SAE-LEE SRIKANYA v. CHUNG YAT MING AND ANOTHER

[English Translation – 英譯本]
CACV 397/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO.397 OF 2007

(ON APPEAL FROM DCEC NO.1025 OF 2005)

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JUDGMENT

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Hon Cheung JA (giving the judgment of the Court):

1. Chow Cheong Tai (‘Mr Chow’) was a master scaffolder.  Unfortunately, he fell from height in the course of work and died on 20 September 2003.

2. Mr Chow’s mother (‘the Applicant’) lodged a claim in the District Court against 1^st Respondent (‘Mr Chung’) and 2^nd Respondent, the principal contractor of the works concerned, under the Employees’ Compensation Ordinance (Cap 282 of the Laws of Hong Kong) (hereinafter ‘the Ordinance’).  The Applicant claimed that, as Mr Chow was Mr Chung’s employee and Mr Chow’s death arose out of and in the course of work, Mr Chung was liable to pay employees’ compensation to the Applicant pursuant to the Ordinance.

3. Having heard the case, District Judge Mimmie Chan entered judgment against the Applicant.  The Applicant now appeals to this Court against the judgment.

Was Mr Chow an employee?

4. The sole issue on this appeal is whether Mr Chow was an employee of the 1^st Respondent at the time of the accident.  According to the Ordinance, the Applicant is entitled to employees’ compensation if, and only if, Mr Chow was Mr Chung’s employee.

5. Judge Chan held that the burden of proof was on the Applicant and that, on a balance of probabilities, she was unable to conclude that Mr Chow was Mr Chung’s employee, and therefore she dismissed the Applicant’s claim.

Legal principles

6. In the absence of an express employment contract, the question of whether an employment relationship existed has to be determined by reference to the surrounding circumstances.  In Poon Chau Nam v. Yim Siu Cheung [2007] HKLRD 951, the Court of Final Appeal held that in determining whether a person is an ‘employee’ (i.e. a person working under a contract of service) or an ‘independent contractor’ (i.e. a person working under a contract for service), the court should refer to the fundamental test laid down in Market Investigations Ltd v. Minister of Social Security [1969] 2 QB 175 (at 184 to 185).  The fundamental test is as follows:

‘ “Is the person who has engaged himself to perform these services performing them as a person in business on his own account?”  If the answer to that question is ‘yes’, then the contract is a contract for services.  If the answer is ‘no’, then the contract is a contract of service.  No exhaustive list has been compiled and perhaps no exhaustive list can be compiled of the considerations which are relevant in determining that question, nor can strict rules be laid down as to the relative weight which the various considerations should carry in particular cases.  The most that can be said is that ‘control’ will no doubt always have to be considered, although it can no longer be regarded as the sole determining factor; and that factors which may be of importance are such matters as:

(1) whether the man performing the services provides his own equipment;

(2) whether he hires his own helpers;

(3) what degree of financial risk he takes;

(4) what degree of responsibility for investment and management he has; and

(5) whether and how far he has an opportunity of profiting from sound management in the performance of his task.’

See also: Lee Ting Sang v. Chung Chi Keung and another [1990] HKLR 764.

Mr Chung’s defence

7. Mr Chung’s defence was that Mr Chow was not his employee.  He said that he was in partnership with Mr Chow and four other persons in taking up the work of erecting and dismantling scaffolds with which the industrial accident in question was concerned.   Mr Chung said that he was also a master scaffolder.  Between August and September 2003, he came to know that the 2^nd Respondent intended to contract out the work of erecting and dismantling scaffolds which was part of a phased project of replacing aluminium window frames for 5 buildings.  Part of the work was subsequently sub-contracted to him.  Each of the 5 buildings comprised 30 storeys, with 4 flats on each storey.  The erection and demolition of scaffolds cost approximately $3,200 for each flat, and the contract price of the work awarded to Mr Chung amounted to approximately $80,000.  Mr Chung said that he alone was unable to cope with the work, which was of a rather large scale, and as usual, he contacted Mr Chow, Wong Yan Sang (黃仁生) and Cheng Wai Kei (鄭煒基) to talk about forming a collaboration agreement among the four of them for the purpose of taking on the work.  This, Mr Chung said, was the so-called practice of ‘dividing up the gross sum’ (打大數) in the construction industry.  Mr Chung, Mr Chow, Wong Yan Sang and Cheng Wai Kei were all licensed master scaffolders who often worked together.  Besides them, two more persons participated in the work (Mr Mok Man Shun (莫文遜) introduced by Mr Chow, and one Mr Yuan introduced by Wong Yan Sang).  The six of them worked at the construction site in two teams.   Mr Chung had previously hired Mr Chow to work for him on a daily wage basis in respect of some small-scale scaffolding jobs.  Likewise, as Mr Chow himself was a licensed master scaffolder, he would also engage Mr Chung to work for him when he got work to do.

8. Judge Chan quoted the following description by Mr Chung on the collaboration in the form of ‘dividing up the gross sum’:

‘9.        When Chung came across a big project, he would contact the master scaffolders with whom he had often collaborated, in order to discuss the price, specifics, the work required, and so on.  He would take up the job only when they all agreed that the job was worth taking up.  That is what Chung has called the practice of ‘dividing up the gross sum’.  This practice involves the deduction from the contract sum of expenses such as materials, transportation and meals, followed by the distribution of the remaining sum among those involved in equal shares.  In his testimony, Chung explained that the usual practice was that he would receive from the main contractor the contract sum on behalf of his fellow workers, retain approximately 30% of that sum for meeting future expenses, and then distribute the balance to his fellow workers evenly as advance payment for their daily expenses.  Upon completion of the work, he would calculate the total figure and distribute the money among the workers according to the  number of working days of each worker, so that they could each receive a share of the profits from the work.  When the work was in progress, the workers’ remunerations were paid in advance about once a month.’

The Applicant’s case

9. As Mr Chow had passed away, the Applicant was unable to adduce direct evidence to prove that Mr Chow was Mr Chung’s employee.  The Applicant could only call Mok Man Shun to testify on her behalf.  On Mr Mok’s evidence, Mr Chow told him in late August 2003 that he needed his participation in a scaffolding project.  On a certain day in September 2003, he went to the relevant site with Mr Chow and they worked there together.  Mr Chow told Mr Mok that both of them were to be remunerated on a daily basis – Mr Mok was to be paid $400 per day, and Mr Chow $800 per day as he had a licence for erecting scaffolds.  Mr Mok, who did not have such a licence, was merely responsible for moving materials.  Mr Mok said Chung had never disclosed to him or Mr Chow that their daily wages were calculated by deducting expenses from the contract price of the work undertaken by Mr Chung and then dividing the balance by the number of participating workers and the number of working days.  Mr Mok said that he and Mr Chow both received fixed wages for that job, in that they received the wages for a particular day when they completed that day’s work.  Other than the protective gloves that the workers put on at work, all the materials and tools (including safety belts) were provided and delivered to the workplace by Mr Chung.  Mr Chung drove Mr Mok, Mr Chow and the materials and tools needed at work (e.g. bamboo poles) to the workplace every day.  It was also Mr Chung who assigned work to each of the participating workers.

Six factors

10. Judge Chan applied the following six factors on the basis of the fundamental test laid down by decided cases.

(1) Control and supervision of work

Judge Chan found that it was Mr Chung who liaised with the principal contractor (the 2^nd Respondent) and accepted the job in the name of his own firm.  As Mr Chung also worked on the basic design, safety and inspection of the scaffolds, he did have ‘control to a considerable extent’.

(2) Supply of tools

Mr Chung submitted a checklist of items and explained how he applied the method of ‘dividing up the gross sum’, namely by deducting expenses of $19,100 from the contract price of $80,000 of the work concerned, and then distributing the remaining $60,900 among those who took part in the work according to the wages payable to each of them.  The items of expenditure set out in the checklist included: plastic belts $1,520; fuel $4,200; expansion bolts $3,600; metal wires $380; bamboo $3,600; canvas $6,500; meals $2,300; and sundry items $600.

Judge Chan pointed out that, had the work relationship between Mr Chow and Mr Chung been one of employment, Mr Chung would have had no reason for requesting his employee to contribute to the expenses in respect of the materials needed at work.  The Judge found that the approach of ‘dividing up the gross sum’ was at variance with an employment relationship. 

(3) Fixing price, work hours and workplace, and right to employ and dismiss

Judge Chan accepted Mr Chung’s evidence and was satisfied that, before Mr Chung undertook the work, he had consulted Mr Chow, Wong Yan Sang and Cheng Wai Kei on the contract price and other details, and that he had obtained their consent when he took up the work.  The Judge also accepted Mr Chung’s explanation on the arrangement of ‘dividing up the gross sum’.  The workers who agreed to accept a job with knowledge of the contract price would understand the principle of ‘more work, more pay’ and appreciate that the sooner the job was completed, the higher the profit would be.

(4) Payment of wages and chances of making a profit

Judge Chan found that Mr Chung had failed to provide a satisfactory answer to the following query:

‘The Applicant’s lawyer has pointed out that, although Chung alleges that he himself, Cheong, Wong, and Cheng were the partners in what he described as the arrangement of ‘dividing up the gross sum’, the information provided by Chung to the Labour Department shows that there were a total of six partners, including Mok and Yuan.  The Applicant’s lawyer has also submitted that it was inexplicable that Chung would agree to get a share in wages equal to Mok’s and Yuan’s under the arrangement of ‘dividing up the gross sum’.  Neither Mok nor Yuan was a licensed master.  They were obviously less experienced than Chung and the other masters, and they were only engaged in carrying materials rather than performing dangerous work outside the windows.  I accept that this is a reasonable query to which Chung has not given a satisfactory answer.’

(5) Financial risk

According to Judge Chan, Mr Chung conceded that, in line with the usual practice of the construction industry, he, being the person who undertook the work, would have to bear the financial risk in respect of any  ‘balance’ of the contract price which he might fail to collect, even though the work was done in the form of a partnership by way of ‘dividing up the gross sum’.  First of all, out of the contract sum already received, he had to pay wages to the other participating workers.  The Judge held that this showed that Mr Chow did not have to bear any financial risk for the work, which was indicative of a non-employment relationship. 

(6) Other factors

Mr Chung had neither submitted any tax return on Mr Chow’s behalf nor arranged for Mr Chow to join the MPF scheme and make contributions in that respect.  Nor had Mr Chung insured Mr Chow against industrial accidents, although he had requested Mr Chow to take out life insurance for himself.  Furthermore, Mr Chung had requested other workers to sign a document declaring that they were ‘self-employed persons’.  The Judge, however, held that whatever perception, intention or belief they held, and whatever name they used to describe their relationship, was immaterial, because the court would base its decision solely on the objective indicia.

Burden of proof

11. It appears from her judgment that Judge Chan did not positively rule that Mr Chung and Mr Chow undertook the work in question as partners or by way of ‘dividing up the gross sum’.  The Judge dismissed the Applicant’s claim on the ground that, by failing to adduce evidence to show that Mr Chow was Mr Chung’s employee, the Applicant had failed to discharge the burden of proof which she bore.  The Judge had this to say:

‘30.      Having taken into account various matters and the relevant factors of the case, I am unable to form a clear overall impression that [Chow] was Chung’s employee at the time of the accident.  I do accept that the financial risk is indicative of an employment relationship, and that (as mentioned in paragraph 27 above) there are doubts in what Chung said about there being four or six partners.  Nevertheless, in my judgment, viewing the case as a whole, Chung’s allegation of a partnership with [Chow] or a mode of work in which they jointly undertook the work is, far from being wholly unreliable as the Applicant’s lawyer contends, inherently probable.  Indeed, an application of the other factors reveals a number of factual details which point to this mode of collaboration.

31.       The burden of proof rests on the Applicant, and, on a balance of probabilities, I am not satisfied that [Chow] was Chung’s employee., The present application for employees’ compensation must accordingly be dismissed.’

Findings of facts

12. A judge’s finding as to whether a person is an employee or an independent contractor, which is made after all surrounding circumstances are taken into account, is a finding of fact.  Unless the judge is shown to have erred in making the relevant finding, e.g. the judge has overlooked some material evidence or failed to evaluate the relevant evidence properly, the appellate court will be slow to overturn a finding of fact made by the trial judge.

13. A peculiar feature of the present case is, as pointed out above, that Judge Chan did not make a positive finding as to whether Mr Chow was an employee or an independent contractor.  She dismissed the Applicant’s claim for the sole reason that the Applicant had not fully discharged the burden of proof.  This being the case, it is open to us to make our own determination on the issue.  Furthermore, even if the Judge had made an express finding on Mr Chow’s identity, such a finding would in our view not have been proper.

Collaboration/partnership

14. A feature which distinguishes the present case from other cases involving the issue of employment relationship is that Mr Chung alleged that he and Mr Chow were collaborators or partners.  If this were indeed the case, then Mr Chow would certainly not have been an employee.  However, we do not think that the evidence supports this allegation.  In our view, the following are the most crucial factors:

(1) Mr Chung admitted at trial, and has also confirmed on appeal, that even before the principal contractor paid him the contract sum for the work, he had already paid wages in advance to all those who participated in the work.  This, in our view, forms a compelling reason for rebutting Mr Chung’s suggestion that he and Mr Chow were in ‘partnership’ rather than in an ‘employment relationship’.  In our view, that if all those who participated in the work had agreed to do so in the form of partnership, then as a fundamental condition, they would have consented to sharing the financial risk among themselves.  In other words, once the work commenced, none of the participants would ask Mr Chung to pay him wages in advance.  This is what a genuine partnership should be.  On the contrary, if Mr Chung had to prepay wages to the workers before he received the contract sum from the principal contractor, this shows that he was bearing a substantial financial risk.  This is a far cry from the acceptance of a job as partners, but is in accord with an employment relationship.  That is something that Judge Chan has, with respect, failed to take into account.

(2) Apart from prepaying remuneration to all those who took part in the work, Mr Chung has also conceded that he would have to bear the ensuing financial losses if he failed to receive from the principal contractor the balance of the contract price.  This goes against a relationship of collaboration or partnership.  Indeed, Judge Chan agreed that what Mr Chung said lent support to the assertion of an employment relationship.

(3) There are also doubts about Mr Chung’s allegation that he would deduct the expenses from the contract sum and then evenly distribute the balance among the workers as their remuneration.  Of the six persons who took part in the work, four of them were master scaffolders.  They were responsible for erecting and dismantling the scaffolds, which involved the danger of working at a height.  The other two persons (i.e. Mok Man Shun and Mr Yuan) were merely responsible for moving materials.  Nevertheless, on Mr Chung’s evidence, the two of them and the other four master-level workers were paid the same wages.  Mr Chung’s explanation in this regard was that as those two workers were referred to him by his partners, he had paid no heed to their remuneration.  This is hardly credible.  As Mr Liu, Counsel for the Applicant, has pointed out, if the remuneration for the two delivery workers was lower than that of the other four persons, it would be to the advantage of those four persons as they could then receive a relatively higher pay.  As Judge Chan recognized, Mr Chung was unable to give a satisfactory explanation of the above doubts.  At the same time, Mok Man Shun’s evidence that his wages were only half of Mr Chow’s serves to support the assertion that those who participated in the work did not receive equal remuneration.

(4) Mr Chung said that he would deduct the expenses on purchasing materials and tools before he evenly distributed the balance to the participating workers as wages.  He explained that he made the deduction because at the commencement of the work, he provided the workers with his own materials and tools such as bamboo poles, power drills, safety helmets and safety belts.  When those materials and tools were no longer usable, he would have to purchase replacements.  He would therefore deduct the relevant expenses before distributing the wages.  There are two contradictions in this allegation.  First, Mr Chung said he unconditionally provided the participating workers beforehand with materials and tools that belonged to him.  However, there is no evidence that the six persons who took part in the project had agreed, at the time of negotiation over the collaboration, that it was necessary to have Mr Chung’s materials and tools included as an item of expenditure in the work.  This is different from a genuine partnership as the participants did not jointly shoulder the financial risk.  Second, according to Mr Chung, the participants merely agreed to work as partners in respect of this particular job, but upon completion of the work the ownership of all the new materials and tools purchased by Mr Chung for the work would vest in Mr Chung.  That is also inconsistent with a genuine partnership.  With respect, Judge Chan has also failed to take this into account.

15. In our judgment, in light of the above, Judge Chan’s finding that Mr Chung’s allegation concerning the mode of collaboration was inherently probable is unsafe and unsatisfactory.  On the contrary, the above matters, in particular that Mr Chung himself had to bear the financial risk, indicate that Mr Chung’s allegation regarding the mode of collaboration is seriously flawed.

16. Viewing the facts as a whole, in particular Judge Chan’s findings that Mr Chung undertook the work in his own name and had control and supervision over the work (including the allocation of work and working hours) as well as the other factors mentioned above, e.g. that Mr Chung had to bear financial risk, we conclude that Mr Chow was Mr Chung’s employee and they were not partners as Mr Chung alleged.  On this basis, the Applicant should be entitled to employees’ compensation as a result of Mr Chow’s death.

Quantum

17. Relying on the documents provided by Mr Chung, Judge Chan had worked out that Mr Chow worked for Mr Chung 10 days per month, with a daily wage of $650.  Mr Chow was 23 years of age when he died.  Pursuant to section 6(1)(a) of the Ordinance, the Applicant should be entitled to compensation in the sum of:

$650 x 10 x 84 = $546,000

18. Furthermore, pursuant to section 6B of the Ordinance, the funeral fee for Mr Chow should be $35,000.

19. Mr Liu submits that according to the documents provided by Mr Chung, Mr Chow should have worked 10.7 days per month instead of 10 days per month as Judge Chan said.  On that basis, the compensation payable to the Applicant under section 6(1)(a) of the Ordinance should be:

$650 x 10.7 x 84 = $584,220.

20. Adding to the above figure the funeral fee of $35,000, the total amount of compensation should be $619,220.  We agree with this calculation.

Conclusion

21. We make the following orders:

(1) The Applicant’s appeal be allowed;

(2) Judge Chan’s decision be set aside;

(3) The 1^st and 2^nd Respondents do pay to the Applicant the sum of $619,220 together with interest from 20 September 2003 (i.e. the date of the accident) to the date of this judgment, the interest rate being half of the judgment rate, and any interest thereafter until the date of payment be calculated at the judgment rate;

(4) The two Respondents do pay costs of this appeal and costs of the proceedings in the District Court;

(5) The Applicant’s own costs be taxed in accordance with the Legal Aid Ordinance.

 

 

Translated by the Judgment Translation Unit of the Judiciary and approved by Mr. Edmund Cham, Solicitor.