Hong Kong: Section 25 Employees’ Compensation Recovery Claims

The Hong Kong District Court recently departed from its previous approach to dealing with Section 25 Employees’ Compensation (EC) Recovery Claims. Specifically, EC legal costs will not be subject to the cap of Common Law damages (after deduction of Contributory Negligence).

The Decision

Up until now, it was previously held in Kan Che Sing v. Hop On Management Company Limited (DCPI 393/2016) – a judgment on 4 May 2020 by Deputy District Judge Connie Lee – that in Section 25 EC Recovery Claims, the recoverable sum of EC compensation and EC legal costs incurred by both the injured employee and employer cannot in total exceed the Common Law damages after deduction of Contributory Negligence. 

In the latest judgment on 6 June 2023 by Deputy District Judge Rebecca Lee in Amjad-Ul-Mahmood v. Profit Hill International Holdings Limited & Anor (DCPI 534/2017), the Court took the opposite view that EC legal costs should not be part of the computation in Section 25 EC Recovery Claims.

In other words, only the recoverable sum of EC compensation should be capped by the amount of Common Law damages (after deduction of Contributory Negligence) – and the employer is entitled to recover EC legal costs incurred by both the injured employee and employer without subject to any cap.

In the course of just three years, the Court has reached diametrically opposite conclusions on the same legal issue. This is due to the Judges’ different approaches on how to interpret Section 25(1)(b) of the Employees' Compensation Ordinance (Cap. 282, "ECO"):

• Previously in Kan Che Sing, Deputy Judge Connie Lee noted that Section 25(1)(b) gives a right of action to the employer for the recovery of “any sum which [the third party tortfeasor] is obliged to pay”, which shall in turn be capped by the amount of Common Law damages (after deduction of Contributory Negligence). The learned Judge interpreted the words “any sum” to be inclusive of EC legal costs incurred by both the injured employee and employer.
• But in Amjad-Ul-Mahmood, Deputy Judge Rebecca Lee interpreted Section 25(1)(b) together with Section 25(1)(a) of the ECO, which deals with employee rights to commence proceedings against the third party tortfeasor. The learned Judge noted that the Proviso of Section 25(1)(a) states that, in assessing a Common Law claim by the employee against the tortfeasor, the Court needs to give regard to the amount “payable to the employer by the third party [tortfeasor]”. It is trite that only the amount of Advance Payments/ EC compensation paid by the employer should be given credit for – but not the EC legal costs incurred by the injured employee or employer. Moreover, liability to pay legal costs is a matter of judicial discretion, rather than a statutory duty under the ECO. Accordingly, as it could not be the legislative intent to treat EC legal costs differently under the same section in the ECO, the learned Judge reached the view that EC legal costs incurred should not be subject to the cap of Common Law damages in Section 25(1)(b).

Key Takeaways

It is hardly surprising that the two Judges took different approaches to interpret Section 25(1)(b) of the ECO.

Indeed, when this issue of interpretation of Section 25(1)(b) was first argued before the Court of Appeal 18 years ago in Yardway Motors Limited v. Tam Siu Lun, CACV 135/2003 (judgment on 25 February 2005), the Court did not expressly state whether EC legal costs should be included in the computation of Section 25 EC Recovery Claims.

We will closely monitor this issue to see if will be argued again at higher Courts in future, particularly for cases involving serious injuries, and also a high degree of Contributory Negligence. 

On a practical perspective, insurers are reminded to review reserves set for Section 25 EC Recovery Claims; making sufficient allowance for EC legal costs incurred, which – in light of this latest judgment – shall not be subject to the cap of Common Law damages (after deduction of Contributory Negligence).