WU RUFANG v. XIAO YONGRU t/a CHIEN KEE PLASTIC MATERIALS

DCEC 558/2013

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

EMPLOYEES’ COMPENSATION CASE NO 558 OF 2013

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D E C I S I O N

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A. 　Costs on discontinuance

1.  On 12 February 2016, the applicant was granted leave to discontinue his employees’ compensation application (“EC Application”) against the respondent, but refused to pay the respondent’s costs as he would have been required to by the general rule[1] . Instead, the applicant contends that there should be a departure from the general rule in seeking costs against the respondent.

2.  At the hearing of the costs dispute, the applicant was represented by counsel Mr Victor Cheung, and the respondent’s counsel was Mr Roland Lau.

B. 　The aCcident and the related common law proceedings

3.  According to the documents disclosed in the hearing bundle, the following facts are not in dispute.

B.1　The accident

4.  The applicant sustained bodily injuries on 28 December 2011 in an accident involving a forklift truck driven by an employee (“truck driver”) of a company (“company”) (jointly referred to as the “tortfeasors”). The applicant was hit from behind as he was standing on the ground at the back of a stationary truck (“Truck”) belonging to the respondent of the EC Application - Xiao Yongru  (“Proprietor”) trading as Chien Kee Plastic Materials (“Chien Kee”). 

5.  After the accident, the respondent, between 17 January 2012 and 18 October 2012, made 11 cash payments in the total sum of $80,000 (“Advance Payment”) to the applicant.[2]

B.2　The concurrent proceedings

6.  The applicant, through his legally aided assigned solicitor, Mr Poon (“Mr Poon”) of Messrs Kenneth Poon & Co, subsequently issued, respectively on 27 March and 18 September 2013, the EC Application against the alleged employer (the respondent) for compensation, and a High Court common law action (HCPI 818/2013) (“PI Action”) against the tortfeasors for damages for the injuries that he had suffered. 

B.3　The consent order in the PI Action

7.  The PI Action was disposed of by a consent order (“Consent Order”) dated 11 June 2015.  By §1 of  the Consent Order, the amount of the damages was agreed at $580,000 with interest, which is further expressly stated to be “on top of the Employees’ Compensation already received by the [applicant in the ECApplication] in full and final settlement of the [applicant’s] claim against the [tortfeasors]”. It is not in dispute that the “Employees’ Compensation already received” referred to in §1 of the Consent Order is the Advance Payment.

B.4　The progress of the EC Application

8.  In the meantime, not much progress had been made in the EC Application. As a matter of fact, when the Consent Order was made, the EC Application had appeared to have become inactive for about 18 months since the last filing by the applicant of a supplemental list of documents on 29 January 2014. It is further noted that after the respondent filed his answer on 22 April 2013, the applicant filed a reply without the leave of the court as required by Practice Direction 18.2 §40[3]. This being the case, disregarding the reply, the pleadings were deemed to have been closed by 22 April 2013.

9.  After the close of pleadings, the respondent only filed a request for further and better particulars and a mediation notice, but made no discovery of documents notwithstanding an order dated 21 August 2013 made by consent for the mutual discovery of documents.

10.  By contrast, the applicant seemed to have been more assiduous. Not only had he made discovery of documents by filing two lists of documents in compliance with the said consent order, he further filed a list of earnings even though he was not required either by statue[4] or any court order to do so.

11.  When the parties were unable to resolve their differences on costs despite several rounds of correspondence between them after the settlement of the PI Action, the applicant wrote to court on 13 November 2015 for the restoration of the EC Application.

12.  In order to resolve the dispute on costs, the applicant, instead of discontinuing the EC Application, had previously proposed, in one of the restored hearings, the setting down of the EC Application for trial. The applicant later decided to forgo (quite sensibly in my view) the trial option, and chose a more costs-saving approach in resolving the parties’ dispute by discontinuing and leaving the costs issue to be determined by the court.

C. 　APPLICABLE PRINCIPLES

13.  The  legal principles on the costs of discontinuance, which  are settled and not in dispute, can be stated as follows:

(1)   A court has a complete unfettered discretion on costs, and the exercise of discretion is to be based on doing justice between the parties.

(2)   When a proceeding is discontinued, the starting position is for the costs to be paid by the discontinuing party (Townmens Investment Co Ltd v Wider River Ltd (In Liquidation)[5] unless it can be displaced by the demonstration of exceptional circumstances: Mariner International Hotels Ltd v Atlas Ltd (No.2)[6].

(3)   In situations where parties (as in the present case) have chosen not to go to trial to resolve their outstanding questions of costs, a claimant (the applicant) shall be required to demonstrate, “that his case is so strong that he is bound to win had it gone on to trial and therefore he was justified in commencing the action in the first place…”: Anmol Kumar Sawlani v Yeshma Gobindram Sawlani[7].

14.  Applying these principles to the present situation, this means that the applicant is required to demonstrate strong merits of his claim notwithstanding Mr Lau’s concession made at the hearing that the applicant was justified in instituting the EC Application in the first place.  

D.　THE APPLICANT’S POSITION

D.1　Applicant’s open offer

15.  The applicant’s position before the filing of the evidence in relation to the costs dispute was for the costs of the entire EC Application to be paid by the respondent. In the supporting affirmation (“supporting affirmation”) of Mr Poon filed in relation to the costs issue, the applicant however seemed to have backpedaled by openly proposing (at §52 of the supporting affirmation) that: (i) the respondent to pay the applicant’s costs of the proceedings up to and including 11 June 2015 (the date of the Consent Order); and (ii) there be no order as to costs as from 11 June 2015.

16.  Despite the applicant’s backpedaling, the said open offer is still a departure from the starting position. According to the established legal principles, the applicant will still be required to demonstrate strong merits before the general rule can be displaced.

D.2　Applicant has strong merits

17.  It is submitted that the applicant has a strong case in both liability and quantum against the respondent.    Insofar as the merits on liability are concerned, Mr Poon relied on the following documentary exhibits to the supporting affirmation, which documents, Mr Poon avers, overwhelmingly show that the applicant sustained injuries in the course of his employment with the respondent :

(i)   the statement dated 30 December 2011 of the truck driver taken by an officer of the Labour Department (“Driver’s Statement”);

(ii)   the statement dated 31 December 2011 of the Proprietor’s son (“Son”) also taken by an officer of the Labour Department (“Son’s Statement” ),and

(iii)   The testimonies of the truck driver and the Son given at the trial of a labour prosecution in the magistrate’s court (case number FLS 7995/2012) against the company (“Criminal Trial”).

18.  As for the amount of the applicant’s ss.9, 10 and 10A compensation under ECO the applicant would likely have recovered had he proceeded to trial, Mr Poon calculated the amount to be $507,000. The calculation was based on (i) 14 percent of loss of earning capacity and 456 days of sick leave stated in the Certificate of Assessment (“Form 7”) issued by the medical board of the Labour Department; and (ii) the pleaded daily wage of $800[8]. Since the net amount of the applicant’s claim, after having taken into account the Advance Payment, would likely be in the sum of $427,000, the applicant therefore argues he also has strong merits on quantum.

D.3　Parties’ conduct

19.  To buttress his argument for the displacement of the general rule, the applicant further relies on the conduct of the parties. To counteract the respondent’s complaint of the applicant having failed to include the former in the settlement of the PI Action, the applicant further suggested that he should not be faulted for not having done so, for the reason that the PI Action and the EC Application were separate proceedings. Hence, it would not have been possible, it was stated, to include the costs of the EC Application in the costs of the PI Action.

20.  In Mr Poon’s reply affirmation, Mr Poon further alleges that in fact it was due to the respondent’s unreasonable denial of his liability for the applicant’s injury that had led to the present costs dispute. Had the respondent admitted his liability for the EC Application, Mr Poon suggested that the respondent, as a faultless employer, should have been able to rely on the indemnification provisions in s25, ECO, in obtaining indemnification from the tortfeasors not only in respect of the Advance Payment that he had made but also the costs of the proceedings as well as his own costs. 

E.　 The respondent’s opposition

21.  In the affirmation filed by the Proprietor on 31 March 2016 in opposition (“opposing affirmation”), the respondent put forward three main arguments to oppose the applicant’s stance on costs. First, the applicant fails to demonstrate he has merits either in liability or in quantum. Secondly, the Advance Payment was sufficient to discharge the respondent from any further liability by the operation of the doctrine of “accord and satisfaction”. The applicant therefore has “no cause of action” in the EC Application[9]. Thirdly, the failure by the applicant in informing the respondent before the PI Action was settled was unreasonable conduct.    

F.　RELEVANT CONSIDERATIONS

22.  According to the parties’ contentions as discussed above, I consider that the following are the relevant considerations that I should have regard to when exercising my discretion on costs:

(1)   Whether the applicant can demonstrate merits in liability and quantum?

(2)   Whether the Advance Payment constitutes “accord and satisfaction” of the applicant’s claim against the respondent as the respondent alleges?

(3)   Whether any prejudice has been caused to the respondent as a result of the applicant’s failure in informing the respondent of the settlement of the PI Action    ?

G.　 DOES THE applicant have SUCH a strong case that he is bound to win ON LIABILITY?

G.1　Issues in dispute

23.  Since, as discussed in sub-heading B.4 above, the EC Application  had only reached the stage of partial discovery (as none had been made by the respondent) when it was discontinued, I should start with the assessment of the merits by examining the pleadings in the EC Application in order to find out the real issues in dispute.

24.  Briefly stated, the applicant’s pleaded case, according to the applicant’s application filed in the EC Application, is that the accident happened in the course of his employment with the respondent when he was struck by the forklift truck (driven by the truck driver) as he was standing at the back of the Truck to unload the respondent’s goods (plastic materials) from the Truck.

25.  Denying that the respondent was the applicant’s employer, the respondent in his answer put forward a different version of the accident.    It is alleged that the applicant at the material times “only stood aside as a bystander and/or a visitor, near a light goods vehicle (lorry) at the material time …, and not unloading any goods or materials” for the respondent (§6(2) of the answer).  Implicit in this traverse is the respondent’s denial that the applicant was working.

26.  The issues that need to be determined had these proceedings proceeded to trial are therefore whether the applicant was, when he met his accident, (1) working -  unloading the respondent’s goods from the Truck -  or simply standing aside as a bystander and/or a visitor as the respondent alleged; and (2) employed by the respondent. These two issues are central to the resolution of the core issue of whether the accident arose in the course of employment.

G.2　Issue(1): Was the applicant working?

27.  Since the applicant has relied on the Driver’s Statement, the Son’s Statement and the testimonies of the truck driver and the Son in the Criminal Trial (see §17 above), I should consider the said evidence first.

28.  Counsel have helpfully extracted the relevant parts of the agreed evidence in the Agreed Summary, which agreed extracts are set out in five separate headings: (1) the Driver’s Statement, (2) the Son’s Statement, (3) the details of the Advance Payment, (4) the truck driver’s testimony in the Criminal Trial, and (5) the Son’s testimony in the Criminal Trial.

29.  By adopting a broad brush approach (see Townmens (supra.)) in assessing the agreed extracts of the evidence, I consider that the applicant has very powerful evidence in showing that he was engaged in the work of the unloading of the respondent’s goods at the time of the accident.  The strength of the applicant’s evidence can be found in the Driver’s, as well as the Son’s, Statements (both of which were taken 3 days after the accident), both contemporaneous documents capable of corroborating the applicant’s assertions. In my assessment, the respondent’s version of events in alleging that the applicant “only stood aside as a bystander and/or a visitor” (as pleaded in the answer) “next to [the Son]” (as averred in the opposition affirmation at §10) would most probably have been rejected at a trial.

30.  First, the Son’s Statement as shown in the relevant extracts (particularly those parts that I have underlined) in the below tends to undermine the respondent’s allegation :

(1)   The Son was an employee of the respondent, working as a delivery worker. (“本人由2009年至今受僱於錢記塑膠原料，任職送貨員” [10])

(2)   On 28 December 2011 (the day of the accident) at around 1 pm, the Proprietor instructed the Son to deliver some plastic materials to the company’s site. (“响意外發生當日即2011年12月28日…大約中午1點左右，我父親即係錢記老闆蕭永如吩咐我送65包塑膠原料去…科技建築物料有限公司嘅工場喥” [11]).

(3)   The Son drove the applicant to the company site in the Truck. Upon arrival at about 4 p.m.,   the applicant went to the rear of the Truck to open its rear door after the Son had parked the Truck. The Son… passed the goods from the Truck to the applicant (to unload).(“我哋大約下午4時左右去到，然後泊好貨車，我哋隨即準備落貨，吳如芳開貨車尾板，而我就駕駛該工場內嘅一架剷車出上落貨區協助落貨[12]…     我將架剷車停泊响貨車尾後，熄好匙後開始落貨，我上去架貨車上面傳啲貨俾吳如芳” [13])

(4)   The accident happened when the applicant… was receiving the goods the Son passed to him from the Truck… (就企响貨車尾地面接我傳俾佢嘅貨…當時剷車同貨車尾嘅距離大約有3米左右。我落貨其間，突然見到該工場嘅領班汪生駛架剷車過嚟…當時剷車速度好高，我哋都來不及反應，架剷車就撞到吳如芳。[14])

31.  Secondly, the Driver’s Statement, though not directly, also seems to contradict the respondent’s pleaded version of events. The truck driver, the other eye witness of the accident, has stated in the Driver’s Statement that he had seen two workers from Chien Kee (the respondent) unloading goods before the applicant had the accident (當時有兩個“錢記”嘅工友正在落貨…佢地落貨期間推冧咗一堆貨….[15]). This statement, broadly considered, should be sufficient in my view for one to draw an irresistible inference that the Son and the applicant were the respondent’s “two workers” engaged in the unloading of the goods.

32.  Based on the totality of the above evidence, the applicant, in my assessment, would very likely have been able to prove that he was, contrary to the respondent’s allegation, indeed engaged in the work of unloading the respondent’s goods at the time of the accident.

G.3　Was the applicant an employee of the respondent?

33.  The above extracts of the Son’s and the Driver’s Statements outlined in §§30 and 31, when broadly viewed, would also, in my assessment,   provide a background of indicia suggestive of a relationship of one of employment. These indicia include, amongst others, first that, the applicant was working alongside the Son, who was admittedly the respondent’s employee (§30(1)); secondly, the delivery work was on account of the respondent (§30(2)), and thirdly, the goods were the respondent’s goods, and the Son drove himself and the applicant in a Truck that belonged to the respondent (§§30 (3) and 31).   

34.  In addition, in the Son’s testimony given at the Criminal Trial, he had pertinently described the applicant as none other than a delivery worker “跟車”. (“我同跟車吳如方[applicant] 去(現場)送貨” [16]).

35.  In order to contradict the applicant’s assertion alleging in his answer to the request for further and better particulars that the respondent made the offer of employment by phone on the night before the accident, the respondent exhibited to the opposition affirmation the phone record extracts. In light of the weighty contemporaneous evidence provided in the Agreed Summary discussed above, I consider that these phone records would unlikely undermine the applicant’s assertion.  

36.  All in all, after having evaluated the evidence in the round, it is my assessment that the applicant has demonstrated that he would have had a high chance in proving that (i) the respondent was the employer of the applicant and that (ii) when the accident occurred, the applicant was engaged by the respondent as his employee in the unloading of the respondent’s goods.

37.  In conclusion therefore, it is my assessment that the applicant has shown that he has a strong case in establishing liability against the respondent. 

H. 　DOES THE applicant have a strong case that HE CAN RECOVER COMPENSATION OF MORE THAN THE ADVANCE PAYMENT?

38.  The amount of compensation of $507.000 Mr Poon has calculated, as can be seen in (§18) above, has been based on the Form 7 assessment and the applicant’s asserted daily wage of $800. Since no appeal has been filed against the Form 7 assessment, the assessed 14 percentloss of earning capacity and 456 days of sick leave period that have been adopted for the calculation of the ss.9 and 10 compensation will be accepted.  Thus, the only matter that can be disputed for the calculation of these two heads of compensation will likely be the applicant’s wages.

39.  This has indeed been the case. The applicant’s asserted daily wage of $800 seems to have been rigorously challenged on the ground of it being inherently incredible by the respondent’s averment in the opposing affirmation that the daily wage of the Son, as the respondent’s employed driver, was only $300.

40.  In my assessment, the respondent’s assertion of the Son’s daily wage would have very little probative value in discrediting the applicant’s assertion. Not only is the assertion unsupported, due to the relationship of the Proprietor and the Son being that of father and son, the Son’s wages might not be representative of the wages of the respondent’s employee not in a family relationship with the Proprietor.

41.  In fact, contrary to the respondent’s allegation that the applicant’s asserted wages were a bare assertion, I have been able to find some documents that tend to provide some support for the applicant’s earnings before the accident.   In the applicant’s list of documents filed on 6 September 2013, Schedule 1, Part 1, item 18 described as “income evidence received from another company: copies of 1 Bank Statement and 3 cheques of [the applicant]”, the applicant disclosed a bank book and 3 cheques each in the amount of $4,750, $9,500 and $11,400 having been respectively deposited into his account on 7 December 2011, 19 December 2011 and 3 December 2012 in the total sum of $25,650 (i.e. $4,750 + $9,500 + $11,400).

42.  Since the applicant, according to Form 7, was granted sick leave from 28 December 2011 until 13 January 2014, the three cheque payments could have only been in relation to the applicant’s latest earnings before the accident albeit the deposit date of the last cheque was after the accident.   If these payments were all in respect of the applicant’s wages for the whole month of December 2011 before the accident, the applicant’s wages would have probably been $25,650, which amount would have been higher than the monthly wage of $20,800 (i.e. $800 x 26) Mr Poon adopted in the calculation of the applicant’s estimated compensation. 

43.  There is of course a likelihood that the three cheque payments, in the absence of any other evidence, might not have been in respect of the applicant’s earnings for the whole month of December 2011. It might have been possible that part of, or the entire sum of, $25,650 might have been the applicant’s wages for some other months such as the preceding month of November. Notwithstanding that, I am nonetheless of the view that the cheque deposits the applicant has disclosed not only can prove that the applicant’s assertion about his earnings is not a bare assertion as the respondent alleges. It further provides some reliable basis in supporting the level of the applicant’s earnings, which, according to these documents, were likely to have been in the region of $20,000 per month. In the circumstances, it is my assessment that the applicant would likely have succeeded in proving his asserted monthly earnings of $20,800.

44.  As for the medical expenses, the respondent does not seem to take issue with the amount Mr Poon put forth in the supporting affirmation.

45.  For the reasons stated above, it is my assessment that the applicant would likely be awarded compensation in the amount of $507,000 as Mr Poon has calculated.   The applicant, after having given credit for the Advance Payment, would have had a strong case to recover compensation in the total sum of $427,000. 

I.　Conclusion on merits

46.  From the foregoing discussions, I consider that the evidence, when assessed on a broad brush basis, shows that the applicant has a strong case against the respondent in both liability and quantum.

J.　Whether the Advance Payment constitutes “accord and satisfaction” of the applicant’s claim against the respondent

47.  Mr Lau’s “accord and satisfaction” argument, consisting of three main points, is not easy to follow, particularly in relation to the third point I set out in §49 below. First and central to his argument is his contention that the receipt by the applicant of the Advance Payment before the institution of the EC Application constitutes “accord and satisfaction[17]” of the applicant’s employees’ compensation claim.  It is therefore submitted that the applicant “has no right to resort to the original claim[18].”

48.  Secondly, it was also submitted on behalf of the respondent that the respondent’s liability in the EC Application was discharged when the applicant entered into the Consent Order. By entering into the Consent Order that provides for, amongst others, the “full and final settlement of all of [the applicant’s] claims in the accident”[19], the applicant was implicitly, Mr Lau suggested, acknowledging that the amount of the compensation in the EC Application was confined to the amount of the Advance Payment.

49.  Thirdly, by way of analogy[20], Mr Lau compared the effect of the Consent Order to that of a sanctioned payment. It was suggested that in a situation where a sanctioned payment is made by a defendant, it would only have the consequence of putting pressure on a plaintiff/applicant in deciding whether to accept the payment or not. On the other hand,  the respondent, by making the Advance Payment before the EC Application, Mr Lau went on to argue, was in a much better position than a sanctioned payment paying defendant because it brought about a discharge of his liability towards the applicant (as evidenced by the term of the Consent Order).

50.  In my respectful view, Mr Lau’s argument of “accord and satisfaction” ought to be rejected.  The reasons are as follows.

51.  First, as a result of the concession Mr Lau made at the hearing on behalf of the respondent in agreeing that the applicant was justified to institute the EC Application (see §14 above) , his first and also the second arguments that the EC Application was compromised are untenable.   In any event, in the absence of any evidence to support a claim of compromise, I do not consider that the respondent’s voluntary Advance Payment is sufficient.  

52.  Second, Mr Lau’s third argument that the Consent Order was a corollary of the sanctioned payment is misconceived. Under the ECO framework, an injured employee is statutorily entitled (under s25 (1) (a), ECO[21]) to institute a claim against his employer for the recovery of compensation and concurrently issue a separate common law proceeding against a negligent party. In such situation, if and when the common law action is settled, it would also put an end to the employees’ compensation claim for the reason that an employee cannot have double payment of compensation. As a result, the amount of the common law damages shall be required to take into account any likely amount the claimant may recover in the employees’ compensation claim.

53.  When the statutory framework of s25 (1) (a), ECO, is put into context, it is inevitable that the Consent Order would end the EC Application. Mr Lau’s argument[22] that the Consent Order has substantially bettered the respondent’s position is strained, and cannot be accepted.

54.  In conclusion, I do not find that the Advance Payment constitutes an “accord and satisfaction” of the applicant’s claim as Mr Lau has submitted.

K.　THE APPLICANT’S CONDUCT      

K.1　The conduct complained of

55.  The conduct complained of is in relation to the applicant’s failure in informing and obtaining the respondent’s consent before settling the PI Action. This failure, the respondent stated, was “most unjust and inexcusable” for it would “deprive [the respondent’s] costs in the [EC Application] from the [Consent Order]”[23].

K.2　Was the conduct unreasonable and thereby caused prejudice to the respondent?

K.2.1　The applicant’s contentions

56.  It is not in dispute that the respondent was not informed before the Consent Order was made. All the respondent had been informed of was the mediation for the PI Action before the Consent Order was made. The applicant contends that he has acted reasonably, and that no prejudice has been caused to the respondent for not having been informed before the Consent Order was made.

57.  First, as the EC Application and the PI Action were two separate proceedings, it would not have been procedurally permissible, it was suggested, for the applicant to join the respondent in an order of settlement in the PI Action. Thus, the applicant argues that it does not prejudice the respondent in any way in the EC Application whether or not the respondent was informed prior to the settlement of the PI Action.[24]

58.  Second, the applicant contends that any prejudice that the respondent may suffer is not due to any alleged unreasonable conduct of the applicant but was due to the respondent’s own foolhardiness. The respondent’s persistent maintaining of his denial of the employer-employee relationship notwithstanding weighty evidence against him, Mr Cheung submits, has deprived himself of the opportunity of obtaining an indemnity against the tortfeasors. Had the respondent admitted liability (which, the applicant contends the respondent should have), the respondent, as a faultless employer in this accident, could have availed himself of the provisions of s25 (1) (b), ECO, in seeking recovery against the tortfeasors not only for the Advance Payment that he had paid to the applicant but also the costs of the EC Application he is liable to pay to the applicant as well as his own costs.   It is therefore suggested that any prejudice would not have been due to the applicant’s conduct.

K.2.2　Discussion

59.  The respondent’s allegation of prejudice having been caused by having been kept out of the settlement of the PI Action, in essence, seems to be about the loss of the respondent’s right to recoup from the tortfeasors the Advance Payment that he had paid and his costs (as well as the applicant’s costs should he become liable) of the EC Application. 

60.  Since , as it is common ground,  the respondent, as a result of his denial of liability, would have lost the benefit of seeking recovery of  indemnification from the tortfeasors by virtue of s25(1)(b), ECO, I further accept Mr Cheung’s  submission that the respondent, being faultless as regards the accident, would have been, had he been found liable to pay compensation to the applicant,  able to seek indemnification from the tortfeasors not only for the compensation he would be adjudged to pay but also costs (including the respondent’s own costs): s25(1)(b), ECO, and s3 of the Civil Liability (Contribution) Ordinance (Cap.377);  Yardway Motors Ltd v Tam Siu Lun[25], Wah Kwong Construction Material v Wong Man Yip [26] and Hong Kong Red Cross v The Hong Kong Federation of Youth Groups[27].

61.  The loss of the benefit in seeking indemnification, in my view, was not caused by the applicant in not having informed the respondent of the settlement of the PI Action. The applicant is correct in stating that it was brought about by the respondent’s maintenance of the denial. The consequence that may result from the applicant’s omission, as will be shown in the discussion below, tends to affect the applicant, not the respondent.

62.  Section 25(2), ECO, requires an employee to “notify the employer”, apart from of his intention to institute common law damages against a tortfeasor, also when he decides to settle his claim for damages.  If an employee fails to give notice as required in s25(2), he may face the consequences stated in the subsections (3) and (4) [28], which involve non-recoverability or the reduction of the compensation and the repayment of any compensation having already been paid. 

63.  By the combined effect of subsections (2), (3) and (4) of s25, ECO, the applicant would likely be subject to those consequences stipulated in these provisions as a result of the applicant’s failure in informing the respondent of the settlement of the PI Action.  In other words, the applicant may be required to make repayment of the Advance Payment that he had received if the amount of damages the applicant has recovered in the PI Action is “equal or greater than the amount of compensation” which the applicant may recover against the respondent.

64.  In the result therefore, the applicant’s failure to inform the respondent of the settlement of the PI Action seems to be relevant to the question of whether the applicant should be ordered to repay to the respondent the Advance Payment by virtue of subsection (4). The respondent, through Mr Lau, however, has expressly relinquished his hitherto demand for the repayment of the Advance Payment. The subsection (4) consequence would therefore not have been engaged despite the applicant’s apparent non-compliance with one of the s25 (2) notification requirements requiring him to inform the respondent of his decision to settle the PI Action.

65.  In the circumstances, I am unable to find any connection between the respondent’s loss of the right to seek indemnity from the tortfeasors with the applicant’s failure to seek the respondent’s consent before the entry of the Consent Order. Hence, I do not consider that the applicant’s conduct has caused any prejudice to the respondent. 

66.  In any event, the respondent’s surmise that the respondent should have been included in the settlement agreement of the PI Action is procedurally speaking, untenable, for the simple reason that the respondent was a non-party to the PI Action (as the applicant has rightly pointed out).

67.  In conclusion, I do not consider that the applicant has caused the respondent any prejudice notwithstanding that the applicant had not complied with s 25(2) ECO in informing the respondent of the former’s decision to settle the PI Action.

L.　the appropriate costs order

L.1　Displacement of the usual rule

68.  In the light of my determination in the applicant’s favour in relation to the issue of merits, the applicant, according to the established legal principles, has therefore demonstrated sufficient grounds to enable this court to allow a departure from the general rule on costs.

69.  Thus, the usual rule of requiring the applicant to pay the respondent’s costs should be disapplied. Owing to the high chance of success I have assessed the applicant would have had in the EC Application had he proceeded to trial, I consider that the appropriate costs order should be the costs order the applicant has put forward in the supporting affirmation outlined in §15 above, namely allowing the applicant’s costs of the EC Application up to and including 11 June 2015. Hence, I do not accept Mr Lau’s primary contention for a costs order in favour of the respondent. Neither am I inclined to accept his alternative suggestion for an order of no order as to costs before the date of the Consent Order, but costs in favour of the respondent from the date of the Consent Order.

L.2　Without prejudice offer

70.  After rejecting Mr Lau’s first two proposals on costs, it leaves his last alternative costs position, which, strictly speaking, does not relate to the general costs rule but is concerned with the respondent’s without prejudice offer he made before the hearing on the costs dispute.  The said offer by the respondent was a proposal for the dismissal of the EC Application with no order as to costs set out in his solicitors’ letter marked “without prejudice save as to costs” dated 4 December 2015. As the applicant had rejected the respondent’s offer, Mr Lau therefore proposed in his last alternative position that there be an order of no order as to costs before 4 December 2015, but that the respondent be granted costs as from that date.

71.  The without prejudice offer made by the respondent should be relevant to an exercise of discretion on costs because under Order 62 r.5(1)(d) of the Rules of the District Court, the court in exercising its discretion as to costs shall take into account “any written offer which is expressed to be “without prejudice save as to costs”.  Thus, in exercising my unfettered discretion on costs, I should also consider whether the applicant was unreasonable in not accepting the “without prejudice” offer.

72.  Having regard to the fact that the applicant has succeeded in displacing the usual costs order on discontinuance, I consider that he is to be regarded as having “beat” the respondent’s offer. For this reason, Mr Lau’s final alternative proposal on costs is also rejected.

L.3　The appropriate costs order

73.  By reasons of the foregoing, I conclude that the applicant has demonstrated strong merits that would entitle the applicant to the costs of the proceedings. However, I am also of the view that this costs argument could have been avoided had the applicant’s solicitors fully complied with the notification requirements of s25 (2), ECO, as already discussed in §§62 and 63 above, by informing the respondent before the PI Action was settled. In the circumstances, I consider that, in order to do justice between the parties, a fair costs order is to make a costs order in terms of the costs order the applicant openly proposed in the supporting affirmation by granting costs to the applicant up to date of the Consent Order, but making no order as to costs thereafter.  Since the applicant only made a slightly scaled-back costs proposal in the supporting affirmation but not earlier, I also consider that the no costs order should also include the costs of the hearing.

74.  This case epitomizes the caution solicitors acting for an injured employee in an employees’ compensation claim need to exercise when settling a common law action in respect of which the employer is not a party. They should be vigilant to the procedural pitfall an employee may face in the event that a common law action is settled before an employees’ compensation claim is properly disposed of, and deal with the costs of the employees’ compensation claim before the settlement is entered into.   

M.　CONCLUSION

75.  I make the following costs orders:

(1)   The respondent shall pay the applicant the costs (except the costs of the filing of the reply (see §8)) of the entire proceedings up to and including 11 June 2015, which costs are to be taxed if not agreed.

(2)   As from 11 June 2015, there shall be no order as to costs, including the costs of the hearing for the argument on costs. Despite my view having been stated in §73 above, the costs of the hearing, by virtue of Order 42 r.5B(6) of the Rules of the District Court,  should be on nisi basis.

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

76.  Lastly, I thank counsel for their assistance.