Chong Yiu Tat v. Fong Man Chi

DCEC 877/1999

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

EMPLOYEES' COMPENSATION CASE NO. 877 OF 1999

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JUDGMENT

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1. This is an application for employees' compensation. There is no dispute that the Applicant was injured in an industrial accident that took place on 8 September 1998 at a construction site at the Jusco Department Store inside Tuen Mun Town Plaza ("the site").

2. The Applicant claims that at the time of the accident, he was an employee working for the 1st Respondent at the site at a daily rate of $500. There is no dispute that the Applicant was working at the site on the day of the said accident. But the 1st Respondent denies that he was at the material times the employer of the Applicant. He claims that the Applicant and one Mr. Ho Kwan Wing ("Mr. Ho") were his partners. They were a "3 men team" to take up the contract from the 2nd Respondent.

3. The other Respondents also claim that the Applicant was not an employee at the time of the accident and hence not entitled to any compensation under the Employees' Compensation Ordinance. They rely on the evidence of the 1st Respondent. I shall deal with this issue first.

Was the Applicant an Employee?

4. The Applicant gave evidence himself and said that he was at the day of accident employed by the 1st Respondent as an air-conditioner worker. He was paid $500 a day. He had been working for the 1st Respondent since 1987. He would go from site to site in accordance with the instruction of the 1st Respondent. In his mind, as the 1st Respondent gave him instruction and also paid him his wages, the 1st Respondent was at all material time, including the day of accident, his employer.

5. The Applicant denies that he ever worked in partnership with the 1st Respondent. He had not met any sub-contractors of the 1st Respondent and had not taken part in any negotiation of contract. He was not required to invest in the business or to provide his own tools. The tools were provided by the 1st Respondent or other sub-contractor. He had no idea of the earning of the 1st Respondent and he had not seen any book or record of the 1st Respondent, nor did he know the contract price of any project. He did not share any profit or loss of the 1st Respondent. While at the site, he was directed to work by the 1st Respondent.

6. After the accident, the Applicant has filed up 2 forms, p.164 and p.186 of the bundle. In both of these documents, the Applicant claims to be an employee of the 4th Respondent with a daily wage of $900.

7. The Applicant admits that this information is not true. For the form at p.186, the form was filled up by the 1st Respondent and the staff of the 4th Respondent. He was directed by the 1st Respondent to sign thereon. And when he went to the Labour Department, he gave the same information again in p.164 because he was so instructed by the 1st Respondent.

8. The other key witness is the 1st Respondent. According to the 1st Respondent, the Applicant is his partner. For about two years before the accident, he himself, Mr. Ho and the Applicant joined together as a "3 men team" to negotiate with various sub-contractors to take up air-conditioning works. All the works were agreed orally between the three of them before he finalised the contract with the sub-contractor concerned. Having finished the work and obtaining the agreed payment from the sub-contractor concerned, the three of them would share the lump sum payment in proportion to the number of working days spent on the work but each of them.

9. The 1st Respondent admitted that he negotiated all the contracts and the Applicant was not involved in the negotiation of any of the contracts. And for the contract for work at the site, the 2nd Respondent approached him to install 250 units of air-conditioners at the site at the unit price of $300. To the 1st Respondent estimation, they would receive not less than HK$75,000 upon completion of the work. The 1st Respondent further said in his witness statement that he get the agreement from Mr. Ho and the Applicant at the construction site called Dynasty Heights, wherein they were working, before he concluded the contract with the 2nd Respondent.

10. On cross-examination, the 1st Respondent agreed that he gave instruction to the Applicant as to where to install the air-conditioners. He was also the person in charge of the tools bag. According to the 1st Respondent, tools were purchased from time to time from money received from contract sum. Hence the tools belonged to the three of them. He was just to carry the tools bag to the site on the first day of work. It would be kept at the site when the work contained.

11. In examination and cross-examination, the 1st Respondent repeated his comments that the three of them share the contract sum according to the number of days of work. Counsel for the Applicant did required the 1st Respondent to demonstrate how the money was distributed among them. The 1st Respondent said he could not as it depends on the number of working days or working units engaged by each of them.

12. The first issue before me is whether the Applicant is a partner to the 1st Respondent.

13. Having also the benefit of seeing the Applicant in the witness box and observed his demeanor, I found that he is a trustworthy and honest witness. I accept his account of his dealings with the 1st Respondent. I believe the evidence of the Applicant that he just received a daily pay from the 1st Respondent.

14. I note that he had given some inaccurate information in the forms as mentioned above, and had been heavily cross examined in this subject by counsel for the Respondents. I found that he is frank and honest in explaining the mis-statement. And when the application was taken out, the Applicant only claims his wages on $500 a day. I accept the Applicant's explanation that when he stated $900 a day and claiming the 4th Respondent to be his employer, he merely relied on instruction of the 1st Respondent.

15. The 1st Respondent is evasive in his evidence. When being cross examined on the arrangement between himself and the Applicant, he could not even show an example on how he split the contract sum with his so-call partners. In his witness statement prepared with the assistance of his then solicitor, there was no mention of any details of this partnership. The main terms of the alleged partnership appears in paragraph 4 of his statement (page 75 of the bundle)

"All such Assignments were agreed orally between three of us and sub-contractor concerned. Having finished the assigned work and obtained the agreed lump sum payment from the sub-contractor concerned, we, three of us would share the lump sum payment according to the proportion of the number of working days spent on the assignment by each of us. We, all three of us, agreed that it was fair to share the lump sum payment in this way."

16. According to the alleged terms, the sharing of the money is an important term of co-operation between the 3 of them. It is impossible that the 1st Respondent could not explain in Court on how this formula works out in real life. It only shows that he never used the formula.

17. Having fully considered his evidence, I do not find him a credible witness. I do not believe his evidence that he had a partnership arrangement with the Applicant. It is not denied that 1st Respondent is the party to negotiate for this contract, and all the other contracts. The Applicant was not involved in negotiation or conclusion of any agreement with the sub-contractor. There is no other evidence pointing or suggesting the Applicant is a partner to the 1st Respondent. I found that the Applicant is not a partner of the 1st Respondent.

18. For completeness, I would consider if the Applicant could be interpreted as an independent contractor. The leading case is Ready Mixed Concrete (South East) Ltd. v. Ministers of Pensions and National Insurance [1968] 2Q.B. 497. The principle of whether a contract is one of service or for service is set out in the head notes:-

"That a contract of service existed if (a) the servant agreed in consideration of a wage or other remuneration to provide his own work and skill in the performance of some service for his master, (b) the servant agreed expressly or impliedly that, in performance of the service he would be subject to the control of the other party sufficiently to make him the master, and (c) the other provision of the contract were consistent with its being a contract of service; but that an obligation to do work subject to the other party's control was not invariably a sufficient condition of a contract of service, and if the provisions of the contract as a whole were inconsistent with the contract being a contract of service, it was some other kind of contract and the person doing the work was not a servant; that where express provision was not made for one party to have the right of control, the question where it resided was to be answered by implication; and since the common law test of the power of control for determining whether the relationship of master and servant existed was not restricted to the power of control over the manner of performing service but was wide enough to take account of investment and loss, in determining whether a business was carried on by a person for himself or for another it was relevant to consider who owned the assets or bore the financial risk."

19. "Control" was commented later in Market Investigations Ltd. v. Minister of Social Security [1969] 2Q.B. 173, to be a matter for consideration, was not decisive. The fundamental test in determining whether a person was performing services under a contract of service or for services was whether the person engaged to perform their services was performing them as a person in business on his own account and this under a contract for service, but there is no exhaustion list of the relevant consideration on their weight could be compiled.

20. In the present case, I analyses the fact against the above principle. The investment of the Applicant is his labour/skill and time. In return, he received a daily wages. He was not involved in the business of the 1st Respondent and all contract were concluded without his involvement. The tools were provided. He does not have to share loss. I do not believe the evidence of the 1st Respondent that if he could not receive pay from the contractor, he did not have to pay the Applicant.

21. The 1st Respondent gave instruction to the Applicant on the work to be carried out. And I accept the evidence of the Applicant that the 1st Respondent gave him instruction to the extent of requiring him to put in $900 a day and to name the 4th Respondent as the employer of the Applicant. It further shows the control and dominating position of the 1st Respondent over the whole affair.

22. In conclusion, all the fact point to one and only one conclusion, that is, the 1st Respondent was the employer of the Applicant is at the material time and the Applicant was injured by an accident arising out of and in the course of his employment.

23. There have been some arguments from the 3rd Respondent that the place where the Applicant worked was outside the site. However at the trial, this point has not been pursued and there is no evidence called. It is no longer disputed that the work done by the Applicant is for the site. On the above finding, I found the Applicant is entitled to claim employees' compensation under Section 9, 10 and 10A from the 1st Respondent.

24. According to 1st Respondent, the 2nd Respondent, who is absent in the trial, is the superior contractor. I found accordingly. It is not disputed that the 3rd Respondent is the superior contractor to the 2nd Respondent, and the 4th Respondent is the superior contractor to the 3rd Respondent. The 5th Respondent is the principal contractor of the site. They were liable under Section 24 of the Employees' Compensation Ordinance for any compensation that may be awarded to the Applicant.

Income of the Applicant

25. The next issue to be determined is the quantum of the compensation. It is necessary to determine the monthly earning of the Applicant. The monthly income of the Applicant is disputed.

26. The method of calculating earning was provided by Section 11 of the Employees' Compensation Ordinance. The monthly earnings of an employee shall be the earning for the month immediately proceeding the date of the accident or computed in such manner by reference to his remuneration earned during the previous 12 months.

27. The Applicant said in his evidence that he was paid $500 a day every time he worked for the 1st Respondent. He had no other employer beside the 1st Respondent. And he worked for about 20 days a month in the past 12 months. There is no other record or documentary proof produced by the Applicant on the number of working days.

28. The number of working days of the Applicant was disputed by the 1st Respondent at the trial. On this issue, the Applicant was subject to heavy cross-examination by the 3 counsels for the 3rd 4th and 5th Respondents respectively.

29. The Applicant admits that the number of working days is his estimation according to his memory. But he did count his number of working days. He had been able to demonstrate his memory to the Court by naming some of the sites he worked in for the 1st Respondent. He had conceded before the accident, he was not always working 20 days a month. But his evidence is on his average income in the 12 months immediately preceding the date of accident. In totality, his evidence is consistent.

30. The 1st Respondent also gave evidence in this aspect. He said that the Applicant worked for about 6 to 7 days a month, in any event, less than 10 days. But as I have analyzed his evidence, his is not a credible witness. I do not believe his evidence.

31. I believe the evidence of the Applicant that he could remember his working days. Sure he could be in a position to average his earning in the past 12 months. In fact, he could remember the period when he earned more and the period when he earned less, in the answer to the counsel for the Respondent. I fully accept his evidence that he worked 20 days a month on the average in 12 months preceding the accident. And I also accept his evidence that he earned $500 a day. Therefore I found that for the purpose of calculating his compensation, his monthly income was at the material time $10,000.

Assessment of Compensation under S. 9

32. I now turn to assessment of the quantum under S. 9 of the Employment Compensation Ordinance. The Applicant seeks to adopt the formula in the case of Hong Kong Paper Mills Limited v. Chan Hin-wu [1981] HKLR 556.

33. The Respondents argue that in assessing the percentage of loss of earning capacity, I must follow the assessment by the Assessment Board at 4.8%, as there is no appeal to this assessment. There is no dispute that if the Applicant does not appeal against the assessment of the Assessment Board, I am bound to follow their assessment.

34. Counsel for the Applicant submitted that they did apply to appeal against the assessment in the Re-amended Application files. I quote the relevant paragraph:-

"2. An application under the Ordinance is hereby made by the Applicant for the following relief or order -

(a) Compensation under Section 9, 10, 10A and 18 of the Ordinance."

35. The prayer is not happily drafted. But the addition of an application under S. 18 is the result of an amendment to the Application on 31 January 2001. The only reason for that amendment must be to cover the situation that without an appeal, the Applicant is bound by the assessment of the assessment board. The wording is clear enough that the Applicant does appeal to this Court against the assessment by the assessment board under s. 18 of the Ordinance. The appeal is before me.

36. The Applicant called one medical expert, Dr. Lau Hoi Kuen, ("PW2"). He gave evidence and said that the Applicant suffered a 10% loss of earning capacity. He produced 2 reports, p.119-124 and p.125-128 of the bundle. The Respondents had not called any report to contradict his opinion. His evidence is not really challenged in cross-examination.

37. Dr. Lau said he arrived at 10% taking into account the percentage of the close injury listed in the Schedule. Having heard the evidence of PW2, I fully accept his opinion. I therefore found that the assessment of the board is wrong and allow the appeal. I re-assess the loss of earning capacity at 10%.

38. In assessing the quantum under S. 9, the Applicant invited me to follow the formula of Hong Kong Paper Mills' case. The Respondents objected.

39. The famous Hong Kong Paper Mills' formula is used to understand section 9(i)(b). But it is easy to overlook that Mr. Justice Huggins J.A. (as he then was) after referring to the formula, also refer to the proviso of the section. S. 9 (1) (b) of the said Ordinance provides:-

in the case of an injury not specified in the First Schedule, such percentage of the compensation which would have been payable in the loss of permanent total incapacity as is proportionate to the loss of earning capacity permanently caused by the injury in any employment which the employer was capable of under taking at that time.

Provided that:-

(i) .............................................

(ii) in the case of injury not specified in the First Schedule, the loss of earning capacity permanent caused by such injury shall be assessed as a percentage having regard so far as possible to the scale of percentages specified in that Schedule and to the notes thereto.

40. As explained in Lau Ho-wah v. Yau Chi-biu [1987] HKLR 1061, 1064, "there are two provisos to paragraph (b) which make it plain that "the loss of earning capacity" referred to in that paragraph is to be assessed in order to stand in fair "conformity with the scale of percentages specified in that schedule". Hence, if S.9(i)(b) applies, then I should adopt the opinion of PW2 in assessing the loss of earning capacity as according to his opinion, he has compared with the other similar injuries listed in the Schedule.

41. But Counsel for the Applicant also asked me to invoke S. 9(1A) of the Ordinance. S. 9(1A) reads

(1A) Where-

(a) permanent partial incapacity results from an injury or a combination of injuries (whether or not specified in the First Schedule); and

(b) the percentage of the loss of earning capacity specified or assessed in relation to that injury or combination of injuries in accordance with subsection (1) would be substantially less than the percentage of the loss of earning capacity permanently caused by the injury or injuries in the special circumstances of the employee, including, without limiting the generality of the foregoing-

(i) the nature of the injury or injuries in relation to the nature of his former usual employment; and

(ii) his qualifications, previous training and experience,

the amount of compensation shall be such percentage of the compensation which would have been payable in the case of permanent total incapacity as is proportionate to the loss of earning capacity permanently caused by the injury or injuries in any employment which, having regard to those special circumstances, the employee was capable of undertaking at that time.

42. It is not dispute that the injury of the Applicant is not a kind of injuries listed in the First Schedule of the said Ordinance. According to the medical report, the injury to the Applicant was a fracture of his left tibia involving the ankle joints. After recovery, he still suffers pain in his left ankle aggravated by walking for more than 15 minutes. He cannot return to his trade.

43. The Applicant was born in Hong Kong and is 46 years old. His native dialect is Cantonese and he can read and write Chinese. He received education up to Form 1. He had operated a grocery business and he also worked as a hawker, a security guard and a casual worker for a swimming pool. He was divorced and is living in China.

44. According to the medical report of PW2, the Applicant may now take up lighter and more sedentary jobs such as shop assistant in dealing with lighter goods, car park attendant or assemble line factory worker. The fact that he could not walk for long must greatly hinder his opportunity to get a new job.

45. Counsel for the Applicant submitted the Wages Statistics issued in September 1998. Based on the average earnings of alternative lighter employment as shown in the said Statistic, Counsel submitted that the earning that the Applicant may made at the time of accident is only $6,752.80. He suffered a loss of over 30% of his earning capacity, 3 times the assessment by PW2.

46. Taking into account the education of the Applicant, his age, and the physical restraint on his walking ability, I am satisfied that the Applicant's case falls with section 9(1A) and his loss should be assessed by means of the Hong Kong Paper Mills' formula. And the compensation for permanent partial incapacity of the Applicant should be

[$10,000x72]x[(10,000-6,752.80)/10,000]=$233,798.40.

47. There is no dispute on the quantum under S. 10 and S. 10A except the 2nd Respondent who was absent. I accept the evidence of the Applicant on his sick leave, with the support of the medical report and leave certificates appearing from p.189 to 202 of the bundle. In fact, this head of claim is assessed by the Employees' Compensation Board to be correct. There is no appeal against this part of the assessment. The compensation I award for the Applicant against all the Respondent is:-

Under S. 9 (1) (b)	$233,798.40
Under S. 10	$104,000.00
Under S. 10A	$176.00
	$337,974.40
	=========

Interest

48. Applicant also claims interest on the compensation. The Respondents submitted that pre-judgment interest should be at 1/2 rate. The Counsel for the Applicant submits that interest was awarded in similar case at full rate. No authority was submitted.

49. The grant of interest is always at the discretion of the Court. The overriding principle is that interest should be awarded to the Applicant not as compensation for the damage done but for being kept out of money that ought to have been paid to him. In personal injury cases, the investment rate is used and is generally ½ of the judgment rate. While the compensation under the Ordinance is not the assessed damage for personal injury, it is the closest comparable in assessing interest. And after all, this amount would be set off from the damage the Applicant could recover under the common law claim. I therefore order that interest be awarded to the Applicant from date of Application to judgment at ½ judgment rate and thereafter at judgment rate until payment.

Indemnity

50. By a Notice filed on 5 December 2001, the Applicant claimed an indemnity from the 4th Respondent. The 4th Respondent agrees to indemnify the 5th Respondent for all liability this action, including interest. I therefore order, by consent that the 4th Respondent do indemnify the 5th Respondent as claimed with costs.

51. By another Notice filed on 10 December 2001, the 5th Respondent also claims indemnity against the 3rd and 2nd Respondent relying on S.24(2) of the said Ordinance. By another Notice filed on 6 December 2001, the 5th Respondent claims indemnity against the 1st Respondent also relying on S.24(2). S.24(2) reads

Where the principal contractor is liable to pay compensation under this section, he shall be entitled to be indemnified by any person who would have been liable to pay compensation to the employee independently of this section.

52. Since I rule that the 1st Respondent is the direct employer. The claims against the 2nd and 3rd Respondents on this section must fail and I therefore dismiss the claim of indemnity by the 5th Respondent against the 2nd and 3rd Respondent with an order nisi for cost in favour of the 3rd Respondent. But the 5th Respondent shall be entitled to an indemnity as claimed against the 1st Respondent with an order nisi for costs.

53. The 3rd and 4th Respondent orally apply for indemnity from 1st Respondent. All their applications were based on S. 24(2) of the said Ordinance. Although the 3rd and 4th Respondents had not filed any notice of indemnity against the 1st Respondent, they relied on Mak Wing Fai v. Chevalier (HK) Ltd & Anor [1999] 3 HKC 677 and submitted that I could and should deal with the application. In that case, the 2nd Respondent (principal contractor) served a notice of indemnity against the 1st Respondent (employer) seeking an indemnity in respect of the Applicant's claim and costs of defending the claim. The matter was subsequently settled between the Applicant and the 1st Respondent and the remaining issue is the claim by the 2nd Respondent against the 1st Respondent on indemnity for costs. It was argued, inter alia, that the 2nd Respondent is limited in the claim for indemnity to the terms of the indemnity notice and could not rely on s.24 (2) of the Ordinance. The trial judge ruled that the 2nd Respondent could rely on s. 24(2). On appeal, Mr. Justice Mortimer V.P. said

Was [the 2nd Respondent] limited in those circumstances to the terms of the notice? In my judgment, he was not. Those against whom claims are made as principal contractors do not have to serve an indemnity notice although, it is perhaps a good practice to do so. They do not have to do so because they can rely upon the provisions of s. 24(2). There cannot be any doubt that the judge was right in coming to the conclusion he did.

54. I agree that I could deal with the issue. There would not be any additional evidence relevant. Having heard the 1st Respondent and upon my earlier finding that the 1st Respondent is the employer of the Applicant, he is also liable to indemnify the 3rd and 4th Respondent by reason of s.24 (2) of the Ordinance. I therefore order that the 1st Respondent do indemnify the 3rd, 4th and 5th Respondents in respect of the judgment (including any order of costs against the 3rd and 4th Respondents in favour of the Applicant) they now become liable, with an order nisi for costs of the application for indemnity be paid by the 1st Respondent to the 3rd and 4th Respondents.

55. The 4th Respondent also claims indemnity against the 3rd Respondent on the ground that, by an oral agreement between the 4th and the 3rd Respondent, the 3rd Respondent should be responsible for taking out the insurance policy against employees' compensation for his own workers and the workers of his sub-contractors. It is not disputed that the 3rd Respondent had only taken insurance policy covering his own workers and not those of his sub-contractor. The 4th Respondent contends that the 3rd Respondent is in breach of his contractual obligation and should indemnity the 4th Respondent for the judgment herein.

56. It is not disputed that the term about taking insurance policy has not been specified in the contract between the 3rd Respondent with the 4th Respondent. The 4th Respondent called one witness Yu To Cheung (DW3) to give evidence. He said he had an oral agreement with the 3rd Respondent that the 3rd Respondent had to take out the insurance. In the cross examination, he admits that he had not at the material time asked the 3rd Respondent to produce the insurance policy for his inspection. And in cross examination, he said that all the contracts would have this clause and it was left out in the contract with the 3rd Respondent by typing mistake.

57. In the statement of DW3, he only said that there was an oral agreement with the 3rd Respondent that the 3rd Respondent should take out insurance for his workers. DW3 said he meant to include workers of the sub-contractors of the 3rd Respondent.

58. The 3rd Respondent denies this oral agreement when he gave evidence.

59. It is not disputed that the 4th Respondent was responsible for taking insurance in accordance with it contract with the 5th Respondent. If this important duty was delegated to the 3rd Respondent, I fail to see how it could be missed out. And more, he had not even checked the 3rd Respondent if he indeed took out the insurance at the material time.

60. I do not believe the evidence of DW3 and found that there is no such an agreement between the 3rd and 4th Respondent. I therefore dismiss the application for indemnity by the 4th Respondent against the 3rd Respondent with an order nisi on costs to the 3rd Respondent.

61. Finally, the 1st Respondent also claims indemnity against 2nd Respondent and 5th Respondent. No evidence was given by the 1st Respondent except what he said in his witness statement. Taking that to the highest, he had asked the 2nd Respondent as to who would take out the insurance policy against Employment Compensation. There is no evidence that there is a contractual obligation established between the 1st Respondent with the 2nd Respondent and/or the 5th Respondent that the 5th Respondent would cover the workers of the 1st Respondent. In the cross examination, the 1st Respondent also confirms that he had no contractual relationship with the 5th Respondent. His claim against the 2nd and 5th Respondent for indemnity must fail. I therefore dismissed his application with an order nisi for costs to the 5th Respondent.

62. I would make an order nisi for costs to the Applicant against all the Respondents with certificate for counsel and the Applicant's own costs to be taxed in accordance with Legal Aid regulations. All the above order nisi on costs to be made absolute within 14 days if no party apply to the contrary.