SHING HO WA, A MENTALLY INCAPACITATED PERSON BY HIS MOTHER AND NEXT FRIEND, LAM WAI FONG v. REALLY SUPER LTD (formerly known as BRUCE LAW STUNTS LTD AND ANOTHER

DCEC 2437/2015

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

EMPLOYEES’ COMPENSATION CASE NO.2437 OF 2015

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DECISION

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1.  This is a summons filed 28 Jun 2016 (“the summons”) by the intended intervener (“the intervener”) to be joined to captioned proceedings (“the application”) to have the same right to defend the same as if it were employer.

2.  The summons was said by Mr Ismail appearing for the intervener to be brought under i) s.43(3) of Employees’ Compensation Ordinance, Cap.282 (“ECO”); ii) r.24(1) of Employees’ Compensation (Rules of Court) Rules, Cap.282B (“ECR”); and iii) O.15 r.6 of the Rules of the District Court, Cap.336H (“RDC”).

Background

3.  The application was filed on behalf of the applicant (“A”) by his next friend on 19 Nov 2015 against the two respondents (“R1 & R2”) for compensation under s.7, 8, 10, 10A and 36 of ECO.

4.  A claims that he suffered personal injury by accident arising out of and in the course of his employment with R1 and/or R2 on 2 Dec 2013 at Wuxi, Shanghai, PRC. Further or alternatively, A was said to be an employee of R1, a subcontractor to R2, the principal contractor within the meaning of ECO.

5.  A was said to be employed as a stuntman/stunt driver. He was said to have fallen from an all terrain vehicle while he was instructed to work on board the vehicle at a movie scene. He suffered from acute head injury leading to serious brain injury.

6.  R1 by its answer filed 13 Jun 2016 did not admit, inter alia, that A was its employee at any time or that it was a sub-contractor of R2.

7.  R2 by its answer filed 5 Aug 2016 denied that A was its employee. A was said to be employed by R1 instead. R2 further denied that R1 was its sub-contractor or that it was a principal contractor within the meaning of ECO.

8.  R2 further denied that the alleged accident arose out of and in the course of A’s employment.A was said not to be working at a movie scene at the time of the alleged accident. He was rather a passenger in a vehicle driven not for any film-related task. While it was driven along a bridge, A’s cap was blown off his head. He stood up to try to retrieve his cap, lost his balance and fell back sustaining injuries.

9.  The intervener had issued an employees’ compensation insurance policy (“the EC policy”) [1]covering the date of the alleged accident. It named R2 as one of the two insureds[2]. It specified the risk by way of a schedule setting out 40 employees in a table but A was not listed in the table. It sought to indemnify the insured against legal liability in respect of bodily injury under ECO and independently of it if any employee in insured’s “immediate employ” shall sustain personal injury by accident “within the geographical area” specified[3] arising out of and in the course of his employment by the insured. By way of exception, the intervener shall not be liable in respect of the insured’s liability to “employees of contractors to the insured”[4].

10.  A’s solicitors had served on the intervener notice to insurer. Solicitors for the intervener had written to A’s solicitors saying that the EC Policy did not indemnify R2’s liability in respect of the alleged accident suffered by A.

11.  The intervener opined that the EC policy did not cover R2’s legal liability for injuries sustained byA in the alleged accident, whether A was employed by R1 or by R2[5]. It had written to R2’s solicitors disclaiming liability but R2 disagreed[6].And itelected not to exercise its subrogation rightto take over R2’s defence of the application[7].

Intervener’s submissions

12.  Mr Ismail made clear that the intervener did not seek joinder to litigate its contractual dispute with R2 under the EC Policy. The intervener, he submitted, is under a potential liability to A by reason of s.43(1) & 44(1) of ECO and that it has an interest in the outcome of the application.

13.  In view of the aforesaid, the court would, he submitted, generally exercise its discretion to allow an insurer like the intervener to be joined to enable it to protect its interest. Such general practice is well supported by authority and the court will allow an insurer to be added alongside the insured where their interests are different, as when the insurer disclaims liability under the policy. No double legal representation for the same interest is involved in such case.

14.  The intervener, he added, cannot take over R2’s defence as it may prejudice its disclaimer. And natural justice demands that the intervener have the right to be heard.

15.  It was stressed that R2 may in future disappear, run out of funds, elect no longer to be represented or to defend A’s claim, in which case default judgment may be entered against R2 and prejudice the intervener as it could not re-open liability issues in the application. The progress of the application, it was said, should not be dependent on what R2 elects to do or not to do.

16.  The proposed joinder, it is submitted, ensures that there be an effective adjudication of all disputed issues and that all relevant parties are before the court. Any increased costs so arising, Mr Ismail submitted, could bedealt with by the trial judge exercising his/her discretion at the conclusion of the application.

Applicant’s submissions

17.  Mr Lim appearing for A submitted that there is no general practice or rule to allow an insurer to be joined. The court has its discretion to grant or refuse joinder.

18.  The proposed joinder involves, Mr Lim stressed, the intervener defending alongside R2 in the application anddouble legal representation for the same interest.

19.  In the absence of anything suggesting that R2 had failed, or is failing, to defend its, and thereby the intervener’s, interests, the court should, he submitted, exercise its discretion to decline joinder in the circumstances of this case.

20.  It is emphasized that R2 is legally represented and that R2 has raised every line of defence in the application. The potential liability of the intervener under ECO isfully and properly protected; the addition of a party thereto would only add to the length and costs of the proceedings.

21.  Should R2 elect not to defend in future, Mr Lim added, the intervener can apply toset aside any default judgment that A may enter against R2. And A’s solicitors are prepared to offer an undertaking to notify the intervener in advance should such or similar situation arises in future (“the undertaking”).

2^nd respondent’s submissions

22.  Mr Levy appearing for R2 repeated his client’s instructions of defending the application against A. As for joinder of the intervener, R2 adopted a neutral stance.

Analysis

Intervener’s potential direct liability

23.  By the combined effect of s.43(1) and s.44(1) of ECO, where “in relation to” any employee there is in force a policy of insurance issued for Part IV and the employer becomes liable to pay any sum under ECO or independently of it in respect of an injury to employee arising out of and in the course of his employment, such sum shall forthwith become due and payable from the insurer[8], notwithstanding anything to the contrary in the policy, and the employee shall be entitled to recover in his own name the said sum, as though he were a party to the policy, directly from the insurer.

24.  These sections above confer on an employee an absolute right to recover directly from his employer’s insurer any amount which the employee would have been entitled to recover from the insured employer. Such right is separate and distinct from, and is not defeasible on the same grounds as in the case of insured employer’s right of indemnity under the policy: King Tak-on v Lau Chun-yip & Others [1987] HKLR 126, 131H-I, 134E-F.

25.  As such, if A is right that the EC policy was a policy in force “in relation to” A for Part IV of ECO, I agree with Mr Ismail (and Mr Lim does not contend otherwise) that the intervener is potentially under a direct liability towards A.

Accrual only after quantification

26.  But the employee’s direct cause of action against Part IV insurer does not accrue until after quantification of compensation: Pang Wai Chung v Tai Ping Insurance Co Ltd [1999] 2 HKLRD 354, 361F-G, 362E, 366C-F, 369C, 373I-375A.

27.  Hence, the intervener’s potential liability towards A is contingent upon A’s “successful” prosecution of the application and consequential quantification of such compensation payable to A under ECO. One option, one thinks, therefore now open to the intervener is that it may wait to see if such scenario arises or not in future and takes no action for the time being.

“Right” to be heard in recovery action

28.  Were A successful in the application (and compensation quantified) and to bring a recovery action against the intervener, it is beyond doubt that the intervener must have its right to be heard in such recovery action as demanded by natural justice.

29.  In such recovery action, the intervener may, I think, oppose A’s claim on the ground that the EC policy does not cover A orthat it was not a policy in force under Part IV “in relation to” A, due to itsterms in paragraph 9 above: Law Lai Ha v Zurich Insurance Co [2011] 2 HKLRD 450, 460-461, and Lo Siu Wa v ECA Fund Board & Another, unreported, HCA 393/2014, 26 Jan 2016, para.9, 10, 16, 30 & 31, both applying Leung Chack v Asia Insurance [1991] 2 HKLR 496.

Joinder discretionary & not as of right

30.  Considering the 3 procedural bases for the summons, the intervener, I am afraid, has no right to be joined to the application to defend as if it were employer.

31.  Despite the use of the word “shall” in s.43(3) of ECO, the Court of Appeal made it clear that joinder of insurer under that section is no more than directory and permissive. The court must be assumed to have been given the same discretion to grant or refuse leave to an insurer to defend the action either alone or jointly with any defendant as it has in relation to a third party under RSC O.16 r.4(4):  Tugu Insurance Co Ltd v Woo Kin-wah & Others [1993] 1 HKLR 300, 305, 307.

32.  Equally, r.24(1) of ECR gives the court a wide discretion to join at any stage any person appearing to be interested: Ernest Eduard Sprecher v Zingrich Cabletrans GMBH & Another, unreported, DCEC 1498/2006, 28 Nov 2007, para 59 & 60.

33.  As for O.15 r.6 of RDC, notwithstanding having legitimate legal or financial interest in the outcome of the issues in dispute, this being a merely basic threshold to be satisfied, a court retains it residual discretion to decide whether to join such a relevant party or not: Ernest Eduard Sprecher, supra, para 52 & 53.

34.  Accordingly, while the intervener has, I agree, an interest in the outcome of the application, that by itself does not decide the summons. As both Mr Ismail and Mr Lim acknowledged, it remains for this court to exercise my discretion having regard to all the circumstances of the case before me.

Unfettered discretion on facts of each case

35.  Subject to pre-conditions, if any, for any ofthe 3 procedural basesfor the summons, I take it I have an unfettered discretion in all three: Ernest Eduard Sprecher, supra, para 65. Of course, I must exercise my discretion judicially, and I must make decision having regard to all relevant matters and disregard irrelevant matters.

36.  I do not think there is any general rule or practice of generally allowing an insurer on its application to be joined alongside a respondent in the event of disclaimer as suggested by Mr Ismail. In any event, I do not think my discretion in this case can be fettered by such alleged general rule or practice.

37.  Such incidents of insurer joinder on its application, if any, on the authoritiesrelied upon by Mr Ismail are, I think, no more than exercise of the court’s unfettered discretion in the individual circumstances of each case.

38.  Sami’an Sutinah v Leung Wai Kuen Katrina [2002] 2 HKC 706 is the first in time[9]. The insurer had purported to “repudiate”, not disclaim, its liability under the policy terms[10]. But the distinguishing features of this case are that i) joinder had already given in related ECO proceedings by consent[11]; ii) no submission against joinder (save undertaking required[12]) was recited in the judgment; iii) the insured employer was absent in the hearing[13]; and iv) the insured employer was then serving a sentence of imprisonment[14]. The last 2 matters certainly gave rise to concern if the insurer’s interest would be properly defended by the then absent defendant serving jail.

39.  Another one relied upon[15] is Shahid v Fame Rich Co Ltd [2009] 1 HKLRD 302. The insurer denied liability by relying on a non-contribution clause in the policy[16]. The distinguishing features are that the insurer sought agreement from the insured to take over the defence on a non-waiver basis but was met with uncooperative response from the insured’s solicitors[17]. These matters again, I think, gave rise to concern if the insurer’s interest would be properly protected by the insured. At the end, his lordship applied Sami’an Sutinah, supra, and “wrongly” treated s.43(3) of ECO as affording the insurer a right[18] to be heard in the personal injuries proceedings before the court when Tugu Insurance Co Ltd, supra, had earlier ruled otherwise but it was not cited.

40.  Next comes Farman Khan v Shum Sum Engineering Co [2009] 1 HKLRD 534[19]. It was an application bytheinjured manual worker to join the insurer which denied liability on the ground the policy covering only 2 site supervisors doing non-manual work[20]. As such, any suggestion in the judgment that the court would “generally” approve joinder application by insurerwhere it disputes liability under the policy[21] is, I think, obiter. And the only authority cited for such obiter is Sami’an Sutinah, supra, which, as I have pointed out in paragraph 38 above, had its distinguishing features.

41.  The last case is Ernest Eduard Sprecher, supra[22], a ruling on costs where the court found it reasonable for the insurer to take out and maintain its joinder application for some time. At paragraph 64 of the ruling, her honour said:

I agree that normally where the insurer and the insured have the same interest it is unusual for the court to invoke section 43(3) of the Ordinance, Order 15 rule 6 of RDC and/or rule 24(1) of ECR to allow double legal representation in the same interest. This is because the insurer can exercise its subrogation right or, failing the exercise of such right, the insured can properly defend its (and thereby the insurer’s) interest. The situation will be different if the interests of the insured and insurer are different, for example, where the insurer attempts to avoid the insurance policy ab initio, say, on grounds of misrepresentation and non-disclosure (see Chu Yuen-wah) or where the insurer disclaims liability under the policy”,

whose last sentence was relied upon by Mr Ismail for his legal proposition before me.

42.  Nonetheless, this is not a case where the insurer disclaimed liability for dispute about coverage (though it refused to take over the conduct of defence[23]) such that the aforesaid sentence relied upon is obiter as well. And no authority was put forward as the basis for this very last sentence, though her honour referred to Sami’an Sutinah, supra, in earlier parts[24] of her ruling.

43.  Ultimately, her honour found the insurer acting reasonably in applying joinder at an early stage on the peculiar facts, inter alia, that the 1^st respondent, located in Switzerland, did not enter an appearance and dealt in German language, the 2^nd respondent was not legally represented, there existed possible conflict of interest between the 2 respondents over legality of subject employment contract and insurer’s difficulty of exercising subrogation rights in such circumstances. Again, these are valid matters for insurer to be concerned about.

44.  For completeness, the case of Chu Yuen Wah v Lee Kwok Kee [1995] 2 HKLR 280 were quoted and/or applied in Sami’an Sutinah, supra, Shahid, supra, and Ernest Eduard Sprecher, supra, to support joinder by the insurer. Again, the peculiar factsfor concern are that, if the insurer is not joined, the husband defendant driver would have colluded with the plaintiff wife in allowing default judgment to be entered prior to the insurer obtaining against the husband a declaration of policy avoided ab initio for non-disclosure[25].

45.  As said, it remains therefore for me to consider all relevant circumstances of this case to consider if the intervener should be joined to the application, when A has yet to prove its entitlement to compensation and their quantification before his direct statutory cause of action against the intervener under Part IV accrues.

Exercise of discretion in this case

46.  First of all, I of course bear in mind the background above and other matters I discussed in paragraphs 25, 27-29 above.

47.  No delay is involved in taking out the summons. The application is still at its early stage.

48.  Both R1 and R2 are local companies. They are both legally represented.

49.  By its Answer, R2 had, I agree with Mr Lim, raised every possible line of defence to the application. And R2 had put forwarda cut-throat defence with R1 in so far the crucial issue for whom A has worked is concerned.

50.  R2 was and is, I am satisfied and my viewwas reinforced by Mr Levy’s further attendance before me, serious about its declared stance of defending the application against A.

51.  There is no material before me (and it would, I think, be speculative) to suggest R2 will disappear or will not properly defend the application in future. Given that there is no such risk before me, “preventive” measure by way of the proposed joinder as suggested by Mr Ismail is, I think, uncalled for. I fully agree with Mr Lim that R2 is now fully and properly protecting the intervener’s interest in the application (if R1 is not doing a similar job). These matters plainly distinguish this case from many of the cases Mr Ismail cited and I discussed above.

52.  Should default judgment be really entered against R2 in future for any reasons (and I think the undertaking offered by A, if suitably worded, could greatly avoid such or similar situation arising in future), the intervener is not left without remedy. It can, I think, apply as a third party to set aside such default judgment and, afterwards, reopen allliability issues, including the employment issue, if required: Wong Kam-fai v Yu Sai-wan & Others [1993] HKDCLR 67, 73-75[26]; Chan Ka Ki v Lau Sin Ting [2013] 1 HKLRD 671.

53.  If added to the application, as Mr Ismail made clear about the extent of the intervener’s participation, there is, I note, certainly no problem of the contractual dispute of the EC policy being resolved in the application (unlike Wong Shu-kuen v Bachy Soletanche Group Ltd, unreported, DCEC 545 & 546/2000, 14 Mar 2001) or the intervener seeking any repayment from R2 under s.43(4) of ECO (unlike Tugu Insurance Co Ltd, supra[27]).

54.  But as Mr Ismail conceded, it is unlikely that the intervener has any positive case to advance on liability and quantum issues in the applicationbut it will put A to strict proof of his case.As such, on the materials before me, I think all liability and quantum issues could in any eventhave been effectively adjudicated upon without theparticipation of the intervener.

55.  If the intervener is joined to the application, not in the shoes of R2, but alongside with R2, I agree with Mr Limthat it will in effect be doublelegal representation for the same interest (if R1’s defence is not considered).

56.  While R2 and the intervener took different stance about the cover of the EC policy and the disclaimer, they obviously, I think,share the same interest in defending,and in the hope of defeating, A’s claim for compensation in the application.

57.  While s.24 of ECO does not make principal contractor[28] liable for common law damages such that its insurer[29] had no potential liability under Part IV (which it disclaimed) to protect by joinder, Kempster JA in Tugu Insurance Co Ltd, supra, said he would also exercise his discretion to refuse joinder had such insurer demonstrated it had such potential liability by issuing a Part IV policy covering the employer[30]. His lordship said at 305:

“Excellence[31], by itself or its own insurers, is already defending the proceedings and … I cannot accept that the legislature is deemed to require the action to proceed with double legal representation in the same interest”.

“In the absence of any suggestion that Excellence were failing properly to defend their, and thereby, their insurers’, interests … the judge could not have been faulted for declining to accede to the application even if otherwise well founded”.[32]

58.  As I quoted in paragraph 41 above, her honour in Ernest Eduard Sprecher, supra, also opined against joinder of insurer for double representation for the same interest.

59.  In the long run, such addition of the intervener, I agree with Mr Lim, will likely end up having increased length of time and increased costs for the application to be resolved.

60.  There can be no doubt that the costs of one additional legal teamare to be paid out somewhere (no matter how the discretion of the trial judge is to be exercised or if the parties come to any agreement) when otherwise it is, I think, wholly unnecessary.

61.  While R1 was excused before me and R2 took a neutral stance, A objected to the summons.Were such additional legal costs to be paid out by legally-aided A at the end of the day, A and/or the public stand to be prejudiced due to the proposed joinder.And were the application to take longer time to complete, it would not only be at the expense of the parties, but also at the expense of other court users.

62.  All relevant circumstances considered and balanced against one another, I do not find the proposed joinder in line with the following underlying objectives in O.1A r.1 of RDC, namely, cost-effectiveness of proceedings, reasonable expedition, procedural economy and fair distribution of court resources. The intervener is not, I think, a necessary party to the application and it is not convenient for it to be joined as a party alongside R2 at this stage.

Disposition

63.  I therefore decline to exercise my discretion in favour of the intervener and I dismiss the summons.

Costs

64.  I agree with Mr Ismail that there are other means available than attendance before me for Mr Levy to protect R2’s interest and/or to make clear its declared stance, when R2’s attendance before me had already been excused by court on the last hearing.

65.  Accordingly, I make the followingcost order nisi: - (1) there be no order of costs as to R2’s costs of hearing before me; (2)subject to para (1), the intervener do pay A, R1 and R2 all costs of and occasioned by the summons, includingreserved costs of last hearing, to be taxed if not agreed, with certificate for counsel; and(3) A’s own costs to be taxed in accordance with Legal Aid Regulations.If none applies within 14 days hereof to vary the above cost order, it will become absolute.

66.  Finally, it remains for me to thank Mr Ismail and Mr Limfor their helpful submissions.