WONG KIN v. HIM KEE FOOD DISTRIBUTION CO LTD

DCEC 1771/2012

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

EMPLOYEES’ COMPENSATION CASE NO 1771 OF 2012

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JUDGMENT

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INTRODUCTON

1.  This is an employees’ compensation case where the respondent had purportedly contracted out part of its delivery service to a sub-contractor, who had in turn purportedly sub-contracted part of its service to the applicant.

2.  The central dispute revolves around whether the applicant was an employee of the main contractor or the sub-contractor. If not, whether he was working as an independent contractor on the date of the accident.

BACKGROUND

3.  The applicant Wong Kin (“AP”) had been previously employed by the respondent Him Kee Food Distribution Company Limited (“Him Kee”) as a truck driver.  That was from 2002 until he resigned from the company in September 2010.

4.  Him Kee was and is a company which carries on the business of distribution of cooking ingredients, food products and other miscellaneous items to the catering industry, including restaurants and wholesalers.  For that purpose, Him Kee operates a fleet of trucks to carry out the delivery.  Drivers and delivery workers were employed by Him Kee to work on the trucks.

5.  On 1 November 2008, Him Kee was taken over by Angliss Hong Kong Food Service Company Limited (“Angliss”). Angliss is its sole shareholder.  Angliss in turn is the subsidiary of a large international company based in South Africa which specializes in food supply and distribution.

6.  Mr Cheng Wai-Pui (鄭偉標) (“Cheng”), the respondent’s main witness in this case, was appointed by Angliss to act as the director and general manager of Him Kee upon its acquisition.

7.  Since or about early 2010, Him Kee had sub-contracted part of its delivery service to one Futer Trading Development Limited (“Futer”).  Futer was incorporated on 7 December 2009.  Mr Ling Tin Cheung (凌天祥) (“Ling”) was the sole shareholder and director of Futer.

8.  On 1 March 2010, Him Kee and Futer entered into a distribution contract (“the 1^st Distribution Contract”). Upon the expiry of the 1^st Distribution Contract, on 1 March 2011, the parties entered into a new distribution contract (“the 2^nd Distribution Contract”) (the 1^st and 2^nd Distribution Contracts collectively called “the Distribution Contracts”) which contained almost identical terms as the 1^st Distribution Contract.  The main difference between the 2 contracts is the number of delivery routes (which the parties called “delivery lines”) to be taken up by Futer.  The number of delivery routes was reduced from 7 to 5 in the 2^nd Distribution Contract.  Otherwise, the material terms of the Distribution Contracts remained the same.

9.  AP alleges that he was employed by either Him Kee or Futer as a “driver cum delivery worker” in or about May 2011 until the date of accident on 20 September 2011.  He denies that he was working as an independent contractor.

10.  Him Kee on the other hand claims that AP was working as an independent contractor.  It denies that AP was employed either by Him Kee or Futer.

11.  There is no dispute that, during the working hours on 20 September 2011, AP’s right foot was run over by a lorry driven by a third party while he was crossing the road near to Him Kee’s premises (“the Accident”).

12.  There is also no dispute that AP suffered a right foot fracture resulting in residual right foot pain and scar as a result.  Loss of earning capacity was assessed by the Employees’ Compensation (Ordinary Assessment) Board at 1.5%. 

13.  Hence, this case mainly concerns with the dispute on liability as the amount of compensation is not seriously disputed by the respondent.

The applicant’s case

14.  There is no dispute that AP had been previously employed by Him Kee as a driver from 2002 to September 2010.  His last employment contract with Him Kee dated 1 November 2008 verifies this.  He was paid a monthly salary of HK$11,000 at the time.  His working hours each day was from 8:00 am until all the deliveries were done on the day.  He was not entitled to any overtime payment.  He was however entitled to a year-end bonus, the amount of which would depend on his performance during the year.  He was also entitled to annual leave, statutory holidays and sick leave payments in accordance with the law.  Each party could give 7 day notice for the termination of the employment contract.  Him Kee had the power to summarily dismiss AP for any breach of the law, misconduct, dishonesty and disobeying of the orders or rules of the company.

15.  AP alleges that, about 8 months after he had left the employment of Him Kee, in or about May 2011, he was approached by a former colleague by the name of Ah Kuen who told him that Him Kee was in need of labour and would like to re-employ him as a “driver cum delivery worker”. Ah Kuen asked AP to contact Ling directly.

16.  AP subsequently met Ling at Him Kee’s premises, albeit at an office located on the warehouse side rather than at Him Kee’s main office situated at the other end of the corridor.  At the meeting, Ling allegedly had asked AP if he was willing to take up the job of the delivery worker besides working as a driver as Him Kee had had difficulty in finding sufficient manpower.  Ling allegedly told AP that he could work with one delivery worker instead of the usual two.  If AP accepted such arrangement, he would be employed as a “driver cum delivery worker” at the monthly salary of $23,000.

17.  AP allegedly accepted the offer and took up the job of a “driver cum delivery worker”.

18.  From 1 June 2011 onwards, AP worked in such a capacityby driving the truck bearing registration number KP 8651 (“the Truck”) as well as acting as one of the delivery workers. Him Kee was the registered owner of the Truck.  AP was assigned to work with a delivery worker by the name of Ah Man (“Ah Man”), who was the only worker besides him working on the Truck.

19.  AP claims that at all times he thought that Him Kee was his employer and Ling was only his superior.  He thought that Him Kee was all along preparing his employment contract and other formalities like MPF.

20.  AP also claims that what he was most concerned with at the time was his income.  From June 2011 up to the date of the Accident in September 2011, it was Ling who had paid him his salary in cash.  They were however paid on an irregular basis.

21.  Insofar as working arrangements are concerned, AP says that they were substantially the same as during the time when he was directly employed by Him Kee.

22.  As AP was only employed as a “driver cum delivery worker”, he claims that he knew nothing about the Distribution Contracts signed between Him Kee and Futer.  Allegedly, he did not even know Futer existed at all, let alone the fact that Ling was Futer’s sole shareholder and director.

The respondent’s case

23.  In short, Him Kee’s case is that it had sub-contracted part of the delivery work to Futer from 2010 to 2012.  It claims that it was Futer who had sub-contracted the particular route of the Truck to AP for a fixed monthly sum of $39,000.  AP then engaged Ah Man as his delivery worker who received a sum of $16,000 per month as his monthly salary. Thus, AP earned the difference of $23,000 per month for his role as “driver cum delivery worker”.

24.  As such, Him Kee claims that AP was the sub-contractor of Futer and not an employee of Him Kee or Futer.

Issues to be decided 

25.  The two issues I am asked to decide are:-

(a) whether AP was an employee of Him Kee within the meaning of the Employees’ Compensation Ordinance, Cap 282 (“the ECO”);

(b) Alternatively, whether Him Kee was the principal contractor within the meaning of the ECO, which had sub-contracted part of the delivery work to Futer; which in turn employed AP as “driver cum delivery worker”.

DISCUSSION

The undisputed facts

26.  Before going into the discussion of the above issues, I note the following facts which are either undisputed or indisputable by the parties in this case:-

(a) While working at Him Kee, AP was under the direct supervision of Ling and Cheng and had to obey their orders.

(b) AP, like all the other workers/sub-contractors working for Ling/Futer, was required to “clock-in” every morning but with a machine which was specially set aside for Futer’s workers located at a different part of Him Kee’s office, away from the machine reserved for Him Kee’s own workers.

(c) Like all other drivers/delivery workers employed directly by Him Kee, AP was required to pick up the delivery orders at Him Kee’s office every morning and then go to the rented carpark of Him Kee nearby to pick up the Truck.

(d) The driving routes were specified by Him Kee.  All delivery orders were arranged by the staff of Him Kee, AP had to follow the routes set out by Him Kee.  AP could not choose or decline any orders assigned by Him Kee.

(e) In case of urgent delivery, the staff of Him Kee would call AP directly on his mobile phone and instruct AP to deliver the goods to a particular customer first.

(f) Like other drivers/delivery workers directly employed by Him Kee, AP had to finish delivery of all the orders at hand each day and could not report off duty until he finished delivery of all the orders given to him on that day.

(g) Like other drivers/delivery workers directly employed by Him Kee, AP did not have to work on Sundays and public holidays.

(h) Whenever AP requested to take leave, he had to seek approval from Ling and Ling would arrange a substitute driver/delivery worker for AP (usually Ling himself).

(i) All fuel, tunnel fees and running expenses of the Truck were paid by Him Kee.

(j) All service and maintenance charges of the Truck were paid by Him Kee.

(k) The insurance premium of the Truck was paid by Him Kee.

(l) Save for some of the workers during the 1^st Distribution Contract, Ling had not taken out any employees’ compensation for any of the drivers/delivery workers working for Futer.

(m) AP was not on the pay-roll of Him Kee; he was not on its employees list, not covered under the MPF or EC insurance taken out by Him Kee for its own employees; not under the tax returns filed by Him Kee; not entitled to any sick leave allowance, annual leave and holiday pay as was during the time when he was previously employed by Him Kee between 2008 and 2010.

(n) Contrary to the requirement made under the Distribution Contracts, Futer did not take out any employees’ compensation to cover its workers, including AP.

Issues to be resolved

27.  I consider the 2 main issues in this case can be resolved by answering the following questions:-

(a) What are the relevant terms of the 2^nd Distribution Contract?

(b) What actually took place between Him Kee & Futer during the time when AP was working for Futer?

(c) Was the 2^nd Distribution Contract a sham?

(d) Was Ling/Futer an employment agent of Him Kee?

(e) Were Futer’s workers treated differently from those of Him Kee?

(f) What was the true relationship between AP and Futer?

(g) Was there a triangular / tripartite relationship between the parties?

(a) Relevant terms of the 2^nd Distribution Contract

28.  I find the following are the relevant terms of the 2^nd Distribution Contract.

29.  Under the 2^nd Distribution Contract, Futer, as contractor of Him Kee, was required to fulfill the following duties:-

“1.1 The Contractor shall during its engagement under this Agreement:-

1.1.1 Distribute the Company’s products to the Company clients which the Company may from time to time properly assign to them in connection with the business of the Company.

1.1.2 Do all in his power to fully distribute the Company products and at all times and in all respects conform to and comply with the proper and reasonable directions, regulations and services requirement of the Company.

1.1.3 Do provide one driver with at least, two deliverymen per truck.

……

1.2 The Contractor shall perform its duties primarily in Hong Kong.

1.3 The Contractor shall carry out its duties between the hours of 8:00 and 20:00 on each weekday and such further hours subject to clause 2 herebelow as may become necessary in order to meet the needs of the Company’s business at no extra charge or cost.”

[emphasis added]

30.  In terms of “Service Charges”, the parties agreed that the service charges for the Truck during the relevant period from 1 March 2011 to 31 March 2012 will be at HK$43,000 per month: see Clause 2.1

31.  Him Kee agreed to settle the payment of the invoices of the month submitted before 15^th day of the following month and “allowed” the trucks of Futer to park at Him Kee’s premises: see Clause 2.4

32.  Delivery would take place 6 days a week.  Futer, on the request of Him Kee, had to deliver goods to Him Kee’s customers on public holidays and would charge according to the daily rate agreed at $2,000 per day (which would include the cost of driver and labour(s)).  It was specifically stated that the operating cost and efficiency of Futer would be constantly reviewed by Him Kee during the engagement period: see Clauses 2.2 & 2.4.

33.  It has also been specified under the 2^nd Distribution Contract that the drivers and delivery workers of Futer must wear T-shirts and jackets (in winter time) provided by Him Kee at all time during deliveries.  Splitting, smoking and showing of bad temper would not be allowed at the customers’ premises: Clasue 2.6. [emphasis added]

34.  In terms of “Expenses and Liability” between the parties, Clause 3 of the 2^nd Distribution Contract provides as follows:-

“3.1 The Company shall reimburse the Contractor for all reasonable expenses, i.e. tunnel fee, overweight penalty that are wholly and exclusively incurred in the performance of the Contractor’s duties but not others.

3.2 The Contractor will be required to maintain the trucks in good condition and appearance in order to maintain good storage quality to the Company products during delivery and to keep up the good image to the Company’s customers.

3.3 The Contractor is required to provide mobile phone or pagers to each truck so that the Company can communicate with them in case of any emergency.

3.4 The Company shall not be responsible for any acts or omission committed by the Contractor and/or its employees, staff, servants in respect of any loss and damage which may have been caused to the Contractor’s employees, staff and servants or to any third party (including the Company’s customers).”

35.  The parties have painstakingly emphasized the “main contractor vs sub-contractor” relationship between Him Kee and Futer under the heading of “No Partnership/No Employment”:-

“7.1 Nothing in this Agreement shall create any partnership or profit sharing relationship or any employment relationship between the Company and the Contractor. The Contractor hereby declares and confirms that it carries on business as an independent contractor and shall engage and hire sufficient manpower to carry out the delivery or distribution services as well as for the repair and maintenance of its trucks as contemplated in this Agreement.

7.2 The Contractor undertakes and agrees that it shall comply with all relevant legislation applicable to its business including the obtaining of the Business Registration Certificate, filing of Tax Returns, filing Employer’s Returns, employing those who can be lawfully employable, arranging for employee’s compensation in respect of its employees, staff and servants and making MPF contribution for them, the keeping and maintaining of a valid third party risk insurance. The Contractor shall indemnify the Company for any loss and damage which may be caused to the Company occasioned by any breach of this clause.

7.3 The Contractor shall produce for the company’s inspection all relevant documentation in relation to clause 7.2.”

36.  Under the heading of “Miscellaneous”, Futer agreed to have all delivery workers and drivers reporting for duty at Him Kee’s premises before 8:00 am on each working day (Clause 8.3).  Further, Futer agreed to comply with the “productivity benchmark” laid down by Him Kee.  In the event that Futer fails to do so, a monthly amount of HK$2,000 will be deducted from the monthly contract sum: (Clause 8.4).

37.  The 2^nd Distribution Contract was terminated by Him Kee on 26 January 2012 due to poor performance on the part of Futer.

(b) What actually took place between Him Kee & Futer during the time when AP was working for Futer?

38.  The following are the findings I make as to what actually took place between Him Kee and Futer during the relevant period when AP was working for Futer.

39.  I find that, despite how Him Kee and Futer have described their relationship in the Distribution Contracts, events which actually took place “on the ground” were quite different.  

40.  First, while Him Kee had provided the trucks and paid for the  running expenses like fuels and tunnel fees, Futer never paid for any of the repairs and maintenance charges of the trucks (including the Truck in question) as agreed under clause 3.2 of the 2^nd Distribution Contract.  Him Kee paid for them. 

41.  Second, under Clause 7.2, Futer was supposed to have filed all tax and employers’ returns; employing all lawfully employable persons only; arranging for employees’ compensation in respect of its employees and making MPF contributions for all its staff/employees under its own employment; and keeping and maintaining of a valid third party risk insurance (by that the parties agreed it to mean employees’ compensation insurance).  In actual fact, Futer did not do any of the above during the relevant period under the 2^nd Distribution Contract.

42.  Third, clause 7.3 of the agreement required Futer to produce “all relevant documentation in relation to clause 7.2” for Him Kee’s inspection during the term of the Distribution Contracts.  The parties agreed that “valid third party risk insurance” in this contract was referring to the employees’ compensation policies covering workers working for Futer.  As both Cheng and Ling have testified, this had never happened during the contractual periods for both Distribution Contracts save on one occasion shortly after the 1^st Distribution Contract was signed.  On that occasion, Cheng had only taken a very causal glance over a very blurred copy of an employees’ compensation policy produced by Ling.  Thereafter, neither had Cheng asked nor Ling had ever bothered to produce any other copy of employees’ compensation insurance policy after the 2^nd Distribution Contract was signed in March 2011.  The truth of the matter was Futer had never bothered to take out any of such insurance for its workers.  I shall come back to this matter in the later part of this judgment.    

43.  Based on the above, I find that the parties had clearly envisaged that, under the Distribution Contracts, Futer was to employ workers to act as drivers and deliverymen rather than to simply further sub-contract the delivery routes out to other workers to do the job.  

44.  It is also important to note that under clause 1.1.3, Futer was required to provide “one driver with at least, two deliverymen per truck.”  Thus, at least under the Distribution Contracts, Futer was not permitted to engage “one driver, one deliveryman” per truck.  This was something that Futer had clearly ignored when it comes to making arrangements with the number of delivery workers working on the Truck.

(c) Was the 2^nd Distribution Contract a sham?

45.  The applicant’s counsel, Mr Matthew Tse, contends on behalf of AP that both the 1^st Distribution Contract and the 2^nd Distribution Contract were a sham, designed to mask the true relationship between Him Kee and Futer.  He submits that Him Kee was in fact AP’s employer and Futer was acting as Him Kee’s agent in employing AP only.

46.  While I would not go as far as saying that the Distribution Contracts were designed or set out as a sham, it certainly did not reflect the actual situation “on the ground” by the time when AP started working for Futer in May 2011.

47.  As a matter of law, the Distribution Contracts would only be held as a sham if they were “…… never intended to reflect reality but rather to obfuscate the true nature of the relationship ..….”: See James v Greenwich London Borough Council (2007) ICR 577 at p 586 §37.

48.  Whether the 2^nd Distribution Contract was a sham or not will be a question of fact for the court’s determination.  Matters for the court’s consideration will include: whether there were perceived benefits to the parties (in particular Him Kee in this case); the extent to which the terms of the Distribution Contracts were adhered to by the parties; if there were departure from the terms of the Distribution Contracts, whether their departure was due to good reasons or indicative of bad faith to conceal: See Stephenson v Delphi Diesel Systems Ltd (2003) ICR 471, at p 478 §34.

49.  In my view, whether Him Kee had treated AP as one of its members of staff during the 3½ months when he was engaged by Ling is certainly one of the factors to look at, it is by no means the most important factor in deciding whether the 2^nd Distribution Contract was a sham or not.  In this regard, the evidence reveals the following:

(i) AP was not on Him Kee’s list of employees;

(ii) no staff number or identity had been assigned by Him Kee to AP;

(iii) he was not covered by the MPF or EC insurance taken out by Him Kee for its staff;

(iv) Him Kee’s employer’s remuneration returns did not include the name of AP; and

(v) AP was not entitled to any sick leave allowance, paid annual leave or holiday pay which he had previously enjoyed while under the employ of Him Kee between 2008 and 2010. 

50.  I accept Cheng’s evidence that when he first joined Him Kee in 2009, he faced a lot of teething problems, principally due to the lack of reliable delivery workers.  I also accept his evidence that the sales of Him Kee had gone up sharply after he joined the company.  I further accept Cheng’s explanation that it was not easy for Him Kee to recruit and keep delivery staff, particularly good ones.  He found both the service quality and working efficiency of the then existing delivery staff were not satisfactory.  Thus, he formed the idea of sub-contracting the delivery service to an outside sub-contractor.  He said he has borrowed the concept from the mother company Angliss as well as another well established local food product company.  However, it is important to note that in those 2 cases, their companies had sub-contracted their entire delivery service to an outside logistic company which provided trucks, fuel, maintenance and labour.

51.  Against the above background, I find nothing wrong with the idea that Cheng had wanted to sub-contract part of Him Kee’s delivery service to a sub-contractor like Futer.   

52.  The applicant submits that it was not a genuine sub-contacting agreement because Him Kee, unlike its parent company Angliss, was only looking for a contractor who was able to find drivers and delivery workers on its behalf and not sub-contracting the entire delivery service to a third party. 

53.  I do not agree.  I do not see anything sinister about that as it is clear that the agreement between Him Kee and Futer was for the supply of labour only, namely drivers and delivery workers. 

54.  Provision of vehicles were not included under the Distribution Contracts.  As Him Kee already had all the available trucks needed for the delivery (while Ling/Futer did not), there is, in my view, nothing wrong in principle why Him Kee could not sub-contract the labour side of the delivery service to Ling/Futer only.  It is clear that what Ling (and therefore Futer) had, which Him Kee and Cheng did not, was the network of drivers and labourers in the trade.  Hence, there was nothing wrong in my view why Ling/Futer could not be asked to supply what he knew best, namely, manpower.

55.  In my judgment, the main benefit derived from sub-contracting the labour part of the delivery work out to Futer from the point of view of Him Kee is that it would have a steady and reliable source of workers to act as drivers and delivery workers for them.  At the same time, they did not have to perform (and pay for) all the administrative tasks. For that, as the evidence reveals, Him Kee was prepared to pay extra money for them as compared to the cost of recruiting and managing all the delivery staff by itself.  I accept the respondent’s calculations that the sums offered to Ling/Futer to employ a driver was much higher than the monthly salary paid to the drivers directly employed by it.  I further accept that the total labour cost per truck for Him Kee with 1 driver and 2 delivery workers would be slightly below HK$35,000.  In contrast, under the 1^st Distribution Contract, Futer was paid HK$40,000 per truck.  Under the 2^nd Distribution Contract, it was paid between HK$40,000 and HK$43,000 per truck.  In other words, some real profits could be made by Futer provided that it performed satisfactorily under the Distribution Contracts. When one takes into account of the fact that Futer initially took over 7 of Him Kee’s more heavy and busy routes, there was substantial profits to be made by Futer each month by merely providing and managing the labour well.   

56.  Hence, I find that there were mutual benefits enjoyed by both Him Kee and Futer under the Distribution Contracts.  I find that the Distribution Contracts had genuine purposes to achieve and mutual benefits to be derived. 

57.  I also regard the payments of the contractual sums are good indicator that the Distribution Contracts was unlikely to be a sham.  In my view, there is ample of credible documentary evidence to show that actual amount specified in the Distribution Contracts had actually been paid by Him Kee to Futer.  

58.  Another important factor which I have taken into consideration is the fact that Ling was not known to Cheng or Him Kee prior to the occasion when he was introduced to Cheng and the company by a former colleague.  In other words, they were dealing with each other at arm’s length.  There is no evidence that they collude together to create a sham agreement just to avoid liability to pay employees’ compensation.

59.  For the above reasons, I do not consider that the Distribution Contracts were a sham as submitted by the applicant.  However, as said, I do not think the parties had adhered to the terms of the Distribution Contracts strictly and by the time when AP started to work for Futer in May 2011, the nature of the relationship between that of Futer and the workers engaged by it had clearly changed.  I shall discuss this under a separate heading below.

60.  Based on the aforesaid, I find that Futer in fact was the sub-contractor of Him Kee who was responsible for supplying drivers and delivery workers for 5 of the delivery routes specified under the 2^nd Distribution Contract.  

(d) Was Futer an employment agent of Him Kee?

61.  To me, this is the other side of the coin of the above question.

62.  The applicant submits that Futer was merely an employment agent of Him Kee and employed drivers and delivery workers on behalf of Him Kee only.

63.  However, in my judgment, the role of Futer was much more than that.  To me, it is abundantly clear from the evidence that, besides recruiting the drivers and delivery workers, Futer was responsible for running the 5 delivery routes (reduced from 7 from the 1^st Distribution Contract) on a daily basis.  It had to manage the drivers and workers under him and was responsible for their performance and behaviour.  Futer was also responsible for paying them.       

64.  Mr Tse criticized that Ling had no experience of operating as a delivery sub-contractor and therefore he was operating more like a ganger head who received money on behalf of the delivery workers.  I am afraid I do not share that view at all.  In my judgment, Ling clearly had had ample of experience in the logistic industry prior to forming Futer in order to entering into the Distribution Contracts with Him Kee.  Before forming Futer, Ling had worked as a self-employed driver for a sub-contractor of a large company by the name of DKSH (大昌華嘉). He had also managed the fleet of trucks for Him Kee for 9 months prior to forming Futer.  There is also little doubt that Ling had a lot of contacts in the logistic industry where he could easily able to find drivers and delivery workers for Him Kee. 

65.  For the above reasons and the reasons discussed under the previous heading, I find that Ling was not an employment agent or ganger head of Him Kee at all.

(e) Were Futer’s workers treated differently from those of Him Kee’s?

66.  In my view, there was definitely a difference between how Him Kee had treated its own workers when compared with those of Futer’s (including the AP) during the relevant 3½ months period when AP was working for Futer.

67.  For the delivery workers/drivers directly employed under Him Kee, they were employed under the terms of the employment contracts prepared by Him Kee; paid by Him Kee monthly via bank transmissions; under Him Kee’s MPF scheme; covered by employees’ compensation insurance taken out by Him Kee; assigned staff number by Him Kee for management purposes; listed under Him Kee’s employer’s returns to the IRD as employees; subject to Him Kee’s management approval for leave upon the submission of the appropriate standard form signed by the employee.

68.  Further, as employees of Him Kee, those workers were entitled to benefits like holiday pay, paid annual leave and sick leave allowance as specified under their employment contracts.

69.  In contrast, during the 3½ month period when AP was working for Futer, he did not appear in any of Him Kee’s staff record; no MPF contribution was made on his behalf; no staff number was assigned to him; no medical or employees’ compensation insurance were taken out by Him Kee for him.  In short, there is no evidence that during the relevant period Him Kee had treated any of Futer or Ling’s workers as if they were their own employees.

70.  Another main difference between Him Kee and Futer’s workers is that the latter’s workers, including AP and his delivery worker Ah Man, were never under the direct management of Him Kee.  For example, Cheng or his management team would not be concerned whether an individual worker of Futer would turn up to work or not provided there were sufficient number of workers to operate the 5 routes under Futer.  Further, Ling did not need to seek the approval of Him Kee before he engaged any of his workers.  After engaging the workers, Ling also did not have to introduce them to Cheng or Him Kee’s management team before they commenced their work.  Also, it was Ling who decided when, how and the exact amount Futer would pay its workers.  Him Kee simply would have no say on such matters.  Lastly, it was Ling who arranged days off for workers working under Futer.  Him Kee simply was not involved in this.

71.  In my judgment, all the above go to show that the workers engaged by Futer, including AP in this case, were not employees directly engaged by Him Kee.

72.  Based on the above, I find that AP was not a direct employee of Him Kee.

(f) What was the true relationship between AP and Futer?

Him Kee turning a blind eye

73.  While I do not find the Distribution Contracts were a sham, I certainly find the parties had no intention of adhering to some of the important terms of the agreement right from the beginning.  For example, the service and maintenance of the trucks were never intended to be the responsibility of Futer despite of what was stated in the Distribution Contracts. 

74.  Further and perhaps more significantly, I find the parties never had any intention to strictly adhere to the terms requiring Futer to employ its own employees, ie not to further sub-contract out delivery service to others, during the relevant contractual period.  In particular, I find that Him Kee, through Cheng, had deliberately turned a blind eye to important matters like whether the workers were covered by employees’ compensation insurance by Futer. 

75.  While it is clear that the original intention of the parties was for Futer to employ workers to act as drivers and delivery workers rather than to further sub-contract the work out to others, Cheng chose to turn a blind eye to whether Futer was actually doing that during the contractual periods.  By so doing, in my view, Him Kee either knowingly or carelessly had allowed the drivers and delivery workers to be placed in a vulnerable position, ie by not having any employees’ compensation insurance coverage.  I further find Him Kee had only paid lip service to the requirement that Futer must produce all documentation in relation to the employment status of the workers working for Futer. I find that, save on one single occasion shortly after the 1^st Distribution Contract was signed, no such documentation was ever shown or submitted to Him Kee or Cheng to ensure that all the workers employed by Futer were protected by law or under the coverage of a valid employees’ compensation policy.  I also find that Him Kee had never asked for them for inspection. 

76.  On the occasion when the very poor quality copy of the insurance policy was shown to him, I find that, Cheng, being a very highly educated and experienced executive, was unlikely not being aware that the copy of the EC policy produced by Ling did not cover most of the workers employed by Futer at the time.  Yet Him Kee, through Cheng, deliberately chose to turn a blind eye to such important matters.

77.  While the above in my judgment does not alter the relationship between Him Kee and Futer - which was still one between a principal and its sub-contractor – as I have found above, it does mask the true nature of the relationship between Futer and AP.

The true nature of relationship between Futer & AP

78.  In my judgment, there is little doubt that when AP agreed to take on the role as “driver cum delivery worker” from Futer, he was doing so in the capacity as an employee of Futer and not a sub-contractor.  This is despite of what Ling, AP and other workers might have called the arrangements.   

79.  My reasons are based on the findings made below and the established legal principles laid down in some of the leading cases in this area of law.

80.  I accept Ling’s evidence when he told the court that he had allegedly “sub-contracted” one of the routes to AP sometime in May 2011.  I further accept and find as a fact that AP had agreed to take over that particular route of the Truck at $39,000 per month during telephone conversations he had with Ling.  I also accept Ling’s evidence that a number of telephone calls took place between them when negotiating the contracting sum for this particular route before they were able to reach the agreement at $39,000. I also believe Ling when he says that it was AP who had first suggested the figure of $40,000 before finally agreed to the sum of $39,000 after several rounds of negotiations on the telephone and before they met for the first time.  However, I do not accept Ling had told AP that Him Kee’s requirement was for 1 driver and 2 delivery workers for that route.

81.  During the subsequent face to face meeting, I am sure that Ling had said to AP that the $39,000 was a “sub-contracting” sum for which AP would be responsible for taking over that particular route.  I however believe AP’s evidence that it was Ling who had suggested paying AP a sum of $15,000 as driver and another $8,000 on top if he were to take on the work of a delivery worker.  As Ling said, the market rate for a driver at that time was more like $13,000 a month, which was what he was paid when he worked for DKSH as a gang leader/driver.  AP was paid extra to take on the duo role as “driver cum delivery worker”.

82.  I also believe Ling when he told the court that on the few occasions when AP took a day off, he would act as the substitute driver and would deduct $1,000 to $1,100 per day from the $39,000 he paid to AP, which would include the salary of Ah Man.

83.  However, even after accepted all the above evidence, which would put the respondent’s case at its highest, I agree with Mr Tse that the court still has to consider all the evidence objectively to determine the true relationship between Futer and AP.

The indicia in Poon Chau Nam

84.  In Poon Chau Nam v Yim Siu Cheung (t/a Yat Cheung Airconditioing & Electric Co) [2007] HKLRD 951 at 972-974, the Court of Final Appeal (“CFA”) held that if, on the facts viewed objectively and applying the indicia of employment discussed in the earlier part of that judgment, the person injured is properly to be regarded as an employee, the ECO applies and any agreement seeking to remove that person from its scope is void.

85.  I respectfully would agree with the 2 passages relied on by Woo V-P at the Court of Appeal stage in that same case which were cited by the CFA in its judgment:-

“Is this picture altered by the fact that the appellant made his own arrangements for an MPF scheme as a self-employed person? That fact, the Judge thought, was “a strong indication that there was no employer-employee relationship”. Woo V-P thought it “very significant”. He referred on the one hand to Lord Denning MR’s observation in Massey v Crown Life Insurance Co that:-

  …… if the parties’ relationship is ambiguous and is capable of being one or the other, then the parties can remove that ambiguity, by the very agreement itself which they make with one another. The agreement itself then becomes the best material from which to gather the true legal relationship between them.

And he cited, on the other hand, Ferguson v John Dawson & Partners (Contractors) Ltd, where Megaw LJ stated:-

  My own view would have been that a declaration by the parties, even if it were incorporated into the contract, that the workman was to be, or was to be deemed to be, self-employed, an independent contractor, ought to be wholly disregarded – not merely treated as not being conclusive – if the remainder of the contractual terms, governing the realities of the relationship, showed the relationship of employer and employee.  …… I find difficulty in accepting that the parties, by a mere expression of intention as to what the legal relationship should be, can in any way influence the conclusion of law as to what the relationship is.” (emphasis added)

86.  I would further rely on the approach taken by Megaw LJ in Ferguson v John Dawson v Partners (Contractors) Ltd [1976] 1 WLR 1213 at p 1223 and the industrial tribunal in Young & Woods Ltd v West [1980] IRLR 201 in England which were expressly endorsed by the CFA in Poon Chau Nam, supra at §§57-58.   

87.  I particularly find the passage of Clough JA in the Court of Appeal in Chan Kwok Kin v Mok Kwan Hing & Another [1991] 1 HKLR 631 at p 636, which was also cited by CFA in Poon Chau Nam at §59, helpful:-

“The Hong Kong Court of Appeal has expressed similar sentiments in Chan Kwok Kin v Mok Kwan Hing & Another, where Clough JA stated:-

  It was for the court and not the applicant to evaluate the facts and determine the legal relationship of the applicant to the first respondent.  The applicant no doubt knew who he was working for, namely the first respondent, but in all the circumstances we think his classification of their legal relationship and of his legal relationship with Law can have no significant evidential value.”

88.  When deciding this case, I am very mindful of the fact that Poon Chau Nam has laid down the rule that the modern approach to the question of whether a person was an employee was to examine all the features of their relationship against the background of the indicia of employment with a view to deciding whether, as a matter of overall impression, the relationship was one of employment.  It has been said that this involved a nuanced and not a mechanical approach: painting a picture from the accumulation of detail. The indicia included the degree of control exercised by the “employer”; whether the person performing the services provided his own equipment; whether he hired his own helpers; what degree of financial risk he took; what degree of responsibility for investment and management he had; and whether and how far he had an opportunity of profiting from sound management he had and whether and how far he had an opportunity of profiting from sound management in the performance of his task: see §§9-18 of Poon Chau Nam, supra at pp 957-961.    

89.  By looking at the following indicia, in my judgment, there is little doubt that the overall impression one gets is that AP was working as an employee of Futer rather than as an independent contractor.  This is disregard of what the parties themselves have chosen to call the relationship.

(a) Degree of control exercised by Futer

90.  In considering the degree of control, the real issue is whether the work of AP was closely or tightly under the control of Futer and/or Him Kee, or alternatively, if AP had the freedom to perform his work as he liked: see Wong Man Luen v Hong Kong Wah Tung Stevedore Co [1971] HKLR 390.

91.  I agree with Mr Tse that the following matters go to support the fact that AP was under the close supervision and control of Futer and/or Him Kee:-

(i) AP was required to clock-in at the machine reserved for workers of Futer on or before 8:00 am each morning to report for duty;

(ii) AP would pick up the orders/delivery notes at Him Kee’s office each morning;

(iii) AP would then go to the reserved carpark of Him Kee to pick up the Truck which belonged to Him Kee;

(iv) The driving route each day was assigned by the staff of Him Kee and AP had no say as to the route and order of delivery;

(v) All the delivery orders were given by the staff of Him Kee and AP again had no say on the matter;

(vi) In case of urgent delivery, the staff of Him Kee would call AP directly on his mobile phone and would instruct AP to make delivery to a particular customer first.  Again, AP could not refuse such arrangements;

(vii) AP could only “clock-off” from work when he completed the delivery of all the orders of the day and he had no discretion to leave some of the delivery to the next day;

(viii) If AP could not finish the delivery work for the day, he had to report the matter to Ling or staff of Him Kee;

(ix) If AP wanted to take leave, he had to seek the approval of Ling and Ling would arrange a substitute for him (usually Ling himself would act as the driver for the day);

(x) If AP encountered any problem with the delivery, he had to call back to the office of Him Kee to seek directions; and

(xi) During working hours, AP and his delivery workers had to wear the uniform provided by Him Kee.    

92.  During the course of the trial, it has become apparent from the phone records of AP that Ling or the staff of Him Kee would call up AP throughout the day in order to communicate with him in regard to any matters concerning the delivery.  In that way, there was very tight control over the way AP executed the delivery of the orders.

(b) Whether the person performing the services provided his own equipment

93.  The main piece of “equipment” involved in the delivery work was the 16-tonne truck.  It is clear that neither AP nor Ling was in the position to provide such an expensive piece of “equipment”. The Truck belonged to Him Kee.

94.  There is also no evidence to suggest that AP had provided any of the tools on the Truck like forklift trucks and trolleys to assist in the delivery.  They were most likely Him Kee’s property.

95.  Further, the cost of the fuel, tunnel fees, parking fees, vehicle insurance, service and maintenance charges were all paid for by Him Kee and not AP.  Contrary to what was stated in the Distribution Contracts, Futer did not pay for the maintenance of the trucks. 

96.  More importantly, AP was never required to provide any of the equipment to perform his job at all.  All that was required of AP was his driving skill and manual labour during the 3½ months while he worked for Futer.

(c) Whether he hired his own helpers

97.  The only delivery worker who worked on the Truck during the 3½ months was a person known as Ah Man (Wong Tak Man). 

98.  AP says that Ah Man was hired by Ling and assigned to work with him together[1].

99.  Ling on the other hand says that AP himself found Ah Man as his helper / delivery worker on the Truck.

100.  On this issue, I find that it was AP who had found and hired Ah Man as his helper/delivery worker on the Truck rather than Ling.   

101.  However, I do not think this fact would change the overall picture at all as both AP and Ah Man would be working under the same set of rules and condition laid down by Him Kee.  They have to wear the uniform provided by Him Kee and have to follow the same standard of behaviour when delivering goods to Him Kee’s customers.

(d) Degree of financial risk AP took

102.  On this matter, I find AP was fully aware that the terms of his engagement were quite different from those during the time when he was employed directly by Him Kee.

103.  It is not disputed that AP was paid a monthly sum of $23,000 by Ling for performing the task as a “driver cum delivery worker”.  It may be true, as according to Cheng’s evidence, that Him Kee would not employ any worker in such a role as “1 driver and 1 truck attendant” would simply not able to cope with the work load of that of a 16-tonne or 24-tonne lorry.  However, in my view, once the delivery work on the delivery routes was sub-contracted to Futer, it was really up to Futer how many delivery workers it employed for each truck.  If Him Kee found Futer was in breach of the sub-contracting agreement, eg, like the requirement of at least “employing 1 driver and 2 deliverymen” for each truck, it was fully entitled to terminate the agreement and hold Futer liable for the breach.

104.  What I believe happened in this case was Ling had experienced difficulty in finding drivers and delivery workers for the delivery routes at the time.  Further, he wanted to make as much profits as he could out of the sub-contracting agreement with Him Kee. Hence, the idea of sub-contracting out one or more of the delivery routes was formed.  Obviously, with vulnerable workers like AP who just wanted to make as much money as he could, the prospect of almost making double the amount he used to earn would become very attractive.  Thus, I have no doubt Ling had offered and AP accepted the “sub-contracting” arrangement for that particular route at $39,000.  However, that in my view does not mean the court will necessary endorse whatever labels the parties choose to put on their relationship and found that there was a “sub-contracting” contract between Futer & AP. 

105.  In my judgment, although it has not been specifically prohibited under the Distribution Contracts, further sub-contracting of the work certainly was not something envisaged by the parties at the time when the parties entered into the agreement in this case. At the time of signing the Contracts, it is clear that Him Kee was fully expecting that Futer would employ its own staff rather than to sub-contract out some of the routes to different sub-contractors.  Otherwise, terms like filing of employers’ returns, employing those who can be lawfully employable, arranging employees’ compensation and MPF contributions in respect of its own employees did not need to be specifically mentioned in the contracts.

106.  Further, in my judgment, it defeats the purpose of having compulsory employees’ compensation insurance scheme under the ECO if parties are at liberty to “contract out” in an otherwise quite obvious employer-employee relationship.  In my view, the ECO is designed to protect vulnerable workers like AP in this case, who might not be able to appreciate the dire consequence of not being covered by employees’ compensation insurance when injured at work, just for the expediency and convenience of making some extra money.

107.  In my judgment, it will be against public policy to allow a sub-contractor to freely “sub-contract” part of the contract to another worker when the contract itself clearly requires the sub-contractor to fulfill its obligations as an employer towards its own workers like in our present case.  It will also be wrong for the principal to turn a blind eye to matters which clearly pointing to a further sub-contracting situation as was the failure in the production of a valid employees’ compensation insurance on the part of the contractor (ie Futer) in this case shows.  To allow the principal contractor or sub-contractor to do so in my view would only encourage more ordinary workers taking on the role of a “sub-contractor” when they clearly are only employees in the eyes of the law.   

108.  To my mind, what is clear in this case is that AP was given a chance to earn an extra $8,000 per month by performing the role of the second delivery worker for the Truck.  Seeing a chance to earn such a substantial amount each month, AP jumped on the opportunity by agreeing to become a “sub-contractor” of Futer when in reality he took on no financial risk at all.  In my view, the reason why AP was able to earn a higher sum was because he was willing to take on the additional role of a delivery worker and not because he took on any financial risk as a sub-contractor.

(e) Mode of payment

109.  Ms Chan for the respondent submits that as someone who had worked for Him Kee for a long period of time prior to working for Futer, AP should have been well aware of the fact that no driver of Him Kee would be paid that sort of monthly income.  In fact, according to Cheng, the highest rate that Him Kee would pay a driver would be at HK$14,000 per month only.  Further, she submits that, as someone who was familiar with the system of Him Kee, AP was well aware of the fact that Him Kee would not pay a driver to take on a dual role as a “driver cum delivery worker”. 

110.  With respect, I disagree.  On this matter, one has to bear in mind that Him Kee had already sub-contracted the 5 delivery routes, including the one AP and Ah Man were working on, to Futer. How Futer paid its employees was entirely a matter within its jurisdiction to do so.  Equally, if Futer decided to engage AP as a “driver cum delivery worker”, perhaps due to the difficulty in finding an extra delivery worker, it is a matter for them.  If by doing so Him Kee considered Futer was in breach of the Distribution Contracts, it could always terminate the agreement and go after Futer for redress.  As said, in my view, AP was paid $8,000 more because he was willing to take on the extra role of a delivery worker not because he was working as a sub-contractor.

111.  On further point submitted by Ms Chan on behalf of the respondent is that in the employees’ compensation policy taken out by Him Kee to cover its own direct employees, drivers and delivery workers are under separate categories of workers employed by the company. There was simply no such category as “drivers cum delivery worker”.  Hence, she says this tends to go to support the fact that AP knew he was working as a “sub-contractor”. With respect, this is neither here nor there.  As said, it is not important what the parties chose to call themselves for whatever reasons, the main thing is what the overall picture tell us what was their true relationship.  In any event, both Ling and AP would have no idea under what category the workers of Him Kee were insured under their EC policy.

112.  Another ground submits by the respondent to reject the claim of AP that he was employed by Futer is the way he was paid. During the trial, it has become clear that he was paid his monthly remuneration in cash by Ling at a place other than Him Kee’s office.  Further, such payment was not made under any receipt or payment notice issued by Him Kee.  In his witness statement, AP confirmed that, apart on the occasion in mid-August 2011, Ling phoned him up to ask him to meet up outside of Him Kee’s office to collect his payment.  At least on one occasion, that took place in the carpark of Tak Lee Building where the Truck was parked. 

113.  Unlike Him Kee’s staff who was usually paid their salary between 4^th and 7^th day of each month, AP received his payment from Ling in the middle of each month, usually 1 or 2 days after Futer received payment from Him Kee around 15^th day of each month.    

114.  As such, Ms Chan for the respondent submits that AP clearly knew that he was not an employee of Him Kee by collecting his remuneration from Ling of Futer. 

115.  In my view, how and when AP was paid by Futer was not a determinative factor of their relationship.  If the parties chose to call themselves a sub-contracting relationship and tried to do everything to avoid taking up the responsibilities of an employer, like paying MPF contribution and taking out employees’ compensation insurance, it is a matter for them.  But this will not prevent the court from looking behind the label they chose to put on themselves and find out the true nature of the relationship.          

116.  As for the drivers and delivery workers engaged by Futer, I reject Ling’s evidence that they were engaged on a self-employed basis.  In other words, I do not accept that they were self-employed sub-contractors working on their own account.  Rather, I consider that they are employed by Futer as employees.  Under cross examination, when asked why he considered they were self-employed sub-contractors, Ling put it succinctly as: “No MPF, no annual leave, no double pay, no employees’ compensation insurance. That’s all.”

117.  In my judgment, that is too simplistic a view to take to decide a much more complex issue in a modern day employment situation. If those were the only determining factors, it would only encourage a potential employer to avoid doing all those things in order to avoid liability. 

Conclusion on the true relationship between Futer and AP

118.  By an objective assessment of the evidence summarized above, I come to the conclusion that the overall impression one get from the various indicia is that AP was not an independent contractor or sub-contractor of Futer.  Rather, I find that AP was an employee of Futer.

(g)  Was there a tripartite or triangular employment relationship between Him Kee, Futer and AP?

119.  Mr Tse for the applicant further submits that, based on a line of cases stemming from the case of Franks v Reuters [2003] ICR 1166 in the UK, that in a tripartite employment arrangement involving a worker, employment agent and end-user (ie the principal), it is possible for the court to imply a contract between the worker and the end user, notwithstanding the absence of any contract between them.

120.  It has been said that where employees are provided pursuant to a tripartite employment arrangement, the court must not simply focus on the express contractual arraignments but must also have regard to how the work is actually carried out: Dacas v Brooke Street Bureau (UK) Ltd [2004] ICR 1437 at p 1452, para 53.

121.  I agree with Mr Tse that the fundamental question is whether it is necessary to imply the contract to give business reality to what is actually happening.  Such a necessity arises only if there is conduct which is inconsistent with there not being such a contract: Cable & Wireless plc v Muscat [2006] IRLR 354.

122.  Further, I agree that it may be legitimate to imply a contract where the formal written contracts are a sham. In the context of work and service, it is sufficient if the court concludes that the agreement as written did not reflect the true intention or expectations of the parties.  There does not have to be an intention to deceive a third party.  It is not necessary to indentify anyone who it was intended to deceive.  The question is always what the true legal relationship is between the parties: See Protectacoat Firthglow Ltd v Szilagyi [2009] IRLR 365 as approved by the Supreme Court in Autoclenz Ltd v Belcher [201] 4 ALL ER 745 at para 28.

123.  Finally, I agree that even absent a sham, it will be appropriate to imply a contract if in fact the expressed contracts no longer adequately reflect what is actually happening, and it is necessary to imply a contract to provide a proper explanation: See James v London Borough of Greenwich [2007] IRLR 168 at para 58.

124.  However, in my view, there are a few features which distinguish our case from this line of triangle or tripartite employment relationship cases which make the rules laid down in those cases not applicable to our present case.

125.  First, as I have found, I do not think the evidence supports Futer was an employing agent of Him Kee.  Nor do I think Ling was acting as a ganger head as submitted by Mr Tse.  I have already given my reasons above and do not need to repeat them here.

126.  Second, most, if not all, the cases cited by Mr Tse and Miss Chan on triangular employment relationship concerned with an employment agent or employment agency acting as a middle person.  Clearly, as I have found, both Futer and Ling were not acting as an employment agent of Him Kee when it/he engaged AP. 

127.  Third and perhaps more importantly, as I have found the 2^nd Distribution Contract between Him Kee and Futer was not a sham (it only did not reflect part of the reality), the better way to look at the matter is to look at all the indicia in order to form an overall impression and find out what is the true relationship between Futer and AP.

128.  For the above reasons, I do not consider the triangular or tripartite relationship cases apply here.      

CONCLUSION

Conclusion on Liability

129.  In conclusion, I find that:-

(1) the 2^nd Distribution Contract was not a sham, although it certainly did not reflect some of the things what took place in reality;

(2) Futer was not an employment agent of Him Kee;

(3) Ling was not acting as a ganger head when he engaged AP;

(4) AP was not a direct employee of Him Kee;

(5) The overall impression one gets after examining all the indicia is that AP was an employee of Futer rather than an independent contractor or sub-contractor of Futer;

(6) The true relationship between Futer and AP is that AP was an employee of Futer;

(7) Futer is therefore the direct employer of AP; and

(8) Him Kee, as principal contractor within the meaning of the ECO, who had sub-contracted part of the delivery work to Futer, who in turn had employed AP as a “driver and cum delivery worker”, would be liable for the employees’ compensation payable to AP.         

130.  Based on the aforesaid, I find the respondent liable to pay employees’ compensation to AP.

COMPENSATION

131.  The respondent is not seriously disputing the amount of compensation claimed by the applicant in this case.

132.  I would allow the compensation as claimed by the applicant in his counsel’s opening submissions.  They are:

(a) Section 9

  $23,000 x 72 months x 1.5% = $24,840

(b) Section 10

  $23,000 x 216 / 30 days x 80% = $132,480

(c) Section 10A

  $6,092 (medical expenses)

133.  Hence, the total compensation to be awarded to the applicant will be at $163,412 in this case.

134.  Judgment will therefore be entered against the respondent in the above sum. 

135.  Further, interest will be awarded on the compensation awarded at half of the judgment rate from the date of accident to date of judgment and thereafter at judgment rate. 

136.  Costs will follow the event.  The applicant will be entitled to costs of the action, such costs to be paid by the respondent, with certificate for counsel.  The applicant’s own costs be taxed in accordance with the legal aid regulations.