TSUI TSUN WEI v. LAI WAI MAN t/a WAI YIP ENGINEERING CO AND OTHERS

DCEC927/2004

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

EMPLOYEES’ COMPENSATION CASE NO. 927 OF 2004

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JUDGMENT

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1. In these proceedings, the Applicant (“A”) claims against the Respondents for compensation under the Employees’ Compensation Ordinance (Cap.282) (“the Ordinance”).

2. The 2^nd, 3^rd and 4^th Respondents (respectively, “R2”, “R3” and “R4”) have jointly issued a Notice of Indemnity dated 19^th November 2004 in these proceedings claiming an indemnity against the 1^st Respondent (“R1”) for A’s claim (inclusive of compensation, interest and costs) and for R2-R4’s costs in defending A’s claim pursuant to s.24(2) of the Ordinance.

The hearing on 26^th September

3. By a consent application dated 23^rd September 2005, all parties invited me to make an order in terms agreed by the parties.  As I was not satisfied with the terms of the consent application, I directed all parties to appear on 26^th September as scheduled.

5.  On 26^th September, all parties invited me to make an order in terms of the first 5 paragraphs of the consent application only.  They agree that the last paragraph is convoluted and, in any event, there cannot be any question of apportionment of the compensation amongst the Respondents in these proceedings.  They further agree that A should be entitled to the costs of the hearing on 26^th September.

6.  Parties have also informed me that there is no dispute about the respective capacity of the parties for the purpose of these proceedings.  Thus A was an employee of R1, R1 was the sub-contractor of R2, R2 was the sub-contractor of R3, and R3 was the sub-contractor of R4.

7. I therefore made the following orders on 26^th September by consent of all the parties:

(a)       Judgment be entered against all Respondents with compensation assessed and agreed in the sum of $337,040.00 (inclusive of interest).

(b)       Credit be given for the sum of $167,040.00 being advance payment already paid by R1 and received by A.

(c)       R1 to R4 do pay A the balance of the judgment sum in the sum of $170,000 within 21 days from the date of the order to be made.

(d)       R1 to R4 do pay A’s costs of this action including the costs of the hearing on 26^th September to be taxed if not agreed.

(e)       A’s own costs be taxed in accordance with Legal Aid Regulations.

8.  Insofar as the remaining issues are concerned, they relate only to the Respondents and do not concern A.  On the application of A’s solicitor and with the consent of all parties, I excused the attendance of A’s solicitor from the ensuing argument.

9. Ms. Tsang (counsel for R1) and Mr. Wan (counsel for R2-R4) have helpfully summarized the remaining issues to be as follows:

(a)       Whether the right of indemnity under s.24(2) of the Ordinance extend to the costs incurred by R2-R4 in these proceedings?

(b)       Whether there should be a stay of execution in respect of any order for indemnity made against R1 in favour of R2-R4?

(c)       The costs of the hearing on 26^th September vis-à-vis R1 and R2-R4.

Whether the right of indemnity under s.24(2) of the Ordinance extend to the costs incurred by R2-R4 in these proceedings?

10.  Ms. Tsang concedes that under s.24(2) of the Ordinance, R2-R4 is entitled to an indemnity against R1 for the agreed compensation inclusive of interest together with A’s costs in these proceedings.  However, she argues that the right of indemnity under s.24(2) of the Ordinance does not extend to R2-R4’s own costs in these proceedings.

11.  Ms. Tsang relies principally on the Court of Appeal’s judgment in Wong Leung Tak v. Hip Hing Construction Co. Ltd. [1991] 2 HKLR 345 for her submission.

12.  In Wong Leung Tak, one of the issues considered by the court was (at 353E):

“(2)(d) … does the right of indemnity under section 24(2) extend to the costs incurred by the principal contractor in the compensation proceedings?”

13. Clough, J.A. dealt with the issue as follows (at 362I-363C):

“[Counsel] for the principal contractor was not at first minded to claim that the indemnity under section 24(2) should include the costs incurred by the principal contractor in the employee's compensation proceedings. He did so only when invited to consider the matter by the court. The editor of the 9th (1926) edition of Elliott on Workmen's Compensation indicates in the notes on section 6 of the 1925 Act that the principal contractor is entitled to include, in his claim for indemnity from his sub-contractor, the costs he has reasonably incurred in the proceedings brought against him.

The decision of Darling J. in Great Northern Railway Co. v. Whitehead (1902) 18 TLR 816 is cited for this proposition. However that was a decision relating to a claim by an employer for indemnity against a negligent third party under section 6 of the 1897 Act (corresponding broadly to section 30 of the 1925 Act and section 25 of the Ordinance). The last edition of Willis does not cite the authority as applicable to section 6 of the 1925 Act, but only cites it in the notes to section 30 of that Act.

In the absence of any express provision in section 24 or of any English authority indicating that the principal contractor could claim costs incurred in the compensation proceedings as part of his indemnity under section 6 of the 1925 Act and its predecessors under the 1897 and 1906 Acts, I would not be prepared to construe section 24(2) of the Ordinance as extending the relevant indemnity to the costs incurred by the principal contractor in the employee's compensation proceedings.”

14.  The Court of Appeal revisited the same issue again in Wah Kwong Construction Material v. Wong Man Yip, CACV 54/1994 albeit in the context of s.25 of the Ordinance.

15.  On this occasion, Mortimer, J.A. has this to say about the decision of Wong Leung Tak (at paragraphs 16-20 of the judgment):

“In Wong Leung Tak the issue on indemnity under s.24(2) arose in an unusual way, as can be seen from Clough J.A.'s judgment - to which Cons V.P. and Kempster J.A. (as he then was) assented without specific reference to this point. The relevant passage appears at 3621 to 363C …

Clough J.A. recognised the persuasive authority of the English decisions on s.30 of the 1925 Act but in the absence of direct authority on s.6 of the Act - the equivalent of s.24 of the Ordinance - he was not prepared to construe that section as extending the indemnity to costs incurred, in spite of the use of the same words in both sections.

In the United Kingdom there was a huge volume of litigation over many years under the Workmen's Compensation Acts. The absence of any decisions beyond first instance on the meaning of the word "indemnity" reflects a general view that it was not arguable that indemnity did not cover costs and legal expenses. Counsel agreed that this must have been so.

Clough J.A. indicated that on the English authority cited, he would have been inclined to find that s.30 of the 1925 Act provided full indemnity. [Counsel for the employer] submits that it is inconceivable that the same words in s.6 of the English Act bear a different meaning. I agree.

Is this Court bound by its decision in Wong Leung Tak on this point? At most it is obliged to follow the earlier construction of s.24(2), but the Court's decision was expressed as by default. True Clough J.A. does not expressly reserve the point for future consideration, but he does indicate that if a principal contractor was able to claim costs under s.6 of the 1925 Act, he would have been persuaded to construe the indemnity in s.24 as also extending to costs. To this extent he left the point open for further argument. In my judgment, if Cough J.A.'s words are given their appropriate effect, it is open to this Court to reconsider the construction of s.24(2) where this falls for decision if the Court is satisfied without question that the effect of the same words in s.6 of the 1925 Act is contrary to his decision.”

16. The other members of the Court of Appeal, namely, Nazareth, J.A. and Penlington, J.A. agreed with the judgment of Mortimer, J.A..

17. Faced with the judgment in Wah Kwong Construction Material, Ms. Tsang submits that there are then 2 diverging lines of authorities and she urges me to follow Wong Leung Tak.  She further observes that Wong Leung Tak has only been recently applied by this court in Azhar Hussain v. Fastcut Services Limited, DCEC 917/2003.

18. In reply, Mr. Wan cites the recent decision of the Court of Appeal in Mak Wing Fai v. Chevalier (HK) Ltd. [1999] 3 HKC 677 and submits that it is now settled law that the right of indemnity under s.24(2) of the Ordinance extends to the costs incurred by the principal contractor in the compensation proceedings.

19.  The main judgment of the Court of Appeal in Mak Wing Fai was delivered by Mortimer V.P. and he said (at 681D-E):

“The question as to whether as part of indemnity the principal contractor was entitled to recover his costs is also, in my judgment, not an issue. The principal contractor, if sued, can recover under s.24(2), not only the compensation he pays to the applicant but also his costs. That was established by this Court in Wah Kwong Construction Material v. Wong Man-yip [1995] 1 HKLR 85 at 89. We are bound by that decision.”

20.  Godfrey, J.A. also expressed a similar view when he said (at 681E-G):

“If a principal contractor pays compensation to an applicant under the Employees' Compensation Ordinance, Cap. 282, whether as the result of an order or as a consequence of a compromise to which the applicant's employer has agreed, the principal contractor is entitled to an indemnity from the applicant's employer, covering both the sum paid by the principal contractor to the applicant and the principal contractor's costs of the application. If the principal contractor is not called on to pay such compensation, because the employer has done so himself, then the principal contractor's indemnity covers only what is left, i.e. the principal contractor's costs of the application.”

21.  To start with, I note that the decisions of Wah Kwong Construction Materialand Mak Wing Fai were not cited to the Deputy Judge in Azhar Hussain v. Fastcut Services Limited.  In my view, any doubts concerning the conflicting decisions of Wong Leung Tak and Wah Kwong Construction Materialhas been laid at rest by the Court of Appeal in Mak Wing Fai.  In any event, Mak Wing Fai is an appeal from this court in the exercise of its employees’ compensation jurisdiction and is thus binding on me.

22.  In the premises, I accept Mr. Wan’s submission that the right of indemnity under s.24(2) of the Ordinance extends to the costs incurred by the principal contractor (as defined in s.24(1) of the Ordinance) in the compensation proceedings.  As such, R2-R4 as principal contractors should also be indemnified by R1 for their costs in these proceedings, except the costs of 26^th September which will be considered below.

Whether there should be a stay of execution in respect of any order for indemnity made against R1 in favour of R2-R4?

23. In respect of the application for stay of the indemnity award under s.24 of the Ordinance, Ms. Tsang informs the court that:

(a)       On 6^th July 2005, R1 (as plaintiff) has commenced recovery action under s.25 of the Ordinance against R2-R4 in the District Court under DCCJ 3205/2005; and

(b)       On 2^nd September 2005, A has also commenced common law action for damages for personal injuries against R4 and 2 other parties in the Court of First Instance under HCPI 829/2005.

24.  She observes that R1 has a right of action under s.25(1)(b) against all tortfeasors for recovery of the compensation he is obliged to pay as a result of the accident.  The fact that R4 (but not R1) is sued in HCPI 829/2005 suggests that it is more likely than not that R4 (and not R1) is a tortfeaser.  R1 therefore has a real prospect of success in its s.25(1)(b) claim in DCCJ 3205/2005 against R2-R4.  She therefore submits that this is an appropriate case to stay the indemnity pending the determination of DCCJ 3205/2005 and HCPI 829/2005.

25. In opposing the stay sought by R1, Mr. Wan observes that A has only issued a generally indorsed writ in HCPI 829/2005 and the same has not been served on any of the defendants.  He, however, very fairly concedes that those instructing him have confirmed from a search at the High Court Registry that R4 has indeed been named as a defendant in HCPI 829/2005.  He nevertheless submits that R1’s claim under s.25(1)(b) in DCCJ 3205/2005 must necessarily depend on the finding of the court in HCPI 829/2005 as to whether R4 is a tortfeaser.  Hence, there is at present nothing for this court to assess A’s claim against R4 in HCPI 829/2005 and R1’s claim in DCCJ 3205/2005 is simply premature.

26. The question of whether the indemnity award under section 24 in favour of the principal contractor should be stayed pending the determination of the employer’sclaimunder section 25(1)(b) was also considered in Wong Leung Tak.

27.  Clough, J.A. considered the scenario thus (at 367D-E):

“The scheme of the Ordinance is to make the employer ultimately liable for the employee's compensation where the principal contractor (or some other third party) has not incurred legal liability for the injury sustained by the employee. However, where the principal contractor has incurred such liability, the effect of section 25(1) (b) is to put the ultimate liability for the compensation on the principal contractor. [Counsel for the employer] has rightly conceded that the employer's claim under section 25(1) (b) cannot be relied upon by way of defence to the principal contractor's claim for indemnity under section 24(2). The position is, in my opinion, analogous to that where a defendant in Order 14 proceedings raises a counterclaim for not less than the amount of the claim but cannot rely on it by way of set off against the claim. In such circumstances the court may give judgment on the claim with costs, with a stay of execution pending trial of the counterclaim: see the 1988 Supreme Court Practice, Vol. 1, p.145.”

28. In that case, Clough, J.A. observed that (at 367G-H):

“There was no suggestion that the employer's claim under section 25(1)(b) was not bona fide or that it was lacking in merit. Any deferment of the payment of the principal contractor's indemnity payment under section 24(2) could … be compensated for by a condition, inserted in the order directing a stay, requiring the payment of interest by the employer in respect of the indemnity sum. I would therefore favour a suitably framed order granting a stay of execution of the proposed order requiring the employer to indemnify the principal contractor under section 24(2).”

29.  In my view, there is at present not sufficient material before the court for me to assess the merit of R1’s claim against R4.  A has yet to file his statement of claim (let alone serving the writ) in HCPI 829/2005 and it is not known what cause(s) of action A will rely on against R4.  Reference must also be made to the statement of claim filed by R1 (as plaintiff) in DCCJ 3205/2005.  Although it is alleged therein that R2-R4 may be liable to A by reason of the Occupiers’ Liability Ordinance, the terms of the agreement between R1 and R2, and the fact that the ladder (from which A fell to the ground and sustained injuries,which give rise to these proceedings), it is not known whether A will adopt the any of these allegations in his common law action against R4 in HCPI 829/2005.

30.  In any event, Ms. Tsang’s submission concerning the implication of R4 in HCPI 829/2005 does not support a stay of execution insofar as R2 and R3 are concerned.

31. By reason of the above, I am not persuaded that I should exercise the discretion in favour of R2-R4 by staying the execution of the indemnity, which R2-R4 are entitled to enjoy under s.25(1)(b) of the Ordinance.

The costs of the hearing on 26^th September vis-à-vis R1 and R2-R4

32.  Lastly, concerning the costs of the hearing on 26^th September vis-à-vis R1 and R2-R4, since I have ruled against R1 in both the above issues, there is no reason why costs should not follow the event.

33.  I therefore make a costs order nisi pursuant to Order 42, rule 5B(3) of the Rules of the District Court that R1 should pay the costs of R2-R4 for the hearing on 26^th September, to be taxed if not agreed, with certificate of counsel.