CHAN TAK ON v. MUCH MORE HUMAN RESOURCES COMPANY LTD AND ANOTHER

DCEC 1161/2022

[2023] HKDC 661

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

EMPLOYEES’ COMPENSATION CASE NO 1161 OF 2022

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DECISION

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A.  Background and Application

1.  In the Applicant’s Application (“Application”)  filed on 21 June 2022 pursuant to the Employees’ Compensation Ordinance,[1] the Applicant claims employees’ compensation against the 1^st Respondent and the 2^nd Respondent respectively as the direct employer and the principal contractor in relation to a personal injury allegedly suffered from an accident (“Accident”)  at work on 27 November 2021 at a New Territories land lot in Yuen Long used for scrap metal processing (“Workplace”).

2.  The 1^st Respondent has yet to file its answer but the 2^nd Respondent vigorously denies liability by alleging in its answer filed on 8 August 2022 that the 1^st Respondent was the employer, and the 2^nd Respondent was not the principal contractor.

3.  Pursuant to O 18, r 19 of the Rules of the District Court[2] and the inherent jurisdiction, the 2^nd Respondent issued a summons (“Summons”)  on 1 November 2022 to strike out the Application for disclosing no reasonable cause of action, and to dismiss the proceedings against it.  According to the margin note and the body of the Summons, the 2^nd Respondent relied on two grounds to strike out the Application, namely: first, “disclosing no reasonable cause of action” admittedly to have been made pursuant to O 18, r 19(1)(a);[3] and second, inherent jurisdiction.

4.  The 2^nd Respondent filed the Affirmation of Lau Wai Yee Monita, its handling solicitor (“Lau’s Affirmation”), and the Affirmation of Lai Sing Yeung, the manager (“Mr Lai”)  (“Lai’s Affirmation”)  in support of the Summons.  The Applicant filed an Affidavit of Law Ming Chu (his solicitor), and an affirmation of himself in opposition.

5.  At the hearing, the Applicant and the 2^nd Respondent were respectively represented by counsel Ms Lam and Mr Gidwani who appeared together with Mr Shum.  (Mr Gidwani and Mr Shum will be jointly referred to as “Counsels”).

6.  The unrepresented 1^st Respondent, appeared by its director, filed no evidence and maintained a neutral stance.

B. The abandonment of the first ground

7.  When a party relies on O 18, r 19(1)(a)  for “disclosing no reasonable cause of action” to strike out a claim (or a pleading), the party shall be precluded from relying on any evidence in support: O 18, r 19(2), which provides that “no evidence shall be admissible”.  In other words, all the evidence the 2^nd Respondent had filed in support of the Summons could not be referred to in support of the first ground of the striking out.

8.  It was only at the hearing that Mr Gidwani informed this court that the 2^nd Respondent would no longer rely on the first ground of “disclosing no reasonable cause of action” to strike out the Application.  Hence, the only remaining ground it relied on was the second ground of “inherent jurisdiction”.

9.  In her written submissions, Ms Lam raised two contentions.  Her first and the primary objection is her contention that the District Court lacks inherent jurisdiction.  In the event that the court were to find otherwise, Ms Lam contended that this court should not invoke its inherent jurisdiction to strike out the Application.

10.  I will discuss these contentions in turn.

C. Does the District Court lack inherent jurisdiction to strike out a claim?

11.  Ms Lam premised her primary contention on the argument that the District Court is not a court of record.  It was stated that since the 2^nd Respondent was the applying party, it should have provided authorities to satisfy this court that the District Court has inherent jurisdiction to strike out a claim.  As the 2^nd Respondent had not so provided, Ms Lam invited this court to dismiss the Summons on the primary ground.

12.  To be fair to the 2^nd Respondent, the Applicant did not raise the issue of inherent jurisdiction in any of its opposing affirmations.  It was only first raised by Ms Lam in her written submissions.  The issue of whether the District Court has inherent jurisdiction is unquestionably a very important matter that required careful consideration.  Hence, I allowed Counsels further time after the hearing to prepare supplemental submissions on this issue.

13.  The 2^nd Respondent has since lodged its Supplemental Submissions together with a Supplemental List of Authorities consisting of 10 authorities of journal articles and Hong Kong and English authorities.  In their Supplemental Submissions, Counsels submitted that pursuant to s 3(2)[4] of the District Court Ordinance, the District Court is a court of record: §10.  It was submitted that the “District Court is not an ‘inferior court’.  It is a court created under Basic Law and has its constitutional power.  Case law confirms every court, superior or inferior, is vested with the inherent jurisdiction especially in this modern era”: Supplemental Submissions at §§41 and 42.

14.  In her reply submissions to the 2^nd Respondent’s Supplemental Submissions, Ms Lam accepted that the District Court has inherent jurisdiction to strike out a claim, and appeared to have dropped her lack of inherent jurisdiction argument.  Ms Lam’s reply submissions chiefly focused on the scope of inherent jurisdiction, and the issue of whether the court should invoke its inherent jurisdiction.

15.  In light of the ambiguous position Ms Lam took in her reply submissions regarding her primary contention, this court therefore asked Ms Lam to clarify if the Applicant had abandoned the lack of inherent jurisdiction objection argument.  By a “Reply to Court’s Note” in reply to the court’s requisition, Ms Lam accepted that the District Court is a court of record but maintained her primary objection of the lack of inherent jurisdiction.

16.  Contrary to her earlier contention in suggesting that the District Court is not a court of record, Ms Lam’s latest concession, in my view, has effectively rendered her lack of inherent jurisdiction contention untenable.  In any event, I also do not think the two District Court cases Ms Lam cited in support of her arguments assist her.  Since they are the decisions of co-ordinate jurisdiction, they do not bind this court.

17.  The first case of Chow Tak Sung v Tse Ching[5] concerned  an application for stay of proceedings on the ground of forum non conveniens,  and one of the grounds of the application was inherent jurisdiction.  The Judge decided that the District Court had no inherent jurisdiction:-

“5. Very often litigants including lawyers come to District Court to invoke the inherent jurisdiction of this court. Let me say once again that the District Court is created by statute and its jurisdiction can only be conferred by the Ordinance which established the District Court. Hence in the District Court there is no inherent jurisdiction.”

18.  The second case of DW v HHT[6] is a decision of the Family Court on production of documents.  In dealing with one of the grounds of the application on “inherent jurisdiction”, the Judge also held that the District Court had no inherent jurisdiction at §19:-

“19. In so far [as] the Petitioner’s Summons seeks to invoke the court’s ‘inherent jurisdiction’, it is trite to say the District Court (and therefore the Family Court)  is not a court of record and has no inherent jurisdiction (See QMY v GSS (Inherent Jurisdiction) [2015] HKFLR 460 at paragraph 8.14 and Chow Tak Sung v Tse Ching [2002] 4 HKC 664 at page 666I). Moreover, I know of no legal principle which allows the court to grant discovery applications on the basis on inherent jurisdiction.”

19.  Apart from these two authorities, Ms Lam had also fairly drawn to the court’s attention of another District Court case of Lam Pui Yi Anita v Secretary for Justice[7] in which the Judge held a different view.  In Lam Pui Yi Anita, the District Judge was dealing with an application to strike out a notice of appeal against the medical assessment of the medical assessment board on the ground of “frivolous, vexatious and an abuse of process of the court” in an employees’ compensation case.  The Judge stated at §33:-

“33. …However, the Court of Final Appeal has confirmed that the District Court has such inherent jurisdiction (see Ng Yat Chi v Max Share Ltd & Anor [2005] 1 HKLRD 473, 513, where Ribeiro PJ said ‘[the] District Court equally has an inherent jurisdiction to protect its process against abuse…’). It is also plain that the illustrations cited in the learned text are not exhaustive. Indeed, Hong Kong Civil Procedure 2004 (supra)  para 18/19/10 at p 320 said that ‘[the] categories of conduct rendering a claim frivolous, vexatious or an abuse of process are not closed but depend on all the relevant circumstances and for this purpose considerations of public policy and the interest of justice may be very material’.”

20.  It would appear from the above quoted passage of Lam Pui Yi Anita that the view of the learned District Judge was largely based on the decision of the Court of Final Appeal (“CFA”)  in Ng Yat Chi v Max Share Ltd & Anor, op cit when she held that the District Court has inherent jurisdiction to curb abuse, frivolous or vexatious proceedings.  While Ms Lam did not dispute the existence of such inherent jurisdiction, she however contended that since the District Court is not a court of record, any inherent jurisdiction should have only been confined to the power to restrain the abuse of process or frivolous or vexatious proceedings but not beyond.

21.  Since Ng Yat Chi is a judgment of the CFA, this court is bound by it.  In fact, Counsels in their Supplemental Submissions also cited and relied on Ng Yat Chi as an authority that the District Court has inherent jurisdiction.

22.  In the circumstances, it will be instructive to consider Ng Yat Chi in greater detail.  In it, the CFA held that the Court of Appeal, the Court of First Instance and the District Court have inherent jurisdiction in making preventive orders to prohibit vexatious litigants from commencing any new applications (referred to as the Grepe v Loam orders[8] and the Extended orders: see §§14 and 15.  In the judgment, the Court stated that:-

“120(b)  The order should also state whether the requirement only applies to cases in the High Court or whether it also extends to actions on the same subject-matter in the District Court. In my view, the latter option legitimately falls within the province of an extended order as a measure against the relevant abuse. The District Court equally has an inherent jurisdiction to protect its process against abuse and may make relevant orders applying the principles presently under consideration.” (Emphasis added)

23.  Since Ms Lam is no longer arguing that the District Court is not a court of record, I am unable to find any basis to support Ms Lam’s primary objection that the District Court lacks inherent jurisdiction.  In my view, Ng Yat Chi has authoritatively affirmed the inherent jurisdiction of the District Court.

24.  If, as first suggested by Ms Lam, inherent jurisdiction is not available to the District Court for being not a court of record, the CFA would not have in Ng Yat Chi affirmed the existence of its inherent jurisdiction alongside the High Court to curb abuse of process.  The CFA, in my view, was plainly satisfied that the District Court is empowered to exercise inherent jurisdiction.

25.  It therefore follows that none of the District Court cases of DW v HHT and Chow Tak Sung cited by Ms Lam to advance her arguments should be followed.

26.  As Ng Yat Chi is a binding authority that the District Court has inherent jurisdiction, there is no need to discuss further Counsels’ Supplemental Submissions, which in my view further fortify the 2^nd Respondent’s submission that the District Court is a court of record, and that it retains a residual power to “ensure the observance of the due process of law, to prevent improper vexation or oppression, to do justice between the parties”.[9]

27.  Evidently, the existing statutory rules requiring both the High Court and the District Court to give effect to the underlying objectives of their respective identical rules when they exercise any of their powers (whether under their inherent jurisdiction or given to them by these rules or otherwise),[10] in my view, further reinforce the existence of the District Court’s inherent jurisdiction.

28.  In the circumstances, I reject Ms Lam’s primary position.  In the absence of any statutory displacement, I take the view that the District Court, in addition to the power under O 18, r 19, has inherent jurisdiction to strike out a claim.

D. Whether this court should exercise its inherent jurisdiction?

D.1 The evidence before the court

29.  The Summons had been issued before the court gave any case management directions.  Hence, the 1^st Respondent has not filed its answer, and discovery has not yet taken place.  Apart from the affirmation/affidavit evidence, the Hearing Bundle (“HB”)  also included correspondence exchanged between the parties’ solicitors and with the Labour Department as well as the documents enclosed with the correspondence.

30.  The evidence adduced in relation to the Summons largely comprises of documents submitted to the Labour Department.  The Applicant has not deposed to anything further beyond an assertion that he was employed by the 1^st Respondent to work at the Workplace.

31.  According to the three notices of the Accident submitted to the Labour Department in the prescribed Form 2 by the Applicant, the 1^st and 2^nd Respondents respectively on 6, 20 and 31 December 2021[11] (respectively the Applicant’s, the 1^st Respondent’s and the 2^nd Respondent’s Form 2), all the three parties reported that the Accident happened in the course of employment, and further stated that the Applicant’s employer was the 1^st Respondent and the principal contractor was the 2^nd Respondent.

32.  The 2^nd Respondent subsequently disowned its Form 2 by a letter of withdrawal dated 26 August 2022 from its solicitors to the Labour Department.  In the letter, it was averred that the insertion regarding Principal Contractor in Part C of the Form 2 was made by inadvertence/mistake, and was erroneous and/or inaccurate.[12]

33.  In Lai’s Affirmation, Mr Lai also sought to explain how the alleged error was made when completing the 2^nd Respondent’s Form 2.  According to Mr Lai, the 2^nd Respondent’s Form 2 was completed by the Human Resources Department by copying the Applicant’s Form 2.  Hence, the information regarding the parties was identical to that of the Applicant’s Form 2.  Mr Lai explained that for fear of delaying the giving of the notice of the Accident to the Labour Department, he signed on the completed Form 2 given to him by the Human Resources Department.

34.  The 2^nd Respondent averred that the actual relationship between the 1^st and the 2^nd Respondents was evidenced by a Chinese agreement dated 7 June 2021 entitled “外判合約協議書” (“Agreement”)[13] entered into between the 1^st Respondent, an employment agency,[14] and the 2^nd Respondent.  It was submitted on behalf of the 2^nd Respondent that by the terms of the Agreement, particularly clauses 1.7[15] and 2.1,[16] the 1^st Respondent was contractually obliged to provide labour services to the 2^nd Respondent, and to procure and pay for adequate workman’s compensation insurance coverage and relevant worker’s insurances and benefits.

35.  Mr Gidwani also highlighted the Notice of Insurance issued by QBE Hongkong & Shanghai Insurance Ltd (“QBE Policy”)[17] dated the same date as the Agreement in support of the 1^st Respondent’s alleged contractual obligation to provide relevant insurance.

36.  Similar alleged arrangement between the 1^st and 2^nd Respondents was also stated in a Declaration of Leung Bing Fai (the 1^st Respondent’s Human Resources Manager)  dated 20 April 2022 (“Leung’s Declaration”)[18] provided to the Occupational Safety Officer of the Labour Department.

37.  The Occupational Safety Officer of the Labour Department also conducted an investigation into the Accident, and prepared a statement dated 16 September 2022 (“Officer’s Statement”).[19] In the Officer’s Statement (at §3), the investigating officer described the Agreement as a “labour outsourcing contract”, but the 2^nd Respondent retained “full management and control of” the Workplace it solely owned (at §5).

38.  Relying on the above documents, the 2^nd Respondent avers that the 1^st Respondent was in fact the employer of all the workers (including the Applicant)  it assigned to work for the Workplace from which the 2^nd Respondent operated its scrap metal processing business.  The 2^nd Respondent was only an “end-user” of the labour provision services provided by the 1^st Respondent, and it did not therefore “in the course of or for the purposes of [its] trade or business, [contract] with a sub-contractor for the execution by or under the sub-contractor of the whole or any part of any work undertaken by” it.  Thus, it was not a relationship of sub-contractor and principal contractor.  Counsels argued that since the Applicant’s claim against the 2^nd Respondent was entirely based on an averment that the latter was a principal contractor within the meaning of s 24,[20] the Applicant’s “pure case of s 24” against the 2^nd Respondent is clearly “unsustainable”.

D.2 Governing Principles

39.  The governing principles for striking out on the ground of inherent jurisdiction are undisputed.  In summary, the inherent jurisdiction is exercised sparingly and only in exceptional circumstances.  The circumstances that enable a court to exercise its inherent jurisdiction to strike out a claim is when the court finds that a claim or a party’s conduct in an action is frivolous or vexatious or that a party’s case (without conducting a mini trial)  is clearly unsustainable.

40.  The 2^nd Respondent’s striking out application is clearly not based on any frivolous or vexatious claim or conduct.  Hence, the only matter I need to examine is whether the Applicant’s claim is clearly unmaintainable.  Affirmation evidence is admissible when a court is considering if a claim is obviously unsustainable and thus ought to be struck out under its inherent jurisdiction: Hong Kong Civil Procedure 2023, Vol 1, §18/19/13.

D.3 Discussion

41.  The main plank of the 2^nd Respondent’s argument is that the Applicant’s claim against the 2^nd Respondent as the principal contractor is undermined by the Agreement.

42.  In considering if a court should exercise its inherent jurisdiction to strike out, the court can consider all the evidence and the documents before it, not just the pleaded facts.  Ms Lam argued that the issue of whether the 2^nd Respondent was an end-user of the 1^st Respondent’s labour services or in fact was a principal contractor should only be determined by the trial judge by taking into consideration all the evidence placed before it.

43.  I agree with Ms Lam.

44.  It is undisputed that the invocation of inherent jurisdiction is an exercise of the court’s summary jurisdiction.  It is not proper at the interlocutory stage for a court to undertake a minute and protracted examination of the documents and facts of the case without discovery and without oral evidence tested by cross-examination to determine if a claimant has a cause of action, otherwise it will be usurping the position of the trial judge: Wenlock v Moloney & Ors.[21]

45.  The evidence the 2^nd Respondent relied on in contending that it was not the principal contractor is mainly based on the provisions of the Agreement between the 1^st and 2^nd Respondents, particularly clauses 1.7 and 2.1 (see §34 above).

46.  Relying on the documents discussed in §§32-37 above (the withdrawal of the 2^nd Respondent’s Form 2, the QBE Policy, Leung’s Declaration, and the Officer’s Statement), the 2^nd Respondent denies that the Agreement is a sub-contract but an “outsourcing” agreement, adopting the same characterization of the Agreement in the Officer’s Statement.

47.  In my view, the characterization of the Agreement itself is not evidence of the nature and character of the Agreement.  While the Chinese title of the Agreement, “外判” can connote a general meaning of “outsourcing”, it could also carry a much wider meaning, and does not necessarily have the characteristics the 2^nd Respondent contended for.  To determine the nature of the Agreement, it is necessary to examine, apart from the terms of the Agreement, all the aspects of the arrangement between the contracting parties on one hand; and the responsibilities and duties undertaken by the parties in relation to the work the Applicant was employed to do at the Workplace.

48.  From the evidence placed before me, it appears that at the material time the 2^nd Respondent, apart from having the control and management of the Workplace, also supplied all the equipment and the machines used by the workers (including the Applicant): Leung’s Declaration[22] and the Officer’s Statement.

49.  Further, the parties’ respective Form 2 (see §31 above)  show (at least before the 2^nd Respondent’s withdrawal of its Form 2), ex facie, the existence of a relationship of sub-contractor and principal contractor between the 1^st and 2^nd Respondents.

50.  Pertinently, it is noted that the 1^st Respondent’s Form 2 seems to suggest that the 1^st Respondent, as a contracting party to the Agreement, clearly regarded its relationship with the 2^nd Respondent as one of sub-contractor and principal contractor.  There is no evidence to show that the 1^st Respondent’s belief of the existence of such relationship has changed.  In its “Notice of Change of Information” (「資料更改通知書」)  dated 7 January 2022 to the Labour Department,[23] the 1^st Respondent not only still identified the 2^nd Respondent as the principal contractor, but further furnished updated information of the 2^nd Respondent’s address and its business registration number.

51.  As Ms Lam has pointed out, the withdrawal of the 2^nd Respondent’s Form 2 is self-serving at best.  Mr Lai’s explanation in Lai’s Affirmation, in my view, would also be similarly self-serving in nature, and its credibility clearly needs to be vigorously tested by cross-examination.  Notably, when Mr Lai later had an opportunity to clarify the information inserted in the 2^nd Respondent’s Form 2 in his two written declarations provided to the Occupational Safety Officer of the Labour Department dated 14 April[24] and 26 April 2022[25] regarding the Accident, and the role played by the 2^nd Respondent in relation to the Applicant’s work at the Workplace, Mr Lai did not retract or correct the “principal contractor” insertion in the 2^nd Respondent’s Form  2.

52.  The copy of the QBE Policy the 2^nd Respondent exhibited to Lau’s Affirmation also appears to be an incomplete document containing no signatures and the relevant company chops of the insurer and the insured. Its validity is in question.

53.  The totality of the evidence discussed above plainly shows that the issue of whether the 2^nd Respondent was a principal contractor cannot simply be determined by the 2^nd Respondent’s cherry-picking one or two clauses of the Agreement, especially in such an early stage of proceedings before discovery and without the 1^st Respondent’s evidence.  The 2^nd Respondent’s role, and its liability for the Accident cannot be determined at an interlocutory stage without cross-examination of the witnesses especially when the 2^nd Respondent was admitted to have been in complete control, management and operation of the Workplace, including the manpower, the operation of the work machines, maintenance and training, etc: see Lai’s declaration of 14 April 2022 at §51 above, answer no  7.[26]

54.  In the circumstances, I decline to exercise the inherent jurisdiction to strike out the claim against the 2^nd Respondent.

E. Conclusion and orders

55.  For the reasons above, I dismiss the Summons with costs (on nisi basis)  to the Applicant, with Certificate for Counsel, to be taxed if not agreed.  This costs order shall stand absolute if no variation application is made within 14 days of the handing down of this Decision.

56.  Since the 1^st Respondent is acting in person, the parties shall attend a directions hearing on 7 July 2023 at 10:30 a.m. at Court No. 26 of the District Court.

57.  Lastly, I wish to thank counsel for both parties for their assistance.