HUI WAI CHEUNG v. YAT FAI ENGINEERING LTD AND ANOTHER

DCEC 221/2003

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

EMPLOYEES’ COMPENSATION CASE NO. 221 OF 2003

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Judgment

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1. The applicant claims against the respondent for employee’s compensation for personal injury by him in an accident on 7 March 2001, which he says arose out of and in the course of his employment with the 1^st respondent. The accident happened at a site in Tung Chau Street, Sham Shui Po. The 2^nd respondent was the main contractor.

2. The only dispute between the parties is as to whether, as the applicant pleads, he was the 1^st respondent’s employee, or whether, as the respondents plead, he was an independent contractor.

3. It is as well to refer first to the documents in this case. The parties entered into a written agreement in Chinese, dated 28 February 2001 (the “Agreement”). It is signed by the applicant and by Lee Ming, a director of the 1^st respondent. It is in the following terms:

Formwork Site Contract at Tung Chau Street

To supply labour for formwork at $80 (per square metre). There will be no compensation provided if the quotation is too low. Excluding materials. The work should be done properly. In case the site is short of workers, recruit additional formwork workers.

4. There was some dispute over the translation of part of the Agreement. In the course of evidence the applicant said that the characters translated as “excluding materials” actually meant that the formwork boards should not burst or bulge. The court interpreter agreed that the characters could be translated in this way. But it matters not because the parties agree that the applicant did not provide materials.

5. The other document which is relevant to this matter is an undated invoice on the headed paper of Cheung Fai Engineering Co. (the “Invoice”). On it is handwritten at the top “Yat Fai Company” and “Mr Lee Kung”; below that is “Formwork Worker Hui Wai Cheung” and the heading is “Tung Tau Steet Construction Site (invoice for form board”. The invoice sets out in columnar form items, descriptions and quantities to a total of $400,490 but as the applicant explained this was intended to mean 400.490 square metres. At the bottom is written a calculation “440,490 x $80 = $32,039.20” then “Prepayment:$28,000.00” and then “Changes: $4,039.20”.

6. These two documents suggest on the face of them that the applicant was working as a subcontractor; he did the job and then charged for it. But there is also a Form 2 dated 17 March 2001 by which the 2^nd respondent reported the applicant’s accident. This shows the respondent as an employee of the 1^st respondent, who worked 20 days per month and was paid a basic salary of $24,000.00 per month.

7. Lee Ming is apparently the son of one Lee Kung who used to have a construction business called Wai Hing. In brief the applicant’s case is that he used to work for Lee Kung or Wai Hing as a formworker, for $1,200 per day; and he would recruit other formworkers as required including Cheuk Kwok Sheung (“Cheuk”); but he and they were always paid daily, at the end of each working day.

8. Lee Kung asked the applicant and Cheuk to work at the 1^st respondent’s site on about 28 February 2001. After a couple of days Lee Ming asked the applicant to get more workers and also to sign the Agreement. Lee said that his father had been absent-minded about it. He told the applicant that he would let him continue with the job unless he signed. The applicant asked whether Lee Kung would protect his daily wages if he could not make ends meet at the price quoted. Lee Ming told him simply to keep on working and that he or his father would not make it difficult for him.

9. Notwithstanding the Agreement, which the applicant says is not binding on both parties, he continued to work as an employed formworker. He took his instructions from the 2^nd respondent’s foreman. In the course of the work the applicant recruited more workers. But he did not give them instructions or provide them with tools; all the tools were provided on site or brought by the workers themselves.

10. The applicant further says that all the workers were paid 1,200 per day each day, through himself. Lee Ming counted the heads and gave him the money and he passed it on. But he and Cheuk were only paid part of their wages.

11. The applicant had his accident before the end of the job. After it, he and Cheuk measured up the formwork secretly to see if they had made the equivalent of $1,200 per day. For the invoice he used a form belonging to his son’s formwork company, for convenience. He gave it to the 1^st respondent, having found that he and Cheung had only made about $1,100 per day. He pursued the 1^st respondent to settle the difference but the 1^st respondent refused; so because the amount was relatively small he did not pursue it.

12. He said that the $28,000.00 shown as pre-payment on the form had been paid over to the workers daily at the rate of $1,200 each per day. However he had never been paid the balance of $4,039.20.

13. According to Mr Lee Ming, the applicant never worked for the 1^st respondent as an employee. He was indeed introduced by Lee Kung but he signed the Agreement on 28 February and started work that day. He was responsible for his own profits and losses and had to ensure that sufficient workers were available. It was true that Mr Lee had suggested that the applicant hire more workers, and the applicant had agreed to do so; but the 1^st respondent did not have the authority to do more than suggest that the workers be hired.

14. After the accident Mr Lee reported it to a Ms Ma of the 2^nd respondent. He did not make it clear that the applicant was a sub-contractor rather than an employee; when asked he simply told Ms Ma that a formworker would make $1,200 per day. Later Ms Ma told him that she required the applicant to give details of his earnings over the previous year; he told this to the applicant; and the applicant wrote out a list of his previous earnings, which Mr Lee received and passed on to Ms Ma. 

15. Between 10 and 13 March 2001 the 1^st respondent received the invoice. It paid $28,000.00 as a lump sum and retained the balance because work was not finished, but the balance had later been paid.

16. Mr Lee also said that the applicant’s workers had never been registered by the 1^st respondent for Mandatory Provident Fund payments. He produced records of workers who had been so registered; but he said that the 1^st respondent did not directly employ any formworkers.

17. According to Ms Ma of the 2^nd respondent, Mr Lee had told her about the accident and she had compiled the Form 2. Mr Lee had not been clear about the relationship between the applicant and the 1^st respondent, so she thought he was an employee. She asked Mr Lee what a formworker would earn and he had told her it was $1,100.00 or $1,200.00 per day. There was also discussion of how many days a month such a person would work and he had told her that it would not be as much as 26 days a month; so the figure of 20 days had been used; she could not remember who gave it.

18. Ms Ma says that it was only some time later that Mr Lee told her, while he was at the 2^nd respondent’s office for some other reason, that the applicant was a sub-contractor. After the insurance company had been told of this and had returned the copy of the Form 2 which had been sent to it, she wrote to Labour Department on 20 April 2001 asking for directions.

19. There was also evidence from the 2^nd respondent’s foreman about how the work was done. He said that he marked out the lines and then the applicant would nail the boards for the formwork. He did not tell the applicant, or the workers the applicant brought in, how to do the work or that it should be done faster. He was told by the 1^st respondent that the applicant was a subcontractor; he could not remember when he was told this, but thought it was before the work started.

20. There are obvious difficulties with the evidence on both sides. The applicant says that he was an ordinary employee, on a daily wage of $1,200.00 but he signed the Agreement and he made up the invoice and presented it, just as if he were a sub- contractor. Neither he nor his men were registered with the 1^st respondent for the latter’s Mandatory Provident Fund, though he says that this was a matter of agreement between him and the 1^st respondent; it suited both of them that neither the workers nor the 1^st respondent should make the contributions. He could not sensibly explain why, if what he wanted was his own and Cheuk’s wages of $1,200.00 per day, or some kind of shortfall of the wages, he did not simply ask for a lump sum to cover that rather than going through the procedure of presenting an invoice.

21. The applicant also made various admissions under cross-examination, in particular that he knew that the effect of the Agreement was that he could make a profit or a loss on the work. He knew that, although he wanted a guarantee of making $1,200.00 per day for himself, the 1^st respondent would not guarantee it. On the measurements he had made less than that; and that was why he had chased the 1^st respondent to make up the balance.

22. On the other hand, Mr Lee cannot sensibly explain why, in the first instance when he reported the accident, he did not simply tell Ms Ma that the applicant was a sub-contractor. He had plenty of experience and well knew the difference. Nor did he explain why he assisted in getting the applicant to produce a record of his earnings in the previous year. Although he insisted that he had paid the sums of $28,000.00 and $4,039.20, and had not paid anything daily, there is simply no record of these payments; and one would have thought it easy enough to produce such a record.

23. I accept the applicant’s evidence that he had previously worked for various employers, including Lee Kung and/or his company as an employed formworker, and that where necessary he recruited other workers for his employer, for there is nothing to contradict this evidence. It would make sense that Lee Kung introduced him to the work with the respondent; and indeed it seems that he thinks, because Lee Kung is the father of Lee Ming, that the respondent is Lee Kung’s business. On balance I prefer the applicant’s evidence that he worked for a couple of days before being asked to sign the Agreement.

24. There is no dispute that the respondent asked the applicant to set on more workers to finish the job more quickly, although Lee Ming says that this was a mere suggestion. I prefer the applicant’s evidence that the respondent agreed to pay and did pay for the extra workers, and that they were paid daily, because it is unlikely that a man who normally made his living as an employed formworker would have the money available to pay the daily wages of other persons he brought in to assist with the work and because the respondent has been unable to produce any documentary evidence that the payment of $28,000.00 was made in a lump sum. One would have thought that if it had it would be very easy for the respondent to produce the cheque. The same applies of course to the payment of the balance, which the applicant says he has not received; if he was paid it, where is the cheque?

25. The leading Hong Kong authority on the question of whether a worker is an employee or a sub-contractor is Lee Ting Sang v Chung Chi Keung 1990 2 AC 374. In that case the Privy Council accepted that the matter had “never been better put” than by Cooke J in Market Investigations Ltd v Minister of Social Security 1969 2 QB 173, 184-185 where he said:

The fundamental test to be applied is this: 'Is the person who has engaged himself to perform these services performing them as a person in business on his own account?' If the answer to that question is 'yes', then, the contract is a contract for service. If the answer is 'no', then, the contract is a contract of service. No exhaustive list has been compiled and, perhaps, no exhaustive list can be compiled of the considerations which are relevant in determining that question, nor can strict rules be laid down as to the relative weight which the various considerations should carry in particular cases. The most that can be said is that control will no doubt always have to be considered although it can no longer be regarded as the sole determining factor; and that factors which may be of importance are such matters as whether the man performing the services provides his own equipment, whether he hires his own helpers, what degree of financial risk he takes, what degree of responsibility for investment and management he has, and whether and how far he has an opportunity of profiting from sound management in the performance of his task.

26. The applicant relies in particular on the English case of Young & Woods Ltd. v West [1980] IRLR 201. This was a case in which a company, and a craftsman who worked for it, had agreed that he should be treated as self-employed for tax purposes. When dismissed he complained of unfair dismissal. The Court of Appeal held that lower tribunals had correctly concluded that he was employed under a contract of service. It was held that, applying the test in Market Investigations Ltd. the true legal relationship of the parties was not that of a self-employed agent working independently of the company. Ackner LJ said that it was

“well settled that the label which the parties choose to use to describe their relationship cannot alter or decide their true relationship; but, in deciding what that relationship is, the expression by them of their true intention is relevant but not conclusive.”.

27. The court distinguished the case of Massey v Crown Life Insurance Co. [1978] IRLR 31, a case in which an insurance company’s manager entered into an agreement with the company to become an independent commission agent. In that case Lord Denning MR said that

“…if the parties’ relationship is ambiguous and is capable of being one or the other, then the parties can remove that ambiguity by the very agreement itself which they make with one another…”

but in Young & Woods Ltd. the view was that there was no ambiguity.

28. Here it is argued that the relationship, which commenced as that of employer and employee continued to be so in spite of the terms of the Agreement. If it did change when the parties signed the Agreement, once it was agreed that more workers would be set on and the respondent would pay for them, the parties resiled from it; as they could, following Young & Woods Ltd.

29. On the face of it the Agreement is a contract for services rather than a contract of service. When the parties entered into it their relationship changed. If the applicant is to succeed he will have to show that it was a matter of labelling and that the true relationship did not change but was that of employer and employee all along. But this is not a case like those referred to, where there was some ulterior motive such as the incidence of tax which might have made it necessary for a particular label to be employed. I accept that no one was paying Mandatory Provident Fund contributions, whether as employer or employee but I have heard no evidence to suggest that this was the reason behind the Agreement.

30. Now no doubt, if the applicant had met with his accident before he signed the Agreement, there would have been no question that he was an employee and no dispute that compensation was payable. It is also true that after the accident, Mr Lee Ming at any rate must have thought that the applicant was an employee because that was in effect what he told the 2^nd respondent. If he had thought that the applicant was self-employed, he could have said so.

31. It is also no doubt true that many of the indiciae of the employer-employee relationship, referred to in Market Investigations Ltd. did not change after the signing of the Agreement. What control there was – and there did not need to be much, if any – remained the same. There was no change in the provision of equipment or the hiring of helpers; as before the applicant recruited them and the 1^st respondent paid for them. But there was a definite change in the financial risk. Once the applicant undertook to nail the formwork boards at $80.00 per square metre, it was up to him to make a profit or a loss on it. He wanted, it is true, to have a guaranteed minimum profit, i.e. his own $1,200.00 per day. I doubt that a vague assurance that the 1^st respondent would not make things difficult for him would amount to such a guarantee but even if it did, it would only fix a minimum figure for the loss and not a maximum for the profit. In any event the applicant agreed that the 1^st respondent would not guarantee the minimum he sought; he said in cross-examination that that was why he had to make the measurements, which showed that he was to get less than his daily wage of $1,200.00. Ultimately, however, as the applicant said in re-examination, when he signed the Agreement he was looking for profit; as he said, “I wished to earn more than my own wages”.

32. Ultimately I cannot see that the Agreement was a mere matter of labelling. The applicant agreed to take a sub-contract, which he hoped would give him a profit overall. The relationship changed. Nothing changed it back to what it was originally.

33. The result is that, unfortunately for the applicant, his claim fails, and is dismissed with costs to the respondents to be taxed if not agreed, with certificate for counsel.