Hui Fout Kwong v. Pine Logistics Co Ltd

DCEC 261/2009

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

EMPLOYEES’ COMPENSATION CASE NO. 261 OF 2009

____________

Coram: His Hon Judge Leung in court

Date of hearing: 28-29 April 2010

Date of judgment: 8 July 2010

J U D G M E N T

1.Pine Logistics, the Respondent, was at the material time and still is a subcontractor of container hauling services at Container Terminal No.9, Tsing Yi, New Territories.  In July 2007, Hui, the Applicant, started to drive container tractor for Pine Logistics.  On 7 September 2007 while he was in the course of work, a traffic accident happened and he was injured.  He now claims compensation pursuant to the Employees’ Compensation Ordinance.

2.There is no real dispute that Hui was injured in the course of his work for Pine Logistics.  The dispute lies in whether the company was at the time Hui’s employer and, if yes, the quantum of compensation.

Hui’s case

3.Hui was educated in the Mainland up to Secondary Two.  In Hong Kong, he had worked as a driver of goods vehicles for over 10 years by the time of accident.  In late July 2007, his friend introduced him to work as a container tractor driver for Pine Logistics.  Pine Logistics was a subcontractor of container hauling services at the Container Terminal No.9.

4.On 24 July 2007, the captain (車長) of Pine Logistics informed Hui that he would be contacted for an interview.  A staff of Pine Logistics later contacted and met with Hui.  Hui was provided some safety training records of the container terminal to sign.  He was informed of the terms of his work and pay.  He was asked to sign a written service agreement.  He signed the agreement but, according to him, without paying attention to its terms.  He believed he was employed by Pine Logistics.

5.Hui was also asked whether he had a mandatory provident fund account.  As requested, Hui also gave HK$840, as Hui understood, for the purpose of the company arranging insurance for him.  The captain called Hui the following day, instructing him to start working on 28 July 2007.

6.As a night shift driver, Hui had to work for 12 hours from 7 pm to 7 am the following day per shift.  Normally, at about 3:45 pm to 4:45 pm, the captain would call to ask Hui to work that evening.  Hui would join the other drivers who assembled at the public light bus stop at Mei Foo.  The company coach would take them to the container terminal for work.  If Hui received no call, this meant there would be no work for him for the night.

7.On board the company coach, the captain would assign the drivers to drive the various tractors of the company and distribute work schedules to the drivers.  Each driver would also be distributed a pager for receiving communication of instruction from the control room of the company during work.

8.Pine Logistics had a fleet of not less than 40 container tractors.  The company was also responsible for all the operating cost of the tractors such as fuel, licence, insurance, maintenance and repair.  Hui was only responsible for driving the tractor to transport containers between the pier and other spots within the terminal area (known as碼頭内運).

9.Hui got paid twice monthly.  The remuneration was calculated according to an index, namely, number of containers / number of working hours.  This was his only remuneration for his work.  He was required to sign an “invoice” prepared by the company for the payment of his remuneration.  Taking leave required approval of the company.  But it was not up to him to find substitute driver to take his place.

10.Hui called Lee as a witness.  Lee was also a container tractor driver of Pine Logistics.  Lee gave evidence similar to that of Hui.  Their difference was that Lee started working for Pine Logistics a year earlier (in July 2006) and was then on a daily wage basis.  In February 2007, Lee was asked too by the company to sign a written service agreement similar to the one that Hui has signed.  He was then given to understand that this was brought about by the change in the remuneration structure.  He also started to receive the “invoice” from the company that he was required to sign for the payment of his remuneration.

Pine Logistics’ case

11.Lau is the manager of Pine Logistics.  He recalled that Hui was introduced in July 2007 to one of the captains employed by the company.  Hui was said to be have worked as a contract driver for another company operating at the container terminal.  Hui had a mandatory provident fund account as a self-employed driver.  Hui was asked to approach the insurance company that Pine Logistics was familiar with in order to take out personal accident insurance coverage.  On 24 July 2007, Pine Logistics and Hui entered into the written service agreement.

12.Lau admitted that his company provided all the container tractors that the drivers drove.  The fuel came from a supplier nominated by its main contractor.  Pine Logistics employed the captains mentioned above to liaise with the drivers needed.  The captains would contact the drivers to come to work and it would be up to the drivers to decide whether to take the job.  Lau confirmed that the drivers had to follow the instructions sent to them via their pagers during work.

13.Lau explained that the demand for container hauling service by its main contractor varied substantially daily.  It was therefore flexible and cost-effective to engage the drivers as self-employed.  Meanwhile, the drivers retained the freedom to work for other companies.  He suggested that the drivers might even gain a profit out of hiring other drivers to carry out the work.  Therefore he reckoned that the arrangement should be beneficial to both Pine Logistics and the drivers.  He reiterated in court that there was no element of exploitation of the drivers in the arrangement.

14.Nevertheless, Lau admitted in court that since June 2008, all the drivers of Pine Logistics have ceased to work as self-employed but are now contracted as employees.  But there is no suggestion that the drivers are working in any manner different from before.  Lau explained that the change was brought about by the improvement of the business environment and the more steady demand for container hauling services and thus container tractors and drivers.  He believed that the change also helped to avoid further dispute between his company and the drivers.

Discussion

15.Poon Chau Nam v Yim Siu Cheung [2007] 1 HKLRD 951 is the often cited authority in this context.  The final court (at 961B-F) set out the guidelines for determining whether a contract is one of service or for service.  The modern approach is to examine all the features of the relationship between the parties concerned against the background of the indicia developed in the case law with a view to deciding whether, as a matter of overall impression, the relationship is one of employment for the purpose under consideration.  It involves a nuanced and not a mechanical approach.  Not all details are of equal weight or importance in any given situation.  They may also vary in importance from one situation to another.

16.The written service agreement between Pine Logistics and Hui dated 24 July 2007 provided that the driver was an independent contractor of Pine Logistics and there was no employment or agency relationship between them (clause 7.1).  The allegation of Hui that he had paid no attention to such terms of the service agreement before signing, even if true, does not suffice to vitiate the agreement.  However, I accept his evidence that he signed the agreement with the simple view to getting the job.  Practically, he could only choose to take it or to leave it.

17.How the parties chose to label their relationship is but one factor to be taken into account.  Experience tells that such label is not conclusive and could sometimes be deceiving.  The final court also made clear (at 973E-974G) that if on the facts of the case, viewed objectively and the indicia of employment applied, the person injured at work is properly to be regarded as an employee, any express agreement seeking to effectively contract out of the employer’s statutory obligations and removing such person from the protection as an employee is void.

18.The indicia of employment includes: the degree of control exercised by the alleged employer; whether the person performing the services provided his own equipment; whether he hired his own helpers; whether he had to take any financial risk and to what degree; whether he was responsible for investment or management and to what degree; and whether and how far he had an opportunity of profiting from sound management in the performance of his task.  What were the features of the relationship between Pine Logistics and Hui as a matter of fact?

19.It was said that the drivers had the liberty to work for other companies. In my view, whether this was true is neither here nor there.  Notwithstanding the formality of a service agreement, the nature of the working relationship between Pine Logistics and the driver did not differ much from a casual one.  The driver would be called only if and when they were needed.  But the driver could be an employee of more than one employer on this basis.  The reality was that when Hui and Lee were driving for Pine Logistics, there was no likelihood of their providing service to any other companies because a night shift lasted for 12 hours from 7 pm to 7 am the following day.

20.It was said that it was always up to the drivers to decide for themselves whether to take the job from Pine Logistics when asked.  Reference was made to the express provision of such discretion of the drivers in the service agreement (clause 3.1).  Lau explained that the captains employed by the company had a list of the drivers that they might contact.  If a driver refused to take the job, the captains simply moved along the list and contacted other drivers until the necessary number of drivers was secured.

21.I doubt whether what Lau said was the reality.  Whilst this sounds like a flexible arrangement; this was at the same time double-edged.  There is no dispute that Pine Logistics often needed to meet the demand of its main contractor in short notice.  This also explains why for night shift drivers like Hui and Lee, the captains normally called them only in the afternoon when they were needed in the same evening.  Pine Logistics must have some expectation, if not control, over whether the needed number of drivers could be assembled in short notice as and when required.  Lau said in court that there were about 100 drivers on the lists of the captains to choose from.  But this, in my view, does not matter.  What matters is how the captains in fact dealt with the drivers.

22.According to Hui and Lee, they were expected to come to work when asked by the captains unless they have obtained approval for leave.  In the case of Lee, he had the experience of refraining from seeking sick leave upon the indication of the captain that he had to come to work.  Hui also expressed his understanding from other drivers that taking leave without approval of the captain could have consequences.  The concern was that the captain might choose not to ask him to work anymore.  In this regard, Lau had no personal knowledge as to how the captain instructed the drivers in reality.  I accept the evidence of Hui and Lee in this respect.

23.If Hui and Lee were running their own business by providing driving service, one would have expected that they might hire and provide other drivers than themselves to drive for Pine Logistics.  Under the service agreement, this seemed to be possible (clause 2).  In his statement, Lau even suggested that the drivers might gain profit out of this.  However, according to Hui and Lee, they never did so.  The fact was that it was not up to them to do so.  The drivers empanelled by Pine Logistics had to possess the relevant permits to work in the terminal area.  Only Pine Logistics could obtain such permits for them.

24.It is clear from the evidence that apart from driving, the drivers had no control over the work arrangement at all.  In court, Hui added that even taking breaks during work needed the consent of the captain because the drivers could not leave the tractors unattended as they wished.  The drivers did not provide any equipment or incur any expenses in connection with work.  According to the service agreement, Pine Logistics was also responsible for meeting any liability to third parties that arose in and out of the drivers’ work (clause 5).

25.Pine Logistics as the owner of the container tractors was probably expected to take out third party risk insurance in any event.  However, it cannot be denied that Pine Logistics did assume the kind of risk that one would have expected a professional driver to take if he were running his own business.

26.The risk associated with the driver’s work that Pine Logistics assumed was more extensive than this.  Even in case of damage to the container tractor due to the negligence of the driver, the service agreement limited the driver’s liability to compensate Pine Logistics to a maximum of HK$1,000 (clause 5).

27.Pine Logistics also tried to ensure that various arrangements that ought to have been the concern of Hui and Lee, if they were self-employed, were or would be made.  First, Pine Logistics ensured that Hui had a mandatory provident fund account as a self-employed.  According to Hui, he did have such an account that was opened at the request of another operator of the container terminal for which he used to drive container tractor.  Except for 2 to 3 instalments, Hui has not made any contribution to the account.  Pine Logistics has not asked for any further details either.

28.Second, the service agreement provided that Hui should take out insurance covering the drivers and staff that he would provide (clause 3.3).  Apparently Pine Logistics did not consider such definition of the responsibility for taking out insurance sufficient for its purpose.  Pine Logistics asked Hui to pay and arranged the personal accident insurance for Hui.  Both Hui and Lee said that they had never received a copy of the insurance policy thereafter.  In Hui’s case, he received a copy of the policy by post from Pine Logistics upon his discharge from the hospital after the accident.  In the notice of accident under the motor policy insuring Pine Logistics, Hui was stated to be a self-employed driver.  But Hui and Lau confirmed in court that it was Lau who filled in the form and had him sign it.

29.Third, Pine Logistics prepared invoices (發票) for the Hui and Lee that contained the breakdown of the amounts that they were receiving.  They were required to sign the documents.  The impression created by the documents is that the drivers issued them to bill Pine Logistics for their service.  In court, Lau had to accept that as the documents were prepared and presented by his company to the drivers to sign; and they were more like receipt to the drivers.

30.All of these arrangements should have been the concern of Hui and Lee, if they were self-employed and running their own businesses of providing the driving service.    In court, Lau did not deny that his company would not have engaged Hui, if he did not have a mandatory provident account as a self-employed.  When asked why this was his company’s concern that the drivers took out personal accident insurance, Lau explained that this was to ensure that they knew that they were contractors, not employees.

31.I cannot help suspecting that by taking upon itself the making of these arrangements for Hui and Lee, Pine Logistics was serving its own purpose of ensuring that evidence of all the features indicative of the self-employed status of the drivers were there.

32.I accept the evidence of Hui and Lee in respect of their engagement by Pine Logistics and the work arrangement.  I prefer their evidence in case of conflict with that of Lau.

Conclusion

33.Indeed Pine Logistics made no secret of its intention that the person being engaged was not wanted as an employee.  It took the stance that person was entirely free to choose whether to accept such terms of engagement; but once that person has accepted the terms, he would be bound by them.  I do not accept that in the circumstances of this case.

34.There is no question of Hui or Lee ever investing in a business of their own in providing their service to Pine Logistics.  There is no question of their taking any business risk or making any profit or loss out of a business of providing service to Pine Logistics.  There was no real bargaining between Pine Logistics and the drivers.  The drivers were given the service agreements already prepared and in terms dictated by Pine Logistics.

35.From the point of view of the drivers, the so-called freedom of contract practically meant that they either took it or leave it.  They took it but expected nothing more than having to drive and to get paid for that.  This was an employment relationship.  All the circumstances objectively viewed, this is in fact the overall impression of the true relationship between the drivers and Pine Logistics.  Pine Logistics’ resort to the notion of freedom of contract to regulate the true relationship between the parties was in my view self-serving.

Double compensation

36.As a result of the accident, Hui has filed claim with the insurance company with which a personal accident insurance in his name was taken out as mentioned above.  It was argued on behalf of Pine Logistics that the claim for employees’ compensation, if awarded, would amount to double compensation to Hui.  This was also argued in terms of Hui’s duty to mitigate his loss so that any compensation awarded in these proceedings ought to give credit to the amount that he has received under his insurance policy.

37.There is no merit in the argument on behalf of Pine Logistics in this respect.  The fact that Pine Logistics has to pay compensation to Hui is a matter of statutory liability as an employer.  This is not liability in tort, as Mr Wong suggested in his submission.  The fact that the insurance company has to pay the insured amount to Hui is a matter of contract between them which was maintained in Hui’s name for his own benefit.  The insured amount so received is the fruit of the present payment of insurance premium with foresight for the protection.

38.The amount of insurance payout ought not to be taken into account in assessing the statutory compensation payable by Pine Logistics: see Parry v Cleaver [1970] AC 1 at 14E; McGregor on Damages (18^th ed) at 35-151 and Tang Kwong Chiu v Lee Fuk Yue, CACV 22/1980 (23 July 1980) at pp.4-5.

39.In his submission, Mr Wong added that taking out personal accident insurance was a condition precedent to the conclusion of the service agreement between Pine Logistics and Hui.  Therefore, it was an implied term of the service agreement that in case of accident at work, Hui had to claim against his insurance company first.  As Hui has received the insurance moneys under his personal accident insurance policy, he could no longer claim to have any loss.  Without loss, there should be no compensation under the Ordinance.

40.The answer to this argument is actually contained in the discussion of the principles in Poon Chau Nam.  If Pine Logistics’ argument is accepted, this would mean an employer may contract out of its obligation to pay compensation by providing that the employee has to take out his own personal accident insurance.  This cannot be right.  The situation might have been different, if it was the employer who paid for the employee’s personal accident insurance coverage: see Hussain v New Taplow Paper Mills [1988] AC 514; McGregor on Damages (above) at 35-152.  In such a scenario, the employer obviously did not seek to contract out of its statutory obligation.

41.Of course, Hui may be liable to account the compensation awarded, or any part of it, to his insurance company which has paid the insured amount on account of this accident.  Whether there is basis for such liability of Hui to account is still a matter of contract between them; and certainly nothing to do with Pine Logistics’ liability under the Ordinance.

DCEC 555/2008

42.On 26 April 2010, i.e., 3 days before this trial, the court handed down the judgment in another employees’ compensation case DCEC 555/2008.  In that case, Pine Logistics was the Respondent while the applicant was in fact Lee.  Pine Logistics also disputed that Lee was its employee when Lee was injured at work in August 2007.  Hui was called as a witness for Lee.  Lau was the witness for Pine Logistics.  Even the parties’ respective legal representatives are identical in both cases.

43.In the judgment, the evidence adduced on behalf of the parties were recited and discussed in detail.  According to the record in the judgment, the evidence was not materially different from what was heard in the present case.  The learned Judge accepted the evidence of both Lee and Hui.  She applied the same legal principles discussed above found that Lee, and effectively Hui, were the employees of Pine Logistics.

44.In view of the above, I raised the question of issue estoppels in its broad sense, though the applicants in these two cases are different.  At the end of the day, and quite irrespective of whether Pine Logistics is estopped from re-litigating similar factual dispute, I did consider the evidence in the present case and came to my own conclusion adverse to Pine Logistics.

45.By pressing ahead with its defence and insisting on a full trial notwithstanding the factual findings and conclusion in DCEC 555/2008, Pine Logistics utilised this trial as a second chance of testing potentially similar evidence and basically similar contentions with a view to obtaining a different result from that in DCEC 555/2008.  The attempt fails.  Such conduct of proceedings was unreasonable, if not an abuse of process, in the circumstances.

Quantum

46.As a result of the accident, Hui was sent to the hospital.  He complained of transient amnesia.  He suffered from a fractured right patella but no distal neurovascular deficit.  His right forearm also had multiple abrasions.

47.Hui received debridement with open reduction and fixation with circulage wiring to the right patella.  2 weeks later, partial patellectomy was performed and fragments were removed.  The implants were removed at the end of May 2008.  This was followed by a course of physiotherapy and occupational therapy.

48.In June 2009, Hui was examined by the Employees’ Compensation (Ordinary Assessment) Board (“MAB”).  Due to the fracture of right patella resulting in residual right knee pain, Hui was assessed to have suffered 1% permanent loss of earning capacity.  The assessment was reviewed and confirmed in September 2009.  Hui appeals against such assessment pursuant to section 18 of the Ordinance.

Medical expert opinion

49.On 6 November 2009, Hui was examined by Dr Tony Hung Siu Lun and Dr Lam Kwong Chin, the orthopaedic experts engaged on behalf of the Hui and Pine Logistics respectively.  The experts produced their joint report dated 16 November 2009.

50.The experts agreed that Hui had open comminuted fracture of the right patella, probably with mild head contusion and right forearm multiple abrasions during the accident.  The treatment received was appropriate.

51.At the time of the examination, Hui still complained about on and off right knee pain as well as upper back pain and numbness.  Dr Lam opined that the muscle-wasting and instability upon weight bearing on his right side single-legged or tiptoes could be partly due to his right foot injury in 2003 when he had his big and second toe amputated.  Dr Hung disagreed.  He relied on Hui’s confirmation that he has recovered well from the right big toe injury and that there was no functional deficit.  He opined that it was the trauma of the patella that has caused the quadriceps muscle-wasting.

52.The experts noted that the complaint about upper back pain by Hui was neither revealed in the initial visits to the hospital nor verified by subsequent X-ray and MRI of the spine.  The complaint was mainly about mild tenderness at the upper neck.  Yet movement was good and evidence of neurological deficit was lacking.  If this was related to the accident, this could only be a minor back contusion involving soft tissue only.  As to the complaint about upper limb numbness, both experts believed that this was unrelated to the accident.

53.The experts agreed that Hui has reached maximal medical improvement and no further treatment would be required.  Sick leave given until 29 October 2008 was acceptable.

54.Dr Lam considered that Hui should be able to return to his pre-accident work as a container tractor driver.  He recommended intermittent rest during prolonged driving; but the overall adverse effect should be mild.  Adverse effect on activities of daily life would be minimal.  Dr Lam assessed Hui’s impairment of the whole person to be 4% and loss of earning capacity to be 4% as well.

55.Dr Hung expressed his concern that due to pain and weakness in squatting and stair climbing, Hui could have problem getting into the driver’s seat of the container truck as that would involve bending and weight bearing of the knee.  Hui might also have problem in object lifting and getting up from a squatting position.  His condition would deteriorate with time probably in terms of years or decade; and that would badly affect his right knee function.  Dr Hung assessed Hui’s permanent impairment and loss of earning capacity to be both 6%.

56.Mr Wong for Pine Logistics submitted that this court could not be bound by the experts’ expression of opinion on the percentage loss of earning capacity.  He cited Tang Shau Tsan v Wealthy Construction Co Ltd, CACV 58/2000 (5 April 2000) in support.  He further submitted that this court should not depart from the assessment by the MAB.

57.However, both experts’ opinion tends to suggest that the permanent loss of earning capacity suffered by Hui, even not in terms of percentage, should exceed the degree assessed by the MAB.  Mr Wong asked me to disregard the opinion of not only the expert engaged on behalf of Hui but also that engaged on his client’s behalf.

58.5 months after the sick leave expired, Hui managed to find a driving job in a construction site.  But he was sacked after working for 9 days.  He attributed that to his inability to handle the physical demand of the job.  Another 5 months later, Hui was employed as day-shift container tractor driver at the container terminal.  The job nature was similar to his pre-accident job.  He earned a bit less than before.

59.During the trial, Ms Tjia for Hui confirmed that she no longer pursued the argument that there are special circumstances in the present case that warrants the application of the formula in Hong Kong Paper Mills Ltd v Chan Hin Wu [1981] HKLR 556 in assessing the permanent loss of earning capacity.

60.Considering all the evidence, I am satisfied that the section 18 appeal should be allowed; but I am not convinced that Hui’s alleged physical inability to work to his full pre-accident capacity and his permanent loss of earning capacity would exceed that as Dr Lam assessed.  I find that Hui suffers 4% loss of earning capacity for the purpose of assessment of his compensation.

Section 9 compensation

61.There is no dispute that Hui’s pre-accident monthly income was HK$16,030.  At the time of the accident, Hui was 31 years old.  Pursuant to section 7(1)(a) of the Ordinance, the compensation under section 9 should be HK$16,030 x 96 months x 4% = HK$61,555.20.

Section 10 compensation

62.Sick leave given until 28 October 2008 was certified by the MAB.  As mentioned above, the orthopaedic experts were ad idem that sick leave given was reasonable.  There were 417 days.  The compensation under section 10 should be HK$16,030 x 4/5 x 417/30 = HK$178,253.60.

Section 10A compensation

63.At the beginning of the trial, parties agreed that the medical expenses were HK$8,830.

Summary

64.The award is therefore:

65.The above sum shall carry interest at half judgment rate from the date of accident until today.

Order

66.Judgment is entered against Pine Logistics in the sum of HK$248,638.80 with interest as aforesaid.  Interest from today shall run at the judgment rate until full payment.

67.Pine Logistics shall pay Hui’s costs of this Application, including any costs reserved.  Costs shall be taxed, if not agreed.  In view of my conclusion that pressing ahead for a full trial notwithstanding the judgment in DCEC 555/2008 was wholly unreasonable, I order that costs of the 2-day trial shall be taxed on an indemnity basis.  For the avoidance of doubt, I certify the engagement of counsel.  This costs order is nisi; but shall become absolute in the absence of application within 14 days to vary.

Ms Josephine TJIA instructed by Messrs Yip, Tse & Tang for the Applicant

Mr Patrick S L WONG instructed by Messrs C K Mok & Co for the Respondent