WONG KAI YUNG v. CHIEF CONSTRUCTION CO LTD AND ANOTHER

DCEC 498/2016

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

EMPLOYEES’ COMPENSATION CASE NO 498 OF 2016

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D E C I S I O N

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A.  Introduction

1.  The matter that gives rise to the present decision in these employees’ compensation proceedings originated from an “Answer and Counterclaim of the 1^st and 2^nd respondents” (“First Answer and Counterclaim”) the alleged employers (“respondents”) filed on 9 November 2016 in response to the applicant’s application for compensation under the Employees’ Compensation Ordinance (Cap. 282) (“Ordinance”). Liability and quantum, as reflected in the First Answer and Counterclaim, are contested.

2.  The objection by the applicant’s legally-assigned solicitor, Mr Lam, to the First Answer and Counterclaim, later led to the issuance of the following three summonses:

i) the applicant’s summons to strike out the counterclaim of the First Answer and Counterclaim;

ii) the respondents’ summons for retrospective leave to file the First Answer and Counterclaim; and

iii) the respondents’ summons for leave to file a fresh Answer and Counterclaim and to withdraw the First Answer and Counterclaim (“Summons”).

3.  At the hearing of these three summonses, the applicant and the respondents were respectively represented by their solicitors Mr Lam and Mr Lee.  As the summonses in para 2 i) and ii) were both withdrawn, the only application I need to deal with is the Summons – the respondents’ application for leave to file a fresh Answer and Counterclaim and to withdraw the First Answer and Counterclaim.

4.  At the heart of the dispute is the applicant’s objection to the proposed counterclaim (“Proposed Counterclaim”) contained in the fresh Answer and Counterclaim attached with the Summons.

B.  Basis of the Proposed Counterclaim

5.  Given that the Proposed Counterclaim is a claim concerned with repayment of the excess of periodical payments that the respondents allege having paid to the applicant, it is convenient, before considering the parties’ arguments, to refer to the judgment of the Court of Appeal in Kan Wai Ming v Hong Kong Airport Services Ltd [1] which examined in detail the statutory regime governing periodical payments in s.10, particularly s.10(4), the issue in that appeal. 

6.  The following extract from the illuminating judgment of Fok JA (as he then was) in relation to s.10 is apposite to the Summons, and I will set out it out as follows: -

“14.... s.6 of the Ordinance deals with compensation in fatal cases. Section 7 deals with compensation in cases of permanent total incapacity. Section 8 deals with compensation for an employee whose permanent incapacity requires him to have attention to assist him to perform the essential actions of life. Section 9 deals with compensation payable for permanent partial incapacity. Finally, s.10 deals with compensation payable for temporary incapacity, whether total or partial.

15.  Section 10(1) ..., once temporary incapacity is established, the employer’s obligation to pay periodical payments or a lump sum arises. The periodical payments are by way of monthly payment.

16.  ....

17.  ... under s.16, an employer is entitled to require an employee who is in receipt of a periodical payment under s.10 to undergo a medical examination and if the employee does not do so, his right to compensation is suspended until the examination takes place. ....

18.  ...

19.  The duration of the periodical payments is not indefinite. If an employee receives periodical payments for 24 months (or for a further 12 months, if the Court allows in any particular case), s.10(5) of the Ordinance provides that he will no longer be entitled to periodical payments ....

20.  Under s.10(10) of the Ordinance, an employer who without reasonable excuse fails to pay any compensation under the section within a period of seven days after the date on which such compensation falls due ... commits an offence ...

21.  ...

The proper construction of s.10(4) of the Ordinance

22.... s.10(4) precludes the deduction from any amount of compensation payable under ss.6, 7, 8 or 9 of any periodical payment “paid or payable under this section” ...”

7.  Relevantly, the salient features of the scheme of the s.10 periodical payment are as follows: -

i) An employer is obliged, once temporary incapacity is established, to pay periodical payments or a lump sum: s.10(1);

ii) Section 10(4) precludes the deduction from any amount of compensation payable under ss.6, 7, 8 or 9 of any periodical payment “paid or payable”;

iii) An employee is only entitled to receive periodical payments for 24 months, and for a further period of not more than 12 months extended by the court: s.10(5);

iv) An employer is entitled to require an employee who is in receipt of a periodical payment under s.10 to undergo a medical examination and if the employee does not do so, his right to compensation is suspended until the examination takes place. ...: s.16.

8.  It does not seem to be in dispute that the applicant had been paid periodical payments and has prayed in his application in these proceedings for an order under s.10(5) to extend periodical payment beyond 24 months.

9.  Since the applicant’s s.10(5) application has not yet been determined, the applicant’s entitlement to periodical payment is presently only for a period of 24 months. This essentially is the basis of the respondents’ intended claim in their Proposed Counterclaim, in which the respondents aver that the amount they have paid to the applicant periodical payment beyond 24 months. The alleged excess amount of periodical payment is averred to be $265,559.33.  It is therefore pleaded that the applicant “has been unjustly enriched by retaining the said sum of $265,559.33” (at para 11 of the fresh Answer and Counterclaim), and is required to give credit for it. 

C.  The issue of this Summons

10.  The applicant objects to the serving of the Proposed Counterclaim on two broad grounds with the primary one based on the procedural point; and the secondary ground based on contents and substance of the Proposed Counterclaim.

C.1  The procedural arguments

11.  The Proposed Counterclaim is not a pleading by virtue of: -

i) Rules 16 and 17 of the Employees’ Compensation (Rules of Court) Rules (Cap. 282B). (References to the rules hereafter shall be, unless otherwise stated, the said Rules (“Rules”) and the forms or prescribed forms are the forms in the Schedule to the Rules); and

ii) “Practice Direction 18.2: The Employees’ Compensation List” (“PD 18.2”), para 40, in which the court when giving guidance on the practice of employees’ compensation makes no reference to a counterclaim as a pleading.  In support of this argument,  Mr Lam cited Chung Yuk Sun v Chap Shing Industrial Co Ltd & Ors [2], in which HH Judge Leung (sitting as a Judge in charge of the employees’ compensation applications at the time) struck out the counterclaim filed by the respondents in that case.

12.  The respondents however state that whether a counterclaim is viable in employees’ compensation proceedings depends on the facts of each case.  It is Mr Lee’s submission that:

i) Chung Yuk Sun, being a District Court decision, did not authoritatively decide that a counterclaim is not procedurally possible in employees’ compensation proceedings.

ii) On the other hand, Mr Lee further argued, the Court of Appeal in Kan Wai Ming expressly left open the question of whether a claim to recover excess periodical payments is viable and it also did not question the procedural validity of a counterclaim.  Hence, it is submitted that whether a counterclaim should be allowed to be filed very much depends on the facts and circumstances of each case.

C.2  Contents and substance arguments

13.  It is Mr Lam’s contentions that the Proposed Counterclaim is objectionable for the following reasons: -

i) By claiming for repayment of the amount of periodical payments having been allegedly overpaid to the applicant, the respondents are in essence seeking a set-off of or deduction from any amount of compensation payable under s.9 of any periodical payments paid or payable under s.10. This is the very act that the Court of Appeal in Kan Wai Ming has authoritatively stated as being prohibited in s.10(4).

ii) The Proposed Counterclaim is premature. Since the applicant’s s.10(5) application for extension of the period of periodical payments has not yet been determined, the issue of whether the applicant was indeed overpaid has not yet crystallized.  Hence, Mr Lam argued that any claim for repayment should only be instituted after the determination of the applicant’s s.10(5) application.

iii) In any event, Mr Lam contended that the respondents’ attempt to circumvent the prohibition in s.10(4) by framing their claim as a claim based on unjust enrichment does not assist them as the plea on unjust enrichment is badly and defectively pleaded. Referring to the four requisite matters set out by the Court of Final Appeal in Shanghai Tongji Science & Technology Industrial Co Ltd v Casil Clearing Ltd [3] for a case of unjust enrichment, Mr Lam stated by way of example that in the Proposed Counterclaim, the respondents do not state on what basis the applicant has allegedly been enriched – whether it is based on a total failure of consideration or on mistake, or both.

14.  Mr Lee submits that the Proposed Counterclaim is not objectionable and should be allowed to stand for the following reasons: -

i) The cause of action for unjust enrichment is already crystallized. Since the applicant’s existing entitlement to periodical payments, unless there is a court order to extend the period, is still 24 months, the respondents are entitled to make a claim now so that all disputes can be adjudicated upon at the same time.

ii) The respondents have expressly pleaded their case on unjust enrichment and the Proposed Counterclaim is not caught by the s.10(4) prohibition against deduction or set off of periodical payment against any compensation the applicant may be awarded.

iii) Usual rules of pleadings do not apply to employees’ compensation proceedings. Hence it is not strictly necessary for the Proposed Counterclaim to plead every ingredient to support a case of unjust enrichment. It is submitted that the respondents have already in the Proposed Counterclaim set out sufficient facts in support of a claim for repayment, which, Mr Lee argued, will suffice.

C.3  Issues

15.  The issues are therefore: -

i) Whether the statutory framework of the employees’ compensation proceedings provides for the institution of a cross-claim by way of a counterclaim.

ii) Whether the Proposed Counterclaim is objectionable on the ground that: -

a)  it is premature;

b)  the substance of the intended claim is in fact a set-off, which will be disallowed under s.10(4); and

c)  the plea on unjust enrichment is bad.

D.  PROCEDURAL FRAMEWORK FOR APPLICATIONS

16.  The practice and procedure for employees’ compensation proceedings are governed and regulated by the Rules (that are made under s.50).  Notwithstanding that, by the provisions of s.21(1) [4], the law, rules and practice applicable to ordinary civil claims brought in the District Court can be applied to the employees’ compensation proceedings, the application is nonetheless subject to any contrary provisions of the Ordinance and the Rules.

17.  Hence, the procedural framework that governs the commencement of applications and the procedure that follow shall be based on the rules that are made for the commencement of claims or applications for employees’ compensation proceedings. The rules that are found to be expressly stated to be for “applications” are rr.16 to 28 under the heading described as “Applications”.

18.  Before discussing these rules below, I should mention that instead of requiring a party to file a document (as is usually the case in an ordinary civil claim), these rules peculiarly use the word “lodge”. In my view, there is, in actual practice, little difference as a document mandated by the rules to be “lodged” in the employees’ compensation proceedings is in fact filed (in like manner as in civil proceedings). Hence, “lodge” when used in the context of the Rules would bear the same meaning of “file” in civil proceedings.

D.1  Procedural framework for making an application and lodging an opposition

19.  First and the foremost, and in fact among the rules for “Applications” are rr.16 and 17, which Mr Lam relied on in arguing that the Proposed Counterclaim is not a pleading.

20.  Rules 16 and 17 are respectively stated to be “method of application” and “procedure after lodging application”. 

21.  Rule 16 provides: -

“(1)  An employee or an employer or any other person who desires the determination of any question arising out of an accident in which compensation is or might be claimed shall lodge with the registrar of the court a written application in Form 1, 2 or 3 in the Schedule accompanied by particulars containing-

(a)  a concise statement of the circumstances in which the application is made and the relief or order which the applicant claims, or the question which he desires to have determined;

(b)  ...

(2)  If the application be made by an employer, it shall be accompanied by a statement whether he admits his liability to pay compensation or denies such liability, and whether the admission or denial is total or partial, and if he admits or denies liability partially, a statement of the extent to which he admits or denies liability. In the case of a denial of liability, the grounds shall be stated.” (underline is added)

22.  Rule 17:

“(1)  ...

(2)  If the respondent intends to oppose an application he shall, within 21 days after service of the notice, or within such extended period as the court may upon special request allow, lodge with the registrar a written answer in Form 5 in the Schedule containing a concise statement of the extent and grounds of his opposition.” (underline added)

23.  Different to civil proceedings which are begun by a writ of summons endorsed with a statement of claim or by originating summons (supported by an affidavit upon the defendant acknowledging service), the mode of beginning employees’ compensation proceedings is entirely different.  According to r.16, an “employee or an employer or any other person who desires the determination of any question arising out of an accident in which compensation is or might be claimed” can institute proceedings by a simple procedure of lodging a written application (“r.16 application”) in the prescribed Form 1, 2 or 3. (It should be noted however that applications made by a sub-contractor and an interested party to be joined in the proceedings are governed by a different procedure under rr.22 to 24, which will be discussed in para 39 i) and ii) below)

24.  Accordingly, the mode of beginning employees’ compensation proceedings is by a r.16 application by filing any of the following prescribed forms: - 

(i) Form 1 for “Application by Injured Employee in respect of Compensation Payable to him”.

(ii) Form 2 for “Application on behalf of Members of the Family in respect of Compensation Payable where death has resulted from injury to the Employee”.

(iii) Form 3 for “General Application”.

25.  Any dispute or opposition to a r.16 application is, according to r.17, by an equally simple procedure of the filing of a written answer in the prescribed form (Form 5) (“r.17 answer”) containing a concise statement of the extent and grounds of opposition.

26.  Apart from rr.16 and 17, the Rules make no other provisions for the filing of a “counterclaim” or “reply and defence to counterclaim”, which are expressly provided for in a writ action.

27.  In my view, the fact that the Rules do not provide for other types of usual pleadings found in a writ action other than those for the institution of an application (by a r.16 application) and opposition by a respondent (by a r.17 answer) is wholly consistent with the intention of the Ordinance, i.e. “to provide quick financial relief” [5] to injured employees. This intention is reflected in the simple and flexible procedure and practice governing employees’ compensation proceedings.

28.  It is pertinent to note that r.3 allows the prescribed forms to be used “with such variations and modifications as the circumstances may require”.  This rule is clearly intended, in my judgment, to provide for maximum flexibility so that the prescribed forms can be adapted within the ambit and parameters of the rules for various situations including, for example, a claim or an application lodged by a respondent.

29.  A counterclaim (in a writ action) is, in substance, a cross-action, a separate and independent action [6] notwithstanding that it is commonly filed as part of  a “defence and counterclaim” .

30.  Therefore, if a counterclaim could be filed in the employees’ compensation proceedings, it would be, in essence, when viewed in the context analyzed in the preceding paragraph, a separate and independent claim or application.  In light of the analysis above, if such a counterclaim would be for the “determination of any question arising out of an accident in which compensation is or might be claimed”, it would have to be (except if it is a type of application which is to be governed by the different rules to be discussed in para 39 below) by way of a r.16 application in the appropriate prescribed Forms 1, 2 or 3.

31.  For these reasons, I respectfully agree with Chung Yuk Sun, that the striking out of the counterclaim that was filed in that case is correct.  I too am in respectful agreement with the analysis in that case that “r.17(2) and Form 5 (in the Schedule to the ECR) do not cater for the lodging of a counterclaim” (per HH Judge Leung at [2015] 3 HKC 7 at 8I-9A).

32.  As a further confirmation that a counterclaim by practice is not treated as a pleading in employees’ compensation proceedings, PD 18.2, para 40, which Mr Lam referred to, has clearly left out any reference to a counterclaim when directing that pleadings consist of only three types of documents, namely, i) a r.16 application; ii) a r.17 answer; and iii) a written reply and/or subsequent pleading filed and/or served with leave of the court.  The learned Judge in Chung Yuk Sun so aptly stated:

“The forms and content of what are regarded as pleadings in an employees' compensation case, as mentioned, are set out in the ECR. This is reiterated by §40 of PD 18.2. They do not sit well with the proposed simultaneous application of the detailed rules of pleading under O.18 of the RDC. If anything, it would sound odd, if the respondent has the liberty to include a counterclaim in the answer whereas a reply, presumably also a consequential defence to counterclaim, may be filed only with leave of the court.” ([2015] 3 HKC 7 at 9H-I)

33.  Pleadings, apart from the three types of documents specified by para 40 of PD 18.2, in fact also, according to para 41 of PD 18.2, include a reply to a request for further particulars (r.18) as well as amendments to the said three types of pleadings (r.19).

34.  Evidently therefore, the rules that regulate the practice and procedure of and in connection with the making of applications for the “determination of any question arising out of an accident in which compensation is or might be claimed” in employees’ compensation proceedings are those provided by rr.16 to 19 only, which practice is further streamlined by way of PD 18.2, paras 40 and 41. Nonetheless, a counterclaim has not found its place in either the said rules or PD 18.2.

35.  Based on the analysis discussed above, I am driven to conclude that a counterclaim has no place in employees’ compensation proceedings.

D.2　Other applications

36.  As stated above, apart from rr.16 to 19, rr.20 to 28 are also found under the heading “Applications” in the Rules.  For completeness, I should also examine these remaining rules to see if they may allow for a counterclaim in employees’ compensation proceedings.

37.  A survey of these remaining rules – rr.20 to 28 – seems to further fortify my conclusion as none of these rules touches on matters concerning institution of applications for the “determination of any question arising out of an accident in which compensation is or might be claimed” and lodging of opposition to the applications.  They are more concerned with practice and procedure ancillary to the employees’ compensation proceedings.

38.  In effect, rr.20, 21 and 26 seem to me to have nothing to do with “applications” per se. Instead these three rules respectively provide for a simplified form of payment into court by a respondent, the lodging of copies of documents by parties, and the use of a prescribed form (Form 7) for orders for applications for periodical payments made under s.10.

39.  As for the other 6 rules, they, as will be shown below, simply deal with the procedure in relation to the specific types of applications but clearly in my view are not concerned with the procedure concerning applications for the “determination of any question arising out of an accident in which compensation is or might be claimed” and the lodging of opposition to the applications.

i) Rules 22 and 23 provide for intervention by a sub-contractor in applications  where a notice is served under s.24(3) [7]. A separate prescribed form, Form 11 “Notice of Intervention by Sub-Contractor”, is required to be filed (r.22).

ii) Rule 24 provides for the procedure (by the filing or lodging of a written request to be joined) for any interested person not a party to the proceedings to be joined to the proceedings by leave of the court.

iii) Rule 25 provides for an application (by a person who has paid medical and funeral expenses) for the determination of the reimbursement payable. No separate prescribed form is stated for the application.

iv) Rule 27 provides for an application to make a certificate as to compensation payable under an order of the court.  The form that is specified to be used is not even provided for by the Rules, but by a specified form of the Employees’ Compensation Regulations which are made by the Commissioner of Labour pursuant to s.49. Thus, it is more an administrative matter.

v) Rule 28 provides for application either by the employer or by the employee for review under s.19.  The application is by the prescribed form, Form 8 “Application for the Revision of a Periodical Payment”, and the court order on revision is stated to be in prescribed form, “Form 9”.

40.  Nowhere in the Rules is a procedure for counterclaims provided. All applications for the “determination of any question arising out of an accident in which compensation is or might be claimed”, to be procedurally regular, must be made within the ambit and parameters of rr.16 to 19 or the rules mentioned in the preceding paragraph for the specified types of persons or situations.  

41.  In conclusion, I consider that it is not procedurally correct for a respondent to make a cross-claim in employees’ compensation proceedings by way of a counterclaim. It therefore follows that the Proposed Counterclaim should not be allowed to be filed in these proceedings.

42.  The fact that the respondents have been refused leave to file the Proposed Counterclaim does not necessarily mean that they are without remedy. If their intended claim were in fact a claim for the determination of a question “arising out of an accident in which compensation is or might be claimed”, they should file a r.16 application by using the appropriate prescribed form, which is probably Form 3 as none of the situations specified in Forms 1 and 2 seems to apply to it.

43.  Having come to this conclusion, I do not, strictly speaking, need to deal with the other grounds of objections against the Proposed Counterclaim. However, since the parties have also put forward arguments in relation to other grounds of objections, I will, for completeness, briefly discuss them below.

E.  OTHER OBJECTIONS

44.  Since the respondents may still pursue their intended claim for repayment by other means (by for example a proper application made in accordance with the Rules or by a separate civil action as suggested by Mr Lam), I should therefore refrain from expressing any view on the correctness of the substance and contents of the respondents’ pleaded case presently found in the Proposed Counterclaim.  

45.  I should however make the observation regarding the question of whether the respondents’ intended claim for repayment should be brought and adjudicated upon at the same time as the applicant’s application made under s.10(5), that would indeed result in costs saving and be procedurally economical, given the close connection in subject matter.

46.  The respondents should however be reminded of the dictum by Fok JA in Kan Wai Ming that the risk of overpayments of periodical payment (to an injured employee) being made “and the burden of taking any steps to recover such overpayments” and “the risk of abuse” “should lie with the employer” ([2011] 3 HKC 582 at 592H and 593F).

47.  It is my view that the respondents in the present case could have taken the following steps (suggested by Fok JA) to protect their position when making the periodical payments to the applicant under s.10:

i) Availing themselves of s.16 by requiring the applicant to submit himself to a medical examination. “A refusal by the employee to submit to such examination will suspend his right to [s.10] compensation” ([2011] 3 HKC 582 at 593D).

ii) By “institute[ing] proceedings under the Ordinance to assess compensation and thereby seek a determination from the court for the period for which periodical payments would fall to be made by obtaining a final assessment under s.10” ([2011] 3 HKC 582 at 593E).

48.  Or, by making a s.19 application by the use of the procedure provided in r.28 (mentioned in para 39 above) to ask the court to end or diminish the payment of periodical payments to the applicant.

49.  In the circumstances, I do not consider that my refusal to grant leave has either deprived the respondents of any remedy for the alleged overpayment or prejudiced them in any way given that the burden of taking any steps to recover such overpayments and the risk of abuse (as the Court of Appeal observed) lies with them.

F.  CONCLUSION

50.  For the foregoing reasons, I refuse to grant leave to the respondents to file and serve the Proposed Counterclaim in these proceedings.  Since the Proposed Counterclaim has been included with the fresh Answer as one single pleading entitled “Answer and Counterclaim of the 1^st and 2^nd Respondents”, the respondents should file a fresh answer. I will therefore dismiss the entire Summons, and direct a fresh answer to be filed.

G.  ORDER

G.1  Summons

51.  I grant the following orders:

(1)  The respondents’ Summons for leave to file a fresh Answer and Counterclaim be dismissed and the First Answer and Counterclaim be withdrawn;

(2)  A costs order nisi that the respondents do pay the applicant the costs of the Summons, to be taxed if not agreed; and

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

G.2  Case management

52.  In addition, I grant the following case management directions:

(1)  The respondents do within 28 days of the handing down of this decision file and serve an answer.

(2)  The parties do within 56 days of the handing down of this decision file a Joint Written Application for further case management directions.