LEUNG SIU MUI v. THE TAI PING INSURANCE CO. LTD.

DCMP573/2001

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 573 OF 2001

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J U D G M E N T

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1. This case has been very well argued on both sides. The background to this matter, which is not in dispute, can be shortly stated. The plaintiff is the widow of the late Mr Lee Siu-tong, the deceased. She sues, on her own behalf and for the deceased's other dependants, the defendants, who are the insurers of Yeung Che Fung, trading as Man Hing Construction Company, "the insured".

2. The insured was the principal contractor for building renovation works at a site at Kwun Tong. They had subcontracted the scaffolding work to Yeung Yat Sing, trading as Hang Sing Scaffolding Works, "the employers", who employed the deceased as a scaffolder at this site.

3. On 25 October 1997 the deceased was fatally injured in the course of his employment. The plaintiff then made an application in this court for employees compensation, case DCEC67/1998, in which both the employer and the insured, as principal contractor, were respondents. She obtained judgment on 22 March 2000 in the sum of $1,080,000 against both respondents, from which judgment there has been no appeal.

4. That judgment remains unsatisfied. The employer had neglected to take out a policy of insurance in respect of the deceased and does not have the financial ability to pay the amount of the judgment.

5. The insured had taken out two policies of insurance. One was an employees compensation policy which covered its own employees, but which excluded cover for the insured's subcontractors, including these employers. It is accepted therefore that this policy can have no bearing on these proceedings. The insured also took out a public liability policy, "the policy", which is at page 82 of the trial bundle, the terms of which I will need to consider in some detail in a moment.

6. In these proceedings the plaintiff claims against the policy in the sum of $500,000 being the full extent of the indemnity under its terms. The claim is specifically made under section 44(1) of part IV of the Employees Compensation Ordinance, Cap. 282, "the Ordinance". The subsection is in these terms.

"Every policy of insurance issued for the purposes of this part shall be deemed to provide that any employee or other person having a claim against the person insured in respect of the liability in regard to which such policy was issued shall, subject to section 42, 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."

7. In the course of this judgment I will be required to consider a number of the provisions of the ordinance, but I am now able to state the essence of the dispute that has arisen between the parties briefly.

8. Part IV of the ordinance sets out the regime for compulsory insurance under which an employer is required, under criminal sanction, to take out a policy that insures or purports to insure any employer against his liability to pay compensation for the injury by accident or for the death of an employee that arises out of and in the course of employment. (See Sections 38 and 40.)

9. The plaintiff's case is that by virtue of section 24(1) of the ordinance, which has the effect of fixing a principal contractor with the liability to pay compensation to an employee of his subcontractor as if that employee was employed by the principal contractor, and the combined effect of sections 38, 40, 43 and 44 of part IV of the ordinance, the policy here is to be taken as a policy issued for the purposes of part IV and is one to which the deceased, and now following his death his dependants, can look to to satisfy this judgment.

10. The defendant's case, put at its shortest, is that this policy is not a policy taken out for the purposes of part IV. It is not an employees compensation policy, but a public liability policy, and the plaintiff is therefore not entitled to look to it for what would be partial satisfaction of the judgment.

11. As I hope will emerge more clearly when I set out the relevant statutory provisions which bear on this issue, the decisive features of this case relate to whether: the deeming provisions in section 24(1), whereby a principal contractor is to be treated as the employer of his subcontractor's employees and thereby liable to pay those employees compensation as if they were directly employed by him, carry over to an employer's insurance obligations in part IV of the ordinance which, as appears from section 44(1) supra, give an employee a direct claim against his employer's insurers; and whether the insurance provisions of part IV go so far as to require a principal contractor to insure his subcontractors' employees; and finally, whether this particular policy is amenable to the plaintiffs' claim as one taken out for the purposes of part IV.

12. It is convenient to first set out the material parts of the ordinance, as this will explain the terms of the rival contentions before this court. Firstly, section 24(1), which appears in part II of the ordinance, the most important part of the legislation, dealing as it does with the means by which an employee may receive compensation for injuries suffered in the course of employment. It is in these terms:

"Where any person in this section referred to as 'the principal contractor', in the course of or for the purposes of his trade or business contracts with a subcontractor for the execution by or under the subcontractor of the whole or any part of any work undertaken by the principal contractor, the principal contractor shall be liable to pay any employee employed by that subcontractor or by any subcontractor in the execution of the work, any compensation under this ordinance which the principal contractor would have been liable to pay if that employee had been immediately employed by him. And where compensation is claimed from or proceedings are taken against the principal contractor, then in the application of this ordinance references to the principal contractor shall be substituted for references to the employer, except that the amount of any compensation calculated by reference to earnings shall be calculated by reference to the earnings of the employee under the employer by whom he is immediately employed."

13. I now turn to the other relevant provisions, all of which are contained in part IV, which is entitled "Compulsory Insurance".

14. I have already referred to section 38, which is the interpretation section under this part. The expression "policy of insurance issued for the purposes of this part" means any policy of insurance issued by an insurer that insures or purports to insure an employer against his liability to pay compensation for the injury by accident, or for the death of an employee that arises out of and in the course of employment.

15. Section 40 refers to the provisions for compulsory insurance against employers' liability. The following are its material parts for the purposes of this case.

"(1): Subject to subsections (1)B and (1)C, 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."

"(1)B: A principal contractor who has undertaken to perform any construction work may, in compliance with (1), take out a policy of insurance issued by an insurer for an amount not less than the amount specified in the fourth schedule in relation to a principal contractor in respect of the liability of the principal contractor and the liability of his subcontractor."

"(1)E(d): Where a principal contractor has taken out a policy of insurance under subsection (1)B, the principal contractor and a subcontractor insured under the policy shall be regarded as having complied with (1)."

"(1)F: The reference in this section to the liability of a person is a reference to the liability of the person under this ordinance, and independently of this ordinance, for any injury to his employee by accident arising out of and in the course of the employee's employment."

16. Subsection (2), which I need not set out here, provides for the criminal penalties in respect of an employer's failure to insure. I now refer to the material parts of the policy itself, page 82 of the trial bundle.

"Subject to the terms, exceptions, limits and conditions contained herein or endorsed hereon, the company will indemnify the insured against:

(A) all sums which the insured shall become legally liable to pay for compensation in respect of;

(1) bodily injury to or illness of any person;

(2) loss of or damage to material property occurring during the period of indemnity and happening or caused as described in the schedule under the heading of 'Description of Risk';

(B) all costs and expenses of litigation;

(1) recovered by any claimant against the insured;

(2) incurred with the written consent of the company in respect of a claim against the insured for compensation to which the indemnity expressed in this policy applies."

17. There are then exceptions to the policy which also appear at page 82. They are as follows in their material parts:

"The indemnity expressed in this policy shall not apply to (3) liability in respect of (a) injury or illness of any person under a contract of service or apprenticeship with the insured if such liability is in respect of injury or illness arising out of and in the course of the employment of such person by the insured."

18. And then I must make reference to page 86, which refers to the description of risk and which is in these terms, "Whilst engaged in internal and external renovation works, including scaffolding."

19. It is from these references that I must now decide this matter. I am told by both counsel that this particular issue has not had to be decided before, although I have been shown a number of cases where the Court of Appeal has been required to consider the effect of some of these provisions in respect of related but different issues which do provide me with the guidance that I require in determining this case.

20. I propose to start with section 24(1). Mr Chan, in the course of a series of persuasive submissions on behalf of the plaintiff, contends that the effect of section 24(1) is to deem the employee of a subcontractor also the employee of the principal contractor for all purposes of the ordinance, and thereby to afford the direct employee of a subcontractor all the rights of an employee of a principal contractor, which of course includes the part IV rights of an employee against his employer and against his employer's insurers.

21. If Mr Chan can get that submission home, he will have made considerable progress in providing his client with the locus standi to bring this claim. Against that Mr Bharwaney submits the deeming provisions in section 24(1) are limited to situations where an employee makes a claim for compensation. Its effect is to allow an employee to make a claim against his direct employer's principal contractor as if that principal contractor were his direct employer.

22. Once that is achieved for the employee, the effect of section 24(1) is spent. It has no further effect or impact on any other part of the ordinance, and certainly not on the insurance provisions appearing in part IV. In this respect I am satisfied that the burden of authority heavily favours Mr Bharwaney.

23. Mr Bharwaney started by drawing attention to the Court of Appeal decision in Wong Leung Tak v Hip Hing Construction Company Limited [1991] 2 HKLR 345, which is really restricted to deciding the effect and operation of section 24(1) as to the rights that it affords an employee in seeking compensation from his direct employer, the subcontractor, and the subcontractor's principal contractor, and also the rights of the principal contractor and the subcontractor "inter se", with particular reference to the rights of the former to claim an indemnity from the subcontractor. I do not feel able to get the assistance from this decision that Mr Bharwaney would wish me to derive from it.

24. A case that is much more in point is Woo Kin Wah v Somec Hong Kong Limited [1993] HKLR 300, which was when for the first time the effect of the deeming provisions of section 24(1) were raised in connection with the compulsory insurance provisions in part IV. It is right to observe that this was not a claim for compensation under the ordinance, but an action for damages for personal injury.

25. The 1st defendant was the contractor responsible for the building site, the principal contractor, and the 2nd defendant was the plaintiff's employer. The plaintiff's employer, (2nd defendants), had an insurer who was actively defending the action for their insured.

26. Tugu Insurance Company Limited, who insured the 1st defendant, the principal contractor, applied to the court to be joined in the action, relying on the provisions of section 43(3) of the ordinance, which I have not hitherto related, but which provides that if sufficient notice of proceedings for the recovery of compensation or damages is given to enable an insurer to apply to be added as a party to the proceedings, the court shall, on the application for joinder being made to it, add the insurer as a party, and the insurer shall have the same right to defend the proceedings as if such insurer were the employer.

27. Tugu therefore contended that having regard to the deeming provisions of section 24(1), their insured was to be treated as if they were the plaintiff's employers for the purposes of section 43, so that they should be added to the action. Tugu failed to persuade the court to allow them to be joined on a number of grounds, some of which have no relevance to the issue that I must decide.

28. The main ground for the decision was that the section 24(1) deeming provisions will only have effect when there is a claim for compensation, and not where there is an action for damages, with a result that Tugu would not have been liable to indemnify the 2nd defendant.

29. Nevertheless, Fuad V-P was of the view that the compulsory insurance provisions contained in section 40 only caught direct employers and not the principal contractor as the deemed employer by virtue of section 24(1). He dealt with the point in this way. It had been submitted to the court by counsel for Tugu that the judge at first instance was wrong to have inferred that there was no duty on the principal contractor to insure his subcontractor's employees. It was submitted that this must be wrong. Fuad V-P, at page 307, line 10, said:

"I find this an astonishing proposition and I reject it. If the plaintiff had not been insured by his employer or by the principal contractor, would the latter have been liable to be convicted under section 40(2) if the plaintiff had worked on the site? One has only to ask the question to appreciate how it must be answered."

30. What I get from that, therefore, is that Fuad V-P was firmly of the view that the section 40 insurance requirements only applied to a direct employer and not to a principal contractor, even in his deemed employer's guise under section 24(1).

31. This reasoning was followed two months later by a slightly differently constituted Court of Appeal, the Chief Justice in place of Kempster J.A., in the case of Leung Chack v Asia Insurance Company Limited [1991] 2 HKLR 496.

32. The appellant was the direct employee of a subcontractor, and the respondent was the insurer of the principal contractor on the building site. The appellant, who was injured at work, obtained compensation under the ordinance against his direct employer and the principal contractor by virtue of section 24(1), but the award had not been satisfied.

33. The appellant made a claim under section 44(1) against the principal contractor's insurer. The judgment of the majority was delivered by the Chief Justice, Sir T.L. Yang who, following the reasoning of Fuad V-P in Woo Kin Wah v Somec Hong Kong Limited, approached the matter on the basis that the principal contractor was not bound to insure his subcontractors' employees, and therefore could not be convicted of the offence created by section 40(2).

34. Then, turning to the particular insurance policy in a case which restricted liability only to the principal contractor's immediate employees, the Chief Justice, at page 499C, commenting on the effect of section 24(1), held that the subsection:

"Deals with the relationship between the principal contractor and the subcontractors' employees. By this subsection the former is liable to pay compensation to the latter. By the judgment obtained on 25 August 1989 that liability was already affirmed. We do not have here a situation where compensation is claimed from or proceedings are taken against the principal contractor. Here compensation is claimed from and proceedings are taken against the principal contractor's insurance company. Section 43(1) deals with an insurance policy in relation to an employee and the liability of the employer towards the employee. In this case we deal with a different relationship between a principal contractor and his subcontractors' employees."

35. Fuad V-P agreed with the judgment of the Chief Justice, with Penlington J.A. dissenting, holding that, as Mr Chan submits in this case, the effect of the deeming provisions in section 24(1), once engaged, continue to apply in all aspects and parts of the ordinance. On this vital issue, therefore, the judicial count is four-one in favour of the view that the deemed employer in section 24(1) is no longer the "employer" under part IV.

36. Where proceedings are brought against the employer's insurers, employer in the part IV context means the direct or immediate employer, and not a deemed section 24(1) employer. This interpretation is also supported by the Court of Appeal decision in Siu Kwan(?) v Eastern Insurance Company Limited [1993] 2 HKLR 102. That matter went on appeal to the Privy Council on another issue, which reversed the Court of Appeal, but which reversal had no effect on the correctness on the Court of Appeal's section 24(1) interpretation as applied in the context of part IV.

37. The correctness of this line of authority, on this narrow but crucial issue in terms of this case, has been confirmed by the recent judgment of the Court of Final Appeal delivered by Sir Anthony Mason in B + B Construction Company Limited v Sun Alliance and London Insurance PLC [2001] 3 HKC 127 at 134E, which decided that part IV of the ordinance imposed no obligation on a principal contractor to insure against the statutory liability imposed by section 24(1).

38. What I get from these decisions is, firstly, that a deemed employer under section 24(1) does not fall within the meaning of employer as used in part IV. Employer in part IV means the immediate or direct employer, and following from that, the clear ruling that a principal contractor is not obliged to insure his subcontractors' employees.

39. Having regard to these findings, I must now decide whether this policy is a policy issued for the purposes of part IV. Part IV compels an employer to insure against his liability towards his immediate employees. The deceased - and this is common ground - was not the principal contractor's immediate or direct employee.

40. Does it therefore make a difference that the insured has taken out this policy? Is this policy, by virtue of being there, now amenable to a section 44(1) claim against it? Reference has been made in the course of the argument to section 40(1)B and the effect of that subsection.

41. In my judgment all this does is to permit a principal contractor to take out a policy to cover himself in respect of his liability to his immediate employees, not his section 24(1) deemed employees, and the immediate employees of his subcontractor, and that by doing so he complies with the statutory duty of both of them as set out in subsection (1). That is all that section 40(1)B means.

42. This public liability policy is not such a policy, nor does it purport to be. What has happened here is that the principal contractor has chosen to take out a policy for his own direct employees to comply for his part with the section 40(1), leaving it to the subcontractor, the deceased's direct employer, to take out his own insurance, which he has failed to do.

43. This public liability policy can in no way be considered a policy within the meaning of a part IV policy as defined in section 38. Once one understands that "employer" in section 38 refers to the direct or immediate employer who is required to take out an employees compensation policy, complying with the requirements of the fourth schedule of the ordinance, the matter becomes perfectly clear.

44. This public liability policy is not such a policy. It is an additional policy taken out by the principal contractor to provide the sort of additional cover set out in its indemnity clause, to which the deceased can have no recourse. There is no basis in law under which he or his dependants can claim against it.

45. For all these reasons, therefore, the originating summons must stand dismissed, with costs and certificate of counsel. There will also be legal aid taxation of the plaintiffs' costs.

46. On the summons to strike out the originating summons, the parties are agreed that if I were to rule in the way that I just have, I should make no order on that summons, and merely award the defendant its costs of the summons, also with certificate for counsel. And that I do.