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!

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.

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?

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”.

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.

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.

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”.

Shipping

Sea Powerful II Special Maritime Enterprises (ENE) v Bank of China Ltd [2016] 3 HKLRD 352, CACV 36/2016.

Facts

P was the owner of a vessel (“Vessel”) and D was the lawful holder of the bill of lading (“B/L”). The B/L incorporated the terms and conditions of a charterparty, which in turn contained an arbitration clause imposing a limitation period (1 year) for the institution of arbitration.

When the contractual time bar was about to expire in 4 months, D commenced proceedings in Mainland for wrongful discharge of cargo. However, due to P’s evasion of service, P only entered into an appearance 8 months after commencement of the mainland proceedings. By that time, the contractual time bar had expired. P then applied to the mainland court to challenge its jurisdiction based on the arbitration clause, but failed in both the first instance and appeal.

P applied for an anti-suit injunction in Hong Kong to restrain D from continuing in the Mainland Proceedings. P lost in the first instance and appealed, arguing that the Judge erred in ruling delay and comity considerations were sufficient free- standing justifications for refusing anti-suit relief.

Judgment

The CA dismissed the appeal.

In relation to the issue of delay, the CA cited the UK Court of Appeal case Essar, Ecobank and Ecobank and ruled that an applicant should act promptly and claim injunctive relief at an early stage. Here, P did not challenge the Judge’s finding that P was evading service in mainland in order to wait for the D’s claim to be time-barred, and there was inordinate and culpable delay on the part of P to take out the application for anti-suit injunction.

For the issue of comity, while CA agreed with P that comity considerations in contractual anti-suit injunctions (as in the present case) would be less important than in cases of forum non conveniens types of anti-suit injunctions, such considerations cannot be said to be of no or minimal importance. In the present case, the judge could not be said to have erred for giving significant weight to the comity considerations, as grant of an anti-suit injunction would mean that the two mainland courts decisions rejecting P’s challenge to its jurisdiction would be practically overturned.

Since the CA could not find any fault in the Judge’s exercise of discretion in refusing the relief sought, the appeal was dismissed.

Comments

The use of arbitration clause is widespread in the maritime industry. In the usual circumstances, parties must honour their obligation and refer any dispute to arbitration. If a party is in breach of the arbitration clause, anti-suit relief is available to the other contracting party. However, such relief is only discretionary. This case shows that while the sanctity of contractual rights are to be respected, it is not a trump card to other discretionary considerations such as delay and comity. A party must therefore act promptly if he wishes to claim anti-suit injunctive relief.

Personal Injury

Mohammad Amjad v John M Pickavant & Co CACV 698/2013, judgment on 21 February 2017

The Respondent was employed by the Appellant, a law firm, as a litigation manager. At the time of accident, he was earning about HK$32,500 per month by a combination of salary and commission. On 1 March 2006, the Respondent, while walking from his room passing the reception area to the storage room, tripped on a cardboard carton for photocopier paper that was placed in the reception area near a sofa. As a result, he fell forward and suffered personal injuries.

Soon after the injury, Mr. Pickavant of the Appellant accused the Respondent of paying monies received from clients into the Respondent’s own bank accounts and allegedly falsely telling clients that the Appellant required them to pay additional amounts. The Respondent and his wife were subsequently charged with criminal offences but they were acquitted of all charges after trial.

In the proceedings, the trial judge found the Appellant liable for the Respondent’s injuries without any contributory negligence on the part of the employee. The Appellant appealed.

Held

Honourable Barma JA (giving the Judgment of the Court) dismissed the appeal.

Barma JA upheld that there had been no contributory negligence on the part of the Respondent. Barma JA rejected the Appellant’s contention that the Respondent failed to heed the presence of the box and that the box was clearly visible. He accepted that at the time of accident, a client was seated on the sofa ahead of the box so that it would be quite possible (and perhaps likely) that the Respondent’s view of the box would have been obscured, so that he would not have been aware of its presence.

The Appellant also contended that as a result of the allegations of dishonesty made against him, regardless of the accident, the Appellant would have ended employment with the Respondent and that any other employment the Respondent could have secured would not have included the element of commission that he was being paid by the Appellant. Hence, his loss of earnings would have been less than they would have been had he continued to be employed by the Appellant. Barma JA agreed with the trial judge’s skepticism of the timing and circumstances in which the complaint of “dishonesty” came to be made against the Respondent, and thus had reservations as to whether or not the complaint was justified. Barma JA held the trial judge was hence entitled, in the circumstances, to decline to find that the Respondent would have been dismissed regardless of the accident.

Further, the Appellant contended that the trial judge erred in her approach to the assessment of the Respondent’s loss of earnings. The Appellant argued (i) that the trial judge had wrongly adopted findings as to loss of earning capacity made in the Employee’s Compensation proceedings and (ii) that the trial judge had wrongly sought to make use of concepts such as impairment of the whole person and reduced earning capacity expressed in percentage terms when assessing the Respondent’s loss of earnings, as these were concepts applicable to Employees’ Compensation claims but not in assessing loss of earnings in common law proceedings.

Barma JA accepted that the trial judge had adopted Judge Chow’s assessment of likely income after the accident in the Employees’ Compensation claim. Barma JA considered Judge Chow’s decision that his approach was not to use an earning capacity percentage figure to calculate the award to be made in those proceedings but to make an assessment of the Respondent’s actual likely level of earnings at the time of the trial of those proceedings and use that amount of the purposes of the calculation. Barma JA held that this does not differ in practical terms from the approach at common law, as that approach involves considering the Respondent’s potential earnings in his post-accident condition at the relevant time with his pre-accident income.

Further, Barma JA held that the trial judge was perfectly entitled to use percentages of pre-accident earnings as loss of earnings at different stages of recovery. Barma JA acknowledged that the trial judge, in assessing the percentages, had considered the medical evidence, the evidence of both sides as to the nature of the Respondent’s work and the Respondent’s own evidence as to the impact of those injuries on him and on his ability to carry out those duties. Barma JA acknowledged that that those figures are somewhat rough approximations but the assessment of loss of earnings is not always capable of exact or precise quantification. Barma JA also accepted that the trial judge did the best she could with the material available and the trial judge was perfectly entitled to come to the conclusions that she did.

Barma JA dismissed all the Appellant’s contentions and upheld the trial judge’s decision.

Comments

The present case is a personal injuries claims arising out of relatively safe office environment. More importantly in terms of the legal aspects, this case recognized the assessment of the Respondent’s actual likely level of earnings at the Employees’ Compensation proceedings and use that amount of the purposes of the calculation. Further, this case recognized the use of percentages of pre-accident income when assessing loss of earnings in different stages pf recovery provided that all evidence has been thoroughly considered. Given the flexibility in this method of assessment of loss of earnings at different stages of recovery, it should not be surprised to see future personal injuries claims adopting this method.

WISDOM OF THE ISSUE

You reap what you sow.

Personal Injury

Cai Guoping (Plaintiff) v Yim Hok Wing (1st Defendant), May’s Asia Limited (2nd Defendant) & Hip Hing Construction Company Limited (3rd Defendant), CACV 96/2015, judgment on 9 September 2015 & 13 October 2015

This is an appeal brought by the Plaintiff against the judgment of HCPI 494/2013 in relation to a work accident on a construction site. In the subject accident, a concrete panel fell and struck the Plaintiff when he was moving another concrete panel in a hoist. As a result, he sustained multiple facial injuries and was given intermittent sick leave over 16 months from the date of accident.

During the trial, the Plaintiff gave a version of the alleged accident which is largely different from the version set out in his declaration to the Labour Department, his Statement of Claim and his signed witness statement, leaving the trial judge with a real sense of doubt. The trial judge preferred the evidence given by the defendants’ witness, i.e. the Plaintiff was taught to first untie the two panels on the hoist, then rotate the first panel by 90° to the side of the hoist whilst another worker would tend to the second panel to ensure that it did not fall. It was ruled that this did not constitute a safe system of work since very heavy, large concrete panels were being transported in pairs, which required handling the panels in a confined space and handling one panel whilst the other was not secured. The trial judge held that common law liability was established against all three defendants but there was 50% contributory negligence on the part of the Plaintiff.

On the issue of quantum, the trial judge found the appropriate sick leave period to be 6 months and 5 days and did not allow any loss of earnings beyond this sick leave period and loss of earning capacity. Damages assessed at HK$473,229.00 was reduced by 50% to HK$236,614.00, which was less than the award for the employees’ compensation already received by the Plaintiff in the sum of HK$333,300.00. Therefore, no award for damages was made even when liability was established. The Plaintiff’s action was dismissed with an order nisi that there be no order as to costs. The order nisi was later varied pursuant to Order 22, rule 23(5) of the Rules of the High Court, Cap.4A. In the light of the Sanctioned Payment made by the Defendants on 18 November 2014, it was ordered that the Plaintiff was to pay the Defendants indemnity costs from the expiry of the Sanctioned Payment on 17 December 2014 and enhanced interest on disbursements incurred after 17 December 2014 up to the judgment date.

On appeal, the appeal judges revisited the evidence put forward at trial. They found that the Defendants should be liable for failing to take the simple measures which could have helped prevent the risk arising to workers handling the panels; the “correct method” taught to the Plaintiff, although not found to be unsafe, was cumbersome and needed sufficient strength in maneuvering the panels; the Plaintiff and his co-worker were engaged in performing the hard, physical and repetitive task for up to 100 panels a day; the system of work provided was not designed to protect the Defendants’ workers as much from their carelessness as from anything else. At the same time, the appeal judges upheld the trial judge’s finding that the Plaintiff should also be responsible for the occurrence of the accident as it was not a momentary lapse of attention but the Plaintiff and his co-worker had made a conscious decision to depart from the Defendants’ instructions and not to follow the “correct method”. However, re-weighing the above findings, however, the appeal judges allowed the Plaintiff’s appeal against liability and reduced the apportionment of contributory negligence from 50% to 25%. In the absence of any serious error or wrong application of the principle of law however, the Plaintiff’s appeal against quantum was dismissed.

After the reduction of contributory negligence to 25%, the net award of damages to the Plaintiff would beHK$21,621.75.00. Therefore, the Plaintiff still failed to beat the said Sanctioned Payment in the sum of HK$120,000 dated 18 November 2015 by a wide margin. The appeal judges maintained that the Plaintiff was to pay the Defendants indemnity costs from the expiry of the Sanctioned Payment on 17 December 2014 up to the judgment date. However, the appeal judges set aside the costs order that the Plaintiff do pay enhanced interest on disbursements (i.e. half of the fees for mediation on 17 November 2014 paid in January 2015) as it was actually not incurred after 17 December 2014.

Comments:

The above case illustrates that on top of whether safety training is given to the injured employees, the court would also consider in detail the training/instructions given to the injured employees in assessing liability.
With the availability of a detailed description of the training given, the court would be able to find that the Plaintiff did not follow the instructions and allocate a substantial percentage of contributory negligence on
the part of the Plaintiff. In order to better defeat the Plaintiff’s credibility and absolve the employers’ liability in similar work-accident related personal injury claims, employers are advised to keep a detailed record of the trainings/instructions given to their workers and attendance records of training courses signed by their workers.

It can be seen that after reconsidering the available evidence, the appeal court upheld the trial judge’s findings and continued to allocate a substantial percentage of contributory negligence on the part of the Plaintiff for not following the employer’s instructions thereby causing the accident. It appears that whilst the law poses obligations for the employers to do as far as reasonably practicable to ensure their workers’ safety, the employers are protected from being held liable for accidents to disobedient workers who
voluntarily act not in accordance to the employers’ instructions.

The above case also indicates how the mechanism of sanctioned payments could protect the defendant’s position on costs. Whenever the Plaintiff fails to obtain a judgment that is better than the sanctioned payment, the Plaintiff would have to bear not only the defendant’s costs of the proceedings from the date when the sanctioned payment expired but also enhanced interests on disbursements incurred after the expiration of the sanctioned payment. In the above case, the appeal judges opined that it was a “sheer speculation” to say that there was an objective basis for thinking that the Plaintiff might
have a reasonable chance of beating the sanctioned payment. There is no excuse for the Plaintiff to not accept an adequate sanctioned payment within the prescribed deadline.  In other words, the sanctioned payment can exert pressure on the Plaintiff to reasonably assess his/her own claim at an earlier stage before trial, taking into account the risks on costs as mentioned above.

To safeguard the defendant’s position on costs, the defendants are advised to effect a sanctioned payment at an “early stage” in the proceedings. Taking into account the chance that some documents enhancing the plaintiff’s claim might not yet be disclosed at the early stages, the amount paid into court could be a bit higher than the actual assessed damages to ensure that the risks of costs sits firmly with the plaintiff.

Shipping

Cargill International Trading Pte Limited v Loyal Base Development Limited, HCCL 12/2015, Decision on 24 November 2015.

This is a Court of First Instance case concerning an application made by the Defendant to discharge an ex parte mandatory injunction order (“Order”) granted in favour of the Plaintiff.

Under a sale contract, the Plaintiff was the seller of a cargo and the Defendant was the buyer. In order to procure the Plaintiff to deliver the cargo to the port agents without production of the original bills of lading, the Defendant issued a letter of indemnity (the “LOI”). In the LOI, the Defendant promised that, inter alia, it would provide, on demand, any security required to secure the release of the vessel, in the event the vessel is being arrested in connection with the delivery of the cargo regardless of “whether or not such an arrest or
detention … may be justified”. The cargo was then released to the port agents and ultimately released from the port without production of the original bills of ladings.

Subsequently, a bank obtained an order from the Qingdao Maritime Court for the arrest of the vessel. The order was based on the bank’s claim that it was entitled to take delivery of the cargo, but the cargo had been wrongly released without the original bills of lading which was in the bank’s possession.
When the Defendant was unwilling to provide for the security as required under the LOI, the Plaintiff applied for and obtained the Order ordering the Defendant to provide security to secure the release of the vessel. The Defendant later applied for the discharge of the Order on various grounds, including, inter alia, (1) the Plaintiff has misled the Court, and (2) the Plaintiff has failed to disclose to the Court the material facts.

The Court of First Instance, in a decision given by Mimmie Chan J, dismissed the application for discharge of the Order.

On the issue of the Court allegedly being misled by the Plaintiff, the Defendant sought to argue that the Plaintiff failed to demonstrate that there would be a high degree of assurance that at trial, the Court will find that the arrest of the vessel fell within the scope of the LOI, to trigger the Defendant’s obligations and liabilities thereunder. The reasons for the Defendant’s argument are two-fold. First, it was argued that, during the negotiation of the LOI, the parties intended that the LOI was to cover the “discharge” of the cargo to the port agent from the vessel, and not “delivery” of the cargo (after discharge) without the original bills, so the LOI should be rectified on the ground of alleged common mistake. If the Court did rectify the LOI, then it follows that the Defendant would not be liable under the LOI because the vessel’s arrest was in relation to wrongful “delivery” of the cargo, as opposed to “discharge”. In rejecting this line of argument, the Court acknowledged that in reality, parties had limited opportunities for close textual analysis before committing to a wording, so the distinction between “discharge” and “delivery” was artificial and there was no basis that the LOI needed to be rectified. Accordingly, the Defendant’s obligations and liabilities under the LOI were triggered because the cargo was delivered to the port agent, which was prima facie acting as the Defendant’s agent in taking delivery of the cargo.

The Defendant’s second argument was that the bank’s claim underpinning the arrest of the vessel had no merit and was not connected with the delivery of the cargo. The Court rejected this argument as well on the basis that the LOI expressly provided that the Defendant’s liabilities would be triggered regardless of whether the arrest may be justified and the phrase “in connection with” used in the LOI was a very broad term.

On the issue of alleged material non-disclosure, the Defendant sought to argue, inter alia, that the Plaintiff failed to disclose the fact that the Plaintiff was arranging security after the Order was granted with another bank which eventually led to the release of the vessel. Mimmie Chan J first pointed out that the duty to make full and frank disclosure in an application for ex parte relief continues while the proceedings remain on an ex parte basis. She then held that the Plaintiff had the duty to disclose to the Court that it was arranging security for the release of the vessel because it was relevant to the Court’s consideration of whether it should continue or vary the Order. Nevertheless, the Plaintiff’s failure to disclose was not sufficiently material to justify the discharge of the Order because such failure did not discharge the Defendant from its liabilities under the LOI.

Comments

In rejecting the Defendant’s argument that the LOI did not reflect the true intention of the parties, Mimmie Chan J noted that the word “delivery” was used throughout the LOI. The LOI, which is in the standard form used in the shipping industry and is commonplace in international trade, is to be construed robustly and in a straightforward way.

Another lesson from this case is that in a letter of indemnity such as the LOI, the phrase “whether or not such arrest or detention… may be justified” could have far reaching implications. Such a phrase could be relied on by an applicant for ex parte relief to show a prima facie case that the respondent’s liability is triggered, without proving the merits of the arrest, as illustrated in this case where Mimmie Chan J spent very little time discussing whether the arrest was justified.

It is well established that, for an ex parte application, the applicant shall make full and frank disclosure of any material facts. If the failure to make material disclosure ground can be made out, this ground alone is sufficient for the Court to set aside the ex parte order with costs ordered against the applicant. It is imperative that the applicant shall disclose all the material facts, whether to the disadvantage to the applicant or not, in any ex parte application.

WISDOM OF THE ISSUE

When one door closes, another opens.