Shipping

Default Judgment Under in Rem Proceedings: Is Your Claim Well Founded?

Itiro Corporation BVI v The Owner and/or Demised Charterers of The Ship or Vessel “ANGELIC GLORY [2021] HKCA 1865

In this recent decision, the Court of Appeal (comprising of the Hon Kwan VP and G Lam JA) (“CA”) allowed the Plaintiff’s appeal of the decision of the Admiralty Judge in disallowing part of the claims in the Plaintiff’s application for judgment in default of acknowledgment of service under Order 75, rule 21 of the Rules of High Court.  In doing so, CA provided valuable insights on the application of the “well-founded” threshold under Order 75, rule 21.

This firm acted for the successful appellant (the Plaintiff) in this case.

Fact

The Plaintiff was the charterer of the ship or vessel “Angelic Glory” (“Vessel”) under a charterparty dated 7 March 2019 (“Angelic Glory Charterparty”).

On 12 November 2020, the Plaintiff commenced in rem proceedings against the Vessel. The Defendants failed to acknowledge service of the writ in rem of the Plaintiff. On 3 March 2021, the Plaintiff filed a notice of motion under Order 75, rule 21 for judgment in default of acknowledgment of service. The Admiralty Judge allowed all the claims of the Plaintiff except for, inter alia, the claim for the difference in the hire rate (“Claim”) between the Angelic Glory Charterparty and an addendum thereto signed in September 2019 (“Addendum”).

It is the Plaintiff’s case that:

(1) Angelic Glory Charterparty incorporated the terms of an earlier charterparty for a sister vessel “Angelic Peace” dated 31 January 2019 (“Angelic Peace Charterparty”). The recap of Angelic Peace Charterparty stated that the Angelic Peace Charterparty was on the same terms as an earlier charterparty of the Vessel entered in 2015 (“2015 Charterparty”), save that, among other things, Clause 63 of the 2015 Charterparty was altered to allow the carriage of sugar cargo. By mistake, an unamended 2015 Charterparty was attached to the recap of the Angelic Glory Charterparty (“Angelic Glory Recap”).

(2) The common intention of the parties was that Angelic Glory Charterparty incorporated the Angelic Peace Charterparty, including the provision in its recap which made sugar a permitted cargo under the Angelic Glory Charterparty.

(3) In breach of the Angelic Glory Charterparty, the Defendants declared in August 2019 that sugar was not a permitted cargo and alleged that carriage of sugar cargo would require an enhanced rate of hire.  The plaintiff was left with no alternative but signed the Addendum which provided for an enhanced rate. The Addendum was unenforceable for want of consideration or economic duress.

In support of its case, the Plaintiff provided, by way of affidavit, copies of the relevant charterparties, skype exchanges of the parties’ brokers, a witness statement of the Plaintiff’s broker in respect of mistaken attachment of the 2015 Charterparty to the Angelic Glory Recap and the email exchanges in August 2019.

In the first instance, the Admiralty Judge accepted that the material clause of the Angelic Peace Charterparty was amended to allow carriage of sugar cargo and that there was a reference in the Angelic Glory Recap to the Angelic Peace Charterparty. His Lordship was of the view that the said reference could not be divorced from the unamended 2015 Charterparty (which did not allow sugar cargo) attached to the Angelic Glory Recap. Thus, His Lordship thought that the Claim was “at best arguable”. Accordingly, the learned judge dismissed the Claim because he was not satisfied the same was well founded.

The Plaintiff appealed the said decision on the grounds that (1) the judge erred in law in applying the “well founded” threshold in Order 75 rule 21(7); and (2) the judge was plainly wrong in failing to hold that the plaintiff’s evidence met the “well founded” threshold.

Judgment

The Plaintiff submitted that the appropriate standard of evidence required in this context is “prima facie evidence” to substantiate the allegations in the statement of claim, and that such supporting evidence need not be definitive or conclusive.  The Plaintiff contended that the judge erred in law in requiring the plaintiff to prove its allegations by a standard higher than prima facie evidence.

CA explained that the specific purpose of the “well founded” requirement is to “ensure the default judgment does not compromise the rights of any other party who may have an in rem claim against the arrested vessel which is to be sold and the proceeds paid into court”.

CA did not consider it necessary or appropriate to put a glossing of the words “well founded”, as their meaning in this context is quite clear. However, CA referred to the decision of the Federal Court of Malaysia in The Fordeco Nos 12 and 17 [2000] 1 MLJ 449 concerning equivalent Malayasia provisions, which referred to the meaning of “well-founded” as “based on good evidence, having a foundation in fact or reason”. CA accepted that this seemed to be a working definition of the words “well founded”.

On the totality of the evidence, CA was satisfied that there was a well-founded claim that it was the common intention of the parties that the Angelic Glory Charterparty incorporated the provision in the Angelic Peace Charterparty which made sugar a permitted cargo under the Angelic Glory Charterparty, and it was due to a clerical mistake that the unamended 2015 Charterparty was attached to the recap of the Angelic Glory Charterparty.  There was a proper claim in law for rectification of the Angelic Glory Charterparty and the Addendum would not be enforceable for want of consideration and/or economic duress. Accordingly, the Court reversed the decision of the first instance judge and allowed the Claim.

Comments

Sometimes, the simplest of questions are left unanswered by clear authority. It is perhaps for this reason that there is no clear guidance from case law on the meaning of the “well founded” threshold under Order 75, rule 21 (or similar requirements in other common law jurisdictions). This decision therefore provides a rare opportunity for questions concerning the meaning and application of the “well founded” threshold under Order 75, rule 21 to be determined at the appellant level.

Although CA did not consider it necessary to “to put a glossing” over the words “well founded”, this case illustrates that the threshold is not a high one. Specifically, the requirement “having a foundation in fact or reason” in the working definition adopted by CA is not exceptionally difficult to meet and does not, for example, seem to require the Court to satisfy that there is no arguable defence to the plaintiff’s claim. This makes sense because it is up to the defendant to enter appearance and put forward its defence if it wishes to dispute the claim. Having said that, the plaintiff still needs to put forward good evidence that are sufficient to substantiate the claims pleaded in its statement of claim.

Arbitration

Silence is not always golden

Z v R [2021] HKCFI 2312

HCCT 11/2021, Hon Mimmie Chan J in Chambers, 9 August 2021

Fact

Both the plaintiff and the defendant were companies and shareholders of a joint venture company (“Company”). In 2014, the Shareholders Agreement was varied by a Supplemental Agreement (“SHA”). Clause 11 of the SHA contained several restrictive covenants, including a non-compete clause which would not apply when “the Company does not have a suitable self-owned or bareboat chartered vessel available to bid for the projects”. It was further stipulated that preference should be given to the Company so long as the vessels owned by the Company or the vessels available are qualified to meet the requirements to submit bids for the potential projects.

Despite the fact that the Company submitted bids and possessed suitable vessels for the certain projects, the plaintiff’s 50% affiliate also submitted bids for the projects. Hence, an HKIAC arbitration was commenced by the defendant in 2019 against the plaintiff in Hong Kong. The defendant claimed that the plaintiff materially breached the restrictive covenants provided in Clause 11 of the SHA.

The arbitral tribunal issued the First Partial Final Award in October 2020 which declared that the plaintiff did commit a material breach of its SHA obligation and had failed to remedy the breach. The Second Partial Final Award was issued one month later and entitled the defendant to relief.

In January 2021, the plaintiff made an application to the court to set aside the two Awards. The plaintiff argued that the arbitral tribunal had failed to deal with all the issues put before it since it had overlooked the plaintiff’s arguments on other clauses. The plaintiff further submitted that the court should set aside the arbitral awards as the plaintiff was unable to present its case on (i) the possibility of a bareboat charter of the vessels being made available for the project and (ii) the “wholly new interpretation” of the word “available”.

Ruling

The court dismissed the plaintiff’s application to set aside the arbitral awards. It was concluded that all the grounds raised by the plaintiff failed. The court considered that it is simply a case where the plaintiff failed to obtain the desired outcome although it had presented and made submission on its case.

Firstly, the court held that the tribunal did deal with the relevant issues by referring to the reasons put forward by the defendant. The court suggested that reliance on the inadequate reasons proposed by the defendant does not equal failure to deal with all the issues. In this regard, the court emphasized that no determination shall be made as to the correctness of the decision made by the tribunal and the quality of the reasoning.

Secondly, the court found that the issue concerning the availability of the vessel for the project to be an issue “in the arena”. The court found that the issue was in fact referred to in the notice of pleadings as well as statement made by the Defendant’s witness, it could not be said that the plaintiff had no opportunity to prepare its case and address the issue. As the plaintiff chose not to address the tribunal when the alleged procedural irregularity arose, the plaintiff waived the irregularity as well as the opportunity to further explore the issue.

Thirdly, the court applied the same logic when dealing with the plaintiff’s complain about the tribunal construction of the word “availability”.  Considering that (i) the tribunal adopted the natural meaning of the word and (ii) the word itself was not of complex nature, the court held that the plaintiff should have raised the possible meaning in mind if it did not agree with the tribunal. In this regard, the court further drew a distinction between “the lack of opportunities to deal with the case and the failure to recognize or take such opportunity”. The court, again, expressed that the plaintiff could hardly complain if it failed to alert the tribunal in the first place.

Comments

The court has always been restrained from commenting on the merits of the case or the substantive correctness of the awards. With the exhaustive list provided by section 81 of the Arbitration Ordinance which lays down the circumstances when the court should interfere in an arbitration, the court would only interfere when there is “serious or egregious denial of due process”. The court, just as all the cases it cited, underscored the ultimate concern about the structural integrity of the arbitral regime, demonstrating the court’s genuine respect and support for arbitration.

More importantly, this case also reflects the decisive role played by applicant in ensuring fairness of an arbitration. As shown in the court’s analysis, an applicant who wishes to set aside the arbitration awards should proactively raise his objection against any perceived procedural irregularity during the arbitration. In this sense, before scrutinizing whether an applicant is deprived of the opportunities to present his case, the court is more concerned about whether the arbitral tribunal is deprived of the opportunities to comprehensively deliberate on the entire case.

When the idea of “fairness” is fundamental to the integrity of the arbitration regime, one should note that safeguarding fairness of an arbitration is never the sole responsibility of the arbitral tribunal. Not only does this case confirm the supportive role played by the court in the arbitration regime, but it also highlights the mutuality between the arbitral tribunal and the parties. As a result, one should make sure that he has done his part to insure fair play among the parties in the arbitration proceeding, or it will be difficult to convince the court to set aside the arbitral awards.

Personal Injury

Prejudice – To Be More Specific!

Momin Lok v Hospital Authority [2021] HKCA 1075

CACV 236/2020, Hon Barma, Au and G Lam JJA in Court, 26 July 2021

Fact

The case mainly deals with two issues: (i) the level of knowledge required under s.27 of the Limitation Ordinance (“LO”) and (ii) when the court shall exercise its discretionary power under s.30 LO to disapply the time bar.

Throughout second half of 2008, the plaintiff had been receiving treatment from Princess Margaret Hospital (“PMH”) as she was found to have thrombus in the chief artery of her right arm. In particular, the PMH doctors had been prescribing Warfarin to the Plaintiff. Despite the anticoagulation medication and treatment, the plaintiff still suffered from ischaemic stroke in December 2008. The plaintiff believed that the prescription of Warfarin caused the stroke.

Notwithstanding all the twists and turns, the plaintiff managed to commence a District Court action against the defendant in 2011 with the help of a solicitors’ firm. However, the plaintiff could not find any favourable expert medical opinion. In 2013, when the plaintiff was rehabilitating in South Africa, her then-husband discontinued the action on her behalf upon the law firm’s advice.  The plaintiff only learnt about the discontinuance in 2014 as she returned to Hong Kong. In 2015, the plaintiff served another writ to the defendant and new expert medical opinion was obtained in 2016.

The plaintiff applied for an order to allow the action to proceed such that the writ was issued within 3 years of the plaintiff’s date of knowledge under s.27(4)(b) LO; or alternatively, the court should exercise the discretion under s.30 LO. On the trial of preliminary issues, it was held that the action is brought within time since the plaintiff did not have the requisite knowledge to start time running under s.27 LO. The judge further expressed that he would have exercised the discretionary power under s.30 LO to override the time limit for the action to proceed.

Ruling

The Court of Appeal only partially concurred with the trial judge and ruled that s.27 LO does not apply to this case whereas discretion to disapply the time limit under s.30 LO can be exercised.

Regarding s.27 LO, the court clarified that the “knowledge” limb was fulfilled when the plaintiff was equipped “with sufficient confidence to justify embarking on the preliminaries to the issue of a writ”. The plaintiff had demonstrated sufficient knowledge about the possible attribution of the medication and treatment she received from the defendant to the stroke. Time had started running when she started to obtain legal advice, gather medical records and seek expert medical opinions as well as actually commenced proceedings. The new expert reports obtained in 2016 did not reset the clock since the information given by the experts was not the broad knowledge essential to her claim required under s.27 of the Ordinance. Further, the unfavourable expert medical reports obtained before did not necessarily negate the plaintiff’s knowledge.

The court nonetheless agreed that discretionary power under s.30 LO could be exercised in this case. The court reiterated the significant role of “equity” in guiding the court to determine whether such power should be exercised. The court perceived that the plaintiff’s case was “unusual” because of her failure to obtain any favourable expert opinion based on wrong line of investigation. Considering the fact that (a) the District Court action was discontinued by the plaintiff’s then-husband when there was no other viable alternative without favourable expert opinion, (b) the solicitors’ firm might have been negligent in advising the discontinuance and (c) the defendant had not suffered any prejudice from the delay, the court concluded that it was equitable to have the time bar overridden at the court’s discretion.

Comments

The present case is a crucial case expounding respective requirements to rely on s.27 and deter the application of s.30 LO.

The Court of Appeal spent a large proportion of the judgment shedding light on the required level of knowledge under s.27 LO. The court’s elucidation, which spelled out that the support by known facts or evidence is not required under s.27 for a plaintiff to possess the relevant knowledge, hinted that time starts running quite easily.

Especially, the lawyer representing the plaintiff in this case tried to reframe the issue as “when did the plaintiff come to reasonably believe there was a real possibility that her stroke was caused by inadequate anticoagulation”, but such formulation was quickly rejected by the court due to narrow interpretation of the law. The broad approach adopted by the court to understand the level of knowledge required implies the court’s devotion to prevent the exception(s) to the limitation period from being exploited. This case serves a warning to people who seek to pursue a claim to observe the limitation period and act promptly.

Another important implication arising out of this case concerns about when the court would exercise its discretion under s.30 LO. It is trite that the court must be guided by what appears to be equitable when balancing competing outcomes. Apart from the plaintiff’s unique situation, the court also found that the defendant was not prejudiced because the defendant did not adduce any specific or concrete evidence in this regard. It highlights that simply adducing evidence is insufficient to convince the court about the disadvantage, one should adduce solid evidence. Although the court did not further explain what constitutes “specific or concrete evidence”, it did impose a stringent evidential requirement on the party who would wish to show prejudice caused by the delay.

With the detailed guidance provided specifically in subsection (3), S.30 LO as a whole requires the court to exercise its discretion positively. As the court is required to take into account all relevant circumstances, the law intrinsically imposes a heavy burden on the plaintiff to prove equity in disapplying the time bar. Nonetheless, in recent decade, it is recognized in some UK and Hong Kong cases that a more flexible, generous or liberal approach should be adopted for the exercise of the discretion (A v Hoare [2008] 2 All ER 1, Mok Lai Fong v Ng Po Shui [2011] 3 HKLRD 67). As a result, this case has clearly reflected the significance for the defendant to adduce specific and concrete evidence to convince the court of the prejudice suffered if the time bar is disapplied.

Personal Injury

Costly Silence

Chu Gregory v Yick Ngai Logistics (HK) Company Limited [2021] HKDC 463
DCPI 110/2020, Master Matthew Leung in Chambers, 30 April 2021

Fact

The present case concerns the Plaintiff’s application for leave to join River Trade Terminal Co Ltd (“River Trade”) and Bentat Logistics (Shipping) Ltd (“Bentat”) as the 2^nd and 3^rd Defendants (“Intended Defendants”).

The Plaintiff, who claimed to be employed by the Defendant as a container truck driver, was instructed to work at the Defendant’s designated parking area (“the Area”) in the River Trade Terminal (“the Terminal”). An accident occurred on 24 March 2017 when the Plaintiff was working at the Area (“the Accident”). Believing that the Area was exclusively used by the Defendant, the Plaintiff commenced proceeding against the Defendant on 13 January 2020. In the Defence filed on 27 March 2020 and a subsequent letter dated 24 June 2020, the Defendant claimed that River Trade provided the Area for it to store containers and cargoes, and that Bentat was a contractor engaged by River Trade to manage the Area.

In opposing the Plaintiff’s application, River Trade’s main argument was that the Plaintiff’s application was out of time pursuant to section 27 (3) and (4) of the Limitation Ordinance (“the Ordinance”). Given that the names and logos of River Trade were all over the Terminal, the Plaintiff ought to take steps to investigate his claim against River Trade, such as conducting a land search. In the circumstances, River Trade argued that the Plaintiff should have constructive knowledge of River Trade’s identity and involvement in the Area pursuant to section 27 (8) of the Ordinance. The Defendant raised no objection to the Plaintiff’s application but argued that the costs should be borne by the Plaintiff.

Ruling

The Court held that the mere fact that the names and the logos of River Trade appeared in the Building, the entrance gate, the crane and the vehicles patrolling at the Terminal would not put the workers of the Defendant, including the Plaintiff on constructive notice that the Area was occupied by someone other than the Defendant. Even if the Plaintiff had conducted a land search, the Plaintiff would not have sufficient information in concluding that the Area was occupied by River Trade.

As the Plaintiff had only been working in the Area for a short period of time (i.e. since 1 March 2017) and no evidence showing that the Plaintiff had any previous communication or any dealing with the employees of River Trade, the Plaintiff could not be expected to acquire knowledge of River Trade’s identity and involvement prior to the expiry of the 3 years’ limitation under section 27 (4)(a) of the Ordinance. In the premises, the Court held that the Plaintiff’s claim was made within time under section 27 (4)(b) of the Ordinance.

Alternatively, the Court was minded to exercise discretion under section 30 of the Ordinance in allowing the Plaintiff to claim relief against the Intended Defendants out of time. In exercising such discretion, the Court noted that (i) the period of delay was short, (ii) the Plaintiff acted promptly and reasonably in the circumstances and that (iii) River Trade would not suffer from any forensic prejudice should the time bar be uplifted.

In determining the costs of the Plaintiff’s application, the Court noted that the Plaintiff requested the Defendant to identify other parties at fault in its Pre-action Letter dated 12 March 2019, specifying that failing to do so the Plaintiff would claim costs occasioned from a joinder application against the Defendant. Notwithstanding the Plaintiff’s request, the Defendant had failed to inform the Plaintiff as to the identity of the Intended Defendants until the filing of its Defence. Having considered the Defendant’s conduct and that River Trade was unsuccessful in contesting the Plaintiff’s application, the Court ordered that 1/3 of the costs of the Plaintiff’s application be borne by the Defendant and the remaining 2/3 be borne by River Trade.

Comments

This case demonstrates that in opposing a joinder application, the opponent’s burden of proving “constructive knowledge” under section 27(8) of the Ordinance is a high one and the Court would not discharge the burden lightly. First of all, such facts must be observable or ascertainable within the specific area of the Accident. Secondly, it must be shown that the Plaintiff is expected to acquire the relevant knowledge (i.e. the identity of the wrongdoer) from such facts before the Court can fix constructive knowledge onto the Plaintiff.

While the Plaintiff’s claim is held to be made within time, this case reaffirms that the Court is willing to override time limit when the Plaintiff establishes that it would be equitable to do so. It is also noted that in considering whether the Defendant would suffer any prejudice in overriding time limit, the Defendant must demonstrate a certain degree of forensic disadvantage. Mere loss of the limitation defence would not be sufficient to constitute prejudice.

Finally, this case reminds the Court’s emphasis on the objectives of the Civil Justice Reform (“CJR”). In the post-CJR era, parties should cooperate with one another in the conduct of the proceedings. Even if the Plaintiff did not request the Defendant to identify potential co-defendants in its Pre-action Letter, it is probable that the Defendant should assist the Plaintiff in doing so. There is no reason why a defendant does not identify potential co-defendants or third parties to avoid or minimize its loss.

As demonstrate by this case, a defendant would be penalized in costs if the joinder application is contributed to the defendant’s unsupportive conduct. This is so even if the defendant has raised no objection to the plaintiff’s application.

Arbitration

Beware of Getting Off on the Wrong Foot

In the matter of the Arbitration Ordinance, Cap 609 and In the matter of an Arbitration between: AB v CD, HCCT 27/2020, Hon Mimmie Chan J in Chambers, 18 February 2021

Fact

The arbitration conducted by HKIAC concerns a dispute under an agreement between AB Bureau and CD (“Agreement”). Pursuant to the arbitration clause in the Agreement, CD issued a Notice of Arbitration in April 2019. Both the Agreement and the Notice of Arbitration named AB Bureau as respondent. On 16 and 17 July 2019, CD received two emails from employees of AB Engineering requesting further information and documentation from CD regarding the Arbitration. Subsequently, CD submitted an Amended Notice of Arbitration revising the name of respondent from “AB Bureau” to “AB Bureau also known as AB Bureau Co, Ltd” in July 2019.

On November 2019, in relying on information in AB Engineering’s website, CD concluded that AB Bureau became AB Engineering after a restructuring and applied to further revise the respondent’s name from “AB Bureau” to “AB Engineering”. Following CD’s request, the arbitrator gave effect to the change of name and ordered that further service of notice on AB Engineering was not necessary.

The arbitral award (“Award”) issued in March 2020 named AB Engineering as the respondent. It was noted by the arbitrator in the Award that the AB Engineering did not participate in the Arbitration.

AB Engineering applied to the Court to set aside the Award on the following basis:

AB Engineering was not a party to the Agreement, and there was no valid arbitration agreement between AB Engineering and CD (Article 34 (2)(a)(i) of the UNCITRAL Model Law);

the Award contains decisions on matters beyond the scope of the submission to the arbitration (Article 34(2)(a)(iii) of the UNCITRAL Model Law); and

AB Engineering was not given proper notice of an arbitrator or of the arbitration proceeding (Article 34 (2) (a) (ii) of the UNCITRAL Model Law).

Should AB Engineering succeed on any of the above grounds, the Court could set aside the Award.

Ruling

On evidence, it was obvious that AB Bureau and AB Engineering, having different unified social credit codes on the Mainland, are two separate and distinct legal entities. In opposition, CD argued that the Award is enforceable against AB Engineering on the basis that it was a party to the Agreement and alternatively, it was estopped from applying to set aside the Award.

CD’s argument was that AB Engineering, being a subsidiary of AB Bureau at the time of the Agreement, was a party to the Agreement by virtue of the definition of AB. In the Agreement, AB is defined to mean “AB Bureau or any other Affiliated entity”. Having construed the Agreement, the Court found that the Agreement was made between CD and AB Bureau only, and that the Agreement did not stipulate the rights and obligations of AB Engineering at all. This distinguished the case from Giorgio Armani SpA v Elan Clothes Co Ltd [2020] 1 HKLRD 354, where the underlying agreement was expressly made “by and between” the parent company, SpA, “together with its branch offices and Affiliates” and expressly listed the rights and obligations of SpA and its Affiliates

Even if AB Engineering was a party to the Agreement, the Court held that there was no proper service of the Notice of Arbitration and the Amended Notice of Arbitration (“Notices of Arbitration”) onto AB Engineering: Firstly, the Notices of Arbitration had never been sent to the proper registered address of AB Engineering. Furthermore, the Notices of Arbitration were addressed to AB Bureau and not AB Engineering. In naming a totally different company in the Notices of Arbitration, the Court held that CD had not given adequate and proper notice of the arbitral proceeding to AB Engineering.

CD also argued that as the employees of AB Engineering had misled CD to believe that AB Bureau and AB Engineering were the same entity, AB Engineering was estopped from applying to set aside the Award. However, it was found that CD relied solely and erroneously on information in AB Engineering’s website rather than on the alleged misrepresentation of AB Engineering’s employees. In fact, there was no such statement made on the website supporting CD’s conclusion that AB Bureau became AB Engineering after a restructuring. AB Engineering did not participate in the arbitration and as such, there was no submission to the arbitration.

In conclusion, the Court rejected CD’s arguments and held that the Award should be set aside under Article 34(2)(a)(i) and (ii) of the UNCITRAL Model Law.

Comments

As highlighted by the Court, serving a proper notice of arbitration is a key step in arbitration proceeding as it goes to the jurisdiction of the tribunal. This case again reminds the claimant and its legal advisor the Court’s (otherwise, the tribunal’s) emphasis of due process and serving the notice of arbitration on the correct party. While it is often a combination of various factors (i.e companies under a complex corporate structure bearing similar names and the claimant assuming the veracity of information on external sources) that contributed to a case of misnomer, such mistakes could have been avoided had the claimant been more cautious and taken extra steps, i.e. conducting background searches and company searches.

While it is rare for the Court to set aside an arbitral award, it will exercise such discretion if the award debtor can establish a statutory ground for set aside and the circumstances justify the Court to do so. Misnomer in the name of counterparties, which may be mere inadvertence, would be detrimental to the claimant, who may risk the arbitral award being set aside and bear legal costs of the award debtor at the same time.

Closely related, a claimant may find it tempting to serve a notice of arbitration onto the employee or agent of the intended respondent. As a general rule, an employee, agent or P&I club with general authority to deal with the case on behalf of its employer, principal or member respectively does not have the authority to accept service of a notice of arbitration

In Sino Channel Asia Limited v Dana Shipping and Trading PTE Singapore and Anor [2017] EWCA CIV 1703, the English Court of Appeal (“English Court”) found that on evidence, a Beijing XCty Trading Limited (“BX”) had both implied actual authority and ostensible authority to receive Dana’s Notice on Sino’s behalf. That said, the English Court admitted that such decision was premised on the unusual facts that Sino, while assuming liability to Dana under the contract in question, took no part, no role and no interest in the negotiation or performance of the said contract. Sino imposed no safeguards and no notice requirements upon BX as to either the terms of the contract or its performance.

Furthermore, the relationship between Sino and BX gave Dana the impression that BX was to be dealt with for all purposes, including the receipt of the notice of arbitration. The holding out manifested itself in Sino’s conduct of its relationship with BX, including the manner in which Sino’s broker acted in passing on the notice to a Mr. Cai of BX.

As such, it is advised that claimant and its legal advisor should avoid setting a foot wrong in the very first place.

Happy Chinese New Year of the Ox

PRACTICE WITH CAUTION

Law Chung Tai v. Sun Profit Logistics (HK) Limited and anr., DCEC No. 606 of 2019, H.H. Judge Levy, 15th July 2020.

Fact

The Applicant of this case claimed against his employer, Sun Profit Logistics (HK) Limited (“Sun Profit”) in respect of an accident occurred in the course of employment on 12th September 2018.  Falcon Insurance Company (Hong Kong) Limited (“Falcon”) was Sun Profit’s insurer.

Sun Profit did not participate in the legal proceedings and in default of filing of an Answer, Interlocutory Judgment was entered against Sun Profit at the 2nd direction hearing on 20th December 2019.  Later on the same day, Falcon issued a joinder summons seeking leave to join-in as the 2nd Respondent.

The Applicant opposed Falcon being joined to contest liability, but took a neutral stance in relation to quantum.

Falcon cited of Wong Shan Shan & Another v. The Incorporated Owners of Yue Wah Mansion & Anor, HCA No. 1086 of 2013, unreported, 28th January 2015 in which the Learned Deputy Judge took the view that there was no requirement for the intervener to show merits in a joinder application.

There is no dispute that Falcon received notice of proceedings on 28th March 2019 and knew the nature of the claim against Sun Profit.  On 23rd July 2019 before the 1st direction hearing, Falcon repudiated liability under the relevant insurance policy.  Falcon alleged there are number of cases against Sun Profit around the same time and those cases are unusual and extraordinary.

Falcon also knew Sun Profit did not appear at the 1st direction hearing on 23rd August 2019 and the Court directed Sun Profit to serve an Answer to the claim after being served with the Order of the 1st direction hearing.

Before the 2nd direction hearing on 20th December 2019, Falcon obtained the consent from the Applicant’s former solicitors in relation to the joining-in application.  Due to procedural oversight, Falcon only issued the summons after Interlocutory Judgment was entered, albeit on the same date.

Having learned the Interlocutory Judgment on 3rd April 2020 and despite Falcon’s suspicious over the various cases against Sun Profit including the present one, Falcon did not seek to challenge the validity of the Interlocutory Judgment.

Ruling

The Learned Judge ruled that Falcon was facing a valid and enforceable Interlocutory Judgment and following the case of Wong Kam Fai v. Yu Sai Wan and Ors., [1993] HKDCLR 67 hence its rights to challenge liability is lost by virtue of the Interlocutory Judgment.

In Wong Kam Fai, default judgment had also been entered against the respondents employers before the insurer applied to join in the proceedings pursuant to section 43(3) of the Employees’ Compensation Ordinance, Cap. 282 (“ECO”).  The District Judge held that though the insurer in general should have the right to challenge the employment relationship under section 43(3) of ECO, its right, however, “must be affected by the default judgment entered against the 1st and 2nd respondents on liability”.  In the absence of an application to set aside the default judgment in Wong Kam Fai, the Learned Judge granted leave to the insurer to deal with the assessment of compensation only.

Comments 

The rocks on the path are not inevitable.

First, when one receives new instruction from insurer clients, one would have expected those instructing would monitor the progress of a direction hearing.  At the very least, those instructing should send somebody to hold a watching brief at the direction hearing even if the insurer clients might have yet to make up the mind whether or not to take over the conduct of the proceedings on behalf of the insured.  This is indeed the number one golden rule when one handles litigation matter.

Second, no matter how overwhelmingly legitimate ground the insurer clients may have to decline policy liability in the EC context, the litigator has to remind the insurer clients forcefully on their statutory obligations under the ECO and the legal implication of Lo Siu Wa v. Employees’ Compensation Assistance Fund Board and anr., FACV No. 12 of 2017, 31st January 2018.  It is absolutely repugnant to learn that a litigator could have left an EC claim going undefended especially when Falcon also casted doubt on the validity of the claim not to mention the detriment caused to the insurer clients.

Third, irrespective of the delay in taking out the joining-in summons, the facts of this case, or at least what Falcon was arguing is that the Applicant’s claim coupled with others were suspicious, unusual and extraordinary.  This certainly renders a legitimate ground for Falcon to apply for setting aside the Interlocutory Judgment hence enhancing the chance of success in its joining-in application.  It is puzzled why Falcon did not attempt both in the first place.

Some might say, hindsight is always 20/20.  This is exactly why when one advises its insurer clients to decline policy liability especially in the EC context, one has to be very cautious to ensure all the interests of the insurer clients are well protected and the strategy is best planned ahead.  One should not lose sight of a default judgment in the EC context does have impact on issues in common law claim.  It is capable of giving rise to an estoppel on the issue of employment relationship as it is final and conclusive until the default judgment being set aside.

Shipping

Anti-Suit Injunction: Is multiplicity of proceedings necessarily unconscionable?

Plain Sail Holdings Ltd v Lau Wing Yan [2020] HKCFI 653

This case concerns an application by the Plaintiffs for orders restraining the Defendants from pursuing proceedings against the Plaintiffs in relation to vessels formerly known as MV “BBG Hope” and MV “BBG Glory” (“Vessels”) and specifically certain proceedings commenced against the Plaintiffs in Second Maritime Court in Panama (“Panama Proceedings”).

After a careful consideration of the relevant factors and arguments, Madam Recorder Yvonne Cheng SC dismissed the Plaintiffs’ application.

Fact

The Defendant and another individual Mr. Chu Kong (“Chu”) each own 50% of a BVI Company known as Ocean Sino Limited (“OSL”). OSL owned a Hong Kong Company known as PBM Asset Management Limited (“PBM”), which owned 49% of the share in BGA Holdings Limited (“BGAH”). BGAG wholly owned (directly and directly) various subsidiaries (“BGAH Subsidiaries”) that ultimately owned the Vessels.

The BGAH Subsidiaries entered into an addendum agreement to loan agreement with Premier Bright Holdings Limited (“Premier”) to, inter alia, grant a ship mortgage over the Vessels in favor of Premier’s nominee, Lohas Finance Limited (“Lohas”). On BGAH Subsidiaries’ default of the loan, the Vessels were put to sale and acquired by the Plaintiff.

The Defendant said that the aforesaid loan agreements, nomination agreement of Lohas and the mortgage was made without his knowledge. He further claimed that the default loan agreement was engineered by Chu for his benefit.

Proceedings commenced by the Defendant

The Defendant issued 2 in rem writs in Hong Kong respectively against the Vessels as well as 2 admiralty actions seeking orders to rectify the register of the HK Shipping Registry in relation to the Vessels (“HK Proceedings”). The BGAH Subsidiaries issued Summons to strike out the writs in the HK Proceedings, which were subsequently withdrawn. The writs in the Hong Kong Proceedings were never served on the Plaintiff.

The Defendant commenced 2 actions in rem in Singapore. The writs of both actions had already expired at the time of hearing of the Plaintiff’s application.

The Defendant commenced the Panama Proceedings for, inter alia, a declaration that the mortgage and sale of the Vessel were invalid and obtained an injunction to prohibit the transfer, sale, disposal, cancellation from the Panamanian Registry or recording encumbrances or mortgages on the Vessels and ordered various directorates of the Panamanian Maritime Authority to abstain from, and ban, the recording of any such acts (“Panama Injunction”). The Plaintiff sought to appeal the Panama Injunction and challenged the jurisdiction of the Panamanian Court, both the appeal and the jurisdictional challenge were dismissed.

Judgment

The learned judge noted that an anti-suit injunction may be granted where the conduct of the party to be restrained is unconscionable, vexatious or oppressive. Her Ladyship also referred to, inter alia, the following principles, established by the leading authorities:

(1) Where the Court is not enforcing an exclusive jurisdiction agreement, an anti-suit injunction should only be made in exceptional circumstances where justice requires intervention of the Court.

(2) It is a minimum but insufficient requirement for the applicant to show that the local forum is the natural forum (that is, clearly more appropriate than other forum). It does not suffice to show that the local forum is merely a natural forum, that is, one that is not inappropriate.

(3) After satisfying that local forum is the natural forum, the Court should then consider whether justice requires the claimant in the foreign court be restrained from proceeding there.

After considering the facts of the case, the Court was not persuaded that Hong Kong was clearly the more appropriate forum.

More remarkably, the Court held that it in any event did not consider the foreign proceedings to be unconscionable. The learned judge rejected the Plaintiff’s argument that there was no legitimate reason behind the multiplicity of the proceedings. Specifically, Her Ladyship took note that:

(1) the Hong Kong Proceedings were commenced against the backdrop of BGAH, Lohuas and Chu’s refusal to desist from selling the Vessel. Moreover, at the material time, the Vessels flew the Kong flags and were registered in Hong Kong.

(2) The Singapore Proceedings were commenced because the Defendant heard from the brokers the Vessels were to be delivered to their buyers respectively in Singapore and between Singapore to Japan.

(3) The Panama Proceedings were commenced due to change of the Vessels’ registration to Panama.

(4) the Defendant did not thereafter pursue the Hong Kong Proceedings nor the Singapore Proceedings.

The Court also held that since the Defendant had all along not proceeded with the Hong Kong Proceedings (the writs of which were never served on the Plaintiff) and now agreed to undertake not to proceed with them, it could not be said the Singapore Proceedings or the Panama Proceedings were commenced in bad faith for the purpose of frustrating Hong Kong proceedings or that there are proceedings in Hong Kong which needed to be protected by the grant of a restraining order.

The Court also rejected the Plaintiff’s argument that the Panama Proceedings was hopeless. Specifically, it was noted that that the Plaintiff was unable to show that the Panama Proceedings was “so utterly absurd that it cannot possibly succeed” or “plainly bound to fail’ in circumstances where the Plaintiff’s appeal of the Panama Injunction and its application to annual the Panama Proceedings were both dismissed by the Panama Court.

In similar vein, the Court dismissed the Plaintiff’s argument that the Defendant knew his claims in Panama Proceedings was hopeless. The basis of the Plaintiff’s argument that was that A Chan J had held in the judgment concerning the costs of the striking out applications of the Hong Kong Proceedings, which were analogous with the Panama Proceedings, that the Hong Kong Proceedings were plainly unsustainable. However, Madam Recorder Yvonne Cheng SC noted that A Chan  J was not expressing any view on the merits of the Panama Proceedings, which in any event could not be said to be hopeless in the light of the Panama Court’s dismissal of the Plaintiff’s appeal and jurisdictional challenge.

Comments

A party relying on a contractual entitlement not to be sue in a foreign jurisdiction has, in the absence of some special circumstances, a legitimate interest under the contract to enforce that contractual right against the other party to the contract. Thus, where a foreign suit is brought in breach of a Hong Kong jurisdiction or arbitration clause, the Court will ordinarily grant an anti-suit injunction to restrain the said foreign suit.

On the other hand, where a party relies on conduct which is unconscionable for a non-contractual reason, the legitimate interest must be the existence of local proceedings which need to be protected by the grant of an anti-suit injunction. Specifically, this case shows that multiplicity of proceedings is not unconscionable per se and will not amount to a ground for granting an anti-suit injunction at least insofar as there are legitimate grounds for bringing proceedings in more than one jurisdictions. It also demonstrates that the Hong Kong Court will be reluctant in finding a foreign action to be hopeless in circumstances where the foreign court has allowed the action to proceed.

This is a welcome decision to those operating in the maritime world, who often have legitimate needs to commence proceedings in multiple jurisdictions, for the purpose of protecting their interests.

Personal Injury

DOUBLE EDGED SWORD

In the matter of an EC Application between Hui Po Chi v. Trade Travel (Hong Kong) Limited, DCEC No. 406 of 2017, H.H. Judge Levy, 9th September 2020.

Fact

The Applicant was a bus-captain who met 2 separate accidents respectively in the course of employment with Trade Travel (Hong Kong) Limited (“the Respondent”) and New Lantao Bus Co (1973) Limited (“New Lantao”).

The 1st alleged accident occurred on 12 April 2015 (“the 1st Alleged Accident”) when the Applicant was in the employ of the Respondent. 3 separate payments between April and June 2015 in the total sum of HK$23,704.94 were made to the Applicant (“the Said Payments”). According to the Respondent, the Said Payments were made under Section 33 of the Employment Ordinance, Cap. 51 (“EO”) for sickness allowances and not payments pursuant to Section 10 of the Employees’ Compensation Ordinance, Cap. 282 (“ECO”) as the Respondent had no knowledge of the 1st Alleged Accident at time when it made the Said Payments.

On 25th November 2015, the Applicant worked for New Lantao and she met with the 2nd alleged accident on 7th April 2016 (“the 2nd Alleged Accident”). The Applicant received periodical payments from New Lantao on various dates between April and November 2016.

Cunningham Lindsey (Hong Kong) Limited (“Cunningham”) was the loss adjuster appointed by Falcon Insurance Company (Hong Kong) Limited (“Falcon”), the EC insurer of both the Respondent and New Lantao. On 1st November 2016, Cunningham requested the Applicant to attend a medical examination pursuant to Section 16 (1A) of the ECO (“Purported s 16 Request”) scheduled on 6 December 2016 (“the Scheduled Examination”).

In response to the request, Messrs B Mak & Co (“B Mak”) for the Applicant wrote on 28th November 2016 that the Applicant would not attend the Scheduled Examination on the ground that the Applicant’s medical condition had yet to be stabilized. Falcon and Cunningham’s further requests of the Applicant attending another medical examination were also declined by B Mak.

As the Applicant had failed to attend the Scheduled Examination, the Respondent invoked Section 16(4) of the ECO and issued a Summons to strike out the Applicant’s EC Application.

Ruling

The Learned Judge found that the Purported s 16 Request was made on behalf of the Respondent.

However, the Learned Judge rejected the Respondent’s argument that it had satisfied the statutory requirement to make periodical payment under Section 10 of ECO by making the Said Payments. By its own admission, the Said Payments were made under Section 33 of the EO and not Section 10 of the ECO. Furthermore, the Respondent had no knowledge of the 1st Alleged Accident when it made the Said Payments to the Applicant. Hence, the Respondent did not intend the Said Payments to be periodical payments for the purpose of Section 10 of the ECO.

The Learned Judge also rejected the Respondent’s argument that it had satisfied the periodical payment requirement under Section 10 of the ECO by the Applicant’s admitting receipt of the periodical payments paid by New Lantao. There was no evidence showing the periodical payment received by the Applicant from New Lantao was made on behalf of the Respondent.

As the Respondent had not made the periodical payments at the time when Cunningham made the Purported s 16 Request, the Respondent was therefore not entitled to make the Purported s 16 Request in the first place for the purpose of Section 16(1) of the ECO.

The Learned Judge, by way of obiter dictum, reminded the legal practitioners again that that refusal to attend the Section 16 medical examination on the ground that the employee’s medical condition is not stabilized does not constitute “reasonable cause” for the purpose of Section 16(4) of the ECO.

Comments 

About 2 years ago, legal practitioners acting for the defence in the EC claim were thrilled to read the Judgment handed down by H.H. Judge Harold Leung in the case of Cheung Sau Lin v. Tsui Wah Efford Management Limited, DCEC No. 2438 of 2014, which can be regarded as the pioneer judgment in bringing Section 16(4) of the ECO to life. Simply put, if the employee is receiving periodical payment from the employer, the employer is entitled to arrange medical examination under Section 16(1) of the ECO and if the employee refuses to attend such an examination, the making of periodical payment can be suspended until the employee attends the medical examination. If the failure exceeds 15 days from the date of the medical examination, no compensation shall be payable pursuant to Section 16(4) of the ECO unless the Court finds a reasonable cause for such failure.

However, this sword seems to have been mistakenly drawn by the defence in the last 2 years. It appears that some of the legal practitioners have mistaken one important element required under Section 16(4) of the ECO, that is, the periodical payment must be paid by the same employer and it needs to be continued paying to the employee at the time when the request for medical examination is made to the employee.

This sword is powerful. The ECO scheme is meant to be a no-fault and quick financial relief mechanism for the employee to get the compensation. One could reasonably expect the Court will take a very stringent approach in ensuring all legal requirements have been strictly complied with before dismissing an employee’s claim entirely.

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.

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.