YU PUN YUEN v. NG KWOK MAN t/a EAST MOUNTAIN ENGINEERING CO. AND OTHERS

DCEC358/2001

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

EMPLOYEES' COMPENSATION CASE NO. 358 OF 2001

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J U D G M E N T

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1. The applicant claims against the respondents for employee's compensation under sections 9, 10 and 10A of the Employees' Compensation Ordinance for injuries sustained in an accident on 6 September 1999 in the course of his employment as an air hose technician.

2. There is no dispute that the applicant met with the accident or that it arose out of and in the course of his employment. What is in dispute is the question of who employed him. He says that it was the 1st respondent, but the 1st and 2nd respondents agree that it was the latter. There is also a dispute as to his daily wage, and the number of days worked by him per month. He says that he earned $650.00 per day for a 28-day month; the 1st and 2nd respondents put the wage at $500.00 or $600.00 per day for a 26-day month.

3. The parties now agree that the applicant suffers a permanent loss of earning capacity of 21%. They agree that he had 964 days' sick leave. His medical expenses are agreed at $2,940.00.

4. The 4th respondent has paid a total of $186,986.67 by way of periodical payments, on the 2nd defendant's behalf, for which the applicant will give credit. It now appears from the applicant's evidence that that the 1st respondent has also paid the applicant a total of $38,000.00 by way of periodical payments. This will be subject to a finding as to whether they were paid directly or on the 2nd respondent's behalf but in any event the applicant will have to give credit for them.

5. The accident happened on a building site in a restaurant in Aberdeen of which the 3rd respondent was the principal contractor. It had subcontracted the work of supply and installation of air hoses for a ventilation system to the 2nd respondent for a fixed price of $163,500.00. The applicant's pleaded case is that he was employed by the 1st respondent, who was a subcontractor to the 2nd respondent. The case of the 1st and 2nd respondent is that the applicant and the 1st respondent both employees of the 2nd respondent. Both the 2nd and 3rd respondents have admitted liability.

6. The 4th respondent is the insurer of the 2nd respondent. It is in these proceedings by reason of its possible statutory liability. Its case is that it is not liable, because the applicant claims to have been employed by its insured's subcontractor, and its policy does not cover a subcontractor's employees. If it is ordered to pay any sum to the applicant under the Ordinance, the 2nd respondent will be liable to reimburse it; but if the applicant is found to be the 2nd respondent's direct employee, it will be liable to indemnify the 2nd respondent under its policy.

7. There are some important contemporaneous documents. The 1st respondent gave the applicant a letter dated 15 September 1999, on East Mountain Engineering Co letterhead paper, certifying that the applicant had worked for him since 27 August 1999. I will call this "the Certificate". However the 2nd respondent filed a Form 2 dated 13 September 1999 with the Labour Department, showing that he was the employer and that the applicant had been receiving wages of $13,000.00 per month for 26 days' work, or $500.00 per day. The 2nd respondent filed an amended Form 2 dated 17 January 2000 showing that the applicant had been paid $15,600.00 per month for 26 days' work, or $600.00 per day.

8. The 1st and 2nd respondents have a common registered address in Cheung Sha Wan.

9. The applicant's evidence is that, although he is now not so sure as to who employed him, when he came to be employed he knew that his employer was the 1st defendant. On 23 August 1999 he was taken by a friend to a workshop in Tsuen Wan, which had the name of East Mountain on the door and was asked to do some work, bending sheet metal. The 1st respondent came in and asked the applicant's friend how well the applicant did the work. The friend said that it was better than his own, and told the 1st respondent that the applicant wanted wages of $650 per day. The 1st respondent said it was not a problem, as long as he performed well. The applicant and the 1st respondent agreed that the applicant should have a wage of $650 per day and overtime of $160 per hour. That day the applicant went on working at the Tsuen Wan workshop, preparing ventilation ducts, which were later taken to the Aberdeen site for installation. After that he worked every day at the Aberdeen site and/or the Tsuen Wan workshop. He used tools from the latter place. He got all his instructions from the 1st respondent. He knew of no other employer, other than the 1st respondent.

10. Before the accident, on 6 September the 1st respondent paid him $6,000.00; this represented his wages for August at $650 per day, i.e. $5,850.00 and the 1st respondent told him to keep the change. On 15 September, after he had come out of hospital, the 1st respondent gave him the Certificate. On 21 September the 1st respondent paid him $4,000.00 as his wages for his work in September, i.e. 6 days at $650.00, or $3,900.00, and again he was told to keep the change.

11. The applicant also said that on the first day he had worked till 7 or 8 p.m. The 1st respondent had told him that usually one would get double time for overtime, or $160 per hour. The 1st respondent had shown him the plans for a future job do be done at Tai Po and he had expected to be employed for that job as well.

12. As to the Certificate the plaintiff said that he had asked the 1st respondent for it, because he had applied for public assistance, and intended to withdraw his application; he needed such a certificate to show that he was now working. He told the 1st respondent this; the 1st respondent said it was no problem and wrote it for him. The certificate had a wrong date on it; it says that he started work on 27 August when in fact he started on 23 August. He thought of getting the 1st respondent to correct his but on second thoughts decided not to, in case it was taken back and another one was not issued.

13. The names and details of other respondents are hand-written on the certificate. The applicant said that the 1st respondent gave him these details on small pieces of paper and name cards, and he wrote them on the certificate later. The 1st respondent told him to report the name of Hang Fat Engineering Co., the 2nd respondent, when he reported his injury; but he did not know what capacity the 2nd respondent had.

14. Cross-examined the applicant said that he thought, on the first day, that the 1st respondent was his employer. He had written the name of Hang Fat on the certificate of employment because the 1st respondent had told him that the 3rd respondent had refused to make the report for him, so he would ask Hang Fat to do it. He did not know which company would claim insurance but he knew that if no one reported his injury, no insurer would compensate him. He said to the 1st respondent that since the 1st respondent was his boss, he should have made the report; and then the 1st respondent said to him "You are not working for me".

15. The applicant said that he had had meetings with an officer of the Labour Department towards the end of 1999. He had been asking for periodical payments. The 1st respondent had been present. No one from the 2nd respondent was present. He learnt then that Hang Fat, the 2nd respondent, was the subcontractor. He asked who was his boss. He came to know that it was the 2nd respondent who had provided insurance, and later he did receive payments from the 2nd respondent's insurer, i.e. the 4th respondent. He had signed a paper, which was countersigned by the 1st respondent, dated 14 January 2000 which confirmed that he had received salary of $23,000.00.

16. The applicant in fact produced this paper, which had not been disclosed. He also produced a list of payments made to him by the 1st respondent which he said were by way of periodical payments between 28 September 1999 and 2 January 2000. He also produced a paper written by the 2nd respondent, on headed paper, to the effect that he had been injured while working for the latter and agreeing that the subsequent compensation received through the labour department had been unrelated to the employer and that he agreed to accept all compensation amount and terms and conditions made by the insurer. He had not signed that paper, because he had never seen people from the 2nd respondent, and because he was still owed money. Further, a lesser sum of salary than that agreed had been reported to the Labour Department. In re-examination, he said that he had agreed at that time that his wage should be taken as $600.00 and not $650, so long as the 1st respondent would pay him his periodical payments.

17. The 1st respondent put it to the applicant that, on the first day, he had specifically told him that the job was not his but that he was working for others. The applicant said that he did not think he heard it at that time.

18. The 1st respondent's evidence was that although he had his own registered business, it had no work, so he had agreed to supervise the 2nd respondent's project at Aberdeen for a wage of $600.00 per day. He had arranged the labour for the job and had obtained money from the 2nd respondent to pay the workers. The applicant had been introduced by one Ah Pang. It was agreed that he would be paid according to his working performance. No figure was ever agreed but the daily rate was between $400.00 and $600.00 according to performance. Nor was there any conversation then about who was the actual employer. The applicant started work on 1 September 1999.

19. He had paid the applicant, on behalf of the 2nd respondent, an advance of wages of $4,000.00 on 6 September, before the applicant met with his accident, but this was merely an advance and the actual rate had not been calculated. Later, he had received sick leave certificates from the applicant, and had passed them on to the 2nd respondent; and he had received money from the 2nd respondent, and had given it to the applicant by way of periodical payments.

20. So far as the Certificate is concerned the 1st respondent said that the applicant had indeed asked him for it, for the purpose of withdrawing an application for public assistance. He had told the applicant that his boss, i.e. the 2nd respondent was busy, but that he also had a business registration certificate and could write it for him; and he had volunteered to do so. The applicant had asked him to put down the starting date of 27 August although he had in fact started work on 1 September.

21. The 1st respondent said that although wages were never agreed, the amount would have been decided by the 2nd respondent, on his recommendation. The applicant did not work as well as his friend Yu who introduced him; Yu was getting $550.00 per day. He had decided, though not yet recommended to the 2nd respondent, that the applicant should have $500.00 per day, and had paid him the advance wages on 6 September on that basis.

22. In connection with the later job do be done at Tai Po he had shown the applicant the plan, but nothing was settled and it was too soon to arrange manpower. He had said that this was his boss's project, though he had not mentioned the name of the 2nd respondent.

23. As to the meetings with the applicant at the Labour Department the 1st respondent said that he had attended these as the 2nd respondent's representative. The wage had then been agreed at $600.00, because the applicant objected to the proposed figure of $500.00. The Forms 2 had been completed by the 2nd respondent's insurance agent, but on the basis of information which he gave.

24. The evidence of the 2nd respondent was also that the 1st respondent had been working for him directly. He had not contracted out the job; his own price was $163,500.00 and the job was too small to subcontract. He had asked the 1st respondent to hire workers on his behalf at a daily wage of $400 to $600.

25. He said that some tools did not come from his shop; he had insufficient. He knew that the 1st respondent had borrowed some from his friends for the workers to use.

26. He knew that the applicant had been injured because the 1st respondent had reported it, and had obtained the applicant's medical certificates for him.

27. He had signed both Forms 2, which were filled in by the insurance agent. The first one had shown a wage of $13,000.00 per month because the policy provided for cover of wages at $500.00 per day. Later he had amended the Form 2 because the applicant was troublesome and did not agree to $500.00; so he had agreed to the change, because he did not think the difference would be much. He had also been the author of the document later given to the applicant, which the applicant did not sign; he had thought that if the applicant signed it there would be no more argument.

28. He agreed that he had never gone on the Aberdeen site, after the job had started. As to wages, he said that he had given the 1st respondent "several tens of thousands of dollars" to distribute on 6 September as advance of wages. He had not specified how much each one was to get. At that stage he had not decided what the applicant was to get but he and the 1st respondent had a rough figure of $500.00 to $550.00 in mind. $650.00 would have been impossible. He had himself directly engaged some workers and had not left that to the 1st respondent; one of these was Yu Yuk Hang.

29. Yu Yuk Hang also gave evidence for the 2nd respondent. He said that he had been directly employed. He had first seen the applicant on 1 September. He had worked at Aberdeen and at the premises at Tsuen Wan. He himself had been paid $250.00 per day; at the time he was a student, going to night school.

30. There was also evidence from a director of the 3rd respondent but it took the matter little further.

31. It is obvious that, if the applicant is found to have been the direct employee of the 2nd respondent, this will make life much easier for everyone except the 4th respondent, as the 2nd respondent's insurer. In the first place, the 1st respondent will be "off the hook". The 2nd respondent will be able to sit back and let his insurer indemnify him. There will be no need for the 3rd respondent, as principal contractor, to pay any compensation.

32. If however the 1st respondent is found to be the direct employer, things will become rather more complicated. There will be a judgment against the 1st respondent, which, being uninsured, he may well not be able to meet. It is a term of the 2nd respondent's policy that the 4th respondent shall not be liable in respect of the 2nd respondent's liability to employees of its contractors; so the 2nd respondent will also be uninsured and perhaps unable to meet any judgment. Compensation will have to come from the 3rd respondent as principal contractor but it will be able to seek indemnity from both 1st and 2nd respondents.

33. It is obvious therefore that it is entirely to the advantage of the 1st and 2nd respondents that there should be a finding that the 2nd respondent, and not the 1st, is the direct employer. There is every reason for both of them to give evidence to that effect whether or not it is true.

34. It would also, no doubt, have been to the applicant's advantage from the outset to accept that he was the direct employee of the 2nd respondent. That way he would get the rest of his compensation from the 4th respondent which has already paid periodical payments of, $186,986.67. It is no doubt of little interest to him who pays up so long as someone does. But he has persisted in his evidence that, though he is now less sure of the position, at the time he was sure that it was the 1st respondent who employed him.

35. The applicant struck me as an honest and straightforward witness. He was prepared to make admissions of matters which were not to his advantage. I found the 1st respondent rather less so. I do not find his explanation as to why he wrote the Certificate at all convincing. If the 2nd respondent was the direct employer there would have been no reason for him not to get a certificate from the 2nd respondent. The 2nd respondent's evidence like that of the 1st respondent has to be viewed in the light of the obvious advantage to both of them that the case for which they contend be made out.

36. Who was the direct employer is, in this case, a matter of evidence. Where there is a conflict I prefer the evidence of the applicant. I accept that he got all his instructions from the 1st respondent, who was in control of him; that he did preparation work at premises in Tsuen Wan which had the 1st respondent's firm name on the door (which is not contradicted, even though the 1st respondent says that the place was borrowed), and that he took tools and materials from there. On that basis it appears that the applicant was a direct employee of the 1st respondent. It may be that the 1st respondent never told the applicant, in terms, "you will be working for me" but in the circumstances, to negative a finding of a contract of employment between himself and the applicant, I think it would at least be necessary for him to show that he told the applicant that he was not the direct employer but was recruiting on behalf of his "boss" for whom the applicant would be working. I do not believe that the applicant was ever told that before the accident or at any time until the question arose of who was going to meet his insurance claim.

37. Of course the applicant cannot speak to the relationship between the 1st and the 2nd respondents. It would not have been impossible for the 2nd respondent to employ the 1st respondent as a foreman even though the latter had his own business. However the fact that preparation work was done at the "East Mountain" premises in Tsuen Wan, from which tools and equipment came, suggests that the 1st respondent was working on his own account. The 2nd respondent did not go to the site, and there is no evidence to suggest any control by him of the 1st respondent. There is no documentary evidence of money provided by the 2nd respondent for the payment of wages or the purchase of tools or materials. It may be that small businesses of this sort do not make many records but if the 1st respondent was not a subcontractor but an employee of the 2nd respondent one would have expected them to make records of this sort of thing, for their mutual protection. There is no evidence from either of them of any tax returns by the 1st respondent as employee or the 2nd respondent as employer.

38. I am therefore satisfied on the balance of probabilities that the applicant was directly employed by 1st respondent who was in turn a subcontractor to the 2nd respondent.

39. I turn to the question of remuneration. Again I prefer the applicant's evidence. I accept the applicant's evidence that the 1st respondent agreed a wage of $650.00 per day. He is a very experienced worker, having been in the trade many years, and it would not be unreasonable to pay him that amount if the job was short of workers. That the applicant should have agreed later to a figure of $600.00 in the expectation that he would get his periodical payments seems quite credible and makes no difference to the original agreement.

40. As to the number of days worked per month, this is perhaps more difficult. The applicant did not work a full month, before he met with the accident. The 1st respondent did, it appears, work for 28 or 29 days on the Aberdeen job. I accept that, but for the accident, the applicant would probably have gone on to work that number of days, and to have continued in the employment of the 1st respondent on the proposed Tai Po job. His evidence of his previous employment suggests that he worked 28 days per month then. It seems probable that if he had gone on working with the 1st respondent, he would have worked for 28 days per month. He managed, in the 15 days he worked, to put in 2 hours' overtime. It is common ground overtime would only be payable for evening work, and that a Sunday would be counted as an ordinary working day. It seems likely that if he had gone on, he would have worked overtime a couple of hours a month.

41. In the circumstances I accept the figures put forward by counsel for the applicant, that the average monthly earnings would have been 28 x $650.00, or $18,200.00 plus a further $300.00 for overtime, or $18,500.00 per month.

42. It follows that the applicant's section 9 award will be $18,500.00 x 72 x 21% = $279,720.00. His sick leave is agreed at 964 days so his section 10 award will be $18,500.00 x 4/5 x 964/30 = $475,573.33. The section 10A award will be the agreed figure of $2,940.00.

43. The total is therefore $758,233.33. Against this the applicant will give credit for $224,986.67 as mentioned above to give a final figure of $533,246.66.

44. There will be judgment for the applicant against the 1st, 2nd and 3rd respondents in the sum of $533,246.66 with interest thereon at half the judgment rate from the date of the accident until payment and costs to be taxed if not agreed. The applicant's claim against the 4th respondent is dismissed with costs payable to the 4th respondent by the 1st and 2nd respondents. The applicant's own costs are to be taxed in accordance with the Legal Air Regulations. The costs orders are nisi.