LI YUEN YAU v. VIATECH ENGINEERING LTD AND ANOTHER

DCEC 153-154 & 241-246/2004

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

EMPLOYEES’ COMPENSATION CASE NO 153 OF 2004

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IN THE MATTER OF AN APPLICATION BETWEEN

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DECISION

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I.  INTRODUCTION

1. This is about a series of employees compensation claims (“the ECC”) under the Employees Compensation Ordinance, Cap 282 (“the Ordinance”) relating to a sea accident occurred on 12 March 2002 in Kwai Chung which resulted in the death of eight seamen including two locals and six Russians. 

2. The proceedings had a protracted history and it subsequently led to an action in the High Court between 1^st respondent (“R1”) as the plaintiff, the 2^nd respondent (“R2”) as the 1^st defendant, the Ming An Insurance Co (HK) Ltd (“Ming An”) as the 2^nd defendant and the Shipowners’ Mutual Protection and Indemnity Association (Luxembourg) (“the Association”) as the third party.[1]  

3. The High Court action was eventually settled[2] and one of the terms of the settlement was that Ming An assumed the liability of R2 and undertook to pay R1’s costs in the District Court in defending the ECC and in opposing the indemnity application by R2 with certificate for counsel.  The basis of taxation of the aforesaid costs, however,  was to be determined by a District Court Judge in chambers.  That is the reason why the case has come before me.  R1 asks that the taxation be done on indemnity basis and R2 says that it should party and party.

II. THE ECC AND THE INDEMNITY APPLICATION

4. All of the eight deceased were the employees of R1 which was the contractor of a company called Leader Marine.  Leader Marine was a sister company of R2.  R2 in turn received the dredging work from Hong Kong International Terminal Limited (“HIT”).  Although there was no direct contractual relationship between R1 and R2, the evidence suggests that R2 was the principal contractor within the meaning of the Ordinance. 

5. The trial of the ECC was heard before Deputy District Judge Kwok (as he then was) (“the learned judge”) on 19 January 2007.  The stance taken by the respondents at that trial was somewhat strange.  On the one hand, there was no acceptance of liability from either R1 or R2.  In particular, R1 did not admit that it was the employer and R2 did not admit that it was the principal contractor.  The applicants were therefore put to straight proof.  On the other hand, the applicants’ claims were unchallenged.  Although R1 and R2 were separately represented by counsel and solicitors, there was no cross-examination of any of the applicants’ witnesses by counsel.  Moreover, there was not a shred of evidence adduced by either of the respondents to seek to challenge, undermine or at least explain the evidence of the applicants.  Counsel for the respondents did not make any submissions or take issue on any of the matters canvassed by counsel for the applicants.  Therefore, the trial, which involved eight deceased with large sums of compensation at stake, only lasted for one day.  In the event it came as no surprise that the learned judge gave judgment for the applicants and awarded compensation, interest and costs in their favour. 

6. Towards the end of that trial, Mr Lin, counsel for R2, indicated to the learned judge that R2 would seek indemnity from R1 under s 24(2) of the Ordinance.  On the application of Mr Kwok, counsel for R1, the issue of indemnity was adjourned pending the judgment on liability and quantum.  When the application for indemnity was heard before the learned judge on 27 June 2007, Mr Kwok realistically did not seek to argue against indemnity.  However, he asked that the indemnity be stayed pending the outcome of the High Court action.

7. Briefly stated, R1’s case against R2 and Ming An in the High Court action was as follows.  Under its main contract with HIT, R2 had to procure insurance for the purpose of the Ordinance covering all of its and Leader Marine’s sub-contractors whereas under the sub-contract between Leader Marine and R1, R1 had to procure its own marine insurance against all risks under common law relating to the sub-contract.  As a result, R2 took out an insurance policy with Ming An (“the Ming An Policy”) covering both “legal liability in respect of such bodily injury or death under the Ordinance and independently of the Ordinance”.  R1 also took out an insurance policy with the Association (“the Association Policy”) which covered, among other things “Common Law crew claims”. However, after the accident Ming An, purportedly relying on an “other insurance” clause contained in the Ming An Policy which was against double insurance, refused to take up the defence of R1 on the ground that R1 had taken out the Association Policy[3]. On the other hand, the Association took the view that the Association Policy covered only common law liability in respect of the vessel insured.  Therefore, R1 was left on their own without any insurance cover for the ECC.  Whilst Ming An refused to take up the defence of R1, they nevertheless took up the defence of R2.  R1 alleged that that decision of Ming An was irrational, as the position of R2 should be the same as R1 insofar as double insurance was concerned. 

8. As mentioned earlier, the High Court action was settled on a non-prejudicial basis so that both Ming An and the Association had to contribute to the compensation and damages relating to the accident.  There is no need for me to go into the details of the settlement agreement.

III.  THE RELEVANT LEGAL PRINCIPLES

9. There is no real dispute as to the applicable legal principles. The default position as regards taxation between litigants is the party and party basis.  However, the court has a broad discretion as to how costs should be paid and whether indemnity costs should be ordered.  For the indemnity basis to apply there must exist some “special or unusual features” to justify it: Town Planning Board v Society for Protection of the Harbour Ltd (No 2) (2004) 7 HKCFAR 114.  What may amount to “special or unusual features” has been broadly described and examples from case authorities include, but not limited to, situations where the proceedings were “scandalous or vexatious”, or had been initiated, prosecuted or defended “maliciously” or for an “ulterior motive” or that the proceedings were conducted in such a way that it constituted an “affront to the court”.  In the above examples, the emphasis is on the conduct and motive of the losing party.  The relevant conduct, however, is not only restricted to the way the litigation was contested, but may also include the events leading to the institution of the proceedings.  See generally Hong Kong Civil Procedure 2013, at §62/App/12.

IV. RELEVANT CONSIDERATIONS

Peripheral matters

10. In view of the legal principles stated above, for the present purpose the issue before the Court is indeed a narrow one.  The Court should focus on the conduct of the respondents in the ECC and the reasons or motives, if any, behind their respective conduct.  I understand that counsel for R1 and R2 do not disagree that this is the correct approach. 

11. In the present case, I do not consider it relevant whether Ming An was correct that they could rely on the clause against double insurance or whether it was rational for them to take up just the defence of R2 but not also that of R1.  I am also not concerned with the relative liability of Ming An and the Association or how much each of them was to pay pursuant to the settlement agreement.  Still less am I concerned with the relative merits of the cases of the parties in the High Court action.  The High Court action was not before me and it had already been settled.

12. Furthermore, I do not consider it relevant that the respondents had made no admissions in the ECC save and except that each of the deceased met with personal injuries causing death by accident on that fateful day.  Generally speaking, a defendant in an action is entitled to put the plaintiff to strict proof and the mere exercise of that right, without more, is not unreasonable and can hardly afford a basis for awarding indemnity costs in the event that judgment is given for the plaintiff.  I also bear in mind that what is now in dispute is the basis of taxation between the respondents, not the basis of taxation between the applicants and the respondents.

Contentions of the parties

13. In my view, the crux of the matter is whether R1 was forced to incur costs in the ECC at the behest of R2 or as a result of the way R2 conducted itself and if so, whether the conduct of R2 is so unreasonable that it constitutes an affront to the court which justifies indemnity costs. 

14. In this regard, the contentions of the parties are as follows:-

(i)   For R1, their position had been that the deceased were their employees and they had told R2 about this.  As far as R1 was concerned, they could see no defence to the ECC.  However, they were precluded from making admissions because of what they had been told by the solicitors acting for R2/Ming An.  In order not to prejudice their potential claim for insurance cover, R1 had to dance to the tune of Ming An which had taken over the defence of R2.  Mr Kwok even went so far as to submit that Ming An should not have defended the ECC at all.  Rather, so the submission goes, Ming An should have settled the ECC first and then, if they so desired, argued with R1 over the question of statutory indemnity under the Ordinance.  If that course had been taken, then all the unnecessary delay could have been avoided.  Moreover, Mr Kwok submitted that R1 had to instruct solicitors and counsel to appear at that trial to safeguard R1’s position as R1 had been warned by R2 before trial that there would be an application for indemnity against R1 under the Ordinance.  Mr Kwok submitted that R1 had to incur costs in the ECC solely because of the unreasonable conduct of R2.

(ii)    For R2, Mr Lin submitted that R1 had been provided with a copy of the Ming An Policy since September 2004 and there was nothing in it which would have precluded R1 from making admissions in the ECC.  Moreover, instead of instructing solicitors and counsel to appear in the ECC, R1 could have elected to accept liability or simply not to do anything.  It was not a case where Ming An had dictated what R1 should do.  Whether the deceased were in fact the employees of R1 was a point that could only be taken by R1.  However, instead of making a bare denial, R1 had put forward a false case in their answers to the applications that the six Russian deceased were employed by someone else. Furthermore, R1 tried to mislead the court by filing of a witness statement in support of the false case.  In the circumstances, Mr Lin submitted, that the court should not condone such conduct of R1 by awarding indemnity costs.  Mr Lin emphasized that it was not the case that R2 refused to pay the costs of R1. They had already agreed to do so.  The issue was only about the basis of taxation. 

The events prior to the trial

15. In order to gauge the validity of the above contentions, it is necessary to review some of the correspondences between the respondents and the documents filed by them prior to the trial of the ECC:-

(i)   Since 20 April 2003, the solicitors acting for R1 had been asking for a copy of the Ming An Policy from the solicitors then acting for R2/Ming An.  However, despite repeated requests, no such copy was provided until 22 September 2004 and that was done only after a court order demanding disclosure.[4]

(ii)    On 12 February 2004, the applications of the ECC in respect of the two local deceased were filed.[5]

(iii)    On 13 May 2004, R2 filed their answers to the applications of the two local employees.  Save and except that the two local deceased met with personal injury causing their death by accident, the answers were a bare denial. 

(iv)    On the same day as they filed their answers, the then solicitors of R2/Ming An wrote a letter to the solicitors of R1.[6] The contents of the letter are important and I quote it in full as follows:-

“We write to inform you of the position we are taking in the above EC applications.

We attached herewith two Answers to be filed by us on behalf of the 2^nd Respondent for your attention. You will note that we have not admitted the employment relationship of the Deceased, Tso Pak Kuen and Lee Chou Lan with you. We have also made no admission towards the 1^st and 2^nd Respondents’ respective capacities as the sub-contractor and principal contractor.

Although we deny your client’s entitlement for a complete indemnity from our client in respect of the above Applicants’ claim, we write to put on record that in the event you do successfully establish your entitlement to an indemnity from our client, please take note we will take issue with any admission you make at this stage without our approval.  We therefore expect the Answer you file on behalf of your client will not be inconsistent with our understanding of the legal position between your client and ours.”

(“Emphasis supplied”)

(v)    On 15 May 2004, R1’s solicitors wrote to the then solicitors of R2/Ming An and informed that all the eight deceased seamen were its employees.  Besides, it was also said that,

“… there was no issue on the employer-employee relationship, the occurrence of accident and the fatalities arose out of and in the course of employment. However, we note your letter dated 13^th May 2004, and accordingly have prepared two draft Answers in respect of DCEC Nos. 153-154 of 2004 consistent with the stance taken in Zen’s Answers”.[7]

(vi)    On 10 March 2004, the applications of the ECC in respect of the six Russian deceased were filed.[8]

(vii)   On 18 May 2004, R1’s solicitors wrote to the then solicitors of R2/Ming An.  R1’s solicitors referred to their letter dated 15 May 2004, enclosed their draft answers to the applications of the six Russian deceased and sought R2’s comments on the draft answers.  All the six draft answers were similar in that the applicants were put to strict proof save and except that the six deceased met with personal injury causing by death on the day in question.

(viii)   On 2 June 2004, the then solicitors of R2/Ming An filed their answers to the applications of the six Russian deceased.  Again, there was no admission save and except that the six Russian deceased met with personal injury causing their death by accident.  However, R2 also put up a positive assertion that the deceased were employed by someone else.  Each one of the six answers filed by R2 contained the following paragraph:-

“It is denied that the Deceased was employed by the 1^st Respondent at the time of the accident. The 2^nd Respondent avers that the Deceased was employed by the Maritime Agency Primtanco at the material time.”

(Emphasis supplied)

(ix)    On the same day as they filed their answers, the then solicitors of R2/Ming An wrote a reply letter to R1’s solicitors saying that they were not in a position to comments on R1’s draft answers.  Moreover, it was said in that letter that:-

“Nonetheless, we would like to take this opportunity to inform you of the position we are taking in the above EC applications.

We attached herewith six Answers to be filed by us on behalf of the 2^nd Respondent for your attention. You will note that we have not admitted the employment relationship of the six deceased seafarers with you. We have also made no admission towards the 1^st and 2^nd Respondents’ respective capacities as the sub-contractor and principal contractor.

Although we deny your client’s entitlement for a complete indemnity from our client in respect of the above Applicants’ claim, we write to put on record that in the event you do successfully establish your entitlement to an indemnity from our client, please take note we will take issue with any admission you make at this stage without our approval.  We therefore expect the Answer you file on behalf of your client will not be inconsistent with our understanding of the legal position between your client and ours.”

(Emphasis supplied)

  It can be seen that the above passages were in almost identical terms to those contained in their previous letter dated 13 May 2004.

(x)    On 3 June 2004, R1 filed their answers in respect of all the eight applications.  It is noted that R1 religiously followed the line of defence taken by R2.  In respect of each of the employees, there was only an admission about the injury leading to death by accident.  There was no admission about the employment.  In the case of the six Russian deceased, just like R2, R1 also averred that the Russians were employed not by R1 but by the Maritime Agency Primtanco at the material time.

(xi)    On 25 April 2006, R2 filed for the purpose of the ECC statements of Ms Shirley Leung who was one of their directors.  There was one statement for each of the applications.  For the deceased Tso Pak Kuen, Ms Leung said,

“Mr. Tso Pak Kuen, deceased recruited as a fitter by the 1^st Respondent was deployed to work on board the “A. M. Vella” …”

As regards the deceased Chan Shing Tong, Ms Leung said,

“Mr Chan Shing Tong, deceased was thereby recruited as a Captain by the 1^st Respondent to work on board the “A.M. Vela” …”

As regards the six Russian deceased, Ms Leung’s statements were all similarly worded and contained the following paragraphs:

“4. Since about 1^st November 1997, the 1^st Respondent had appointed Maritime Agency Primtanco to recruit the crew in Russia from time to time to fill in vacancies of various posts for “A.M. Vella” and other vessels of the 1^st Respondent. The update or current Crew Management Contract was signed between the 1^st Respondent (as manager stated therein) and Maritime Agency Primatanco as (manning agency) on 1^st November 2001, In the Crew Management Contract, the word “seafarers” meant the Russian crew.

5. According to Clause 6.1 of the Crew Management Contract, “the seafarers wages, which are shown in the appendix will be account for the master every month and paid to the seafarers direct.

……….

7. On [date], the [Name], deceased (hereinafter referred to as “the Deceased”) signed the Agreement of Employment and agreed to be bound by the Crew Management Contract.

8. Since then, the Deceased commenced work on board “A.M. Vella” for the 1^st Respondent. “A.M. Vella” worked in Taiwan for another project of the 1^st Respondent before she proceeded to Hong Kong in December 2001. He wages of all the Russian crew of “A.M. Vella” were at that time paid by Quantum Offshore & Costal Engineering Company Ltd. (hereinafter referred to as “Quantum”), commercial representative of the 1^st Respondent in Taiwan, for and on behalf of the 1^st Respondent. Thereafter the 1^st Respondent reimbursed Quantum for the paid wages.

……….

10. Since “A.M. Vella” arrived Hong Kong in or about December 2001, the 1^st Respondent had paid the wages to the Russian crew including the Deceased directly in cash.”

Consideration

16. Mr Lin referred the Court to the terms of the Ming An Policy and took the point that, as Ming An had not taken up the defence of R1, there was nothing in that policy which would have prevented R1 from making admissions in the ECC.  Mr Kwok did not gainsay this.  However, Mr Kwok submitted that the two letters from the then solicitors of R2/Ming An dated 13 May 2004 and 2 June 2004, both of them written before R1 filed their answers, had changed the legal landscape.

17. In my judgment, the course of events and what was said in the aforesaid two letters had significantly reduced the relevancy of the Ming An Policy.  My reasons are as follows:-

(a) R2/Ming An had been reluctant to provide a copy of the Ming An Policy to R1.  A copy was eventually provided only pursuant to a court order demanding disclosure made on 22 September 2004.  By the time, R1 had already filed their answers;

(b) it is clear from the correspondence that R1 had been anxious to preserve their position vis-a-vis Ming An.  That was the reason why R1’s solicitors had been copying their draft answers to R2/Ming An and kept the latter informed of the progress of the case.  R1’s solicitors only ceased copying documents as a result of the protest of the then solicitors of R2/Ming An made in the letter dated 7 March 2006; and 

(c) despite the fact that there was nothing in the Ming An Policy which would have prohibited R1 from making admissions, in the aforesaid two letters R1 was warned by the then solicitors of R2/Ming An about making admissions “without our approval”.  It was also said by the then solicitors of R2/Ming An that “we therefore expect the Answer you file on behalf of your client will not be inconsistent with our understanding of the legal position between your client and ours.”  Upon an objective and reasonable reading of the letter, the underlying meaning of this sentence was obvious, namely that R1 would risk losing their indemnity from Ming An, even if their entitlement to indemnity could be established, if R1 adopted an inconsistent approach in their defence.

Therefore, it was not the case, as Mr Lin seems to suggest, that R1 could have made whatever admissions they liked without affecting their prospect of obtaining indemnity from Ming An.  The aforesaid two letters plainly suggested the contrary. 

18. Mr Lin submitted that for the present purpose there was a distinction between Ming An and R2.  It is submitted that the Court should be looking at the conduct of R2, which is a party before the Court, rather than Ming An, which is not. 

19. With respect, I am unable to accept this submission.  In my judgment, for present purpose no realistic distinction could be made between R2 and Ming An.  Even assuming that R2 should not be equated with Ming An, it is not open to R2 to say, as a matter of both fact and law, that what the then solicitors did in relation to the ECC was not also done on R2’s behalf and with R2’s authority.  In the present context, one is mainly concerned with the conduct of the parties through the agency of their legal representatives.  As regards the two aforesaid letters, whilst it was not stated explicitly on whose behalf they were written, it is clear that its author was writing in the duo capacity as the legal representative of both R1 and Ming An:-

(a) Ming An had taken over the defence of R2 since 8 April 2004 at the latest so that in reality Ming An was conducting the defence in R2’s name.[9] Even though Ming An may have funded the defence, the solicitors also acted for R2 in the ECC;

(b) the author of the letters referred to the Answers which were “to be filed by us on behalf of the 2^nd Respondent”; and

(c) the author also referred to the event that R1 was able to establish their entitlement to “the indemnity from our client”, which could only be a reference to the Ming An Policy.

20. On the basis that what the then solicitors of R2/Ming An did was done on behalf of and with the authority of R2 (and Mr Lin did not suggest the contrary), the question then is whether there were any special or unusual features in the present case which justify indemnity costs being awarded against R2.  In my judgment, the answer is in the affirmative.  My reasons are as follows:-

(a) On 13 May 2004, when the then solicitors of R2/Ming An copied to R1’s solicitors R2’s answers to the applications of the two local employees, R1’s solicitors were not invited to comments on those answers.  It was simply said that the answers that were “to be filed by us on half of the 2^nd Respondent”. The answers were in fact filed on the same day and therefore R1 had virtually been given no time to respond.  After that, despite what was said by R1’s solicitors in their letter dated 15 May 2004, R2/Ming An did not see fit to amend their answers.  The clear message from R2/Ming An to R1, objectively and reasonably inferred, was that R2/Ming An would make no admissions even though they had been told that there was not a defence case.

(b)    What R2/Ming An said in their answers to the applications of the six deceased is telling.  Firstly, they had already been told by R1 that the six deceased were R1’s employees.  Secondly, the positive case (that the Russians were employed by someone else) did not appear in any of R1’s draft answers provided to R2/Ming An for comments.  Thirdly, the positive case was formulated without R1 being consulted.  Fourthly, the positive case, even if sustainable, should have been run by R1 (who would have known better) rather than R2.  Fifthly, even though R2/Ming An knew that R1’s original case was merely one of non-admission, yet R2/Ming An decided to go ahead and file their answers as they were.

(c) On balance of probabilities, I infer that the purpose of R2/Ming An was to influence R1 in their defence.  This is on the basis of the following acts done on behalf of R2/Ming An through their then solicitors: (i) providing R1 with copies of R2’s answers which were said “to be filed”; (ii) warning R1 repeatedly not to make any admissions “without our approval”; (iii) saying that they “therefore expect” R1 not to file an inconsistent answer; (iv) filing their answers before R1 did which contained an argument which, even if sustainable, should have been run by R1 instead. 

(d) On balance of probabilities, I find as a fact that R1’s conduct of the defence in the ECC had in fact been influenced by the aforesaid two letters and the answers filed by R2/Ming An in that R1 was forced to defend the ECC when they would have done otherwise.

(e) I do not accept the argument that R1 could have conceded liability in the ECC.  That was not a realistic option open to R1.  From R1’s perspective, they risked their potential indemnity claim against Ming An if they did so, as they had already been told the stance of R2 and warned that any admission made without approval would be taken issue with.  This is especially so when the warning was repeated even after R1 had informed that there was in fact no issue of the employer-employee relationship or other conditions of compensation. 

(f) Despite the answers filed by R1, I note that Ms Leung said that the two local employees were “recruited” by R1.  I note also that her statements contained no representations that the Russians were not employed by R1 but by Maritime Agency Primtanco at the material time.  R1 had eventually not adduced any evidence to support the positive case at the trial.  I also remind myself that the Court is dealing with the matter of costs between the two respondents, not those between the applicants and the respondents.

(g) Given that R2 had also instructed solicitors and counsel to attend the trial of the ECC and to make an application for indemnity under the Ordinance, it is only fair that R1 should also engage solicitors and solicitors to attend the ECC in order to protect their interest. 

V. CONCLUSION

21. In all the circumstances, I am satisfied that the conduct of R2/Ming An in the present case constitutes a special or unusual feature so that it is appropriate for the court to exercise its discretion to award indemnity costs to R1: (i) in defending the eight ECC and (ii) in opposing the s 24 indemnity application (including the costs in the two summonses filed on 6 and 25 June 2007 respectively in relation to the indemnity application as ordered by the learned judge on 6 August 2007), with certificate for counsel.  I so order. 

22. I also make an order nisi that the costs of R1 in the present application be paid by R2, to be taxed if not agreed, with certificate for counsel, on party and party basis.