MOHAMMAD SAFDAR v. CHESCO ENGINEERING LTD

DCEC729/2008

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

EMPLOYEES’ COMPENSATION CASE NO. 729 OF 2008

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REASONS FOR DECISION

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I. Background

1.  The Applicant was a labourer employed by the Respondent The Applicant claimed the Respondent sent him to work as a general labourer in Macau in respect of pre-boring and toe grouting works for bored pile works for the mixed use development at Lot B, Zone B, Nape, Macau (“Sub-contract Works”). On 24^th August 2006, whilst carrying out the Sub-contract Works, a falling pipe struck his left ankle (“Accident”), and he suffered personal injuries as a result. The Applicant therefore issued the present employees’ compensation proceedings against the Respondent.

2.  At first the Respondent was not legally represented. At the first call-over hearing on 1^st August 2008 before me, Mr Lai Si Yue (“Mr Lai”), a director of the Respondent, informed me that the Respondent intended to claim indemnity against the 1^st tier sub-contractor and/or principal contractor (which were Macau companies) in respect of the Sub-contract Works. I urged Mr Lai to seek legal advice and to carefully consider the propriety of proceeding with such proposed claim in the present proceedings within the District Court’s employees’ compensation jurisdiction.

3.  On 29^th September 2008, the Respondent’s solicitors filed Notice to Act and proceeded with the ex-parte application referred to below.

II.    Ex parte application

4.  On 29^th September 2008, the Respondent made an ex-parte application by Mr Lai’s affirmation dated 26^th September 2008 (“Affirmation”). The Respondent did not lodge any draft order together with the Affirmation, so the reliefs it sought had to be discerned from the following paragraphs of the Affirmation :

“6.    In the circumstances I pray that leave be granted to [the Respondent] to join Tyson Construction (Macau) Limited [“Tyson Macau”] as Third Party and the Third Party Proceedings could be served upon them in Macau.

……

8. I understand that all the responsible persons of [Tyson Macau] are in Hong Kong. Their office is in the mailing address of 11^th Floor, Harbour Centre, 25 Harbour Road, Wanchai, Hong Kong [“Tyson HK Office”]. Hence I would pray to the court for leave that there be substituted service of the third party proceedings documents upon [Tyson Macau] by leaving the third party proceedings court documents at the said mailing address.”

5.  The reliefs sought in paragraph 6 of the Affirmation were two-fold. First, the Respondent purportedly sought leave to issue a third party claim against Tyson Macau. But even if third party proceedings were appropriate (a subject to which I shall return below), the proper relief is not for leave to join Tyson Macau as third party but for leave to issue a third party notice (see Order 16 rule 2 of the Rules of the District Court (“RDC”)).Secondly, the Respondent purportedly applied for service out of jurisdiction. But the Affirmation failed to identify the specific process that was intended to be served outside jurisdiction.

III.  Affirmation

6.  According to the Affirmation, Mr Lai was the responsible person of both the Respondent and Companhia De Engenharia Weng Tai Limitada (“Companhia”), a limited company registered and having its registered office in Macau. Mr Lai was a director of the Respondent and claimed to be the person in control of Companhia. He further claimed that Companhia’s invoice evidenced the close relationship between these 2 companies as it adopted the Respondent’s registered office in Hong Kong as its address.

7.  Mr Lai claimed that after he established the Respondent, he became familiar with the senior management of Tyson Foundation Limited and carried out foundation works for the Tyson Group companies (ie Tyson Foundation Limited and its associated companies, “Tyson Group”). The Tyson Group was Hong Kong-based/controlled and their mailing address was the Tyson HK Office.

8.  On 19^th May 2006, Tyson Macau and Companhia entered into a written construction sub-contract whereby Tyson Macau (as 1^st tier sub-contractor) sub-contracted the Sub-contract Works to Companhia (“Contract”). Mr Lai claimed he entered into, received and signed the Contract on behalf of Companhia and the Respondent with the responsible person of Tyson Macau at the Tyson HK Office.

9.  Mr Lai claimed that when “[his] company” worked for any Tyson Group company in Hong Kong, the latter company would be responsible for “[his] men’s insurance”. In respect of the Sub-contract Works in Macau, clause 13 of the Contract provided inter alia that Tyson Macau shall effect and maintain in force until such time as the Main Works (ie foundation, steel sheet piling and grouting works for the mixed use development at Lot B, Zone B, Nape Macau) shall have been completed or ceased to be at Tyson Macau’s risk under the Main Contract (ie the construction contract amongst Propriedades Sub F, SA c/o Shun Tak Development Ltd as employer, Gammon Building Construction (Macau) Limited (“Gammon Macau”) as principal contractor and Tyson Macau as 1^st tier sub-contractor) the policies of insurance specified in Part I of the Fifth Schedule thereto.

10.  Part I of the Fifth Schedule of the Contract provided inter alia as follows :

“Insurance in the Joint names of [Tyson Macau] and [Companhia] in respect of any damages or compensation payable at law in respect or in consequence of any accident or injury to any workmen or other person in the employment of [Tyson Macau] or [Companhia] occurring as a result of or in connection with the execution of the [Sub-contract Works].”

11.  Mr Lai claimed the “responsible person” before whom he signed the Contract (but whom he did not identify) promised that if any worker whom the Respondent seconded to work for Companhia in respect of the Sub-contract Works in Macau were injured, Tyson Macau would be responsible for compensation payable to such injured worker. Mr Lai further claimed that this constituted an oral tripartite agreement  (“Oral Agreement”), which was concluded before he signed the Contract at the Tyson HK Office. This was why, to the knowledge of Tysan Macau, Mr Lai on behalf of the Respondent agreed to second the Applicant to Companhia to carry out the Sub-contract Works.

12.  Mr Lai claimed the relevant insurance coverage for the Applicant’s claim in the present proceedings therefore came within Part I of the Fifth Schedule of the Contract, and Tyson Macau was responsible for arranging such insurance coverage.

13.  Mr Lai said he understood from reliable sources (which he did not identify) that Tyson Macau agreed to bear compensation for injury to “[his] men”because it was covered by Gammon Macau which in turn was covered by the developer. It was provided in the Fifth Schedule of the Contract that “[Gammon Macau] shall effect and maintain Employee’s Compensation Insurance in force until such time as [the Sub-contract Works] shall have be completed as per Macau’s Regulations” (my emphasis) without express reference to compulsory insurance under the Employees’ Compensation Ordinance Cap.282 (“Ordinance”). Further, although Gammon Macau’s letter dated 7^th July 2008 to Tyson Macau raised query as to (a) whether the Respondent had referred the Applicant’s employees’ compensation claim to the Respondent’s “EC insurer”, (b) the status of the Applicant in Macau, and (c) whether the Applicant was lawfully employed at the time of the Accident, such letter did not expressly “agreed to bear compensation” for the Applicant’s injuries.

IV.  Ex-parte order

14.  Unfortunately, the Respondent’s solicitors did not bring to the court’s attention the statutory provision and authorities referred to in paragraphs 23-30 below. On 30^th September 2008, an order was granted in terms of paragraph 6 of the Affirmation (“Ex-parteOrder”). By reason of the matters set out in paragraph 5 above, the Ex-parte Order did not bring the matter much further because, even if third party procedure under Order 16 of the RDC were appropriate, the court had not granted leave for the Respondent to issue and serve any third party notice.

V. Summons

15.  So on 3^rd October 2008, the Respondent issued an inter-partes summons (“Summons”) returnable before me on 9^th October 2008 pursuant to Order 16 rule 2 of the RDC for the following reliefs :

(a)  leave to the Respondent to issue and serve upon Tyson Macau at its registered office in Macau and its mailing address in Hong Kong (ie the Tyson HK Office) a third party notice together with copies of the Application filed on 19^th June 2008, the Notice of Hearing dated 23^rd June 2008, the List of Earnings filed on 29^th August 2008 and “a prescribed form of the Acknowledgment of Service appropriately modified”;

(b) costs of the application be to the Respondent in the cause.

16.  It is evident that, apart from being an application under Order 16 rule 2 of the RDC, the Summons also amounted to an application for service out of jurisdiction even though there was no mention of Order 11 of the RDC in the margin note. No draft third party notice or “appropriately modified” form of acknowledgement of service was annexed to the Summons.

17.  Order 16 rule 2(2) of the RDC provides that an application for leave to issue a third party notice must be supported by an affidavit stating (a) the nature of the claim made by the plaintiff in the action, (b) the stage which proceedings in the action have reached, (c) the nature of the claim made by the applicant or particulars of the question or issue required to be determined, as the case may be, and the facts on which the proposed third party notice is based, and (d) the name and address of the person against whom the third party notice is to be issued. Here, no supporting affirmation was filed together with the Summons, so presumably the Respondent relied on the Affirmation even though it was unclear whether the Affirmation was served on the Applicant’s solicitors. But in any event, as seen from paragraphs 6-13 above, the Affirmation did not condescend into particulars for (a) and (b) above apart from a brief reference to the Applicant “now claiming personal injury damages”.

18.  The Affirmation also did not set out with particularity the nature of the Respondent’s claim against Tyson Macau or the question or issue required to be determined other than some factual background. But the assertion in the Affirmation that “the case is caught by [RDC] Order 11, rule 1(1)(d)(i) and (ii)” did shed some light.

19.  Order 11 rule 1(1)(d)(i) and (ii) of the RDC provides as follows :

“Provided that the writ is not a writ to which paragraph (2) applies, service of a writ out of jurisdiction is permissible with leave of the court if in the action begun by writ –

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(d)  the claim is brought to enforce, rescind, dissolve, annul or otherwise affect a contract, or to recover damages or obtain other relief in respect of the breach of contract, being (in either case) a contract which –

(i)    was made within the jurisdiction; or

(ii)   was made by or through an agent trading or residing within the jurisdiction on behalf of a principal trading or residing out of the jurisdiction …..”

20.  It is therefore reasonably clear that the Respondent intended to seek compensation or indemnity in respect of any employees’ compensation payable to the Applicant based on its contractual rights under the Contract and/or the Oral Agreement. The issue is whether the District Court in exercising its employees’ compensation jurisdiction can make any order indemnifying the employer in respect of compensation payable for injuries sustained by his employee.

21.  The above issue raises a fundamental issue of jurisdiction. On the day before the hearing of the Summons, I directed my clerk to draw the attention of the solicitors for the Applicant and of the Respondent to section 25(1)(b) of the Ordinance and the authorities discussed in paragraphs 23-30 below. After considering the authorities, Mr Chan, solicitor for the Respondent, applied for leave to withdraw the Summons at the hearing.

22.  The law in this area is settled and trite, yet time and again similar applications have been made to the court. It is useful to set out the basic principles to put the matter to rest.

VI.  Jurisdiction

23.  Section 25(1)(b) of the Ordinance provides inter alia as follows :

“Where the injury in respect of which compensation is payable was caused in circumstances creating a legal liability in some person other than the employer (in this section referred to as the third party) to pay damages to the employee in respect thereof –

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(b) the employer by whom compensation is payable, …… shall have a right of action against the third party for the recovery of any sum which he is obliged to pay as a result of the accident, whether by way of compensation or indemnity or by virtue of any agreement made with the employee prior to the accident, and may exercise such right either by joining in an action begun by the employee against the third party or by instituting separate proceedings:

Provided that the amount recoverable under this paragraph shall not exceed the amount of damages, if any, which in the opinion of the court would have been awarded to the employee but for the provisions of this Ordinance.” (my emphasis)

24.  Section 25(1)(b) of the Ordinance allows an employer who is liable to pay employees’ compensation to his employee to claim against a third party for indemnity in respect of such compensation payable to his employee by two alternative means. First, the employer can apply to join in the action begun by the employee against the third party. But here the Applicant has not commenced any action against the “third party” (ie Tyson Macau) but has simply sued the “employer” (ie the Respondent). Secondly, the employer can institute separate proceedings against the third party. In my view, this can only mean legal proceedings that are separate from and not in any way part of the employees’ compensation proceedings, whether by way of third party proceedings or otherwise.

25.  Ng Mei Ho & ors v Leung Sil [1962] DCLR 52 dealt with section 24 of the 1953 Ordinance, which provided that a respondent’s rights against a third party shall be settled by civil action in default of agreement. It was held the court had no jurisdiction in an employees’ compensation case brought by an employee against his employer to make an order of indemnity against a third party in those proceedings. Judge Huggins declined the respondent’s application to join the alleged tortfeasor as third party.

26.  Section 24 of the 1953 Ordinance was replaced section 25 of the Ordinance. In Patricia Aunette Sheppard an infant suing by her grandmother and next friend Beryl K Sheppard v Richstone Industries Company Limited & ors DCEC113/1984, H H Judge Roy (unreported, 30^th April 1985), the 1^st and 2^nd respondents issued a statement of claim against the 3^rd respondent (insurer) claiming that in the event they were found liable to the applicant they were entitled to be indemnified by the 3^rd respondent against the applicant’s claim and costs of the action. The question before H H Judge Roy was this : did section 18A of the Ordinance creating a special jurisdiction in the District Court enable it to hear claims against insurance companies (ie third parties) relating to questions of indemnity arising out of compensation claims? The learned judge upheld the rationale in Ng Mei Ho and considered the case before him was even weaker than that in Ng Mei Ho because it was founded in contract and not in the provisions of the Ordinance. It was held that such contractual claim for indemnity did not arise out of the compensation proceedings under the aegis of section 18A of the Ordinance, and “what the District Court cannot do in my opinion, is to grant relief by way of indemnity against such a party in compensation proceedings, because it has no jurisdiction to do so” (see para.17).

27.  In Lai Cheung Mui v Wong Wai Leung & anor [1985] 2 HKC 87, H H Judge E Li faced a similar issue, ie whether or not the District Court in an application for indemnity under section 25 of the Ordinance had jurisdiction to make an order indemnifying the employer in respect of compensation paid for injuries caused to the employee for which a third person was or might be responsible. The learned judge endorsed Ng Mei Ha and Patricia Aunette Sheppard. He further held he had no jurisdiction to entertain the indemnity issue in employees’ compensation proceedings, and a separate action would have to be instituted either in the High Court or in the District Court, depending on the amount of indemnity in question.

28.  In Hip Hing Construction Co Ltd v Wong Leung Tak & anor [1990] 2 HKC 119, the District Court awarded compensation in favour of the employer and the main contractor, but refused the main contractor’s order of indemnity against the employer under section 24 of the Ordinance, and instead ordered that pleadings be filed relating to the main contractor’s claim for indemnity and the employer’s proposed counterclaim for cross-indemnity under section 25(1)(b) of the Ordinance. It was held that an employer’s claim under section 25(1)(b) of the Ordinance for recovery from a third party of the amount of indemnity payable by it to the principal contractor must be brought in separate proceedings. The judge’s directions to facilitate prosecution by the employer of his claim against the principal contractor could not stand.

29.  Clough JA said at pp.140-141 as follows :

“    Although s 25(1)(b) relates to a situation where it is the amount of compensation or the payment of indemnity in respect of that compensation which is being sought to be recovered against a third party, that provision is expressed to give the claimant ‘a right of action against the third party for the recovery’ of the relevant sum. The permissive word ‘may’ which follows in the provision is clearly expressed to be merely to give the claimant the option of pursuing his claim by joining in the employee’s action (if any) against the third party under s 25(1)(a) or by ‘instituting separate proceedings’.

  In their context, the latter quoted words can only mean a separate action in the High Court or the District Court. As the claimant under s 25(1)(b) is given ‘a right of action’ which may be separately instituted or joined with any action which the employee might bring against the third party, it seems to me that there can be no possible textual or other basis for interpreting s 25(1)(b) as permitting the claimant to pursue his claim in the compensation proceedings. I therefore conclude that the judge’s order giving directions to facilitate the prosecution by the employer in these proceedings of his claim against the principal contractor under s 25(1)(b) cannot stand.”

30.  In Azhar Hussain v Fastcut Services Limited DCEC917/2003, Deputy Judge Tracy Chan (unreported, 21^st March 2005), the applicant’s employees’ compensation claim was settled before trial. However, an outstanding issue between the 1^st respondent (employer) and the 2^nd respondent (principal contractor) was whether the order for the 1^st respondent to indemnify the 2^nd respondent for compensation paid to the applicant pursuant to section 24(2) of the Ordinance ought to be stayed pending a claim by the 1^st respondent against the 2^nd respondent for recovery of the said sum either by way of compensation or indemnity under section 25(1)(b) of the Ordinance. Citing Hip Hing Construction Co Ltd, counsel for the 1^st respondent accepted as trite that “there was no provision within the Ordinance permitting the employer to pursue his claim in these proceedings as according to section 25(1)(b) of the Ordinance, the employer’s claim against a third party including the principal contractor must be dealt with in separate proceedings”.

31.  In light of section 25(1)(b) of the Ordinance and the above authorities, it is plain that the District Court has no jurisdiction in the present proceedings to entertain the Respondent’s intended third party claim against Tyson Macau.

VII. Order

32.  At the hearing of the Summons, Mr Chan conceded that the Respondent would have to issue separate proceedings against Tysan Macau. Given such concession, he also agreed that the Ex-parte Order should be set aside pursuant to Order 32 rule 6 of the RDC, and costs should follow event. In the circumstances, I granted the following directions at the hearing :

(a) leave to the Respondent to withdraw the Summons;

(b)    the Respondent do pay the Applicant costs of the Summons including costs of the hearing in respect of the Summons to be taxed if not agreed;

(c) the Ex-parte Order be set aside;

(d)    there be no order as to costs in respect of (i) the ex-parte application by way of the Affirmation and (ii) the drawing up, perfection and service of the Ex-parte Order.