KWONG CHI WA v. CHAN KWONG CHEUNG JACK t/a WK LOGISTICS CO AND OTHERS

DCEC 1210/2018

[2019] HKDC 1309

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

EMPLOYEES’ COMPENSATION CASE NO 1210 OF 2018

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DECISION

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INTRODUCTION

1.  This is a summons issued by the applicant for an order, inter alia, for leave to accept the sanctioned payments made by the 1^st respondent and to request the 1^st respondent to pay the 3^rd respondent’s costs of defending the applicant’s claim (“the Summons”).

BACKGROUND

2.  On or on about 5January 2017, the applicant sustained personal injury in an accident arising out of and in the course of his employment.

3.  At all material times, the applicant claims that he was an employee employed by Chan Kwong Cheung Jack trading as WK Logistics Company (“the 1^st respondent”) who in turn was the sub-contractor of May Fair Cosmetics Limited (“the 3^rd respondent”), the principal contractor.

4.  On 30 May 2018, an employees’ compensation application was made by the applicant against the 1^st, 2^nd and 3^rd respondents (“the Application”).

5.  On 27 July 2018, HH Judge Levy granted leave to the applicant to discontinue his claim against the 2^nd respondent.

6.  On 16 October 2018, the 1^st respondent made a sanctioned payment of HK$65,000.  On 12 November 2018, the 1^st respondent made a further sanctioned payment of HK$8,000.  The total sanctioned payment therefore stood at HK$73,000.  

7.  The applicant indicated to the respondents that he was minded to accept the sanctioned payments and discontinue the EC proceedings against the 3^rd respondent. The 3^rd respondent responded by saying that it would seek its costs in defending the matter but is neutral as to who should ultimately bear its costs. The 1^st respondent indicated that it would not pay the 3^rd respondent’s costs, as well as the applicant’s costs incurred by reason of joining the 3^rd respondent.

8.  The applicant submits that the 1^st respondent should pay the 3^rd respondent’s costs and that a Sanderson order should be made.  The applicant relies on the fact that the 1^st respondent has stated in his Form 2 and his declaration to the Labour Department that the 3^rd respondent was his principal contractor.  Further, he has failed to respond to the applicant’s pre-action letter.  The 1^st respondent only denies the 3^rd respondent was his principal contractor when he filed the Answer after the Application was filed in this case.  The applicant therefore submits it was reasonable for the applicant to commence the EC proceedings against the 3^rd respondent in order to protect his own interest. 

DISCUSSION

Issues to be determined

9.  In the Summons, there are two questions which need to be determined by the court:-

(i)  Whether or not it was reasonable for the applicant to proceed against the 3^rd respondent?

(ii)  If it was, should the unsuccessful defendant, ie the 1^st respondent, be ordered to pay the 3^rd respondent’s costs, directly, via a Sanderson order, or indirectly, via a Bullock order?

(i)   Whether it was reasonable for the applicant to proceed against the 3^rd respondent?

10.  Mr Richard Yip for the applicant submits that, where a plaintiff, upon payment made into court, discontinues the action against a non-paying-in defendant, the court has jurisdiction to make a Sanderson order for the paying-in defendant to bear the costs of the non-paying-in defendant(s), the question is whether or not it was reasonable for the plaintiff to sue the other defendant(s) who did not make payment into court: General Accident Insurance Asia Ltd v Hampton Winter & Glynn (a firm) & Others [1998] 4 HKC 398 at 415H-417E; Lau Foon Wing v Cheuk Lau Shek, unrep, 29 September 2008, DCEC 757/2007 at §60.

11.  Further, the applicant submits that the court could order an unsuccessful defendant to pay a successful defendant’s costs where the unsuccessful defendant blames the successful defendant and caused the plaintiff to proceed against it: Fung Chun Man v Hospital Authority & Others [2012] 1 HKC 531.

12.  In such situation, the court may make a Sanderson or Bullock order.  Fok JA (as he then was), in Chong Ngan Seng v China Harbour Engineering Company Limited & Ors, unrep, 25 September 2013, CACV 54/2012, explained how the court should exercise its discretion at §§5-7:-

“5. Where a plaintiff sues a number of defendants, the court may order an unsuccessful defendant to pay the costs of a successful defendant. It may do so in one of two ways: either by a Sanderson order whereby the unsuccessful defendant is ordered to pay the costs of the successful defendant directly or by a Bullock order whereby the plaintiff pays the costs of the successful defendant but is indemnified in respect of that liability by the unsuccessful defendant, thereby indirectly requiring the unsuccessful defendant to pay those costs.

6. In deciding whether to make a Sanderson or Bullock order and, if so, which of the two orders to make, the court is exercising its discretion.

7. It was common ground that, in deciding whether to exercise that discretion, the court looks to see whether it was reasonable in all the circumstances of the case for the plaintiff to join the successful defendant in the action: see Leung Lai-ha and Another v Hon Sati-ling and Another [1993] 1 HKLRD 86, a decision of this court, and see also, as a recent example of the statement of this principle, the judgment of Bharwaney J in Fung Chun Man v Hospital Authority [2012] 1 HKC 531 at §5.” [emphasis added]

13.  Mr Tasman Tam for the 1^st respondent on the other hand submits that the applicant did not file a notice of acceptance of sanctioned payment pursuant to O22 rr15(1) and r18(2) of the Rules of the District Court (“RDC”) in this case.  Therefore, the 1^st respondent submits that the starting point is that O22 r18(4) RDC governs the present application, where the court has an unfettered discretion in relation to costs, instead of the default costs consequence under O22 r20(1) RDC: Kaur Paramjit v Li On Na t/a 新長發快餐& Others, unrep, 15 August 2019, DCEC 1479/2012, at §§16, 18.

14.  Bharwaney J in, Li Kai Yin v Atta-Trans Ltd and Another, unrep, 18 July 2011, HCPI 196/2009, gave an obita as to the approach of a plaintiff wishing to accept sanctioned payment by one of the defendants and not wishing to pursue the claims against other defendants, at §14:-

“… The proper course ... is to ask for an order that the proceedings be discontinued against the other defendants and for the paying-in defendant to bear the costs of the plaintiff incurred against the discontinued defendants as well as the costs of the discontinued defendants. The plaintiff can obtain such an order if he can demonstrate that it was reasonable for him to sue the discontinued defendants…”

15.  Mr Tam therefore submits that, despite the cases referred to by the applicant’s counsel in his submissions, it has been accepted by HH Judge Levy in Kaur §§51-52, that in respect of costs of “discontinued” respondent, the general principle is that the applicant should pay such costs, unless the applicant can satisfy the court that there are circumstances that clearly justify a departure from this general principle (adopting §15 of Li Kai Yin).

16.  There appears, as submitted by Mr Tam, a judicial trend that reasonableness is no longer the determining factor, at least in relation to “discontinued” respondent (vs that of “successful” respondent in Fung Chun Man v Hospital Authority & Others [2012] 1 HKC 531).  Consistent with this proposition is what Mrs Justice Jefford stated in BAE Systems Pension Funds Trustees Limited v Bowmer & Kirkland Limited & Ors [2018] EWHC 1222 (TCC) at §6 & §32.

17.  In other words, the 1^st respondent submits that, in exercising its unfettered discretion, the court is entitled to look beyond the sole factor of reasonableness in instituting a claim against the discontinued respondent (ie the 3^rd respondent).  The burden is on the applicant to satisfy the court that in all circumstances it is justified for a departure from the said general principle.

18.  To that extent that the applicant relies on §6 of Fung Chun Man, the 1^st respondent submits that it must be read in light of what Bharwaney J had referred to in the paragraph immediately preceding:-

“5. ... The Court must, in each case, determine whether or not it was reasonable for the plaintiff to proceed against the successful defendant. If it was, the unsuccessful defendant may be ordered to pay the successful defendant's costs, either directly, via a Sanderson order, or indirectly, via a Bullock order. As explained by Vaughan Williams LJ stated in Besterman v British Motor Cab Co Ltd [1914] 3 KB 181 at p 187, such costs form part of the reasonable costs of the action:

The proper way is—do not join any defendant unreasonably; if the facts are such that it is reasonable to join them both and reasonable to be in a state of uncertainty as to which of the two is the really guilty one, then it is part of the reasonable costs of the action that the costs of the action which you have launched against one of those defendants, and who has succeeded in defending himself, should be borne by the man who is to blame.’…” (emphasis added)

The Court’s findings

19.  I accept that Mr Tam’s submission that the general rule in cases like our present one is that the applicant should pay the costs of the discontinued respondent upon discontinuance of the proceedings unless he can satisfy the court that there are circumstances that clearly justify the departure from the general principles: see §52 of Kaur.  In each case, the question is whether it was reasonable for the plaintiff to proceed against the successful defendant.  If it was, then the unsuccessful defendant may be ordered to pay the successful defendants’ costs.  As in any other cases dealing with costs, the court has an unfettered discretion in such matters, provided such discretion is exercised judicially with good reasons. In this regard, I do not consider the English case of BAE System, supra has added anything to the above trite principles.

20.  In my judgment, there are circumstances in this case which clearly justify a departure from the above general principles.

21.  First, it was the 1^st respondent who had positively misled the applicant into believing that the 3^rd respondent was his main contractor. 

22.  In the Form 2 filed by the 1^st respondent on 28 November 2017, the 3^rd respondent was identified as the “principal contractor” by the 1^st respondent.

23.  In the declaration made by the 1^st respondent to the Labour Department on 26 March 2018, the 1^st respondent made the following assertions to confirm that the 3^rd respondent was his principal contractor:

“問(9)：	你係唔係鄺志華嘅僱主？
答(9)：	唔係，佢係我嘅拍檔。
…
問(14)：	美豐化妝品有限公司與你有甚麽關係？
答(14)：	該公司是總承判商，外判運輸工作給我。
問(15)：	美豐化妝品有限公司有沒有僱員補償保險單？若有，該公司的保險單會保障你的員工？
答(15)：	該公司有僱員補償保險，因爲該公司的負責人蔡先生跟我講過有保單，所以我相信有。但我沒有見過該份保單。該負責人話份保單會保障埋我的員工。
問(16)：	美豐化妝品有限公司幾時開始外判運輸工作給你？
答(16)：	該公司從2012年開始直到現在仍外判運輸工作給我。”

24.  Secondly, the applicant had issued a pre-action letter to the 1^st respondent on 8 August 2017.  In the letter, the applicant alleges that he worked for the 1^st respondent.  He also sought discovery of documents from the 1^st respondent to verify the contractual relationship between the 1^st and 3^rd respondents.

25.  It is significant to note that the 1^st respondent had not replied to the pre-action letter at all.  In other words, he had not disputed the relationship between him and the 3^rd respondent before the Application was made.

26.  I noted that the Application in the present proceedings dated 30 May 2018 was only filed after the occurrence of the above events.

27.  Given the above information and the clear admissions/assertions by the 1^st respondent, I am of the view that it was perfectly reasonable for the applicant to join the 3^rd respondent as the alleged principal contractor in the Application.  To the contrary, armed with those information and clear admissions/assertions by the 1^st respondent, it would in my judgment be irresponsible for the applicant or his legal representatives not to join the 3^rd respondent as the alleged principal contractor in the case.

28.  The 1^st respondent in his affirmation filed for the purpose of opposing the Summons stated that being a layman who is not well educated, he did not know the legal meaning of “principal contractor” (「總承判商」).  Hence, he put that down in both the Form 2 and his declaration to the Labour Department.

29.  I have no hesitation to reject such absurd allegation.  In my view, it has nothing to do with whether he is a layman or the level of education he received.  It is not difficult for a person who has experience in the logistic trade, as the 1^st respondent clearly has in this case, to know who is or is not his principal contractor. I find that at the time of making those assertions, the 1^st respondent must have good reasons to believe that the 3^rd respondent was his principal contractor, whether in law that is correct or not.  If he did not believe in it at the time but had only wanted to get the 3^rd respondent involved for tactical or financial reason, he cannot later blame it on the applicant to rely on this as basis to commence proceedings against the 3^rd respondent.  If the applicant chose to rely on his admissions/assertions and his lack of response to the pre-action letter, the 1^st respondent only has himself to blame.

30.  I therefore find that in the circumstances of this case it was reasonable for the applicant to proceed against the 3^rd respondent.

(ii)   Should the unsuccessful defendant, ie the 1^st respondent, be ordered to pay the 3^rd respondent’s costs, directly, via a Sanderson order, or indirectly, via a Bullock order?

31.  I agree with Mr Yip’s submission that the court has a broad discretion in deciding whether to make a Sanderson order or Bullock order.  In deciding this matter, the court would take into account of the practical consequences of the costs order.

32.  In Chong Ngan Seng, supra, the Court of Appeal ordered a Sanderson order instead of a Bullock order based on the following reasons:

“there is no certainty that the 2^nd to 4^th defendant will all be impecunious so that the 1^st defendant would not be able to recover its costs from one or other of them. On the other hand, the amount of damages awarded to the plaintiff in the present case was the sum of HK$305,115.55 with interest and these damages would be very likely significantly eroded if the plaintiff were to be liable for the 1^st defendant’s costs but unable to recover them from the other defendants.” [emphasis added]

33.  In my view, similar considerations should apply in our case. 

34.  First, the 1^st respondent is an individual with no employees’ compensation insurance cover and whose financial status is unknown to the applicant.  Therefore, there is a risk that he might be insolvent when faced with a costs order. 

35.  Second, the amount of compensation at HK$73,000 will most likely be significantly if not totally eroded if the applicant were to be liable for the 3^rd respondent’s costs.

36.  Lastly, the applicant is on legal aid and I do not think it is right that the legal aid fund should be placed at risk of paying the costs of the 3^rd respondent if the same cannot be recovered from the 1^st respondent.

37.  In the aforesaid premises, I think a Sanderson order is more appropriate in this case.  I so order.

Order

38.  In the aforestated premises, I make the following Order in this case:-

(1)  The applicant be at liberty to accept the sanctioned payments in the total sum of HK$73,000.00 paid into court by the 1^st respondent on 16 October 2018 and 12 November 2018 in full and final settlement of his claim in this action;

(2)  The aforesaid sanctioned payments in total sum of HK$73,000.00 paid into court by the 1^st respondent be paid out to the Director of Legal Aid on behalf of the applicant;

(3)  The applicant’s claim against the 3^rd respondent be discontinued;

(4)  The 1^st respondent do pay the applicant’s costs of this action, including the applicant’s costs against the 3^rd respondent, such costs to be taxed if not agreed;

(5)  The 1^st respondent do pay the 3^rd respondent costs of defending the applicant’s claim, such costs to be taxed if not agreed;

(6)  The 1^st respondent do pay the costs of the Summons, with certificate for counsel; and

(7)  The applicant’s own costs be taxed in accordance with the Legal Aid Regulations.

39.  Lastly, I would like to thank counsel on both sides for their helpful assistance.