POON HAU KEI v. HSIN CHEONG CONSTRUCTION CO. LTD. AND ANOTHERS

FACV No. 12 of 1999

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 12 OF 1999 (CIVIL)

(ON APPEAL FROM CACV NO. 214 OF 1998)

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J U D G M E N T

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Chief Justice Li :

1. I have read the judgment of Lord Hoffmann NPJ and agree with it.

Mr Justice Litton PJ :

2. I agree with the judgment of Lord Hoffmann NPJ.

Mr Justice Ching PJ :

3. For the reasons given by Lord Hoffmann NPJ, I would allow this appeal.

Mr Justice Bokhary PJ :

4. I agree with the judgment of Lord Hoffmann NPJ.

Lord Hoffmann NPJ :

5. This appeal appeared at first sight to raise a point on the construction of s.24(1) of the Employees Compensation Ordinance, Cap. 282. In the event, however, there was no dispute about what the section meant. Instead, the argument turned upon the construction of a contract entered into by the respondent. The question is whether the effect of that contract is to bring the respondent within the terms of the section.

6. The purpose of the Ordinance, as stated in the long title, is to "provide for the payment of compensation to employees who are injured in the course of their employment." Section 5(1) places the primary liability upon the employer, who is required by Part IV to be insured up to a specified amount. In cases in which the employer is a sub-contractor, s.24 extends the liability to the principal contractor. The material provisions read as follows:

7. This provision is obviously for the protection of employees in case their immediate employer should be untraceable or insolvent and uninsured. The Ordinance provides that a principal contractor may take out a single insurance policy for the benefit of the employees of all his subcontractors: see s.40(1B). In such a case the subcontractors do not need to have separate policies: s.40(1E)(d).

8. The appellant Mr Poon suffered an injury in the course of his employment as a scaffolder. His immediate employer was Mr Ho Shui-Keng, who had been engaged by General Engineering (HK) Co. Ltd ("GE") to carry out scaffolding work at Hung Hom railway station. GE had in turn been engaged by Hsin Construction Co. Ltd Taylor Woodrow International Ltd Joint Venture ("HCTW") to carry out fire service installation work at the station and the scaffolding had been required for the purposes of that work. HCTW was Management Contractor employed by the Kowloon Canton Railway Corporation ("KCRC") in connection with a larger project for the extension and renovation of the station and GE was one of the contractors whom it engaged to carry out part of that work.

9. Mr Poon originally commenced proceedings against Mr Ho and then, presumably finding that he was not insured, applied to add HCTW as a second defendant. The judge (His Honour Judge To) allowed the joinder on the ground that HCTW was arguably liable as principal contractor within the meaning of s.24. The Court of Appeal discharged his order on the ground that it plainly was not.

10. The question turns upon whether the contract between HCTW and GE was in respect of work which had been "undertaken" by HCTW. The Management Contract between HCTW and KCRC was in the JCT Standard Form of Management Contract 1987 edition. The principal difference between this and, say, the ordinary JCT Standard Form of Building Contract (1980 edition) is that whereas the latter provides in Article 1 that the Contractor will "carry out and complete the Works", the former provides in Article 1.2 that the Management Contractor will "secure the carrying out and completion of the Project." The Management Contract does not contemplate that the Management Contractor will do any building work itself. The second recital says that -

11. Clause 1.5 of the standard Conditions provides that the Management Contractor shall "enter into Works Contracts in sufficient time to enable the Project to be duly carried out and completed on or before the Completion Date". There is no privity of contract between the employer, KCRC, and the Works Contractors. This is expressly provided by clause 1.9 of the Works Contracts themselves. Condition 1.7 of the Management Contract provides that-

12. An amendment to this clause excludes liability for "any deficiency or defect in the design of the Project or the Works" but this is not in my opinion material.

13. Leaving aside for the moment the reference to clause 3.21, the effect of these provisions is clear. The only functions which HCTW was expected to perform itself were of a supervisory and co-ordinating nature. The actual work was to be done by the Works Contractors. But HCTW contracted with KCRC to "secure the carrying out and completion of the Project" and made itself contractually liable as principal for non-performance by the Works Contractors. If the work was not done, or not done properly, HCTW was the only person whom KCRC could sue.

14. Mr Chan SC, who appeared for the respondent, did not suggest that the words "the work undertaken by the principal contractor" in s.24(1) meant that the principal contractor must have undertaken to do the work personally. This would make nonsense of the section, which contemplates that all or part of the work will be done by subcontractors. He accepted that it covered the case in which the parties contemplated that the work would actually be done by someone else. "Work undertaken" therefore means work which is the subject of a contract to be performed either personally or vicariously. On this point, both sides were agreed. But Mr Chan submits that in the present case, HCTW contracted neither to do the work nor to have it done by others. It contracted only to enter into contracts with the Works Contractors, to enforce those contracts and to account to KCRC for any damages recovered. For this purpose, he relied upon clause 3.21 of the standard Conditions, to which the Management Contractor's liability under clause 1.7 is expressly made subject. This is a rather complicated clause which deals with what is to happen if there is a breach of a Works Contract by a Works Contractor. By clause 3.21.1, the Management Contractor shall "take all necessary steps" to operate the terms of the Works Contract for dealing with such breach, including arbitration or litigation if necessary, to obtain any amount due to the Management Contractor "including therein any amount for which the Management Contractor is liable to the Employer under clause 1.7". The Management Contractor must also take all necessary steps to "secure the satisfactory completion of the Project" including the engagement, if necessary, of another Works Contractor.

15. By clause 3.21.2, the Employer must reimburse the Management Contractor for amounts expended in complying with clause 3.21.1, subject to the Employer's right to any damages or other sums recovered by the Management Contractor from the defaulting Works Contractor.

16. Mr Chan submitted that if one looks at the contract as a whole, HCTW was (apart from its supervisory duties) no more than a conduit by which KCRC could enforce contracts with the Works Contractors in a form prescribed by KCRC, into which HCTW had entered at the direction of KCRC. It was not a principal which had undertaken either to do the work or have the work done.

17. In the end, as both counsel recognised in the economy of their submissions, the point is a very short one. In my opinion, and with respect to the Court of Appeal, the "Project" as defined in the Management Contract was not merely, as Rogers J.A. put it, "work which HCTW had undertaken to contract to have performed." If that, coupled with the obligations of enforcement in clause 3.21.1, had been the totality of the Management Contractor's obligations, it is hard to see how it could have been entitled to recover any damages from a Works Contractor. The breach of contract by the Works Contractor would have caused the Management Contractor no loss. It had no financial interest in the project itself and would have had no liability to KCRC, against which it was entitled to claim an indemnity. But clause 3.21.1 expressly provided that the Management Contractor should claim from the defaulting Works Contractor sums which "included any amount for which the Management Contractor is liable to the Employer under clause 1.7." This must mean that the Management Contractor was liable as principal to the Employer for its failure to secure that the work was performed by the Works Contractor and therefore had a claim for indemnity. And this is consistent with the statement in Article 1.2 that the primary obligation of the Management Contractor is to "secure the carrying out and completion of the Project". Clause 3.21.1 itself recognises this as the primary obligation: if there is default by a Works Contractor, the Management Contractor must still "secure the satisfactory completion of the Project", if necessary by engaging another Works Contractor.

18. In my judgment the effect of the Management Contract was that HCTW undertook that the work comprised in the Project would be done. This made them principal contractors within the meaning of section 24. I would therefore allow the appeal.

Chief Justice Li :

19. The Court unanimously allows the appeal. The parties should within 14 days make written submissions copied to the other party on costs and any further orders required.