Wisdom Newsletter - Shipping (Issue 35)

The world is facing unprecedented challenge caused by Covid-19. Tsui & Co have adopted some contingent measures to ensure that our clients continue to receive professional advice and all the necessary support including any legal issues arising from this pandemic. We have also taken some appropriate steps to protect the safety and health of our staff and to minimize any impact on the cases being handled by us. Seeing that it is important to face the situation positively, we wish to keep you updated on laws by this newsletter. Stay safe and healthy, everybody!

Shipping

AN ARBITRATION AGREEMENT IS NOT AN UNBREAKABLE SHIELD IN WINDING-UP PROCEEDINGS

Dayang (HK) Marine Shipping Co., Ltd v. Asia Master Logistics Ltd, HCCW 14/2019, [2020] HKCFI 311, Deputy High Court Judge William Wong SC in Court, 12 March 2020.

A winding-up order has long been recognized as a draconian remedy. Many creditor-petitioners believe that presenting a winding-up petition is the most efficacious method of obtaining payment. However, it is not uncommon for a contract under which the debt is alleged to arise contains an arbitration clause which requires the dispute to be resolved by arbitration. In Re Southwest Pacific Bauxite (HK) Ltd [2018] 2 HKLRD 449 (“Lasmos”), Harris J held that in such circumstances, if the company disputes the debt and takes the steps required under the arbitration clause to commence the contractually mandated dispute resolution process, the winding-up petition should generally be stayed.

Despite these difficulties, we successfully acted for the Petitioner, the disponent owner of a vessel under a charterparty containing an arbitration clause, in obtaining a winding-up order against the charterer, the Respondent in this case.

Fact

The Petitioner, Dayang (HK) Marine Shipping Co., Limited, and the Respondent, Asia Master Logistics Limited, entered into a TCT charterparty whereby the Petitioner chartered its vessel, MV “Aoli 5” (the “Vessel”) to the Respondent. The amount of hire to be paid by the Respondent to the Petitioner is US$321,377.30 (the “Debt”). The Respondent did not deny that the Debt was due and owing, but it raised a counterclaim against the Petitioner in relation to an alleged breach of the fixture note. In particular, the Respondent alleged that during the unloading process, some bags of rice fell off. However, the captain of the Vessel was uncooperative and refused to follow the Respondent’s instructions in handling the cargo.

The Respondent further alleged that the Petitioner’s refusal to change the captain upon the Respondent’s request was in breach of the Petitioner’s duties under the fixture note, and the Petitioner should bear some responsibility for the losses it suffered by reason of the delay. It was submitted by the Respondent that the dispute should be dealt with by way of arbitration, pursuant to an arbitration clause contained in the fixture note.

Judgment

The Learned Judge made a finding that the Debt was not disputed by the Respondent in good faith and on substantial grounds. Firstly, the Learned Judge was of the view that there was prima facie no dispute to the Debt. The Respondent had given no particulars as to the duration of the alleged delay and the extent of loss it suffered by reason of the alleged breach of the fixture note on the Petitioner’s part. Secondly, the Court considered that the Respondent’s counterclaim appeared to consist of bare allegations without any concrete evidence to substantiate its claims.

In respect of the arbitration clause, the Court was of the view that up to the date of the hearing, the Respondent had not commenced any arbitration proceedings. The Learned Judge accepted that the Respondent, who merely sent a draft request form (Form 1) to the Petitioner’s solicitors and requested to see if the Petitioner would be willing to attempt arbitration, had no genuine intention to arbitrate and agreed that the draft Form 1 was not properly served on the Petitioner as the Petitioner’s solicitors were not duly authorized to accept service. In the circumstances, the Court rejected the Respondent’s submissions that the Petition should be dismissed because of the existence of the arbitration clause.

For the sake of completeness had the Respondent properly commenced arbitration proceedings, the Learned Judge considered that without express limitations, the scope of the arbitration clause did not preclude the Petitioner’s right to commence winding up proceedings against the Respondent. Having considered all the relevant authorities in Hong Kong, Singapore and the UK, the Court clarified by way of obiter the present state of the law to be, inter alia, that whether or not the debt had arisen from a contract incorporating an arbitration clause, a debtor-company which intends to dispute the existence of a debt must still show there is a bona fide dispute of a debt on substantial grounds before the Court could exercise its discretion to stay or dismiss the winding-up proceedings.

The fact that arbitration proceedings have commenced or would be commenced may be relevant evidence that there is a bona fide dispute, but this alone would not be sufficient to prove the existence of a bona fide dispute on substantial grounds.

The Learned Judge further considered that the winding-up proceedings do not have the effect of resolving the disputes. It is the liquidator who finally resolves disputes over the debt (subject to the possibility of appeal). Accordingly, the presentation of a winding-up order per se does not amount to a breach of the parties’ contractual obligation to resolve disputes by way of arbitration. It follows that commencing winding-up proceedings is not against the policy behind the Arbitration Ordinance and the object of that Ordinance.

Comments

The above ruling comes as a piece of good news to all creditor-petitioners who have hesitation to present a winding-up petition when there is an arbitration clause in the contract. The debtor-company must still show that there is a bona fide dispute over the debt on substantial grounds. However, creditors-petitioners are also warned about the adverse costs consequence of abusing the winding-up process. The Court has made it clear that if a creditor-petitioner knows that the debt is disputed in good faith and on substantial grounds, the creditor-petitioner may be liable to pay the debtor-company’s costs on an indemnity basis and it may also be at risk of liability under the tort of malicious prosecution.

To the debtor-companies who are in fear that the winding-up process may be abused by some creditors, they should make sure the arbitration clause in the contract is carefully drafted such that it contains express limitations on the creditor-petitioner’ rights to wind-up. The Court, however, alerted that agreements excluding the right to present a winding-up petition may potentially be unenforceable as a matter of public policy. That is a risk that a debtor-company would have to assume if it wishes to obtain better bargain when a dispute over the debt arises.

Overall, the present Judgment is welcome. The obiter resolves the inflexibility of the Lasmos principle and preserves the Court’s hitherto flexible discretion to make a winding-up order. The Court is not required to dismiss or stay a winding-up petition as long as the threefold conditions in Lasmos have been satisfied. That will ensure the creditor-petitioner will not be deprived of all tangible remedies if the assets of the debtor-company have been dissipated by the time the action for debt has been completed by arbitration. This is particularly useful in shipping disputes.

Wisdom Newsletter - Personal Injury (Issue 34)

Personal Injury

Who is more powerful?

Wong Chun Wah v. Chau Kwei Yin, Chow Yat Kuen, Employees Compensation Assistance Fund Board, FACV No. 6 of 2019, Chief Justice Ma, Mr. Justice Ribeiro PJ, Mr. Justice Fok PJ, Mr. Justice Stock NPJ and Madam Justice McLachlin NPJ, 20th December 2019.

TWO QUESTIONS OF GREAT PRACTICAL IMPORTANCE TO THE OPERATION OF THE EMPLOYEES COMPENSATION ASSISTANCE FUND BOARD (“ECAS”)

1. Whether the Courts have jurisdiction to make costs order against ECAS in certain proceedings to which it is a party?

2. Whether ECAS is empowered to enter into binding settlements regarding claims or potential claims for payments out of the fund which it administers?

Fact

The plaintiff was an interior decoration worker who sustained injuries at work. The 2nd defendant had been engaged by the 1st defendant to do the construction work. The plaintiff alleged that the 2nd defendant was his employer but brought proceedings against the defendants for compensation under the Employees’ Compensation Ordinance, Cap. 282 (“ECO”) and for common law damages. The case was discontinued against the 1st defendant in 2015 when he settled the plaintiff’s claims by payment of $80,000.

That left the plaintiff’s claims, which included one for over HK$4.7 million damages, against the 2nd defendant who had no insurance cover and who acted in person throughout. Accordingly, ECAS obtained leave to be joined as 3rd defendant in the proceedings, stating that it wished to participate in the assessment of damages. It proceeded in 2016 to commission a medical report jointly with the plaintiff and to file an answer to the plaintiff’s statement of damages, putting forward a lower assessment.

The plaintiff obtained judgment against the 2nd defendant for HK$602,380.00 before Deputy District Judge Chow in the ECO proceedings in September 2016. The common law action then came on for trial in May 2017 and at its commencement, the plaintiff and ECAS agreed to settle his potential claim under the Employees Compensation Assistance Ordinance, Cap., 365 (“ECAO”) for HK$1.42 million.

The 2nd defendant was not a party to the settlement and the trial proceeded against him before Deputy High Court Judge To, resulting in an award of damages in the sum of HK$2,110,927.00. Deducting the sums of HK$80,000.00 received from the 1st defendant and the ECO award of HK$602,380.00, the net amount of damages due to the plaintiff from the 2nd defendant was HK$1,428,547.00, which was marginally more than the settlement amount agreed with ECAS. The Judge ordered the 2nd defendant to pay the plaintiff’s costs but refused the plaintiff’s application for costs against ECAS as from the date of its joinder in the action, directing that there should be no order as to costs as between the plaintiff and the ECAS.

The plaintiff sought and obtained leave from the Court of Appeal to appeal against the direction of no order as to costs. By a respondent’s notice, ECAS sought to uphold the Judge’s order on the additional ground that the Court lacked jurisdiction to make any costs orders against it. The Court of Appeal dismissed the plaintiff’s appeal against the refusal of costs against ECAS and did not accept ECAS’s argument that there was no jurisdiction to order costs against it in such proceedings. ECAS was granted leave to appeal the captioned two questions of law to the Court of Final Appeal.

Ruling

Section 20B(3) of the ECAO does not deprive the Court of jurisdiction to order costs against ECAS in relation to proceedings in which it has been joined as a party. The power to make such costs orders is conferred by Section 52A of the High Court Ordinance, Cap. 4. Section 29 of ECAO also recognises the existence of such power.

In exercising its discretion regarding a possible costs order against ECAS, the principle that costs normally follow the event does not apply, given the ECAS’s statutory role and the starting-point is no order as to costs. Needless to say, the Court has a wide discretion and may depart from this if the circumstances warrant a different order.

Section 29 authorises ECAS to settle potential claims for relief payments in amounts it assesses to be reasonable, arriving at such assessments in good faith on available information considered sufficient after having made due inquiry. Settlement is an alternative means for disposing of a claim and obtaining relief. The settlement agreement constitutes a binding contract and is not affected by any Judgment which the employee may subsequently obtain against the employer. It should not generally be necessary to pursue that action after settling with ECAS.

The appeal was dismissed and although the outcome would normally entail making an order for costs against ECAS, the Court of Final Appeal took into account its special statutory role and accepting that there was a need for clarification of the legal position affecting ECAS’s operations hence the Court made no order as to costs.

Comments 

This judgment is indeed good news to the employee. By the operation of Section 29 of ECAO which empowers ECAS to strike a settlement with any party hence the employee does not have to go through the painful exercise of taking the matter to trial in order to obtain a judgment.

If ECAS is not joined as a party to the proceedings, Section 28 of the ECAO gives a wider power to ECAS to protect its costs and settle with the plaintiff if ECAS thinks that the plaintiff is or might be entitled to obtain payment from the Fund.

While ECAS is entitled to give pressure on plaintiffs to settle, it is unsatisfactory that there is no mechanise for the plaintiffs to make any sanctioned offer or Calderbank offer against ECAS to protect their costs. It is because there is “no event” between the plaintiffs and ECAS. Hence, ECAS is rarely asked to pay the plaintiffs’ costs unless its conduct is unreasonable or misconceived or unjustifiably antagonistic, unnecessarily prolonging its intervention or otherwise untoward.

In view of the Civil Justice Reform, our view is that the law should be changed such that the plaintiffs may give counter-pressure on ECAS to settle the actions as soon as possible and to protect the Fund. This proposed change is particularly important to the common law actions because unlikely Employees’ Compensation actions, any cost order against the employers in such proceedings, even if awarded on indemnity basis after effective sanctioned offers, is not recoverable from ECAS.

Wisdom Newsletter - Shipping (Issue 33)

Shipping

Bright Shipping Limited (P) v Changhong Group (HK) Limited (D) [2019] HKCA 1062, CACV No. 102 of 2019

 Background

On 6 January 2018, there was a collision between D’s cargo vessel “CF CRYSTAL” and P’s tanker “SANCHI” on the high seas but within the exclusive economic zones (“EEZs”) of the PRC, South Korea and Japan.

On 9 January 2018, D commenced inter-ship proceedings against P in the Shanghai Maritime Court (“SMC”) and applied to establish in the SMC 2 limitation funds, one for personal injury and one for property. At the same time, P commenced an in personam action against D in Hong Kong for collision liability and quantum because D is a Hong Kong incorporated company with a registered office in Hong Kong.

Against the above background that D made an application for staying P’s proceedings in Hong Kong on the ground of forum non conveniens (“FNC”).

 Held

Applying the Spiliada principles, it was accepted that Hong Kong was not the natural forum for the inter-ship litigation. The dispute concerns whether D was able to establish that SMC was clearly and distinctly more appropriate than Hong Kong as the forum for the trial of the inter-ship action. Two main arguments were advanced by D.

D first argued that the trial judge had made no reference to the national laws relating the exercise of the sovereignty of the PRC over the EEZ. However, the CA rejected the argument on the grounds that (1) the location of the collision lied within the EEZs of the PRC, Japan and Korea and (2) a state’s rights over EEZ under UNCLOS do not apply to navigation activity.

D also argued that lis alibi pendens (related proceedings abroad) was a material factor for the consideration of FNC. As expected, the CA held that the constitution of limitation funds by D in the SMC pursuant to the PRC Maritime Code is not a legal bar to bringing proceedings in Hong Kong because the PRC is not a state party to the Convention on Limitation of Liability for Maritime Claims, 1976 (“LLMC”). Also, the SMC’s inter-ship proceedings have not gone beyond the initial stage and P had not accepted service of the same.

The argument that D could bear liabilities up to 2 separate limits if the Hong Kong proceedings were not stayed did not assist D at all. The CA explained that a ship owner who has already paid a claim has a well-established right to take into account the sum he previously paid in the distribution of the limitation funds. Accordingly, D’s concern that it would be burdened with liability up to 2 separate limits was misplaced.

The CA, in its obiter, found that the significant difference in tonnage limitation between the PRC and Hong Kong (the relevant monetary limit in Hong Kong is roughly 3.6 times of that in the PRC because the Hong Kong limit takes into account the loss of value due to inflation) will deprive P of a legitimate juridical advantage and substantial justice will not be achieved in the SMC if a stay of the Hong Kong proceedings is granted. Such deprivation could be unjust to P and could be capable of being a decisive factor in refusing a stay.

 Comments

The Spiliada principles are settled law on FNC and involve an exercise of discretion. The court aims at finding out a forum which is suitable for the interests of all the parties and for the ends of justice. This is different from the Australian approach.

It can be seen from this case that the treatment of mainland Chinese courts has no material difference from other foreign courts. The quality of justice in mainland courts is not a factor to be taken into consideration. The logistic issues of witnesses play little importance.

Not surprisingly, the CA considered that while some weight was given, it was nothing unusual about limitation and liability actions taking place in different jurisdictions. In fact, even under Article 13 of the LLMC, it only bars a person having made a claim against the fund from attaching the assets of a person by or on behalf of whom the fund has constituted but P did not make such a claim. It is expected that the court is more inclined to stay if a fund is set up in a state party to the LLMC.

The CA reaffirmed the principle that it may only interfere with the exercise of a judge’s discretion in limited circumstances. It is therefore important to prepare well when FNC is argued before the judge of the 1st instance.

All in all, this action is a fair illustration of the “One Country, Two Systems” principle.

Wisdom Newsletter - Insurance (Issue 32)

Insurance

Good Faith and Valid Reasons in Claw Back Provisions

FWD Life Insurance Co (Bermuda) Ltd v Poon Cindy [2019] 3 HKLRD 455, [2019] HKCA 697, Court of Appeal Civil Appeal No 181 of 2015 Lam V-P, Cheung and Chu JJA 24 June 2019

This was an appeal by the defendant against the judgment of Deputy Judge Tony Poon concerning whether the defendant’s employment had been wrongfully terminated by the plaintiff-employer.

 Fact

The Defendant, Cindy Poon (“Cindy”) was engaged by the Plaintiff, FWD Life Insurance Co (Bermuda) Ltd (“FWD”) as an Agency Director. An individual Agent’s Agreement (“iAA”);  and an Agency Management Agreement (“AMA”) were signed for such engagement.

Upon the engagement, FWD paid Cindy a sum of $492,000 by way of Signing Fee (“SF”) and another sum of $492,000 by way of advanced payment of Performance Bonus (“PB”). Further, from March to August 2008, FWD paid Cindy a total sum of $328,002, a by way of Monthly Special Bonus (“MSB”) calculated at $54,667 per month. These payments were made under the terms of a Letter of Offer of 6 March 2008 issued by FWD in favour of Cindy except that the PB were paid in advance at the request of CIndy. According to those terms, these sums were repayable to FWD if Cindy’s engagement was terminated within 30 months (for SF and MSB) or 12 months (for PB) from the date of her contract.

 What happened next?

Cindy’s engagement was terminated by FWD within 12 months on 24 September 2008. Notice of termination was given in accordance with Clause 7.2 of the IAA which reads:

“7.2 Subject to any subsequent agreement to the contrary, this Agreement may be terminated by either party by giving to the other party a notice of termination in writing to such effect and the notice period, unless with the consent of the other party, shall not be less than six (6) days.”

A provision to similar effect can be found in the AMA at Clause 7:

“7. Either party shall be entitled to terminate this Agreement without any reasons being given thereof, by giving to the other six (6) days’ written notice of its intention to terminate the same.”

It followed that FWD demanded the repayment of SF, PB and MSB from Cindy.

 Judgment in the First Instance

FWD commenced proceedings against Cindy for repayment of SF, PB and MSB in the total amount of $1,312,00 pursuant to terms provided in the IAA, AMA and the Letter of Offer. FWD’s case on the cause of termination was that Cindy had failed to meet performance target set for Agency Director.

Cindy said that she had been wrongfully terminated. According to her, the 2nd Third Party Danny Chan had been receiving a commission (called override) in respect of Cindy’s management earning. However, he could not continue to do so after he failed to meet the performance for promotion to Agency Director because an Agency Director could not be a downline agent of an Agency Manager. The only way to maintain his entitlement to the override from Cindy’s earning was to demote Cindy from Agency Director to Agency Manager. But Cindy refused to accept the proposed demotion. As a result, Cindy claimed that she was terminated by FWD wrongfully.

Deputy High Court Judge Tony Poon (as he then was) made the findings that the cause of the termination of Cindy was her refusal to accept a demotion. However, he gave judgment in favour of FWD and held that FWD was not in breach of the IAA or the Letter of Offer in exercising its power of termination. FWD was therefore entitled to recover the Total Sum of $1,312,002 plus interests from Cindy.

Appeal in CACV 181/2015

Subsequently, Cindy obtained leave to rely on appeal on the argument that FWD’s power to terminate her employment or demote her was subject to an implied term of good faith and rationality (“Good Faith and Rationality Implied Term”).

Held: Allowing Cindy’s appeal and remitting the case to the Judge for consideration.

I. Good Faith and Rationality Implied Term

Lord Sumption set out the general rule in British Telecommunications plc v Telefónica O2 UK Ltd [2014] Bus LR 765 as follows:

“ As a general rule, the scope of a contractual discretion will depend on the nature of the discretion and the construction of the language conferring it. But it is well established that in the absence of very clear language to the contrary, a contractual discretion must be exercised in good faith and not arbitrarily or capriciously …. This will normally mean that it must be exercised consistently with its contractual purpose ….”

In view that the most relevant authorities in a similar context had not been decided when the trial took place and the Good Faith and Rationality Implied Term was not put forward during trial, the Court of Appeal took the view that it would not be just to deprive Cindy of the chance to rely on this implied term. Although further evidence might be adduced, it could not be said at this stage that Cindy’s case based on this implied term was unarguable.

It was thus held by CA that the question of whether the Good Faith and Rationality Implied Term could have arisen would be remitted to the Judge.

II. Valid Reason Implied Term

During the hearing in the First Instance, Cindy had argued that there was an implied term to the IAA that it would not be terminated without valid reasons and an implied term to the Letter of Offer that she would not be demoted from the position as Agency Director without any valid reasons (“Valid Reason Implied Term”).

The trial Judge did not give much consideration to the Valid Reason Implied Term against demotion since Cindy did not actually accept the demotion. He so held notwithstanding he was aware of the nexus of the proposed demotion and the termination.

The Court of Appeal was of the view that the Judge’s ruling on the Valid Reason Implied Term was erroneous. As mentioned above, the trial Judge had already made the findings that the cause of the termination of Cindy was her refusal to accept a demotion. It would thus be logical to deduce that if there was indeed a Valid Reason Implied Term for demotion, it would be relevant in establishing the Valid Reason Implied Term for termination since the termination was based upon her refusal to accept demotion.

It was thus held by CA that the question of whether the Valid Reason Implied Term could have arisen would be remitted to the Judge.

Comments 

Where life insurers or in fact any employers faced with the need for them to invoke the claw back provision provided in the agreements with contractual discretion, it would be advisable for them to adopt a rational approach concerning the termination with good faith.

Then what by means of being “rational”? The classic definition was given by Lord Diplock when summarising the grounds of judicial review in Council of Civil Service Unions v Minister for the Civil Service [1985] AC 374, 410: “By ‘irrationality’ I mean what can by now be succinctly referred to as ‘Wednesbury unreasonableness’. … It applies to a decision which is so outrageous in its defiance of logic or of accepted moral standards that no sensible person who had applied his mind to the question to be decided could have arrived at it.”

In practical terms, the employers are also advised to offer some proper explanation, such as not meeting certain performance standard or breach of certain employment terms, to the employees concerned when they are to invoke the claw back provisions by way of termination.

Let’s wait and see for the result of any re-trial by the Judge. But bearing in mind of the cost implications of a full-blown re-trial, as it might well be the case that the parties would settle!

Wisdom Newsletter - Personal Injury (Issue 31)

Personal Injury

A COMMON INDUSTRIAL ACCIDENT WITH VALUABLE INSIGHTS FOR EMPLOYERS

Lau Ting Keung (P) v. Chan Wai Ying trading as Wai Shun Engineering Co. (D1) and Kin Shing (Leung’s) General Contractors Limited (D2), HCPI No. 284 of 2015, Deputy High Court Judge Keith Yeung SC, 18 April 2019.

This is a PI claim by an experienced welding worker who fell from an A-shape ladder and suffered injury at work. D2 was the main contractor of the construction site where P met the accident. D1 was P’s employer. P claimed for damages against D1 and D2 on the grounds that, inter alia, they failed to provide a safe working platform for P to work at height and to ensure that the ladder was safe to use. It was alleged that D1 and D2 were accordingly in breach of Regulations 38B, 38C and 38D of Construction Sites (Safety) Regulations (Cap. 59I).

 Fact

In this case, the dispute over liability turned on (1) how the accident took place and (2) the suitability of the use of the ladder at the time of the accident.

P’s pleaded case was that he was instructed to conduct dismantlement work in a fire pump room at the construction site with a co-worker. There was no safety platform in the fire pump room. D1 instructed him to use an A-shape ladder which was allegedly unstable and unsafe. Although D1 asked the co-worker to hold the ladder steady when he was on the ladder, D1 had in the afternoon told P to work on his own without the co-worker’s assistance.

D1 denied that he had instructed P to work on his own without the co-worker’s assistance. In the record of interview, P confirmed that the ladder used did not have any problem or irregularity. As the floor of the fire pump room had pumps and pipes, there was no safe place to set up a working platform. A risk assessment was conducted by D2’s safety officer. The assessment result was to recommend the use of the ladder to gain height and the ladder had to be held by someone before work could be done.

Judgment

The Learned Judge did not find P to be a credible witness. He could not tell the Court how and why the accident occurred. He did not even recall from which step of the ladder he fell. In his supplemental witness statement, P for the first time alleged that the ladder was unstable and unsafe, which was inconsistent with what he said in the record of interview. His Lordship did not accept that the content of the record of interview was not completely true because P was suffering from severe headache and dizziness during the interview. P ought to understand the importance of the interview. It was difficult to accept that P would have agreed to continue if he was indeed in the state he described.

The Court, on the other hand, found D1 to be a credible witness. His evidence was not contradicted in any material aspect. His Lordship refused to draw an adverse inference against Ds for not calling the co-worker to give evidence. D1 had not been silent and an explanation had been given as to why the co-worker was not called.

When deciding whether the ladder could safely be used, the Learned Judge was of the view that the nature of work which P had to undertake and the nature of the ladder were the two main areas that needed to be considered. His Lordship found that in P’s evidence, the exact nature of P’s work and the height he had to reach were unclear. The burden was on P to prove that the ladder was unsafe in light of the height he had to reach and the work he had to undertake. P had failed to so.

Lastly, the Court accepted that under Regulation 38C of Cap 59I, a ladder could be used so long as its use was safe for the purpose having regard to the work to be done. D1’s evidence suggested that it was not inappropriate to use the ladder inside the pump room. Indeed, there was no safe place to set up a working platform in the pump room, and the system that D1 instructed P to follow was recommended by the safety officer employed by D1 after risk assessment. In the absence of any expert evidence from P which suggested that the use of the ladder inside the pump room was inappropriate or otherwise unsafe, P had failed to establish his case as framed. Accordingly, P’s case was dismissed.

Comments 

This case has conveyed several important messages to employers. It is not uncommon that by the time the proceedings commence, a co-worker who can be a useful witness to an employer may have already left the company. It is important, however, that an explanation for not calling that witness be given in order to avoid an adverse inference be drawn against the employer. Practical steps should be taken to try to locate that co-worker. Also, it is always useful to keep a proper record of the risk assessment conducted at the construction site. As seen in the present case, it can be a powerful shield against a claim of unsafe system / method of work.

Furthermore, it is of paramount importance for the defence to take a statement from the injured employee shortly after the accident. The version of statement given by the injured employee at the start has been repeatedly proven to be more reliable than he or she gives in the course of the legal proceedings. The preliminary statement may even serve as a leverage to push for a good settlement without the need to go through the entire trial.

Wisdom Newsletter - Personal Injury

Personal Injury

DENIAL OF “wrongful life/ suffering” CLAIM – LEGAL or MORAL?

Lam Wing Hei (a minor suing by her mother and next friend Lam Tsz Kiu) and Lam Tsz Kiu. v. Hospital Authority, HCPI No. 1129 of 2015, The Hon. Mr. Justice Bharwaney, 28th May 2018.

This is a striking out application made by the Defendant against the 1st Plaintiff (“the Baby”) on the ground that it discloses no reasonable cause of action. The Defendant denied that it owed any duty of care to the 1st Plaintiff, who was a foetus, to terminate its existence and life.

 Fact

This is a medical negligence claim made by the Baby and the 2nd Plaintiff who is the mother of the Baby (“the Mother”) against the Hospital Authority arising out of the circumstances leading to and the birth of the Baby in Kwong Wah Hospital (“KWH”) on 15th April 2012.

Prior to the birth of the Baby, Dr. Richard Choy of CUHK informed Dr. Leung of KWH that certain defects were found in chromosome no. 17 of the foetus. This information was not relayed to the Mother and the Baby was born with severe deformities, disabilities and impairment of a genetic origin.

It is undisputed that (a) the Mother is entitled to bring her claim, (b) the disabilities suffered by the Baby are congenital in nature, (c) the disabilities were not caused by any negligence on the part of the Defendant and (d) there was no assertion of any negligence in the treatment of the Baby after she was born.

The main issue in dispute is whether the claims for “wrongful life” and “wrongful suffering” are barred by the provisions of Part IVA of the Law Amendment and Reform (Consolidation) Ordinance, Cap. 23 (“LARCO”), in particular Section 22A(1) thereof.

Judgment

His Lordship found the provisions bar all claims for wrongful life, including all claims for wrongful suffering, caused by a defendant’s negligence in failing to advise a mother of the material risk of a foetus being born seriously deformed so that she may consider having an abortion. Accordingly, His Lordship struck out the Baby’s claim against the Defendant on the ground that it disclosed no reasonable cause of action.

His Lordship gave the reason that a right of a foetus to be aborted or an interest of a foetus in its own termination, does not reflect current values generally, or even widely, held by the community in Hong Kong.

His Lordship said the most compelling reason for him to reject the cause of action is, in order to constitute damage, which is an essential ingredient of the tort of negligence giving rise to a right to compensation, it must be established that non-existence is preferable to life with disabilities to the child. Unless that is so, there is no damage, of the character which constitutes the gist of an action in negligence, for the purposes of an action by the child.

His Lordship concluded that the common law of Hong Kong, as it has developed up to today, does not recognise a cause of action for wrongful life or wrongful suffering.

Comments 

This decision is the first in Hong Kong dealing with this issue. Hence, a baby who was born with congenital disabilities cannot claim against the doctor for “wrongful life” or “wrongful suffering” based on the ground that had the doctor informed the mother of the disabilities in the foetus, the mother could have chosen to terminate the pregnancy.

From the legal point of view, this decision seems right as the cause of action per se is denied under LARCO. How about moral?

Wisdom Newsletter - Personal Injury

Personal Injury

IME– a Tiger that BITES?

Cheung Sau Lin v. Tsui Wah Efford Management Limited, DCEC No. 2438 of 2014, H.H. Judge Harold Leung, 7th August 2018.

The Learned Judge dismissed the employee’s claim which the Applicant refused to attend the medical examination scheduled under Section 16 of the Employees’ Compensation Ordinance, Cap. 282 (“ECO”).

 Fact

This is a split trial and the only issue needed to be determined by the Learned Judge is “Whether any compensation under the ECO shall be payable to the Applicant as a result of the Applicant’s failure to undergo a medical examination scheduled on 25th November 2014 as required under Section 16(1A) of the ECO.”.

The fact of this case is simple. The Applicant was receiving periodical payment under Section 10 of the ECO and the loss adjuster for the employer arranged a medical examination under Section 16 of the ECO but the Applicant refused to attend the medical examination fixed for 25th November 2014. The Applicant also failed to notify the Respondent of the opinion of any registered medical practitioner, registered Chinese medicine practitioner or registered dentist that she was unable or not in a fit state to attend the medical examination pursuant to Section 16(3) of the ECO. Accordingly, no compensation shall be payable “unless the Court is satisfied that there was reasonable cause for such failure” under Section 16(4) of the ECO.

The Applicant through her solicitors only written to the loss adjuster 1 day before the scheduled medical examination and stated that, “Please be informed that our client is still on sick leave with medical follow-up treatments. Her medical condition is currently not static for assessment. In this regard, our client shall not attend the medical examination on 25th November 2014.”.

Judgment

The Learned Judge held that there are 2 limbs in Section 16(4) of the ECO: the 1st limb provides for an immediate suspension of right to compensation on failure to attend the medical examination and such suspension will be temporary if the employee subsequently attends the examination within 15 days. The 2nd limb envisages a scenario when the failure to attend a medical examination extends over a period of 15 days in which case no further compensation shall be payable forthwith “unless the court is satisfied that there was reasonable cause for such failure”.

The Learned Judge rejected the argument that Section 16(4) of the ECO imposes a “draconian” sanction against the employee for failing to attend the medical examination “over a period of 15 days”. The Court held that Section 16(4) is there to provide the essential “protection” mechanism to allow the employer to try to identify early on before much compensation has been paid out, the “genuine” cases from the others by an expert who should be independent and not a treating doctor.

The Learned Judge also rejected the argument raised by the Applicant that because she was still on sick leave and the “condition is currently not static for assessment” and hence it was a reasonable cause for her failure to attend the medical examination. The Court held that Section 16(3) of the ECO provided the reason for not attending being “unable or not in a fit state to attend” (in the opinion of a doctor etc.). Accordingly, the Court ruled that the Applicant’s refusal was not a reasonable cause for such purpose.

The Court therefore found that the Applicant had failed to undergo a medical examination scheduled on 25th November 2014 as required under Section 16(4) and under the 1st limb of Section 16(4), her right to compensation had been suspended on 25th November 2014.

The Court further held that the Applicant’s failure extended over a period of 15 days from the date when the employee was required to undergo the examination and there was no reasonable cause of such failure. As such, under the 2nd limb of Section 16(4) of the ECO, no further compensation should be payable.

The Applicant had already been compensated up to 24th November 2014, the Learned Judge therefore dismissed the Applicant’s EC claim with costs to the Respondent.

Comments 

This judgment is a good news to both the employers and the EC insurers, the defence in the EC claims. In particular, when the defence is facing an employee whose complaints are no more than subjective pain and aches in the absence of any or little objective medical evidence, who kept on the “doctor-surfing” behaviour to prolong sick leave indefinitely without genuine or significant injury, or after essentially full recovery from the injury as the Learned Judge put it in his Judgement.

If this Judgment stands good without an unfavourable appeal, it would be wise for the defence to make good use of the Section 16 medical examination in the case like soft tissue injuries or apparently minor injuries without the need to wait until the employees no longer have sick leave. Hopefully, the defence will be able to safeguard its interest in cases which the employees’ subjective complaints are unsupported by any objective medical evidence and no more payment of compensation in perpetuity in such circumstances.

As the Learned Judge put it wisely in the Judgment “The employer is unlikely to be able to recover any compensation already paid out even if it is later proven at trial that the lengthy sick leave has been unreasonably prolonged by such doctor-surfing” behaviour”.

Wisdom Newsletter - Arbitration

Arbitration

“Bad faith” and “delay” were defeated by invalid arbitration agreement

Astro Nusantara International B V v PT Ayunda Prima Mitra [2018] HKCFA 12

This case concerns an application by the appellant for an extension of time to apply to set aside the enforcement order in Hong Kong. After a careful consideration of the factors involved, especially the absence of a valid arbitration agreement, the Court of Final Appeal reversed the decisions of the Courts below and granted the time extension.

 Fact

The 8 respondents are companies in the same media group in Malaysia conveniently referred to as “Astro”. The appellant was a company belonging to a conglomerate conveniently referred to as “Lippo”.

Astro commenced arbitration against Lippo under the said agreement and obtained an award against Lippo. An enforcement order was initially granted by the Singapore court in Astro’s favor. However, the said enforcement order was subsequently set aside by the Singapore Court of Appeal on the ground that there was no valid arbitration agreement on which the arbitration award can be founded.

Astro also obtained enforcement order in Hong Kong. No application was taken by Lippo to set aside the enforcement order within the requisite 14-day period.

Judgment

The appellant’s application was dismissed by Chow J. at first instance. Even though Chow J. accepted that the judgment of the Singapore Court of Appeal conclusively showed that there was no existence of valid arbitration agreement, he held that the court should exercise its residual discretion to uphold the enforcement order. His decision was based on the ground that the appellant acted in breach of the duty of good faith in electing not to challenge the jurisdiction of the Tribunal before the Singapore High Court and to continue defending the claim while keeping the jurisdictional point in reserve to be deployed in the enforcement court only when it suited its interests to do so.

Moreover, Chow J. held that the application for time extension should be rejected on the grounds that: (1) the length of the delay was substantial, (ii) the appellant made a deliberate decision not to apply to set aside within the time prescribed and (iii) the awards had not been set aside at the seat of the arbitration (i.e. Singapore).

Chow J.’s decision on the good faith principle was rejected by the Court of Appeal. Notwithstanding, the Court of Appeal upheld Chow J.‘s refusal of time extension and endorsed His Lordship’s reliance on the 3 factors mentioned above, which formed the subject of the appeal to the Court of Final Appeal.

The Court of Final Appeal reversed the decision of the Court of First Instance and the Court of Appeal and allowed the time extension.

The Court of Final Appeal noted that the Courts below failed to make proper regards to the fact that the judgment of the Singapore Court of Appeal conclusively showed that there was no valid arbitration agreement, which was a substantial factor undermining Astro’s case.

Furthermore, under the choice of remedies doctrine, the appellant had a free choice between pursuing an active remedy (applying to set aside the arbitration award in Singapore) and a passive remedy (resisting enforcement of the arbitration award in Hong Kong). Thus, the Courts below erred in principle in holding the appellant’s decision not to apply to set aside the award in Singapore against the appellant. In addition, the fact that the arbitration award had not been set aside in Singapore did not mean that it was binding in Hong Kong, as the enforceability of the award in Hong Kong was the very question to be decided in this application.

The Court of Final Appeal did accept that the 14-month delay on the part of the appellant in making an application was substantial. However, it observed that the delay caused no uncompensable prejudice to Astro, who appeared to feel no need to press the proceedings on an urgent basis.

Therefore, after weighing all the factors involved, the Court of Final Appeal concluded that its discretion can only be exercised by reversing the decisions of the Courts below and grating the time extension.

Comments 

This case unequivocally affirmed the well-established proposition that arbitration must be founded on consent of the parties.

It is likely that the court will exercise its discretion in favor of a party resisting enforcement of arbitration award when there is strong evidence that the same was not based on a valid arbitration agreement.

The decision of the Court of Final Appeal also confirms that the choice of remedies doctrine remains good law. A losing party in a Convention Award can either opt to set aside the award in the supervisory court or resist the enforcement by a Convention ground of opposition.

Wisdom Newsletter (Issue 27)

Shipping

The Owners and/or Demise Charterers of the Ship or Vessel “TS Singapore” v the Owners and/or Demise Charterers of the Ship or Vessel “Xin Nan Tai 77” and the Owners and/or Demise Charterers of the Ship or Vessel “Med” (formerly “MCC Jakarta”), HCAJ 48 of 2011, HCAJ 158 of 2012 and HCAJ 49 of 2013 (consolidated), Judgment on 2 June 2017

This case concerns two almost simultaneous collisions near the East Lamma Channel Traffic Separation Scheme. Both MCC Jakarta and TS Singapore (being on port side of MCC Jakarta) were travelling south-easterly outbound from Hong Kong and MCC Jakarta was overtaking TS Singapore. At that time, Xin Nan Tai was steering in a westerly course in a crossing situation with MCC Jakarta, with Xin Nan Tai 77 being the give-way vessel (having MCC Jakarta on her starboard side) and MCC Jakarta the stand-on vessel.

Xin Nan Tai 77 did not give way but instead maintained her course and speed until a close-quarters situation was created. MCC Jakarta also failed to notice Xin Nan Tai 77 until then, and hastily turned to port to avoid collision. Unbeknownst to MCC Jakarta, Xin Nan Tai 77 turned starboard at the same time. As a result, port bow of Xin Nan Tai 77 collided with starboard bow of MCC Jakarta (“1 st Collision”). Jakarta did not stop completely but continued to swing to her port side, colliding with TS Singapore soon after (“2 nd Collision”).

MCC Jakarta sued Xin Nan Tai 77 for the 1st Collision. TS Singapore in turn sued Xin Nan Tai 77 and MCC Jakarta for the 2nd Collision. The parties agreed that TS Singapore was not to blame for the 1st Collision, and 5% to blame for the 2nd Collision.

Held

It was held that compliance with crossing rules according to COLREGS was of vital importance. Xin Nan Tai 77, as the give-way vessel, was obliged to take early and substantial action to keep well clear of MCC Jakarta but failed to do so. The only possible implications, on finding of facts, were either a failure to keep a proper lookout, or a failure to take timely action by Xin Nan Tai 77. Either way, Xin Nan Tai 77 was at fault. Meanwhile, it was found that MCC Jakarta was concentrated in overtaking TS Singapore, sailed at unsafe speed and failed to take proper look out, thus also at fault.

Since both vessels were found to be at fault to some degree, the Judge then considered apportionment of liability based on an assessment of blameworthiness and causative potency of both vessels. Having found that Xin Nan Tai 77 created the close-quarters situation in the first place by not taking early avoidance action, its fault was held to be more serious than that of MCC Jakarta, which was given a short time to respond to the situation. Apportionment was 80:20 in favour of MCC Jakarta.

Since there was nothing that MCC Jakarta could have done between the 1st and 2nd Collisions, the Judge adopted the same apportionment of liability as between Xin Nan Tai 77 and MCC Jakarta for the 2nd Collision.

Comments

In a previous collision case “The He Da” [2011] 5 HKLRD 126, the Court unusually ruled one vessel to be 100% liable for the collision despite the other vessel was also at fault, being in breach of COLREGS. That case had been criticized for being against the trend in UK case law that the Court would almost inevitably make an apportionment of liability between the two parties that are at fault.

The present case has clarified the stance of the Hong Kong High Court in apportionment of liability and will provide a useful guidance for parties in collision actions in the future in the negotiation of settlement. It is also a reminder for those at the helm to stay alert and abide by the COLREGS whenever possible.

The Learned Judge further formulated the “usual directions” to be used in collision cases involving the use of Nautical Assessor. Significantly, the parties would be given chance to file written submissions as to whether the advice of Nautical Assessor should be accepted.

Personal Injury

David John Slater v Commissioner of Police, HCPI 646 of 2012, Judgment on 7 July 2017

The Plaintiff, aged 51 at the time of accident, was a Chief Inspector posted to the Marine West Division. While participating in a Marine Police Combined Operational Tactics Training Course, he was assigned as a crew member of a Divisional Fast Patrol Craft and was standing behind the coxswain but sprained his low back when the Craft was hit by a big wave. Liability was initially contested by the Defendant but was later admitted. The judgment concerns the assessment of damages.

One issue of contention between the parties was whether the missed opportunity of the Plaintiff to take up part-time job during the sick leave period was caused by the accident. Another issue was whether the Plaintiff was entitled to damages for loss of earnings where the Plaintiff voluntarily decided to leave the employment of the Defendant.

Held

It was found that the Defendant had granted approval for the Plaintiff to work part-time for a particular company before the accident. However, shortly after the accident, that company was a target of investigation by the Defendant and hence approval for Plaintiff to work for it was revoked. Despite investigation being completed afterwards (during sick leave period) and the Plaintiff applied for approval again, the Defendant refused to grant the same as the Plaintiff was still under sick leave and was suggested to engage in activities good for his health.

It was held by Bharwaney J that the Plaintiff was physically fit to return to such part-time work after the reasonable sick leave period. His inability to return to such work was caused entirely by the Defendant’s unwillingness to grant the requisite approval, but not caused by any injury suffered by the Plaintiff in the accident. Loss of earnings for part-time work was therefore dismissed.

Further, it was found that the Defendant had a well-developed system offering appropriate positions for “health-impaired officers” until their retirement. Although in another case involving the same system, Chun Yatnam v AG for and on behalf of Commissioner of Police, it was held that the continued employment by the police would aggravate the plaintiff’s mental condition and it was reasonable for the plaintiff to retire, that case was not applicable to the present case. Prior to the accident, 80% of the Plaintiff’s duty involved office duties. If the Plaintiff were to stay with the Defendant, he would only be required to perform 100% office duties for about 1 more year before he would have retired, which the Plaintiff failed to show that such modified position would cause any depressive illness upon him such that it was reasonable for him to voluntarily apply for mutual termination of his contract of employment with the Defendant. Thus, his claim for loss of earnings after sick leave period was also dismissed.

Comments

Causation is an important element in tort cases but could sometimes be overlooked. As demonstrated in the present case, when there is an established system by the employer (Police Force) for providing suitable positions for injured employees, the Court may find that the voluntary retirement or resignation of the plaintiff to be unreasonable and thereby breaking the chain of causation. So long as it makes good commercial sense to do so, employers seeking to manage risks arising from work injuries may set up systems to accommodate the disabilities of their injured employees, or make sensible offers for long term injured employees to work on lighter duties to mitigate their losses.

WISDOM OF THE ISSUE

There is a time for everything.

Wisdom Newsletter (Issue 26)

Insurance

Lo Siu Wa v Employees Compensation Assistance Fund Board and AXA China Region Insurance Company (Bermuda) Limited, CACV No.39 and 40 of 2016 (on appeal from HCA No.393 and 799 of 2014), judgment on 26 January 2017

Background

This is one of the latest cases (most notably Law Lai Ha, below) ruling on the issue of whether an insurance policy for Employees’ Compensation (“EC”) had been issued for the purpose of Part IV of the Employees’ Compensation Ordinance (“ECO”) in force at the time of accident in relation to an injured employee.

In this case, the Plaintiff was employed by his employer (“the Employer”), an interior design company, to perform carpentry work as part of renovations to a shop in 2007 when he was injured in an accident. The Plaintiff obtained EC and common law judgments against the Employer who failed to pay and was wound up.

The Employer had taken out an EC insurance policy (“Policy”) with its insurer (“the Insurer”), but the Insurer declined to pay, saying that the Policy did not cover the Plaintiff or the accident. The Plaintiff thus sued Employees Compensation Assistance Fund Board (“ECAFB”) and the Insurer for satisfaction of the judgments.

The central issue in this action, which later went on to appeal, was whether the Policy issued for the purpose of Part IV of the ECO was in force at the time of accident in relation to the Plaintiff. If so, the Insurer would be liable to satisfy the judgments obtained by the Plaintiff against the Employer under sections 43 and 44 (in Part IV) of the ECO.

Under the Policy, it was stated as “If any employee in the Insured’s immediate employ shall sustain bodily injury… in the course of employment by the Insured in the Business.” Meanwhile, the schedule of the Policy listed the employees of the Employer, namely 2 creative designers, 3 designers, a clerk and a coordinator, and their estimated salaries. It was further provided as a special condition that the insured should supply a declaration of actual earnings to the Insurer from time to time for adjustment of premium.

In the Court of First Instance (“CFI”), it was held that, the Policy was only issued in relation to the employees of the Employer specified in the Schedule, but not to the Plaintiff who was a carpenter. As a result, the Insurer was not liable under sections 43 and 44, and the ECAFB was ordered to pay the Plaintiff under sections 16 and 20A of the Employees Compensation Assistance Ordinance.

The ECAFB appealed to the Court of Appeal which was recently decided on 26 January 2017.

Held

The appeal by ECAFB was dismissed by the majority of the Court of Appeal.

It was held that while the scope of cover of the EC policy was clearly stated as “any employee in the Insured’s immediate employ” and was wide enough to cover the Plaintiff, this clause must be read together with the other parts of the Policy as a whole including the schedule. Kwan JA recited the words of Sir Anthony Mason NPJ in New World Harbourview Hotel Co Ltd v ACE Insurance Ltd that “the interpretation which should be adopted in the case of an insurance contract, as with other commercial contracts, is that which gives effect to the context, not only of the particular provision but of the contract as a whole, consistent with the sense and purpose of the provision”. It was held that reading the Policy as a whole, it was sufficiently clear that the Policy was only in relation to those employees matching those specified in the schedule, and not in relation to the Plaintiff. The Policy was not in relation to a carpenter engaged to work outside the office of the Employer.

Having found that the Policy was not issued in relation to the Plaintiff and that the CFI was right to follow the approach in the Law Lai Ha case, the Court of Appeal dismissed the appeal of the ECAFB.

Comments

The importance of proper documentation of the material circumstances of the insured (including those affecting calculation of premium) as part of the insurance contract has been demonstrated in this case. Here, despite the rule of contra proferentum being applied against the insurer, the Court found that the wide coverage clause of the EC insurance could still be limited by the intention of the parties as clearly shown in the policy schedule.

It is good and proper practice that the drafting of the insurance contract shall clearly identify the risk undertaken by the insurer in order to limit the risk within the listed employees in the Schedule against the widely drafted Scope of Cover of “any employee on the insured’s immediately employ”.