HONG CHUN TAK v. YIP KAN KEE CONTRACTING CO LTD AND ANOTHER

CACV 123 /2020

[2020] HKCA 416

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 123 OF 2020

(ON APPEAL FROM DCEC NO 849 OF 2017)

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REASONS FOR JUDGMENT

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Hon Kwan VP (giving the Reasons for Judgment of the Court):

1.  On 15 May 2020, His Honour Judge K C Chan made an order in employees’ compensation proceedings that the Employees Compensation Assistance Fund Board (“the Board”) be joined as the 3^rd respondent in these proceedings pursuant to section 25A(a) of the Employees Compensation Assistance Ordinance, Cap 365 (“ECAO”) and Order 15 rule 6 of the Rules of the District Court, but its participation be limited to appearing at the trial in respect of the issue whether the 2^nd respondent, 趙裕興 trading as 趙興記工程公司 (“R2”), is a principal contractor within the meaning of section 24(1) of the Employee’s Compensation Ordinance, Cap 282 (“ECO”). The judge also gave leave to the Board to file and serve the witness statement of Yip Chu Kan (“Yip”), who is the sole director of Yip Kan Kee Contracting Company Limited, the 1^st respondent herein (“R1”).

2.  R2 lodged an appeal to the Court of Appeal to set aside the above orders.  We decided to hear the appeal on an urgent basis as the trial of the proceedings will take place in the District Court on 2 and 3 June 2020.

3.  By virtue of section 23(1) of ECO, no leave to appeal is required for this appeal^[1]. HH Judge Levy in Tsang Chi Chung v Yu Kin San [2016] 4 HKC 573 at §§19 to 26 made a comprehensive survey of the Court of Appeal decisions on whether leave is required and stated the law correctly in §27:

“(1) There is a general right of appeal to the Court of Appeal on both fact and law;

(2) Under s 23, there is (subject to the statutory restrictions set out in s 23) an unqualified right of appeal without the requirement of leave;

(3) The unqualified right of appeal does not apply to an order that is not ‘any order of the Court’ (as defined in the ECO).  A costs order in a summons of an employee’s compensation claim is not ‘any order of the Court’ and leave to appeal is required.”  

4.  At the conclusion of the hearing, we dismissed R2’s appeal and ordered him to pay the Board the costs of the appeal. These are the reasons for our judgment.

Background

5.  The relevant background matters are taken largely from the decision of the judge (“the Decision”) and may be stated as follows.

6.  The applicant in the proceedings, Hong Chun Tak, suffered an injury at work on 23 September 2015 while he was engaged in renovating a village house in Fanling belonging to Wat Yee Wai (“Ms Wat”).  He was employed by R1.

7.  R1 submitted a Form 2 to the Labour Department dated 18 November 2015, stating that R2 was the principal contractor.

8.  On 19 April 2017, the applicant commenced these proceedings for employees’ compensation against R1 only and gave notice of his claim to the Board on 20 April 2017 pursuant to section 25B(1)(a) of ECAO.

9.  In November 2017, he applied for leave to join R2 as a respondent, about 1½ months outside the 24-month period stipulated in section 14(1) of ECO.  R2’s opposition to joinder was unsuccessful.  On 28 March 2018, HH Judge Levy granted the application and ordered R2 to be joined^[2].  Among other things, it was held that the applicant’s proposed claim against R2 as the principal contractor was not bound to fail and there was sufficient evidence that he might be liable to the applicant as such.  The application was amended accordingly on 10 April 2018 to add R2 as a respondent.

10.  On 28 May 2018, R2 filed an answer to the amended application (along the lines of his affirmation made in December 2017 to oppose his joinder) denying that he was the principal contractor at all material times and made detailed averments to the effect that he is engaged in the business of installation and repair of water pipes and drainage; that he was engaged by Ms Wat in September 2015 to carry out water pipes and drainage installation works at her village house; that he was asked by Ms Wat to assist with other renovation works but as such works were outside his expertise he recommended Yip to her; that all discussions and dealings for general renovation works of the house were conducted between Ms Wat and Yip directly without his knowledge or involvement; that he had no knowledge or control over the performance of the work done by R1, the payment of remuneration to R1, the selection of employees by R1 to perform the work and their terms of employment; that Ms Wat had remunerated R1 and R2 separately and directly and there were no financial dealings between R1 and R2.

11.  The Board’s solicitors sent letters to Ms Wat and R1 in September and November 2018 requesting for information and documents in relation to the renovation work and the accident.  They were unable to reach Ms Wat.  R1 replied by letter of its solicitors in November 2018 confirming its Form 2 and provided further information to substantiate its allegation that R2 was the principal contractor.

12.  Witness statements were filed by the applicant and R2 in June and October 2019.

13.  R1 has never taken part in these proceedings.  On 18 October 2019, Judge Levy ordered interlocutory judgment on liability be entered against R1 leaving compensation to be assessed (“the Default Judgment”) and that the trial (assessment of compensation against R1 and the trial against R2) was to be held on 2 and 3 June 2020.  The judge made two unless orders against R1: unless it was to file and serve its list of documents within 28 days it shall be debarred from adducing any documentary evidence in the trial, and unless it was to file and serve its witness statement(s) as to fact within 28 days it shall be debarred from adducing any factual evidence in the trial (“the Unless Order”).

14.  In December 2019, the Board’s solicitors eventually managed to contact Ms Wat and she later provided a statement giving her version of the matter.  In January 2020, the Board contacted Yip directly and on 5 March 2020 he provided a signed proof of evidence.

15.  On 16 March 2020, the Board issued a summons for joinder pursuant to section 25A(a)(v) of ECAO and leave to file Yip’s witness statement, a copy of which was later provided to R2 on 20 April 2020.  The Board has not been able to secure a signed witness statement from Ms Wat.

16.  Yip’s witness statement provided information of how R1 came to be engaged to do work in Ms Wat’s house and R1’s dealings with R2 in this respect, which are not matters within the applicant’s knowledge. His evidence is indisputably relevant to the critical issue whether R2 was the principal contractor.

17.  No policy of insurance had been taken out by R1 or R2 in relation to the accident to the applicant.

18.  The Board does not wish to disturb the Default Judgment against R1 and only seeks to intervene to present properly the case on liability against R2, including proffering the evidence of Yip.  It has potential liability to pay compensation to the applicant as in all likelihood R1 would not be able to pay and it is concerned that if the applicant fails to establish liability against R2, it would be left paying the compensation which should and could have been paid by R2.

19.  The judge dealt with the application on paper.  The applicant did not oppose the summons and R1 did not respond to it.  The only opposition came from R2, who made detailed submissions by Mr Alex Fan.  The judge rejected all the grounds of opposition and made the orders that are the subject of this appeal.

This appeal

20.  Three broad grounds of appeal are advanced; they follow largely the grounds of opposition raised before the judge.

21.  First, the joinder of the Board should be refused and leave should not be given to adduce Yip’s evidence as this is outside the statutory scope for its intervention provided in section 25A(a) of ECAO.

22.  Second, the orders were wrongly made as they seek to bypass and circumvent the Default Judgment and Unless Order against R1.

23.  Third, the judge wrongly exercised his discretion in making the orders.

Ground 1: if the Board was going beyond the scope for intervention under section 25A(a) of ECAO

24.  This is the main ground of opposition. Mr Fan’s arguments are along these lines.

25.  The Board made the application for joinder under section 25A(a)(v), which provides that it may apply to be joined as a party to the proceedings “where no policy of insurance is known to be in force at the time of the accident to which the proceedings relate, … to take over the defence as if it were the employer in the proceedings if – … (v) at any time when the employer fails to attend the hearing, leaving the claim uncontested”.  Mr Fan submitted that the key words are “to take over the defence as if it were the employer”.  There are constraints on what the Board can do in “[taking] over the defence as if it were the employer”.  By the plain meaning of these words, the Board is only permitted to defend the applicant’s claim against the employer.  In the present situation, the Board does not dispute the liability of R1 to the applicant or the quantum of compensation.  Its purpose for joinder is solely to establish liability on the part of R2 as the principal contractor.  It is to assist the applicant to prove his case against R2.  This is tantamount to advancing a counterclaim by the backdoor, which is not permissible in employees’ compensation proceedings.  Hence, the purpose of the joinder sought by the Board is outside the scope of section 25A(a).

26.  Further, R1 as the employer and R2 as the principal contractor (if proved to be so) are severally liable to pay compensation to the applicant for his injury^[3]. Section 16(3)(ii)^[4] of ECAO only requires the employee to first sue, whether successfully or unsuccessfully, the principal contractor, before the employee is entitled to apply for payment of compensation from the Fund administered by the Board.  This provision does not impose any duty on the Board to advance a positive case for the employee against the principal contractor, whose liability to the employee is independent from the employer’s liability.

27.  The judge failed to have proper regard to the scope of the Board’s power under section 25A(a) and has erred in holding that the Board can apply to be joined in the present situation “to ensure that the Fund’s resources are properly applied”^[5], “to properly ensure that the principal contractor, who properly ought to pay, pays”^[6], and wrongly equated the Board’s position with an insurer taking over the defence of the insured, who in “defending” the claim against the insured, tries to “establish the liability of a co-defendant to achieve an advantage whether in law or to help attain a better bargain or settlement”^[7].

28.  In support of his contention, Mr Fan quoted from Ribeiro PJ’s judgment in Wo Chun Wah v Employees Compensation Assistance Fund Board (2019) 22 HKCFAR 495 at §24:

“Unlike section 25 (dealing with ECO claims), section 25A(a) is not explicit about the consequences of joinder.  It does not, for instance, expressly provide for the rights and liabilities of the employer to be vested in the Board in respect of the action for damages.  Nevertheless, in authorising the Board to take over the defence “as if it were the employer”, the legislature must have envisaged the Board being able actively to test, limit or resist the employee’s claim regarding liability and/or quantum to ensure that the Fund’s resources are properly applied.”

29.  Mr Fan relied on the latter part of the quotation.  He submitted that the Board’s duty “to ensure that the Fund’s resources are properly applied” must be qualified or understood in light of the legislative intent of section 25A(a), which is “actively to test, limit or resist the employee’s claim regarding liability and/or quantum”.  In this instance, the Board is not seeking to “test, limit or resist the employee’s claim regarding liability and/or quantum”, but to assist the employee to prove his case against R2.  In so doing, the Board is not properly carrying out its filtering or monitoring functions.  It is acting outside its confined statutory role.

30.  Lastly, he submitted that the purpose of section 25A(a) is to prevent an injustice to the Board if it should be deprived of the chance to contest the employee’s claim and becomes liable to pay compensation by virtue of any judgment obtained against the employer, under the provisions of section 16 of ECAO.  Here, there is no injustice to the Board because the employer and the principal contractor are severally liable to pay compensation and the Board’s liability to the applicant will remain the same regardless of whether the Board is to intervene in the proceedings.

31.  We do not agree with Mr Fan the words “to take over the defence as if it were the employer” in section 25A(a) should be interpreted in such a literal and restrictive manner.  These words should be construed broadly and purposively, with regard to the statutory role of the Board and the purpose of the joinder procedure in ECAO.

32.  The statutory role of the Board is not restricted in the manner as contended by Mr Fan.  In participating in the proceedings, its role is as stated by Deputy High Court Judge To^[8] as approved by Ribeiro PJ in Wo Chun Wah at §45:

“In participating in the proceedings, the Board’s function is neither to contest the employee’s claim in place of the employer nor to help save public funds, but is to ensure that employees in need can obtain such damages as they are entitled to. The Board has a duty to screen out unmeritorious or inappropriate claims to ensure (inter alia) that this assistance mechanism will not be abused, its recipients will not exaggerate their claims, and public funds will not be used for improper purposes. Therefore, unless it is necessary to contest false claims or suspected fraudulent claims, the Board should not adopt an antagonistic attitude in the proceedings. It should act as a filter and adopt an impartial attitude in the proceedings so as to assist the court in coming to a correct ruling.”

33.  The purpose of the joinder procedure, as explained in the Legislative Council Brief on the Employees Compensation Assistance (Amendment) Bill 2002 (5 February 2002) at §17 in support of the amendments introducing the same, is mainly to give the Board some control regarding default judgments^[9]:

“At present, the Ordinance does not explicitly empower the Board to defend claims in legal proceedings. This places the Board in a disadvantaged position because defaulting employers are usually absent in the legal proceedings leaving the claims undefended. It is proposed that where a proceeding has been initiated to make a claim in connection with a work-related accident, the Board may apply to the Court to be joined in the proceedings as a party and defend the claims.”

34.  Thus, having the conduct of the defence in this context is not limited to testing or disputing the applicant’s claim against the employer. It covers all areas that belongs to the purview of contesting and resisting the claim made against the employer, which could take a variety of ways, depending on the particular circumstances.  This is similar (but not identical) to the situation where an insurer takes over from the insured the defence of a claim made against the insured, alluded to by Cheung CJHC (as he then was) in Tu Zhiqiang v Hap Sang Co (a firm) [2012] 1 HKLRD 1075 at §39.  So even where default judgment is entered against the employer, one way of resisting the claim is to make another party liable as the principal contractor, so that if the employer and the principal contractor are found to be severally liable, the employee may seek to recover the compensation from the principal contractor who has the resources to satisfy the award.

35.  We agree with the submission of Mr Tony Chow for the Board that in taking over the defence as if it were the employer, advancing a case which may implicate another party as also liable to pay compensation is not in conflict with the Board’s role as mentioned above, as this is to ensure that the employee can obtain the compensation he is rightly entitled to and to assist the court in coming to a correct ruling in the proper discharge of the filtering or monitoring functions of the Board.

36.  In contrast with the provisions in section 25 of ECAO, which authorise the employee to bring proceedings for employees’ compensation against the Board in certain circumstances “as if it were the employer” and provide for “the rights and liabilities of the employer in respect of the compensation the subject of the proceedings” to be “vested in and transferred to the Board” (section 25(4)), section 25A(a) is not explicit about the consequences of joinder, a point made by Ribeiro PJ in the first part of the above quotation in §24 of Wo Chun Wah.  We do not agree with Mr Fan that what was said in the latter part of the quotation should be read as constituting the entire ambit or the whole legislative intent of section 25A(a).

37.  In that section of his judgment, Ribeiro PJ was making the point that notwithstanding the absence of express provision in section 25A for the rights and liabilities of the employer to be vested in the Board where the Board is joined as a party, it is nevertheless envisaged that the Board should have power to test, limit or resist the employee’s claim.  He went through the three sets of circumstances in section 25A in which there might be joinder, and concluded that in respect of section 25A(a), the Board must be able to “test, limit or resist the employee’s claim regarding liability and/or quantum to ensure that the Fund’s resources are properly applied” and in respect of sections 25A(b) and (c) (which are even less explicit than section 25A(a) in spelling out the consequences of joinder), the Board may choose to “actively to participate in the proceedings to mount an effective defence”.

38.  Section 25A is a specific and exhaustive provision dealing with all the situations where the Board may wish to join in a set of proceedings for employees’ compensation (Tu Zhiqiang v Hap Sang Co (a firm) at §§55 and 56).  Section 25A(a) must be construed with regard to the scheme which is also made up of the other two provisions in sections 25A(b) and (c).  Mr Fan submitted that in all three situations, when the Board is joined as a party, it is only permitted to defend the applicant’s claim against the employer and is not permitted to establish that another respondent is liable as the principal contractor.  Alternatively, he submitted that the Board is not allowed to establish liability of the principal contractor in the case of section 25A(a) but may do so in sections 25A(b) and (c), where the words “to take over the defence as if it were the employer in the proceedings” do not appear.

39.  We do not think these interpretations are correct.  In all three situations, the Board joins in to contest the claim in whatever way that befits the circumstances, if, for one reason or other, neither the employer nor the insurer defends the proceedings.  To that extent, Mr Fan is correct in saying that there should be no distinction in all three instances.  The reason for the presence of those words in section 25A(a) and their absence in sections 25A(b) and (c) was as explained in Tu Zhiqiang v Hap Sang Co (a firm) at §§33, 37 to 40.  Provision is made in section 25A(a) for the Board “to take over the defence as if it were the employer in the proceedings” because this is to cater for the situation where the employer is not “present” in the proceedings in that he cannot be served with the proceedings either directly or indirectly, in order that judgment may be entered against the employer despite his absence.  There is no need for such provision in sections 25A(b) and (c) because they are not concerned with the case where the employer cannot be served with the proceedings.

40.  We do not accept Mr Fan’s contention there is no injustice to the Board because the Board’s liability to the applicant will remain the same as the employer and the principal contractor are severally liable to pay compensation. In seeking to be joined in these proceedings, the objective of the Board is to ensure that public funds will be properly applied following the determination of the liability of all parties who may be found liable to pay compensation in a properly contested hearing.

41.  For all the above reasons, this ground of appeal must be rejected. 

Ground 2: if there was bypass and circumvention of the Default Judgment and Unless Order

42.  The contention of Mr Fan is that the Board does not dispute liability or quantum on the part of R1, and neither the Board nor R1 has applied to set aside the Default Judgment or seek relief from sanction imposed by the Unless Order.  Section 25A(a) does not allow the Board to cherry-pick, having “[taken] over the defence as if it were the employer in the proceedings”.  Further, if the Board is permitted to adduce the evidence of Yip, it would mean that the Board is permitted to circumvent or bypass the Unless Order and to re-open the question of R1’s liability despite the Default Judgment and this would amount to an abuse of process.

43.  The judge is correct to reject this contention.  We agree with him.  The Board is not shackled in its conduct of the defence in the manner as submitted by Mr Fan, we have rejected the restrictive construction of section 25A(a) for the reasons given earlier.  There is no circumvention or bypass of R1’s liability in seeking to establish that R2 is severally liable.  This ground of appeal is of no merit.

Ground 3: if there was wrongful exercise of discretion

44.  Mr Fan raised a number of matters in support of his contention there was wrongful exercise of discretion by the judge.  He complained of unexplained delay of the Board in taking out the summons, the prejudice suffered by R2 in having to deal with Yip’s evidence, and asserted that there is no prejudice or injustice to the Board.

45.  All these matters have been fully canvassed before the judge who has dealt with them adequately and appropriately in the Decision.  The judge had noted there was unexplained delay of the Board from early to late 2019, but did not think that was a sufficient reason to exercise his discretion against the Board, having taken into account and weighed up all relevant matters arising therefrom.  He considered that justice would be served by making no order as to costs for the application.  There is no basis to interfere with his case management decision (Wong Kar Gee Mimi v Severn Villa Ltd [2012] 1 HKLRD 887 at §31).  This ground of appeal must fail.

Conclusion

46.  For all the above reasons, we dismissed R2’s appeal with costs.