LAI CHI MING MARBO v. UDL KENWORTH ENGINEERING LTD. AND ANOTHER

DCEC 644/2000

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

EMPLOYEES' COMPENSATION CASE NO. 644 OF 2000

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RULING

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1. The applicant is claiming employees' compensation against the 1st and 2nd respondents. The claim was initially brought against the 1st respondent as the employer with notice to its insurance company Tai Ping Insurance Company Limited ("Tai Ping"). By its Answer the 1st respondent denied it was the employer of the applicant but instead claimed the 2nd respondent or alternatively, the 2nd respondent's sub-contractor, to be the applicant's employer. Such a claim prompted an amendment of the Application joining the 2nd respondent as a party to these proceedings.

2. By a Summons dated 22nd March 2002 the applicant seeks to join yet another party, Tai Ping, to these proceedings.

3. The application to join Tai Ping was a result of the 1st respondent becoming insolvent and participating in a Scheme of Arrangements pursuant to section 166 of the Companies Ordinance, Cap 32. The Scheme, which had been approved by the judge in the Companies Court on 11th July 2000, bars legal proceedings against the participating companies of which the 1st respondent was one. The applicant is concerned he would not be able to obtain judgment against the 1st respondent or enforce any judgment against Tai Ping in light of the Scheme of Arrangements. The present application is made under section 44(3) contained in Part IV of the Employees' Compensation Ordinance, Cap 282 ("ECO").

4. The following are the relevant sections under Part IV of the ECO:-

"40. Compulsory insurance against employer's liability

(1) Subject to subsections (1B) and (1C), no employer shall employ any employee in any employment unless there is in force in relation to such employee a policy of insurance issued by an insurer for an amount not less than the applicable amount specified in the Fourth Schedule in respect of the liability of the employer.

(1B) & (1C) are not applicable

43. Conditions under which liability for payment by insurer arises

(1) Subject to this section, where in relation to an employee there is in force a policy of insurance issued for the purposes of this Part and the employer of the employees becomes liable to pay any sum under this Ordinance or independently of this Ordinance in respect of an injury to the employee arising out of and in the course of his employment, such sum shall forthwith become due and payable by the insurer, including any sum payable in respect of interest and costs, notwithstanding anything to the contrary in the policy of insurance.

(2) (Not applicable)

(3) If sufficient notice of the institution of proceedings for the recovery of compensation or damages is given to an insurer to enable such insurer to apply to be added as a party to the proceedings, the court or tribunal, as the case may be, shall, on such application being made, add the insurer as a party and the insurer shall have the same right to defend the proceedings as if such insurer were the employer.

44. Right of injured party to proceed against insurer

(1) Every policy of insurance issued for the purposes of this part shall be deemed to provide that any employee or other person insured in respect of the liability in regard to which such policy was issue shall be entitled to recover in his own name, as though he were a party to the policy, directly from the insurer any amount which he would have been entitled to recover from the person insured.

(2) An employee or other person having a claim against the person insured under a policy of insurance issued for the purposes of this Part shall not commence proceedings against the insurer unless he also commences or has commenced proceedings against the person insured.

(3) Notwithstanding subsection (2), where an employee or other person having a claim against the person insured has reasonable grounds to be satisfied that-

(a) (not applicable)

(b) the person insured is insolvent; or

(c) (not applicable)

he may take proceedings against the insurer without taking or having taken proceedings against the person insured."

5. Ms. Chan's application is opposed by Ms. Loh (for the 1st respondent and Tai Ping) on the ground that the 1st respondent was not an employer of the applicant and the insurance policy issued by Tai Ping for the purpose of Part IV of the ECO only covers direct and immediate employees of the 1st Respondent and not employees of its subcontractors. It is Ms. Loh's contention that the Applicant was either employed by the 2nd Respondent or by the latter's sub-contractor.

6. Ms. Cheung (for the 2nd Respondent) raised no objection for the present application.

7. Ms. Loh submitted that Part IV of the ECO only applies if the 1st Respondent was the employer of the Applicant. In the event of a dispute as to the alleged employment relationship, the Applicant must first prove the existence of such a relationship before being able to rely on the sections under Part IV of the ECO.

8. I agree with Ms. Loh to the extent that section 44(3) contained in Part IV of the ECO is applicable only if there was a direct or immediate employer employee relationship as opposed to an employment relationship deemed under section 24(1) of the ECO. At this juncture it is helpful to set out the provision of section 24(1):-

" Where any person (in this section referred to as the principal contractor), in the course of or for the purposes of his trade or business, contracts with a sub-contractor for the execution by or under the sub-contractor of the whole or any part of any work undertaken by the principal contractor, the principal contractor shall be liable to pay to an employee employed by that sub-contractor or by any other sub-contractor in the execution of the work any compensation under this Ordinance which the principal contractor would have been liable to pay if that employee had been immediately employed by him; and where compensation is claimed from or proceedings are taken against the principal contractor, then, in the application of this Ordinance, references to the principal contractor shall be substituted for references to the employer, except that the amount of any compensation calculated by reference to earnings shall be calculated by reference to the earnings of the employee under the employer by whom he is immediately employed"

9. In Siu Yin-kwan v Eastern Insurance Co. Ltd [1993] 2 HKLR 101, Kempster J.A said at pages 113 -114:-

" Section 40, it seems to me, positively requires only an employer to insure against liabilities to employees. Thus only a policy covering his liability is in force "for the purpose of this Part" and in s.43 "insurer" can only mean "the employer's insurer". Sections 43 and 44 must, I think, be read together. Again it would be strange if s.44 gave an employee a right against an insurer other than the insurer of his employer. The employee would not have been entitled to recover anything from a person insured who was neither his employer nor a principal contractor and, again, only the employer's policy would have been issued "for the purposes of this Part." "

10. In so far as Ms. Loh seeks to argue that the issue as to the existence of the alleged employment relationship must first be resolved in the Applicant's favour before Tai Ping can be joined as a party to these proceedings, I disagree.

11. In Wong Kam-fai v Yu Sai-wan and Others [1993] HKDCLR 67 the insurance company, instead of being joined, applied under section 43(3) of the ECO to be joined as a party in the compensation claim. The claim was against the employer, who was the insured in question, and the principal contractor. Default judgment on liability was entered against the insured employer and the principal contractor with compensation to be assessed. It was then the insurance company issued a summons and applied to be joined as a party pursuant to section 43(3) of the ECO. The application was allowed and the insurance company, having been made a party, filed an Answer to the applicant's claim denying the insured was an employer of the applicant. In finding that the insurance company was entitled to raise this issue but for the default judgment, Judge P. Cheung (as he was then) said at p73:

"In my view, subject to the default judgment which I shall deal with, once an insurance company is joined as a party in the proceedings, it is entitled to raise any issues concerning the applicant's case including whether the applicant is an employee or not"

12. I agree with Judge Cheung's view as to the rights of an insurance company, as party to a compensation claim, in defending the claim. Although the insurance company in Wong Kam-fai became a party pursuant to 43(3) of the ECO, in my view the rights of an insurer in defending any compensation claim are the same regardless of whether it applied to be joined as a party under section 43(3) or was made a party under section 44(3) of the ECO.

13. The authorities cited by Ms. Loh are distinguishable from the issue in this application. Woo Kin Wah v Somec [1993] 1 HKLR 300; Wong Leung Tak v Hip Hing Contruction Co. Ltd [1991] 2 HKLR 346 and B+B Construction v Sun Alliance [2001] 3 HKC 127 were cases concerned with the effect which section 24(1), under which employment relationship was deemed, have on Part IV of the ECO. Ms. Chan for the applicant is not seeking to invoke the deeming provision in section 24(1) of the ECO.

14. In cases such as Leung Chack v Asia Insurance Co Ltd [1991] 2 HKLR 496 and Leung Siu Mui v Tai Ping Insurance Co Ltd DCMP 573 of 2001, there was no dispute that the insured in question were the principal contractors so that attempt to have recourse against the insurance company under section 44 of the ECO failed.

15. In the present case, however, the status of the insured namely, the 1st respondent, vis-à-vis the applicant is disputed. In the original Form 2 the 1st respondent described itself as the applicant's employer though this admission was subsequently withdrawn in the Amended Form 2. If Tai Ping becomes a party to the applicant's claim for compensation it can, and undoubtedly will, deny liability by claiming that the 1st respondent was not the applicant's employer at the time of the accident.

16. It necessarily follows the submissions that the issue concerning the existence of employment relationship must first be resolved before Tai Ping can be made a party to these proceedings must fail.

17. For reasons above I shall grant leave to the applicant to join the 1st respondent's insurer, Tai Ping Insurance Company Limited as the 3rd respondent in these proceedings.

18. Leave shall also be granted to the applicant to further amend the Re-amended Application per the draft attached to the Summons dated 22nd March 2002, which include the amendment of the applicant's name. The Re-re-amended Application shall be filed and served on the 1st, 2nd and 3rd respondents within 7 days of this ruling.

19. The 1st respondent shall have leave to amend its Re-amended Answer and the 2nd respondent shall have leave to amend its Answer within 14 days upon the service of the Re-re-amended Application.

20. The costs of the Summons dated 22nd March 2002 to be paid by the 1st respondent and Tai Ping Insurance Company Limited in favour of the applicant and the 2nd respondent.

21. The costs order is nisi to be made absolute within 14 days of this ruling.

22. The applicant's own costs to be taxed in accordance with Legal Aid Regulations.