Lai Wing Shun v. Shun Shing Decoration Co Ltd and Another

DCEC 1918/2014

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

EMPLOYEES’ COMPENSATION CASE NO 1918 OF 2014

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JUDGMENT

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INTRODUCTION

1.This is an application for statutory compensation under the Employees’ Compensation Ordinance, Cap 282 (“ECO”).

2.On 12 December 2009, the Applicant (Mr Lai) was seriously injured in an accident.  The accident occurred whilst he was supervising interior decoration works at a residential flat at Penthouse A on 34/F and 35/F, Tower 1, Tregunter, No 14 Tregunter Path, Hong Kong (the “Premises”).  As a result, Mr Lai sustained multiple injuries to his head and brain, ears, lung, chest and left shoulder.

3.Sadly, the damage to his brain was such that his mental capacity and cognitive function was severely and irreparably impaired.  Since the accident, he has been in need of constant care and attention, and completely unable to return to work.

4.By an Order of DHCJ B Chu dated 16 July 2014, a Committee of Mr Lai’s Estate was appointed under the Mental Health Ordinance.  The Committee consists of Lai Chi Wai and Lai Chi Man.  This action was brought by them as Mr Lai’s next friends.

5.There are two respondents to the application.  The 1^st Respondent is Shun Shing Decoration Co Ltd (“R1”).  On Mr Lai’s case, it was his employer.  It did not enter an appearance and took no part in the proceedings.

6.The 2^nd Respondent is the Employees Compensation Assistance Fund Board (the “Board”).  Under the provisions of the Employees Compensation Assistance Ordinance, Cap 365 (“ECAO”), the Board has a statutory duty to “pick up the bill”, so to speak, if (among other things) the employer is not appropriately insured.  For this reason, it has an interest to see that judgment is not being entered on uncontested and unmeritorious grounds.

7.At trial, the Board opposed the application on two alternative grounds, namely, that:-

(a) Mr Lai was not an employee of R1;

(b) Mr Lai’s monthly earnings were less than what was claimed by him.

EVIDENCE AND ANALYSIS

8.Three witnesses were tendered on behalf of Mr Lai.  The Board called no evidence.  What follows is a summary of the evidence given on behalf of Mr Lai.

9.Let me begin with certain background matters that not in controversy.  On 9 September 2000 R1 was incorporated.  At all material times, its shareholders were and are Mr Lai (as to 8000 shares) and his wife, Madam Chui Bik Kuen (as to 2000 shares) (“Madam Chui”).

10.Next, on 23 January 2009, an insurance policy (the “BoC Policy”) was issued by the Bank of China Group Insurance Co Ltd to R1 (policy no. ECA/09-00773880R004).  The period of insurance covers the date of the accident.  The policy covers two “technicians” whose estimated earnings were stated to be $436,800.

11.On 20 November 2009, another insurance policy (the “QBE Policy”) was issued by QBE Hongkong & Shanghai Insurance Ltd to R1 (policy no. 1-W0084113-WCA).  The period of cover spans the date of the accident.  The policy covers “all employees (excluding scaffolding workers)” whose estimated earnings were stated to be $4,000,000.  Unlike the BoC Policy, the QBE Policy was specifically taken out for the renovation project in question.

12.It was apparently the refusal or failure of the insurers to honour their policies that led to the present proceedings.

13.On behalf of Mr Lai, two workers gave evidence.  They were Mr Lau Ming Wun (“Lau”) and Mr Wong Cheuk Ki (“Wong”).

14.At the time of the accident, Lau was a carpenter in the employ of R1.  He stated that Mr Lai was employed by R1 as a project manager.  His main duty was assigning jobs to workers and supervising them on site.

15.According to Lau, Mr Lai was both his boss and a co-worker.  Mr Lai gave him instructions on all aspects of his job, and supplied all tools and safety equipment required to carry it out.  In addition, Mr Lai would do some of the work himself in every decoration project. The work included making drawings, carrying tools from the workshop to the site, carpentry, installation door locks, connecting water pipes, carrying out measurements.

16.Lau did not enter into any written contract of employment.  When asked why he recognised R1 as his employer, Lau said that he had seen R1’s name on the signboard at its office address in Kowloon Bay.

17.On the date of the accident, Lau was carrying out interior renovations works with Wong and Mr Lai on the Premises.  At around 14:00 to 15:00 Lau was carrying out some measurements in the kitchen in accordance with Mr Lai’s instructions.  He heard a loud moaning sound.  He and Wong went out of the kitchen.  They saw Mr Lai lying on the floor at the main entrance of the Premises.  His nose and ears were bleeding.

18.Lau did not see how the accident happened.  However based on what he observed he believed that Mr Lai sustained injuries as a result of falling from the staircase.

19.Like Lau, Wong was a carpenter. In his witness statement he also claimed to be employed by R1.  In the witness box, he said that his wages were paid by cheque issued in R1’s name.  When to identify his employer, Lau answered “Mr Lai”, because he was the one who paid his salary.  But eventually he admitted he was unsure who his employer was.

20.As regards the role played by Mr Lai, Wong’s evidence was similar to Lau’s.  On 12 December 2009, Mr Lai assigned him and Lau to mark simple sketch plans on the walls of the Premises to show where furniture was to be built.  His account of the accident is essentially the same as that given by Lau.

21.Lai Chi Wai (“Miss Lai”) is the daughter of Mr Lai.  In her witness statement she claimed that Mr Lai had been employed by R1 since 2000 where his position was “project manager”.  He was described as being responsible for assigning work and supervising workers.  At the time of the accident his monthly salary was about $33,333.33.

22.According to Miss Lai, prior to 2000, Mr Lai ran a decoration firm with his partner Kwong Pui Sum.  Despite being a director and shareholder, Madam Chui never took part in running R1’s business.

23.In the witness box, Miss Lai explained how the figure for monthly salary came about.  For several years before the accident, she was asked by Mr Lai to prepare his employer’s annual salary tax return.  In the return for the period 1 April 2008 to 31 March 2009, she was told by Mr Lai to put down $400,000 for wages.  She divided this figure by 12 and got $33,333.33.

24.What is perhaps more important for present purposes is the position stated by Mr Lai in the return.  It was “director”, rather than project manager.  Apparently Miss Lai had been instructed by her father to apply that description.

25.I note that in the table where the figure for wages is filled in, there is a list showing twelve possible types of income under various headings.  One of those headings is “director’s emoluments”.  In each of the returns that I was shown, this box was left blank.

26.Miss Lai also prepared the employer’s return for salary tax for the period 1 April 2009 to 31 March 2010. This was different from the previous returns prepared by her for the obvious reason that it was done after the accident.  By this time Mr Lai was not able to give any coherent instructions to his daughter.  He was barely able to sign his name.

27.In this return, Miss Lai described her father’s position as “director”.  She filled in the box for wages $260,000.  She claimed to have arrived at this figure according to the information she found in her father’s and R1’s bank accounts.

28.Upon cross-examination, Miss Lai admitted that she was not sure about the details of the transactions between R1 and Mr Lai.  In particular, she was unable to determine the nature of the payments made by R1 by cheque.  When asked how many months’ worth of salary the $260,000 represented, she was unable to answer.  She further admitted that the statutory four-fifths monthly payments in respect of temporary incapacity (under ECO s 10(1)) had not been made by R1 to Mr Lai.

29.On 21 December 2009, a Form 2 was filed by Madam Chui on behalf of R1.  This form was a notification of the accident to the Commissioner of Labour under ECO s 15.  It was Miss Lai who supplied the details in handwriting.  In this form, Mr Lai’s occupation was described as “Director/Boss”.

30.When questioned about the discrepancy between this description and that used in her Witness Statement, Miss Lai explained that she merely followed the wording of the tax return when filling out the form.  In her witness statement she was trying to describe Mr Lai’s daily work, namely, that of a project manager.

Director can also be an employee?

31.At the hearing, the main issue which divided the parties was the employment status of Mr Lai at the time of the accident.

32.In gist, the Board’s argument is this.  Whilst it is possible in law for a director of a company to be its employee, on the facts of this case, Mr Lai has failed to prove (and the onus lies on him to do so) that he was an employee of R1.  As the 80% shareholder and its sole active director, Mr Lai was effectively in control of R1.

33.As far as the law is concerned, I may take as the starting point the advice of the Privy Council in Lee v Lee’s Air Farming Ltd [1961] AC 12.  In that well-known case, Mr Lee was the controlling shareholder holding 2999 out of 3000 shares in the defendant company.  He was appointed its governing director.  Pursuant to the articles of association he was employed as chief pilot at a salary arranged by him.  He exercised full and unrestricted control of the affairs of the company and made all decisions relating to contracts for aerial top-dressings.

34.Mr Lee was killed in a crash whilst piloting the company’s aircraft on an aerial top-dressing operation.  His widow sued the company on the basis that he had been employed under a “contract of service” with the company and that, under the Workers’ Compensation Act 1922 of New Zealand, his death in service as a result of an accident in the course of his employment entitled her to compensation.

35.The advice of the Privy Council was given by Lord Morris of Borth-y-Gest.  His speech has since become the locus classicus in this area.  In more recent times, the principles expressed in that speech were distilled by Rimer LJ in Secretary of State for Business, Enterprise and Regulatory Reform v Neufeld [2009] BCC 687 and expressed in the following words, at [33]:-

“First, that an individual who owns all the shares in, and is the sole director of, a company—and so has total dominion over it—can also be employed by that company under a contract of service. Secondly, that it is no answer to the claimed creation of such a contract that the “control” condition that is essential to it is not satisfied. The answer to that point, even in relation to a “one man company” case, is that the company and the one man are not the same person; and it is the company that exercises the relevant control. In Lee’s case the employer was the company and the employee was Mr Lee. The control necessary for the purposes of the claimed contract of service was exercisable by the company and it made no difference that in practice, so long as Mr Lee remained the sole governing director, that control would be and was exercised by him as the company’s agent. The close identity that in reality existed between the company and Mr Lee did not prevent a contract for service being created.” (Emphasis supplied)

36.In the same judgment, Rimer LJ adverted to a qualification mentioned by Lord Morris, namely, “always assuming that the company was not a sham”.  He went on to elaborate on the qualification as follows:-

“[34] …Lord Morris was probably there using the words “sham” and “mere simulacrum” as synonyms for essentially the same idea and had in mind the limited types of case in which an individual (as in Lee’s case) owns all the shares in a company and the courts have considered it right for policy reasons to “pierce the veil” of incorporation and treat the company as the alter ego of the controlling shareholder, that is to treat them as one. In such a case, any suggestion that the individual had a service contract with the company would not succeed.

[35]  It appears to us that such circumstances, at least in a case in which the company is a genuine trading company, would be exceptional. No such question arises in these appeals, nor did it arise in the authorities to which we were referred. We propose therefore to say no more about it. On the other hand, as Bottrill’s case [1999] ICR 592 in this court makes clear, a preliminary question which may more commonly arise in a case in which a controlling shareholder claims to have a service contract with his own company will be whether the putative contract (rather than the company) is genuine or a sham. That is because the reality in such cases is that the controlling shareholder will have been the directing mind and will be behind the purported creation of his own contract. That factor will be likely in many cases to require a careful scrutiny of the claim that a valid employment contract has been created.”

37.In the present case Ms Leong for the Board disavowed any suggestion that the contract of employment, if any, might be labelled a “sham”.  For that label to apply, it has to be shown that “all the parties thereto must have a common intention that the acts or documents are not to create the legal rights and obligations which they give the appearance of creating”: see ibid, at [36].

38.Once the possibility of a sham is discounted, the next issue is whether the contract, assuming genuine, amounts to a contract of employment.  On this issue, Rimer LJ offered the following guidance at [85]:-

“In deciding whether a valid contract of employment was in existence, consideration will have to be given to the requisite conditions for the creation of such a contract and the court or tribunal will want to be satisfied that the contract meets them. In Lee’s case the position was ostensibly clear on the documents, with the only contentious issue being in relation to the control condition of a contract of employment. In some cases there will be a formal service agreement. Failing that, there may be a minute of a board meeting or a memorandum dealing with the matter. But in many cases involving small companies, with their control being in the hands of perhaps just one or two director/shareholders, the handling of such matters may have been dealt with informally and it may be a difficult question as to whether or not the correct inference from the facts is that the putative employee was, as claimed, truly an employee. In particular, a director of a company is the holder of an office and will not, merely by virtue of such office, be an employee: the putative employee will have to prove more than his appointment as a director. It will be relevant to consider how he has been paid. Has he been paid a salary, which points towards employment? Or merely by way of director’s fees, which points away from it? In considering what the putative employee was actually doing, it will also be relevant to consider whether he was acting merely in his capacity as a director of the company; or whether he was acting as an employee.”

39.Ms Leong submitted that the principles for determining whether there was an employer-employee relationship were those enunciated by the Court of Final Appeal in Poon Chau Nam v Yim Siu Cheung [2007] 1 HKLRD 951.  In that case the issue was whether the applicant, an air-conditioning worker, was an employee of the respondent, or an independent contractor, for the purposes of a claim for compensation under the ECO.

40.At [17], the Ribeiro PJ quoted the well-known passage from the judgment of Cooke J in Market Investigations Ltd v Minister of Social Security [1969] 2 QB 173, at 184-185:-

“... the fundamental test to be applied is this: ‘Is the person who has engaged himself to perform these services performing them as a person in business on his own account?’ If the answer to that question is ‘yes,’ then the contract is a contract for services. If the answer is ‘no,’ then the contract is a contract of service. No exhaustive list has been compiled and perhaps no exhaustive list can be compiled of the considerations which are relevant in determining that question, nor can strict rules be laid down as to the relative weight which the various considerations should carry in particular cases. The most that can be said is that control will no doubt always have to be considered, although it can no longer be regarded as the sole determining factor; and that factors which may be of importance are such matters as whether the man performing the services provides his own equipment, whether he hires his own helpers, what degree of financial risk he takes, what degree of responsibility for investment and management he has, and whether and how far he has an opportunity of profiting from sound management in the performance of his task.”

41.His Lordship emphasised that the modern approach to the question whether one person is another’s employee is to examine all the features of their relationship against the background of the indicia developed in the abovementioned case-law with a view to deciding whether, as a matter of overall impression, the relationship is one of employment, bearing in mind the purpose for which the question is asked.

42.On the other hand, Mr Sakhrani for the applicant submitted that the indicia of employment developed under the Market Investigations line of cases, including Poon Chau Nam, are of no assistance in the present case.  Those cases deal with the distinction between an employee and a person performing services in business on his own account. Thus, the issue of control, in particular, assumes great (albeit not exclusive) importance.

43.In the present case the debate is whether the applicant, who was also the controlling shareholder and director, was an employee of his own company.  In a very real sense, Mr Lai was responsible for the investment in and the financial risk arising from the provision of the services.  Moreover, since he was the “boss” of the company, the services were necessarily provided under his management and control.  It is therefore meaningless, if not misleading, to apply the traditional indicia.

44.I am inclined to agree with the submission of Mr Sakhrani.  The control test is particularly unhelpful in the present context: see the underlined sentence from the judgment in Neufeld at [33], quoted above.  But even if the court discards the traditional indicia of employment as irrelevant for present purposes, it would still have to answer the question by reference to some objective criteria, such as those identified in [85] in the Neufeld case.

Was Mr Lai an employee of R1?

45.With these principles in mind, I turn to the evidence in the present case.  First, it was accepted by all that there was no written contract of employment between R1 and Mr Lai.  There is also scant objective evidence as to the amount or terms of his remuneration. Given the informality and small size of R1’s operations, however, I cannot reject the claim of an employment contract on this ground alone.

46.I shall first examine the relevant documentary evidence.  As mentioned above, Mr Lai submitted the employer’s annual salary returns for the years before the accident.  It is clear that Miss Lai was filling in the returns in a clerical capacity.  They contained confusing and equivocal information.  On the one hand, Mr Lai claimed to be a director of R1.  At the same time, an amount of salary was entered in the box for “wages”, rather than the column for “director’s emoluments”.

47.I also find that whatever Miss Lai may have written in Form 2, it sheds little light on Mr Lai’s employment status.  She is not a lawyer.  There is no suggestion that she filled in the form with the benefit of legal advice.  In any case, the description “director/boss”, which is accurate, does not preclude the possibility that Mr Lai was, in addition, say, the project manager of R1.

48.The employment status of Wong and Lau is a little clearer.  Based on the evidence given by them, I am satisifed that they were both employees of R1.  However, and unsurprisingly, neither Wong nor Lau was able to say whether Mr Lai was also an employee, or whether Mr Lai received any, and if so, how much, salary from R1.

49.At this juncture, I need to say a few words about the two insurance policies taken out by R1.

50.As pointed out by Ms Leong, the BoC Policy only covered two employees, described as “technician”.  She argued that as Wong and Lau were undoubtedly employees of R1 up to the time of the accident, it must follow that Mr Lai did not regard himself as one of the employees.  In any event, no “project manager” was listed among the insured employees.

51.I find that the argument is at best inconclusive.  In the first place, even if Mr Lai did not regard himself as an employee of R1, that is not conclusive.  As a matter of law the label given by the parties to their relationship is not determinative.  Moreover, the BoC policy does not attach a label to Mr Lai’s relationship with R1, but is rather silent on it.

52.In any case, there may be any number of reasons why the BoC policy listed only two employees.  It may have been due to a clerical error.  Or it may have been the result of a mistake, due to Mr Lai’s ignorance of the law.  If so, the mistake was subsequently rectified by the QBE Policy which covered “all employees”.  It was specifically taken out for the Tregunter project.

53.There is no dispute that the Mr Lai had kept up MPF payments up to the time of the accident.  According to the records of the relevant MPF Scheme, he was employed by R1.

54.There is also no dispute that whilst R1 took out a valid Business Registration Certificate, Mr Lai did not do so.  This is consistent with the fact that Mr Lai incorporated R1 in 2000 and that before that time he carried on an unincorporated partnership business. There is no record to show that Mr Lai carried on, or intended to carry on, his own business at the time of accident.

55.In my judgment, the strongest indication of his employment status is found in the evidence of what Mr Lai actually did.  It was the unanimous testimony of Wong, Lau, and Miss Lai that Mr Lai performed the manual tasks of a worker on site in addition to the job of a project manager.  Their evidence in this regard is cogent and unchallenged.

56.The usual duties of a director include attending board meetings, obtaining business, negotiating contracts and managing the company.  But Mr Lai did far more than that.  As Mr Sakhrani graphically put it, Mr Lai was someone who “got his hands dirty” in those projects.  He personally supervised each project and carried out some of the physical tasks himself.  In so doing, what Mr Lai did went beyond the normal duties of a director required under the company’s articles of association.

57.I also attach some weight to the MPF contributions which were made by R1 as the employer and Mr Lai as the employee.  Although the amount of contribution was unlikely to be substantial, subscription to an MPF Scheme was something that required some mental effort as well as regular payment.  Thus, it is likely that Mr Lai would have given some thought to his own employment status when setting up the MPF arrangements.

58.For these reasons, I find that Mr Lai was an employee of R1 at the time of the accident.  I further find that the accident occurred in the course of Mr Lai’s employment with R1.

QUANTUM

59.I turn to the quantum of compensation payable.  In summary, Mr Lai claims the following sums:-

Item	ECO section(s)	Nature	Amount/ $
(1)	8	Essential actions of life requiring personal attention	511,770.00
(2)	9	Permanent partial incapacity	987,874.00
(3)	10	Temporary incapacity	638,537.75
(4)	10(5)	Additional periodical payment for temporary incapacity	341,972.00
(5)	10A	Medical expenses	44,813.00
		Total	2,524,966.70

Item (1)

60.Mr Lai claims $511,770 claimed for personal care and attention in case of permanent incapacity under s 8 of the ECO.  This represents the maximum sum available under the Sixth Schedule.  The Board does not dispute this sum.

61.Since the accident Mr Lai has been looked after by his wife.  He has not engaged the service of any paid nurse or helper.  This is not however a bar to the claim: Lau Ka Shui v Yiu Wing Construction Co Ltd [1991] 2 HKC 644, at 648F-G, per Cheung DJ (as he then was).  I am satisfied that the sum should be allowed in full.

Items (2) and (3)

62.On 3 August 2012 the Commissioner issued a Certificate under s 16A(2) of the ECO.  He certified that compensation in the sum of $1,626,377.75 was payable under ss 9 and 10.  The sum is equivalent to the aggregate of items (2) and (3) claimed by Mr Lai.

63.Before me Ms Leong accepted the contents of the Certificate save for the amount of pre-accident monthly earnings.  On this issue, she submitted that there was no satisfactory evidence showing Mr Lai’s salary, and that the figure put forward by Miss Lai was no more than guesswork unsupported by any documentary evidence.

64.Ms Leong’s criticism is not without merit.  However it is well-established that the court is bound by the matters stated in the Certificate in absence of any application for cancellation (under s 16B) or any appeal (under s 18): Lam Chi Biu v Mak Kee Ltd, at [11], per Le Pichon JA; Ng Ming Cheong v MTR Corporation [1997] HKLRD 1231, at 1236G-H, per Le Pichon J (as she then was).

65.In the present case there is no challenge to the Certificate by any party.  The matters stated in it are therefore binding and conclusive.  For this reason I allow the sum of $1,626,377.75 in full.

Item (4)

66.Section 10(5) gives the court a discretionary power to extend time for periodical payments due to temporary incapacity beyond the usual maximum of 24 months.  The maximum extension is for 12 months.

67.Ms Leong does not dispute that the court should extend the period for an additional 12 months.  I am satisfied I should exercise my discretion as invited by Mr Sakhrani.

68.After adjusting for inflation (as to which see: s 11(1A) and (1B)), the agreed figure for additional periodical payments is $341,972.  I allow this sum in full.

Item (5)

69.There is no dispute that the sum of $44,813 should be allowed in respect of medical expenses, all of which are documented.  I allow the claim in full.

70.In the result, I hold that the total sum of $2,524,966.70 is payable by R1 to the Applicant.

COSTS

71.In line with normal principles, and following my conclusion above, I would have ordered both respondents to pay Mr Lai’s costs of the application.  On behalf of the Board, however, Ms Leong urged me to make no order as to costs, essentially on two grounds.

72.The first ground is that the Board has an interest in defending these proceedings because of its contingent liability under the ECAO, as noted in paragraph 6 above.  Specifically, the Board’s liability is triggered by an application which can be made by the applicant under s 16 of the ECAO.  For present purposes, I may summarise the operation of the provision in the following way.

73.Having obtained a judgment from the District Court (see s 16(2)(a)), Mr Lai must then take reasonable proceedings to enforce it against R1 and the insurance companies, namely BoC and/or QBE (see s 16(3)(a)).  What is reasonable depends on the costs of such proceedings, the resources available to Mr Lai, and the amount likely to be recovered (see s 16(3)(b)).  If Mr Lai is unable to cover the amount of compensation determined by this court, it may then apply to the Board to recover the shortfall (s 16(1)).

74.I have no doubt that Ms Leong is right when she points out that the Board intervened in the present case to protect the Fund against the risk of an unmeritorious EC claim being allowed by default.  The Fund is public money.  However I do not regard this as a sufficient reason for departing from the normal order for costs.

75.In this regard I could do no better than echo the sentiment expressed by Bharwarney J in Kwan Kam Pui v 馮文 and others, HCPI 18/2012, unreported, 30 May 2014, where he said, at [43]:-

“While the ECA Fund Board may be exercising a quasi-judicial function when it makes a determination of an application under section 22 of the ECAO, there is no doubt that the ECA Fund Board adopts an adversarial role when it intervenes and defends proceedings on liability and quantum, or, solely on quantum… The ECA Fund Board does not intervene in actions by injured employees for damages in order to act in the interest of the public and for the protection of the public. For the reason that it adopts an adversarial role, it is right that it should be ordered to pay costs if it takes up unmeritorious points of defence which are rejected by the court.”

76.Those words were said in the context of a claim for common law damages.  But in my view, the role played by the Board in defending employee compensation proceedings is no different.  For the reasons adumbrated by the learned Judge, I reject the first ground relied on by Ms Leong.

77.Her second ground, however, requires more careful consideration.  It is founded on s 23 of the ECAO, which provides for a mechanism for reimbursement by the Board in respect of costs incurred in obtaining a judgment in an EC claim.  I must analyse the provision in greater detail to see how, if at all, it impacts on the Court’s discretion as to costs. 

78.It is worth pointing out, in passing, that no such mechanism for reimbursement is available for costs incurred by a successful plaintiff in common law actions.  It was this particular lacuna which led to Bharwaney J’s conclusion as to what should be the usual costs order in such actions: see Kwan Kam Pui, sup cit, at [24-26, 66, 67].

79.In so far as material, s 23 of the ECAO provides :

“(1) Where the Board has determined an application under section 16 in favour of an applicant then in addition to any amounts of compensation to be paid from the Fund the Board shall, subject to this section, agree to pay from the Fund-

(a) the costs incurred by the applicant in making the application; and

(b) an amount equal to any costs payable to the applicant pursuant to an order of a court for costs against the employer or the employer's insurer in proceedings claiming the compensation.

(2) The costs payable by the Board under subsection (1)(a) shall be such costs as in the opinion of the Board would be allowed on taxation of those costs by the District Court on the common fund basis.

(3) The applicant may, within one month of service on him by the Board of notice of the amount of costs it proposes to pay pursuant to subsection (1)(a), apply to the District Court for, and the District Court shall order, taxation by the District Court of the applicant's bill of costs in respect of his application under section 16, which taxation shall be on the common fund basis, and the Board shall be liable to pay the costs of the applicant so taxed.

(4) Where an application relates to compensation which are or have been the subject of proceedings in any court in which an order was made apportioning costs as between the Board and the employee, the Board shall only be liable for the purposes of subsection (1)(a) to pay the employee's costs in the same proportion as was so ordered in those proceedings.

(5) The amount payable by the Board pursuant to subsection (1)(b) in respect of costs ordered by a court shall be only such amount as has been allowed, or would in the opinion of the Board be allowed, on taxation of those costs on a party and party basis.”

80.In a nutshell, Ms Leong’s argument is that it is the employer, or its insurer, who should bear the primary responsibility for the costs of the proceedings.  To the extent that any costs remains irrecoverable from the employer or its insurer, the shortfall will be met by the Board as mandated by s 23(1)(b). Hence, the applicant will not be prejudiced if no order for costs is made against the Board.

81.I accept that s 23 of the ECAO is intended to provide a safety net in respect of irrecoverable costs to a successful applicant in EC cases.  However, I do not think that this is a sufficiently material or weighty factor to displace the ordinary costs consequences that befall an unsuccessful litigant in hostile litigation.  My reasons are as follows.

82.In considering the incidence of costs, the starting point is that the Board made a considered decision to contest liability and quantum.  It chose to join in the fray and lost.  Meanwhile the applicant had to expend time and costs in deflecting the challenge.  The question is not whether the applicant would eventually get back his costs from the Board or someone else through some other avenue.  That is the wrong question to ask.  As a matter of fairness, the question for the Court is whether any grounds are shown to deprive a successful litigant of his costs?

83.Secondly, having elected actively to defend these proceedings and lost, it does not lie in the Board’s mouth to say that the primary burden for costs should fall on someone else’s shoulders, especially an absent party.  To hold otherwise would encourage unreasonable opposition or frivolous arguments which would only serve to protract the proceedings.

84.Finally, I do not wholly agree with Ms Leong’s point on the lack of prejudice.  Before an employee is able to make an application for costs under s 23(1), he would have to jump over several not insignificant hurdles, including taking proceedings against the employer and/or insurer to recover the judgment debt.  Such hurdles will no doubt exact their toll in terms of time and costs as well as attendant mental strain on the part of the injured worker.

85.In conclusion, the fairest order to make is that R1 and the Board shall jointly and severally pay to the Applicant the costs of the application with certificate for Counsel, to be taxed if not agreed.  This is the order I shall make, which will be nisi in the first instance.

Mr Ashok Sakhrani, instructed by W K To & Co, for the applicant

The 1^st respondent was not represented and did not appear

Miss Susanna Leong, instructed by P C Woo & Co, for the 2^nd Respondent