WAH KWONG CONSTRUCTION MATERIAL v. WONG MAN YIP

THE JUDGE HAS AUTHORISED PUBLICATION OF THIS JUDGMENT

1993 No. MP 3417

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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HEADNOTE

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Employees Compensation Ordinance - whether under S.25 employer can recover employee's and own costs of District Court proceedings against third party.

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J U D G M E N T

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1. Mr. Luk was employed by the Plaintiff (employer). On the 2nd October 1990, he was injured by a vehicle owned by the Defendant (the tortfeasor). Mr. Luk applied for employees' compensation in the District Court. By consent, it was agreed that he should receive a sum of $43,898.45. His employers (Plaintiff) paid him that sum.

2. The employer now wishes to claim back from the tortfeasor (Defendant) various sums that it paid to the employer. The sums are :-

(1) Employees' compensation - $43,898.45

(2) Interest - $2,133.54

(3) The employee's costs in the District Court - $14,095.00

(4) The employer's costs in the District Court - $10,197.00

3. The tortfeasor has paid the employer $37,000.00 which the employer had accepted in full and final settlement of items (1) and (2) above. However, the tortfeasor disputes that it is liable to reimburse the employer for items (3) and (4). This issue raises a short point of construction of section 25 of the Employees' Compensation Ordinance, Cap. 282. The employer has commenced these proceedings in the High Court, seeking a declaration to the effect that the tortfeasor is liable and both parties have agreed that it would be convenient for the High Court to decide this matter, notwithstanding the amount of money involved. Clearly, this is a point of some importance.

4. When I first read the papers, I was concerned as to whether the High Court had jurisdiction to hear and determine this matter as I was under the impression that all matters relating to the Employees' Compensation Ordinance had been assigned to the exclusive jurisdiction of the District Court. I raised my doubt with Counsel, both of whom were satisfied that I did have jurisdiction to entertain this application.

5. Having considered the terms of section 3, 18A, 21 and 25 of the Ordinance, I am quite satisfied that the employer's claim for an indemnity against the tortfeasor can be brought in the High Court and that the District Court does not have exclusive jurisdiction to hear and determine this matter.

6. I now turn to consider whether the employer can recover against the tortfeasor, the amount of its own and the employee's costs in the District Court which together total $24,292.00.

7. The relevant parts of section 25(1)(b) of the Ordinance are as follows :-

"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 ..." [emphasis added]

8. Miss Mok who appeared for the employer submitted that the words "any sum which he is obliged to pay as a result of the accident whether by way of compensation ..." are wide enough to cover the costs involved in the proceedings in which compensation was ordered. She points out that the wording is wider than in the English equivalent section, upon which it was clearly based, and she has referred me to three English statutes.

9. Section 6 of the Workmen's Compensation Act 1897 refers to the employer being "entitled to be indemnified by the said other person".

10. Section 6 of the Workmen's Compensation Act 1906 also refers to an indemnity.

11. Section 30 of the Workmen's Compensation Act 1925, likewise refers to the employer being indemnified by the said party.

12. The notes to section 30 in Halsbury's Statutes states that :-

"The indemnity includes the costs of the compensation proceedings as well as the amount of the compensation awarded."

13. The note cites a decision of Darling J. in Great Northern Railway v. Whitehead [1902] 18 T.L.R. 816. In that case, the judge found that having regard to the words of the section, the costs were recoverable because it could not be said that the employer was indemnified unless he recovered the compensation he had to pay and the costs he had been put to.

14. Also cited is Daily News Ltd. v. McNamara Ltd. [1913] 7 B.W.C. 11. In that case the Plaintiff's employee was killed while driving their vehicle. They paid the widow full compensation under the Act and they brought an action for indemnity against the Defendant whose negligence they considered had caused the death. The jury found that the accident was caused solely by the Defendant's servants and Lord Coleridge J. entered judgment for the Plaintiffs for the full amount claimed and costs. It is clear from the report that the full amount claimed included, not only the compensation, but also the costs of the proceedings under the Act.

15. A similar situation occurred in Nettleingham v. Powell [1913] 1 KB 113 where it is clear from the report that the indemnity included the costs of the proceedings under the Act as well as the compensation itself.

16. It is perfectly true to say that in none of these authorities is there any real discussion about the construction of the relevant section in relation to costs. However, Darling J., Lord Coleridge J. and Phillimore J., all assumed that they had power to make the order and no point appeared to have been taken to the contrary. These authorities appear in the note to Halsbury's Statutes and there is no later case expressing any doubt about them.

17. All these cases are based upon a section where reference is only made to an indemnity. However, in the present case, we are dealing with wording which, in my judgment, is wider because of the reference to "any sum which he is obliged to pay as a result of the accident whether by way of compensation ...". I find it difficult to construe those words as being of any less wide application than the words used in the English sections as construed in three previous cases. The employee took the employer to court to recover his statutory claim for compensation. The employer agreed to pay a certain sum and had to pay the employee's costs of the proceedings. I find no difficulty in construing those costs as having been paid by the employer to the employee, as a result of the accident. Having given this matter very careful consideration, I cannot construe these wide words as being any way cut down by the sentence "whether by way of compensation or indemnity ..."

Mr. Bharwaney's point is that there is only reference to the word "compensation" and compensation is all that can be recovered against the tortfeasor. However, to come to that construction, one has to ignore any other sums which the employer was obliged to pay as a result of the accident. One must construe these words in the context of the whole Ordinance, and the whole Ordinance envisages applications to the Court for the determination of liability or quantum. Mr. Bharwaney's point is that the word "indemnity" which one can find in the English statute and is referred to in the cases I have cited, is not applicable here because that relates back to claims under section 24 to which I will have to make reference in a moment. I do not accept this submission for the reasons I have just given.

18. Mr. Bharwaney goes further and says that I cannot come to this construction because of a binding or persuasive decision of the Court of Appeal to the contrary in Wong Leung Tak v. Hip Hing Construction Limited [1991] 2 HKLR 345, where the principal judgment was given by Clough J.A.

19. Clough J.A.'s judgment is long and elaborate but in relation to the point at issue, he deals with the matter somewhat scantily and, in my judgment, enigmatically. However, it is to be noted that this is a judgment based on the construction of section 24 of the Employees' Compensation Ordinance and not section 25. Section 24 is a section which deals with cases where employees are employed by sub-contractors. The relevant sub-section is (2) which reads as follows :-

"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."

20. Clough J.A. has construed section 24(2) as not being wide enough to cover the costs in the employees' compensation proceedings. He came to that view in the light of the word "indemnified". In that case, Mr. Peter Graham, Counsel for the principal contractor, did not seek to argue that the claim for indemnity under section 24(2) should include the costs incurred by the principal contractor in the employee's compensation proceedings. Clough J.A. obviously invited him to do so and referred him to a comment in the 9th Edition of Elliott on Workmen's Compensation which indicated in the notes to section 6 of the 1925 Act that the principal contractor is entitled to include, in his claim for indemnity from his sub-contractor, the costs he has reasonably incurred in the proceedings brought against him. Clough J.A. proceeded then to dismiss the point which he had raised, thus indicating Mr. Graham's initial reluctance was well justified. What Clough J.A. said was this :-

"The decision of Darling J. in Great Northern Railway Co. v. Whitehead (1902) 18 TLR 816 is cited for this proposition. However, that was a decision in relation to a claim by an employer for indemnity against a negligent third party under section 6 of the 1897 Act (corresponding broadly to section 30 of the 1925 Act and section 25 of the Ordinance).

The last edition of Willis does not cite the authority as applicable to section 6 of the 1925 Act, but only cites it in the notes to section 30 of that Act.

In the absence of any express provision in section 24 or of any English authority indicating that the principal contractor could claim costs incurred in the compensation proceedings as part of his indemnity under section 6 of the 1925 Act and its predecessors under the 1897 and 1906 Acts, I would not be prepared to construe section 24(2) of the Ordinance as extending the relevant indemnity to the costs incurred by the principal contractor in the employee's compensation proceedings."

21. Although I have some reservations about the correctness of the above conclusion, I, of course, am bound by it. However, it is a decision limited to section 24(2) of this Ordinance, and not section 25 which I must construe, and the wording of the two sections is different enough for it to be possible, to reach a different interpretation on the two sections. It is also worth noting that the other two decisions I have cited above were not referred to by Clough J.A.

22. Mr. Bharwaney relied heavily upon the definition of compensation in section 3 of the Ordinance which does not include within its ambit any item for costs. I accept that is so but nevertheless, I believe it is wrong to focus solely on the word "compensation" and not to give any meaning to the other phrase beginning with the words "of any sum".

23. I therefore conclude under section 25(1)(b), the employer is entitled to recover from the tortfeasor, the employee's costs of the compensation proceedings. The next question I have to decide is whether I should come to the same conclusion in relation to the employer's costs of the compensation proceedings. I have more difficulty in relation to this matter. Having looked at the English cases, it seems to me that certainly in the Daily News case, the amount of costs which were recoverable were the costs of the arbitration proceedings paid by the employer under the Act. It does not seem that in addition, the tortfeasor was ordered to pay the employers costs of the arbitration proceedings. These were clearly costs which were not payable by them under the Act. Having given this matter long and careful consideration, I am not satisfied that the employer's own cost of the proceedings fall within the words used in section 25(1)(b) and thus I conclude that the only sum which the employer, the Plaintiff in these proceedings, can recover against the Defendant is the costs they paid to the employee namely, $14,095.00 and not their own costs of the proceedings in the sum of $10,197.00.

24. I should add that Mr. Bharwaney submitted that there were good policy reasons why the costs of the employee's compensation proceedings should not be awarded in the proceedings against the tortfeasor. He pointed out that the tortfeasor was not a party to those proceedings and had no control over them. It is possible to imagine cases where either the employee or the employer was unreasonable in their stance and increased the costs. He put these forward as reasons why the legislature had not included costs in the section. Whether he be right or wrong, I do not think I am helped by this argument on reflection because I have to construe the words used and that is what I have done. I do not know why the word "costs" was not put into the Ordinance in this part of the section but it is clear from the English sections, going back a number of years, that costs were never referred to yet there are at least 3 decisions where costs were allowed.

25. Finally, I should deal with Miss Mok's alternative argument which I have no difficulty in rejecting. She submitted that she could recover the costs because the tortfeasor owed a duty of care to the employer, not to act in such a way, as would make them liable to pay their employee compensation under the Ordinance. With respect to Miss Mok, this is an impossible argument to maintain. If there was a claim in tort by the employer against the tortfeasor in circumstances such as this, then section 25 would not have been needed. Section 25 is a statutory claim which gives a right of indemnity to the employer in circumstances where none existed at common law.

26. I therefore propose to make a declaration that the Plaintiff in these proceedings is entitled to recover from the Defendant in these proceedings, the sum of $14,095.00 but not the other sum claimed $10,197.00. I propose to make a costs order nisi in favour of the Plaintiff.

27. I am indebted to Counsel for their very interesting and helpful submissions in what turn out to be a more difficult point than at first sight.