LO SIU WA v. EMPLOYEES COMPENSATION ASSISTANCE FUND BOARD AND ANOTHER

CACV 39/2016 AND CACV 40/2016

CACV 39/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 39 OF 2015

(ON APPEAL FROM HCA NO. 393 OF 2014)

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AND

CACV 40/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 40 OF 2016

(ON APPEAL FROM HCA NO. 799 OF 2014)

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________________________

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J U D G M E N T

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Hon Cheung JA :

I. The appeal

1.1   Part IV of the Employees’ Compensation Ordinance, Cap 282 (‘ECO’) compulsorily requires an employer to be insured for the full amount of his liability to employees for injuries by accident arising out of and in the course of their employment (section 40).  It also makes the insurer directly liable to the injured employee (section 43(1)). These provisions are clearly for the benefit of an employee.   

1.2   In an action brought by the plaintiff who is an injured employee, against the 1^st defendant, Employees Compensation Assistance Fund Board (‘the Board’) for unsatisfied judgments which he had obtained against his employer, Nuovo Design Limited (‘Nuovo’), the Board declined payment and contended that Nuovo had taken out an insurance policy (‘the Policy’) for the purpose of Part IV of the ECO with an insurer, the 2^nd defendant (‘AXA’) and that the plaintiff should sue AXA for payment.  AXA had previously declined to make payment.  The plaintiff commenced the present action against both the Board and AXA.  One of the issues decided at the trial by Deputy Judge Burrell is whether the Policy issued by AXA to Nuovo was a policy issued for the purposes of Part IV of the ECO in force at the time of the accident in relation to the plaintiff.  The Judge answered no and entered judgment against the Board.  The Board now appeals against the decision.

II.  Background of the case

2.1   The background of the case is succinctly set out by the Judge which I will respectfully adopt.

2.2    On 19 March 2007 the plaintiff was, in the course of his employment, using a circular saw doing carpentry work as part of renovations to shop premises in Tsuen Wan, New Territories.  An accident occurred which resulted in fractured fingers, severed tendons and open wounds to his hands.  Nuovo had engaged him four days earlier, on 15 March, to carry out carpentry works at the shop site.  The plaintiff was a carpenter by trade.  He had previously been regularly engaged by various employers to carry out carpentry work on numerous and various renovation projects in Hong Kong.

2.3   On this particular occasion he was being paid $800 a day but because he had only recently been engaged there was no documentation relating to his employment.  He had not worked for Nuovo before.  In a statutory declaration to the Labour Department dated 22 June 2007, Nuovo’s project manager, Mr Lee Chun Fai, explained that it was Nuovo’s practice to take on carpenters on a casual basis and, as with this plaintiff, no contract of employment was signed.  He explained that the plaintiff was treated as a self-employed person.

2.4    Nuovo’s subsequent conduct with regard to the plaintiff and his accident was extremely uncooperative.  They failed to report the accident to the Labour Department.  They failed to pay any sick leave wages (certified from 19 March 2007 to 31 May 2008).  They failed to attend or participate in the plaintiff’s employees’ compensation claim heard on 14 August 2009 (assessed at $545,488.33 plus interest).  They failed to pay the employees’ compensation award therefore, through his solicitors, the plaintiff caused Nuovo to be wound up thereby incurring further costs.  The winding‑up order was made on 16 February 2011.  Finally, the plaintiff also made a claim for common law damages under HCPI 84/2010.  On 12 April 2012, he was awarded damages in an uncontested assessment hearing in the sum of $3,552,928.67 (net of the employees’ compensation award) plus interest.

III. The Policy

1)  The five sections

3.1   The insurance policy that Nuovo had taken out with AXA is called an ‘OfficePak Insurance Policy’. The Policy is from 23 November 2006 to 22 November 2007.  It provides that :

‘ In consideration of payment of premium and subject to the Terms Conditions and Exclusions herein and of any endorsement hereon [AXA] (hereinafter called the Company) will pay the Sum Insured or part thereof to and/or indemnify the Insured in the manner and to the extent herein provided.’

3.2   The Policy consists of five sections, covering different insured risk. Section 1 is for office contents.  Section 2 is for interruption of the business.  Section 3 is for money.  Section 4 is for public liability.  Section 5 is for employees’ compensation which is the relevant section to be considered for the purpose of this appeal (‘the EC Section’).

2)  The EC Section

3.3   The operative part of the EC Section is as follows :

‘ Scope of cover

   If any Employee in the insured’s immediate employ shall sustain bodily injury or death by Accident or Disease occurring during the Period of Insurance within the Geographical Area and arising out of and in the course of his employment by the Insured in the Business

The Company will subject to Policy Limit of Indemnity and to the terms exceptions and conditions contained in or endorsed on this Section of the Policy (all of which are hereinafter collectively referred to as “the Terms of this Policy”) indemnify the Insured against his legal liability in respect of such bodily injury or death under the Ordinance and independently of the Ordinance to pay compensation and damages and claimant’s costs and expenses and also indemnify the Insured against costs and expenses incurred by or on behalf of the Insured with the Company’s written consent in connection therewith’

‘ Special Exclusions to Section 5

The Company shall not be liable in respect of:

a) the Insured’s liability to employees of contractors to the Insured;

b) --

c) --

d) --

e) the Insured’s liability to any person who is not an employee of the Insured within the meaning of the Ordinance;

f) --

g) --’

3.4   The other relevant clauses under the EC Section are as follows :

‘ Definitions

For the purposes of this Section:

a) --

b) “The Business” means the usual work and activities carried on by the Insured pertaining to his business as specified in the Schedule and no others.

c) --

d) --

e) “Employee” has the same meaning as assigned to that expression in the Ordinance.

f) --

g) --

h) --

i) --

j) “The Policy” means this OfficePak Insurance Policy the Schedule and any memoranda and endorsements contained herein or endorsed hereon which shall be read together as one document and any word or expression to which a specific meaning has been assigned shall bear such meaning throughout.

k) --

l) --

.......

Special Conditions to Section 5

Insurance Premium

a)   Prior to the commencement of the Period of Insurance, the Insured shall supply the Company with a declaration estimating the Earnings of the Employees employed in the Business during the Period of Insurance (which declaration is referred to herein as “the Estimated Earnings Declaration”) on the basis of which a deposit premium becomes payable to the Company.

b)   The Insured shall within ninety (90) days after the expiry of the Period of Insurance or upon cancellation of the Policy supply the Company with a further declaration stating the actual Earnings of Employees during the Period of Insurance (which declaration is referred to herein as “the Actual Earnings Declaration”).  If the actual Earnings shall differ from the estimated Earnings the difference in premium shall be met by a further proportionate adjustment premium to be paid to the Company or by a premium refund to the Insured as the case may be.

c)   It is hereby declared that the Premium payable by the Insured in consideration of the indemnity provided under this Section of the Policy the Company is the sum of the deposit premium and the adjustment premium calculated pursuant to paragraphs a) and b) hereof.

d)   The name Hong Kong Identity Card number class of employment and Earnings of every Employee of the Insured employed in the Business from time to time during the Period of Insurance shall be properly recorded by the Insured and retained in a safe place so that a record exists of all persons who are Employees of the Insured for the purposes of this Policy and the Insured shall at all reasonable times allow the Company to inspect and obtain copies of such records.

.......

Other Conditions

a) --

b) Changes in Risk.  The Insured shall immediately notify the Company in writing of any material change in the risk insured hereunder made by the Insured or any other person during the Period of Insurance including but not limited to:

i) --

ii) --

iii) any material change in the nature of the Business or in the number of the Insured’s Employees’

3)  General Conditions of the Policy

3.5   Clause 1 of the General Conditions of the Policy provides that :

‘ 1) The Schedule forms an integral part of the Policy and shall be read together as such Any word or expression to which a specific meaning has been attached in any part of the Policy shall bear such meaning wherever it may appear’

4)  The Schedule

3.6    The relevant parts of the Schedule provide that :

‘ Address:	Unit 9B, Lockhart Centre, 301-307 Lockhart Road, Wanchai, Hong Kong
Business:	Interior Design
Period of Insurance:		from 23rd November 2006 to 22nd November 2007 (both dates inclusive)
Risk No:	1 Officepak	Sum Insured/
		Limit of Indemnity (HK$)
Section 1	-  Contents			100,000
Section 2	-  Business Interruption			500,000
Section 3	-  Money			283,000 (total)
Section 4	-  Public Liability			2,500,000

Limit of Indemnity in respect of any one accident and any one period of insurance

 Plant and Machinery: N/A

.......

Section 5 -  Employees’ Compensation

 

		Estimated Total
Occupation	Number	Earnings HKD
Creative Director	1	325,000
Creative Director (Overseas) 1	260,000
Designer (Overseas)	1	208,000
Designer	2	377,000
Clerk (indoor)	1	130,000
Co-ordinator	1	93,600
	7	1,393,600

.......

The occupation description under this policy should be read as:

Item 1: Creative Director

Item 2: Creative Director (Overseas)

Item 3: Designer (Overseas)

Item 4: Designer

Item 5: Clerk (Indoor)

Item 6: Co-ordinator ’

IV. The ECO

4.1  Section 40(1) of the ECO provides that :

‘ 40. Compulsory insurance against employer’s liability

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

4.2  Section 43(1) provides that :

‘ 43. Conditions under which liability for payment by Insurer arises

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

V.  The Judge’s Decision

5.1   The crucial words in both section 40(1) and section 43(1) are that the relevant policy is ‘in relation to the employee in question’.

5.2   The Judge held that whilst the policy is issued for the purpose of Part IV in respect of specified employees engaged in interior design works, it is not issued in relation to the plaintiff.  He took into account, amongst other things, the following :

1)   The application of commercial common sense; and

2)   The applications of the principles of interpretation.

3)   The evidence of AXA’s witness.  The Judge held that :

‘ 16(iii)  Due weight being attached to the evidence of AXA’s witness, Ms Tsang Sze Ming, Phoenix, a senior underwriting officer who, succinctly, gave AXA’s interpretation of this policy. She believed that it was understood by both parties that it was a low risk policy to cover office staff and, as the name ‘Office Pak’ suggests, covered office work duties by clerical staff.  She further explained that the reason a specified number of staff and their salaries was included in the schedule was for the purpose of calculating the annual premium.  The premium, by any standards, would be described as low or modest.  Accordingly the policy did not extend its coverage to include casual skilled labour carrying out construction work on site.  I regarded the whole of her evidence as reliable and sensible and I accepted it.’

5.3  Dealing with the Scope of Cover of the EC Section, the Judge held that :

‘ 18. .... Taken in context the words “immediate employ” can only, sensibly, mean those clerical jobs listed in the schedule. Moreover the words “in the Business” must refer to the definition of Business in the policy which is “Office (Interior Design)”. Such definition plainly excludes building and construction activities.

  19. In further support the statutory declaration of Mr Colin Yue Chi Wai, a creative director of Nuovo, explains that the Nuovo staff carried out design work only, whereas the building side of their designs was carried out by sub‑contractors or self‑employed independent contractors. Section 40 of ECO does not require the company to arrange insurance for such workers.

 20. It is significant also that the “Contents” insurance provisions define the “Premises” to which the policy was to apply as “premises as specified in the Schedule and is used solely as an office… without any manufacturing work”.  This provides support for the submission, correctly made, that the “Office Pak” policy covered, in broad terms, office workers doing office design work in office premises.  Madam Tsang’s evidence (referred to above) was entirely consistent with this.’

5.4  The Judge held :

‘ 25. ….. In our case not only was the plaintiff not a worker covered by the policy but also, all carpentry, plumbing, electricity etc works were not intended to be covered by either party to the contract of insurance.’

5.5  In respect of the meaning of the words ‘Interior Design’, the Judge held that :

‘ 31. In my judgment Mr Wong’s submission (vital to the success of his case) that “Interior Design” covered not only those who did the design work in their office premises (as listed in the policy) but also every construction worker, employed on any basis, whether it be casual, self‑employed, part‑time, sub‑contractor or whatever, on every site where Nuovo had been engaged to build their designs, is commercially unreal and must fail.’

VI.  The case of Law Lai Ha v Zurich Insurance Co

6.1   In essence, the Judge followed the approach of Sakhrani J in the case of Law Lai Ha v Zurich Insurance Co [2011] 2 HKLRD 450.  In that case an employee died while he was sent by his employer Chon Bon to Kenya to install, test, run machinery and to train staff.  The employer had effected a Part IV employees’ compensation policy which provided that :

‘ Now this Policy Witnessesth that if any employee in the insured’s immediate service shall sustain bodily injury by accident or disease during the Period of Insurance and arising out of and in the course of his employment by the Insured in the Business.

   The Company will subject to … indemnify the Insured against liability at law (including liability under the Legislation set out in the Schedule) to pay compensation and claimant’s costs … in respect of such injury...’

6.2   Like the present case, the policy there also had a schedule.  The relevant parts of the judgment dealing with the schedule are as follows :

‘ 50. Condition 1 of the policy provided that the Schedule and the policy “shall be read together as one contract”. There is no doubt that the policy and the Schedule as a whole should be considered together and shall be read together as the contract of insurance.

 51.  According to the Schedule, the effective date of insurance was 12 December 1995 to 12 December 1996.  The injury to the deceased occurred during this period.

 52.  The business of the insured Chon Bon was described in the Schedule as “Trading”.  The geographical limits were “Anywhere in Hong Kong”.

 53.  The risk address was at the Hong Kong office.  It was not at the Mainland factory of Chon Bon.

 54.  It is of significance that the occupation and estimated number of employees set out in the Schedule was office attendant, one and clerk, one.  These were the only categories of employees specified in the Schedule.   The estimated annual salary of each of the office attendant and the clerk was $91,000.

 55. It was on the above basis that the risk   premium was calculated and paid by the insured.’

6.3  Sakhrani J focused his attention on the schedule which set out the occupation and estimated number of employees and held that the policy in question was not ‘in relation to’ the deceased employee :

‘ 69. It seems to me to be clear on a proper construction of the policy, and I so find, that the coverage of the policy was confined only to the employees of Chon Bon which fell into the categories of office attendant and clerk and which were estimated to be one in number for each category. The deceased was neither an office attendant nor a clerk. In my judgment the deceased was not covered by the policy.’

VII.  My view

1)  Contextual approach

7.1   With respect, I disagree with the approach in Law Lai Ha and the Court below. The issue here (as in Law Lai Ha) is simply a construction of the terms of the Policy.  Needless to say, one has to adopt a contextual approach in construing a commercial document like that of the Policy in question.  The proper context in considering the Policy is that it is effected by an employer pursuant to the compulsory insurance requirement of Part IV of the ECO.  This can hardly be disputed.  The authorities cited by the parties such as King Tak-on v Lau Chun‑yip & Others [1987] HKLR 126, Wong Po‑wah v Pacific Insurance Co Ltd [1988] 2 HKLR 417 (CA), Pacific Insurance Co Ltd v Wong Po‑wah [1989] 2 HKLR 266 (PC), Chan Chu Ngan v Wong Woon Pui & Anor [1992] 2 HKC 193, Wong Kam Fai v Yu Sai Wan and Ors [1993] HKDCLR 67, Pang Wai Chung v Tai Ping Insurance Co Ltd [1999] 2 HKLRD 354, Lam Chi Fat v Liberty International Insurance [2002] 3 HKLRD 480 and Leung Chack v Asia Insurance Co Ltd [1991] 2 HKLR 496) emphasize on the ‘absolute obligation’ imposed by the ECO on the employer and the insurer. 

7.2  At the same time, applying the contextual approach does not mean that one can do violence to the language used in the Policy itself or in the legislation. 

2)  The operative words

7.3   It may be useful to remind ourselves the content of a policy.  In form, a policy is a unilateral undertaking by the insurers to pay the sum insured on the happening of the specified event; unless and until rectified it is the exclusive record of the contract.  It contains four main sections, namely :

1) the recitals which are usually inserted into a policy;

2) the operative words, defining the nature and scope of the risk insured;

3) the special particulars appropriate to the particular contract, such as the name, address and occupation of the insured, the subject matter of the insurance, the amount of the insurance, the period of the insurance, the premium and similar matters, which are usually inserted in a schedule; and

4) the general conditions to which the contract is subject, which are usually incorporated by words of reference in the operative part. (emphasis added) 

(See Halsbury’s Law of Hong Kong (‘Hong Kong Halsbury’s’) Volume 32, paragraph 220.069.)

7.4   Paragraph 220.070 states that the recital may incorporate other documents of the contract such as proposal, prospectus or schedule or another policy.  Paragraph 220.071 further points out that the operative words are the substance of the policy, defining the nature and extent of the risk against which the insurance is effected.  Where the operative words are precise, clear and unambiguous they will prevail over the recitals.  But let me point out immediately that the purpose of referring to the content or form of a policy is solely to draw attention to the fact that, whilst the whole of the policy must be looked at, one begins the task of construction by looking at the operative words of the Policy first because they are the substance of the Policy, defining the nature and extent of the risk against which the insurance is affected.  It is not my intention and it is not necessary to decide this case on the basis of the formal distinction between the operative words, recital etc. 

7.5  The operative words in the Policy are identified by the Scope of Cover.  They cannot be clear enough.  They cover indemnity by AXA for ‘any employee in the immediate employ’ of Nuovo.  Such an employee is clearly not confined to those who the employer (like Nuovo) subjectively considers to be its employee but rather it covers every employee who is by law its employee in order to give full effect to the compulsory insurance scheme.  The provision on ‘Special Exclusions to Section 5’ is telling.  Clause (e) excludes Nuovo’s liability to any person who is not its employee within the meaning of the ECO.  In other words, the EC Section is clearly intended to cover employees who are employees under the ECO irrespective of the employer’s own perception that a particular person may not be its own employee. 

7.6   According to the Judge, the employees have to be specified in the Schedule of the Policy (at least the nature of their works) in order to be ‘covered’.  As correctly submitted by Mr Horace Wong SC (together with Clark Wang) for the Board that, in order for the employer to specify them, the employee relationship would have to be recognised by the employer in the first place.  There are indeed many cases where the employers do not recognize an employment relationship with an injured worker, yet the Court subsequently held in fact such employment relationship existed.  This is particularly so for casual workers who are employees in law but often subjectively considered by their employers not to be an employee (see, for example, the casual worker in Poon Chau Nam v Yim Siu Cheung [2007] 1 HKLRD 951).  The present case is another example.  Nuovo did not recognize the plaintiff to be its employee, yet the Court held the plaintiff was its employee for the purpose of his exployees’ compensation and common law claims.  In the context of the compulsory insurance scheme, the Court should strive to give effect to the words ‘any employee’, otherwise, there will be a loophole in the scheme to the prejudice of an employee who is in law an employee within the meaning of ECO but not recognized by his employer as such.

7.7  The flaw in Law Lai Ha and the decision below is that the content of the Schedule is accorded with a meaning that it does not have in construing who is an employee in the immediate employ of the employer, namely, the Schedule identifies the actual employees who are covered by the EC Section, when in truth, the part dealing with the number of employees, their designation and their estimated wages is no more than the means for the insurer to determine the estimated premium to be paid for effecting the insurance policy. 

7.8  In the present case, this is clear from the provision on insurance premium under ‘Special Conditions to Section 5’ of the EC Section which I have already referred to.  The calculation of premium is done in a casual way.  It merely requires estimates of the earning of the employees to be given.  The actual earnings are to be supplied not during the term of the Policy or before its expiry, but can be done afterwards on the expiry of the term.  These provisions are really for the purpose of adjusting the premium.  The requirement of keeping records of employees by AXA equally does not convey the meaning that the Policy only covers the specified employees.  If that was the intention, it is not difficult to specify that the insured must actually provide the insurer with the particulars of the employees covered by the Policy.

7.9   It is useful to refer to Hong Kong Halsbury’s, paragraph 220.350 under the heading of ‘Calculation of premiums’ :

‘ It is usual to relate the premium to the amount paid in wages by the employer to his employees during each period of insurance, and to insert a provision for adjusting the premium at the end of the period when the figures can be accurately determined. To enable this to be done there is usually an express provision compelling the assured to keep a proper wages book, but it has been held that this is not to be regarded as a condition precedent.[1] The remedy of the insurers, therefore, is limited to suing for an account.[2]’

See also the judgment of Litton JA in Siu Yin Kwan and Another v Eastern Insurance Co Ltd [1993] 2 HKLR 101 at 123 on the question of adjustment of premium with reference to the wages of the employees in such schedules.

7.10  In my view the number of employees and their designations in the Schedule cannot be the proper basis to override the clear and unambiguous terms of the Scope of Cover which is for ‘any employee in the immediate employ of the (employer)’, viewed in the context of the proper function of that part of the Schedule.  An employer, in the course of the policy, may choose to employ new employees or adjust their wages.  If the Policy allows the employer to provide the insurer with the particulars afterwards, it is clearly not intended that the employees in the Schedule should limit the wide words of ‘any employee in the immediate employ of the employer’.

7.11  Further as the Policy was drafted by AXA, if it is intended to cover only the employees specified in the Schedule, the simplest way to achieve this is to say so in the Scope of Cover instead of using the wide language of ‘any employee’.  The requirement that the Schedule forms part of the Policy and is to be read together does not, in my view, have the effect of overriding the clear and unambiguous words of ‘any employee’ provided for in the Scope of Cover.

7.12  In Law Lai Ha and in the Court below, reliance was made on the submission that in law an employer may take out different policies for different employees.  This may or may not so and it is not necessary for me to determine this point.  Even assuming it is so, it begs the question whether as a matter of construction, any particular employee is covered by the terms of the policy.

7.13  Mr Ismail, counsel for AXA, argued that there is nothing to stop an employer, in order to provide cover for all its employees, to effect an ‘All Employees’ insurance policy.  Examples of such policy, however, were not produced by way of evidence at the trial below.  In any event, as appeared from the authorities, the terms of the Policy which expressly refer to employees’ compensation are also common in Law Lai Ha and in, for example, Lam Chi Fat where paragraph 5 of the judgment states :

‘ 5. Provincial was named as insurer because it had issued an employees’ compensation policy dated 15 November 1991, numbered 3003606-91-41, in favour of Foo Yan (the Policy) covering, inter alia, Foo Yan’s liability (statutory or otherwise) to pay compensation (including costs) in case any of Foo Yan’s employees sustained injury arising out of and in the course of their employment. The Policy specifically covered only those employees in Foo Yan’s “immediate service” and there was an express exclusion in relation to any liability which may be incurred by Foo Yan to employees of its contractors.’

7.14   I have also considered whether sections 40A and 41 of the ECO have the effect of limiting the wide scope of ‘any employee’.  Section 40A provides that ：

‘ An insurer shall include in a policy of insurance issued for the purposes of this Part the information referred to in paragraphs (a) to (g) of section 41(1).’

7.15  Section 41 then deals with the notice of insurance and the particulars, namely,

(a) the name of the employer;

(b) the name of the insurer;

(c) the policy number;

(d) the date of issue of the policy;

(e) the dates of commencement and expiry of the period of insurance;

(f) the number of employees insured under the policy at the time of issue thereof; and

(g) the amount of the liability insured under the policy.

7.16  While (f) deals with the number of employees insured under the policy at the time of issue, I do not consider that, by itself, supports the argument that the number of employees listed is intended to be the actual employees to be covered by the EC Section.  Ultimately, it is a matter of construction of the terms of the policy.

7.17   The Judge had referred to the views of the staff of Nuovo and AXA on the interpretation of the Policy.  In my view it is not permissible to take into account their subjective views in constructing the intention of the parties.  The Court is to interpret what the parties have in fact said in their contract and not to speculate as to what they may have intended when entering into the contract. The view of AXA that the Policy is a low risk policy to cover office staff does not carry the matter further.

7.18   The Judge referred to the definition of ‘Business’ in the Schedule and held that the business of ‘Interior Design’ excludes building and construction activities.  I agree with Mr Wong that ‘Interior Design’ should be interpreted widely to include the business of ‘design and build’, which is common in Hong Kong.  This, by itself, however, is not determinative of this appeal. 

7.19   The Judge further held that the EC Section of the Policy is intended to cover office workers doing office design work in office premises.  He relied on the definition of Premises in the Office Contents Section of the Policy which provides that :

‘ “Premises” means the premises as specified in the Schedule and is used solely as an office clinic or surgery without any manufacturing work. The building in which the Premises is situated must be built of concrete brick stone or incombustible materials.’

7.20   I agree with Mr Wong that this definition is not applicable to the EC Section. The lack of definition of premises in the EC Section points rather to the view that the EC Section is never meant to be limited to the premises as defined only.  The Schedule to the EC Section refers to at least two categories of employees who are required to work overseas and only one employee expected to work indoor.

VIII. Conclusion

8.  I would allow the appeal, set aside the judgment below and enter judgment for the plaintiff against AXA.

IX.  Costs

9.  I would order that the Board is to have the costs of the appeal and below to be paid by AXA with a certificate for two counsel.  The plaintiff is to have his costs of this appeal and below to be paid by AXA.  The plaintiff’s own costs are to be taxed in accordance with Legal Aid Regulations.

Hon Yuen JA :

10.  I have had the benefit of reading in draft the judgments of Cheung JA and Kwan JA. I agree with the judgment of Kwan JA although, with respect, I take the view that the matters set out in paragraphs 30, 36 and 40 of her ladyship’s judgment (which deal with certain factual evidence specific to the present case) are not necessary to arrive at the result.  In my view the same conclusion would be reached without reference to those considerations, and purely from the statute and within the four corners of the policy, as I will seek to explain below.

11.  Section 43 of the ECO sets out the circumstances under which an insurer would be liable to pay compensation to an injured employee where the insurer has issued a policy to the latter’s employer.  The qualifying criterion is that the defendant insurer has issued a Pt IV policy “in relation to an employee” (the plaintiff).  The criterion is not that the insurer has issued a Pt IV policy “in relation to an employer” (the plaintiff’s employer).  As was accepted by Mr Wong for the Board, an employer is free to take out different Pt IV policies with different insurers for different employees. And Mr Wong has expressly disavowed the proposition that as long as there is a Pt IV policy in force for any employee of an employer, then all employees of that employer would be covered by the insurer of that policy.

12.  Accordingly, for liability under s.43 to be found against the defendant insurer, it must be shown that the particular policy which the employer took out with the defendant insurer was intended to cover the injured employee, and not other employees. 

13.  The employees who the employer and the defendant insurer intended the policy to cover are ascertained from the policy.  The words “any Employee in the Insured’s immediate employ” in the Scope of Cover[3] cannot be read in a vacuum.  They must be read in light of the Policy as a whole and against the statutory background.  To ascertain which employees are covered by the Policy the subject matter of the present case, regard must be paid to the Policy including the Schedule which forms an “integral part” of it[4]  The Policy and the Schedule are expressly stipulated to be read together as one document.[5] 

14.  In the Schedule, the classes of employees, the number of employees in each class and the estimated earnings of the employees in each class are set out under “Section 5 — Employees’ Compensation”[6].  In the part of the Policy entitled also “Section 5 — Employees’ Compensation”, Special Condition (d)[7] requires the employer to keep a proper record of the personal particulars, class of employment and earnings of “every Employee of the Insured employed in the Business from time to time during the Period of Insurance ... so that a record exists of all persons who are Employees of the Insured for the purposes of this Policy[8]” (Emphasis added). 

15.  In my view the words “Employees of the Insured for the purposes of this Policy” recognize that there may be other persons employed by the insured who are not employees within the purview of this particular policy. 

16.  The exact identification of those who are (“Employees of the Insured for the purposes of this Policy”) is carried out by combining the numbers and classes of employees in the Schedule with the personnel records which the insured employer is obliged to keep (providing names, HKID card numbers, class of employment and earnings). This obviously provides flexibility as the identities of the employees occupying the classes of positions in the Policy may vary from time to time with people leaving their jobs and being replaced. 

17.  Similarly, to provide flexibility for adjustment in wages of such employees, Special Conditions to Section 5(a) and (b)[9] provide for an adjustment in the premium payable.

18.  However this flexibility does not extend to the number of employees set out in the Schedule.  Other Condition (b)[10] provides that if there is a change “in the number of the Insured’s Employees”, the employer should immediately notify the insurer in writing as the change in number is regarded as a “material change in the risk insured”. 

19.  In light of the matters in paras. 11‑18 above, it cannot be said that the insurer nevertheless intended to cover any number of other persons employed by the insured additional to the personnel enumerated and classified in the Schedule. The plaintiff was not only supernumerary, his class of occupation was completely different from those stipulated in the Schedule.  In my view he was not “an Employee of the Insured for the purposes of this Policy”.  In the circumstances, the plaintiff can look to the Board for compensation. Accordingly I agree with Kwan JA that the defendant insurer was not liable to the plaintiff employee and the appeal should be dismissed with costs.

Hon Kwan JA :

20.  I have the benefit of reading in draft the judgment of Cheung JA.  I gratefully adopt those parts of his judgment on the background of the case, the Policy and the ECO.

21.  The issue on appeal is whether the Policy, which was issued for the purpose of Part IV of the ECO and in force at the material time, was “in relation to the plaintiff”. This is a matter of construction of the Policy as a whole in the context of the factual and legal background.  Cheung JA is of the view that the number of employees and their designations in the Schedule to the Policy cannot override the clear and unambiguous terms of the Scope of Cover which is for “any Employee in the Insured’s immediate employ”.  For the reasons given below, I have come to a contrary view.

The Policy

22.  The words in the operative part of the Policy, being the Scope of Cover in Section 5 — “any Employee in the Insured’s immediate employ” — are clear enough and wide enough.  But they must be read with the Schedule, other relevant clauses in Section 5, and other parts of the Policy.  As stated by Sir Anthony Mason NPJ in New World Harbourview Hotel Co Ltd v ACE Insurance Ltd (2012) 15 HKCFAR 120 at §34:

“The interpretation which should be adopted in the case of an insurance contract, as with other commercial contracts, is that which gives effect to the context, not only of the particular provision but of the contract as a whole, consistently with the sense and purpose of the provision.”

23.  The Policy is headed “Officepak Insurance Policy”.  As explained by AXA’s witness, Ms Tsang Sze Ming Phoenix^[11], an Officepak Insurance Policy is “a policy that is specially designed for office.  It combines all the essential business insurances in one simple packaged policy.  Covers are provided for the office contents, business interruption, loss of money, public liability and employees’ compensation policy.”  According to Ms Tsang’s evidence, the premium of the Policy would be described as low or modest by any standards^[12].

24.  The first page of the Policy contained an “Important Notice”, which states as follows: “Please read this Policy and Schedule and make certain they are in accordance with your requirements.”  Under clause 1 of the General Conditions of the Policy, it is provided that “the Schedule forms an integral part of the Policy and shall be read together as such”.  Under “Definitions” in Section 5, “The Policy” is defined to mean “this OfficePak Insurance Policy the Schedule and any memoranda and endorsements contained herein or endorsed hereon which shall be read together as one document and any word or expression to which a specific meaning has been assigned shall bear such meaning throughout.”

25.  The Schedule set out the special particulars appropriate to each of the five sections.  In respect of Section 5, which relates to employees’ compensation, I will first mention the particulars that should be noted and then explain their relevance.

26.  Firstly, the details of the occupation, the number and the estimated total earnings of the employees were set out as follows:

“  Occupation	Number	Est. Total Earnings HKD
Creative Director	1	325,000
Creative Director (Overseas)	1	260,000
Designer (Overseas)	1	208,000
Designer	2	377,000
Clerk (Indoor)	1	130,000
Co-ordinator	1	93,600
	7	1,393,600”

27.  Secondly, the endorsement stated that in compliance with the Employees’ Compensation (Amendment) Ordinance 1995, the policy limit of liability is amended to $100 million for any one event.

28.  Thirdly, it was declared and agreed that items 2 to 3 and 6 of Section 5 (i.e. Creative Director (Overseas), Designer (Overseas) and Co‑ordinator) are extended to cover the employee temporarily working overseas including USA and Canada.

29.  Fourthly, the occupation description under the Policy set out once again the particulars in relation to each of the employees as stated above.

30.  Fifthly, the business of the insured was described as “Office (Interior Design)”.

31.  The number, occupation and the earnings of the employees are of course relevant to the amount of the premium determined by the insurer for the Policy.  More importantly, these particulars provide an important pointer to the nature of the risk that was undertaken by the insurer.

32.  This is apparent from the exchanges between the registered agent of AXA and AXA when a quotation was first sought in October 2004.  The premium was quoted at $4,363, on the basis of the particulars provided regarding the number, occupation and salaries of four employees, three of whom were described as working “indoor/outdoor/HK/China” and one as working “indoor”.  In the instructions for policy amendment dated 29 November 2004, the particulars were amended by adding “one co-ordinator (overseas)” with the salary of $144,000, and the Schedule was amended as a result.

33.  In the renewal quotation for 2005, the premium was fixed on the basis of the changed particulars supplied as regards the employees.  The same applied to the fixing of the premium when the renewal quotation was sought for 2006.

34.  In my view, the fact that the amount of the annual salaries was stated in the Schedule as estimated and that under “Special Conditions to Section 5” the insured would be required within 90 days after the expiry of the period of insurance or the cancellation of the Policy to supply the insurer with a declaration of the actual earnings so that the premium may be adjusted if need be does not mean that the calculation of the premium would be done in a casual way, or that the insurer would have attached no or little significance to the particulars supplied as regards the employees.  Under clause b in “Other Conditions”, which is headed “Changes in Risk”, it is stipulated that the insured shall immediately notify the insurer in writing of “any material change in the risk insured … during the Period of Insurance including but not limited to … any material change in the nature of the Business or in the number of the Insured’s Employees.”

35.  The risk undertaken by the insurer for employees’ compensation in relation to the seven employees as specified in the particulars of the Schedule is materially different from the risk undertaken in relation to “any Employee in the Insured’s immediate employ” in the Scope of Cover (if these words in the Scope of Cover were to be read in isolation), in respect of which the number of employees was unlimited, the amount of salaries unknown and the occupation unspecified.  Reading the Policy and the Schedule as a whole, as one is required to do by the clear wordings of the Policy that have been quoted above, it seems to me that the meaning is sufficiently clear, the Policy was only in relation to those employees whose particulars matched what was specified in the Schedule and was not in relation to the plaintiff.

36.  The significance that should be attached to the employees’ particulars in the Schedule is borne out by these provisions in the ECO.  Under section 40A, which is headed “Mandatory information in policy”, it is provided that “an insurer shall include in a policy of insurance issued for the purposes of this Part the information referred to in paragraphs (a) to (g) of section 41(1)”. Section 41 is headed “Notice of insurance” and the material part reads: “… an employer to whom a policy of insurance is issued for the purposes of this Part shall display, in a conspicuous place on each of his premises where any employee is employed by him, a notice, in such form as may be specified by the Commissioner, showing in both the English and Chinese languages — … (f) the number of employees insured under the policy at the time of the issue thereof; and (g) the amount of the liability insured under the policy.”

37.  The endorsement appearing in the Schedule mentioned the policy limit of liability in compliance with the amendment to the ECO in 1995.  Section 40(1) as amended provides for compulsory insurance against employer’s liability for an amount not less than the applicable amount specified in the 4th Schedule, subject to subsections (1B) (where a principal contractor who has undertaken construction work takes out a policy) and (1C) (where a group of companies takes out a policy).

38.  In subsections (1B) and (1C), it is envisaged that the principal contractor or the holding company may take out a blanket insurance policy with a single limit to cover its own liabilities as well as those of their sub‑contractors or subsidiary companies, irrespective of the number of employees involved^[13]. For those situations, it is provided in the 4^th Schedule that the minimum insurance cover is $200 million per event.  In respect of all other situations, the minimum insurance cover as stipulated in the 4th Schedule is as follows: $100 million per event, where the number of employees in relation to whom the policy is in force does not exceed 200; and $200 million per event, where the number of employees exceeds 200.

39.  The Policy we are concerned with is not a blanket insurance policy.  If the relevant words in the Scope of Cover were to be read in isolation, the number of employees in relation to whom the policy was in force would be unlimited.  The policy limit of liability, which was stated in the endorsement to be made in compliance with the relevant legislation, would not have been capped at $100 million per event.  In my view, the endorsement provides further support that the relevant words in the Scope of Cover should be read with the particulars of the employees in the Schedule, so that the number of employees in relation to whom the policy was in force would not exceed 200, and hence in compliance with the legislation as intended by the contracting parties.

40.  The Scope of Cover provided for indemnity of the employer’s liability where there is bodily injury or death by accident or disease to the employee “arising out of and in the course of his employment by the Insured in the Business”.  Under “Definitions” in Section 5, “The Business” is defined to mean “the usual work and activities carried on by the Insured pertaining to his business as specified in the Schedule and no others”.  In that part of the Schedule relating to Section 5, the business of the insured was specified as “Office (Interior Design)”.

41.  The business of the insured thus described, read with the occupations of the employees specified in the Schedule, would also provide support that the Policy was not in relation to a carpenter engaged to work outside the office of the insured.  In the exchanges when quotation was first sought in October 2004, three employees were stated to be working “indoor/outdoor/HK/China” and the remaining one was working “indoor”.  An endorsement was made subsequently to extend the cover in respect of three of the employees described to be working “overseas” to include USA and Canada.  If the scope of cover was intended to extend to another description of employee working outdoor, one would have expected the Schedule to be amended accordingly.

The ECO

42.  Mr Horace Wong, SC with Mr Clark Wang submitted for the Board that in construing the Policy, it is necessary to take into account the statutory context against which the Policy was issued, in particular, the independent statutory right of the employee and the corresponding “absolute liability” of the insurer under Part IV of the ECO, citing, among other cases, King Tak‑on v Lau Chun‑yip & Ors [1987] HKLR 126 at 131H to J, 132G to J, 134C to F and 135A to D.  He argued that the court should go for a construction that “does not find a lacuna in the wording of [section 43(1)].”

43.  I should point out, as the judge has done, in King Tak‑on, notwithstanding the employer’s deliberate understatement of the number of employees and of the wages paid to them (at 128D), there was a policy issued for the purposes of Part IV in relation to the applicant employee (at 132D).

44.  The independent statutory right of the employee and the corresponding “absolute liability” of the insurer would be engaged where all the conditions in section 43(1) are satisfied, namely, that “in relation to an employee there is in force a policy of insurance issued for the purposes of this Part.”  Where the conditions are satisfied, the effect of the provisions in Part IV is “to make the insurer directly liable to the injured employee and that he cannot escape this liability on any ground on which he might have repudiated liability under the policy to the employer such as fraud, material non-disclosure, or breach of warranty.” (Pacific Insurance Co Ltd v Wong Po‑wah [1989] 2 HKLR 266 at 267 to 268)

45.  Mr Wong submitted that if the judge’s construction of the Policy is upheld, Part IV would not be effective to protect casual employees in the construction industry of the kind as considered in Poon Chau Nam v Yim Siu Cheung (2007) 10 HKCFAR 156.  Employers in many cases, like the insured in the present case, did not recognise an employment relationship with casual employees and chose to treat them as self-employed, only to be held by the court to be wrong.  It would be unlikely for such employers to specify these workers in the schedule of the policy as they did not regard them as employees.  Mr Wong argued that the construction of the judge would create a big loophole to the legislative scheme and is against the object of Part IV.

46.  I do not accept his submission for two reasons, as submitted by Mr Anthony Ismail for AXA.

47.  If there is any loophole in the legislative scheme because some employers wrongly failed to recognise there was an employment relationship, Part IV has provided for criminal sanction to punish the failure to take out compulsory insurance.  So an employer who wrongly regarded a worker as not an employee and failed to take out compulsory insurance in relation to that worker would be subject to punishment under the criminal law, with a fine and imprisonment, see sections 40(1) and 40(2).

48.  It is important to have regard to the legislative scheme and objective in construing a policy of insurance that was issued for the purposes of Part IV.  But I do not think one should do violence to the language of the Policy, which should be read as a whole, in order to arrive at a construction to better achieve the statutory objective.

49.  I agree with Mr Ismail and Ms Julia Lau for the plaintiff that Law Lai Ha & Anr v Zurich Insurance Co [2011] 2 HKLRD 450 is correctly decided and that the judge is right to construe the Policy in the same way.

50.  For the above reasons, I would dismiss the appeal of the Board.

Hon Cheung JA:

51.  The Court by a majority dismisses the Board’s appeal with costs to the plaintiff and AXA.  The plaintiff’s own costs are to be taxed in accordance with Legal Aid Regulations.