EVERBEST PORT SERVICES LTD v. EMPLOYEES' COMPENSATION ASSISTANCE FUND BOARD

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JUDGMENT

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1.  By seven final notices (“the Final Notices”) issued by Employees’ Compensation Assistance Fund Board (“the Fund Board”), the Plaintiff (“Everbest”) is required to pay a total sum of $21,315,000.00 by way of surcharge. This is the hearing of Everbest’s appeal against the Final Notices.

Procedural Housekeeping

2.  By an originating summons taken out on 21^st October 2014, Everbest seeks to challenge the Final Notices on two grounds. Ten days before the commencement of this hearing, Everbest took out a summons and sought leave to amend the originating summons and introduce an additional ground. Understandably, the Fund Board opposed the application. Given that the parties were fully prepared to argue the additional ground, I admitted the amendment de bene esse and allowed the appeal to proceed as if leave had been granted.

The Grounds of Appeal

3.  The three grounds of appeal (including the additional ground, which is the 1^st ground below) are:

(1) The Final Notices, being served outside the time limit of 30 days prescribed under s. 36A(6)(b)(ii) of the Employees Compensation Assistance Ordinance, Cap.365 (“the EC Assistance Ordinance”), are null and void and ought to be so declared and set aside;

(2) On a proper construction of section 36A(2) of the EC Assistance Ordinance, no surcharge can be levied by the Fund Board against Everbest as no levy is payable to it at all;

(3) The Fund Board is not entitled to demand more than one surcharge within a period of 12 months since the insurance policy upon which surcharges are calculated is for a period of 12 months.

Background

4.  The background facts are fairly straightforward and not in dispute. Everbest is a major port service provider at Kwai Chung Containers Terminal. It business involves the employment of workers doing risky works such as loading and unloading of containers and crane operation at a height. Such business is considered by insurers to be within the high-risk groups. By reason of the high risks involved, high premiums are usually charged by insurance companies for providing employees’ compensation insurance (“EC Insurance”).

5.  Everbest’s previous insurer terminated its policy on 4^th July 2011. As a result, Everbest operated without any EC Insurance during the period from 5^th July 2011 to 13^th August 2012 (“the Uninsured Period”). After operating without insurance for over 13 months, Everbest eventually obtained a new insurance policy from China Taiping Insurance (HK) Co. Ltd., which took effect on 14^th August 2012 (“the New Policy”). The annual premium payable under the New Policy amounted to $17,500,00.00. The high premium, which reflected the risky nature of Everbest’s operation, was also attributable to the fact that Everbest expanded its operation significantly and employed more employees during the Uninsured Period.

6.  During the Uninsured Period, a number of employees of Everbest were injured in the course of their work. As a result, 8 summonses were issued against Everbest for contraventions of s.40 (1) of the of the Employees’ Compensation Ordinance, Cap.282 (“the EC Ordinance”). Everbest pleaded guilty to all of the summonses and was convicted and fined. For such contraventions, the Fund Board issued 7 demand notes on 21^st March 2014 for the first 7 convictions and a further demand notice on 24^th October 2014 for the eighth and last conviction. The first 7 demand notices (“the Demand Notices”) have led to this appeal. A short summary of the relevant demand notices served in respect of the 8 convictions is as follows:

Ref no.	Demand Notice	Final Notice	No. of employees Involved
TWS 18087/2011/SUR/6/8970	2014-3-21	2014-9-22	5
TWS 18088/2011/SUR/6/8976	2014-3-21	2014-9-22	5
TWS 6365/2012/ SUR/6/9235	2014-3-21	2014-9-22	1
TWS 6370/2012/SUR/6/9221	2014-3-21	2014-9-22	5
TWS 15343/2012/SUR/6/9578	2014-3-21	2014-9-22	1
TWS 15346/2012/SUR/6/9579	2014-3-21	2014-9-22	5
TWS 15347/2012/SUR/6/9580	2014-3-21	2014-9-22	5
TWS 12659/2013	2014-10-24	N/A	1

7.  The eighth and last demand notice, which was issued after the commencement of the present appeal, does not form part of this appeal and is held in abeyance.

8.  For each of the Demand Notices, Everbest is required to pay a surcharge of $3,045,000, being three times of $1,015,000, which is 5.8% of the premium payable under the New Policy. For all the Demand Notices, Everbest is required to pay $21,315,000.

9.  On 23^rd April 2014, Everbest served a review notice on the Fund Board (“the Review Notice”). The Review Notice was served late in that it was served outside the prescribed 14-day period, in breach of s.36A(6)(a)(ii) of the EC Assistance Ordinance. The Fund Board did not take issue with the delay and considered the request for review. After considering the grounds stated in the Review Notice, the Fund Board by the Final Notices, which were served on Everbest on 25^th September 2014, confirmed and upheld the Demand Notices.

The Surcharge Scheme – An Overview

10.  Before I deal with the grounds of appeal, I shall give an overview of the statutory scheme.

11.  To begin with, an employer is required to ensure that there is in force a policy of insurance in respect of his liability to his employee: s.40 (1) of the EC Ordinance.

12.  Under s.14 (1) of the Employees’ Compensation Insurance Levies Ordinance, Cap.411 (“the EC Levies Ordinance”), a levy, known as the Employees’ Compensation Insurance Levy (“the Levy”), is payable on each premium payable by an insured in respect of any insurance policy issued by an insurer.

13.  The Levy, payable by the insured (employer), is to be collected by the insurer and paid to the Employees’ Compensation Insurance Levies Management Board (“the Management Board”), a separate statutory body established under the EC Levies Ordinance.

14.  The net resources of the Management Board are to be distributed to other statutory bodies including the Occupational Safety and Health Council and the Fund Board (Schedule 2, the EC Levies Ordinance).

15.  An employer who contravenes s.40 (1) of the EC Ordinance commits an offence and is liable to pay a surcharge (“the Surcharge”) to the Fund Board: s.36A of the Employees Compensation Assistance Ordinance, Cap.365 (“the EC Assistance Ordinance”).

16.  At the center of this appeal is s. 36A of EC Assistance Ordinance, which provides as follows:

“(1) An employer who contravenes section 40(1) of the Employees' Compensation Ordinance (Cap 282) shall be liable to pay a surcharge to the Board in accordance with this section.

(2) Subject to subsections (3) and (4), the amount of surcharge payable by an employer under subsection (1) shall be 3 times the levy payable to the Board under the Employees' Compensation Insurance Levies Ordinance (Cap 411) on the premium paid in respect of the policy of insurance obtained to cause the cessation of the contravention referred to in that subsection to which the surcharge relates.

(3) Subject to subsection (4), the amount of surcharge payable by an employer under subsection (1) shall be the prescribed surcharge where-

(a) the employer fails to comply with a requirement under subsection (5) in any case where paragraph (b) is not applicable and the Board is otherwise unable to obtain the information and particulars necessary for subsection (2) to apply in the case of the employer; or

(b) the employer is not required to comply with section 40(1) of the Employees' Compensation Ordinance (Cap 282) to cause the cessation of the contravention referred to in that subsection to which the surcharge relates.

(4) Where-

(a) an employer has contravened section 40(1) of the Employees' Compensation Ordinance (Cap 282) ("first contravention");

(b) a notice in writing under subsection (6)(a) has been served on the employer in respect of the first contravention; and

(c) the employer has, not later than 24 months after the date on which that notice was so served, again contravened section 40(1) of that Ordinance ("second contravention"),

then, in the case of the second contravention, the amount of surcharge payable by the employer under subsection (1) by virtue of subsection (2) or (3) shall be multiplied by a factor of 2.

(5) The Board may serve a notice in writing on an employer or insurer requiring the employer or insurer, as the case may be, to furnish information and particulars-

(a) which enables the Board to determine, to its satisfaction, the amount of surcharge payable by the employer under subsection (1); and

(b) within the period specified in the notice, being a period reasonable in all the circumstances of the case.

(6) Where a surcharge is payable under this section by an employer-

(a) the Board shall serve a notice in writing ("demand notice") on the employer, accompanied by a copy of this section in the Chinese and English languages, advising the employer-

(i) of the surcharge, its amount, the grounds therefor and the period, being a period of not less than 30 days after the date of service of the demand notice, within which the employer shall pay the surcharge to the Board; and

(ii) that the employer may, not later than 14 days after the date of service of the demand notice, serve a notice in writing ("review notice") on the Board requesting the Board to review, on the grounds specified in the review notice, the amount of the surcharge or the grounds therefor or both;

(b) the Board shall carry out a review requested in a review notice and serve a notice in writing ("final notice") on the employer-

(i) advising the employer that the demand notice is-

(A) confirmed;

(B) varied in the manner specified in the final notice and for the reasons stated therein; or

(C) withdrawn; and

(ii) not later than 30 days after receipt of the review notice.

(7) An employer who is not satisfied with a determination of the Board as specified in a final notice under subsection (6)(b) may appeal against the determination to the District Court not later than 30 days after the final notice is served on the employer.

(8) The District Court may in a particular case extend the period specified in subsection (7) where it thinks fit to do so.

(9) On an appeal under subsection (7), the District Court may-

(a) by order confirm, vary or cancel the determination of the Board as specified in the final notice the subject of the appeal;

(b) make such order as to costs as it thinks fit.

(10)     A surcharge under this section shall be recoverable as a civil debt due to the Board.”

Ground (1): final notices null and void and have no legal effect

17.  The Final Notices were not served within the 30 day period prescribed by s.36A(6)(b)(ii) of the EC Assistance Ordinance. There was a delay of some 4 months[1]. By reason of such delay, Everbest submits that the Final Notices are null and void.

18.  Mr. Simon Lam, leading Ms. Wendy Yeung for Everbest, submits that the Final Notices are null and void because, upon a true construction of s. 36A(6)(b)(ii) of EC Assistance Ordinance, the Fund Board has been deprived of jurisdiction to issue any final notice by reason of its having failed to substantially complied with the 30-day time limit.[2].

19.  Before I deal the substantive merits of Ground (1), I shall make it clear that the ground is not one that can be taken in the present appeal.

20.  The present appeal is a statutory appeal brought pursuant to s. 36A(7) of the EC Assistance Ordinance, which is by definition against “determination of [the Fund Board] as specified in a final notice under subsection (6)(b)”. It is the determination in the Final Notices, not the Final Notices themselves, which is subject to scrutiny by this court. An appeal against the determination specified in a final notice is quite different from a challenge against the power of the Fund Board to issue a final notice in the first place. If there is no valid final notice issued by the Fund Board at all, there is no question of any appeal against a determination specified in a final notice. In other words, the existence of a valid final notice is the pre-condition of an appeal. Everbest simply cannot appeal under s. 36A(7) of the EC Assistance Ordinance if it does not accept that the Final Notices are validly issued. By inviting this court to make a declaration that the Final Notices are null and void and liable to be set aside, Everbest is in effect trying to invoke the supervisory jurisdiction of the Court of First Instance under s. 21K of the High Court Ordinance (Cap.4).

21.  In Oriental Daily Publisher Ltd. v Commissioner for Television and Entertainment Licensing Authority [1998] 4 HKC 525, the Obscene Articles Tribunal determined that two sets of photos of semi-naked women published by the appellant were obscene. The appellant appealed unsuccessfully to the Court of First Instance and then to the Court of Appeal, on the grounds that the Tribunal had failed to give adequate reasons for its decision. The matter finally reached the Court of Final Appeal. One of the issues in the final appeal was whether the statutory right of appeal under s. 30(1) of the Control of Obscene and Indecent Articles Ordinance (Cap.390) was limited to the points of law decided by the presiding magistrate or whether the right of appeal encompassed juridical appeal grounds including that of Wednesbury unreasonableness. In delivering the leading judgment of the Court of Final Appeal, Li CJ said (at pp.518G to 519H):

“Relief

I turn to the question of relief.

The challenge to the Tribunal has been made by way of the statutory right of appeal. This is provided for in s 30(1) in these terms:

Any party to any proceedings before a Tribunal may appeal to the Court of First Instance against a decision of that Tribunal on a point of law by giving notice of appeal in writing setting out the grounds of that appeal to the Registrar within 14 days of that decision.

Section 31(a) provides that in case of any such appeal:

the Court of First Instance may confirm the decision of the Tribunal or may order it to re-hear or re-open the proceedings to be determined in accordance with the point of law decided by it.

The question is as to the scope of the statutory right of appeal under s 30(1) on a point of law. Section 7(3) provides that any point of law arising during any proceedings before a Tribunal shall be determined by the presiding magistrate who is obliged to give reasons. Is the statutory right of appeal on points of law limited to the points of law decided by the presiding magistrate under s 7(3) or does it encompass judicial review grounds including that of Wednesbury unreasonableness?

The question is one of statutory construction. In my view, it is limited to the former. Construing s 30(1) in the context of the statute as a whole and s 7(3) in particular, the words ‘against a decision of that Tribunal on a point of law’ refer to the point of law decided by the presiding magistrate under s 7(3). The point of law may be raised for his decision by any party or the presiding magistrate himself or the Tribunal as a whole.

The construction I have come to derives some support from s 31(a). The court may either confirm the decision or order the Tribunal to re-hear or re-open the proceedings to be determined in accordance with the point of law decided by the court. It is significant that quashing the decision, a remedy available on judicial review, is not provided for. This indicates that the statutory right of appeal does not encompass all judicial review grounds.

It is of interest to contrast the provision here with the relevant provision for the Labour Tribunal and the Small Claims Tribunal. In relation to the former, any dissatisfied party may apply to the Court of First Instance for leave to appeal on the ground that the decision is erroneous in point of law or outside the jurisdiction of the Tribunal. See s 32 of the Labour Tribunal Ordinance (Cap 25). In relation to the latter, any party who is aggrieved by a decision of the Tribunal on any ground involving a question of law alone or on the ground that the claim was outside the jurisdiction of the Tribunal may apply to the Court of First Instance for leave to appeal. See s 28 of the Small Claims Tribunal Ordinance (Cap 338). These provisions are wider than the provision in the Ordinance providing for appeal against the tribunal’s decision on a point of law.

It follows from my conclusion on construction that the challenge to the courts on the ground that the Tribunal failed to discharge its duty to give reasons should have proceeded by way of judicial review. It is the courts’ supervisory jurisdiction on judicial review that should have been invoked for which there are procedural requirements such as the obtaining of leave; not its appellate jurisdiction provided for in the Ordinance having regard to its limited scope.

     The challenge was therefore strictly defective. But Mr Andrew Bruce for the respondent fairly accepted that we can treat the matter as if it had proceeded on judicial review. In the exceptional circumstances of this case and that all materials and arguments were before the courts, I am prepared to do so.”

22.  Litton PJ also gave a short judgment on the issue. At pp.520C-521B of the judgment, it is said:

“I agree with the Chief Justice’s judgment and would simply add a few words to his comments concerning the relief sought by the appellant in this case.

The originating process to challenge the tribunal’s decisions was a notice of appeal under s 30(1) of the Control of Obscene and Indecent Articles Ordinance (Cap 390). As the Chief Justice has observed, under that section the aggrieved party’s right to appeal is limited to an appeal against the tribunal’s decision on a point of law; and the court’s jurisdiction in giving relief under s 31(a) is limited to ordering the Tribunal to re-hear or re-open the proceedings to be determined in accordance with the point of law decided by the Court. An appeal on a point of law under s 30(1) is a far cry from proceedings for judicial review under O 53 of the Rules of the High Court. And yet we see in the notice of appeal lodged on behalf of the appellant the grounds as follows:

(1) The decisions of the Tribunal are Wednesbury unreasonable.

(2) …

(3) Tribunal has failed to give any reasons of the decisions. The Tribunal has only reproduced the statutory formulae.

The appellant asked for an order that the determinations of the Tribunal ‘be set aside’.

Ground (1), in short-hand form, invoked the principles in administrative law embodied in the well known case of Associated Provincial Picture Houses v Wednesbury Corporation [1948] 1 KB 223: If successful it would result in the decision being quashed by the exercise of the court’s supervisory jurisdiction under s 21K(1)(a) of the High Court Ordinance (Cap 4). For the proceedings to be properly instituted, leave must be obtained under O 53 r 3(1) of the High Court Rules. No such leave was sought or given in this case.

Ground (3) of the notice of appeal is likewise an attack on the tribunal’s decision-making process; it is not a challenge to the tribunal’s decision on a point of law.

In short, the appellant was seeking administrative law relief without instituting proceedings under O 53; there never was a competent appeal under s 30(1) of the Control of Obscene and Indecent Articles Ordinance on foot before the judge. This procedural defect - going to the jurisdiction of the courts to grant relief - was not adverted to in the courts below. But for the respondent’s agreement, given at the hearing before us, that the matter should be treated as if it had proceeded on judicial review, our own jurisdiction to grant relief would have been severely compromised.

     This case illustrates, yet once again, the importance of parties paying close regard to procedural rules for the institution of legal proceedings.”

23.  On the authority of Oriental Daily, it is my view that it is not open to Everbest to challenge the validity of the Final Notices in this appeal. As noted by Litton PJ, Everbest is seeking an administrative law relief without properly instituting proceedings in the Court of First Instance under O.53 of the Rules of the High Court.

24.  For completeness and in case I am wrong in reading and applying Oriental Daily, I shall consider the merits of Ground (1).

25.  The EC Assistance ordinance does not provide for the consequences for the lateness in the issuance of a final notice. It is therefore necessary to look at the general principles.

26.  As explained by Keith JA in Au Kwok Hung v The Appeal Panel Appointed under s. 7A(1) of the Housing Ordinance [2001] 1 HKLRD 169, there are two approaches: the “conventional” approach and “modern” approach. The former requires a determination on whether the relevant stipulation as to time is imperative (or mandatory) or merely directory. If the stipulation is imperative, the failure to comply with it will normally be regarded as incapable of being remedied. But if the stipulation is merely directory, the failure to comply with it will usually be regarded as something which is capable of being ignored.  

27.  The conventional approach has been criticized for being too rigid and relying too heavily on labels. It is now settled that the conventional approach should no longer be followed and the modern approach, which focuses on the intention of the legislature, is to be preferred.

28.  The rationale for the modern approach was explained in Nina Wang v. The Commissioner of Inland Revenue [1994] 1 WLR 1286, an appeal to the Privy Council from Hong Kong. In Nina Wang, the issue was whether the Commissioner’s failure to determine an objection within a reasonable time would have the effect of rendering an assessment of tax invalid. Lord Slynn said (at p.1295H-1297H): 

“In London & Clydeside Estates Ltd. v. Aberdeen District Council [1980] 1 W.L.R. 182 Lord Hailsham of St. Marylebone L.C., having stressed that statutory requirements can be of many different kinds with different degrees of obligation and different results flowing from a failure to comply with the obligation, concluded, at p. 190:

“In such cases, though language like ‘mandatory,’ ‘directory,’ ‘void,’ ‘voidable,’ ‘nullity’ and so forth may be helpful in argument, it may be misleading in effect if relied on to show that the courts, in deciding the consequences of a defect in the exercise of power, are necessarily bound to fit the facts of a particular case and a developing chain of events into rigid legal categories or to stretch or cramp them on a bed of Procrustes invented by lawyers for the purposes of convenient exposition. As I have said, the case does not really arise here, since we are in the presence of total non-compliance with a requirement which I have held to be mandatory. Nevertheless I do not wish to be understood in the field of administrative law and in the domain where the courts apply a supervisory jurisdiction over the acts of subordinate authority purporting to exercise statutory powers, to encourage the use of rigid legal classifications. The jurisdiction is inherently discretionary and the court is frequently in the presence of differences of degree which merge almost imperceptibly into differences of kind.”

Having reviewed the authorities cited by the taxpayer in this appeal, not all of which are referred to in this opinion, their Lordships consider that when a question like the present one arises - an alleged failure to comply with a time provision - it is simpler and better to avoid these two words “mandatory” and “directory” and to ask two questions. The first is whether the legislature intended the person making the determination to comply with the time provision, whether a fixed time or a reasonable time. Secondly, if so, did the legislature intend that a failure to comply with such a time provision would deprive the decision maker of jurisdiction and render any decision which he purported to make null and void?

In the present case the legislature did intend that the commissioner should make his determination within a reasonable time. At the same time it is no less plain that the legislation imposed on the Inland Revenue authorities, including the commissioner, the duty of assessing and collecting profits tax from “every person carrying on a trade, profession or business in Hong Kong:” section 14. If the commissioner failed to act within a reasonable time he could be compelled to act by an order of mandamus. It does not follow that his jurisdiction to make a determination disappears the moment a reasonable time has elapsed. If the court establishes the time by which a reasonable time is to be taken as having expired, which will depend on all the circumstances, including factors affecting not only the taxpayer but also the Inland Revenue, it would be surprising if the result was that the commissioner had jurisdiction to make the determination just before but not just after that time. Their Lordships do not consider that that is the effect of a failure to comply with the obligation to act within a reasonable time in the present legislation. Such a result would not only deprive the government of revenue, it would also be unfair to other taxpayers who need to shoulder the burden of government expenditure; the alternative result (that the commissioner continues to have jurisdiction) does not necessarily involve any real prejudice for the taxpayer in question by reason of the delay.

     Their Lordships accordingly consider that in the context of this legislation a failure to act within a reasonable time (had it occurred) would not have deprived the commissioner of jurisdiction or made any determination by him null and void.”

29.  In the House of Lords case of R v Soneji [2006] 1 AC 340, Lord Steyn, after reciting the dictum of Lord Hailsham, said (at pp.352C-353F):

“19 Apart from these three cases which applied Lord Hailsham's dictum, it is to be noted that the Court of Appeal has adopted the same approach on a number of occasions: R v Kensington and Chelsea Royal London Borough Council, Ex p Hammell [1989] QB 518; Crédit Suisse v Allerdale Borough Council [1997] QB 306; R v Secretary of State for the Home Department, Ex p Jeyeanthan [2000] 1 WLR 354.

20 Moreover, in the courts of New Zealand, Australia and Canada parallel developments took place. In New Zealand Institute of Agricultural Science Inc v Ellesmere County [1976] 1 NZLR 630. Cooke J (subsequently Lord Cooke of Thorndon) speaking for the court said, at p 636:

"Whether non-compliance with a procedural requirement is fatal turns less on attaching a perhaps indefinite label to that requirement than on considering its place in the scheme of the Act or regulations and the degree and seriousness of the non-compliance."

This observation was subsequently cited in the Charles case in the Privy Council to which I have referred.

21 In Project Blue Sky Inc v Australian Broadcasting Authority (1998) 194 CLR 355 the Australian High Court addressed the same problem. In the joint judgment of McHugh, Gummow, Kirby and Hayne JJ the court concluded, at para 93:

"In our opinion, the Court of Appeal of New South Wales was correct in Tasker v Fullwood [1978] 1 NSWLR 20, 23–24 in criticising the continued use of the 'elusive distinction between directory and mandatory requirements' and the division of directory acts into those which have substantially complied with a statutory command and those which have not They are classifications that have outlived their usefulness because they deflect attention from the real issue which is whether an act done in breach of the legislative provision is invalid. The classification of a statutory provision as mandatory or directory records a result which has been reached on other grounds. The classification is the end of the inquiry, not the beginning. That being so, a court, determining the validity of an act done in breach of a statutory provision, may easily focus on the wrong factors if it asks itself whether compliance with the provision is mandatory or directory and, if directory, whether there has been substantial compliance with the provision. A better test for determining the issue of validity is to ask whether it was a purpose of the legislation that an act done in breach of the provision should be invalid. This has been the preferred approach of courts in this country in recent years, particularly in New South Wales. In determining the question of purpose, regard must be had to 'the language of the relevant provision and the scope and object of the whole statute."

This reasoning contains an improved analytical framework for examining such questions. In the evolution of this corner of the law in the common law world the decision in Project Blue Sky is most valuable.

22 In Canada there have been developments along similar lines. The starting point is British Columbia (Attorney General) v Canada (Attorney General); In re An Act respecting the Vancouver Island Railway [1994] 2 SCR 41. The mandatory/directory distinction was strongly criticized. For the majority Iacobucci J observed, at p 123: "courts tend to ask, simply: would it be seriously inconvenient to regard the performance of some statutory direction as an imperative?" My understanding is that seven of the Supreme Court Justices were agreed on this point, with Lamer CJ and McLachlin J dissenting. In Society Promoting Environmental Conservation v Canada (Attorney General) (2003) 228 DLR (4th) 693 this development was taken a stage further by the Federal Court of Appeal. Relying on Lord Hailsham's dictum, Evans JA gave the main judgment for the court with Strayer JA concurring in the result and reasoning on this point, at p 710, para 35:

"(iv) … the more serious the public inconvenience and injustice likely to be caused by invalidating the resulting administrative action, including the frustration of the purposes of the legislation, public expense and hardship to third parties, the less likely it is that a court will conclude that legislative intent is best implemented by a declaration of invalidity."

I regard the developments in Canada as very similar to those in New Zealand and Australia.

23 Having reviewed the issue in some detail I am in respectful agreement with the Australian High Court that the rigid mandatory and directory distinction, and its many artificial refinements, have outlived their usefulness. Instead, as held in Attorney General's Reference (No 3 of 1999), the emphasis ought to be on the consequences of non-compliance, and posing the question whether Parliament can fairly be taken to have intended total invalidity. That is how I would approach what is ultimately a question of statutory construction. In my view it follows that the approach of the Court of Appeal was incorrect.

30.  On the above authorities, it can be said that the traditional imperative (mandatory)/directory distinction has outlived their usefulness. The question to be asked in the context of this case is whether the legislature intended that the Fund Board’s failure to comply with the 30-day time limit would render the Final Notices invalid. The factors that the court will take into account in answering the question includes:

(1) The purpose of the legislation;

(2) The degree and seriousness of the non-compliance and the potential prejudice to the parties;

(3) The consequence of invalidating the action.

31.  Mr. Wong submits, which I agree (and Mr. Lam does not dispute) that the purposes of the surcharge scheme are three-fold:

(1) First, the scheme is designed for the protection of employees. That this is so is self-explanatory. One only needs to refer to the long title of the EC Ordinance, which reads:

“An Ordinance to provide for the protection of the entitlement of employees and others to compensation for employment related injury.”

(2) Secondly, the surcharge is intended to make up for the levy that the defaulting employer has evaded. The Legislative Council Brief for Employees Compensation Assistance (Amendment) Bill 2002 (EMB CR 4/4/3231/177 at §19) elaborates the relevant legislation intention as follows:

“In failing to ensure that he is covered by an EC insurance policy, an employer has in effect evaded payment of levy to the Board and created potential liability to the scheme. It is fair to require that such employer to make up for the foregone levy they would have had contributed to the Board had they complied with the requirement of the law in relation to compulsory insurance.”

(3) Thirdly, the surcharge also serves as a deterrent and punishment. S. 36A(2) of the EC Assistances provides that the surcharge shall be 3 times of the levy payable to the Management. For repeated contravention, the amount of surcharge will be further doubted: s. 36A(4). The Hansard shows (Hansard, 26^th June 2002, at pp.7948-7949, 7955, 7957-7958, and 1971) that:

(a) the amount of surcharge was specifically decided to have a deterrent effect (indeed during the legislative process there had been a proposal for a surcharge that was 10 times of the normal levy, due to concerns over whether the current level was of sufficient deterrent effect);

(b) such deterrent and punishment objectives were thought to be especially important in safeguarding the interest of the employees who work in high-risk occupations;

(c) in principle, habitual offenders should be punished more severely with higher surcharges.

32.  The purposes of the legislations are clear. To accede to the argument of Everbest that a demand for payment of surcharge issued beyond the 30-day period is null and void would mean that by a procedural default on the part of the Fund Board, Everbest would be exempted from its statutory duty to pay a levy and allowed to totally escape its liability to pay a surcharge. This would have the effect of frustrating the purposes of the surcharge scheme, to the prejudice of other law-abiding employers and the Fund Board - ultimately to the prejudice of other employees who may have to resort to payment from the fund maintained by the Fund Board.

33.  In so far as potential prejudice to Everbest is concerned, there is no suggestion that the delay has caused any prejudice to Everbest. In fact, given that Everbest had the $21,315,000.00 with it for another 4 months, it seems to me that it stood to be benefited from the delay.

34.  It is also of importance to note that the liability to pay a surcharge arises automatically upon a contravention of s. 40(1) of the EC Ordinance: s. 36A(1) of the EC Assistance Ordinance. As the Fund Board has no power to exempt a defaulting employer from its statutory liability to pay a surcharge, it would be absurd to suggest that such liability would somehow disappear or be eliminated as a result of a procedural irregularity committed by the Fund Board.  

35.  Furthermore, given that there is no time limitation in respect of the service of a demand notice, even if the Fund Board were prohibited from issuing a final notice after 30 days, there is nothing in s. 36A of EC Assistance Ordinance that prevents the Fund Board from issuing a fresh demand notice. At the end, irrespective of any non-compliance with the 30-day requirement, the liability to pay a surcharge will remain completely intact. Lex non praecipit inutilia (thelawcommandsnouselessthings), given that the Fund Board is at liberty to neutralise or nullify the effect of non-compliance, it seems to me to be rather pointless to invalidate a notice that is served outside the 30-day period.

36.  I hold that the legislature did not intend that the Fund Board’s failure to comply with the 30-day time limit would render the Final Notices invalid. Ground (1) is therefore dismissed.

Ground (2) - no surcharge is payable at all

37.  Ground (2), not easy to follow though, can be dismissed with relative ease.

38.  S. 36A(2) of the EC Assistance Ordinance provides that:

“… the amount of surcharge payable … shall be 3 times the levy payable to the Board under the Employees’ Compensation Levies Ordinance (Cap 411) …”

39.  Mr. Lam, relying on the definition of the Board in the definition section of the EC Assistance Ordinance, submits that the Board in the above-cited provision is a reference to the Fund Board. Hence, given that no levy is payable to the Fund Board, no surcharge is payable at all under s. 36A.

40.  This is a very bold submission. The effect of the submission is that no surcharge is ever payable by a defaulting employer and that the whole surcharge scheme should be scrapped.

41.  I am not quite able to follow Mr. Lam’s argument. Anyone who cares to read s. 36A(2) of the EC Assistance Ordinance can instantly tell that the Board referred to therein means “the Board under the EC Levies Ordinance”, which is the Management Board. In my view, there is no ambiguity at all. The draftsman of the legislations has clearly defined the separate roles of the Fund Board and the Management Board and sufficiently clearly distinguished a levy from a surcharge, the former being payable to and managed by the Management Board and the latter payable to the Fund Board. Whatever doubt that is left in the mind of Everbest is due to its inability to distinguish “the Fund Board” from “the Management Board”, and “levy” from “surcharge”.

42.  Ground (2) is dismissed.

Ground (3) – Number of Surcharges and Amount Payable

43.  Ground (3), as stated in the Amended Originating Summons dated 10^th August 2015, reads as follows:

“(3) In the further alternative, [the Fund Board] erred in demanding [Everbest] to pay more than one surcharge within a period of 12-month, since the policy of insurance obtained to cause the cessation of the contravention referred to in section 40(1) of the [EC Ordinance], on the basis of which [the Fund Board] calculated the afore-mentioned surcharges, was for a period of insurance of 12 months.”

44.  It puzzles me how the number of surcharges can be linked to the length of the New Policy (the policy of insurance obtained to cause the cessation of the contravention of s. 40(1) of the EC Ordinance). In my view, the number of surcharges payable is linked to just one factor, namely, the number of contraventions of s. 40(1) of the EC Ordinance. There simply does not exist any basis for the suggestion that the number of surcharges is somehow linked to the length of the New Policy.

45.  36A(1) of the EC Assistance Ordinance provides:

“An employer who contravenes section 40(1) of the Employees’ Compensation Ordinance (Cap.282) shall be liable to pay a surcharge to the Board in accordance with this section.”

46.  It is plain that contraventions can be multiple and surcharges are countable and can stack. Hence, if an employer contravenes s. 40(1) of the EC Ordinance once, he is liable for one surcharge; twice, two surcharges; thrice, three surcharges, and so forth.

47.  The question relevant to this appeal is: how many times did Everbest contravene s. 40(1) of the EC Ordinance?

48.  To answer the question it is necessary to consider what constitute a contravention of s. 40(1) of the EC Ordinance. Sections 40(1) and (2) of the EC Ordinance read:

“(1) Subject to subsections (1B) and (1C), no employer shall employ any employee 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.”

(2) An employer who contravenes subsection (1) commits an offence and is liable …”

49.  A contravention of s. 40 (1) is constituted by: (a) the employment of an employee; (b) absence of a valid policy of insurance.  It should be noted that the conditions for the liability to pay a surcharge under s. 36A(1) of EC Assistance Ordinance are identical to the conditions for criminal liability under s. 40(2) of the EC Ordinance. Hence, if an employer employs an employee without a valid policy of insurance, he is liable to pay a surcharge and be prosecuted.

50.  In this case, there were 7 convictions (not including the eighth and last one which does not form part of this appeal). Mr. Lam submits that the Fund Board should not have automatically treated the 7 convictions as 7 contraventions for the purpose of demanding surcharges under s. 36A(1) of the EC Assistance Ordinance. This is because, to quote Mr. Lam:

“[The Fund Board] is therefore apparently equating “contravention” with “conviction”. If an employer is lucky, and got convicted only once during the period of, say, 1 year, that he failed to obtain EC insurance coverage, he is surcharged only once. If the Labour Officers were diligent, and went to the employer’s premises everyday of the year, the employer would receive 365 surcharges. Can this be the legislative intent?” [3]

51.  Given that the very same contravention that leads to a conviction will also create a liability to pay a surcharge, I cannot see how the Fund Board can be criticised for treating the 7 convictions as evidence of 7 contraventions and demanding payment of 7 surcharges. Indeed, for each conviction, there must be a contravention of s. 40(1). In this regard, the language and intention of the two ordinances is simple, clear and direct. In answering Mr. Lam’s complaint about the Labour Officer who is diligent enough to go to an employer’s place everyday, the short answer is: the employer can make he go by doing what he is required to do under the law.

52.  Everbest should consider itself lucky that only 7 surcharges were levied against it. During the Uninsured Period, Everbest expanded its operation and employed quite a number of new employees. In my view, for each additional employee Everbest employed during the Uninsured Period, there was a further contravention of s. 40(1) of EC Ordinance. Had Everbest come across a really tough Labour Officer, it probably would have seen quite a few more demand notices.

53.  Mr. Lam, relying on the case of Hodgetts v Chiltern District Council [1983] 2 AC 120, further argues that:

“In the present case, the contravention during the [Uninsured Period] should form one single period of continuous contravention for the purposes of s. 36A(1).”[4]

54.  The effect of the argument, as I understand it, is that whatever Everbest did or omitted to do during the Uninsured Period should be treated as one single contravention. Having read Hodgetts, I do not think there is anything in it that lends support to Mr. Lam’s argument. In Hodgetts, the council preferred informations against the defendants under s. 89(5) of the Town and Country Planning Act 1971 that they had “on and since” May 27, 1980 permitted curtain land and buildings to be used for purposes in contravention of an enforcement notice. The defendants argued that s. 89(5) of the 1971 Act created an offence which occurred and repeated itself during the period of default and that since the informations referred to more than one day they were bad for duplicity. Both the Crown Court and the Divisional Court accepted the argument. On appeal to the House of Lord, it was held that the informations did not contain more than one offence by merely referring to more than one day because the prohibited act, committed over a period though, constituted one single offence.

55.  Hodgetts was distinguished and not followed in Royal Borough of Kingston upon Thames v National Solus Sites Ltd. [1993] EWHC J0618-7, a case not dissimilar to the present one.  In Royal Borough, 11 informations were preferred against the defendant for contraventions of the Town and Country Planning (Control of Advertisements) Regulation 1992. The Court of Appeal was asked to decide whether there were 11 separate offences or one single continuing offence. Regulation 5(1) provided that no advertisement may be displayed without consent granted by the local planning authority or by the Secretary of State. Regulation 27 provided that “A person displaying an advertisement in contravention of [the above regulation] shall be liable…” The 11 informations were concerned with 11 different advertisements displayed on 6 different dates and on two separate hoardings. The Court of Appeal’s reading of the relevant regulations was as follows (at p.6):

“On the face of it, since each poster is quite clearly an advertisement, not merely in ordinary usage, but also within the definition of what constitute an advertisement within the regulations, the application by the respondent company to the hoarding and its display thereof was, in relation to each individual poster, the display of an advertisement. It follows that, on the ordinary wordings of the regulations, if the display of each poster was the display of an advertisement, since there was no consent, the display of each poster was a separate offence. [emphasis added]

56.  In answering the defendant’s argument there was one single continuing offence, Glidewell LJ said (at pp.8-9):

“Upon that authority [of Hodgetts] was based the submission that the display of advertising material upon these hoardings was a continuing offence over the period from the first date alleged in the information to the last date alleged in the information. In my view, the submission, with great respect to the magistrates who were persuaded by it, is not merely wrong, but, with respect, logically wrong, because the subject matter of Hodgetts v Chiltern District Council was different. That case was concerned with the question of whether, if there is one activity which is carried on in breach of an enforcement notice which is currently in force, until the date when a conviction is recorded that constitutes one offence or a series of offences day by day. It is authority for the proposition that there is only one offence, the section bringing in the continuing penalty after the conviction.

That authority might well be recognized in a different situation in relation to advertisements. Suppose that a local authority sought to argue that if an advertisement poster were displayed on a hoarding for which there was no consent on Monday and remained in place throughout the ensuing week, that there was not a continuing offence, but a series of separate offences committed on the Monday, the Tuesday, the Wednesday and so on. To such a situation the decision in Hodgetts v Chiltern District Council would clearly be relevant.

But that is not this case. What the magistrates were here concerned with was eleven different advertising posters displayed on two different hoardings on six different days. There can, in my view, no doubt that to such a concept Hodgetts v Chiltern District Council does not apply at all.”

57.  In this case, there were different contraventions on different days in respect of different employees. I share Glidewell LJ’s view that Hodgetts deals with another piece of legislation that is totally differently worded. Furthermore, an absurd result will follow if s. 36A(1) of the EC Assistance ordinance is to be construed in the way suggested by Mr. Lam.  Let’s say a giant conglomerate started a new venture and employed 1,000 new employees on different days over a period of 12 months without EC Insurance, if Mr. Lam’s argument were correct, the conglomerate would end up facing only one single criminal charge and then be exempted from all other liabilities upon payment of the prescribed surcharge of $10,000 (which is the amount payable under s. 36A(3) of the EC Assistance Ordinance) by choosing not to obtain any policy of insurance and completely ignoring the Fund Board’s request for information (s. 36A(5) of the EC Assistance Ordinance). I can hardly believe that was what legislature intended when enacting s. 36A of the EC Assistance Ordinance.

58.  Moreover, given that Everbest was, on its own plea of guilty, convicted of 7 criminal offences for 7 contraventions of s. 40(1) of the EC Ordinance, its present attempt to dispute the existence of 7 contraventions actually amounts to a collateral attack on the findings of competent criminal courts. This is nothing short of an abuse of process: Hunter v Chief Constable of the West Midlands Force [1982] AC 529.

59.  I have no hesitation in rejecting the argument that all the contraventions during the Uninsured Period should be treated as one single contravention for the purpose of s. 36A(1) of the EC Assistance Ordinance.

60.  In so far as the amount of the surcharge is concerned, Mr. Lam submits that the amount of surcharge, which depends on the amount of levy, which in turn depends on the premium paid under the New Policy, should be proportionate to the length of the New Policy. As to why it should be so, Mr. Lam says:

“If the length of coverage of the insurance policy that an employer obtained to cause the cessation of the contravention is irrelevant, as [the Fund Board] suggests, the employer may avoid paying a hefty surcharge by obtaining a policy of short duration in the first place, and then extend it to a longer period afterwards. For instance, if [the New Policy] were only for an initial duration of 3 months, the total amount of surcharge against [Everbest] would be reduced by 75%. This is absurd.”

61.  Mr. Lam gives the following illustration:

“The phrase “… the levy payable… on the premium paid in respect of the policy of insurance obtained to cause the cessation of the contravention…” should mean the amount of levy that is proportionate to the period of contravention. In other words, since [the New Policy] was for a period of 12 months, and the amount of levy for the entire 12-month period is $1,015,000, the amount of levy for the purpose of calculation of surcharge is $1,129,014 ($1,015,000 x 406/365). The amount of surcharge, for the entire period, should therefore be $3,387,024 ($1,129,014 x 3).

62.  The submission appears to me to be one that is plucked out of the air. There simply does not exist any basis for the proposition that the relevant statutory provisions contain an element of proportionality.

63.  Furthermore, there is no basis for the underlying assumption that four 3-month policies are not more expensive than a 12-month policy. Those who are subjected to the law are presumed to know the law and the consequence of a breach of the law. If an employer say for commercial reasons chooses to have a 12-month policy instead of four 3-month policies, it is taken to have preferred a surcharge calculated by reference to a 12-month policy to what four shorter policies would otherwise cost it.

64.  Accordingly, I reject the submission that the amount of surcharge should somehow be proportionate to the New Policy.

65.  For the above reasons, Ground (3) is dismissed.

66.  Before I put a full stop to this judgment I should go back to the late application for leave to introduce Ground (1). After the CJR, although the court has power to allow a late application for amendment, it would not do so unless it is for the purpose of determining the real question in controversy between the parties and unless it is necessary either for disposing fairly of the cause or matter or for saving costs. I allowed Ground (1) to be argued de bene esse so that there would not be any unnecessary delay in the disposal of this appeal. Had the late application caused any prejudice to the responding party or arisen in a different context, I probably would, following cases like Tang Kam Wah & Others v Tang Ming Yat & Another [2003] 1 HKC 532, have dismissed the application for amendment.

67.  I order that the appeal be dismissed with a costs order nisi that Everbest shall pay the costs of the Fund Board with certificate for 2 counsel.

68.  Lastly, I thank Mr. Lam and Mr. Wong and their junior counsel for their able assistance.

[1]  Everbest’s counsel argues that there was a delay of 5 months. However, as the Fund Board is given 30 days to consider the request for review, the delay should be 4 months.

[2]  §36 and §39 of Everbest’s Skeleton Arguments.

[3]  §64, EVerbest’s Skeleton Arguments.

[4]  §66(a), Everbest’s Skeleton Arguments.