudice to the respondent is a relevant factor, she was of the view that there was no need to consider this factor because the applicant has no reasonable explanation for the delay in bringing the 2^nd EC Application[13]. With respect, we disagree.  In the circumstances of this case, the fact that the respondent suffers no prejudice is a relevant factor that should have been taken into account when exercising the discretion under section 14(4)  of ECO.  The absence of prejudice is of particular relevance when considered together with the applicant’s complaint that the respondent was not forthcoming and had misled him on the identity of his employer, which the Judge rejected as lacking evidential support. 

39.  Several matters were relied on by the applicant at the hearing of the Leave Summons before the Judge.  The first is the letter dated 23 September 2016 from the Labour Department informing the applicant that, in reply to the Department’s letter of 29 August 2016, the Restaurant denied having any employment relationship with him and volunteered the information that Makos Engineering Co Ltd was the service provider of the renovation work at the time of the Accident (see also [32] above).  The company search carried out by the 1^st Lawyers in July 2018 shows there was no record of a corporation in the name of Makos Engineering Co Ltd.  The applicant has not been able to obtain a copy of the Restaurant’s reply as despite various efforts made by the 2^nd Lawyers, Casa Ltd, which operated the Restaurant, did not provide the consent for the Labour Department to release the document to the applicant. 

40.  There is, secondly, a transcript of the Checklist Review hearing in the PI Action on 10 October 2018 attended by Ms Hui of the 1^st Lawyers and the respondent.  At that time, Makos Ltd and Casa Ltd were respectively the 1^st and 2^nd defendants in the PI Action.  The respondent sought to represent Casa Ltd at the hearing, but the presiding Master refused to let him do so because he had not obtained leave from the court[14]. In the course of the hearing, Ms Hui informed the Master about the Labour Department’s letter, and went on to say:

“Ms Hui: … 根據今日呢位郭先生同我講，佢話今日就佢話呢間Casa 338就而家就由 - - 就即係推翻咗之前即係我 - - 以勞工處話畀我聽，我信嗰個講法喇，咁就話承認佢係佢 - - 原告人嘅僱主喇。咁郭先生就話畀我聽，佢係呢間Casa 338嘅持牌人嚟。”

The Master later made enquiry with the respondent which gave rise to the following exchanges:

“官: … 問一問你，到底剛才許律師佢講到話你 - - 話係Casa 338先係僱主呢樣嘢，係唔係真係你有咁講過㗎？

郭江滿: 係有嘅。

官: 咁關於勞工處嗰啲提交嘅資料，話Casa 338唔係僱主呢啲，你有冇咩嘢資料提供呀？

郭江滿: 因為我間餐廳有幾個股東嘅。

官: 係。

郭江滿:  咁就呢- -佢寫呢封信嘅時候我係唔知道嘅。”

41.  The above exchanges are important.  First, the respondent admittedly informed Ms Hui that he was the licence holder of the Restaurant.  He also referred to the Restaurant as “my restaurant” (我間餐廳).  Second, the respondent claimed that the Restaurant was the applicant’s employer, which was not only contrary to what the Restaurant informed the Labour Department, but also evidently untrue.  Third, when being asked about the discrepancy between his assertion and the information provided to the Labour Department, the respondent put up the excuse that the Restaurant’s letter to the Labour Department was written without his knowledge because his restaurant had several shareholders.  

42.  Thirdly, after interlocutory judgment was entered against it in the PI Action in November 2018, Casa Ltd sent to the 1^st Lawyers a Chinese declaration dated 20 December 2018.  Among other things, the declaration stated that: (1)  Casa Ltd had outsourced the renovation work to Makos Engineering which was operated by Kwok Kong Moon; (2)  the renovation work was carried out between April and June 2016; and (3)  the fees for the work were all paid to Makos Engineering and not to Makos Ltd, which was incorporated on 22 August 2016.  The content of this declaration is evidently at odds with the Restaurant’s reply given to the Labour Department, for which there is no explanation.  

43.  The Judge refused to draw an inference that the incorporation of Makos Ltd three months after the accident was an attempt by the respondent to avoid liability for the Accident, pointing to the fact that Makos Engineering continued to exist afterwards.  What is worth noting, however, is the commonalities in the name, ownership and business address of Makos Engineering and Makos Ltd.  Leaving aside the reason for the incorporation of Makos Ltd, it is apparent from the above evidence taken as a whole that the respondent has caused or, to say the least, contributed to the confusions over the identity of the applicant’s employer.  He was the sole proprietor of Makos Engineering, the licence holder of the Restaurant, and the sole shareholder and director of Makos Ltd.  As noted above (see [37]), he has not disputed that the applicant was employed by him to do the renovation work at the Restaurant.  Yet, in reply to the Labour Department, the Restaurant, in which the respondent had an interest, claimed that the renovation work was undertaken by Makos Engineering Co Ltd, a non-existent company.  Not only that, at the Checklist Review hearing in October 2018, the respondent told the 1^st Lawyers and confirmed to the Master that the Restaurant was the employer, which he must know was untrue. It was only two years later after interlocutory judgment was entered against it in the PI Action that Casa Ltd, the company which operated the Restaurant, revealed that the renovation work was in fact undertaken by Mr Kwok trading as Makos Engineering. 

44.  In our view, the applicant’s complaint about the respondent’s conduct is not without foundation.  Not only had the respondent not come forth with the information that he employed the applicant to carry out work at the Restaurant at the time of the Accident, he had also actively confused and misled the applicant’s legal representative.  The confusions over the identity of the employer that he has caused and the resulting difficulties to the applicant are relevant factors when considering whether there was a reasonable excuse for the delay.  

E3.  Justification for continuing with the 2^nd EC Application

45.  Turning to the second issue, the Judge considered that there was no reasonable justification for the applicant to continue with the 2^nd EC Application, as he would not get any additional financial benefit over and above the damages awarded in the PI Action.  She also thought it was unreasonable for the applicant to incur costs in the 2^nd EC Application only for seeking reimbursement of such costs from the Board.  In challenging the Judge’s holdings, Mr Lim relied on the difference in the treatment of costs incurred by an employee in employees’ compensation application and common law personal injuries claim under the ECAO and also the first charge of the Director of Legal Aid (“Director”)  under the Legal Aid Ordinance, cap. 91 (“LAO”).

46.  Section 16 of ECAO concerns an employee’s application for payment from the Employees Compensation Assistance Fund (“the Fund”)  in relation to unpaid employee’s compensation.  The relevant part  provides as follows:

“(1)  A person who is unable to recover from an employer payment of an amount of compensation for which the employer is liable may apply for payment of that amount from the Fund.

(2)  For the purpose of this section an employer is not to be regarded as liable for the payment of an amount of compensation unless —

(a)  the amount is payable —

(i)  pursuant to a judgment or order of a court or tribunal of competent jurisdiction in Hong Kong;

(ii)  by virtue of section 16A(9)  of the Employees’ Compensation Ordinance (Cap. 282)  following an assessment of compensation by the Commissioner under that section; or

(iii)  pursuant to a Certificate of Compensation Assessment for Fatal Case or Review Certificate of Compensation Assessment for Fatal Case issued under the Employees’ Compensation Ordinance (Cap. 282);

…

(3)  For the purpose of this section a person is not to be regarded as being unable to recover from an employer payment of an amount of compensation for which the employer is liable unless the person has taken such proceedings to recover payment of the amount —

(a)  from, wherever applicable —

(i)  the employer;

(ii)  the principal contractor who is liable to pay compensation to the person under section 24 of the Employees’ Compensation Ordinance (Cap. 282); and

(iii)  an insurer who has issued a policy of insurance —

(A)  which is in force in relation to the injured employee at the time of the accident concerned; and

(B)  indemnifying the employer, or the principal contractor mentioned in subparagraph (ii), in respect of such liability; and

(b)  as are reasonable in the circumstances, having regard to the likely cost of such proceedings, the resources available to the person and the amount likely to be recovered from, wherever applicable, the employer, the principal contractor and the insurer.”

47.  In respect of unpaid damages awarded in common law personal injuries claims, section 20A(1)  to (3)  of ECAO provides that:

“(1)  An eligible person who is unable to recover from an employer payment of an amount of damages for which the employer is liable may apply for a relief payment of that amount from the Fund.

(2)  For the purposes of this section, an employer is not to be regarded as liable for the payment of an amount of damages unless the amount is payable pursuant to a judgment or order of a court of competent jurisdiction in Hong Kong.

(3)  For the purpose of this section, an eligible person is not to be regarded as being unable to recover from an employer payment of an amount of damages for which the employer is liable unless the eligible person has taken such proceedings to recover payment of the amount—

(a)  from, wherever applicable —

(i)  the employer; and

(ii)  an insurer who has issued a policy of insurance —

(A)  which is in force in relation to the injured employee at the time of the accident concerned; and

(B)  indemnifying the employer in respect of such liability; and

(b)  as are reasonable in the circumstances, having regard to the likely cost of such proceedings, the resources available to the eligible person and the amount likely to be recovered from, wherever applicable, the employer and the insurer.”

48.  As regards the costs incurred by an employee in an employees’ compensation application and in a common law personal injuries claim, they are respectively covered by section 23(1)  and section 20B(3)  as follows:

“23(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.”

“20B(3)  Notwithstanding the definitions of compensation and damages, for the purposes of determining the amount of a relief payment—

(a)  any interest payable on any amount; and

(b)  any costs,

  arising from proceedings in respect of any damages or compensation claim shall not be included.”

49.  There is thus a difference in the treatment of the costs incurred by an employee for making an employees’ compensation claim, and a common law personal injuries claim.  The employee may seek reimbursement of the former from the Fund, but not the latter.

50.  In the case of an employee who is legally aided, section 18A(1)  of LAO provides that:

“Subject to this section —

(a)  the amount of a contribution to the extent that it is unpaid; and

(b)  except where legal aid has been granted under the Supplementary Legal Aid Scheme, if the total contribution is less than the net liability of the Director on the aided person’s account, a sum equal to the deficiency,

shall be a first charge for the benefit of the Director on any property, whether situated in Hong Kong or otherwise, which is recovered or preserved for the aided person in the proceedings or in any other proceedings in respect of which the person was aided and which, in the opinion of the Director, were substantially related to or connected with the proceedings in which property was recovered or preserved.”

51.  Section 18A(5)(e)  further provides that the Director’s first charge under subsection (1)  does not apply to an amount recovered by way of employee’s compensation:

“The charge on property under subsection (1)  does not apply to —

(e)  an amount recovered by way of employee’s compensation to the extent that the charge would apply the deficiency attributable to a common law claim by the aided person arising out of the same circumstances.”

52.  The combined effect of section 20B(3)  of ECAO and section 18A(1)  of LAO is that for an employee who is legally aided in his common law personal injuries claim, the amount of damages recovered by him by way of relief payment from the Fund is subject to the Director’s first charge for his legal costs that cannot be recovered from the other party(ies)  in the action. 

53.  In contrast, by reason of section 23(1)  of ECAO, where a legally aided employee succeeds in obtaining payment of the employees’ compensation from the Fund, his legal costs incurred in the employees’ compensation application will also be met by the Fund.  Moreover, under section 18A(5)(e)  of LAO, there will not be a first charge for the benefit of the Director on the amount of compensation paid from the Fund. 

54.  Accordingly, in the present case, the award of damages to the applicant in the PI Action, whether recovered from the respondent or paid out of the Fund by way of relief payment, will be subject to the Director’s first charge for his costs incurred after April 2021 (i.e. after the issue of the legal aid certificate in the PI Action).  Mr Lim informed us at the hearing that the legal costs of the PI Action covered by the legal aid certificate is approximately HK$300,000[15]. We agree with him that it is highly likely that the respondent will not be able to satisfy the judgment and the costs order in the PI Action.  If the applicant were to make an application under section 20A(1)  of ECAO, the relief payment he may get from the Fund will be substantially diminished, if not wiped out, after discharging the Director’s first charge.  

55.  On the other hand, if the applicant were to proceed with an employees’ compensation application and succeed in obtaining an award, and if the respondent is unable to satisfy the judgment, he may apply to the Board for the payment of the compensation from the Fund under section 16 of ECAO.  On Ms Leong’s calculation, which is based on the findings in the PI Action, the amount of compensation that the applicant will get if leave is given to proceed with the 2^nd EC Application is around HK$375,000 or HK$365,000.  At the same time, he may also apply for payment from the Fund of his costs incurred in claiming the compensation[16]. Further, the amount he receives from the Fund will not be subject to the Director’s first charge.  

56.  The above analysis shows that the pursuit of the 2^nd EC Application carries significance and real benefit for the applicant.  In the first place, as matters stood at the hearing before the Judge, it would have been more beneficial for him to proceed with an employees’ compensation claim than to proceed with assessment of damages in the PI Action.  Even as of now, it will be more beneficial for him to proceed with an employee compensation claim than to take step to enforce the award obtained in the PI Action, which will necessitate further costs,  and then to obtain relief payment from the Fund. 

57.  Much emphasis had been placed by the Judge, likewise by Ms Leong, on the point that the amount of employees’ compensation that the applicant may get is unlikely to exceed the award of damages in the PI Action, as showing there was no real benefit and no reasonable justification in pursuing the 2^nd EC Application.  In our view, such an approach has failed to take into account the applicant’s costs exposure and its implications as analysed above.   Given the difference in the treatment of costs incurred by an employee in employees’ compensation application and in common law personal injuries claim under ECAO and also the first charge of the Director under LAO, the 2^nd EC Application carries real financial benefit for the applicant. 

58.  In considering the applicant’s costs position, we have not lost sight of the fact that he was privately represented by the 1^st Lawyers in the period between February 2017 and April 2021 and that the 1^st Lawyers may try to recover from him their unpaid costs down the line.  Mr Lim submitted that the applicant would be advised to resist such claim and he would be able to put up a counterclaim in negligence.  It is not necessary for us to express a view on Mr Lim’s submission, suffice it to say that one will not be surprised were the applicant to adopt the course submitted by Mr Lim.  What seems clear to us is that even if the 1^st Lawyers were to seek to recover their costs, the applicant will likely be better off and will receive some tangible benefit at the conclusion of his employees’ compensation case.

59.  We also do not agree with the view that it is unreasonable for the applicant to incur costs in the 2^nd EC Application only for the purpose of seeking reimbursement of such costs from the Fund.  First, the 2^nd EC Application is not solely for the purpose of seeking reimbursement of costs.  As discussed above, it will bring about real financial benefit for the applicant.  Second and importantly, as emphatically pointed out by Mr Lim, if the applicant were not permitted to proceed with the 2^nd EC Application, he will be severely prejudiced as he will most probably end up receiving nothing for his injuries sustained in the Accident.  This is clearly not in line with the objectives of the statutory scheme under the ECO and the ECAO.

60.  For the above reasons, we hold that there is reasonable justification for the applicant to proceed with the 2^nd EC Application. 

E4.  Conclusion

61.  In conclusion, for the reasons set out above, we are satisfied that the Judge’s finding that there was no reasonable excuse for the delay and the exercise of her discretion cannot be supported.  We would set aside her decision and exercise the discretion afresh.

62.  Having regard to the circumstances of the case and the discussions in E1 to E3, we are satisfied that the delay in question can be explained by the 1^st Lawyers’ omission to conduct a company search which led to the wrong party being sued in the 1^st EC Application, the applicant being an uneducated layman, did not have independent legal advice until he approached the 2^nd Lawyers in July 2020, and the considerable time and efforts incurred by the 2^nd Lawyers to obtain the papers from and make enquiries with the 1^st Lawyers, Labour Department and Casa Ltd.  While the delay in question is not insignificant, there is no prejudice to the respondent whose conduct has caused confusions and difficulties for the applicant in establishing the identity of the employer.  We are also satisfied that there is real benefit and justification for the applicant to proceed with the 2^nd EC Application.  If he were not allowed to carry on with the 2^nd EC Application, his only option is to enforce the award of damages in the PI Action and to obtain relief payment from the Fund.  However, the amount paid from the Fund would be substantially reduced or even wiped out by the costs incurred in light of the Director’s first charge.

63.  All in all, we are satisfied that the applicant has demonstrated that there was a reasonable excuse for the delay and that leave to proceed with the 2^nd EC Application should be granted.  The applicant’s appeal should therefore be allowed with the result that the Leave Summons should be allowed and the Striking Out Summons should be dismissed. 

64.  Applying the normal rule of costs follow the event, we make an order that the respondent pays the applicant the costs of this appeal.  In line with the position taken by the applicant and the Board, we make no order as to the costs between them.  As to the costs below, we consider that having regard to the 1^st Lawyers’ blunders in the 1^st EC Application and the applicant is seeking the court’s indulgence, the appropriate course is to make no order as to the costs of the Leave Summons.  The respondent should however pay the applicant the costs of the Striking Out Summons as it is devoid of merits.  

F.  Disposition

65.  For the reasons set out above, we make the following orders:

(1)  The applicant’s appeal is allowed.

(2)  The Judge’s order dated 21 February 2022 is set aside.

(3)  Leave to the applicant to continue with DCEC No 330 of 2021 notwithstanding it was not made within 24 months from the occurrence of the accident.

(4)  The respondent’ summons dated 26 July 2021 is dismissed.

(5)  The respondent pays the applicant the costs of the appeal, to be taxed if not agreed.

(6)  There is no order as to the costs of this appeal as between the applicant and the Employees Compensation Assistance Fund Board.

(7)  There is no order as to the costs of the applicant’ summons dated 21 July 2021.

(8)  The respondent pays the applicant the costs of his summons dated 26 July 2021. 

(9)  The applicant’s own costs of the applicant’s summons and the respondent’s summons be taxed in accordance with the Legal Aid Regulations, Cap. 91A.