MAK WING FAI v. CHEVALIER (HK) LTD. AND ANOTHER

CACV 337/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 337 OF 1998

(ON APPEAL FROM DCEC 790 OF 1997)

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J U D G M E N T

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Mortimer V-P:

1. This is an appeal against an order made by His Honour Judge To granting the 2nd respondent indemnity for its costs in a workman's compensation action. I will deal with the background and the circumstances in which the order was made.

Background

2. On 7 October 1996 the applicant, Mr Mak, was injured in the course of his employment by the 1st respondent. He was an electrician. The 1st respondent, Chevalier, was a subcontractor of the 2nd respondent, WM Construction Ltd. On 31 October 1997 he brought proceedings under the Employees' Compensation Ordinance (Cap. 282) against both his employer, Chevalier, and WM Construction who was said to be the principal contractor.

3. On 3 December 1997 the principal contractor served upon Chevalier a notice of indemnity in which it said that it disputed the applicant's claim but in the event of being liable, claimed against Chevalier an indemnity in respect of the applicant's claim including the costs of defending the applicant's claim.

4. The application proceeded until orders were made on 23 July. All parties were present and were heard and by the first order the applicant was awarded compensation against the employer with costs and other auxiliary orders. There was a second summons concerning WM Construction and the employer on which a consent order was made:

"BY CONSENT IT IS ORDERED that:

1. The Application against the 2nd Respondent (WM Construction) be discontinued with no order as to costs;

2. The 2nd Respondent's consent to the costs order between the Applicant and the 2nd Respondent be given with the consent of the 1st Respondent;

3. The costs issue as between the Applicant and the 2nd Respondent as per paragraph 2 be without prejudice to the 2nd Respondent's claim for full indemnity against the 1st Respondent; and

4. The issues of costs as between the 1st and 2nd Respondents pursuant to the Notice of Indemnity herein be adjourned sine die with liberty to restore."

5. We have not had the advantage of hearing either the solicitors or counsel who were involved in that consent order. The applicant having recovered his compensation in full against the employer, the 1st respondent, there was nothing further he could recover against the 2nd respondent. That led to this consent order. His application against the 2nd respondent was discontinued with no order as to costs. But the question whether the principal contractor could recover its costs by way of indemnity against the employer was left open.

The Ordinance

6. That leads to a consideration of the Employees' Compensation Ordinance (Cap. 282) and in particular s.24:

"(1) Where any person (in this section referred to as the principal contractor), in the course of or for the purposes of his trade or business, contracts with a sub-contractor for the execution by or under the sub-contractor of the whole or any part of any work undertaken by the principal contractor, the principal contractor shall be liable to pay to any employee employed by that sub-contractor or by any other sub-contractor in the execution of the work any compensation under this Ordinance which the principal contractor would have been liable to pay if that employee had been immediately employed by him; and where compensation is claimed from or proceedings are taken against the principal contractor, then, in the application of this Ordinance, references to the principal contractor shall be substituted for references to the employer, except that the amount of any compensation calculated by reference to earnings shall be calculated by reference to the earnings of the employee under the employer by whom he is immediately employed."

That provision is for the protection of the injured employee. In broad terms, if an employee is injured in the course of his employment, he is entitled to obtain compensation not only against his employer but against any principal contractor also. The protection is that he has the security of being able to sue the principal contractor who may be better able to pay. But s.24(2) provides:

"(2) 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."

So that where the principal contractor is not a joint tortfeasor but for s.24 it can obtain indemnity against the real tortfeasor, the employer.

The hearing below

7. Those provisions were no doubt in the minds of those who consented to the order reserving the costs issue on 23 July 1998. Pursuant to that order Judge To heard the application for indemnity against the employer by WM Construction, claiming their own costs of defending the workman's application. Judge To heard arguments. There was no evidence called during those proceedings.

8. The main issues before the judge were whether the principal contractor was limited in the claim for indemnity to the terms of the indemnity notice, or whether it could claim under s.24(2). Secondly, whether the indemnity claim could include its own costs of defending the application and finally, the question whether the principal contractor was indeed a "principal contractor". The judge found all those issues in favour of the principal contractor.

Was it established that WM Construction was a "principal contractor"?

9. Miss Wee for the employer submits that it was not open to the judge to find that the principal contractor was liable and therefore the application for indemnity ought to have failed.

10. In considering whether it was established to his satisfaction that the principal contractor was a "principal contractor" under the Ordinance. The judge said:

"If the First Respondent as the direct employer has no defence to the action, the Second Respondent as principal contractor could have no defence except that the First Respondent was not his subcontractor. But this is not the case."

The judge was right that in the circumstances of this case the only basis upon which the principal contractor would not be liable to the workman under the provisions of the Ordinance, would be if it was not the principal contractor. Mr Grossman SC, who appears for the principal contractor, points out that there was no issue before the judge whether WM Construction was the principal contractor. Further, no rational basis has been put before us to suggest that WM Construction was not the principal contractor. We have been invited to look at the transcript. It appears that the relevant contract was in the hands of the parties at the hearing, but that was not looked at. The solicitor appearing for the employer submitted to the judge that it was not relevant, although this may have been a reference to some of its terms.

11. For my part, having read the transcript and the judge's judgment, it is unrealistic to suggest that there was any issue before the judge whether WM Construction had established that it was the principal contractor. In those circumstances, was the principal contractor liable to pay compensation within the terms of s.24(2)? To my mind, the judge was right when he said that the only possible defence was than WM Construction was not the principal contractor but that was not in issue. It was open, therefore, to the judge to order indemnity.

Is an indemnity notice necessary?

12. Was he 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.

Does indemnity include costs?

13. The question as to whether as part of indemnity the principal contractor was entitled to recover his costs is also, in my judgment, not an issue. The principal contractor, if sued, can recover under s.24(2), not only the compensation he pays to the applicant but also his costs. That was established by this Court in Wah Kwong Construction Material v Wong Man-yip [1995]1 HKLR 85 at 89. We are bound by that decision.

14. In those circumstances, I would dismiss this appeal.

Godfrey JA:

15. If a principal contractor pays compensation to an applicant under the Employees' Compensation Ordinance, Cap. 282, whether as the result of an order or as a consequence of a compromise to which the applicant's employer has agreed, the principal contractor is entitled to an indemnity from the applicant's employer, covering both the sum paid by the principal contractor to the applicant and the principal contractor's costs of the application. If the principal contractor is not called on to pay such compensation, because the employer has done so himself, then the principal contractor's indemnity covers only what is left, i.e. the principal contractor's costs of the application.

16. The result of the judgment below is to give the principal contractor here (whose status as such has never been disputed by the employer) his costs of the application. That is the right result.

17. For these reasons, which perhaps do little more than echo those of Mortimer, V-P, I too would dismiss this appeal.

Rogers JA:

18. I agree that this appeal must be dismissed.

19. The only basis upon which it could be argued that the 1st Respondent (the employer) should not indemnify the 2nd Respondent would be if there were no liability on the part of the 2nd Respondent. The 1st Respondent had submitted to judgment as against the Applicant. They could not thereafter contest the primary liability to the Applicant. Thereafter, the only basis upon which liability to indemnify the 2nd Respondent could realistically be argued would be that the 2nd Respondent had not been a principal contractor within the meaning of section 24(1) of the Ordinance. That question does not seem to have been raised previously. If it had been raised, it would have been necessary to look at the contract between the 2nd Respondent and its employer and perhaps also the sub-contract between the two Respondents. It seems that the parties and the 1st Respondent, in particular, deliberately submitted that it was not appropriate to look at them.

20. I have to say that it is hardly likely that the 1st Respondent would have had a chance of establishing that the 2nd Respondent was not a principal contractor but that chance, if it had existed, was thrown away during the course of the hearing.