AZHAR HUSSAIN v. FASTCUT SERVICES LTD AND ANOTHER

DCEC 917 / 2003

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

EMPLOYEE’S COMPENSATION CASE NO. DCEC 917 OF 2003

______________________

______________________

Reasons for Decision

1.  The Applicant claimed against his employer, the 1^st Respondent and the Principal contractor, the 2^nd Respondent, for compensation under the Employees’ Compensation Ordinance (“the Ordinance”).  Before trial, the Applicant accepted a settlement offer and there was no issue taken by parties on liability and quantum of the compensation on trial day.

2.  There were two matters between the two Respondents to be disposed of by the court, namely, an order for the 1^st Respondent to indemnify the 2^nd Respondent for compensation to be paid to the Applicant, and secondly, stay of execution of such order.

3.  Counsel for the 1^st Respondent, Miss Yu, admitted that the 1^st Respondent was liable by virtue of section 24(2) of the Ordinance to indemnify the 2^nd Respondent for the settlement amount in the sum of $299,278.03 to be paid to the Applicant. She however asked for a stay of execution of the indemnity order pending a claim by the 1^st Respondent against the 2^nd Respondent for recovery of the said sum either by way of compensation or indemnity under section 25(1)(b) of the Ordinance. It was the 1^st Respondent’s case that the 2^nd Respondent had been negligent in causing the accident to occur and it had agreed to take out insurance for workers working at the construction site in question. It was said that in the circumstances the 2^nd Respondent should be liable to pay the compensation under the Ordinance also.  Unfortunately, said Miss Yu, there was no provision within the Ordinance permitting the employer to pursue his claim in these proceedings as according to sections 25(1)(b) of the Ordinance, the employer’s claim against a third party including the principle contractor must be dealt with in separate proceedings. She submitted that in the circumstances, it would only be fair and just to grant an order to stay  execution of the indemnity order made in favour of the 2^nd Respondent. She submitted an authority in support of her application and that is Hip Hing Construction Co. Ltd., v. Wong Leung-tak and Another  [1991] 2 HKLR 345.

4.  Miss Yu further submitted that the 1^st Respondent would exercise its right under section 25(1)(b) by joining in the action already begun by the Applicant against both Respondents for damages for personal injuries under the common law. She informed the court that in that claim, pleadings had already been closed.

5.  The 2^nd Respondent opposed to the application for an order to stay. In reply, Counsel for the 2^nd Respondent, Mr. Yip, contended that the present case was not an appropriate case where a stay should be granted. In reliance on the same authority at p 348, he said that first, the right for the principal contractor to be indemnified is not defeasible by the defence of negligence or breach of statutory duty on the part of the principal contractor.  Secondly, the merit of the 1^st Respondent would be disputed and therefore it was not similar to the case of Hip Hing where the merit of the employer’s claim was not disputed (p367).

6.  Although Mr. Yip had outlined their defence to the potential claim by the 1^st Respondent in court, I find that it was still not a case in which one could say that the employer’s claim was lacking in merit. To borrow the test in making out a bona fide defence in a summary judgment (para14/4/14 Hong Kong Civil Procedure 2004):

“

On the other hand, the mere fact that the Defendant has a counterclaim does not entitle him to leave to defend. Where therefore there is clearly no defence to the Plaintiff’s claim,…. but the Defendant sets up a plausible counterclaim for an amount not less than the Plaintiff’s claim, the order should not be for leave to defend but should be for judgment for the Plaintiff on the claim with costs, with stay of execution until trial of counterclaim or pending further order.”

7.  I accept the submission of Miss Yu that the claim against the 2^nd Respondent is going to be on grounds of negligence and/or breach of statutory duty and breach of contract. The crux of the claim would be that the metal sheets causing the accident were placed at the location by the servants or agents of the 1^st Respondent.  The application for stay by the 1^st Respondent is granted in terms of its draft order put before the Court. In essence, the execution of the indemnity order be stayed and the 1^st Respondent undertook to file a claim against the 2^nd Respondent within 21 days.

8.  Mr. Yip criticised the 1^st Respondent for not having filed the claim earlier nor has it filed any affirmation in support of its application for stay. An application for stay is more than often made after judgment is granted and verbal application has been accepted in practice. In the present case, the 1^st Respondent had all along resisted the 2^nd Respondent’s saying that they should be indemnified until day of hearing, I accept that this was the reason why the claim against the 2^nd Respondent had not been made earlier as without an indemnity order, there would be no claim between the Respondents.

9.  Finally, the court is asked to deal with costs. On the 2^nd Respondent’s liability to the Applicant’s costs in the compensation proceedings, Counsel for the 1^st Respondent submitted that they were prepared to indemnify the 2^nd Respondent on costs in the application. I so order.

10.  The 2^nd Respondent also asked for its own costs in the compensation proceedings to be borne by the 1^st Respondent. It is however decided in the Hip Hing’s case that section 24 of the Ordinance does not provide for costs incurred by the principal contractor in the compensation proceedings to become part of its indemnity (pp 348 and 363).  As the Applicant was entitled to sue the principle contractor and eventually judgment had been entered against the two Respondents by consent, I find it just and fair that the two Respondent should bear its own costs up to the day before trial. I make no order as to the 2^nd Respondent’s own costs in this application.

11.  As to costs for parties to attend court for approval of the consent summons in the application, both Respondents adopted a denial position, and judgment had eventually been entered against both by consent, I accept Miss Yu’s saying that the 2^nd Respondent refused to give its consent to the draft consent summons, I also accept Mr. Yip’s saying that it was the indemnity that they could not agree so they could not give consent, as the 1^st Respondent finally conceded the indemnity, I find that the 1^st Respondent should bear the costs of the 2^nd Respondent for attending court for a last minute settlement.

12.  As to the costs for the application for an order of indemnity by the 2^nd Respondent and for stay of execution of the indemnity order by the 1^st Respondent, I find the analogy made by Clough, J.A. in the Hip Hing’s case helpful. Clough, J.A. in his judgment at p 367 says that:

“

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 counterclaim.”

13. Having said that, I note that the court must be satisfied that there was a sufficient link between the indemnity order and the potential claim as required in Selwood Ltd v. Ice Far East (HK) Ltd, HCA 4403/2001 before the 1^st Respondent can successfully establish a defence of set-off. I say I am so satisfied in the present case because the two applications were made out on the basis of same facts that the Applicant was injured in an accident arising out of and in the course of his employment with the 1^st Respondent who was a sub-contractor of the 2^nd Respondent.

14. The application for an indemnity order had been conceded by the 1^st Respondent at the hearing but not earlier, both Respondents mainly attended court for a determination on the indemnity order.  I therefore award costs of the application for the indemnity order to the 2^nd Respondent.

15. In summary, I order that

a.	the 1st Respondent do indemnify the 2nd Respondent for a sum of 229,278.03;
b.	The 1st Respondent do file a claim against the 2nd Respondent within 21 days either by joining in the Applicant’s claim for damages or by instituting separate proceedings;
c.	the indemnity order in paragraph 15(a) hereinabove be stayed until determination of the pending claim or further order and the 1st Respondent do pay interest for the said amount at half judgment rate until determination of the pending claim or payment in full as the case may be  ;
d.	on costs, I make an order nisi as follows :-
	i)	The 1st Respondent shall bear the Applicant’s costs in this application including the approval of consent summons on trial day;
	ii)	There be no order as to the 2ndRespondent’s own costs in this application up to the day before hearing,
	iii)	The 1st Respondent shall bear the 2nd Respondent’s own costs in the application for approval of consent summons on day of trial; and
	iv)	The 1st Respondent do pay the 2nd Respondent’s costs of the 2nd Respondent’s application for an order of indemnity and the 1st Respondent’s application for stay of the indemnity order.
	v)	All costs are to be taxed if not agreed, with certificate for counsel for both Respondents. The Applicant’s own costs is to be taxed in accordance with Legal Aid Regulations.