POON HAU KEI v. HSIN CHEONG CONSTRUCTION CO. LTD. AND OTHERS

FACV No. 12 of 1999

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 12 OF 1999 (CIVIL)

(ON APPEAL FROM CACV No. 214 OF 1998)

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JUDGMENT ON COSTS

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Mr Justice Litton PJ:

1. This is the judgment of the Court on costs.

2. In considering whether an order for costs should be made and, if so, to be paid by whom, it is important to bear in mind the nature of the proceedings.

3. Mr Poon the claimant applied to add HCTW as a second defendant in his claim for compensation. His Honour Judge To acceded to the application, but his order was discharged on appeal. By our judgment of 15 December 1999 the judge's order was restored.

4. Order 62 r.3(2) of the Rules of the High Court - made applicable to appeals in this Court by Rule 57(1) of the Hong Kong Court of Final Appeal Rules - provides that where the Court sees fit to make an order as to the costs of the proceedings the Court shall order the costs to follow the event, except where it appears that in the circumstances of the case some other order should be made.

5.Prima facie Mr Poon should have all the costs incurred in this Court and in the Court of Appeal. The question then is whether, having regard to the offers of settlement contained in the letters of 23rd and 29th November 1999, some other order should be made. On its face, the offers in the two letters, if accepted, would have satisfied Mr Poon's claim in toto, as if he had won all the way in these interlocutory proceedings and had final judgment made in full in respect of his claim. The conditions for acceptance imposed by Mr Poon's solicitors do not appear entirely reasonable. They asked HCTW to:

6. If the issue were simply the "reasonableness" of the attitudes of the two firms of solicitors as displayed in the exchange of correspondence, HCTW would win hands down. The problem facing us is this: Since the issue on the appeal was simply whether Judge To's interlocutory order was correct, this Court was not concerned with the quantum of the claim. Whilst the offer of $892,566.91 seems on its face to be complete, made in satisfaction of all heads of claim, this Court was never seized of this issue. The matter cannot therefore be approached as if the "Calderbank letters" were the equivalent of payment into Court under Order 22 of the Rules of the High Court. Counsel for HCTW, in his written submissions, concedes as much. It would also seem wrong in principle to resolve the question of costs upon an issue which was never before the Court and upon which the parties have not been heard. Mr Poon's counsel says that the appeal was rightly prosecuted because it involved a matter of great public importance: The Court of Appeal's erroneous construction of s.24 of the Employees Compensation Ordinance and of the effect of the Management Contract, if uncorrected, would have prejudiced many other similar claims for years to come: Until some other claimant takes the matter all the way to this Court. Whilst this may be said to be of no concern to the parties themselves, it does weigh in the scales when the Court considers the broad discretionary matter of costs.

7. Assuming Mr Poon's solicitors' response to the letter of 29 November (received 10 days before the date fixed for hearing the appeal) had been this: "We are concerned with only one matter at this stage, namely the Court of Appeal's judgment; if you are prepared to concede the appeal you can write a letter to the Registrar to this effect and save costs by not briefing counsel; we will deal with the question of liability and quantum once Judge To's order has been restored". It is difficult to see how the solicitors could have been faulted for such an approach. Is, then, Mr Poon to be penalized as to costs because of the terms of his solicitors' reply, when the effect of it is virtually the same? The fact of the matter is that HCTW did not concede the appeal; they appeared by counsel to contest the appeal; they lost on the only issuebefore the Court.

8. Now that HCTW has been restored as a party to the compensation claim nothing prevents them from tendering the sum of $892,566.91 to the claimant in satisfaction of his claims. As regards the costs which they had offered to pay, these would be Mr Poon's in any case by our order: The acceptance or rejection of the offer makes no difference either way. Is Mr Poon, then, so unreasonable in his refusal of the offer that he should (1) be deprived of his costs of the appeal and (2) be ordered to pay HCTW's costs of the appeal? As to (2) above, there is no precedent of a successful appellant being ordered to pay the costs of the other side. This then leaves question (1) as HCTW's remaining argument. As to this there are in our judgment insufficient grounds for depriving Mr Poon of his costs of the appeal. In prosecuting the appeal Mr Poon was doing what he was entitled to do. And being successful he should get his costs.

9. We would order that the costs of the appeal to this Court and those incurred in the Court of Appeal be paid by HCTW. Mr Poon's counsel has invited us to interfere with Judge To's order (which was that the costs before him be in the cause) by replacing it with an order against HCTW. We would reject that submission and leave Judge To's order undisturbed.

FACV No. 12 of 1999

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 12 OF 1999 (CIVIL)

(ON APPEAL FROM CACV NO. 214 OF 1998)

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J U D G M E N T

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Chief Justice Li :

1. I have read the judgment of Lord Hoffmann NPJ and agree with it.

Mr Justice Litton PJ :

2. I agree with the judgment of Lord Hoffmann NPJ.

Mr Justice Ching PJ :

3. For the reasons given by Lord Hoffmann NPJ, I would allow this appeal.

Mr Justice Bokhary PJ :

4. I agree with the judgment of Lord Hoffmann NPJ.

Lord Hoffmann NPJ :

5. This appeal appeared at first sight to raise a point on the construction of s.24(1) of the Employees Compensation Ordinance, Cap. 282. In the event, however, there was no dispute about what the section meant. Instead, the argument turned upon the construction of a contract entered into by the respondent. The question is whether the effect of that contract is to bring the respondent within the terms of the section.

6. The purpose of the Ordinance, as stated in the long title, is to "provide for the payment of compensation to employees who are injured in the course of their employment." Section 5(1) places the primary liability upon the employer, who is required by Part IV to be insured up to a specified amount. In cases in which the employer is a sub-contractor, s.24 extends the liability to the principal contractor. The material provisions read as follows:

7. This provision is obviously for the protection of employees in case their immediate employer should be untraceable or insolvent and uninsured. The Ordinance provides that a principal contractor may take out a single insurance policy for the benefit of the employees of all his subcontractors: see s.40(1B). In such a case the subcontractors do not need to have separate policies: s.40(1E)(d).

8. The appellant Mr Poon suffered an injury in the course of his employment as a scaffolder. His immediate employer was Mr Ho Shui-Keng, who had been engaged by General Engineering (HK) Co. Ltd ("GE") to carry out scaffolding work at Hung Hom railway station. GE had in turn been engaged by Hsin Construction Co. Ltd Taylor Woodrow International Ltd Joint Venture ("HCTW") to carry out fire service installation work at the station and the scaffolding had been required for the purposes of that work. HCTW was Management Contractor employed by the Kowloon Canton Railway Corporation ("KCRC") in connection with a larger project for the extension and renovation of the station and GE was one of the contractors whom it engaged to carry out part of that work.

9. Mr Poon originally commenced proceedings against Mr Ho and then, presumably finding that he was not insured, applied to add HCTW as a second defendant. The judge (His Honour Judge To) allowed the joinder on the ground that HCTW was arguably liable as principal contractor within the meaning of s.24. The Court of Appeal discharged his order on the ground that it plainly was not.

10. The question turns upon whether the contract between HCTW and GE was in respect of work which had been "undertaken" by HCTW. The Management Contract between HCTW and KCRC was in the JCT Standard Form of Management Contract 1987 edition. The principal difference between this and, say, the ordinary JCT Standard Form of Building Contract (1980 edition) is that whereas the latter provides in Article 1 that the Contractor will "carry out and complete the Works", the former provides in Article 1.2 that the Management Contractor will "secure the carrying out and completion of the Project." The Management Contract does not contemplate that the Management Contractor will do any building work itself. The second recital says that -

11. Clause 1.5 of the standard Conditions provides that the Management Contractor shall "enter into Works Contracts in sufficient time to enable the Project to be duly carried out and completed on or before the Completion Date". There is no privity of contract between the employer, KCRC, and the Works Contractors. This is expressly provided by clause 1.9 of the Works Contracts themselves. Condition 1.7 of the Management Contract provides that-

12. An amendment to this clause excludes liability for "any deficiency or defect in the design of the Project or the Works" but this is not in my opinion material.

13. Leaving aside for the moment the reference to clause 3.21, the effect of these provisions is clear. The only functions which HCTW was expected to perform itself were of a supervisory and co-ordinating nature. The actual work was to be done by the Works Contractors. But HCTW contracted with KCRC to "secure the carrying out and completion of the Project" and made itself contractually liable as principal for non-performance by the Works Contractors. If the work was not done, or not done properly, HCTW was the only person whom KCRC could sue.

14. Mr Chan SC, who appeared for the respondent, did not suggest that the words "the work undertaken by the principal contractor" in s.24(1) meant that the principal contractor must have undertaken to do the work personally. This would make nonsense of the section, which contemplates that all or part of the work will be done by subcontractors. He accepted that it covered the case in which the parties contemplated that the work would actually be done by someone else. "Work undertaken" therefore means work which is the subject of a contract to be performed either personally or vicariously. On this point, both sides were agreed. But Mr Chan submits that in the present case, HCTW contracted neither to do the work nor to have it done by others. It contracted only to enter into contracts with the Works Contractors, to enforce those contracts and to account to KCRC for any damages recovered. For this purpose, he relied upon clause 3.21 of the standard Conditions, to which the Management Contractor's liability under clause 1.7 is expressly made subject. This is a rather complicated clause which deals with what is to happen if there is a breach of a Works Contract by a Works Contractor. By clause 3.21.1, the Management Contractor shall "take all necessary steps" to operate the terms of the Works Contract for dealing with such breach, including arbitration or litigation if necessary, to obtain any amount due to the Management Contractor "including therein any amount for which the Management Contractor is liable to the Employer under clause 1.7". The Management Contractor must also take all necessary steps to "secure the satisfactory completion of the Project" including the engagement, if necessary, of another Works Contractor.

15. By clause 3.21.2, the Employer must reimburse the Management Contractor for amounts expended in complying with clause 3.21.1, subject to the Employer's right to any damages or other sums recovered by the Management Contractor from the defaulting Works Contractor.

16. Mr Chan submitted that if one looks at the contract as a whole, HCTW was (apart from its supervisory duties) no more than a conduit by which KCRC could enforce contracts with the Works Contractors in a form prescribed by KCRC, into which HCTW had entered at the direction of KCRC. It was not a principal which had undertaken either to do the work or have the work done.

17. In the end, as both counsel recognised in the economy of their submissions, the point is a very short one. In my opinion, and with respect to the Court of Appeal, the "Project" as defined in the Management Contract was not merely, as Rogers J.A. put it, "work which HCTW had undertaken to contract to have performed." If that, coupled with the obligations of enforcement in clause 3.21.1, had been the totality of the Management Contractor's obligations, it is hard to see how it could have been entitled to recover any damages from a Works Contractor. The breach of contract by the Works Contractor would have caused the Management Contractor no loss. It had no financial interest in the project itself and would have had no liability to KCRC, against which it was entitled to claim an indemnity. But clause 3.21.1 expressly provided that the Management Contractor should claim from the defaulting Works Contractor sums which "included any amount for which the Management Contractor is liable to the Employer under clause 1.7." This must mean that the Management Contractor was liable as principal to the Employer for its failure to secure that the work was performed by the Works Contractor and therefore had a claim for indemnity. And this is consistent with the statement in Article 1.2 that the primary obligation of the Management Contractor is to "secure the carrying out and completion of the Project". Clause 3.21.1 itself recognises this as the primary obligation: if there is default by a Works Contractor, the Management Contractor must still "secure the satisfactory completion of the Project", if necessary by engaging another Works Contractor.

18. In my judgment the effect of the Management Contract was that HCTW undertook that the work comprised in the Project would be done. This made them principal contractors within the meaning of section 24. I would therefore allow the appeal.

Chief Justice Li :

19. The Court unanimously allows the appeal. The parties should within 14 days make written submissions copied to the other party on costs and any further orders required.