XCHRX LIN KAI HSUAN v. SZETO FOON AND OTHERS

HCPI 480/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

PERSONAL INJURIES ACTION NO.480 OF 2000

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R U L I N G

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1. There are two applications before me by summons, one taken out by the plaintiff asking for an order that unless the 3rd defendant files an Acknowledgement of Service of the Writ herein within 14 days, judgment on liability be entered against the 3rd defendant with damages to be assessed; the second taken out by the 3rd defendant for an order that all proceedings herein as against the 3rd defendant be stayed on the grounds that a Scheme of Arrangements pursuant to Section 166 of the Companies Ordinance, Cap 32 in respect of the 3rd defendant became effective on 28 April 2000.

2. The plaintiff's claim is for damages for personal injuries in respect of an accident which happened on the 5 May 1997 at a construction site where the plaintiff was working. The accident was alleged to have happened when the plaintiff was delivering construction material into a hoist by means of a wheel-barrel when the hoist prematurely ascended before the plaintiff had completely exited from it. As a result the plaintiff's body was knocked against the framework of the hoist resulting from which he suffered injuries. The claim is brought against three defendants, the first two defendants being the plaintiff's employer and a sub-contractor at the site. The 3rd defendant is the principal contractor on site. The present applications involve only the 3rd defendant, UDL Contracting Limited and do not concern the first two defendants.

Background

3. Before the present Writ was issued in these proceedings, proceedings in the District Court for employees compensation had already been started arising from the same incident. The present Writ was issued in these proceedings on 26 April 2000.

4. At that time of the accident, there was an insurance policy taken out by the 3rd defendant which covered, amongst other things, injuries to workmen on site in the course of their employment. This insurance policy was issued by the Ming An Insurance Company ("Ming An"). When both the employees compensation claim in the District Court and the present proceedings were instituted, the requisite notices had been given to Ming An. In response to such notices, Ming An had instructed solicitors being Messrs Ip Kwan & Co. to defend the employees compensation claim but no steps had been taken by either Ming An or by Messrs Ip Kwan & Co in the present proceedings.

5. Two matters occurred after the date of the accident the combined effect of which gave rise to the present applications before me. The first matter that occurred was that the 3rd defendant, together with other participating company in its group, entered into a Scheme of Arrangements pursuant to section 166 of the Companies Ordinance, Cap.32 with their creditors which was approved by the judge in the Companies Court on 18 April 2000. Under that Scheme of Arrangements, creditors or potential creditors of the participating companies (of which the 3rd defendant was one) had to launch their claims with the Scheme Administrator on before the cut-off date of 5 July 2000 in respect of any claims they may have against any of the participating companies which arose before the effective date of 28 April 2000. Moreover under the scheme, there is a clause barring proceedings against the participating companies which effectively imposes a moratorium over legal proceedings brought against any of the participating companies.

6. The second matter which occurred was that in about November 2000, Ming An disclaimed liability upon the insurance policy taken out by the 3rd defendant and had informed the 3rd defendant accordingly. However, the plaintiff was only informed of same by the 3rd defendant some time in April this year.

7. The combined effect of these two occurrences was such that firstly, although solicitors instructed by Ming An had taken over the conduct of the defence on behalf of UDL Contracting Limited in the employees compensation claim started in the District Court, those solicitors ceased to act in those proceedings in April 2001. In so far as the present proceedings are concerned, although the Writ had been served on the 3rd defendant's and the requisite notices had been given to Ming An as insurers, no acknowledgement of service had ever been entered by the 3rd defendant and no steps had been taken by Ming An in the defence of these proceedings. UDL took the stance that if Ming An would take over the defence in the present proceedings, that would not affect the Scheme of Arrangements in any way and was prepared to allow that course to be taken. On the other hand, Ming An did not wish to take over the defence of the present proceedings since it had disclaimed liability on the insurance policy taken out by the 3rd defendant. As a result no acknowledgement of service of the Writ has ever been filed either by the 3rd defendant or by Ming An on its behalf. In the meantime correspondence exchanged between the plaintiff's solicitors, the 3rd defendant's solicitors as well as solicitors acting for Ming An did not resolve the problem.

8. This therefore, led to the plaintiff issuing his summons dated 12 April 2001 and which no doubt prompted the 3rd defendant to issue its summons dated 16 May 2001 in turn.

The plaintiff's application

9. The plaintiff's application is made on the following footing. Firstly, the plaintiff acknowledges that there is a Scheme of Arrangements in operation in which the 3rd defendant is one of the participating companies. The plaintiff also accepts that under the Scheme of Arrangements, one of the aim is to preserve the assets of the participating companies, such assets to be used as per the Scheme of Arrangements.

10. The plaintiff, however, submits that under section 43 and 44 of the Employees Compensation Ordinance, the plaintiff is entitled to look to the insurers Ming An for satisfaction of any judgment it may obtain against the 3rd defendant. Therefore, says the plaintiff, he should not be prevented from taking this course where it would not have any impact upon the assets of the 3rd defendant. By the same token, the plaintiff argues that the Bar to Proceedings clause in the Scheme of Arrangements does not bar the present proceedings for the same reason. If need be the plaintiff was prepared to undertake not to execute any judgment against the 3rd defendant's assets or property without the leave of the Court thus ensuring that the Scheme of Arrangements would not be adversely affected by any judgment obtained by the plaintiff against the 3rd defendant in these proceedings.

11. Reliance is placed by the plaintiff on the decision by the Court of Appeal in the case of Pang Wai Chung v Tai Ping Insurance Co Ltd [1999] 2 HKLRD 354 to say that a statutory right given to an employee to look directly to the insurance company for satisfaction of a judgment obtained by the employee only accrues upon quantification of the claim. Relying upon that decision the plaintiff submits that the plaintiff has no right at this moment in time to join in Ming An as a defendant in the present proceedings or even to sue Ming An in a separate action before the plaintiff's claim has been quantified and/or judgment obtained against the 3rd defendant.

12. Based on such submission, the plaintiff says that the only course open to him is to proceed against the 3rd defendant (together with the 1st and 2nd defendants) to judgment and then to directly look to Ming An to satisfy such judgment.

13. Moreover, the plaintiff accepts that it has not lodged with the Scheme Administrator the requisite formal notice of claim which all creditors had been asked to lodge with the Scheme Administrator on or before the cut off date, although actual notice of the plaintiff's claim in these proceedings had been made known to the Scheme Administrator before the cut off date. However, counsel for the plaintiff concedes that this does not assist the plaintiff's present application since it is not the plaintiff's intention to stand in queue with the other unsecured creditors to rank pari passu over the 3rd defendant's assets under the Scheme of Arrangements but that it is the wish of the plaintiff to obtain judgment against the 3rd defendant and to look to Ming An to satisfy that judgment thus completely bypassing the Scheme of Arrangements and also the 3rd defendant's assets.

The 3rd defendant's stance

14. The 3rd defendant relies primarily on the Bar to Proceedings clause in the Scheme of Arrangements to say that by that clause there is a general moratorium on all claims against the 3rd defendant. It takes issue with the plaintiff's assertion that the Bar to Proceedings clause does not or should not apply to the plaintiff's claim against it in the present proceedings. In this respect, it relies on the fact that both in the judgment of the judge in the Companies Court in First Instance approving that Scheme and also the judgement of the Court of Appeal (on appeal from that judgment) it was clearly recognised and accepted both by the judge at First Instance and by the Court of Appeal that there was a moratorium over all claims or proceedings against the participating companies under the Scheme of Arrangements.

15. Counsel for the 3rd defendant further submits that even with an undertaking by the plaintiff not to execute against the assets of the 3rd defendant without the leave of the court herein, that would not be a sufficient safeguard for the 3rd defendant since the 3rd defendant will necessarily need to incur legal costs in defending such claim and that would have an effect on the assets of the 3rd defendant.

16. Counsel for the 3rd defendant acknowledged that the application by the 3rd defendant to have these proceedings stayed against it ought to have been made much earlier. The reason given for not doing it until now was that the 3rd defendant was hopeful that Ming An would take over the defence of the claim against the 3rd defendant. It was only until it became apparent that that was not to be that this application to stay the proceedings was taken out by the 3rd defendant.

17. Lastly it was submitted by the 3rd defendant that even if the present proceedings against the 3rd defendant was stayed by an order of the Court, the plaintiff would still be able to either join Ming An as a party to the present proceedings or to bring a separate action against Ming An and have that matter consolidated with these proceedings. In so submitting counsel for the 3rd defendant relies on certain passages in the judgment of Lui J.A in the case of Pang Wai Chung which suggests that sub-sections (2) and (3) of section 44 of the Employee's Compensation Ordinance creates a procedural exception to the general rule which allows an insurer to be sued even before the claim has been quantified and therefore before the cause of action against the insurer has in fact arisen provided that the condition laid down in sub section (2) is met or, if it is not, the claim comes within the further exceptions provided for by sub-section (3).

Decision

18. The first step must be for me to consider the Bar to Proceedings clause in the Scheme of Arrangements. The relevant part of that clause reads as follows:

"The Scheme bars the Creditors during the period while the Scheme is effective and in operation from taking any action or proceedings against or for winding up the Company or the Scheme Participating Subsidiaries for the purposes of obtaining any payment, property or security from the Company or the Scheme Participating Subsidiaries in relation to any Claim or Secured Debt (except that nothing in the Scheme shall prevent any Secured Creditor from realising its security or affect the conduct of any arbitration between the Company or any Scheme Participating Subsidiary and any claimant against the Company or such Scheme Participating Subsidiary which has commenced and is continuing as at the Effective Date provided that the amount recoverable pursuant to any award made therein shall be limited in accordance with the provisions of the Scheme), and the payments to be made to Preferential Creditors and the distribution of cash Dividends and issue of New Shares to the non-preferential Scheme Creditors will be in full and final settlement and discharge of the Scheme Debts."

19. The same clause then goes on to deal with overseas creditors taking action or proceedings in other jurisdiction against the Company or any Scheme Participating Subsidiaries.

20. I take the view that a Scheme of Arrangements under the Companies Ordinance, in order to be effective, there must normally be imposed a moratorium upon claims against the debtor during the period in operation of the scheme. The present Scheme of Arrangements is no exception. Neither is the present proceedings. In my view, the wording of the Bar to Proceedings clause contained in the Scheme of Arrangements is wide enough to achieve just that. Should there be a stay of proceedings in the present case in respect of the claim against the 3rd defendant or would the plaintiff be so prejudiced by such an order?

21. That brings me to the next question that I have to decide which is whether the plaintiff can have direct recourse against the insurers Ming An at this point in time bearing in mind the plaintiff's claim against the 3rd defendant has not been determined by a court and the amount of the claim has therefore not yet been quantified.

22. Firstly, there can be no dispute that under section 43 of the Employee's Compensation Ordinance, which deals with the conditions under which liability for payment by an insurer arises, the words "where... the employer 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,..." clearly indicates that the liability of the insurer arises only when the claim against the employer has been quantified either by a judgment of the court or by agreement between the employer and employee concerned. As a general rule therefore, an employee cannot bring an action against the insurer for such sum until he has obtained a judgment and a quantification of his claim against the employer or his claim against the employer has been compromised by them.

23. It was decided by the Court of Appeal in the case of Pang Wai Chung that sub-sections (2) and (3) of section 44 of the same Ordinance, which came into existence in July 1993, were procedural and did not alter the substantive law. By its wording, these two sub-sections clearly create an exception to this general rule allowing an employee to commence an action against the insurers even before he has obtained a judgment or a quantification of his claim against the employer provided the conditions laid down in those two sub-sections are fulfilled. Two of the conditions stated in sub-section (3) of section 44 are met in the present case since the 3rd defendant, being the insured, is insolvent and Ming An, being the insurers, has disclaimed liability under the policy of insurance.

24. In the present case, I take the view that in all the circumstances prevailing, the present case must be a classic case where the plaintiff can take advantage of sub-section (3) of section 44 of the Employee's Compensation Ordinance to either commence an action against Ming An or to join it as a defendant in the present proceedings pursuant to the rights given to the plaintiff by sections 42 and 43 of the same Ordinance even before its claim against the 3rd defendant has, as yet, been quantified.

25. Counsel for the plaintiff, in putting forward a view different from the one that I have taken above, has sought reliance on the decision in the case of Bradley v. Eagle Star Insurance Co. Ltd [1989] 1 AC 957. The short answer to that argument of the plaintiff is that the case of Eagle Star was decided on statutory provisions in the Third Parties (Rights against Insurers) Act 1930 in England the wording of which are very different from those in section 44 (in particular sub-sections (2) and (3) thereof) of the Employee's Compensation Ordinance. That decision therefore cannot assist the plaintiff in the present matter.

26. Accordingly and for the reasons given above, I will dismiss the plaintiff's summons and make the order that all proceedings herein against the 3rd defendant be stayed.

27. I shall now hear the parties as to any other application they may have consequential upon this ruling and on costs.