PATRICIA AUNETTE SHEPPARD v. RICHSTONE INDUSTRIES CO LTD AND OTHERS

HEADNOTE

                Industrial Law - employees compensation - jurisdiction of District Court - whether the Court has jurisdiction to decide questions of indemnity against a third party - jurisdiction if lacking cannot be conforred by consent or waiver - Ng Mei Ho and Others v. Leung Sil 1962 D.C.L.R. 52 followed.

IN THE DISTRICT COURT OF HONG KONG

HOLDEN AT VICTORIA

CIVIL JURISDICTION

EMPLOYEES' COMPENSATION CASE NO. 113 OF 1984

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JUDGMENT

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1. Since this matter has gathored complications as a rolling stone gathers moss during its progression, I shall briefly trace the history of the various steps taken. There are in fact three related applications before the Court all of which refer to the same questions of law and fact. Therefore they can be conveniently heard together. The actions, which were commenced in September 1984, were for compensation brought by dependants of crew members of the barquentine Osprey lost at sea on 9th September, 1983.

2. In ECC 113/84 the application is against Richstone Industries Co. Ltd. as 1st Respondent and Alexson Company Ltd. as 2nd Respondent whilst in ECC 116/84 and 117/84 the a plication is against Richstone as authorised agent of Alexason. On 22nd September, 1984 notice to act in all three applications was filed by the solicitors for Richstone and Alexson. At the same time a summons was taken out by these solicitors in respect of all these applications for Eastern Insurance Company Limited ('Eastern') to be joined as a party to the proceedings pursuant to S.43 of the Employees' Compensation Ordinance and for any sum due or becoming due to the applicants to be payable by Eastern.

3. The three summonses were heard at Victoria District Court on 4th October, 1984 when the Court made an order joining Eastern as a party to the proceedings and by agreement of the parties deferring the second limb of the application to the trial of the substantive issue.

4. On 7th November, 1984 Eastern applied to the Court for a review of the order joining Eastern made on 4th October, 1984. It asked the Court by way of clarification to indicate whether in making the order of 4th October, 1984 it did so pursuant to Section 43 or simply under Rule 24 of the Employees' Compensation (Rules of Court) Rules. If it were the former the Court was asked to vary the order to make it one under Rule 24 in lieu of Section 43. This was sought upon the primary ground that Section 43 imposes an obligation on the insurer to pay damages directly to an employee and that was the very issue which the Court had directed should be decided at the trial. If a joinder was made pursuant to Section 43, which only came into force on 1st January, 1984, subsequent to the incident which gave rise to the proceedings, then it might be construed as pre-determining the issue, which was the liability of the insurer to pay directly to the employee. After hearing the parties His Honour Judge Honry Wong confirmed that notwithstanding the terms of the application ho had acted under Rule 24 and not Section 43 when making the order and gave leave to the 1st and 2nd Respondents to appeal against his order. On 2nd January, 1985 and 4th February, 1985 the Court made further orders in relation to the pleading to be filed and served by the contesting parties.

5. The present application before me is one by the 3rd Respondent Eastern Insurance Company Limited, for an order that (a) the 1st and 2nd Respondents' (In ECC 113/84) statement of claim against the 3rd Respondent be struck out and dismissed as being frivolous or voxations or an abuse of the procees of the Court, pursuant to Order 18 Rule 19 of the Rules of the Supreme Court, and under the inherent jurisdiction of the Court for the reason that the subject matter is outside the jurisdiction of the Court under the Employees' Compensation Ordinance, Cap. 282; or (b) in the alternative that the Court consider and determine a preliminary issue, namely whether it has jurisdiction in the present proceedings to hear and determine the issues raised in the said statement of claim and grant the relief prayed for therein; or (c) in the alternative to (a) and (b) that time be extended until 21 days after the hearing of this Summons to file a defence to the said statement of claim.

6. In particular Mr. Bharwaney for Eastern in his submissions referred me to Clause 8 of the statement of claim wherein the 1st and 2nd Respordents claimed that in the event that they are found liable to the applicant they are entitled to be indemnified by Eastern against the Applicant's claim and the costs of the action. Mr. Bharwaney said the District Court had no jurisdiction to entertain such a elaim and grant such relief, which should be the subject of separate procedings in the High Court. He said it could not have been the Legislature's intention that the District Court should determine complicated questions of insurance law but rather as provided in the Ordinance simple questions of compensation for which a speedy decision was required. He based his submissions on the provisions of Sections 18A and 21 of the Employees' Compensation Ordinance as well as up on two cases - one in the District Court - Ng Mei Ho & Others v. Leung Sil - a decision of His Honour Judge Huggins (as he then was) reported in 1962 D.C.L.R. at Page 52; and the other a decision of the Lands Tribunal by His Honour Judge Cruden in case L.T. 409/84 which he prayed in aid as being in relation to a similar situation prevailing in that tribunal.

7. Mr. Mackay for Richstone and Alexson submitted that an insurance company was a proper party to be joined in employees compensation proceedings and the District Court not only had power to join such an interested party, but also to determine questions of indemnity arising. He said if there were no employees compensation claim the question of indemnity would not arise, and the two were so completely intertwined that disposal of this question was censistent with the nature and tenor of the Ordinance providing for speedy disposal of compensation cases and matters arising thereunder. He argued further that Section 43 did not create a completely new right but on the contrary there had always been that right.

8. For Sui Yui Kwan and Wang Chang Sou Ying the applicants under ECC 116/84 and ECC 117/84 respectively Mr. Pirie argued that the application was misconceived; there had been a history of indemnity with rules and third party notices in compensation proceedings in the District Court and Ng Mei Ho's case had been wrongly decided; that Section 43 in reality only brought about a procedural change and that in any event the 3rd Respondent by filing an answer the pleading in which went to the merits of the application, had waived the right to say the Court had no jurisdiction to decide indemnity questions and had consented to it.

9. Miss Mo for the applicant in EEC 113/84 also opposed the application before me and adopted the submissions of counsel for the 1st and 2nd Respondents.

10. In reply Mr. Bharwaney drew a distinction between mere joinder of a party which enables him to participate in an action because he has a financial or some other interest in the subject-matter, and the Court's jurisdiction to grant indemnity against the joined party. On the matter of waiver he said that there was a further distinction to be drawn here between territorial jurisdiction and functional jurisdiction. The former could be waived by the actions of a party but waiver could not confer the latter on a court when it was demonstrably missing. He further argued that submissions about Section 43 were not relevant since the statement of claim does not claim under that section but for indemnity under the policy of insurance.

11. Section 18A of the Employees' Compensation Ordinance empowers the District Court with certain exceptions to determine all claims for compensation and any matter arising out of proceedings in respect of such claims; whatever may be the amount involed. Does this section creating a special jurisdiction in the District Court enable it to hear claims against insurance companies relating to questions of indemnity arising out of compensation claims? That is the basic question I have to decide. Mr. Bharwaney says the present claim does not arise out of the proceedings but is a totally independent claim and therefore there is no jurisdiction.

12. His Honour Judge Huggins (as he then was) was faced with a similar situation in Ng Mei Ho and others v. Leung Sil 1962 D.C.L.R. 52. In that case the applicants claimed as the dependants of a deceased worker said to be employed by the Respondent. The Respondent not only denied this but it alloged (a) that the accident causing the death of the deceased did not arise out of and in the course of his employment; and (b) that the deceased was electrocuted by coming into contact with apparatus on the premises of the T.T.E. Factory which was in breach of a duty of care to the deceased and therefore liable in damages to his personal representatives. The respondont claimed to be ontitled to be indemnified by the factory under Section 24 of the Workers' Compensation Ordinance 1953 and applied for an order to join the factory as third party in the proceedings. It was held that the Court had no jurisdiction to make an order of indemnity in those proceedings under Section 24 which provided that the respondent's rights against a third party should be settled by civil action in default of agreement. It was further held that proceedings under the Workmens' Compensation Ordinance were not a civil action. The learned judge declined to join the factory as third party but directed that notice of the proceedings be given to the factory.

13. Although Mr. Pirie invited me to hold that Ng Mei Ho's case was wrongly decided, I decline to do so. The old section 24 has of course been ropealed in the Amending Ordinance of 1982. The clauses conferring jurisdiction are now Sections 21 and 18A. I have already referred to the offect of Section 18A. Section 21 is in these terms:-

With respect I am in full agreement with the observation of the learned judge in Ng Mei Ho at Page 55 that:-

"if proceedings under this ordinance were civil actions it would have been unnecessary to provide that in determining questions under the Ordinance the Court shall have all the powers and jurisdictions exercisable by the District Court in or in connection with civil actions."

Similar reasoning was adopted by His Honour Judge Cruden in Tsang Wai v. Ng Hei-fong L.T. Application No. 409 of 1984 but as that case referred to jurisdietion in a different Tribunal it is not strietly germane to the case before me. I take the view that the Employees' Compensation Ordinance creates a special jurisdiction in the District Court as distimot from its jurisdiction to hear civil cases under the District Court Ordinance and if the Legislature had intended that the District Court should have jurisdiction to docide questions of indemnity under Cap. 282 it would have said so in specific and unambiguous language. Mr. Bharwaney further submitted that the present case is far weaker than that in Ng Mei-ho because it is founded in contract and not in the provisions of the Ordinance, an agreement with which I agree.

14. Nor am I of the opinion that matters of indemnity can be brought under the aegis of the Court's jurisdiction by labelling them issues arising out of the proceedings as referred to in Section 18A. In my view that phrase was meant to encompass procedural and interlocutory matters which arise from compensation claims properly brought under the Ordinance. Joindor of additional parties would certainly be such a matter, as also would other ancillary matters such as the apportionment of sums recovered by or on behalf of the deceased person's dependants.

15. Rule 24 of the Employees' Compensation (Rules of Court) Rules is in those terms:-

"The Court may at any stage of the proceedings, upon request made to it in writing or of its own motion order that any person appearing to be interested be joined in the proceedings."

16. Clearly this Rule gives the District Court a wide discretion to join anyone in the proceedings at any stage, whom it considers is or appears to be "interested" in the proceedings. There is little doubt that insurance companies fall within the definition of "interested parties" and in my view the order joining Eastern was correctly made. In support of this I need only quote from the judgment of Lord Diplock in Gurtner v. Circuit and another 1968 Q.B. at Page 602 a case to which I was referred at the hearing:-

"Clearly the rules of natural justice roquire that a person who is to be bound by a judgment in an action brought against another party and directly liable to the plaintiff upon the judgment should be entitled to be heard in the proceedings in which the judgment is sought to be obtained. A matter in dispute is not, in my view effectually and completely "adjudicated upon" unless the rules of natural justice are observed and all those who would be liable to satisfy the judgment are given an opportunity to be heard. In the case of an ordinary insurer this does not arise in practice, since the standard terms of a third-party liability policy give to the insurer a contractual right to conduct the defence of the running-down action in the name of the assured. But as I read his judgment in the Fire Auto and Marine case (1962 2 Q.B. 687) John Stephenson J. would have allowed an ordinary insurer to be added as a party to a running down action if the policy of insurance did not contain such a term. And this, I think, would be right."

17. The joinder of a party under Rule 24 is however clearly a different matter from that of the Court's jurisdiction to grant indemnity against an interested party Ng Mei Ho demonstrates that such a party may be joined in the proceedings and participate in the hearing because it has an interest in the subject-matter and cutcome since it may well be liable to satisfy the judgement. Indeed as pointed out in Ng Mei Ho by the learned judge unless it does so it may find itself faced with an order for payment of compensation against the respondent which it will no longer be able to dispute. However, what the District Court cannot do in my opinion, is to grant relief by way of indemnity against such a party in compensation proceedings, because it has no jurisdiction to do so.

18. As to the question of waiver raised by Mr. Pirie, it is clear that the 3rd Respondent Eastern has filed an answer to the pleadings which goes to the merits of the application. It is contended that by so doing Eastern has waived the right to plead lack of jurisdiction which was not raised at the outset. I was referred to the case of Somportex Ltd. v. Philadepphia Chewing Gum Corporation 1968 3 A.E.R. 26 in support. That case however, related to the issue of territorial jurisdiction and not to that of functional jurisdiction. I accept Mr. Bharwaney's argument that no consent of the parties still less unilateral waiver can confer upon a Court the missing functional jurisdiction if it is lacking by statute from the outset. (see Rothman of Pall Mall (Overseas) Ltd. v. Saudi Arabia Airlines Corporation (1980) 3 A.E.R. 359).

19. As to Section 43 of Cap. 282, this is comprised in Part IV of the Ordinance, which came into force on 1st January, 1984. Clearly it has no relevance to the present claim in the first place because it was not in force at the time the incident giving rise to the claim occurred and I have been unable to find any evidence which would indicate that it was intended the section should be retrospective in operation. Secondly it is irrelevant for the reason advanced by Mr. Bharwaney that the statement of claim is founded not upon statute but upon contract. It pleads an indemnity under the policy of insurance, not under Section 43. If the applicants thought that Section 43 applied they could obtain a judgment against the employer and then bring an action against the insurance company. I therefore do not find it necessary to decide the point upon which Mr. Pirie offered submissions, namely that the introduction of Section 43 brings about only procedural changes and does not affoct any accrued rights.

20. For the reasons I have attempted to give I hold that the District Court in its special jurisdiction under the Employees' Compensation Ordinance lacks the necessary jurisdiction to deal with a claim for indemnity arising out of proceedings for compensation. Therefore I order in terms of Paragraph (a) of Eastern's summons dated 8th March, 1985 with costs.