CHU WAI LEONG v. LEUNG SUM KEE ET AL FRAMEWORK, PIPEWORK AND DEMOLISH ENGINEERING LTD AND ANOTHER

DCEC 2270/2016

[2019] HKDC 550

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

EMPLOYEES’ COMPENSATION CASE NO 2270 OF 2016

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DECISION

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A. BACKGROUND

1.  This an Application by the applicant in these proceedings for an order of costs against the Employees Compensation Assistance Board (“the Board”), for certain items costs incurred by the applicant in these proceedings.  These items of costs are as follows:-

(a)  Joint medical examination and joint expert medical report dated 23^rd November 2018;

(b)  Supplemental expert medical report dated 10 January 2019;

(c)  Mediation and negotiations for settlement;

(d)  Surveillance; and

(e)  Costs of negotiation culminating in the ultimate settlement offer by the Board of $300,000 (on top of advance payment and inclusive of interest) purportedly made under s 28 of the Employees Compensation Assistance Ordinance, Cap 365, (“ECAO”).

2.  To understand why the applicant seeks a costs order against the Board in relation to the above items, it is necessary to understand the background to this Application.

3.  The proceedings before the court is an assessment for Employment Compensation ("EC") under Sections 9, 10 and 10A of the Employment Ordinance ("ECO"), which the applicant claims are payable by his employer.  The claim for EC arose from an accident which occurred on 7 June 2015 while in the employment of the 1^st Respondent ("Employer").  There was, unfortunately, no employee compensation insurance in place but the employer did make periodic payments to the applicant totaling $404,000 until 3 August 2016, after which the payments stopped.

4.  Proceedings for EC were commenced on 11 October 2016.  A common law damages claim was also launched.  I am not concerned with that action which, I understand, is being pursued in the High Court.  I understand that a notice of commencement of proceedings was given to the Board under Section 25B of the ECAO.  I am, however, only concerned with the EC claim.

5.  According to the Form 9 dated 18 December 2016, the applicant’s Loss of Earning Capacity is assessed by the relevant medical assessment board (“MAB”) appointed by the Commissioner for Labour to be 5%. 

6.  The applicant then launched an appeal under S 18 of the Employees’ Compensation Ordinance, Cap 282 (“ECO”), against the said assessment by MAB. The Notice of Appeal was filed, within time, in the District Court on 6 February 2017.

7.  The applicant ’s witness statement indicated that he tried to resume work in April 2017 but was initially only able to find a scaffold helper rather than his old job and earning much less ($900 a day as opposed to $1600 a day before).  Dr Peter Tio examined him in November 2017.  Dr Tio produced a report in January 2018, opining that the applicant had reached Maximum Medical Improvement and assessing the loss of earning capacity at 6.5% (as opposed to the 5% assessed by the MAB appointed by the Commissioner for Labour).  

8.  On 12 March 2018, the applicant’s solicitors made a “without prejudice subject to costs” offer to the Board in the amount of $1,124,000.  This sum was stated to be inclusive of interest but net of the sum of $404,000 already paid by the Employer.  This offer contained a Section 9 ECO assessment purportedly based on the “special circumstances” provision set out in Section 9 (1A) of the ECO, using what is known as the HK Paper Mills formula[1].

9.  Meanwhile, the Employer having failed to comply with unless orders made by the court, had judgment for liability entered against him on 16 March 2018. It is, however, fair to note that the Employer had never denied that the applicant was injured in the course of employment (he would not have made periodic payments to the applicant), and so the EC proceedings before the District Court was one for the assessment of quantum only.

10.  On 9 July 2018, the Board's solicitors came back with a much-reduced “without prejudice save as to costs, section 28 ECAO” counter-offer of $120,000, which the applicant's solicitors considered unacceptable.  The applicant and the Board have at all times communicated through solicitors.  Any further reference in this Decision to communications between the Board and the applicant should unless otherwise stated, be taken to have been conducted through their respective solicitors.

11.  On 20 July 2018, the Board was joined as the 2^nd respondent to these proceedings under Section 25A (b) of the ECAO, the terms of which are as follows:-

“(b). where no policy of insurance is known to be in force at the time of the accident to which the proceedings relate and the employer is present at the proceedings, the Board may apply to the court to join in the proceedings as a party in accordance with Order 15, rule 6 of the Rules of the High Court (Cap. 4 sub. leg. A) or Order 15, rule 6 of the Rules of the District Court (Cap. 336 sub. leg. H), as the case may require;”

12.  The Board said it joined in as the 2^nd respondent in the present action because it carries out a filtering role in screening out a fraudulent or an exaggerated claim of the applicant.  The Order for this joinder is rather lengthy.  In addition to the joinder of the Board as the 2^nd respondent, the Order contained, inter alia, provisions for a joint medical examination with a medical expert (Dr Wong Kwok Shing Patrick) nominated by the Board together with the applicant’s Dr Tio Man Kwun Peter, and a provision that unless the 1^st respondent filed factual evidence on or before 14 September 2018, he will be deemed to have waived his right to present evidence at the hearing for compensation or to call any witness.  Leave was given to the applicant for his Amended Application filed on 4 April 2018 to be amended to include the 2^nd respondent, to be filed within 14 days from the date of the Order.

13.  After the Board’s joinder in the proceedings, the Employer took no active part in the proceedings after this point in time apart from turning up at the hearing on 12 March 2019.  From this point in time onwards, the Board, however, took an active part in these proceedings.

14.  The Board, in accordance with the Order for joinder, arranged a further expert to examine the applicant.  

15.  Dr Patrick Wong, the Board's appointed expert, together with Dr Peter Tio, examined the applicant on 3 October 2018 but the Joint Medical Report was only ready later, and dated 23 November 2018.  There was a Joint Supplementary medical report dated 10 January 2019.  Dr Wong maintained the Commissioner’s assessment of 5% loss of earnings capacity, whereas Dr Tio maintained 6.5% loss of earnings capacity.

16.  Meanwhile, video surveillance of the applicant was conducted at the Board’s behest, on 15 October 2018, 19 October 2018, 31 October 2018, 1 November 2018, 19 December 2018, 20 December 2018, 8 January 2019 and 9 January 2019 but there is no evidence that the surveillance reports and videos were shown to the two medical experts, as their reports made no mention of these videos and surveillance reports.  Nowhere in the Order for Joinder was such or any surveillance mentioned. The surveillance reports and videos were, however, disclosed to the applicant, presumably with a view to their being used at the hearing.

17.  Mediation took place on 20 February 2019.  The Mediation Agreement was signed only between the Board and the applicant.  This Agreement did not contain terms prohibiting recovery of costs of mediation as litigation costs.[2]

18.  Although no agreement was reached, the mediation did result in the applicant making a Sanctioned Offer to the Employer and the Board by letter dated 20 February 2019.  The Sanctioned Offer was stated to be made under Order 22 Rule 5 of the Rules of the District Court, and was in the following terms:-

“Solely with a view to reaching an early settlement, our client is prepared to make a final concession and offers to accept a net sum of HK$300,000 (inclusive of interest but on top of advanced payment of $404,000) plus costs (including costs of mediation and fees of mediator) on the District Court scale to be taxed if not agreed in full and final settlement of the above case.

Kindly note that:-

(1) The offer is made pursuant to Order 22 rule 5 of the Rules of the District Court and it is open for your client’s acceptance within the next 28 days.

(2) The offer relates to the whole of our client’s claim under DCEC 2270/2016.

(3) The offer does not take into account any counterclaim or set-off as there is none.

(4) After the expiry of 28 days from today, your client may only accept the offer if:-

(a) the parties agree on the liability for costs; or

(b) the Court grants leave to accept it.”

19.  Upon request by the Board, the applicant provided a breakdown of the figure by letter dated 26 February 2019. 

20.  The next day, the Board responded as follows:-

“Solely for the purpose of saving public funds and strictly without prejudice to the Board’s right of subrogation against the 1^st Respondent under section 37 of the Employees Compensation Ordinance (“ECAO”), provided that the 1^st Respondent accepts the Sanctioned Offer, and, in the event that the 1^st Respondent fails to satisfy the sum due pursuant to the terms of the order or agreement giving effect to his acceptance of the Sanctioned Offer, we have the Board’s instructions to offer payment of a sum of HK$300,000 (inclusive of interest but on top of advance payment of HK$440,000) plus costs to be taxed if not agreed under section 23 of ECAO, by way of pre-determination under section 28 of ECAO)”

(underlined and bold as in the original letter)

21.  The applicant then replied on the next day (28 February 2019) that he understood that no judgment would be entered against the Board but that he would seek costs of this action (including costs of mediation and fees of mediator) incurred against the Employer and the Board.  On 1 March 2019, the Board informed the applicant that the Employer did not accept the applicant’s Sanctioned Offer.

22.  When the matter came up for hearing on 12 March 2019, the Parties before the court were the applicant (the Employee), the Employer (1^st respondent, represented by a director) and (“the Board”) (2^nd respondent).  Both the applicant and the Board were represented by Counsel.

23.  The three Parties presented a Consent Summons for the Court’s approval, in the following terms:-

“ 經 申請人的代表律師，第二答辯人的代表律師及代表第一答辯人的董事的共同申請

經聆聽代表申請人的大律師，代表第二 答辯人的大律師及代表第一答辯人的董事的陳述

經與訟各方同意

法官現命令:

1.  鑑於2018年3月16日申請人針對第一答辯人已登錄的勝訴判決，現針對第一答辯人登錄申請人勝訴的最終判決，而第一答辯人須支付申請人港幣704,000.00，包括利息，及第一答辯人此前己支付申請人的款項港幣404,000.00:

2.  第一答辯人須於本命令起計14日內支付申請人上述第一段的餘額共港幣300,000.00;

3.  第一答辯人須支付申請人在本案中針對第一答辯人的訟費及批准大律師的證書，如雙方未能同意則由法庭評定;及

4.  申請人本身的訟費根據法律援助署的規則評定。”

24.  I made an order in terms of the Consent Summons, transforming the Consent Summons into a Consent Order.  It will be noted that the Consent Summons was applied for by all three Parties, although the obligations set out in the Summons were those of the Employer (the 1^st respondent).  The position of the Board in relation costs of the proceedings was left unsettled.

25.  After disposition of the Consent Summons and conversion of the same into a Consent Order, the applicant made an application for costs against the Board for the items of costs set out in paragraph 1 above, as presaged by their communication with the Board on 28 February 2019. [3]

26.  The Applicant and the Board provided to the court, extensive written submissions with lists of authorities.  Oral arguments took place on two days (13 and 29 March 2019).

B.    THE ARGUMENTS OF THE APPLICANT AND BOARD

The Applicant’s reasons for the Application

27.  It should be noted that the applicant already has his costs against the Employer (1^st respondent) for the proceedings.  The order of costs was worded “在本案中針對第一答辯人的訟費”(costs incurred in proceeding against the 1^st respondent).  The offer by the Board is that if the applicant were unable to recover costs, then the Board will pay the costs to be taxed under Section 23 of the ECAO, the relevant terms of which are as follows:-

“Where the Board has determined an application under section 16 in favour of an applicant then in addition to any amounts of compensation to be paid from the Fund the Board shall, subject to this section, agree to pay from the Fund—

(a) the costs incurred by the applicant in making the application; and

(b) an amount equal to any costs payable to the applicant pursuant to an order of a court for costs against the employeror the employer’s insurerin proceedings claiming the compensation.” (emphasis added)

28.  Under Section 23(5) of the ECAO, costs payable to the applicant are to be taxed on a party to party basis.  On taxation on a party to party basis, "there shall be allowed all such costs as were necessary or proper for the attainment of justice or for enforcing or defending the rights of the party whose costs are being taxed.” (Rules of the District Court, O 62 Rule 28).

29.  It was pointed out to the court by Counsel for the applicant that since the Employer took no part in the proceedings from the time of the joinder of the Board and the items of costs set out in paragraph 1 above were items of costs incurred by the applicant in the proceedings solely as a result of the actions of the Board, it is arguable on taxation that these were not costs of the proceedings recoverable against the 1^st respondent. Accordingly, to safeguard the interests of the applicant who did indeed incur the items of cost set out in paragraph 1 above in prosecuting the proceedings, an express order against the Board for these items of costs would be appropriate.

30.  Counsel for the applicant applies for costs in relation to the specific items against the Board on a number of bases.  These may be summarized as follows:-

(i)  That the ECAO is intended to provide quick, no-fault compensation as a final resort to employees who cannot obtain compensation from their employers because of the absence of employees’ compensation insurance;

(ii)  That there is no reason why the Board having taken an active part in the proceedings should not be made to pay the costs caused to the applicant who bore the burden of prosecuting the proceedings;

(iii)  The Board would by the time it was joined in the proceedings in July 2018 have seen the medical report of Dr Tio (issued in January 2018) and would have known that Dr Tio assessed the loss of earning capacity of 6.5%, and therefore would have known that this was the applicant’s case;

(iv)  That with the knowledge that the applicant's case only 6.5%, as opposed to the 5% assessed under the Form 9 issued by the Commissioner, the Board's participation, was not only active but could be said to be unnecessary, inflicting costs on the applicant which could have been avoided.  In particular, Counsel suggests that in light of the minor difference of only $28,000 (between 6.5% and 5%), it was not necessary to engage another expert to examine the applicant, the surveillance conducted in secret was particularly unnecessary as that did not produce any new information which would be helpful to the assessment of employees compensation, and the mediation and negotiations were all part of the costs which the applicant was made by the Board to face in the course of the prosecuting these proceedings;

(v)  There is no obstacle in law to ordering the costs against the Board in the circumstances. 

The Board’s Position

31.  The Board resists this application on the basis that the behaviour of the applicant caused its actions.  The actions creating these items of costs were necessary to protect the interests of the Board because of the unacceptably high “without prejudice” offer made by the applicant in March 2018.  This indicated that the applicant might be running a fraudulent or at least an exaggerated claim based on inability to find a job as a scaffolder, on a loss of earnings capacity of 43% implied in the figure claimed of $1,240,003 net of the sum of $404,000 already paid by the Employer.  Counsel asks the court to bear in mind that this sum was the only quantification of the applicant’s claim, provided by the applicant until 20 February 2019.

32.  Counsel for the Board submits that “had the Applicant been truthful about his post-accident work capacity and employment status, this action would have been settled without the ECAFB (the Board) joining in as a party.  Any costs incurred after ECAFB’s intervention, including ECAFB’s own costs (e.g. surveillance, instructing Counsel, etc) and any costs incurred by the Applicant solely because of ECAFB’s intervention, if any (i.e. on top of the costs which the Applicant had to incur in any event for the purpose of obtaining judgment against the 1^st Respondent), would not have incurred.” 

33.  Counsel for the Board further suggests that it must have been when after viewing the surveillance videos, that the applicant realised that he could not claim the sum of over $1 Million.  Counsel for the Board draws attention to the common law damages claim and suggest that the applicant is still running a case for damages in the High Court based on substantial loss of earnings.  The applicant continues to allege that he could not resume his previous employment as a scaffolder but has to remain as a ground worker or a scaffolder helper working only on ground level, yet the surveillance video shows that he was climbing [4] the scaffolds in a building site and therefore, shows that he had been untruthful.  This, says Counsel for the Board, is reflected in the inconsistency of the pre-trial loss of earnings documents submitted by the applicant.  Counsel says that the tax returns suggested that the applicant did show earnings during his sick leave period, meaning he was less incapacitated then he had claimed to be. 

34.  The joint medical report, Counsel for the Board pointed out, was approved by the court at the time when the Board was joined.  If the matter had gone to hearing, Counsel indicated that the applicant would have been cross-examined as to his assertion that he could only take a ground level job and the schedule of lost earnings he provided, where there are inconsistencies in the tax returns. Costs involved in negotiating with the Board are not recoverable. 

35.  The Board, therefore, acted reasonably in the matters mentioned above, as it also did in the mediation and negotiations. Counsel reminded the court that the primary responsibility to pay EC rests with the Employer and the Board, being the final resort, has a duty to filter fraudulent and exaggerated claims, to which category this claim belongs.  When the Board assumes this filtering role, it submits that the court should not award any costs against it.

The applicant’s response

36.  In response, Counsel for the applicant made the following points:-

(i)  That it is wrong to conclude that the applicant ran a fraudulent or exaggerated claim.  There is simply no evidence that untruthful evidence was reported to the experts;

(ii)  The alleged untruthfulness is merely an assumption on the part of the Board;

(iii)  The Board already had known in July 2018, that the applicant’s claim for loss of earning capacity was 6.5%, as Dr Tio’s report was available to the Board;

(iv)  The ability to resume pre-accident work with less efficiency is reflected in the assessment of loss of earnings capacity.  The ability to resume pre-accident work needs not be totally destroyed.  Thus, the surveillance is no guide to such loss of efficiency.   The Board had over-emphasised the importance of the surveillance and cannot assume that the applicant has no explanation for the activities shown by the surveillance, particularly when the applicant's expert had already assessed the loss of earning capacity to be 6.5%. So the surveillance reports produced no new information which is of value to the EC claim;

(v)  In any event, the surveillance report and videos had to be studied by the applicant's legal team, and costs were incurred;

(vi)  There is nothing in the inconsistencies in the tax returns, the difference is minute, and the applicant chose to make the smaller claim;

(vii)  If the Board wished to protect itself, it should have made a realistic offer under Section 28 of the ECAO, and if the outcome of the court's judgment is less than the offer, then the Board would have been protected from a costs order, but that is not the case here, and the Board could have facilitated an earlier settlement by making a realistic offer under Section 28 of the ECAO;

(viii)  As for negotiations with the Board, it has been held that such costs are allowable depending on the circumstances (§6 in Yang Shu & anor v Messrs Alfred Lau & Co HCA 3759/90, 9 June 1999), and the circumstances here, justify the allowance of such costs; and

(ix)  The claim for EC has always been based on Sections 9, 10 and 10A of the ECO.  The common law damages claim is different from an EC claim and facts from one case cannot be conflated with facts from the other.  The surveillance could be used for the common law claim, but it has no function for the EC, which is based on medical examination for determination of loss of earnings capacity and the applicant’s medical expert assessment was already known to the Board when it applied to be joined in July 2018. 

C.      THE LEGAL PRINCIPLES

37.  Counsel on both sides cited extensive case law which I have considered and from which I shall distill the legal principles by which I shall decide this Application.

38.  The basic premise of the Board is that the Board is in a special position because it was set up by statute to provide compensation of last resort to employees whose employers did not have in place an insurance policy or were otherwise unable or unwilling to pay employees compensation due to them in the unfortunate event of an industrial accident.  The Board, in particular, relies on the decision of Deputy High Court Judge To in Wo Chun Wah v. Chau Kwei Yin [2018] 3 HKLRD 897, §§47 – 52.  All of these paragraphs were included in full written submissions before me.  I have carefully read these paragraphs, but I do not understand these paragraphs to give the Board any special status in the exercise of the court’s discretion in awarding costs.  In my view, the learned Deputy Judge was only expounding general principles which any court would apply in exercising its discretion over costs.

39.  To understand what the learned Deputy High Court Judge said in the passages cited by Counsel for the Board, one must go deeper into the case. That was a common law damages case tried by the learned Deputy Judge in the High Court, where the Board was joined as the 3^rd Defendant. Counsel for the Board said the same legal principles applies to EC cases though it was a common law damages case.  I agree.  Before the trial commenced, the plaintiff had settled with both the 1^st defendant for $80,000 and 3^rd defendant (the Board) for $1,420,000, leaving the 2^nd defendant, who was unrepresented to contest the proceedings.  In the end, the court found the 2^nd defendant liable in damages in the amount of $1,428,547 together with interest. 

40.  The learned Deputy Judge ordered costs to be paid by the 2^nd defendant but made no costs order against the Board.  The learned Deputy Judge considered that the Board's joinder was justified and it did not add to the costs of the action any more than that incurred by the 2^nd defendant who alone contested the claim at the hearing.

41.  The Court of Appeal, in the subsequent appeal, in that case, did not disturb this costs order, as that was within the court's discretion with no error in principle involved.  In reviewing the learned Deputy Judge's Costs Order, Kwan, JA (as she then was), who gave judgment for the Court of Appeal, observed:-

44.  The judge was clearly aware of the fact that no offer was made by the Board and the Board only settled with the plaintiff at the commencement of the trial. The plaintiff had to continue with the trial to obtain a judgment on liability against the 2^nd defendant so some costs would have to be incurred in any event.  It did not appear that the Board’s intervention in the proceedings had significantly increased the costs which the plaintiff would have to incur any way.  Being the trial judge, the judge was familiar with the litigation conduct of the plaintiff and the extent of involvement of the Board in the proceedings.  He would have a fair idea as to the likely costs attributable to the Board’s participation.  He regarded the Board’s participation as reasonable and necessary and was of the view that the Board had taken a balanced approach in what was a “filtering” role to assist the court in making a proper assessment.”[5]

42.  Kwan, JA (as she then was) in the same case, clearly approved of the approach taken by Cheung, JA in another case in the Court of Appeal by her following observation:-

“30.  First and foremost, as Cheung JA has stated in Jiang Zhong at §6.10, “Bharwaney J’s view that the Board may be liable for the costs of the whole action is not necessarily appropriate in all circumstances.  It depends on the context of the case.  What is important is that the discretionary jurisdiction is guided by well‑-established "principles" on how costs are to be exercised."

43.  Accordingly, once the Board has joined the proceedings, its exposure to costs is a matter based on the circumstances of any particular case, to be judged according to well-established principles on how the court’s discretion on costs is to be exercised.  In exercising the court’s discretion, the Board’s role in each case has to be dissected, bearing in mind its statutory duties. Thus, in the court’s exercise of discretion, certain statutory provisions in the ECAO relating to the Board’s participation in EC proceedings must be considered.

44.  The particular provisions that this court must bear in mind are Sections 23, 25A and 28 of the ECAO. 

45.  Such part of Section 23 of the ECAO as are relevant to the present discussion, is as follows:-

(1)  Where the Board has determined an application under section 16 in favour of an applicant then in addition to any amounts of compensation to be paid from the Fund the Board shall, subject to this section, agree to pay from the Fund— 

(a)  the costs incurred by the applicant in making the application; and

(b)  an amount equal to any costs payable to the applicant pursuant to an order of a court for costs against the employer or the employer’s insurer in proceedings claiming the compensation. 

(2)  The costs payable by the Board under subsection (1)(a) shall be such costs as in the opinion of the Board would be allowed on taxation of those costs by the District Court on the common fund basis.

(3)  [not reproduced]

(4)  Where an application relates to compensation which are or have been the subject of proceedings in any court in which an order was made apportioning costs as between the Board and the employee, the Board shall only be liable for the purposes of subsection (1)(a) to pay the employee’s costs in the same proportion as was so ordered in those proceedings. 

(5)  The amount payable by the Board pursuant to subsection (1)(b) in respect of costs ordered by a court shall be only such amount as has been allowed, or would in the opinion of the Board be allowed, on taxation of those costs on a party and party basis.

(6)  [Not reproduced]

46.  Section 23 of the ECAO envisages that an applicant for EC under the ECO would first obtain a court judgment and then make an application under Section 16 of the ECAO.  The costs of the application under Section 16 of the ECAO are payable upon taxation on a common fund basis.  The costs for the proceedings are, under Section 23(5) of the ECAO, such amount as the court has allowed or which in the opinion of the Board, would have been allowed on taxation of such costs on a party to party basis.  Section 23 (4) of the ECAO envisages a case where the Board was also a party in EC proceedings and costs have been apportioned between the Board and the applicant, then the Board is only obliged to pay costs in the same proportion.

47.  Section 28 of the ECAO provides:-

(1)  Where it appears to the Board that a person is or might be entitled to apply under section 16 for a payment from the Fund, the Board may, in the interests of the protection of the Fund, and on such terms as it sees fit, offer to pay from the Fund to or on behalf of that person an amount in satisfaction of such entitlement. 

(2)  (Repealed s. 46A(4) (see 16 of 2002 s 30)

(3)  If a person accepts an offer made under subsection (1) and receives payment accordingly, that person shall not have the right to make an application under section 16 in respect of the claim to which the offer relates. 

(4)  If an offer made under subsection (1) is not accepted by a person, and in subsequent proceedings in respect of the claim to which the offer relates the person is awarded an amount not more than the amount offered by the Board, then the Board -

(a)  shall not be required to pay more than the amount as awarded by the court or tribunal concerned; and

(b)  shall not be liable to pay the costs incurred by the person after the date of the offer to which the claim relates. 

(5)  Where the Board takes part in proceedings in respect of a claim for compensation, the Board shall have the right to agree costs with the parties involved in the proceedings prior to taxation. 

48.  Section 28 of the ECAO enables the Board to make an early offer to avoid protracted proceedings, and in the event such an offer was made, and the proceedings produced a judgment less than such an offer, then the Board is protected as to costs.  The first offer made on 20 June 2018 was for $120,000, which was far less than the judgment sum in the Consent Order.  The Board therefore cannot claim the protection of Section 28 for this offer.  Section 28 of the ECAO was again used in the Board’s response made on 27 February 2019 to the applicant’s Sanctioned Offer of 20 February 2019.  But its terms, which were as follows, could not bring the costs protection provisions into play:-

“we have the Board’s instructions to offer payment of a sum of HK$300,000 (inclusive of interest but on top of advance payment of HK$404,000) plus costs to be taxed if not agreed under section 23 of ECAO, by way of pre-determination under section 28 of ECAO”.

49.  Both Sections 23 and 28 of the ECAO envisages that the Board may participate in EC proceedings in court.  The Board participates by way of intervention in proceedings pursuant to Section 25A of the ECAO.  The Board may seek intervention by joinder as a party under Section 25A (a) in place of the Employer to take over the defence of the proceedings or under Section 25A(b) in accordance with Order 15 Rule 6 of the Rules of the High Court or the District Court. 

50.  In these proceedings, the Board chose to apply to join in these proceedings under Section 25A(b).  The relevant part of Order 15 Rule 6 applicable to the Board is Rule 6 (2) (b) (ii), which provides that: “any person between whom and any party to the cause or matter there may exist a question or issue arising out of or relating to or connected with any relief or remedy claimed in the cause or matter which in the opinion of the Court it would be just and convenient to determine as between him and that party as well as between the parties to the cause or matter”.

51.  By choosing to be joined under Section 25A(b) and Order 15 Rule 6, the Board participates in its own right as a party to these proceedings.  A party to court proceedings in its own right must take its own chances as to costs:-

“Ultimately, the risk of an adverse order on costs is a risk that the ECA Fund Board must accept if it elects to join in the proceedings and obtain the benefit of such joinder by preventing the plaintiff from obtaining a judgment for a higher amount of damages which would almost invariably be the case if the proceedings were undefended”. (per Bharwaney, J in §45, Kwan Kam Pui v Fung Man and ors [2014] HKC 361.

52.  As Kwan, JA (as she then was) has observed (see paragraph 41 above), the above dicta by Bharwaney, J does not mean that the Board must be liable in court in all cases, it is merely an observation that the Board may under the appropriate circumstances have to pay costs of the proceedings.  It all depends on how the Board had acted and how such actions should impact the award of costs when the court comes to exercise its discretion.

53.  Before I proceed to the determination of this application, I remind myself of the provisions of Rule 3 in Order 62 of the Rules of the District Court:-

(1)  Subject to the provisions of this Order, no party shall be entitled to recover any costs of or incidental to any proceedings from any other party to the proceedings except under an order of the Court.

(2)  If the Court in the exercise of its discretion sees fit to make any order as to the costs of or incidental to any proceedings (other than interlocutory proceedings),the Court shall, subject to thisOrder, order the costs to follow the event, except when it appears to the Court that in the circumstances of the case some other order should be made as to the whole or any part of the costs. 

D.      DETERMINATION

54.  I start with the proposition that once the Board joins in these proceedings, it became exposed to the possibility of a costs order.  The Board was joined in these proceedings on 20 July 2018 under Section 25A(b) of the ECAO pursuant to the provisions of Order 15 Rule 6 of the Rules of the District Court.  From that date on, the Board is a party in its own right in these proceedings.  Order 15 Rule 6 requires such a party to have an interest in the proceedings.  The Board’s interest is clearly to ensure minimum exposure of the Fund to a judgment of the court and in assuming this role, it must be responsible for its own actions. 

55.  These proceedings are proceedings under the ECO.  The result of a judgment is strictly governed by Sections 9, 10 and 10A under the ECO.  The Applicant made a claim based on all three Sections.

56.  Section 9 of the ECO is an assessment of loss of earning capacity governed by Schedule 1 of the ECO.  The loss of earning capacity is based on physical incapacity which has to be medically determined.  Once that is determined, then one applies the percentage figure against that physical condition specified in the columns of Schedule 1. 

57.  Section 9 (1A) of the ECO engages the so-called Hong Kong Paper Mills formula.  The formula arose from an EC case in 1980 which went on appeal to the Court of Appeal[6].  The application of the formula is never far from argument, but that is an argument usually between medical experts, if only because the proviso in Section 9(1) still applies.

58.  This is not, however, a case where there is much argument about loss of earning capacity, at least from the side of the applicant.  The applicant, in this case, received a medical report from Dr Tio in January 2018 that his loss of earning capacity was 6.5%.  Dr Tio did not opine that there existed the type of “special circumstances” envisaged in Section 9(1A).  Thus, Dr Tio’s assessment of 6.5% is the applicant’s only basis for the Section 9 claim.

59.  On top of a Section 9 claim, there would be a Section 10 claim.  This Section deals with compensation or temporary incapacity.  Assessment of this is based on salaries lost during this period of temporary incapacity.  A further claim is based on Section 10A which is based on expenses incurred in treatment and perhaps special foods needed during recuperation.

60.  It must be remembered in this case that the Board was given notice of proceedings pursuant to Section 25B of the ECAO.  In fact, before joining in (pursuant to a Court Order on 20 July 2018), the Board had made attempts at settlement with the applicant between January 2018 and July 2018 by conducting without prejudice discussions with a view to settlement of the proceedings. The applicant through his Solicitors started the round of negotiations with an opening offer of $1,124,003 (inclusive of interest but on top of the advance payment by the Employer of $404,000) on 12 March 2018.  Judgment on liability was entered against the Employer on 16 March 2018.  Prior to the Board joining in, the Board on 21 June 2018 made an offer (by written prejudice letter to the applicant) pursuant to Section 28 of the ECAO for the sum of $120,000 (on top of the payment of $404,000 but inclusive of interests) plus costs to be agreed but if not, to be taxed under Section 23 of the ECAO.  The Applicant in reply stated that “since the Board is not a party to the proceedings, the Board’s offer is ineffective.”  At the end, the Applicant agreed that the Board’s offer was effective under section 28 ECAO but, nonetheless, declined the Board’s offer of $120,000 plus costs, because it was unrealistically low.

61.  When the Board applied to be joined in these proceedings pursuant to the Order of Joinder on 20 July 2018, it asked for the applicant to be examined by a further medical expert.  Counsel for the applicant pointed out that by that time, the Board certainly would have had the medical report of Dr Tio and would have known that Dr Tio had assessed the applicant's loss of earnings capacity to be 6.5%.  The Form 9, which showed an assessment of 5%, would also have been in the possession of the Board.  This would have indicated to the Board that the applicant's case would be based on 6.5% and not on the HK Paper Mills formula.  Thus, as Counsel for the applicant pointed out, from the time the Board joined in these proceedings, the applicant's case was known, namely, loss of earning capacity was claimed at 6.5% only.  I find this logic compelling. 

62.  Counsel for the Board seeks to contradict this submission by clinging to the assertion that the claim of $1,240,003 was maintained until February 2019 and that it was after the availability of the surveillance videos that the applicant abandoned his $1,240,003 claim.  I am afraid I do not see the logic of this assertion.  The figure of $1,240,003 was a figure put forward in “without prejudice” negotiations.   It had never been a claim, let alone the case the applicant had indicated he would run.  Thus, the accusation that the applicant was running a fraudulent or exaggerated case has no evidential support, particularly when the applicant did indicate in “without prejudice save as to costs” communications the basis for the application of the so-called HK Paper Mills formula.  It was also clear that the Board saw no basis for such application and came back with a low offer.  As Counsel for the applicant submitted to the court, the applicant had been transparent at all material times.

63.  It was also open to the Board, upon joining in these proceedings, to elicit from the applicant the bases of his claim to enable it to assess the situation better.  The Order of Joinder of 20 July 2018 made provision for further conduct of the proceedings.  It was open to the Board to ask the Court to order a quantification of the Applicant’s Claim.

64.  In any event, by July 2018, the Board could not have been under any misapprehension that the applicant was running a Hong Kong Paper Mills case, as his expert had already assessed loss of earnings capacity at 6.5% with no reference to any special circumstances meriting the application of the Hong Kong Paper Mills formula.

65.  The other losses based on Section 10 and 10A of the ECO, are based on documentary evidence of earnings and medical expenses.  If the Board did not have this information, it could have asked for it. 

66.  Thus, by 20 July 2018, the Board would have known the essential structure and bases of the applicant’s EC case and probably had (or could have been able to obtain) the documents upon which the claim would be made.  It would accordingly have been possible, for the Board to revise its Section 28 offer to a figure which is calculable from the information then available. That figure, Counsel for the applicant suggests, would have been very close to the $300,000 offered in the February 2019 Section 28 offer, which became encapsulated into the Consent Order.  I have no reason to disagree with this contention.

67.  It might be understandable for the Board to seeking examination ofthe Applicant by another expert if Dr Tio had assessed the loss of earnings capacity at a figure well in excess of 6.5%.  The difference in terms of financial consequence between 5% (as assessed by the Commissioner) and 6.5% (as assessed by Dr Tio) would be minimal, and it is questionable whether another round of examinations would be worth the expense. Be that as it may, this decision was not provoked by the conduct of the applicant by the time of the Board’s joinder and it inflicted another round of costs on the Applicant.

68.  Since the loss of earnings capacity has already been assessed at 6.5% by medical expert evidence, it is also questionable whether the video evidence derived from the surveillance is of any assistance to the court, particularly when there is no evidence that such videos were shown to the joint medical experts, who made no mention of having been shown these videos in their reports.  Counsel for the applicant suggests that the surveillance may be helpful for the common law claim, but it is certainly not necessary for the EC claim. I also find this argument compelling.

69.  In the final analysis, the Section 28 offer by the Board was based on loss of earnings capacity of 6.5% and essentially the other items of pecuniary loss of the applicant under S.10 and 10A of the ECO.  As Counsel for the Applicant points out (and I see no reason to disagree with him), an assessment in close proximity to that figure could have been reached in July 2018.

70.  In the circumstances, I find that the Board’s actions inflicted upon the applicant elements of additional costs which did not arise from circumstances of the making of the applicant.  From the time the Board was joined as a party to these proceedings, it could be seen by the Board, that the case of the applicant was based on Dr Tio’s 6.5% assessment of loss of earnings and not on a Hong Kong Paper Mills formula.  There was no evidence that the applicant was running a fraudulent or exaggerated case.  The actions of the Board since joinder inflicted additional costs on the applicant in circumstances not of the applicant’s making.  As these were actions of the Board and not the actions of the Employer (who took no part at all), it is only reasonable that the Board should bear the applicant’s costs arising from such actions, bearing in mind that the function of the ECAO is to compensate victims of industrial accidents and not inflict on them costs which they cannot recover, where such costs were not self-inflicted. 

71.  The costs order I make here will, however, date from the time the Board became a party to these proceedings.  Although I have jurisdiction to award costs against a non-party[7], which the Board was before its joinder in these proceedings, I do not find it in the interests of justice to so order in this case.

72.  The dealings between the Board and the applicant before the date of the Board’s joinder in these proceedings, are in the nature of dealings between the Board and the applicant in the context of applications under the ECAO, and I shall have to leave it to the applicant and the Board to sort out the costs of such activities, for example, whether the dealings could have been considered to be in the nature of an application under Section 16 of the ECAO and therefore covered by the S 28 offer made in February 2019.  I am not concerned with this.

73.  From the time the Board had joined as a member, the Employer had taken no active part.  Instead, the Board had taken over the active running of the litigation in these proceedings, by arranging joint medical examinations, surveillance and producing a number of videos and reports thereof.  The applicant and his legal advisers had to spend time and therefore incur costs in dealing with these matters.  The mediation did produce some result as were the negotiations and therefore should properly be part of the costs of the applicant caused by steps taken in these proceedings. 

74.  The Board could have made an adequate Section 28 offer back in July 2018 and obviated all of these costs.  I see no reason why the applicant has to bear the burden of these costs.

75.  I, therefore, order that the Board, as 2^nd respondent of these proceedings, shall pay the costs of the applicant incurred in relation to the following matters as from 20 July 2018:-

(a)  Joint medical examination and joint expert medical report dated 23 November 2018;

(b)  Supplemental expert medical report dated 10 January 2019;

(c)  Mediation and negotiations for settlement;

(d)  Surveillance; and

(e)  Costs of negotiation in February 2019 culminating in the ultimate settlement offer by the Board of $300,000 (on top of the advance payment and inclusive of interest) purported made under s.28 of the Employees Compensation Assistance Ordinance, Cap 365, ("ECAO").

76.  I also order that these costs be taxed on the District Court Scale on a party to party basis, if not agreed.  Furthermore, as the applicant can only have one set of costs, I order that these items of costs be omitted from the taxation of the 1^st respondent’s costs, since the 1^st respondent was not responsible for all of the actions for which these items of costs were incurred.

77.  As to the costs of this Application for costs to be paid by the Board for the items of costs set out in paragraph 75 above, the Application having granted, I think costs should follow the event.  But since I have not heard from the Parties to this Application on costs, I would make an order of costs nisi for this Application to be paid by the Board to the applicant with Certificate for Counsel, to be taxed, if not agreed, on the District Court Scale on a party to party basis.  Within 14 days hereof, the Board may submit written arguments as to why such an order should not stand, and if there be such submissions, the applicant shall have 7 days thereafter to respond in writing and the Board another 7 days thereafter for a reply to be made in writing.  If no written submissions are received within 14 days hereof, this order nisi shall become absolute.

78.  The Parties should submit an agreed draft order within the next 14 days for the Court’s approval.  If there is no agreement, then each party shall submit their own version.

E.      NOTE OF THANKS TO COUNSEL

79.  Last but not least, I would like to thank Counsel from both sides for their assistance.  This has not been an easy application, covering new ground in an EC case.  I congratulate Counsel on both sides for their industry and advocacy skills.