KAUR PARAMJIT v. LI ON NA t/a 新長發快餐 AND OTHERS

DCEC 1479/2012

[2020] HKDC 858

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

EMPLOYEES’ COMPENSATION CASE NO 1479 OF 2012

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DECISION

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A.Introduction: court’s power to make a wasted costs order

1.  Under O 62, r 8 of the Rules of the District Court^[1], a Court is empowered to make, whether on its own motion or on application(pursuant to sub-r 8A) a wasted costs order against a legal representative, only if:

“(a) the legal representative, whether personally or through his employee or agent, has caused a party to incur wasted costs as defined in section 53(5) of the [District Court] Ordinance; and

(b) it is just in all the circumstances to order the legal representative to compensate the party for the whole or part of those costs.”

Under O 62 r 8B:

“(1) The Court shall consider whether to make a wasted costs order in 2 stages—

(a) in the first stage, the Court must be satisfied that—

(i) it has before it evidence or other material which, if unanswered, would be likely to lead to a wasted costs order being made; and

(ii) the wasted costs proceedings are justified notwithstanding the likely costs involved; and

(b) in the second stage (even if the Court is satisfied under subparagraph (a)), the Court shall consider, after giving the legal representative an opportunity to give reasons why the Court should not make a wasted costs order, whether it is appropriate to make the order in accordance with rule 8.”

2.  On this court’s own motion, pursuant to O 62 r 8A, I directed Messrs Massie & Clement, the former solicitors (“Former Solicitors”) of the applicant, Mdm Kaur, to show cause why this court should not make a wasted costs order against them.

B.  Background facts

3.  The background facts leading to the direction for the making of a wasted costs order against the Former Solicitors have been stated in three separate decisions of this court.

4.  Briefly stated, Mdm Kaur met the subject accident whilst working as a dish washer in a restaurant in Shatin.  Based on the business registration searches the Former Solicitors conducted on “Sun Cheung Fat Fast Food” (“Business”), Li On Na (“Mdm Li”) trading as “Sun Cheung Fat Fast Food” was named as her employer when she instituted the employees’ compensation claim.  Mdm Li did not make any appearance or participate in the proceedings, which resulted to the entry of interlocutory judgment and a final judgment respectively on 15 February and 17 October 2013 (collectively “Default Judgments”).

5.  However, on the date of Mdm Kaur’s accident, Mdm Li had already transferred the Business to Mdm He Xiao Ying (“Mdm He”) but the business registration records were not updated. Hence, Mdm Li was still shown to be the registered owner of the Business.

6.  Consequently, on the application of Mdm Li, supported by the Employees Compensation Assistance Fund Board (“Fund Board”) (which was joined as the 2^nd respondent), this court set aside the Default Judgments on 28 September 2016 (“Decision 16”).

7.  After the Default Judgments were set aside, Mdm Kaur’s Legal Aid Certificate was discharged, and she was on and off privately represented.  She succeeded in joining Mdm He as the 3^rd respondent on 15 November 2018.  Upon being joined as the 3^rd respondent, Mdm He made a sanctioned payment.

8.  These proceedings were finally disposed of upon Mdm Kaur’s acceptance of the sanctioned payment and the discontinuance of the proceedings against Mdm Li and the Fund Board. By this court’s decision on 15 August 2019 (“Decision 19”), I ordered Mdm Kaur to bear the costs of the Fund Board and Mdm He.

9.  References should be made to Decision 16 and Decision 19 for more detailed background facts.

10.  Upon the conclusion of these proceedings, I was satisfied that there was sufficient evidence before this court indicating that the Former Solicitors had been at fault in bringing proceedings against Mdm Li, who was not the employer.  I was of the view that such conduct, if unanswered, would be likely to lead to a wasted costs order being made against them, in (a) disallowing 50 percent of the costs between the Former Solicitors and Mdm Kaur; and (b) ordering them to repay 50 percent of Mdm Kaur’s costs which Mdm Kaur has been adjudged to pay the Fund Board.

C.  The conduct complained of

11.  Overall, this court found evidence tending to show that the Former Solicitors had failed to make proper inquiries based upon the available documents that could have disclosed the identity of the actual employer before the commencement of and during the proceedings, particularly in respect of the following three matters:

C.1    Failure to make proper inquiries about the cheque payments

12.  It is not in dispute that Mdm Kaur received two periodical payments in the two months immediately after the accident in February and March 2012 by cheques (“Cheques”) drawn in the names of Mdm He and an unknown person, but not in Mdm Li’s name. The Former Solicitors had knowledge of these payments by Cheques as the Cheques were one of the items, Item 5, disclosed in the List of Documents filed on 21 March 2013.

13.  Since the drawers of the Cheques bore absolutely no connection with Mdm Li, the fact that the Former Solicitors had described in the List of Documents that the Cheques were “received by the Applicant as a periodical payment made by her employer” could not have possibly been from the information disclosed from the Cheques but must have only been from Mdm Kaur’s instructions.

14.  However, Mdm Kaur never stated that the Cheques were from Mdm Li.  She only made a vague reference that she received the Cheques from “a male employee” (Decision 19, §40).

15.  Since there is no evidence that can support the description of the Cheques in the List of Documents, the said description is, ex facie, erroneous.  I believe that the Former Solicitors had failed to make proper inquiries on the circumstances as how Mdm Kaur came by the Cheques.  Had the Former Solicitors taken proper instructions from Mdm Kaur, they would have little difficulty in finding out that Mdm Li was not the employer, and should not have been sued.

C.2    Mdm He’s letters to Mdm Kaur after the accident

16.  When deliberating upon Mdm Li’s application to set aside the Default Judgments, I gave some weight to the two letters by Mdm He to Mdm Kaur.  To put the matter into context, it is convenient to re-visit the contents of the letters which I discussed in Decision 16.

“[18] These two letters, one being hand-written in Chinese dated 31 May 2012; and another in English dated 11 June 2012, are both addressed to the applicant. The letters are stated to be from the person-in-charge of Loi Loi Hotpot Restaurant, which was stated to be the applicant’s employer. The contents of the letters seem to be an inquiry about the applicant’s injuries and an arrangement for her to be medically examined. The one thing that counsel suggested showed Mdm He to have likely been the applicant’s employer, rather than Mdm Li, was a contact telephone number stated in these letters, which is the same telephone number as that of Mdm He as recorded in the Agreement^[2].”

17.  In very similar fashion as the description given for the Cheques in the List of Documents, the Former Solicitors, when disclosing the English version of Mdm He’s letter, stated that the letter was issued by the “Respondent [Mdm Li] to the Applicant [Mdm Kaur]”.

18.  Again, the contents of the letter do not contain any information that could support the description that it was written, or “issued” (as the Former Solicitors described in the List of Documents) by Mdm Li.  Thus, for the Former Solicitors to have been able to give such information about the letter in the List of Documents, the Former Solicitors must have obtained the information from their client, Mdm Kaur.

19.  Mdm Kaur, on the contrary, had absolutely no clue as to the nature of the letters.  It is her evidence that since she did not know Chinese or English, she passed the two letters to the Former Solicitors for handling after she received them.  Mdm Kaur even alleged that when she gave the Former Solicitors the letters, she was advised not to reply to the letters^[3].

20.  Mdm Kaur had given the two letters to the Former Solicitors before the institution of this employees’ compensation application.  Thus, the Former Solicitors would have plenty of time to make investigation regarding the matters stated in the letters.  At the very least, they could have easily called the telephone number Mdm He gave.  The Former Solicitors inappropriately ignored them.  Had they carried out the necessary inquiries, the Former Solicitors would have had little difficulty in establishing that Mdm He, not Mdm Li, was the employer, and would have unlikely made the claim against Mdm Li notwithstanding the contrary information disclosed in the business registration records of the Business.

21.  It is clear that the Former Solicitors had no evidence to support the assertion that the letters were from Mdm Li.  The information they gave in the List of Documents is clearly a mis-description.  I tend to believe that they had deliberately ignored relevant evidence that would have alerted them to the apparent conflicts between the evidence they were in possession of and the information disclosed in the business registration records of the Business, which conflicts they were duty-bound to reconcile by undertaking proper scrutiny.

C.3    Frequent change of ownership

22.  In Mdm Kaur’s witness statement filed on 2 April 2013, Mdm Kaur already alluded to the frequent change of ownership of the restaurant before she met the accident. She mentioned that although the hot-pot restaurant in which she had worked intermittently as a dish washer bore a signage, “Loi Loi Hotpot Restaurant”, the same restaurant signage was still used despite the restaurant being “managed by … different people” from time to time.

23.  In light of Mdm Kaur’s evidence alluding to the frequent change of ownership in the witness statement prepared by the Former Solicitors, and the fact that there was no written employment contract, the Former Solicitors should have taken extra care in clarifying the identity of the employer from Mdm Kaur instead of solely relying on the information disclosed in the business registration records of the Business.

24.  Mdm Kaur did not appear to be a consistent witness, is amplified by her recent allegations that it was the Former Solicitors who told her the name of “Loi Loi Hotpot Restaurant” (Decision 19, §37).  In light of the poor quality of Mdm Kaur’s evidence, it was the duty of the Former Solicitors, in my view, to take appropriate steps to clarify Mdm Kaur’s case on who the actual employer was.

D. The reasons given by the Former Solicitors

25.  The Former Solicitors show cause by the filing of the affidavit of Richard Clement, the Legal Aid assigned solicitor for Mdm Kaur, and an affirmation of Khangura Javtej Singh, the litigation clerk assisting Mr Clement in these proceedings.

26.  Mdm Kaur and the Director of Legal Aid, despite having been given notice of the hearing, did not participate in these wasted costs order proceedings.

27.  In his affidavit, Mr Clement maintained that the bringing of the proceedings against Mdm Li was reasonable, as it was well supported by Mdm Kaur’s unequivocal instructions and the relevant business registration documents.  Despite the availability of the evidence that might have led to his discovery of Mdm He as the employer, Mr Clement stood by his decision in having advised Mdm Kaur to bring the claim against Mdm Li, who, Mr Clement stated, would have been a proper party to the proceedings as an undisclosed principal.

28.  Mr Clement admitted that he was indeed provided with the Cheques 3 days before the institution of the proceedings but he found nothing unusual despite the names of the drawers not bearing Mdm Li.  Mr Clement stated: “[a]t the time we had no idea of anyone called Ms He, so her being one of the two signatures on the cheque raised no concerns” (Mr Clement’s affidavit, §14).

29.  Similarly, for the two letters Mdm He sent to Mdm Kaur, the Former Solicitors also admitted having taken no action about them.  The reason for the inaction is that Mr Clement assumed that the letters were from Mdm Li.  Based on this assumption, the Former Solicitors therefore described the English version of the letter in the List of Documents as letter from the employer.

30.  Mr Clement maintained that the essential part of Mdm Kaur’s instructions that she was re-employed by Mdm Li, albeit her references to the frequent changes of ownership before the accident, were clear and unequivocal.  Mr Clement averred that it was not until he had sight of the business transfer agreement by Mdm Li allegedly transferring the Business to Mdm He at a much later stage after the final judgment was obtained against Mdm Li, the Former Solicitors had knowledge of the transfer of ownership of the Business.

31.  Supplementing Mr Clement’s explanation, Mr Singh, who speaks Urdu, Punjabi, English and Chinese, stated that since Mdm Kaur was not conversant in either Cantonese or English, the instructions were mostly from her Cantonese-and-English-speaking son.

32.  The Cheques and Mdm He’s two letters were given to Mr Singh by Mdm Kaur’s son on date(s) that Mr Singh could no longer recall.  However, based on the date of the letter the Former Solicitors wrote to Mdm Kaur on 2 August 2012 (in which she was asked for the provision of documents to enable the Former Solicitors to institute proceedings) and the filing date on 21 March 2013 of the List of Documents (in which these documents were disclosed, see §12 and §17 above), Mr Singh believed that the Former Solicitors received these documents during this period. Assuming the letters were from Mdm Li, Mr Singh therefore had not called the number Mdm He provided in the letters.  Mr Singh admitted that it was an oversight on his part in ignoring the contents of the letters, but explained that by the time he received these letters, the scheduled medical appointment date stated in Mdm He’s letters had long expired.

33.  Mr Singh also admitted that the Former Solicitors had received Mdm Li’s Chinese letter dated 28 July 2013, informing them that her restaurant business had been transferred to Mdm He.  Although Mdm He’s name and the same mobile phone number Mdm He provided in the said two letters were also stated in Mdm Li’s letter, Mr Singh said he took no steps to verify the information in Mdm Li’s letter in view of the repeated unsuccessful services of the documents on the addresses the Former Solicitors found from the business registration records of the Business.

E.   Discussion

E.1   Criteria for the making of the order

34.  As discussed at the outset of this Decision, a wasted costs order against a legal representative should only be made if the circumstances provided in O 62, r 8 are satisfied.

35.  “Wasted Costs” as defined in s 53(5) of the District Court Ordinance referred to in O 62, r 8 are:-

“any costs incurred by a party as a result of-

(a) an improper or unreasonable act or omission; or

(b) any undue delay or other misconduct or default,

on the part of any legal representative, whether personally or through an employee or agent of the legal representative.”

36.  The applicable principles are stated in Ma So So v Chin Yuk Lun & Anor [2004] 3 HKLRD 294, in which the Court of Final Appeal propounded (at §6) that before making a wasted costs order, a court should consider:-

“(1) Whether the solicitor was responsible for (i) acting improperly or without reasonable cause or (ii) for undue delay or any other misconduct or default in any proceedings.

(2) Whether such conduct of the solicitor caused costs to be incurred or wasted. This is a question of causation. The causal link between the solicitor’s conduct and the extent of costs incurred or wasted must be established.

(3) Whether the court should exercise its discretion to make an order.”

37.  The Hong Kong Civil Procedure (2020), Vol 1 (“HKCP”) also provides a detailed summary of the proper approach to be adopted:-

“The matter complained of need not be criminal. It need not involve peculation or dishonesty. A mere mistake or error or judgment is not generally sufficient, but a gross neglect or inaccuracy in a matter which it is a solicitor’s duty to ascertain with accuracy will suffice. It need not involve personal obliquity. The term of professional misconduct has often been used to describe the ground on which the court acts. It would perhaps be more accurate to describe it as conduct which involves a failure on the part of the solicitor to fulfill his duty to the court and to realise his duty to aid in promoting in his own sphere the cause of justice. (Myers v. Elman, [1940] A.C. 282; KB Chau & Co. (a firm) v. China Finance Trust & Investment Corp. & Another [1995] 2 H.K.L.R. 567, CA). The conduct must be inexcusable and such as to merit reproof (J v. C & Another [1995]1 H.K.L.R. 19). The test was whether the conduct amounted to a serious dereliction of duty (QueJocelyn Co. (t/ a Scented Delights) v. Broadair Express Ltd [1999] 3 H.K.L.R.D. 104)” (HKCP §62/8/1).

38.  As to what constitutes “an improper act” under s 53(5)(a), HKCP (at §62/8/3) states as follows.

“It was not enough that a solicitor’s general conduct for a client had been improper; in every case where a solicitor had been made to pay costs, he had been proved guilt (sic) of misconduct a client had been improper…The jurisdiction is only exercisable where the solicitor was responsible for conduct of the kind prescribed by the rule in any proceedings.”

39.  An “unreasonable act” is referred to conduct:-

“In United Kingdom… which is vexatious, designed to harass the other side, rather than advance the resolution of the case, and it makes no difference that the conduct was the product of excessive zeal and not improper motive. In order for a wasted costs order to be made under the CPR, any impropriety should be very serious and there had to be something more than negligence. There had to be something akin to abuse of process. It is a necessary requirement of any wasted costs order that there should be a breach of the lawyer’s duty to the court, there must be something more than mere negligence for the wasted costs jurisdiction to arise … In cases where the allegation is that the legal representative has pursued a hopeless case, the question is whether no reasonably competent legal representative would have continued with the action. This question could not be answered affirmatively unless the representative also acted unreasonably which is akin to establishing abuse of process… Under the CPR, unless an applicant for a wasted costs order can establish that the legal representative acted in a way that was not only“improper, unreasonable or negligent” but was also in some way in breach of any duty to the court, the court cannot make a wasted costs order…The jurisdiction could only be invoked in the case of serious misconduct and the initiation or continuation of an action when it had no or substantially no chance of success might constitute such misconduct (Orchard v. South Eastern Electricity Board [1987] 1 Q.B. 565; Ho Lee Manv. Wong Wai Kai (No. 2) [1993] 1 H.K.C. 193, CA)…Acting on instructions is no answer to a charge of abuse of process and breach of duty to the court…”(HKCP§62/8/4).

40.  In his written submissions, Mr Clement also quoted the English Court of Appeal decisions of Ridehalgh v Horsefield^[4] and Myers v Rothfield^[5].

41.  Myers was a 1936 case, which was  overturned by a further appeal to the House of Lords in Myers v Elman^[6].  Notably, when Myers was decided, the court's wasted costs jurisdiction in the UK was not regulated by the English Rules of the Supreme Court.^[7]

42.  In the circumstances, and in view of the fact that references have been made to Ridehalgh and Myers in Ma So So, I do not think it is necessary to refer to the passages Mr Clement quoted in his written submissions of these two English cases.

E.2   Is sufficient cause shown?

43.  The basis upon which this court ordered the Former Solicitors to show cause is that the Former Solicitors had not taken reasonable steps to properly investigate the identity of the employer when there were still 17 months for the 24 months’ limitation period to run when commencing the proceedings against Mdm Li (Decision 19, §43).

44.  Chief in the court’s criticisms of the Former Solicitors’ conduct is the commencement of the proceedings against the wrong party, Mdm Li, by careless disregard of the documents that would have led them to find out Mdm He as the employer liable to make payment of compensation to Mdm Kaur.  By having brought the proceedings against Mdm Li, I find that extra costs have been incurred as a result of the conduct complained of, which falls within s 53(5)(a) - “improper or unreasonable act or omission”- and s 53(5)(b) - “misconduct or default” on the part of the Former Solicitors.

45.  After having considered the explanation given by the Former Solicitors (by the affidavit of Mr Clement and the affirmation of Mr Singh), I do not accept Mr Clement’s submission that it was reasonable for the Former Solicitors to have pursued Mdm Li on the strength of the business registration records. From the discussion above, it is abundantly clear that as a result of the Former Solicitors’ failure in undertaking proper scrutiny of the documents in their possession, the evidence on which Mdm Kaur relied on against Mdm Li was largely based on assumptions and guesswork by the Former Solicitors.  The descriptions the Former Solicitors gave in the List of Documents in relation to the Cheques and Mdm He’s letter clearly epitomize the attitude the Former Solicitors took in this case.

46.  In this case, I find it most unsatisfactory that Mr Clement, despite having been assigned by the Director of Legal Aid as the assigned solicitor handling Mdm Kaur’s employees’ compensation claim, seemed to have left a large chunk of the work to Mr Singh. Given that Mr Singh spoke the same language as Mdm Kaur and her son, I believe that Mr Singh’s involvement was necessary.  The unacceptable conduct, in my judgment, lies in the failure of Mr Clement to properly supervise Mr Singh, leaving Mr Singh to tend to Mdm Kaur or her son.  Given the difficulty the Former Solicitors had encountered with the service of the documents on Mdm Li when the action was commenced, and in particular the peculiar transitory nature of ownership of the restaurant where Mdm Kaur worked (see §22 above), the Former Solicitors, in my view, were duty-bound to take extra care in this case. They failed to do so.

47.  It is beyond dispute that before and after the commencement of this claim, the Former Solicitors were in possession of evidence, such as Mdm He’s letters to Mdm Kaur and Mdm Li’s letter to the Former Solicitors referred to in §16 and §33 above, that would have reasonably required the Former Solicitors to undertake a chain of inquiries, and had they been done, it would have likely led to the successful tracing of the actual employer, Mdm He.  The Former Solicitors however have unreasonably ignored the various strands of highly probative and relevant evidence by dismissing them out of hand.

48.  Worse still, despite having received information from Mdm Li about the transfer of ownership of the Business to Mdm He in the letter Mr Singh admitted having received, the Former Solicitors made no effort at all to either contact Mdm He at the number given in the letters or to make inquiries to verify the validity of the alleged transfer of business. Instead, the Former Solicitors proceeded to trial to obtain a final judgment against Mdm Li, ignoring their duty of frank disclosure to court on the possibility (as disclosed in Mdm Li’s letter) that the employer might have been someone else other than Mdm Li.

49.  The Former Solicitors’ blaming of Mdm Li in having failed to update the changes on the business registration records, in my view, does not excuse the Former Solicitors.  Mdm Li, as I have found in Decision 19, was at fault in having failed to update the business registration records.  She had paid for the price of the default in having incurred costs and expenses to defend these proceedings.

50.  From the analysis stated above, I consider that as a result of the cavalier attitude of Mr Clement in the handling of this claim, the Former Solicitors had caused costs to have been unreasonably incurred.  It was more than an oversight that Mr Singh admitted in his affirmation.

51.  In conclusion, I am not satisfied that sufficient cause was shown.

E.3   Should a wasted costs order be made?

52.  To make a wasted costs order against the Former Solicitors, I need to be satisfied that the misconduct in this case is of sufficient seriousness in the sense that it constitutes gross neglect.  I bear in mind that the procedure in the present wasted costs proceedings is summary in nature. Thus, the Former Solicitors have not been able to cross-examine Mdm Kaur on the number of allegations Mdm Kaur made against the Former Solicitors (see §19 and §24 above). In the circumstances, I should give full allowance for the inability on the Former Solicitors to tell the whole story, and therefore give them the benefit of doubt in inferring instead, that the default might have been due to the fault of Mdm Kaur.

53.  In the circumstances, I believe it is not just in all the circumstances to make a wasted costs order against the Former Solicitors.  I decline to do so.

54.  I will ask my clerk to serve a copy of this Decision on Mdm Kaur as well as the Director of Legal Aid as this Decision will have a bearing on Mdm Kaur’s costs whilst she was an aided-person.

55.  Lastly, I thank Mr Clement for his assistance in this matter.

DCEC 1479/2012

[2019] HKDC 1077

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

EMPLOYEES’ COMPENSATION CASE NO 1479 OF 2012

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DECISION

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A.BACKGROUND FACTS

1.  Mdm Kaur’s employees’ compensation proceedings have a chequered history.  For easy understanding, I extract the background facts set out in the “Reasons for Decision” of this court dated 15 November 2018.

“[1] Mdm Kaur, the applicant in these employees’ compensation proceedings, allegedly met an accident on 5 January 2012 whilst she was working in a restaurant called San Cheung Fast Food (“Restaurant”), which was believed to have been owned by Li On Na (“Mdm Li”). Before the expiry of the two years’ limitation period provided by s.14 of the Employees’ Compensation Ordinance, Mdm Kaur, through her then legal-aid solicitors, brought these proceedings on 23 August 2012 against Mdm Li trading as San Cheung Fast Food.

[2] Mdm Kaur obtained a default interlocutory judgment and a final judgment respectively on 15 February and 17 October 2013 in default of Mdm Li’s appearance.

[3] After Mdm Li made an application to apply to set aside the default judgments, the Employees Compensation Assistance Fund Board applied to be joined as the 2^nd respondent, and to set aside the default judgments.

[4] It was Mdm Li’s assertion that she ceased to be the owner of the Restaurant as from 11 November 2011 after she sold the Restaurant business to Mdm He Xiao Ying (“Mdm He”) by a transfer of business agreement. Since the alleged accident happened after she sold the Restaurant to Mdm He, Mdm Li strenuously denied that she was the employer.

[5] On 28 September 2016, I handed down a decision (“Decision”) setting aside the default judgments.

[6] On 10 May 2017, the Director of Legal Aid discharged Mdm Kaur’s legal aid certificate. Mdm Kaur then became privately represented until 4 December 2017 when she acted in person.

[7] On 30 November 2017, whilst still privately represented, Mdm Kaur filed a summons together with a supporting affirmation for leave to join out of time a new party - He Xiao Ying trading as San Cheung Fast Food - as the 3^rd respondent in these employees’ compensation proceedings. “He Xiao Ying” (Mdm He), according to Mdm Li’s assertion, was the alleged new owner of the Restaurant.”

2.  Unless expressly stated, the same nomenclature used in the above will be adopted in this Decision. 

3.  Shortly after the 3rd respondent was ordered to be joined in these proceedings on 23 October 2018, the 3rd respondent, on 2 January 2019, made a sanctioned payment.  On 24 January 2019, Mdm Kaur’s present solicitors filed a “Notice of Acceptance of Sanctioned Payment” (“Notice of Acceptance”).  By summons filed on 14 February 2019 (“Summons”) pursuant to s 18A of the Employees’ Compensation Ordinance and O 32 of the Rules of the District Court (“RDC”), Mdm Kaur applied, among other things, for the payment out of the sanctioned payment and for costs. 

4.  Mdm Kaur filed her 2nd and 3rd affirmations (respectively “Kaur’s 2nd” and “Kaur’s 3rd”) in support of the Summons and in reply to Mdm He’s affirmation (“He’s 2nd”) filed in opposition to the Summons.  The Board remained neutral and filed no evidence.

5.  At the hearing, Mdm Kaur was no longer represented by her Legal-aid assigned solicitors, Messrs. Massie & Clement (“Former Solicitors”), but was privately represented by Mr Sun, the Board was represented by Mr Li, and the 3rd respondent by counsel, Mr Pako Chan.  Mdm Li, despite having been served with the Summons, did not respond to the Summons and was absent from the hearing. I proceeded to hear the Summons in Mdm Li’s absence.

B. THE SUMMONS

6.  In the Summons, Mdm Kaur seeks the following orders: -

“(a) The Sanctioned Payment in the sum of HK$134,624 made by the 3^rd Respondent on 2^nd January 2019 be paid out to the Applicant through the Director of Legal Aid;

(b) The 3^rd Respondent do pay all the Applicant’s costs of this action against the 1^st to 3^rd Respondents, including this Summons, to be taxed if not agreed;

(c) Upon full payment of the Applicant’s costs as mentioned in paragraph 2 hereinabove, the 3^rd Respondent shall be fully discharged and released from any and all further liabilities in respect of the Applicant’s claims under this action; and

(d) Leave to the Applicant to discontinue this action against the 1^st and 2^nd Respondents, and the 3^rd Respondent do pay the 1^st and 2^nd Respondents costs of this action, including this Summons, to be taxed if not agreed.”

7.  Paragraph (a) of the Summons, leave for the payment out of the sanctioned payment, is not controversial. Apart from agreeing to pay part of the Board’s costs set out in the consent summons in the following paragraph, Mdm He strenuously contests paras [b] and [d] of the Summons regarding costs liability.

8.  By a consent summons Mdm Kaur filed on 5 June 2019, the parties, with the exception of the 1st respondent who is not a party to the consent summons, agreed that: -

“(a) The 3^rd Respondent do pay the 2^nd Respondent’s costs of these proceedings from 30^th November 2017 up to the date of the order to be made including the costs of this application, to be taxed if not agreed”

9.  Paragraph [a] of the consent summons was ordered at the hearing. Despite their agreement that the Board is entitled to its costs before 30 November 2017, Mdm Kaur and Mdm He however dispute liability for these costs. Hence, I need to determine the remaining costs of the Board (“Board’s Remaining Costs”) from 21 July 2016 to 29 November 2017 (i.e. from the date of the Board’s summons to be joined as the 2nd respondent to the date before Mdm Kaur’s summons to join the 3rd respondent).

C. ISSUES

10.  The issues of the Summons are: -

(1)  First, Mdm Kaur’s costs of this action (Issue 1).

Mdm He only agrees to pay Mdm Kaur’s costs from 23 October 2018, the date she became a party to these proceedings, but disputes her liability before that date.

(2)  Second, Mdm Li’s costs (Issue 2).

Mdm Li only made her first appearance in her application to set aside the Default Judgments. After the Default Judgments were set aside, Mdm Li’s involvement was minimal. Her costs seem to have only been limited to the costs Mdm Li was ordered by this court on 28 September 2016 to pay to the Board on its application to set aside the Default Judgments. This costs order would have enabled Mdm Li to recover the costs she has been adjudged to pay to the Board only if judgment had been given in her favour.  However, upon this court granting Mdm Kaur leave to discontinue the proceedings against her, Mdm Li should be entitled to have these costs paid by Mdm Kaur upon the discontinuance of the action unless this court otherwise orders (see Section F below). The issue for these costs should therefore be whether:

(i) The 1st respondent should be allowed these costs, if so,

(ii) Whether Mdm He, instead of Mdm Kaur, should be ordered to bear Mdm Li’s costs.

(3)  Third, the Board’s Remaining Costs (Issue 3). 

It is agreed between Mdm Kaur and Mdm He that the Board is entitled to these costs.  The only issue is who should be the party liable for the costs.

D. LEGAL PRINCIPLES: FOR ACCEPTANCE OF SANCTIONED PAYMENT

11.  Since Issue (1) concerns the costs of Mdm Kaur upon the acceptance of sanctioned payment, it is necessary to firstly outline the governing principles.

D.1  Parties’ submissions

12.  It was submitted on behalf of Mdm Kaur that the costs consequences of acceptance of sanctioned payment set out in RDC O. 22 r. 20, apply in the present case.  Pursuant to r. 20, Mr Sun stated, Mdm Kaur is entitled to, unless the court otherwise orders, her costs of the proceedings up to date of the Notice of Acceptance (which would have been 24 January 2019).

13.  Mr Chan however contended that O. 22 r. 18(4), not r. 20, is applicable.  Hence, the “otherwise proviso” in r. 20 Mr Sun relied on did not apply to this case.

D.2 Discussion

14.  Order 22 Part III, rules 15, 17, 18 and 19, governs the procedure for the acceptance of sanctioned payments. Rule 20 that Mr Sun relied on is provided in Part IV of O. 22 under the heading “Consequences of Sanctioned Offer or Sanctioned Payment”. To understand the mechanism of the procedure, it will be convenient to set out below the relevant parts of these provisions as follows:

“Time for acceptance of defendant’s … sanctioned payment(O. 22, r. 15)

(1) Subject to rule… 10(2)[1], a plaintiff may accept … a sanctioned payment made not less than 28 days before the commencement of the trial without requiring the leave of the Court if he files with the Court and serves on the defendant a written notice of acceptance not later than 28 days after … payment was made.

(2) …

(3) …

(4) A notice of acceptance of a sanctioned payment must be in Form No. 24 in Appendix A.

Payment out of a sum in court on acceptance of sanctioned payment (O. 22, r. 17)

Subject to rules 18(4) and 19 and Order 22A, rule 2[2], where a sanctioned payment is accepted, the plaintiff may obtain payment out of the sum in court by making a request for payment in Form No. 25 in Appendix A.

Acceptance of … sanctioned payment made by one or more, but not all, defendants (O. 22, r. 18)

(1) This rule applies where the plaintiff wishes to accept … a sanctioned payment made by one or more, but not all, of a number of defendants.

(2) If the defendants are sued jointly or in the alternative, the plaintiff may accept the … payment without requiring the leave of the Court in accordance with rule 15(1) if—

(a)he discontinues his claim against those defendants who have not made the … payment; and

(b)those defendants give written consent to the acceptance of the … payment.

(3) If the plaintiff alleges that the defendants have a several liabilities to him, the plaintiff may—

(a)accept the … payment in accordance with rule 15(1); and

(b)continue with his claims against the other defendants.

(4) In all other cases the plaintiff shall apply to the Court for—

(a)an order permitting a payment out to him of any sum in court; and

(b)such order as to costs as the Court considers appropriate.

Other cases where court order is required to enable acceptance of sanctioned offer or sanctioned payment (O. 22, r. 19)

(1) Where … a sanctioned payment is made in proceedings to which Order 80, rule 10 (Compromise, etc., by person under disability) applies—

(a)… payment may be accepted only with the leave of the Court; and

(b)….

(2) Where the Court grants leave to a plaintiff to accept … a sanctioned payment after the trial has commenced—

(a) the money in court may not be paid out except in pursuance of an order of the Court; and

(b) ….

(3) Where a plaintiff accepts a sanctioned payment after a defence of tender before action has been put forward by the defendant, the money in court may not be paid out except in pursuance of an order of the Court.

(4) Where a plaintiff accepts a sanctioned payment made in satisfaction of—

(a) a cause of action under the Fatal Accidents Ordinance (Cap. 22) and a cause of action under Part IV or IVA of the Law Amendment and Reform (Consolidation) Ordinance (Cap. 23); or

(b) a cause of action under the Fatal Accidents Ordinance (Cap. 22) where more than one person is entitled to the money,

the money in court may not be paid out except in pursuance of an order of the Court.

Costs consequences of acceptance of defendant’s sanctioned offer or sanctioned payment (O. 22, r. 20)

(1) Where a defendant’s sanctioned offer or sanctioned payment to settle the whole claim is accepted without requiring the leave of the Court, the plaintiff is entitled to his costs of the proceedings up to the date of serving notice of acceptance, unless the Court otherwise orders.

(2) …

(3) ….” (Emphasis added.)

15.  There is no dispute that the Notice of Acceptance was served within the 28 days’ time limit provided in O.22 r.15 for the acceptance of the sanctioned payment. Hence, unless the leave of the court under rules 18(4) and 19[3] was required, Mdm Kaur would have been entitled, pursuant to O.22 r.17, to obtain a payment-out by filing a Form No.25.

16.  Despite Mr Sun’s reliance on O.22 r.20 that no leave was required, Mdm Kaur however indeed did not file a Form 25 for payment out even though she would not have been prohibited by r 19 from having done so. Hence, Mdm Kaur’s issuing of the Summons, in my view, tends to suggest that Mdm Kaur had been prohibited from issuing the Form 25. The only prohibition is in r 18(4). 

17.  In my view, O 22 r 18(4) clearly applies to this case. Firstly, rule 18(1) applies as there is more than one respondent in these proceedings, and the sanctioned payment was only made by one (the 3rd respondent), but not all, of the respondents. Secondly, the present case is neither a case of the respondents being sued in the alternative nor the respondents having several liabilities to her. Thus, the criteria set out in rule 18(2) and (3) that permit the acceptance of a sanctioned payment without the leave of the court are not fulfilled here.  Accordingly, the request for the payment out of the sanctioned payment is subject to r 18(4). 

18.  In the circumstances, I agree with Mr Chan’s argument that O 22 r 18(4) applies.  Mdm Kaur cannot pray in aid the “costs consequences provision” in O 22 r 20.  Accordingly, the court has an unfettered discretion in relation to costs.

E. ISSUE (1): MDM KAUR’S COSTS OF THIS ACTION

19.  As already discussed in Section D, the usual costs consequences of the acceptance without leave do not apply.  Mdm He relies on the conduct of Mdm Kaur in contending that she should not be liable for Mdm Kaur’s costs of the proceedings before she was made a party to the proceedings on 23 October 2018, particularly the extra costs occasioned by Mdm Kaur having wrongly sued the 1st respondent.

20.  Mdm Kaur however submits that she has been conducting the proceedings reasonably and is entitled to her costs.

E.1 The 3rd respondent’s position

E.1.1 Mdm Kaur knew Mdm Li was not her employer when commencing the proceedings

21.  In support of her contention that she should not be liable for Mdm Kaur’s costs before she was joined as the 3rd respondent, Mdm He averred that Mdm Kaur and the Former Solicitors knew at all material times that Mdm Li was not the employer. In support of her contention, Mdm He alluded to a number of matters in He’s 2nd.

22.  First, Mdm Kaur was re-hired on 17 December 2011 by Mdm He personally after the latter interviewed Mdm Kaur. Mdm He also stated that Mdm Kaur knew from the beginning of the re-hiring that the name of the Restaurant was not San Cheung Fast Food but “Loi Loi Hotpot Restaurant” (“Loi Loi”). In Mdm Kaur’s witness statement ([5]) dated 14 March 2013 prepared for the trial for the assessment of compensation, Mdm He suggested that Mdm Kaur had already alluded to the name of Loi Loi.

23.  Second, when Mdm Kaur met with the Accident, not only was Mdm He, who was at the Restaurant premises at the time, notified of the Accident, Mdm He also personally asked Mdm Kaur about her injury and arranged for her to rest before she was sent to the hospital by ambulance.

24.  Third, after Mdm He received the sick leave certificates personally from Mdm Kaur inside the Restaurant premises, Mdm He also issued and personally gave to Mdm Kaur two cheques drawn on a personal joint account in the name of herself and “Choy Kwan Yin” (Mdm He’s ex-husband) for the payment of Mdm Kaur’s periodical payments for the months of February and March 2012.

25.  Fourth, Mdm He, after having submitted a Notification of Accident in Form 2 to the Labour Department, also wrote two letters (respectively in Chinese and English) to Mdm Kaur. In both letters, Mdm He provided her mobile phone number and asked Mdm Kaur to contact her for the arrangement of a medical examination and settlement of the employees’ compensation.  Mdm Kaur never contacted Mdm He.

E.1.2  Former Solicitors failed to make proper inquiries

26.  In He’s 2nd, Mdm He, referring to Mdm Li’s allegations in her application to set aside the Default Judgments that the Former Solicitors knew of the transfer of the Business in having been provided with a copy of the transfer agreement as early as in 2012, stated that the Former Solicitors had not acted diligently by conducting proper inquiries or contacting Mdm He. It is suggested that had they contacted Mdm He, it is more likely than not that she would have settled the matter with Mdm Kaur in 2012.

E.1.3  Mdm Li’s neglect of the proceedings

27.  It was contended that Mdm Li was also at fault in two material respects: Firstly, Mdm Li had failed to attend to or inform Mdm He of the proceedings despite having been served with them in 2012.  Secondly, Mdm Li neglected to update the particulars of the business registration of the Business after the transfer agreement.

28.  Mr Chan therefore contended that Mdm Li should also be held liable for the long delay in updating the business registration of the Business. It was not until 18 September 2013 that the notification of amendment of the address of the Business was given, which was more than 2 years after the transfer of Business (on 15 November 2011).

E.2 Mdm Kaur’s stance

29.  Mdm Kaur advanced two reasons in support of her argument that Mdm He should pay the costs of the entire action.

30.  First, Mdm He, as Mdm Kaur’s employer, should be liable for Mdm Kaur’s costs.    In Kaur’s 2nd, Mdm Kaur averred that she should not be faulted for having wrongly sued Mdm Li. It is reasonable, Mr Sun submitted, for the Former Solicitors to have relied on the information disclosed in a business search of the Restaurant Business to have sued Mdm Li, who was still shown to be the sole-proprietor of the Business when the present employees’ compensation proceedings were commenced on 23 August 2012. In support, Mdm Kaur exhibited (as “KP-2”) a copy Certified Extracts of Information on the Business Register of “San Cheung Fast Food” dated 6 March 2019 (“BR Record”) to Kaur’s 2nd.  Mdm Kaur stated that in fact the BR Record disclosed that Mdm Li “was always registered as the owner of the Restaurant until cessation of the Business on 31 March 2018” (Kaur 2nd: [9]). 

31.  Secondly, due to Mdm He’s non-compliance with s 8 of the Business Registration Ordinance (Cap 310) that requires a person carrying on a business to notify the Commissioner of Inland Revenue of any change in the particulars of a business within 1 month of such change, Mdm He should be liable for all the extra costs.  Despite the admitted change of ownership of the Restaurant Business from Mdm Li to Mdm He on 11 November 2011, Mdm He, Mr Sun submitted, “never registered herself as the owner of the Business Registration Office after the transfer of the business”.

E.3 Discussion

32.  In my Decision dated 28 September 2016 (“Setting Aside Decision”) setting aside the Default Judgments, I had already highlighted several pieces of evidence that corroborated Mdm Li’s assertion that she was not the employer. A substantial part of the evidence in fact was the same evidence that Mdm He has put forward in support of her arguments discussed in E.1 above. It is therefore convenient to re-visit the said evidence that I discussed in the Setting Aside Decision.  

“[15] …The relevant parts of A’s Statement they refer to can be summarized as follows:

(i) Since 2007 until early 2011 the applicant worked on and off as a dishwasher in a restaurant called “Loi Loi Hotpot Restaurant” at the Premises.

(ii) On 17 December 2011, the applicant was re-employed to work in the same hot-pot restaurant at the Premises. All the staff in the restaurant were also newly hired by a boss “Miss Li”.

(iii) During the time of the applicant’s employment to work at the Premises, including the re-employment in December 2011, the name of the hot-pot restaurant was not changed although it seemed to have been “managed by … different people”.

C.3 Evidence after the applicant’s injury

C.3.1 The employer’s notice of Accident to the Labour Department dated 18 May 2012 (“Form 2”)

[16] The authorized signature of the Business on Form 2 appeared to be the same signature as that of Mdm He in the Agreement. Thus, this signature, it is submitted on behalf of Mdm Li and the Board, tends to support Mdm Li’s proposed answer that she was not the employer at the time of the Accident, who was likely to have been Mdm He.

C.3.2 Two cheques respectively dated 6 February 2012 (“February Cheque”) and 7 March 2012 (“March Cheque”) (collectively “Cheques”)

[17] The Cheques were disclosed as item 5 in the applicant’s LOD, which are described as “[c]opies of cheque(s) received by the Applicant as a periodical payment made by her employer”. The Cheques, it is stated, showing payments having been made to the applicant after the Accident, were issued and signed by Mdm He and an unknown person, but not Mdm Li, further provide credible evidence that Mdm He was likely to have been the applicant’s employer at the time of the Accident.

C.3.3Two unsigned letters purportedly from the applicant’s employer to the applicant

[18] These two letters, one being hand-written in Chinese dated 31 May 2012; and another in English dated 11 June 2012, are both addressed to the applicant. The letters are stated to be from the person-in-charge of Loi Loi Hotpot Restaurant, which was stated to be the applicant’s employer. The contents of the letters seem to be an inquiry about the applicant’s injuries and an arrangement for her to be medically examined. The one thing that counsel suggested showed Mdm He to have likely been the applicant’s employer, rather than Mdm Li, was a contact telephone number stated in these letters, which is the same telephone number as that of Mdm He as recorded in the Agreement.

[26] Thirdly, a number of post-Accident documents also seem to lend further support to Mdm Li’s assertion that the Business had been validly transferred to Mdm He and that Mdm Li was not the applicant’s employer after the transfer.

(i)  Regarding the authorized signature of the Business on Form 2, I am unable to agree with Mr Massie that it is totally illegible. Although some of the characters may not be immediately discernable, I would say that anyone who reads Chinese characters should be able to discern the very distinctive character, “賀”, which is the surname of Mdm “He” (“賀”). Also, a naked-eye visual comparison of this signature with that of Mdm He’s in the Agreement seems to have also disclosed a striking likeness of these two signatures.  Form 2 is a prescribed form by which an employer is statutorily required to give notice to the Labour Department of the accident of the former’s employee. The authorized signature that bears the resemblance to that of Mdm He’s, in my view, helps bolster Mdm’s Li proposed defence that Mdm He was the applicant’s employer after the Business had been transferred to her.

(ii)  The Cheques respectively in the sums of $6,480 and $7,248, in my view, seem to further exculpate Mdm Li’s liability.  In spite of the fact that there was another unknown issuer of the Cheques, the fact that Mdm He was one of the named joint issuers who made payments (by the Cheques) that have been described in the LOD as periodical payments received from the applicant’s employer is pertinently in support of Mdm’s Li proposed defence.”

33.  The above extracts show that at the time of the commencement of the proceedings, Mdm Kaur and the Former Solicitors already had evidence showing that Mdm Li was not the employer. The reasons are as follows.

34.  First, Mdm Kaur knew that the name of the Restaurant was not San Cheung Fat but Loi Loi, and that it was Mdm He, not Mdm Li, who re-hired her.

35.  Mdm Kaur’s witness statement was already referred to by Mdm He and in the Setting Aside Decision [15]. In the witness statement Mdm Kaur alleged that she had worked in a restaurant named Loi Loi and that she was re-hired on 17 December 2011 by “the boss Miss Li”.

36.  In the evidence Mdm Kaur filed for this Summons, Mdm Kaur seems to have back-peddled on these assertions and shifted the responsibility to the Former Solicitors.

37.  Without any reason given for the change of her evidence, Mdm Kaur is now alleging (in Kaur’s 3rd [3]) that she only came to know the name “Loi Loi” allegedly from the Former Solicitors who had learned of the change of name “from other sources”.

38.  Mdm Kaur assertions about the re-hiring by Miss Li made in the witness statement were firm assertions without any reservations.  However, this certainty has now, without any explanation, given way to doubt.  Mdm Kaur is now alleging that the woman who re-hired her might be the “superior / shop manager” of the restaurant where she met the Accident and that she could not confirm whether she was in fact Mdm He (Kaur’s 3rd [5]). Since it is not in dispute that Mdm Kaur had in fact worked on-and-off for Mdm Li for a number of years before the re-hiring, I find Mdm Kaur’s said evidence in an attempt to provide an explanation for her change of evidence totally implausible.

39.  Mdm Kaur’s witness statement was verified by her signed statement of truth. Hence, she is deemed to have an honest belief in the truth of the assertions made in the witness statement. Mdm Kaur’s volte-face however has cast doubt on the truthfulness of the assertions regarding the identity of the employer.  

40.  Secondly, in spite of her assertion that she had collected the February Cheque and March Cheque payments [Setting Aside Decision [17]] not directly from Mdm He, but from “a male employee” (Kaur’s 3rd [10]), Mdm Kaur nonetheless admitted to having received two periodical payments. Implicitly, she must have known that the periodical payments were paid by Mdm He as Mdm He was one of the account-holders of the said cheques.

41.  Thirdly, regarding the two letters Mdm He wrote to Mdm Kaur about the arrangement for a medical examination (see the Setting Aside Decision [18]), Mdm Kaur also admitted to the receipt of these two letters, but gave an excuse for not responding to Mdm He’s request by shifting the responsibility to the Former Solicitors.  It was averred that due to her lack of English or Chinese language skills, she passed the letters to the Former Solicitors, who allegedly advised her that there was no need to reply (Kaur 3rd [11]).

42.  In the circumstances, it is wholly inappropriate, in my view, for Mdm Kaur and the Former Solicitors to shut their eyes to the obvious, that the employer was Mdm He but not Mdm Li. They have acted unreasonably by taking advantage of the inaccurate information disclosed in the BR Record to find a case against Mdm Li. 

43.  Given the blatant conflicts between the information disclosed in the BR Record with the identity of the owner of the Restaurant, I find it most inexplicable that the Former Solicitors had not taken time to investigate the identity of the owner, and instead hastily commenced the proceedings only 7 months after the Accident when the 24 months’ limitation had another 17 months to run. 

44.  In the circumstances, I reject Mr Sun’s submission that Mdm Kaur had no knowledge that Mdm Li was no longer the employer at the time of the Accident. Mdm He’s criticisms of the conduct of Mdm Kaur and the Former Solicitors are valid, and therefore should be taken into account in the exercise of my discretion.

45.  In the exercise of my discretion, I have also taken into account the extent of Mdm He’s responsibility due to her non-compliance with s 8 of the Business Registration Ordinance. Mdm Kaur, as the claiming party, bears the burden of proving her claim against a party she claims against.   I do not consider that Mdm He’s failure to register her restaurant business upon the transfer of Mdm Li’s Business to her can justify Mdm Kaur’s unreasonable conduct.

46.  For the reasons stated above, it is my conclusion that had Mdm Kaur properly brought the claim against Mdm He from the beginning, these proceedings would have likely been disposed of by settlement without incurring the extra costs caused by claiming against the 1st respondent. I therefore do not consider it just to make Mdm He pay for the costs up to the date of the service of the Notice of Acceptance. 

47.  Before deciding whether I should disallow all of Mdm Kaur’s costs before 23 October 2018 as Mr Chan contended, I ought to consider the likelihood of whether these proceedings would have been issued at all had Mdm Kaur correctly pursued Mdm He in the first place. Having regard to the relatively small sum of advanced payment of $13,728 [4] Mdm Kaur  received compared to the total compensation Mdm He paid by way of sanctioned payment $134,624, I believe that these proceedings would have likely in any event been issued against Mdm He. In the circumstances, I consider it fair to order Mdm He to pay the costs of and occasioned by the institution of the proceedings up to the first directions hearing on 15 February 2013, and I so order.

F.   LEGAL PRINCIPLES FOR ISSUES (2) AND (3)

48.  Issues (2) and (3) concern the costs of Mdm Li and the Board upon the granting of leave to Mdm Kaur to discontinue the proceedings against them.  Mr Chan, citing Yip Chi Ho v黃啓德& Ors[5] , a District Court decision, stated that Mdm Kaur bears the burden in showing that it was reasonable for her to sue the 1st respondent and the Board before the court should consider exercising its discretion to make Mdm He liable for the costs of the co-respondents.

49.  Mr Sun, referred to Fung Chun Man v Hospital Authority[6] on the principles governing the making of a Sanderson (or a Bullock)order (see Fung Chun Man at para [5]), submitted that the court should make a Sanderson order ordering Mdm He to pay the co-respondents’ costs. This is because, Mr Sun submitted, Mdm Kaur has demonstrated that it was reasonable for her to sue Mdm Li. As for the Board, the reasonableness of its involvement is, it was further suggested, not in dispute. Mr Sun therefore urged this court to accept that Mdm Kaur has succeeded in displacing the usual costs liability.

50.  Mr Chan quoted para [7] of Yip Chi Ho in support of his contention of requiring Mdm Kaur to establish reasonableness “to sue the discontinued” respondents in this case before she should be allowed to avoid the usual costs liability against her. Paragraph [7] of Yip Chi Ho is in fact taken from a passage of a High Court decision of “Li Kai Yin v Atla Trans Ltd & Anor (HCPL 196/2009)”.  Two typos are however found to have appeared in the quotation of the “Li Kai Yin” case:  first, the defendant’s name “Atla Trans Ltd” should be “Atta Trans Ltd”; and second, the case number of “HCPL 196/2009” should be “HCPI 196/2009” (Errors are underlined).  Yip Chi Ho is the decision of Bharwaney J concerning similar costs issues as the instant case.

51.  As the passage Mr Chan relied on in Yip Chi Ho is a direct quotation from Li Kai Yin, I consider that it is more appropriate for this court to defer to Li Kai Yin. Upon a careful reading of Li Kai Yin, I do not think that the passage Mr Chan quoted (from Yip Chi Ho) regarding costs liability of a plaintiff towards other defendants when accepting sanctioned payment and proceeding to discontinue a claim against them represents the general principles.  The passage only provides a guidance as to the proper course a plaintiff should take when faced with a situation similar to the one Mdm Kaur is facing. In my view the general principle is found in another passage as follows:

“[15] The general rule is that a defendant is entitled to costs when an action is discontinued: see Inchroy Credit Corporation Ltd v Cheung Man-cheung [1992] 1 HKLR 120, Trend Publishing (HK) Ltd v Vivien Chan & Co (a firm) [1996] 2 HKLR 227 and Terkildsen v. Barber Asia Ltd. HCA 1963/2003, 6 June 2007. That general rule will be applied where the discontinuance constitutes a recognition by the plaintiff of likely defeat. But there may well be cases where justice requires the defendant to recover its costs from the plaintiff, even when the plaintiff has discontinued the proceedings for reasons other than the certainty or likelihood of defeat. But that is not an absolute rule. The rules recognise that there may be circumstances in which a plaintiff should be permitted to discontinue an action without having to pay the defendant's costs. An example of such a case is one where the case has been discontinued because the issue has become academic rather than by reason of an acknowledgment by the plaintiff of defeat or likely defeat. However, to award costs to a plaintiff would be a very substantial departure from the general rule.”

52.  Accordingly, the general principle is that the applicant (Mdm Kaur) should pay the costs of the discontinued respondents (Mdm Li and the Board) upon discontinuance of the proceedings unless she can satisfy this court that there are circumstances that clearly justify the departure from the general principle.  

53.  Applying these legal principles to the facts of this case, I do not agree with Mr Sun that this court should make a Sanderson order by ordering Mdm He to pay the costs of Mdm Li and the Board.  My reasons are as follows.

G.  ISSUE (2): COSTS OF MDM LI

G.1  Whether Mdm Li should be allowed costs

54.  According to the discussion in Issue (1), the reason why Mdm Li was brought to the proceedings was solely due to the failure of Mdm Kaur and the Former Solicitors to carry out a proper investigation as to the identity of the employer.  As discussed above, Mdm Kaur’s bringing of the claim against Mdm Li is not only unreasonable, but worse still, it constitutes an abuse of the process by her deliberate choosing, out of expediency, to sue a wrong party.

55.  Mr Sun had not advanced any new arguments for this issue, but only repeated his submission on Mdm He’s non-compliance with s 8 of the Business Registration Ordinance.

56.  It was pointed out by Mr Chan that Mdm Li had incurred no costs after the Setting Aside Decision by which the costs of the setting aside applications of the Default Judgments were already disposed of.  Mdm Li had not participated in the proceedings afterwards. He therefore submitted that the appropriate costs order should be no order as to costs.

57.  First of all, I agree with Mr Chan on Mdm Li’s responsibility.  Based on the particulars disclosed in the BR Record, Mdm Li had been extremely dilatory in updating the business records of her former Business.  According to the BR Record, Mdm Li did not in fact give notification of the cessation of the Business until 31 March 2018, approximately 7 years after the transfer of Business.  Her dilatoriness has provided Mdm Kaur with an opportunity to frame a case against her.  In the circumstances, I do not consider it just to allow Mdm Li’s costs.  In any event, Mdm Li has not appeared on this Summons to seek costs.  In the circumstances, I consider that the proper costs order for Mdm Li should be no order as to her costs, and so order.

H.  THE BOARD’S REMAINING COSTS

58.  For the liability for the Board’s costs before 30 November 2017, Mr Sun advanced the same reasons (that Mdm He failed to register her restaurant business after becoming the owner and that the involvement of the Board was reasonable). As the entitlement as to the Board’s Remaining Costs is not in dispute (see [9] above), Mr Sun’s second reason is superfluous.

59.  Mr Chan however contended that it would be unjust to order Mdm He to pay the Board’s Remaining Costs. Mr Chan argued that the Board’s Remaining Costs should be jointly paid by Mdm Kaur and Mdm Li due to the lack of reasonable diligence discussed in Sections E and G above.  

60.  In Section E above, I have considered that Mdm Kaur and the Former Solicitors had acted unreasonably.  The same consideration should be applied here. Analogously therefore, the Board’s intervention was caused by the unreasonable haste and the lack of care of Mdm Kaur and the Former Solicitors in having brought the proceedings against the wrong party, Mdm Li.  Had these proceedings been properly commenced, it would not have been necessary for the Board to intervene.  In the circumstances, I consider that the liability for costs should be borne by Mdm Kaur alone. 

61.  In the circumstances, I order Mdm Kaur to pay the Board’s Remaining Costs.

I.  CONCLUSION AND ORDER

62.  For the reasons stated above, I grant the following orders: -

(1)  For para (a) of the Summons, leave be granted for the payment out to the applicant through the Director of Legal Aid of the sanctioned payment in the sum of $134,624.

(2)  For para (b) of the Summons, the 3rd respondent do pay (apart from the costs the 3rd respondent has agreed to pay the applicant after 23 October 2018) the applicant’s costs of these employees’ compensation proceedings up till the date of the first directions hearing on 15 February 2013, which costs are to be taxed if not agreed; and thereafter there shall be no order as to the costs.

(3)  For para (d) of the Summons, leave to the applicant to discontinue this action against the 1st and 2nd respondents with:

(i)  No order as to costs for the 1st respondent;

(ii)   An order that the applicant do pay the 2nd respondent’s costs between 21 July 2016 to 29 November 2017 (the other costs having been agreed), which costs are to be taxed if not agreed.

(4)  For para (c) of the Summons, there shall be an order in terms as amended with the amendments to be carried out in accordance with the order made in (2) and (3) above.

(5)  For the costs of the Summons, an order nisi that the applicant shall pay the costs of the Board and the 3rd respondent, which costs are to be taxed if not agreed.  Any application for the variation of this costs order nisi shall be made by summons within 21 days, failing which the order shall become an absolute order.

(6)  The applicant’s own costs before the discharge of the Legal Aid Certificate shall be taxed in accordance with the Legal Aid Regulations.

J.  PERSONAL LIABILITY OF THE FORMER SOLICITORS FOR COSTS

63.  In the discussion above, I form the view that the suing of the wrong party against Mdm Li has been the fault of both Mdm Kaur and the Former Solicitors.  I consider it fair to apportion the responsibility between them and hence am inclined to make a wasted costs order under O 62 r 8, RDC against the Former Solicitors by: -

(a)  disallowing 50 percent of the costs between the Former Solicitors and Mdm Kaur; and

(b)  ordering them to repay 50 percent of Mdm Kaur’s cost which Mdm Kaur has been adjudged to pay the Board.

64.  Before I make a wasted costs order, I need to, as required by O 62 r 8, give the Former Solicitors a reasonable opportunity to attend a hearing to give reasons why I should not make the order.

65.  Before giving directions for the hearing, I will direct my clerk to send a copy of this Decision to the Former Solicitors who should within 14 days of the receipt of this Decision, propose in writing the procedure for the hearing.

66.  As the Former Solicitors are legally assigned solicitors, I also direct my clerk to serve a copy of this Decision on the Director of Legal Aid.

67.  I wish to thank Mr Sun, Mr Li and Mr Chan for their assistance.

DCEC 1479/2012

[2018] HKDC 1388

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

EMPLOYEES’ COMPENSATION CASE NO 1479 OF 2012

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REASONS FOR DECISION

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A.　INTRODUCTION

1.  Mdm Kaur, the applicant in these employees’ compensation proceedings, allegedly met an accident on 5 January 2012 whilst she was working in a restaurant called San Cheung Fast Food (“Restaurant”), which was believed to have been owned by Li On Na (“Mdm Li”).  Before the expiry of the two years’ limitation period provided by s.14 of the Employees’ Compensation Ordinance, Mdm Kaur, through her then legal-aid solicitors, brought these proceedings on 23 August 2012 against Mdm Li trading as San Cheung Fast Food.

2.  Mdm Kaur obtained a default interlocutory judgment and a final judgment respectively on 15 February and 17 October 2013 in default of Mdm Li’s appearance.

3.  After Mdm Li made an application to apply to set aside the default judgments, the Employees Compensation Assistance Fund Board applied to be joined as the 2nd respondent, and to set aside the default judgments. 

4.  It was Mdm Li’s assertion that she ceased to be the owner of the Restaurant as from 11 November 2011 after she sold the Restaurant business to Mdm He Xiao Ying (“Mdm He”) by a transfer of business agreement.  Since the alleged accident happened after she sold the Restaurant to Mdm He, Mdm Li strenuously denied that she was the employer. 

5.  On 28 September 2016, I handed down a decision (“Decision”) setting aside the default judgments.

6.  On 10 May 2017, the Director of Legal Aid discharged Mdm Kaur’s legal aid certificate.  Mdm Kaur then became privately represented until 4 December 2017 when she acted in person.

7.  On 30 November 2017, whilst still privately represented, Mdm Kaur filed a summons together with a supporting affirmation for leave to join out of time a new party - He Xiao Ying trading as San Cheung Fast Food - as the 3rd respondent in these employees’ compensation proceedings.  “He Xiao Ying” (Mdm He), according to Mdm Li’s assertion, was the alleged new owner of the Restaurant. 

8.  Undisputedly, Mdm Kaur’s joinder application was late for about 3 years and 10 months. Apart from Mdm Kaur, both Mdm Li and Mdm He also acted in person. Mdm He opposed the summons, and filed an affirmation in Chinese in support of her opposition. By her letter to this court, Mdm Li stated that she consented to the application and indicated that she would not attend the hearing. The Fund Board maintained a neutral stance.

9.  At the hearing on 23 October 2018, Mdm Kaur and Mdm He both appeared in person, and the Fund Board was represented by its solicitor, Mr Li. Mdm Li was absent.

10.  After hearing submissions from the parties, I acceded to Mdm Kaur’s joinder application and indicated that I would give my reasons later.

11.  These are the reasons for my decision, and they should be read together with the Decision.  Unless expressly stated, I will adopt the same nomenclature used in the Decision.

12.  Mr Li also made submissions on the costs of the summons at the end of the hearing. Hence, I will also give my decision on costs below.

B.　LEGAL PRINCIPLES

13.  On behalf of the Fund Board, Mr Li has rendered much assistance to this court by providing a helpful written submission together with a list of authorities.

14.  Section 14(4) of the Ordinance empowers a court to receive and determine applications (including an application to join a new party) out of time if it is satisfied that there was reasonable excuse for the delay. The court’s power however should be exercised liberally.[1]

15.  In considering what constitutes “reasonable excuse”, a court may take into account all the circumstances of the case including but not limited to matters such as (i) reason for the delay;  (2) length of the delay; (iii) merits of the claim;  and (iv)  prejudice to the intended respondent[2].

16.  When considering whether Mdm Kaur has provided reasonable excuse for the delay, I will bear these principles in mind.

C.　RELEVANT CONSIDERATIONS IN THIS APPLICATION

C.1　Reason for the delay

17.  One of the most important considerations in the exercise of my power will be the reason for the delay. In Mdm Kaur’s affirmation in support of the joinder summons, it appears that the only reason for the delay is Mdm Kaur’s alleged complete ignorance of the alleged change of ownership of the Restaurant from Mdm Li to Mdm He when her legal-aid solicitors commenced the proceedings and obtained the Default Judgments.   She stated that it was not until much later, on or about 8 December 2015, when a representative of Mdm Li informed her about the bankruptcy proceedings against Mdm Li that she was told of the alleged change of ownership from Mdm Li to Mdm He.

18.  Mdm Kaur’s explanation, on the whole, seems to be consistent with Mdm Li’s assertion that she had already ceased to be the owner of the Restaurant on the alleged date of the accident.  The explanation, in my view, is convincing.

C.2　The objection Mdm He raised

19.  In a short four-line Chinese affirmation Mdm He filed in opposition to the joinder summons, Mdm He, whilst not disputing the alleged transfer of the ownership of the Restaurant from Mdm Li to her, alleged that she was not the real owner.  The de facto owner, according to her, was her ex-husband, a Mr Hui Sing Wah (transliteration).  Mdm He also averred that she signed the transfer agreement on behalf of Mr Hui with the latter’s authorization.  Mdm He alleged that she had no involvement with the business of the Restaurant.  

20.  After this court refused Mdm He’s adjournment to file further supporting affirmation from her ex-husband, I permitted Mdm He (without objection from Mdm Kaur and Mr Li) to submit a Chinese statement of her ex-husband. In the four-line statement, Mr Hui states that he is the de facto owner and the person-in-charge of the Restaurant.

21.  By alleging that the ex-husband is the real owner of the Restaurant, Mdm He was implicitly suggesting that she was a mere “paper owner” and was not Mdm Kaur’s employer, thereby implying that she should not be made a party to these proceedings.

22.  Plainly, the ex-husband’s statement is a self-serving document. I do not consider the statement to be sufficiently cogent capable of supporting Mdm He’s assertions.  Mdm He’s assertions, in my view, are only bare assertions. 

23.  Pertinently, Mdm He has not denied that she is the owner (at least on the paper) of the Restaurant.  Granted, even based on the objection Mdm He raised that she was only an agent of an undisclosed principal, her ex-husband, Mdm He should be joined, as this will enable all the matters in dispute to be properly adjudicated upon.

C.3　Other considerations

24.  In allowing Mdm Kaur’s application, I also took into account the length of the delay.  Despite the delay of more than 3 years for Mdm Kaur to bring the application to join Mdm He, I do not believe that the late application has caused prejudice to Mdm He. There is no suggestion that Mdm He was not aware of the alleged accident or has been prejudiced in her defence of the claim as a result of the delay.

25.  In accepting that there was reasonable excuse for the delay, I also took into account that these proceedings were instituted within the limitation period.  Mdm Kaur or her former solicitors were only aware of Mdm He’s potential liability at a much later stage.

26.  Last but not least, I also consider that Mdm Kaur’s claim against Mdm He has merits. Were this court to have refused Mdm Kaur’s application, it would have likely caused grave injustice to Mdm Kaur in depriving the latter of the chance to bring a meritorious claim against the new owner of the Restaurant.

27.  Based on the reasons stated above, I granted leave to Mdm Kaur to join Mdm He as the 3rd respondent out of time.

D.　COSTS OF THE SUMMONS

28.  Apart from Mr Li, neither Mdm Kaur nor Mdm He made any submissions regarding the costs of the summons.

29.  In his written submission, Mr Li referred to this court a personal injuries case[3] on the dis-application of the limitation period, and urged this court to follow “the usual costs order” by drawing an analogy from it.  Mr Li’s proposed costs order consists of two parts as follows:

(i)   The costs of the summons including the costs of the supporting affirmation. Mr Li submitted that since the applicant (Mdm Kaur) was seeking the indulgence of the court, she should pay these costs.

(ii)   The costs after the filing of the summons including the costs of the hearing. Since Mdm He did not succeed in opposing the summons, Mr Li submitted that Mdm He should bear these costs.

30.  Costs are always at the discretion of the court. Hence, I do not find it helpful to draw an analogy from a case with entirely different facts.

31.  From the evidence Mdm He adduced, I believe that Mdm He’s attempt to resist the summons was at best half-hearted, and at worst, unmeritorious. Had she consented to the application at the outset, substantial costs would have been saved.  To do justice to the parties, this court needs to grant a costs order that can reflect the extra costs occasioned by Mdm He’s unsuccessful opposition to the summons. 

32.  Since Mdm Li did not participate in the application, I consider that a proper costs order should be no order to costs.

33.  As for the costs of Mdm Kaur, Mdm He and the Fund Board, I make an order that:

(1)   The costs of the summons (including the supporting affirmation) be costs in the cause;

(2)   Mdm Kaur’s and the Fund Board’s costs after the filing of the summons (and the supporting affirmation) be borne by Mdm He. These costs are to be summarily assessed at the same hearing as the directions hearing on 25 January 2019 at 2:30 p.m.  Mdm Kaur and the Fund Board should lodge and serve their written statements of costs 28 days before the hearing.  Mdm He’s written objections to any of these costs statements shall be lodged and served not less than 7 days before the hearing.  

34.  Since the Fund Board is the only represented party in these proceedings, I further direct the solicitors for the Fund Board to draw up the above costs order in both Chinese and English languages, and then serve a sealed copy order on the parties.

35.  As Mdm Kaur and Mdm He respectively speak Punjabi and Cantonese, I will also ask my clerk to arrange an English/Punjabi and an English/Cantonese interpreter to translate this decision to the unrepresented parties when it is handed down.

DCEC 1479/2012

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

EMPLOYEES’ COMPENSATION CASE NO 1479 OF 2012

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D E C I S I O N

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A.　INTRODUCTION

1. These employees’ compensation proceedings arose from a personal injury the applicant, a dish washer, suffered in an accident(“Accident”) on 5 January 2012 at Ground Floor, 92 Tin Sam Chuen, Tai Wai, Shatin, NT, HK (“Premises”) allegedly in the course of her employment with the respondent - Li On Na (“Mdm Li”) trading as新長發快餐 (“San Cheung Fast Food”[1]) (“Business”).

2. The applicant, through her legally-aided assigned solicitors, Messrs Massie & Clement (“A’s Solicitors”), issued the Application of these proceedings on 23 August 2013 to claim for employees’ compensation againstthe respondent. Mdm Li did not enter any appearance in these proceedings.  Consequently, the applicant was granted an interlocutory judgment on 15 February 2013 and a final judgment on 17 October 2013 (collectively known as “Default Judgments”).

3. By a summons dated 11 April 2016, Mdm Li applied in person to set aside the interlocutory judgment on the ground that she was not the applicant’s employer after having sold the Business.

4. The Employees Compensation Assistance Fund Board (“Board”), being a party having an interest in the outcome of the respondent’s application, later applied by summons dated 21 July 2016 to be joined as a party as well as by summons dated 17 August 2016 to set aside the Default Judgments.

5. At the substantive hearing on 31 August 2016, Mdm Li was no longer acting in person, but represented by counsel, Mr Chan.  The court granted leave to Mdm Li to amend her summons by including an application to also set aside the final judgment in addition to the interlocutory judgment. The Board was represented by counsel, Mr Wang. By consent of the parties, the court granted leave to the Board to be joined as the 2^nd respondent in these proceedings. (Thus, the original respondent shall be referred to as the 1^st respondent in these proceedings.)

6. In the result, the only outstanding applications are the applications by Mdm Li and the Board to set aside the Default Judgments.  Mr Massie, for the applicant, opposed the setting aside applications.

7. Mdm Li’s setting aside application was supported by two Chinese affirmations filed on 15 April and 6 June 2016 (“Supporting Affirmations”) and the Board’s was supported by an affidavit of its solicitors filed on 17 August 2016. The applicant has not filed any affidavit evidence to oppose the setting aside applications.

B.　THE APPLICABLE LEGAL PRINCIPLES

8. It is common ground that the Default Judgments are regular judgments, and that the court has discretion under Order 13 rule 9 of the Rules of the District Court to set aside a regular judgment, which well-established legal principles can be found in the Hong Kong Civil Procedure 2016, Vol.1 paras 13/9/12-14. They are summarized as follows.

(1)  The court’s discretionary power to set aside a regular judgment is unconditional.

(2)  A defendant is required to satisfy the court that  he has “a real prospect of success” to enable a court to form a provisional view of the probable outcome of the action that  his case and the evidence  the defendant adduces in support of his application to set aside are potentially credible and carry some degree of conviction. If a court is unable to form a provisional view of the probable outcome of the action, the court would need to be satisfied that the defence “could well be established” at trial.  

(3)  A defendant who is able to demonstrate a defence which has a real prospect of success does not have an automatic entitlement to have the default judgment set aside. A court will need to weigh all relevant factors against the dominant factor of the merits in order to see where the justice of the case lies when exercising its discretion. The relevant factors will include:

(i)    why the default occurred;

(ii)  the defendant’s conduct after he had notice of the proceedings;

(iii)    an explanation for the time taken where there has been delay in making the application. However, the consideration of merits would usually transcend any reasons given by the defendant for the delay in making the application; and

(iv)    any prejudice that would be caused to the plaintiff or to third parties if the default judgment were to be set aside.

(4)  Exceptional circumstances have to be shown before a court will refuse to set aside a default judgment where a real prospect of success in the defence has been demonstrated.

9. Accordingly, the first and the foremost matter that Mdm Li and the Board need to establish is that Mdm Li’s proposed defence or answer to the applicant’s claim has “a real prospect of success”.

C.　DOES THE RESPONDENT’S INTENDED DEFENCE HAVE MERITS?

C.1　Evidence in support of the setting-aside applications

10. Mdm Li’s case, according to the Supporting Affirmations, is that before 15 November 2011 (“Cut-off Date”), when Mdm Li was the sole-proprietor of the Business that operated a restaurant at the Premises,the applicant was the 1^st respondent’s employee.  However, as from the Cut-off Date, Mdm Li’s ownership of the Business was sold and transferred to a lady called He Xiao Ying (“Mdm He”) by an agreement in Chinese dated 11 November 2011 (“Agreement”). On the same Cut-off Date, Mdm Li terminated all the existing employment contracts of the 1^st respondent’s employees including that of the applicant.

11. To support Mdm Li’s proposed defence that the applicant was not the 1^st respondent’s employee on the date of the Accident, both Mdm Li and the Board relied on a number of documents exhibited by the former to the Supporting Affirmations as well as those disclosed in the applicant’s list of documents (“LOD”) filed on 21 March 2013 in these proceedings and those from a concluded civil action, DCCJ 1523/2012 (“Civil Proceedings”) involving Mdm He as the plaintiff and Mdm Li as the defendant.  It is submitted that these documents provide credible evidence in support of Mdm Li’s assertions that the Business had been validly transferred to Mdm He and that the 1^st respondent’s employees were dismissed upon the transfer of the Business.

C.1.1　That there was a genuine agreementfor thetransfer of the Business

C.1.1.1　The Agreement itself

12. It is submitted that the terms of the Agreement show that it was a genuine commercial business transfer agreement. The Agreement not only, counsel suggested, provided for two of the terms fundamental in  a transfer agreement, i.e. the agreement for the amount of the consideration to be paid and the date on which the transfer was to take effect, it further contained provisions for the transfer of the legal liability between the transferor (Mdm Li) and the transferee (Mdm He) on matters concerning employer-employees disputes, expenses, profits and losses arising out of the Business and arrangement of insurance for the employees  (clauses 7, 8  and 9 of the Agreement).

C.1.1.2　Documents filed in the Civil Proceedings

13. The Civil Proceedings were instituted by Mdm He on 9 May 2012 for damages against Mdm Li for misrepresentations and the breach of the Agreement.  The underlying disputes in these Civil Proceedings are not relevant to the present claim; they nonetheless, submitted the Board, provide cogent evidence for the genuineness of the Agreement. The statement of claim, Mdm He’s witness statement and various documents Mdm He had produced in these proceedings all show that Mdm He had relied on the validity of the Agreement to found her claim. 

C.2　  That the respondent dismissed its staff upon the transfer

C.2.1　Declarations by two of the respondent’s former employees

14. To support Mdm Li’s assertions that she had terminated the employment of her employees upon the transfer of the Business to Mdm He, Mdm Li produced the declarations of two of the respondent’s former employees in which the employees stated that they had been dismissed and were paid severance payments upon the transfer of the Business.  

C.2.2　The applicant’s witness statement filed in these proceedings on 2 April 2013 (“A’s Statement”)

15. In support of Mdm Li’s assertion that the applicant had been dismissed by the 1^st respondent after the transfer of the Business,  Mdm Li and the Board rely on a part of A’s Statement in submitting that even the applicant’s own evidence in these proceedings  is in line with Mdm Li’s case. The relevant parts of A’s Statement they refer to can be summarized as follows:

(i) Since 2007 until early 2011 the applicant worked on and off as a dishwasher in a restaurant called “Loi Loi Hotpot Restaurant” at the Premises.

(ii) On 17 December 2011, the applicant was re-employed to work in the same hot-pot restaurant at the Premises. All the staff in the restaurant were also newly hired by a boss “Miss Li”.

(iii) During the time of the applicant’s employment to work at the Premises, including the re-employment in December 2011, the name of the hot-pot restaurant was not changed although it seemed to have been “managed by … different people”.  

C.3　Evidence after the applicant’s injury

C.3.1　The employer’s notice of Accident to the Labour Department dated 18 May 2012 (“Form 2”)

16. The authorized signature of the Business on Form 2 appeared to be the same signature as that of Mdm He in the Agreement.  Thus, this signature, it is  submitted on behalf of Mdm Li and the Board, tends to support Mdm Li’s proposed answer that she was not the employer at the time of the Accident, who was likely to have been Mdm He.

C.3.2　Two cheques respectively dated 6 February 2012 (“February Cheque”) and 7 March 2012 (“March Cheque”) (collectively “Cheques”)

17. The Cheques were disclosed as item 5 in the applicant’s LOD, which are described as “[c]opies of cheque(s) received by the Applicant as a periodical payment made by her employer”.  The Cheques, it is stated, showing payments having been made to the applicant after the Accident, were issued and signed by Mdm He and an unknown person, but not Mdm Li, further provide credible evidence that Mdm He was likely to have been the applicant’s employer at the time of the Accident.

C.3.3　Two unsigned letters purportedly from the applicant’s employer to the applicant

18. These two letters, one being hand-written in Chinese dated 31 May 2012; and another in English dated 11 June 2012, are both addressed to the applicant. The letters are stated to be from the person-in-charge of Loi Loi Hotpot Restaurant, which was stated to be the applicant’s employer. The contents of the letters seem to be an inquiry about the applicant’s injuries and an arrangement for her to be medically examined. The one thing that counsel suggested showed Mdm He to have likely been the applicant’s employer, rather than Mdm Li, was a contact telephone number stated in these letters, which is the same telephone number as that of Mdm He as recorded in the Agreement.

D.　Applicant’s arguments   

19. On behalf of the applicant, Mr Massie puts forward a number of  counter-arguments as follows :

(1)  Whilst the applicant, being a non-party to the Agreement, is not in a position to challenge the validity of the alleged sale of the Business, the judgment entered against Mdm Li for misrepresentation in the Civil Proceedings, Mr Massie contended, casts doubt on the credibility of Mdm Li’s proposed defence[2].

(2)  Referring to the relevant business registration documents of the Business, Mr Massie pointed out that, despite the alleged transfer of the Business, Mdm Li is still recorded as the proprietor of the Business. Prima facie, Mr Massie suggested,  Mdm Li was/is the owner/proprietor of the Business at all material times according to s19(2) of the Business Registration Ordinance (Cap 310)[3].

(3)  Insofar as the authorized signature of the Business in Form 2 is concerned, Mr Massie stated that the signature is illegible. It should not therefore be accepted as evidence that Mdm He was the applicant’s employer at the time of the Accident. It is suggested that all that it can be deduced from the signature “is that the Form 2 was signed and filed on behalf of” the Business by someone.

E.　The court’s provisional view

E.1　Effect on employment contracts on change of ownership

20. It is a settled legal principle that in the event of the change of ownership of a business, the initial employment contracts will terminate automatically by operation of law at the time as the change occurs. The previous or initial owner should there and then terminate the employee’s contract in accordance with the provisions of the Employment Ordinance (Cap 57) and pay the employee statutory payments, including severance payments to the employee in accordance with Part VA (on severance payments) of Cap 57. A new owner to whom the business has been transferred will be able to conclude new contracts of employment with those employees who continue to be employed by the business after the transfer of ownership in the business and the proper termination of the employees’ contract by the initial owner: s.31 J of Cap 57[4].

21. Implicit in Mdm Li’s defence is her assertion that upon the valid transfer of Business to Mdm He and the termination of the employees’ contracts by the respondent, any contracts of employment after the Cut-off Date, including that of the applicant, would have been concluded by the new owner, Mdm He.  Thus, I should first determine whether there is evidence in showing that Mdm Li had, by the Agreement, validly sold and transferred the Business to Mdm He, and next whether there is credible evidence showing that Mdm Li had terminated the employment contracts with her employees on the Cut-off Date.

E.2　Whether there was a valid transfer of the Business?

22. The various documents Mdm Li and the Board have relied on to demonstrate a valid transfer of the Business have already been referred to above.  In assessing the merits of this assertion, it suffices to only focus on several important aspects of the evidence without conducting a detailed or forensic assessment of each and every single piece of evidence they have been referred to.  Despite the prima facie evidence as disclosed in the business registration documents of the Business that Mdm Li was still recorded as the sole-proprietor of the Business carried on in the Premises despite the asserted transfer of the Business, there seems to be evidence from an updated business registration that shows that the Business was no longer operated in the Premises.  There was an entry in the business registration that shows that the address of the Business since September 2013 had been changed an address in Fo Tan[5]. Additionally, according to a bundle of business registration documents of various businesses registered in the name of Mdm Li under the same name as the Business, it would appear that Mdm Li seemed to have operated various fast food shops in various addresses under the same name as the Business. For these reason, I consider that there is some evidence that seems to be able to displace the prima facie evidence.

23. Looking at the evidence in the round, I’d be inclined to a provisional view that Mdm Li and the Board have adduced credible evidence to show that there was a valid transfer of the Business. The reasons are as follows. 

24. First, without attempting an analysis as to what amounts to a “change of ownership” in law, I’m inclined to agree with Mr Wang that the home-made Agreement, at the very least, appears on its face to be a genuine agreement that contains terms providing for the transfer of the Business. Provisions for, for example, the amount of the consideration ($300,000) to be paid, the stipulation of the Cut-off Date (15 November 2012) for the transfer of the rights and liabilities between the transferor and the transferee (clauses 7, 8 and 9 of the Agreement) show that the parties had intended nothing other than contracting for the assets and goodwill of the Business to be sold or transferred to Mdm He.

25. Second, in spite of the entry of a judgment against Mdm Li in the Civil Proceedings, I respectfully agree with Mr Wang’s submissions that the documents filed in the Civil Proceedings, namely the pleadings and the witness statement by Mdm He, tend to further fortify the genuineness of the Agreement.

26. Thirdly, a number of post-Accident documents also seem to lend further support to Mdm Li’s assertion that the Business had been validly transferred to Mdm He and that Mdm Li was not the applicant’s employer after the transfer.

(i)    Regarding the authorized signature of the Business on Form 2, I am unable to agree with Mr Massie that it is totally illegible. Although some of the characters may not be immediately discernable, I would say that anyone who reads Chinese characters should be able to discern the very distinctive character, “賀”, which is the surname of Mdm “He” (“賀”). Also, a naked-eye visual comparison of this signature with that of Mdm He’s in the Agreement seems to have also disclosed a striking likeness of these two signatures.  Form 2 is a prescribed form by which an employer is statutorily required to give notice HHzhHHHto the Labour Department of the accident of the former’s employee. The authorized signature that bears the resemblance to that of Mdm He’s, in my view, helps bolster Mdm’s Li proposed defence that Mdm He was the applicant’s employer after the Business had been transferred to her.

(ii)  The Cheques respectively in the sums of $6,480 and $7,248, in my view, seem to further exculpate Mdm Li’s liability. In spite of the fact that there was another unknown issuer of the Cheques, the fact that Mdm He was one of the named joint issuers who made payments (by the Cheques) that have been described in the LOD as periodical payments received from the applicant’s employer is pertinently in support of Mdm’s Li proposed defence.

E.3　Did Mdm Li dismiss the employees after the transfer of the Business?

27. The only direct evidence Mdm Li produces to support her assertion of the alleged dismissal of her employees were two short unsworn written declarations purportedly made by the former employees. I would have agreed with Mr Massie’s submission that these declarations were not probative evidence had they been the only evidence in support of Mdm Li’s case. There is however another piece of evidence that potently, though indirectly, substantiates Mdm Li’s assertion of having dismissed her employees upon the transfer of Business – A’s Statement.

28. As already discussed above in para 20 above, before a new owner can take the benefit of s 31J of Cap 57, two conditions have to be satisfied, namely, (i) there must have been a change of ownership in the business; and (ii) the initial owner must have terminated the employee’s contract.  In the relevant parts of A’s Statement referred to in para 15 above,  the applicant seems to have confirmed that  there was indeed a re-engagement of employees after the Cut-off Date, namely the re-hiring of the staff including herself on 17 December 2011.

29. It is noted, of course, that a reference in A’s Statement of “Miss Li” being the boss seems on its face to be adverse to Mdm Li. This nonetheless cannot be totally damaging to Mdm Li for it is quite explicable that the applicant could only describe her employer by a reference to the surname only without having positively identified her employer being the respondent or setting out Mdm Li’s full name were the “Miss Li” that she had mentioned were indeed Mdm Li. In my view, the applicant would have little difficulty in stating Mdm Li’s full name at the time when A’s Statement was being prepared.  

E.4　Conclusion on merits

30. In conclusion, for the reasons stated in the above, I accept both counsel’s submissions that Mdm Li and the Board have adduced credible evidence to support Mdm Li’s assertion that she was not the applicant’s employer at the time of the Accident.  In spite of having come to this provisional view,  it does not mean that I should automatically set aside the Default Judgments before also weighing all relevant factors against the dominant factor of the merits to determine where the justice of the case lies.

31. Two secondary factors are relevant considerations in this case – the reason for the delay, and prejudice that would be caused to the applicant if the Default Judgments were to be set aside.

F.　SECONDARY CONSIDERATIONS

F.1　Explanation for the default

F.1.1　Mdm Li

32. In the Supporting Affirmations, Mdm Li has given reason for the default and the steps she took after having had notice of the proceedings.  Mdm Li stated that in 2012 she did not have a fixed place of abode after she had moved out from her matrimonial home due to her marital problems. During this period, she had received on three occasions through the former landlord of the Premises documents relating to the proceedings. The first time was in late 2012. On that occasion she had asked her husband [6] to fax a copy of the Agreement to A’s Solicitors, informing them that the Business had been transferred. A staff of A’s Solicitors had confirmed having received the Agreement.  Mdm Li was led to believe that the Agreement would have ended the proceedings against her and in fact she was also later told by the applicant that she had settled her claim with Mdm He.

33. Mdm Li said that she had heard nothing about the proceedings until January 2015 when she was informed by the former landlord of the Premises that there were solicitors’ letters for her. The applicant asked a friend to again fax the Agreement to A’s solicitors. A female solicitor surnamed Yu of the A’s solicitors confirmed that the firm had received the Agreement.

34. On the third occasion at the end of 2015, the former landlord again told Mdm Li that there were documents from A’s Solicitors.  Mdm Li asked a friend to make request from A’s Solicitors for a full set of documents of these proceedings. It was only in around March 2016 that A’s Solicitors provided some documents to Mdm Li, who went to seek free legal advice. Shortly afterwards, Mdm Li issued the present setting-aside application.

35. I have no reason to reject Mdm Li’s explanation set out in the Supporting Affirmations particularly as A’s Solicitors have not filed any evidence to dispute Mdm Li’s assertions. I regard Mdm Li’s assertion that she had believed on the first occasion when she had notice of the proceedings that the matter had been settled appeared to be genuine as she was a layman.  I also find that Mdm Li had acted with reasonable expediency as soon as she realized in 2015 that the proceedings had not been settled as she had previously believed.  She had acted promptly in issuing the setting aside application after she had obtained legal advice. All in all, I accept that Mdm Li has provided a reasonable explanation for the default and for the delay in making the application.  I do not consider that Mdm Li has “walked away from this case” as Mr Massie has alleged in his written submissions.

F.1.2　The Board

36. According to the supporting affidavit of its solicitor filed in support of the Board’s joinder application, the Board already had notice of these proceedings before the Default Judgments were entered.  It had however decided not to intervene because it believed that Mdm Li was the sole-proprietor of the Business as the relevant business registration records have appeared to have so confirmed. When it subsequently had notice of Mdm Li’s set-aside application in early July 2016 and became aware of Mdm Li’s proposed defence, which was the same as the one she filed on 11 March 2016 in the related common law Personal Injuries action in the High Court, the Board then decided to intervene.

37. The Board being a statutory body is required to administer the funds of the Board, including whether to intervene in a proceeding, with caution. In the light of the information disclosed in the relevant business registration records of the Business (which have been discussed above), I consider that the Board has provided a reasonable explanation for its late intervention and making of the setting-aside application.

F.2　Any prejudice to the applicant?

38. The applicant, in light of Mdm Li’s assertions, would likely need to join Mdm He to these proceedings if the Default Judgments were set aside, Mr Massie submitted. Unfortunately, the statutory two-year time limit for the bringing of the proceedings against a new party has elapsed. Thus, the applicant would be prejudiced as she would be left without recourse.

39. It is true that the applicant would need to, should she join a new party to these proceedings satisfy the court that “there was reasonable excuse for the failure”: s14(4) of the Employees’ Compensation Ordinance (“Ordinance”).  It is however suggested by Mr Chan that any prejudice was not caused by the applicant but had been self-induced. This is because, Mr Chan argued, the applicant and/or the A’s Solicitors would have had sufficient information to enable the applicant to identify Mdm He being the alleged new owner.

40. I am in agreement with Mr Chan. According to the evidence that I have discussed above, I tend to believe that the applicant and/or her solicitors would have had ample time and opportunity to carry out investigation in deciding the correct party/parties to sue. 

41. According to Mdm Li, A’s Solicitors had been provided with a copy of the Agreement at the end of 2012 and they should there and then have been alerted to the identity of the alleged new owner being Mdm He.  Apart from the Agreement, I also find that Form 2 and the Cheques would have also provided sufficient links to identify Mdm He as the applicant’s probable employer.

42. Whilst it may be reasonable for the applicant to claim against Mdm Li because of the information disclosed in the business registration records, this does not excuse her or the A’s Solicitors from carrying out investigations regarding the relationship of Mdm He to the Business as a result of the information disclosed in Form 2 and the Cheques.

43. In the circumstances, in order to do justice for the parties, I consider that it is unfair to deny Mdm Li the opportunity to put forward her answer in light of my provisional assessment on the merits.

44. Given the same positive defence Mdm Li has put forward in the related Personal Injuries proceedings involving identical parties, I would also add that there is an additional reason that I should set aside the Default Judgments. If the Default Judgments were allowed to remain, it may have the undesirable outcome of inconsistent findings between the Default Judgments and the Personal Injuries proceedings, which are yet to be adjudicated upon.

G.　CONCLUSION

45. For the forgoing reasons, the Default Judgments should be set aside. Although both counsel have confirmed that they do not dispute the amount of the compensation stated in the final judgment, I agree with them, and reject Mr Massie’s suggestion that only the interlocutory default judgment but not the final judgment should be set aside. The final judgment has adjudged that the respondent should pay the amount of compensation the court has assessed to the applicant with interest and costs. Since Mdm Li is now granted leave to defend the proceedings, the final judgment against her simply cannot stand. Thus, both Default Judgments have to be set aside.

H.　ORDERS AND DIRECTIONS

H.1　Orders

H.1.1　Regarding the setting-aside applications

(1)  The Default Judgments are set aside.

(2)  There be a costs order nisi that:-

(i)   The 1^st respondent do pay the applicant’s costs of the setting aside application including all costs reserved, to be taxed forthwith if not agreed.

(ii)  The 1^st respondent do pay the costs of the 2^nd respondent of the setting aside application in any event, including any costs reserved with certificate for counsel, which costs should be the 1^st respondent’s costs in the cause.

(iii)   The applicant’s own costs are to be taxed in accordance with the Legal Aid Regulations.

H.1.2　Regarding paras 4 and 5 of the 2^nd respondent’s joinder summons dated 21 July 2016

(1)  The applicant do file and serve on the 1^st and 2^nd respondents the Amended Application within 14 days of the handing down of this judgment.

(2)  The costs of the summons be costs in the cause of the proceedings.

H.2　Directions

(1)  There be leave to the 1^st and 2^nd respondents to file and serve an answer within 28 days of the handing down of this judgment.

(2)  The parties do file a mediation certificate within 28 days of the handing down of this judgment.

(3)  The 1^st respondent do file and serve, for the purpose of calculating the monthly earnings of the applicant under s11 of the Ordinance, a list of earnings of the applicant for the 12 month-period prior to the Accident or such lesser period of the employment with the 1^st respondent within 42 days of the handing down of this judgment.

(4)  The 1^st respondent do file and serve a list of documents within 56 days of the handing down of this judgment and there be mutual inspection within 7 days thereafter.

(5)  The parties do file a joint written application within 84 days of the handing down of this judgment.

DCEC 1479/2012

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

EMPLOYEES’ COMPENSATION CASE NO 1479 OF 2012

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JUDGMENT

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Background

1.  This is an application by the applicant under sections 9, 10 and 10A of the Employees’ Compensation Ordinance, Cap 282 (the “Ordinance”) for compensation for injury caused to her by an accident on 5 January 2012.  It is the applicant’s case that the accident occurred arose out of and in the course of her employment with the respondent.  The applicant has already obtained judgment on liability against the respondent on 15 February 2013.  By the same order, costs on liability have been awarded to the applicant.  The present hearing is only concerned with assessment of the appropriate compensation to be awarded to the applicant.  The respondent is absent at today’s hearing and hence the applicant’s evidence is not being challenged at all. 

2.  At the time of the accident on 5 January 2012, the applicant was employed as a dishwasher by the respondent and was working at the Ground Floor of No 92, Tin Sam Tsuen, Tai Wai, Shatin, New Territories, Hong Kong.  The applicant was cleaning dishes at the restaurant.  At the material time of the accident, the applicant was carrying a plastic container full of washed dishes and intended to put the same on a table, when her foot was caught on some folded carton boxes lying on the floor.  She fell to her right side and landed on her back and shoulder.  As a result, the applicant sustained injury to her lower back and right shoulder.

Facts relevant to assessment of compensation

3.  The applicant was born on 4 June 1965 and was thus aged 46 at the time of the accident.

4.  The applicant testified that she was employed by the respondent from 17 December 2011 at an hourly wage of $30 and to work from 8 am to 5 pm.  Hence, her daily wage was $270.  She agreed with the respondent that she would work 28 days in a month. Her monthly take-home pay was therefore $7,560.  The applicant further testified that she was paid her wages net, ie no deduction was made from the above figure by way of the applicant’s portion of the MPF contribution.  Adding back the 5% which the employer had to pay on her behalf by way of MPF contribution, this would give rise to the figure of $7,958 as the monthly earnings of the applicant at the time of the accident.

5.  The Form 7 issued on 20 February 2013 by the Employees’ Compensation (Ordinary Assessment) Board shows a sick leave period from 5 January 2012 to 2 December 2012 (ie a period of some 11 months) and a 3% loss of earning capacity.  The applicant filed a Notice of Appeal with this court on 1 March 2013 against this assessment.

6.  For the purpose of the present proceedings, the applicant appointed Dr Wong Kwok-shing, Patrick (“Dr Wong”) as her orthopaedic expert and she was examined by Dr Wong on 14 June 2013 for preparing his expert medical evidence.  In his report dated 11 July 2013, Dr Wong opined that the applicant has suffered a 5% loss of earning capacity as a result of the accident, considering the job requirement of her pre-accident job.  From the orthopaedic perspective, the applicant should be capable of returning to work on her pre-accident jobs, including being a dishwashing worker and laundry worker.  Her efficiency and capacity at work will be reduced after the accident, such as she will require assistance from other workers to handle heavy objects and she will require more frequent rest in-between prolonged continuous work.  Dr Wong was also of the opinion that the sick leave period assessed was reasonable.

7.  By the order of HH Judge Kent Yee dated 5 April 2013, it was ordered that Dr Wong’s report be adduced as evidence without calling the maker thereof.  Taking into account all the medical evidence as a whole, I would allow the applicant’s appeal on the assessment of the loss of earning capacity under Form 7.  I would adopt 5% as the percentage of the loss of earning capacity suffered by the applicant as a result of the injuries she sustained in the accident.

8.  The applicant has received advance payment of $13,728 from the respondent.

9.  The applicant has incurred medical expenses of $5,113.

Compensation under section 9

10.  The compensation for the applicant’s permanent partial incapacity pursuant to section 9 of the Ordinance is, therefore:-

$7,958 x 72 x 5% = $28,649.

Compensation under section 10

11.  The compensation for the applicant’s temporary loss of earning capacity pursuant to section 10 of the Ordinance is:-

$7,958 x 11 months x 4/5 = $70,030.

Compensation under section 10A

12.  The amount of the medical expenses incurred is supported by documents.  I would allow the applicant’s claim for medical expenses in the sum of $5,113.

Summary on quantum

13.  In summary, the total compensation awarded is as follows:-

14.  Interest is allowed at half judgment rate on the above sum from the date of the accident (5 January 2012) until this judgment and thereafter at judgment rate until payment in full.

Conclusion

15.  Compensation is assessed at the sum of $90,064.  The respondent is to pay such sum together with interest as aforesaid.

16.  I order that the respondent do pay the applicant the costs of the assessment of compensation, such costs to be taxed if not agreed.  The applicant’s own costs be taxed in accordance with the Legal Aid Regulations.