KING TAK ON BY ATTORNEY CHUENG YIN v. LAU CHUN YIP OTHERS

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Headnote

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        Employees' Compensation Ordinance (Cap. 282)

IN THE COURT OF APPEAL

BETWEEN

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JUDGMENT

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Clough, J.A.:

1. This is an appeal against the order of His Honour Judge Roy in the Victoria District Court made on the 9th July 1986 in proceedings under the Employees' Compensation Ordinance (Cap. 282) whereby he awarded the applicant employee $61,876 compensation and costs under sections 9 and 10 of the ordinance against the applicant's employer, a firm which was the first respondent in the proceedings, and dismissed the applicant's claim against the second respondent which was the insurer of the first respondent for the purposes of Part IV of the Ordinance.

2. The applicant has at all material times been a minor purporting to sue by his attorney and not by his next friend, but no point has been taken on this. The application, which was made on the 15th October 1985, related to a claim for compensation under sections 9 and 10 of the Ordinance in respect of injuries received by the applicant in the course of his employment on the 5th November 1984.

3. Initially no claim was made against the second respondent. However on the date of the application the Legal Aid Department, which acted for the applicant, sent a registered letter to the second respondent, as the first respondent's insurers, giving them notice of the application pursuant to section 43(2)(b) of the Ordinance. Thereafter the second respondent applied successfully on the 2Oth November 1985 to be added as a party to the proceedings pursuant to section 43(3) of the Ordinance and rule 24 of the Employees' Compensation (Rules of Court) Rules.

4. With the leave of the court the applicant amended his application on the 20th November 1985 so as to add the second respondent as a party and to introduce a claim against the second respondent on the basis that it was a principal contractor and that the first respondent was its sub-contractor. To this manifestly ill founded claim the second respondent filed an answer on the 10th December 1985 which consisted merely of a denial and non-admissions and sought to put the applicant to proof of his claim.

5. A previous hearing having been abandoned owing to the untimely death of the judge, the effective hearing of the application began on the 23rd June 1986 before Judge Roy. The court was informed that the parties agreed that there was no dispute regarding the liability of the first respondent to pay compensation to the applicant or regarding the amount of that compensation. It was solely the second respondent's liability to meet the claim which was in dispute. The applicant's solicitor applied to re-amend the application to plead reliance on a policy of insurance, allegedly valid at the date of the applicant's accident, whereby the second respondent had insured the liability of the first respondent to the applicant in respect of compensation payable under the Ordinance.

6. It appears from the judge's notes and from his judgment that counsel for the second respondent then submitted that the court had no jurisdiction to deal with the applicant's claim against the second respondent and the judge agreed to rule on the application to amend and the question of jurisdiction at the same time. Although the pleadings were still in a state of disarray it seems clear from the judge's notes that the applicant's solicitor was seeking to claim the full amount of the applicant's compensation from the second respondent on the footing that the second respondent, as the first respondent's insurer, was under an absolute obligation under the Ordinance to pay that compensation to the applicant.

7. On the other hand, counsel for the second respondent produced a letter indicating that his client had claimed to repudiate liability under the policy because of deliberate understatement of the first respondents' number of employees and of the wages paid to them. He contended that the relevant provisions in Part IV of the Ordinance did not preclude an insurer from repudiating liability on grounds outside the actual terms of the contract of insurance and that the court had no jurisdiction under the Ordinance to determine the issues arising between the applicant and the second respondent.

8. In a careful and lucid reserved judgment the judge gave leave to the applicant to amend the application after dealing with the substantive issues which had been argued before him. On those issues he found for the second respondent and dismissed the applicant's claim against it. Put shortly, the judge concluded that the real question was one of jurisdiction and that the court had no jurisdiction to determine the applicant's claim against the second respondent as the insurer of the first respondent because that claim was not an absolute statutory claim under the Ordinance but a claim under the first respondent's insurance contract of indemnity which was defeasible on grounds outside the terms of the contract itself. He considered that such a claim was not a claim for compensation under the Ordinance and could only be prosecuted in civil proceedings outside the jurisdiction conferred by the Ordinance. The applicant challenges these conclusions by his appeal.

9. The provisions governing compulsory insurance to be effected by employers are contained in Part IV of the Ordinance which came into operation on the 1st January 1984. Section 40(1) provides as follows:-

10. The prospective full liability of an employer under the Ordinance is ascertainable by reference to section 5 (which imposes liability upon an employer to pay compensation in accordance with the provisions of the Ordinance for death or incapacity of an employee resulting from an accident arising out of and in the course of the employment of the employee), sections 6, 7; 8, 9 and 10 (which provide for the manner of assessing compensation for fatal injury and various categories of permanent or temporary incapacity) and to the definition of "compensation" in section 3 which contains an exhaustive list of the various heads of claim of compensation available to an employee in appropriate circumstances. In the present case the applicant injured two fingers, and his claim for compensation was made under sections 9 (permanent partial incapacity and 10 (temporary incapacity).

11. The material provisions in Part IV relating to policies issued under that Part are sections 42, 43 and 44. Section 42 provides that any condition in such a policy excluding the liability of the insurer in the event of any act or omission "after the happening of the accident giving rise to a claim under the policy, shall be of no effect upon the claim made by an employee under section 44".

12. The rights of the insurer as against the employer in relation, to such conditions are, however, expressly safeguarded by the following proviso:-

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Provided that nothing in this section shall be taken to render void any provision in a policy requiring the insured employer to repay to the insurer any sums which the latter may have paid under the policy in satisfaction of any such claim."

13. Section 43.(1) is in the following terms:-

14. Section 43(2) provides four instances where the liability imposed upon an insurer under section 43(1) does not arise. That provision is in the following terms:-

15. Section 43(3) supplements section 43(2)(b) by providing that if sufficient notice of the institution of proceedings for compensation or damages is given to an insurer to enable him to be added as a party to the proceedings, and if the insurer applies to be so added, the relevant court or tribunal shall so add the insurer who is given the same right to defend the proceedings as if the insurer were the employer.

16. Section 43(4) safeguards the rights of the insurer as against the employer by providing as follows:-

17. The group of sections governing policies issued for the purposes of Part IV is completed by section 44 which is in the following terms:-

18. When considering the nature of the right conferred upon an employee under sections 43 and 44 the judge cited the obiter dictum of Huggins V.P. in the unreported case of Attorney General v. Official Receiver⁽¹⁾ where another division of this court held that claims under the Motor Vehicles Insurance (Third Party Risks) Ordinance (Cap. 272) could properly be proved in the compulsory winding-up of an insurance company because such claims arose "by reason of a contract" for the purposes of section 34(1) of the Bankruptcy Ordinance (Cap.6 ) which was applicable by virtue of section 264 of the Companies Ordinance (Cap. 32).

19. The trial judge in that case had held that claims under insurance policies governed by sections 43 and 44 of the Employees' Compensation Ordinance could properly be proved in the compulsory winding-up of an insurance company. On the appeal this court gave consideration to the nature of the claim by an employee under such policies because it was contended on behalf of the appellants that the relevant provisions of the Employees' Compensation Ordinance and of the Motor Vehicles Insurance (Third Party Risks) Ordinance were in pari materia.

20. The relevant dictum of Huggins V.P. was as follows:-

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What one then has to ask is this: If the third party were a party to the policy, what would be the nature of his claim against the insurer? The parties are not ad idem as to the answer to that question, for the Respondent submits that the liability of the insurer arises under Section 44 whereas the Appellant contends that the insurer's liability arises under Section 43(1) and that Section 44 merely provides machinery for giving effect to a claim under Section 43(1). For my part I do not think anything turns upon this. It seems to me that the sections are to be read together, but the effect is that the statute operates to give the third party - by virtue of the statutory fiction that the third party was a party to the contract - a right to sue under the contract for the indemnity to which the insured would have been entitled under the policy. That right would not exist but for the statute, but it must, `none e the less be deemed to be a contractual right ………"

21. Kempster J.A. went no further than to express his satisfaction that any claim under section 44 of the Employees' Compensation Ordinance arose "by reason of a contract" for the purposes of section 34(1) of the Bankruptcy Ordinance. The other member of the court, Nazareth J. agreed with the conclusions in the judgment of Huggins V.P.

22. The judge in the present case went on to adopt the view of Huggins V.P. that the rights of an employee under an insurance policy governed by sections 43 and 44 of the Ordinance were contractual rights. He observed:-

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The effect of Section 44 is to make an employee a party to the contract of insurance. It does not automatically make the compensation a debt due to the employee by the insurer. The employee's rights, although they arise by operation of law are nevertheless contractual rights under the contract of insurance."

23. He then went on to make it clear that he accepted the argument, which had been advanced to him on behalf of the second respondent and which has been repeated on this appeal, that the Ordinance did not preclude the insurer from repudiating liability as against both the employee and the insured employer on grounds outside the actual terms of the contract of insurance, namely misrepresentation or material non-disclosure. He observed:-

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What then is the position where an insurance company claims the policy has been vitiated because of misrepresentations by the employer in relation to the insurance contract? Under Section 43(1) the insurer is liable to pay 'notwithstanding anything to the contrary in the policy of insurance'. This provision in my view relates only to express terms and conditions of the policy and would not operate to fix the insurer with liability in all circumstances. It does not say for example 'notwithstanding that the insurers may be entitled to avoid or cancel the policy of insurance. The law in normal circumstances confers on insurers a right to repudiate, where there is misrepresentation or material non-disclosure. I can see nothing in the provisions of the Ordinance requiring insurers to forego or surrender their legal rights which would otherwise arise in such circumstances. Consequently I feel unable to accept Mr. Comerford's submissions."

24. With respect to the judge who had clearly given much careful thought to the matter, I am unable to agree with his conclusions. For my part, I do not consider that the classification of the rights of an employee under an insurance policy governed by sections 42, 43 and 44 of the Ordinance as being contractual, statutory or a combination of both, is the material consideration here. The material consideration is whether or not the effect of the relevant sections on the relevant policy is to confer on the employee an absolute right to recover directly from the insurer any amount which the employee would have been entitled to recover from his insured employer.

25. In my judgment the purpose of the relevant sections is to achieve such a result and they succeed in achieving that purpose. Section 40 requires the policy issued for the purposes of Part IV in relation to an employee to be for the full amount of the liability of the employer under the Ordinance. Sections 42,43 and 44 govern that policy. Section 42 renders void for the benefit of a claim by the employee under section 44, any condition in the policy for the avoidance of liability by the insurer in the event of any act or omission after the happening of the accident giving rise to a claim under the policy.

26. Subject to subsection (2) of that section, section 43(1) comes into operation in relation to an employee "where there is in force a policy of insurance" for the purposes of Part IV and the employee's employer "becomes liable to pay any sum under this Ordinance ........ in respect of an injury to the employee arising out of and in the course of his employment". The argument advanced on behalf of the applicant both below and on this appeal is that if a policy has been issued in relation to an employee pursuant to section 40, and if, at the time of an accident to that employee giving rise to a claim for compensation under the Ordinance against his employer, the policy has not been cancelled by mutual consent or by virtue of any provision in that policy so as to bring section 43(2)(d) into operation, then the policy is "in force" for the purposes of section 43(1).

27. This argument was not specifically dealt with by the judge. In my judgment the argument is sound. It is well settled that a contract of insurance, requiring uberrima fides, is voidable for non-disclosure or misrepresentation at the election of the aggrieved party: see Colinvaux on The Law of Insurance, 5th edition, at pp. 92 and 97. It follows that until the insurer elects to repudiate the policy on the grounds of non-disclosure or misrepresentation it is merely voidable and remains in force for the purposes of section 43(1).

28. It also follows that in the present case where there was a policy issued for the purposes of Part IV by the insurer in relation to the applicant employee which had not been cancelled on or before the 5th November 1984 when the accident occurred to the applicant, and the first respondent, his employer, became liable under sections 5, 9 and 10 to pay a sum of compensation, to be agreed or assessed, to the applicant, section 43(1) operated to provide that the same sum should forthwith become due and payable by the second respondent as the insurer together with any sum payable in respect of interest and costs under section 21 of the Ordinance.

29. Furthermore this obligation is imposed upon the insurer "notwithstanding anything to the contrary in the policy of insurance". In the context of the present case none of the provisions of section 43(2) are available to enable the second respondent to avoid his obligation to make the relevant payment. The second respondent has been joined as a party to the proceedings pursuant to section 43(3) and rule 24 and has elected not to defend the applicant's claim against the first respondent.

30. Accordingly the effect of section 43 has been, in the events which have happened, to impose an absolute liability upon the second respondent to pay to the applicant the sum awarded against the first respondent as compensation and costs under the Ordinance. The purported repudiation of its liability under the policy by the second respondent in reliance on any condition under the policy or upon non-disclosure or misrepresentation arising outside the terms of the policy cannot be effective. Such purported repudiation took place after the date of the accident at which time section 43 imposed liability without any words of qualification upon the second respondent to pay the relevant sums yet to be assessed, together with the costs which subsequently became payable.

31. If, but for section 43, there would have been grounds for repudiation or disclaimer of liability under the policy, whether such repudiation were based on matters arising under the terms of the policy or outside those terms, the second respondent is left to claim repayment, under the proviso to section 42 or under section 43(4), of any sum it is now required to pay to the applicant under section 44. Section 43(1) does not provide to whom payment is to be made. Subject to the proviso to section 42 and to section 43(4), this seems to me to be in contemplation of possible situations where the employer might first pay the claim or award of the employee and then make a claim on the insurer under the policy in circumstances where section 43(2) is not applicable. Be that as it may the applicant is clearly given a right of direct recovery under section 44.

32. As to the enforcement of the applicant's claim under section 44, the judge held that he had no jurisdiction to enforce it. He did not consider the applicant's claim to be one for compensation within the definition of that term in section 3 of the Ordinance but rather a claim for indemnity. He considered the decision of His Honour Judge Huggins (as he then was) in Ng Mei Ho v. Leung Sil ⁽²⁾ to be in point and observed that, as far as he was aware, since that decision -

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the District Court has taken the view that claims of indemnity against insurers or other parties would not be determined in the special jurisdiction of employees compensation proceedings but must be settled by separate civil action."

33. He added that he could see nothing in the 1982 amendments to the Ordinance or in Part IV which enlarged the jurisdiction of the court in compensation cases to include questions of indemnity or which altered or overruled the decision in Ng Mei Ho's case which he had followed in Sheppard v. Riehstone, a previous unreported employees' compensation case decided by him in relation to a claim which arose before Part IV came into force on the 1st January 1984. He concluded with these words:

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matters of indemnity must be decided by ordinary civil action. If the Legislature had intended that the District Court should have jurisdiction to decide questions of indemnity under Cap. 282 it would surely have said so in specific and unambiguous language. Furthermore for the sake of consistency I would repeat my finding in the Sheppard case that matters of indemnity cannot be brought within the jurisdiction by labelling them matters 'arising out of the proceedings' as referred to in Section 18A."

34. With respect to the judge, I am unable to accept those conclusions. As to Ng Mei Ho's case, the judge in that case had to consider the appropriate jurisdiction for a claim by an employer against a third party under section 24 of the repealed Workmen's Compensation Ordinance 1953 to be indemnified in respect of compensation paid by the employer to his employee under that Ordinance for injury to the employee for which the third party was legally liable. The material part of section 24 of the 1953 Ordinance was expressed in the following terms:

35. The right referred to in that provision is in terms described as a right "to be indemnified" and the section goes on to provide that in default of agreement all questions as to the indemnity or its amount should be "settled by civil action". The judge had no difficulty in holding that as the express terms of the section required all questions as to the right of indemnity to be determined, in default of agreement, by civil action; and as proceedings under the Workmen's Compensation Ordinance 1953 were not "a civil action", the right of indemnity could not be litigated in proceedings under the Ordinance but were required to be litigated in proceedings brought within the jurisdiction of the District Court under section 14 of the District Court Ordinance, 1953.

36. In my judgment the ratio decidendi of Ng Mei Ho's Case is that the relevant section expressly indentified the appropriate jurisdiction and proceedings for the enforcement of the relevant right of indemnity. Accordingly I cannot accept that the decision in that case is material when determining whether or not a claim under section 44 of the Employees' Compensation Ordinance is within the jurisdiction conferred on the District Court by that Ordinance.

37. As to the nature of the employee's claim under section 44 I cannot, with respect, agree with the obiter dictum of Huggins V.P. in Attorney General v. Official Receiver cited above to the effect that section 44 gives the employee "a right to sue under the contract for the indemnity to which the insured would have been entitled under the policy". That is not what section 44 provides - it provides that the policy shall be deemed for the purposes of Part IV to provide that the employee "or other person having a claim against the person insured in respect of the liability in regard to which such policy was issued" is to "be entitled to recover in his own name as though he were a party to the policy, directly from the insurer any amount which he would have been entitled to recover from the person insured."

38. In my judgment, apart from any claim for injury arising independently of the Ordinance, the words emphasised above give the employee a direct right under the deemed provision in the policy to recover the compensation and interest and costs which he would have been entitled to recover from` the employer under sections 9, 10 and 21 of the Ordinance. It is a right which is separate and distinct from, and not subject to the defeasibility of, the employer's right of indemnity as the insured under the policy of insurance. The policy undoubtedly gives the employer a right of indemnity upon which the provisions of sections 42 and 43 impinge but, in my judgment, the right of recovery deemed to be interpolated into the policy by section 44 for the benefit of the employee is identifiable as a different right. This is clearly demonstrated by the proviso to section 42 and by section 43(4) which affect the employer's claim under the policy but not the employee's claim under section 44.

39. As to the jurisdictional difficulty felt by the judge, sections 40, 43(1) and 44 are all concerned, apart from any claim for injury arising independently of the Ordinance, with the compensation payable by the employer to the employee under the Ordinance. Thus section 40 requires insurance to be effected by the employer "for the full amount of the liability of the employer" under the Ordinance. Section 43(1) provides that where "... the employer becomes liable to pay any sum" under the Ordinance ... such sum "together with interest and costs" ... shall forthwith become due and payable by the insurer ...". Section 44 gives the employee a right of recovery from the insurer of "any amount which he would have been entitled to recover from the person insured".

40. All these amounts fall squarely within the definition of compensation in section 3 of the Ordinance and, in the case of interest and costs, within the jurisdiction conferred on the District Court by section 21.

41. Accordingly the applicant's claim against the second respondent under section 44, being a claim for compensation under the Ordinance which the combined effect of sections 42,43 and 44 of the Ordinance has made directly payable by the second respondent, falls to be determined by the District Court under sections 18A and 21. In the present case there is no procedural difficulty because the second respondent is before the court, having applied to be added as a party under rule 24.

42. In arriving at the conclusion that, in the circumstances of the present case, the Ordinance has imposed an absolute obligation upon the second respondent to satisfy the claim of the applicant under section 44 and that the claim is within the jurisdiction of the District Court, have borne in mind the provisions of section 19 of the Interpretation and General Clauses Ordinance (Cap. 1) which tend to support a construction of section 43(1) which does not find a lacuna in the wording of that subsection. I am fortified in my conclusions by the fact that they accord with what seems to me to be the object of Part IV of the Ordinance, namely to impose an absolute obligation upon the insurer, where there is a policy of insurance for the purposes of Part IV in force at the time of the employee's injury by accident arising out of and in the course of his employment, to pay the employee the compensation which he would have been entitled to recover from the employer. In short the purpose of Part IV seems to me to be to ensure that the employee shall not be left with a barren award by reason of the employer's defaults and that the insurer should be left to seek redress against the insured employer if the latter is in breach of the terms of the policy of insurance or of the requirements of a contract that is uberrima fides.

43. Mr. Yu for the second respondent conceded that if this appeal went against his client both on the issue of absolute liability and jurisdiction, then the second respondent had no defence to the applicant's claim under section 44. Despite the unsatisfactory nature of the documents which serve in lieu of pleadings in this case, the issues were in fact clearly defined and understood below and on appeal. I can therefore see no useful purpose in remitting this matter for a trial that could have only one result, namely an award of the amount of the applicant's claim against the second respondent as well as the award already made against the first respondent.

44. I would allow this appeal, set aside the order below dismissing the applicant's claim with costs and substitute an order that judgment be entered for the applicant against the second respondent in the sum of $61,876.00 with costs below to the applicant. Subject to the second respondent applying to be heard on the costs of this appeal I would also award those costs to the applicant and direct the appropriate legal aid taxation of his costs.

Fuad, J.A. :

45. I have had the advantage of reading in draft the judgment of my Lord Clough J.A. I agree with it and for the reasons he gives I would allow this appeal and make the orders he proposes.

Kempster, J.A:

46. I agree and have nothing to add.

(1)    Civil Appeal No. 4 of 1986

(2) [1962] D.C.L.R. 52