XCHRX TAI HING (a firm) AND ANOTHER v. CHAN YUK WAN AND ANOTHER

1997, No.A3473

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H E A D N O T E

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Plaintiff's employee was injured in January 1990, and subsequently died. His widow obtained compensation against plaintiff under the Employees' Compensation Ordinance Cap.282 in February 1992.

Plaintiff issued a writ against defendant claiming an indemnity under s.25(1)(b) in April 1997.

Defendant applied to strike out the writ on the ground that it was statute barred.

Held :

The period of limitation for an action on an indemnity was six years and it was from the date of liability, and not from the date of the award of compensation. The action was therefore statute barred.

1997, No.A3473

IN THE HIGH COURT OF HONG KONG

COURT OF FIRST INSTANCE

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J U D G M E N T

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1. This is a Summons under O.18, r.19 to strike out the Statement of Claim. In reality, it is an application either for me to determine a preliminary point of law pursuant to O.14A, or pursuant to O.33, r.(3) and (4) that the issue of limitation which has been raised is heard as a preliminary issue. The parties have helpfully agreed that whatever approach is used, I should determine this point initially.

2. It raises an interesting and difficult point with regard to a period of limitation under the Employees' Compensation Ordinance, Cap.282. Counsel have very helpfully provided me with full skeleton submissions and a chronology has been set out by Mr Bharwaney which I shall incorporate in this judgment.

3. What happened was that on 22 January 1990 an accident occurred to an employee of the plaintiffs who was knocked down by a car and he unfortunately died on 28 March 1990. An application was made in December on behalf of the widow for employees' compensation, and on 27 February 1992, that was heard, and compensation was awarded.

4. On 4 April 1997, a very substantial time later, a writ was issued by the plaintiffs claiming an indemnity against the defendants as a result of the damages which they were ordered to pay arising out of the death of their employee. The point is taken that the writ has been issued after the period of limitation expired.

Statutory Provisions

5. The statutory scheme for obtaining compensation is set out in various sections of the Employees' Compensation Ordinance (Cap.282). Section 5 deals with the employer's liability and compensation may be obtained in sections 6 and 7. The period of limitation for bringing claims is lower than the standard common law position which is of course three years. Under section 14, proceedings for the recovery of compensation must be brought within 24 months. It is quite clear from the structure of the Ordinance that this sort of case should be dealt with expeditiously, because it is to protect an employee, or the employee's family.

6. The first matter to be decided is what is the period of limitation when one is dealing with the remedy under section 25(1)(b) which an employer has against a third party which reads :

"the employer by whom compensation is payable, and any person who may be called upon to pay an indemnity under section 24 in the case of an employee employed by a sub-contractor, 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."

7. Is the period of limitation for the employer to bring an action against the third party three years, or six years from the date of some event occurring? Submissions have been put forward by Mr Bharwaney, but not very strongly, that the period should be equivalent to personal injury claims, namely, three years. In my judgment, the position is that the period of limitation imposed on an employer who wishes to bring proceedings in respect of damages which he has paid is a period of six years from a particular event, by virtue of section 4(1)(d) of the Limitation Ordinance, this being an action to recover a sum "by virtue of any ordinance".

8. The three year limitation period imposed by section 27 of the Limitation Ordinance is not applicable to this type of action. In my judgment, Post Office v. Official Solicitor [1951]1 All ER 522 correctly sets out that the legal description of a claim, which this is, for an indemnity is that it is not a claim in tort, it is a claim for indemnity. The period, therefore, in my judgment, is one of six years. The difficult decision which has to be made in this case, however, is from when does the six years begin.

9. The contention on behalf of the plaintiffs put forward by Mr Chan is that the six years runs from the date when the employer is liable to pay, that is, the date of the determination by the Tribunal of the award, and that date would be 27 February 1992. He submits that the six years runs from that date because he says the normal rule in indemnity cases is that the liability of a person who seeks to recover on an indemnity only crystalises as at the date when his liability is established. He cites County and District Properties Ltd. v. C. Jenner & Son Ltd. [1976]2 Lloyd's Rep. 728, when Swanwick J., after reviewing the authorities said at p.734 :

"These authorities satisfy me ...that the general rule in cases of indemnity is that while equity will safeguard the position pending the ascertainment of the fact and extent of liability of the person to be indemnified, he has no cause of action until such ascertainment."

and at p.735 :

"After all, an indemnity against a breach, or an act, or an omission, can only be an indemnity against the harmful consequences that may flow from it, and I take the law to be that the indemnity does not give rise to a cause of action until those consequences are ascertained."

10. This decision, however, was in conflict with Bosma v. Larsen [1966]1 Lloyd's Report's 22, where McNair J. had held that the accrual of a right of indemnity depended on the construction of the terms of the indemnity.

11. In "The Caroline" [1985] 1 WLR 553, Neill J. sought to analyse this conflict and examined the circumstances under which A, who has become liable to B, may be able to obtain redress from C. He suggested three sets of circumstances :

(a) Actions based on breach of contract. These cases fall within the usual principles applicable to contract cases, so that time runs from the breach of contract by C.

(b) Actions based on an express indemnity agreement. Here the date of accrual will depend upon the terms of the indemnity. If the indemnity is expressed as being against liability (as in Bosma v. Larsen) then it is likely that the cause of action will accrue when the liability is incurred. In other cases, though, the cause of action will normally accrue when A's liability to B has been established and ascertained.

(c) Actions based upon an implied indemnity. It will normally be assumed that this is an indemnity against the discharge of a liability rather than against the incurring of that liability, so that the cause of action will accrue only when the liability is established and quantified.......".

12. This is a helpful guide but the Judge's propositions are somewhat general. In my judgment, the correct analysis of s.25(1)(b) is to examine the precise words used and to decide whether or not they indicate that the cause of action arises from the incurring of the liability. Mr Chan submits that s.25(5) affords guidance :

"(5) Notwithstanding anything to the contrary in any other enactment, where written notice of intention to institute proceedings under subsection (1)(b) has been given by an employer, or by any person who may be called upon to pay an indemnity under section 24, to a third party within 12 months of the receipt by the employer or such person of due notice of the accident concerned, no such proceedings shall lapse, or be barred, under any enactment relating to the limitation of actions, until after the expiry of a period of 3 months from the date upon which a claim for compensation in respect of such accident has been -

(a) determined by certificate under section 16A; or

(aa) settled by agreement under section 16CA; or (Added 64 of 1992 s.6)

(b) settled by agreement under section 17; or

(c) finally determined by a court,

as the case may be.

He says that this is a statutory recognition of the problem which would occur where the third party dies before the employer's action against him is heard. In this situation, as the action is one on the indemnity under s.25(1)(b), it will lapse, as the cause of action has not arisen. Section 20(1) of the Law Amendment and Reform (Consolidation) Ordinance, Cap.23 says :

"(1) Subject to the provisions of this section, on the death of any person after 26 October 1951, all causes of action subsisting against or vested in him shall survive against, or, as the case may be, for the benefit of, his estate : .........."

13. A claim under s. 25(1)(b) would therefore not subsist and Mr Chan submits that this sub-section is a recognition that such an indemnity claim only arises on the determination of the employee's award against the employer.

14. A similar provision to s.20(1) of Cap.23 was found in s.30(2) of the Workmen's Compensation Act 1925 which reads :

"If the workman has recovered compensation under this Act or such scheme, the person by whom the compensation was paid, and any person who has been called on to pay an indemnity under section six of this Act relating to liability in case of workmen employed by contractors, shall be entitled to be indemnified by the person so liable to pay damages as aforesaid, and all questions as to the right to and amount of any such indemnity shall, in default of agreement, be settled by action, or, by consent of the parties, by arbitration under this Act."

15. In Post Office v. Official Solicitor (Supra) the Court held that that provision did permit the cause of action to continue against the estate of the third party.

16. I have no doubt that section 25(1)(b) is an indemnity, it has all the hallmarks of an indemnity. The word "indemnity" is used and as far as the subcontractor is concerned, under section 27, it is indeed described as an indemnity. However, the important words, in my judgment, are the opening words : "The employer by whom compensation is payable". An employer is liable to pay compensation on the event which gives rise to his normal liability, which is that found in section 5, which reads :

".......if in any employment, personal injury by accident arising out of and in the course of employment is caused to an employee, his employer should be liable to pay compensation......."

and those words in my judgment, although put somewhat differently, mean exactly the same as the opening words of section 25(1)(b) : "the employer by whom compensation is payable". The words are in contradistinction to those in s.30(2) as the English Act which begins : "If the workman has recovered compensation ..........". Therefore, on a fair reading of this subsection, the liability to pay compensation whether under section 5 or under section 25(1)(b) arises at the same moment in time, that is, at the date when the event occurs which gives rise to such a liability. In this case, it is the happening of the accident which occurred on 22 January 1990.

17. The wording of the subsection again indicates this is so because it describes the employer's right as a right of action against the third party. The true meaning and effect of sub-section (5) is not necessary for me to decide, but in my judgment, it probably encompasses, as Mr Bharwaney submits, the type of event where the proceedings to determine liability may be delayed in some way.

18. Whilst I accept the ingenious submission of Mr Chan that the subsection is included also to protect the employer where there is a death of the third party, in my judgment, all I am concerned with is construing the meaning of section 25(1)(b). I also bear in mind, as I said earlier, the general intention and spirit underlying the Ordinance that there should be early disposition of these claims. If Mr Chan is right, what it could mean, for example, is that the employee issues his proceedings virtually at the expiry of his two years, and there could be substantial delay caused to the hearing of the determination between him and his employer. Then, according to Mr Chan, there is another six years added on during which the employer can take these proceedings for an indemnity.

19. It is clear on reading other sections that the employer knows about and is given notice of the accident which occurred. As soon as the accident occurred, there is an obligation to notify the employer. There is no prejudice therefore caused to an employer who knows what has happened. He has a period of six years, which in itself is a substantial period, to decide whether to take proceedings for an indemnity. At one time, I was attracted to Mr Bharwaney's submission that it should only have been for three years but as I have said earlier, the nature of this type of proceeding is that it falls within section 4(1)(d) of the Limitation Ordinance.

Conclusion

20. At the end of the day, therefore, whilst I accept that there is difficulty as to the court's approach, the period of limitation is one of six years from the date on which the employer is liable to pay compensation. I therefore hold that it is a period of six years from 22 January 1990. The writ was issued on 4 April 1997, it is therefore out of time and is statute-barred, I therefore would strike it out.

21. I should also have indicated that I have been grateful to counsel for setting out their submissions succinctly and in a very clear and helpful manner.