Case Detail

CACV 109/2021, [2023] HKCA 970

On Appeal From [2021] HKDC 191

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 109 OF 2021

(ON APPEAL FROM DCEC NO 1141 OF 2018)

________________________

BETWEEN
	TSE CHIU	Applicant
	and
	郭健	1^st Respondent
	郭家傑 (KWOK KA KIT DANNY)	2^nd Respondent
	KWOK’S INT LOGISTICS LIMITED	3^rd Respondent

_____________________

Before:

Hon Yuen and Chow JJA and Lisa Wong J in Court

Date of Hearing:	15 August 2023
Date of Judgment:	23 August 2023

________________

J U D G M E N T

________________

Hon Chow JA (giving the Judgment of the Court):

INTRODUCTION

1. This is the 2^nd Respondent’s appeal against the judgment of Deputy District Judge Charles Wong dated 19 February 2021 (“the Judgment”), whereby the Judge found that the Applicant was an employee of both the 2^nd and 3^rd Respondents at the time of the accident, and awarded him employee’s compensation in the amount of HK$363,280.67 plus interest thereon.

BACKGROUND FACTS

2. The Applicant, born in 1952, was a cross-border container tractor driver by occupation.

3. The 1^st Respondent is the father of the 2^nd Respondent. The 3^rd Respondent is a company incorporated in Hong Kong on 27 April 2015. The 2^nd Respondent was a director and shareholder of the 3^rd Respondent on the date of the accident. All 3 Respondents were engaged in the business of transportation or delivery of goods/containers between Hong Kong and Mainland China.

4. In about July 2014, the Applicant, through a friend, came to meet the 1^st Respondent, and orally agreed to work as a cross border container tractor driver. The Applicant started work on 1 August 2014. He was assigned to drive a tractor with registration mark SH1826 (“the Tractor”), which was registered in the name of the 2^nd Respondent. The Applicant was required to collect/deliver containers between Tsing Yi or Tuen Mun in Hong Kong and Shenzhen Bay or Sha Tau Kok in Mainland China. He took delivery orders from the 1^st and/or 2^nd Respondents via a WeChat Group called “海東支援車隊”, and was paid HK$200 to HK$400 per container delivered depending on the delivery location. In addition, he also made some money on the side from buying and selling petrol across the border, earning approximately RMB5,000-6,000 per month.

5. At about 1:30 pm on 6 June 2017, the Applicant was working at Tsing Yi Cargo Examination Compound. Whilst trying to close the back door of a container mounted on the Tractor, he fell from the Tractor with his head landing on the ground. He suffered a fracture to his skull and bleeding from his ears.

THE APPLICATION

6. On 24 May 2018, the Applicant made an application in the District Court, DCEC 1141/2018, to claim compensation under the Employees’ Compensation Ordinance, Cap 282 (“the Ordinance”). The claim was originally made against the 1^st and 2^nd Respondents only, each said to be “trading under the name of 大眾國際物流運輸公司 or Kwok’s Int Logistics Limited[1]”. The application was subsequently amended so that the 3^rd Respondent became a respondent to the application. At §1 of the Re-Re-Amended Application dated 17 June 2020, the Applicant pleads that –

“On 6 June 2017, personal injury by accident arising out of and in the course of employment was caused to the Applicant, an employee employed by the Respondents. The 1^st and 2^nd Respondents were carrying on business in the name of 大眾貨櫃運輸公司. The 1^st Respondent is the father of the 2^nd Respondent. As to the 3^rd Respondent, the Applicant’s salaries were from time to time paid by the 3^rd Respondent during the material time. Alternatively, the 1^st and 2^nd Respondents were the employers of the Applicant … and the subcontractors of the 3^rd Respondent.”

7. The Respondents denied that the Applicant was their employee. In their Amended Answer dated 2 September 2020, the Respondents plead (inter alia) the following:

(1)  The 2^nd Respondent is the director of the 3^rd Respondent (§2(b)).
(2)  The 3^rd Respondent Company is a company incorporated with limited liability under the laws of the HKSAR carrying on the business of logistics (§2(c)).
(3)  The 1^st and 2^nd Respondents did not employ the Applicant themselves or through any servant or agent or authorised person/company, either directly or indirectly (§3(a)).
(4)  The 1^st and 2^nd Respondents did not make any salary payment to the Applicant (§3(b)).
(5)  In or about July 2014, the 2^nd Respondent in his capacity as a director of the 3^rd Respondent and on behalf of the 3^rd Respondent negotiated and reached a cooperation agreement with the Applicant to work as an independent contractor (§4).
(6)  The 3^rd Respondent and the Applicant, who worked as an independent contractor, were in a cooperation agreement for carrying on the business of logistics only, and the Applicant at all material times was not an employee of the 3^rd Respondent (§5).
(7)  The 3^rd Respondent did not make any contribution to MPF for the Applicant, or make any payment of statutory holidays, annual leave or sick leave to the Applicant (§6).
(8)  The 3^rd Respondent, upon receiving payments from customers, would distribute the profits by issuing cheques to the Applicant (§7).

THE JUDGMENT

8. At the trial, the Judge heard evidence from the Applicant and a colleague (Chan Chung Man) on the Applicant’s side, and the 1^st and 2^nd Respondents on the Respondents’ side. Quantum was not in dispute. Compensation under ss 9, 10 and 10A of the Ordinance in the amount of HK$363,280.67 was agreed.

9. By the Judgment handed down on 19 February 2021, the Judge upheld the Applicant’s claim against the 2^nd and 3^rd Respondents, but dismissed his claim against the 1^st Respondent.

10. The Judge formulated the issues to be determined by him as follows:

“(1) Whether [the Applicant] was an employee of the respondents or an independent contractor of R3?
(2) If the applicant was an employee, which respondent(s) was/were the employer(s)?
(3) Whether the Accident happened in the course of [the Applicant’s] employment with the 1^st, the 2^nd, and/or the 3^rd respondent?”[2]

11. In finding that the Applicant was an employee and not an independent contractor, the Judge took into account the following factors:

(1)  the degree of control exercised by the Respondents[3];
(2)  the payment of wages or other remuneration[4];
(3)  the Applicant’s prospect of profit or risk of loss[5];
(4)  the provision and ownership of the Tractor[6]; and
(5)  the 2^nd and 3^rd Respondents’ payment of outgoing expenses[7].

12. At §35 of the Judgment, the Judge concluded that the Applicant was an employee of the 2^nd and 3^rd Respondents:

“I have taken into consideration the fact that the respondents made no contribution of MPF and made no payment of statutory entitlements (i.e. statutory holidays, annual leaves or sick leaves) to [the Applicant], but on the totality of the evidence, I find that [the Applicant] was not carrying on business on his own account but carrying out work on the business of R2 and R3. It follows that at the time of the accident, [the Applicant] was in the course of employment with R2 and R3.”

13. The Judge also found that the 1^st Respondent was not an employer of the Applicant[8]. Since there is no appeal against this finding of the Judge, it is not necessary to further consider this aspect of the Judgment.

THE APPEAL

14. By a Notice of Appeal dated 18 March 2021, the 2^nd and 3^rd Respondents appealed against the Judgment, raising 3 grounds of appeal:

(1)  The Judge erred in law in ruling that the 2^nd Respondent’s evidence was inconsistent, went against his pleaded case, made no commercial sense, and was erratic, and the 2^nd Respondent made up his evidence as he went along. The Judge also wrongly ruled that the Applicant was an employee of the 2^nd and 3^rd Respondents (“Ground 1”).
(2)  The Judge erred in law in finding that the 2^nd Respondent together with the 3^rd Respondent were the employers of the Applicant without considering the fact that the 2^nd Respondent was only an officer (namely, director) of the 3^rd Respondent supervising the Applicant on behalf of the 3^rd Respondent, which was an independent legal entity. The 2^nd Respondent could not be an employer of the Applicant at the same time when the 3^rd Respondent was ruled to be an employer of the Applicant as well (“Ground 2”).
(3)  The Judge erred in law and in fact on the status of the Applicant as an employee instead of an agent/contractor (“Ground 3”).

15. On 25 August 2021, the 3^rd Respondent was wound up on a petition presented by the Applicant. On 19 November 2021, a consent summons was filed by the Applicant’s solicitors and the 3^rd Respondent’s provisional liquidators for (among other things) the dismissal of the 3^rd Respondent’s appeal. An order in terms was made on 24 November 2021.

16. Accordingly, the 2^nd Respondent is the only remaining appellant in the present appeal.

GROUND 1

17. We shall first deal with Grounds 1 and 3 before dealing with Ground 2.

18. Under Ground 1, the 2^nd Respondent complains about 2 matters or findings by the Judge, namely:

(1) the Judge’s finding that “R1 and R2s’ evidence [was] inconsistent, goes against the pleaded case and makes no commercial sense. I find that their evidence is erratic and they have made up their case as they went along”[9]; and
(2) the Judge’s finding that the Applicant was an employee of the 2^nd and 3^rd Respondents.

19. In respect of the complaint mentioned at §18(1) above, the Judge’s finding was made in the context of his assessment of the evidence of the 1^st and 2^nd Respondents concerning the issue of the Applicant’s prospect of profit or risk of loss. The Judge took into account the following matters in making the said finding:

(1)  The Respondents relied on an undated and unsigned handwritten note which stated that the Applicant’s profit share was 70% of the delivery fee. The Judge rejected this part of the Respondents’ evidence because the alleged 70% share was not borne out by the accounts produced by the Respondents, was not the pleaded case of the Respondents, and was not set out in the witness statements of the 1^st and 2^nd Respondents. The 2^nd Respondent also had difficulty in explaining the circumstances surrounding the making of that document. Further, as noted by the Judge, there appeared to be overlapping handwritten marks on the word “70%”, which suggested a rewriting of or an amendment to the number. However, the 2^nd Respondent denied knowledge as to how the document was prepared, and when pressed as to why he could not produce the original of the document, merely answered that he considered it unimportant and was probably with the accountant[10].
(2)  The Respondents provided other versions of how the profits were shared between the parties (70:30 in favour of the Applicant for business solicited by the Applicant for the 3^rd Respondent, and HK$500-HK$900 to the Applicant for business referred to the 3^rd Respondent by the Applicant and he used the 3^rd Respondent’s vehicle[11]), but the accounts produced by the Respondents showed that on many occasions the Applicant was only paid HK$200 out of the total delivery fee of HK$550 per container[12].
(3)  There was no evidence that the Applicant shared profits with the Respondents. The Applicant did not know how much the Respondents charged their clients, and was not provided with any quotations or invoices for fees paid by the Respondents’ customers. All the profits were for the Respondents’ account. Apart from making some money on the side from buying and selling petrol across the border, the Applicant gained no financial reward beyond his agreed daily rates[13].
(4)  The 2^nd Respondent stated that there were other profit sharing arrangements, including (1) the 3^rd Respondent 70: Driver 30; (2) 50% each for the 3^rd Respondent and Driver. These were, however, neither pleaded nor put to the Applicant. The 2^nd Respondent further stated that the Applicant had requested a reduction in the fee split from 70:30 to 50:50 because the 50:50 split was more advantageous to the Applicant. This allegation was also not pleaded, and was not reflected in the accounts produced by the Respondents. When being cross-examined on the Respondents’ pleaded case that the Applicant would be paid HK$500-HK$900 for each trip of transportation of goods where the business was referred to the 3^rd Respondent by the Applicant and he used the 3^rd Respondent’s vehicle[14], the 2^nd Respondent stated that the amount paid to the Applicant took into account the tractor rental cost but he was unable to give any breakdown. The Judge also took note of the fact that in the original Answer filed by the Respondents, it was stated that if the 3^rd Respondent sub-contracted business to the Applicant, the 3^rd Respondent would pay a sum of $1,200 to the Applicant. The Judge considered that the Respondents’ case on how the Applicant was remunerated had shifted[15].

20. In our view, on the evidence and materials before the Judge, it was open to him to make the adverse finding about the 2^nd Respondent’s evidence referred to in §18(1) above. There is no proper basis for the 2^nd Respondent’s argument that the Judge “erred in law” in making the said finding.

21. In respect of §18(2) above, the contention that the Judge erred in law in finding that the Applicant was an employee of the 2^nd and 3^rd Respondents is a bare, general complaint without particulars. In any event, it is well established that a finding that a person is an employee of another person rather than an independent contractor should be treated as a finding of fact by an appellate court: see Poon Chau Nam v Yim Siu Cheung (2007) 10 HKCFAR 156 at §22, per Ribeiro PJ:

“It is ‘firmly established that the question of whether or not the work was performed in the capacity of an employee or as an independent contractor is to be regarded by an appellate court as a question of fact to be determined by the trial court.’ Accordingly, so far as the trial judge’s classification of the contract is concerned, an appellate court can only intervene on Edwards v Bairstow grounds. In other words, a finding that an employer-employee relationship does or does not exist can only be interfered with on appeal if it can be shown that the tribunal misdirected itself in law or came to a decision which no tribunal, properly directing itself on the relevant facts, could reasonably have reached.”

22. Insofar as the 2^nd Respondent seeks to characterise the question of whether the Applicant was an employee of the 2^nd and 3^rd Respondents as a question of law, such characterisation is incorrect. We shall further consider the issue of whether the Applicant was an employee or an independent contractor under Ground 3 below.

GROUND 3

23. Under this ground, the 2^nd Respondent contends that the Judge erred in law and in fact on the status of the Applicant as an employee instead of an agent/contractor. In the Notice of Appeal, the 2^nd Respondent relies on 4 matters in support of this ground of appeal:

(1)  the Judge erred in holding that the reward for the Applicant was a fixed wage despite the fact that the Applicant’s reward was based on the orders assigned to him;
(2)  the Judge erred in holding that the Applicant’s reward was not profit sharing;
(3)  the Applicant had contributed to the costs of maintaining and repairing the Tractor and paid fixed penalty tickets for speeding and illegal parking which the 2^nd Respondent argues “should never be performed by a salaried employee”; and
(4)  the Applicant had to contribute 50% of the monthly fee known as “拖頭入線費” which the 2^nd Respondent also argues “should not be performed by a salaried employee”.

24. None of the above complaints has merits.

25. In respect of §23(1) above, the Judge did not make any finding that the Applicant was paid a fixed wage. The Judge found that the Applicant’s wages were calculated based on an agreed rate of $200-$400 per container delivered depending on the route/destination, and he also made some profits from the side business of buying and selling petrol across the border[16].

26. In respect of §23(2) above, the Judge accepted the evidence of the Applicant concerning the calculation of his wages, and rejected the evidence of the 2^nd Respondent concerning the alleged profits sharing arrangements between the Applicant and the 3^rd Respondent. It was open to the Judge to accept the evidence of the Applicant and reject the evidence of the 2^nd Respondent. We do not see that the Judge erred either in law or in fact in finding that the reward for the Applicant was not profit sharing.

27. In respect of §23(3) above, the Applicant gave evidence that he once paid $12,000, being a portion of the costs of repair of the Tractor which was damaged in a traffic accident in Nanping (南平) in February 2015. The Applicant said that he agreed to make the payment because he accepted a degree of responsibility for the accident due to his careless driving [17]. The Applicant also said that he paid fixed penalty tickets for illegal parking, speeding and other traffic offences (save that the 2^nd or 3^rd Respondents would occasionally pay up to 2 traffic tickets per month[18]). The Applicant accepted that illegal parking, speeding and other traffic offences were the responsibility of the driver, and said that it was the general practice of the trade that container tractor drivers would be responsible for such fines[19]. The Judge was entitled to accept the Applicant’s evidence on these matters[20]. We do not see that the aforesaid payments by the Applicant would lead, or necessarily lead, to the conclusion that the Applicant was not an employee but was an independent contractor.

28. In respect of §23(4) above, the Applicant gave evidence that he agreed to pay 50% of the “拖頭入線費” at the rate of HK$2,000 per month upon the request and insistence of the 2^nd Respondent, who claimed that the Applicant had made a bigger profit as a result of the change in the petrol price differential between Hong Kong and Mainland China[21]. Again, the Judge was entitled to accept the Applicant’s evidence on this matter[22], and the comment in §27 above applies equally to this part of the Applicant’s evidence.

29. In his written submissions, the 2^nd Respondent has sought to challenge other findings of fact by the Judge which however have not been raised in the Notice of Appeal. The 2^nd Respondent is not entitled to rely on grounds which are not raised in the Notice of Appeal, and those grounds will therefore not be considered in this judgment.

30. For the above reasons, Grounds 1 and 3 of appeal are rejected.

GROUND 2

31. Under Ground 2, the 2^nd Respondent complains about the Judge’s finding that both he and the 3^rd Respondents were employers of the Applicant at the same time. The 2^nd Respondent argues that he was only an officer (namely, director) of the 3^rd Respondent supervising the Applicant on behalf of the 3^rd Respondent, which was an independent legal entity, and he could not be an employer of the Applicant at the same time when the 3^rd Respondent was ruled to be an employer of the Applicant as well.

32. The Applicant commenced to work as a cross-border container tractor driver and collect/deliver containers upon the instructions of the 1^st or 2^nd Respondent on 1 August 2014[23]. At that time, the 3^rd Respondent had not yet been incorporated. It was only incorporated on 27 April 2015. Plainly, the 3^rd Respondent could not have been the employer of the Applicant during the period from 1 August 2014 to 26 April 2015. The Judge found that the 3^rd Respondent was an employer of the Applicant on the date of the accident (6 June 2017), but made no finding as to when the 3^rd Respondents became his employer. None of the parties suggested that the Applicant was at any time seconded by the 2^nd Respondent to work for the 3^rd Respondent, or that there was a novation of the employment contract between the 2^nd Respondent and the Applicant such that the 3^rd Respondent became an employer of the Applicant. In holding that both the 2^nd and 3^rd Respondents were the Applicant’s employers at the time of the accident, the Judge did not mention the fact that the 3^rd Respondent was not incorporated until about 9 months after the Applicant had started work, and apparently had overlooked the significance of this fact. There was also no analysis by the Judge as to how he came to the conclusion that the 3^rd Respondent was an employer of the Applicant, beyond stating that “… on the totality of the evidence, I find that [the Applicant] was not carrying on business on his own account but carrying out work on the business of R2 and R3. It follows that at the time of the accident, [the Applicant] was in the course of employment with R2 and R3”. In our view, the Judge’s finding that the 3^rd Respondent was an employer of the Applicant on the date of the accident is open to question.

33. These having been said, for the purpose of the present appeal, the important question is not whether the Judge was correct to find that the 3^rd Respondent was an employer of the Applicant, but whether the 2^nd Respondent was the Applicant’s employer at the time of the accident. On the evidence and materials before the Judge, we consider that he was clearly correct to find that the Applicant was at all material times since 1 August 2014 up to the date of the accident an employee and not an independent contractor. In view of the Judge’s finding that the 1^st Respondent only worked as a driver and assisted the 2^nd Respondent in his business but was not the Applicant’s employer, the inevitable conclusion is that the 2^nd Respondent was the Applicant’s employer at the time when he commenced work on 1 August 2014. It was not the 2^nd Respondent’s case at the trial, nor is it suggested in the 2^nd Respondent’s Notice of Appeal, that the Applicant’s employment relationship with him had somehow been terminated or changed prior to the date of the accident. All along, the 2^nd Respondent’s case has been that the Applicant was an independent contractor.

34. At the hearing of the appeal, Mr Bong Kwan sought to argue that the 2^nd Respondent entered into a pre-incorporation contract on behalf of the 3^rd Respondent with the Applicant. In support of this argument, he referred the Court to the oral evidence of the Applicant that sometime after the commencement of his employment, he had been told by the 1^st and 2^nd Respondent that in future, he should use the name “大眾貨櫃運輸公司” whenever there was a need to do so (… 但係大眾貨櫃運輸公司嗰個名係曾經郭健同埋郭家傑就話畀我知以後個公司有乜嘢，就寫呢個名，但係就最初我上工嗰陣時候就唔係呢個名嘅，我同佢上工嗰陣時，佢曾經用佢嗰啲貨櫃拖頭紙就叫做六通 (譯音) 嘅，六通貨運公司嘅，後來佢就冇用嗰嗰隻，就叫我哋以後就用大眾個名，呢啲後期嘅，但係我唔知呢間公司係乜嘢，只不過佢兩父子提供畀我，話用呢個名，我就寫呢個名)[24]. However, the 3^rd Respondent’s Chinese name is “大眾國際物流有限公司”, not “大眾貨櫃運輸公司”. We are unable to see how the aforesaid evidence relied upon by Mr Bong Kwan can support his argument that the 2^nd Respondent entered into a pre-incorporation contract on behalf of the 3^rd Respondent with the Applicant. Mr Bong Kwan also faintly suggested that there was subsequent ratification of the contract by the 3^rd Respondent. However, there was no evidence of any ratification adduced at the trial. In any event, the 2^nd Respondent has not raised any ground of appeal in his Notice of Appeal that the Judge ought to have found that the 2^nd Respondent entered into a pre-incorporation contract on behalf of the 3^rd Respondent with the Applicant, or the 3^rd Respondent subsequently ratified any such contract entered into by the 2^nd Respondent on its behalf.

35. The fact that the 2^nd Respondent was a director of the 3^rd Respondent takes the 2^nd Respondent’s case no further.

36. Overall, notwithstanding our reservation on the Judge’s finding that the 3^rd Respondent was an employer of the Applicant, we do not consider that this matter would detract from the Judge’s finding that the 2^nd Respondent was the Applicant’s employer at the time of the accident. Ground 2 of appeal is rejected.

DISPOSITION

37. The 2^nd Respondent’s appeal is dismissed with costs to the Applicant, to be taxed if not agreed. The Applicant’s own costs shall be taxed in accordance with legal aid regulations. We have been informed that the 2^nd Respondent has received an offer of a legal aid certificate on 10 August 2023, but no legal aid certificate has yet been issued to the 2^nd Respondent. In the event that a legal aid certificate shall be issued to the 2^nd Respondent and the legal aid certificate shall cover the costs of the hearing of the appeal, we direct that the 2^nd Respondent’s own costs shall likewise be taxed in accordance with legal aid regulations.

(Maria Yuen)
Justice of Appeal

(Anderson Chow)
Justice of Appeal

(Lisa Wong)
Judge of the Court of
First Instance

Mr Derek Hu, instructed by Siao, Wen and Leung, assigned by D.L.A., for the Applicant

Mr Bong Kwan Justin Chun Yin, instructed by Francis Kong & Co, for the 2^nd Respondent

[1] Ie the 3^rd Respondent.

[2] §4 of the Judgment.

[3] §§13-16 of the Judgment.

[4] §§17-19 of the Judgment.

[5] §§20-25 of the Judgment.

[6] §§26-28 of the Judgment.

[7] §§29-34 of the Judgment.

[8] §36 of the Judgment.

[9] §23 of the Judgment.

[10] §20 of the Judgment.

[11] As pleaded at §4(c) of the Amended Defence, although it is common ground that the Tractor was registered in the name of the 2^nd Respondent.

[12] §21 of the Judgment.

[13] §22 of the Judgment.

[14] As pleaded at §4(c) of the Amended Defence.

[15] §23 of the Judgment.

[16] §§17 & 22 of the Judgment.

[17] See the Applicant’s evidence in chief (Transcript, page 67, lines G-K), and also his evidence in cross-examination (Transcript, page 127, lines A-K).

[18] See §33 of the Judgment.

[19] See §65 of the Applicant’s Witness Statement dated 20 June 2019.

[20] §§32 & 33 of the Judgment.

[21] See §49 of the Applicant’s Witness Statement dated 20 June 2019.

[22] §31 of the Judgment.

[23] See §7 of the Judgment.

[24] Transcript, page 61, lines E-H.

CACV 109/2021

[2022] HKCA 576

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 109 OF 2021

(ON APPEAL FROM DCEC NO. 1141 OF 2018)

________________________

BETWEEN
	TSE CHIU	Applicant
	and
	郭健	1^st Respondent
	郭家傑 (Kwok Ka Kit Danny)	2^nd Respondent
	Kwok’s Int Logistics Limited	3^rd Respondent

________________________

Before: Hon Yuen and G Lam JJA in Court

Dates of Written Submissions by the Applicant: 23 July and 12 October 2021

Date of Written Submissions by the 2^nd Respondent: 5 October 2021

Date of Judgment: 27 April 2022

____________________

JUDGMENT

____________________

Hon Yuen JA (giving the Judgment of the court):

Introduction

1.1. On 19 February 2021, DDJ Charles Wong (“the judge”) gave judgment in DCEC 1141/2018 (“the Judgment”) in favour of the Applicant (“Mr Tse”) and ordered that employee’s compensation (“EC”) in the sum of $363,280.67 with interest be paid to him by the 2^nd Respondent Mr Kwok Ka Kit Danny (“Kwok Jr”) and the 3^rd Respondent Kwok’s Int Logistics Limited (“the Company”).

1.2. Mr Tse’s claim against the 1^st Respondent Mr Kwok Kin (“Kwok Sr”) was dismissed.

1.3. On 16 March 2021, the judge made a Sanderson order under which Kwok Jr and the Company were ordered to pay the costs of Kwok Sr and Mr Tse.

2. On 19 March 2021, a notice of appeal was filed on behalf of Kwok Jr and the Company.

3. On 1 June 2021, Mr Tse’s solicitors filed a summons for security for costs of the appeal.

4. On 25 August 2021, the Company was wound up on a petition presented by Mr Tse. On 19 November 2021, a Consent Summons was filed by Mr Tse’s solicitors and the Company’s provisional liquidators for (among other things) the dismissal of the Company’s appeal. An order in terms was made on 24 November 2021. That leaves Kwok Jr as the only appellant.

Application for security for costs

5. Mr Tse’s application for security for costs is based upon Kwok Jr’s impecuniosity. In opposition, Kwok Jr has filed an affirmation filed on 2 July 2021 deposing to his financial situation and denying that he is impecunious.

Discussion

6. The principles governing applications for security for costs were set out in Chung Kau v Hong Kong Housing Authority and others [2004] 2 HKLRD 650 and are well known. Under Order 59 rule 10(5) Rules of the High Court, the court of appeal may, in special circumstances, order security for costs. It is settled practice to make an order if the respondent demonstrates that the appellant would be unable through impecuniosity to pay the costs of an unsuccessful appeal, or if the respondent would be likely to encounter undue delay or be put to undue expense in enforcing a costs order. Once that is demonstrated, it would be up to the appellant to demonstrate countervailing factors, such as the merits of the appeal. The court should form a preliminary view of the merits. If they appear to go strongly one way or the other, that might by itself be a decisive factor; but where it appeared they might go either way, the court would look to the existence of other factors to tilt the balance, in the absence of which security would be ordered.

Impecuniosity or difficulty in enforcement

7.1. It is argued on behalf of Mr Tse that the following matters show that Kwok Jr is impecunious:

(1)  although no stay of execution has been ordered, Kwok Jr has not paid any part of the EC award or interest, and the bank statements he has exhibited (which are incomplete) show that he does not have sufficient assets to pay it;
(2)  the tractor driven by Mr Tse is no longer registered in Kwok Jr’s name;
(3)  after the Judgment, Kwok Jr sold a residential property (“the Property”) to his wife Madam Lam Yan Wa Rebecca (“Madam Lam”).

7.2. As far as the Property is concerned, the land office records provided in the Application Bundle show the following:

-  in 2016, Kwok Jr and one Kwok Yim Ting (“KYT”) purchased the Property from the developer for $2,989,000. It was mortgaged to Bank of China (“BOC”);
-  in 2018, the Property was assigned to Kwok Jr and KYT as tenants in common, with Kwok Jr holding 99% and KYT holding 1%;
-  on 28 February 2020, Kwok Jr and KYT entered into a Sale and Purchase Agreement under which KYT would sell her share of the Property to him for $43,000; this agreement was completed on 30 March 2020, whereupon Kwok Jr became the sole owner of the Property, subject to an All Moneys Mortgage in favour of BOC with Madam Lam as borrower (there is no evidence of the sum outstanding under this Mortgage);
-  a month after the Judgment, on 4 March 2021 Madam Lam made an application for ancillary relief in matrimonial proceedings FCMC1844/2021, which was filed against the Property on 10 March 2021;
-  however, a day after the ancillary relief application, on 5 March 2021, Kwok Jr and Madam Lam entered into a Sale and Purchase Agreement (“SPA”) under which Kwok Jr would sell the Property to her for $4 million; it was stated in the SPA that she had paid him a deposit of $90,000 before the SPA, and that the sale and purchase would be completed on 31 March 2021; the SPA was registered on 26 March 2021;
-  on 24 March 2021, Mr Tse obtained a charging order nisi against the Property, which was registered on 25 March 2021 (the court file reveals that a charging order absolute was made on 19 January 2022 at a hearing before a master at which neither Kwok Jr nor Madam Lam appeared);
-  meanwhile, completion under the SPA did not take place on 31 March 2021 (this was confirmed by Kwok Jr’s solicitors in a letter to Mr Tse’s solicitors dated 28 May 2021);
-  on 10 May 2021, a consent summons was signed by Kwok Jr and Madam Lam under which both parties were to retain assets under their own names, and it was agreed (among other things) that Kwok Jr would transfer the Property to Madam Lam for $4 million within 3 months after the decree absolute, and that the applications for ancillary relief made by the parties against each other be dismissed (the court file reveals that no decree, whether nisi or absolute, has yet been made).

8. First and foremost, we note that Kwok Jr has failed to pay any part of the award or interest even though there is no stay of execution. The bank statements he has exhibited do not reveal sufficient funds for payment of the award and interest which, as at 15 March 2021, already amount to more than $419,000.

9. As for the Property, even if one puts aside the case of dissipation alleged by Mr Tse,

- the important point is that Kwok Jr has not disclosed what is due to BOC under the All Moneys Mortgage (under which the borrower is Madam Lam), which takes priority to the charging order. Without this information, one might as well not include the Property (or any proceeds) as Kwok Jr’s assets;
- further, as to delay in enforcement, there is no indication as to when any proceeds of sale under the SPA would be available. The completion date set out in the SPA has expired without completion taking place. The transfer date under the Consent Summons follows the date of the decree absolute, but to date there has not even been a decree nisi.

10. Accordingly, we are satisfied that it has been demonstrated that Kwok Jr is impecunious or at least that Mr Tse would be likely to encounter difficulty or delay in enforcement.

Merits of the appeal

11. The next issue is whether Kwok Jr has shown countervailing factors such as the merits of his appeal.

12.1. Essentially, Mr Tse’s case was that in July 2014, he was introduced to Kwok Sr. He orally agreed with Kwok Sr to work as a cross-border container tractor driver, with his pay to be calculated per delivery. However, Mr Tse alleged the oral agreement was that he would work for both Kwok Sr and his son[1], and that “since [Kwok Jr] ran his business in the name of [the Company][2], so far as Tse was concerned, he was under the employment of all three respondents”[3] (emphasis added).

12.2. Mr Tse started work on 1 August 2014 as the designated driver of a tractor registered in Kwok Jr’s name. He received delivery instructions from Kwok Sr and/or Kwok Jr via a WeChat group. His work dates were decided by “the respondents”[4]. If he wished to take leave, he sought Kwok Jr’s approval[5].

12.3. As for pay, Mr Tse regularly received monthly payments in cheques or cash from the Company or its bookkeeper, even before it received payments from its customers[6]. He received payment for deliveries he made, and he also received half of the fees paid by customers referred by him to the Company[7]. He would not get paid if he failed to record delivery or failed to produce delivery notes, which he was obliged to produce to the Company[8]. Receipts (some entitled “salary receipts”) bore the Company’s name. Some of the Company’s monthly statements stated that money was paid to him as “wages”.

12.4. Mr Tse never received payment directly from Kwok Sr or Kwok Jr. Mr Tse also made some money for himself on the side buying and selling petrol across the border. No MPF contributions were made by anyone, nor were there payments in lieu of statutory holidays, annual leave or sick leave[9].

13.1. Mr Tse was injured in an accident on 6 June 2017. He made a claim for EC against Kwok Sr, Kwok Jr and the Company which was formulated in his Re-Re-Amended Application[10] as follows.

“On 6 June 2017, personal injury by accident arising out of and in the course of employment was caused to the Applicant, an employee employed by the Respondents. The 1^st and 2^nd Respondents [Kwok Sr and Kwok Jr] were carrying on business in the name of 大眾貨櫃運輸公司. The 1^st Respondent is the father of the 2^nd Respondent. As to the 3^rd Respondent [the Company], the Applicant’s salaries were from time to time paid by the 3^rd Respondent during the material time. Alternatively, the 1^st and 2^nd Respondents were the employers of the Applicant (as particularized in Paragraph 3 below) and the subcontractors of the 3^rd Respondent”. (Emphasis added).

13.2. The Amended Answer[11] filed on behalf of all 3 Respondents pleaded the following material points:

(1)  Kwok Jr is a director of the Company [§2(b)];
(2)  the Company is a company incorporated with limited liability under the laws of Hong Kong carrying on the business of logistics [§2(c)];
(3)  Kwok Sr and Kwok Jr denied they had employed Mr Tse through any servant or agent or authorised person/company, either directly or indirectly [§3(a)];
(4)  in July 2014, Kwok Jr in the capacity of director of the Company had on behalf of the Company negotiated and reached a cooperation agreement with Mr Tse to work as an independent contractor [§4] and Mr Tse was not the Company’s employee [§5].

14. At trial, both sets of litigants were legally represented, with all respondents represented by the same counsel and solicitors.

15. The judge formulated the issues before the court as follows[12]:

(1)  whether Mr Tse was an employee of the respondents or an independent contractor of the Company;
(2)  if Mr Tse was an employee, which respondent(s) was/were the employer(s)?
(3)  whether the accident happened in the course of Mr Tse’s employment with the 1^st, the 2^nd, and/or the 3^rd respondent?

16. The judge found that Mr Tse was not an independent contractor of any of the respondents, and that he was employed by Kwok Jr and the Company, but not by Kwok Sr.

17. On appeal, three grounds have been advanced. Ground (1) is a general complaint without particulars. Ground (3) complains against the judge’s findings of fact that Mr Tse was not in business on his own as an agent or contractor. At this stage, it cannot be said that this ground is so strong as to be a sufficient countervailing factor.

18. Ground (2) focuses on Issue (2) above. It states that the judge erred in law in finding that Kwok Jr together with the Company were Mr Tse’s employers, without considering the fact that Kwok Jr was only an officer of the Company supervising Mr Tse on behalf of the Company which was an independent legal entity. Kwok Jr could not be ruled an employer at the same time when the Company was found to be the employer as well.

19.1. It appears to us at this stage that this is a strong ground of appeal. Although it would appear that the Company was not incorporated until 27 April 2015[13], about 6 months after Mr Tse started work, the judge did not consider this to be material enough to be mentioned in the Judgment. He noted that the tractor was registered in Kwok Jr’s name[14] but found that it was provided by Kwok Jr to Mr Tse “for the business of [Kwok Jr] and [the Company]”. There was no analysis of what was Kwok Jr’s own business, separate from that of the Company.

19.2. A company can only act (eg give instructions for delivery) through human servants or agents. When Kwok Jr’s acts were mentioned in the Judgment, the judge did not specify whether those acts were done by Kwok Jr in his individual capacity, or in his capacity as a director of the Company. Sometimes, the finding was only that “R2 or R3” did an act[15] which is ambiguous. The judge also found[16] that Mr Tse’s “work dates were decided by the respondents and it is obligatory for him to accept works assigned to him by the respondents” (emphasis added), presumably including Kwok Sr. However, the judge concluded from that that it was Kwok Jr and the Company who had a high degree of control over Mr Tse’s work[17].

19.3. Further, when the word “人工” (salary) was written on receipts chopped with the Company’s chop, and Kwok Jr sought to explain that by stating that it was Mr Tse who had requested that he should not be included as staff for tax purposes, the judge found that the significance of this evidence suggested that “but for Tse’s request, R2 and R3 were set to include Tse as their employee”. The inclusion of Kwok Jr in that conclusion appears to be unjustified, for the receipts were the documents of the Company, not Kwok Jr.

20. In light of the above, we find that Kwok Jr has advanced sufficient merits on a preliminary view to act as a countervailing factor.

Order

21. The summons is accordingly dismissed. As far as costs is concerned, given that Kwok Jr’s opposition to the summons was primarily based on his financial position and there was less discussion on the merits of the appeal, we do not think that it would be appropriate to order costs in his favour. Accordingly, we make no order as to costs of the summons save that Mr Tse’s own costs are to be taxed in accordance with legal aid regulations.

(Maria YUEN)
Justice of Appeal

(Godfrey Lam)
Justice of Appeal

Written Submissions by Mr Derek Hu, instructed by Siao, Wen and Leung, assigned by the Director of Legal Aid, for the applicant

Written Submissions by Mr Justin Bong-Kwan, instructed by Francis Kong & Co, for the 2^nd Respondent (up to 17 October 2021)

The 2^nd Respondent, acting in person (from 18 October 2021)

[1] Judgment, §6.

[2] It was common ground that the Company was in the business of logistics.

[3] Judgment, §6.

[4] Judgment, §15.

[5] Judgment, §14.

[6] Judgment, §8.

[7] Judgment, §21.

[8] Judgment, §24.

[9] Judgment, §8.

[10] Filed on 17 June 2020.

[11] Filed on 3 September 2020.

[12] Judgment, §4.

[13] Mr Tse’s Closing submissions §4(3).

[14] Who paid ancillary expenses eg repair and maintenance (Judgment, §26), and motor insurance premium (Judgment, §30).

[15] Judgment, §§32-34.

[16] Judgment, §15.

[17] Judgment, §16.

TSE CHIU v. 郭健 AND OTHERS

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