Sealegend Holdings Ltd v. China Taiping Insurance (HK) Co Ltd and Others
Read the full judgment text of CACV 238/2014 on BabelCite. This Court of Appeal judgment was delivered on 18 September 2015.
1. This is the plaintiff’s appeal against the decision of Au-Yeung J on 24 October 2014. The judge had ordered the plaintiff’s claim against the extant defendants, namely, the 1 st , 2 nd and 4 th defendants, to be struck out pursuant to two summonses.
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CACV 238/2014 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO. 238 OF 2014 (ON APPEAL FROM HCAJ NO. 95 OF 2012) ________________________
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__________________ J U D G M E N T __________________ Hon Kwan JA: 1.This is the plaintiff’s appeal against the decision of Au-Yeung J on 24 October 2014. The judge had ordered the plaintiff’s claim against the extant defendants, namely, the 1st, 2nd and 4th defendants, to be struck out pursuant to two summonses. 2.Under the summons issued on 6 November 2013 (“the 1st summons”), the defendants sought to strike out all the plaintiff’s claims against the 1st defendant founded on a cover note No 2005DHNM000040HM/C001 (“the 1st Cover Note”) on the ground that the said claims constituted an abuse of process for exceeding the scope of the writ. 3.In respect of the summons issued on 21 March 2014 (“the 2nd summons”), the defendants sought to strike out the plaintiff’s claims against the defendants as vexatious or obviously unsustainable because the plaintiff has expressly agreed to relinquish its claims upon the renewal of the policy in August 2006. 4.The judge had found in favour of the defendants on both the scope of the writ ground and the relinquishment ground. The background 5.I adopt the background as set out at §§2 to 22 of the judge’s decision, which are reproduced below:
6.For convenience, in this judgment I will adopt the same terms as defined by the judge in the extracts quoted above. The decision 7.The holdings in the decision may be summarised as follows. 8.The judge dealt with the relinquishment ground first. She held that the plaintiff’s claims were plainly unsustainable as the matters related in §§11 to 15 of the decision evidenced a clear offer from the defendants through CIBL and acceptance by the plaintiff and hence a binding agreement to relinquish the plaintiff’s claims for the Damage. That the agreement to relinquish was not embodied in any insurance policy or mentioned in the particulars slip or closing advice does not affect its validity. 9.The agreement to relinquish formed a condition precedent to the conclusion of the Renewed Policy. It could also be regarded as a collateral contract, clearly supported by consideration, being the entry into of the Renewed Policy. 10.The plain and ordinary meaning of the words “closed at nil claim” in the offer of the 1st defendant to CIBL dated 1 August 2006 is that “the plaintiff’s claim for the Damage is closed with $0 compensation and there will be no more claim”. 11.The agreement to relinquish remains valid. There was no consideration provided to the defendants for reopening the claim. 12.The plaintiff has sought to rely on common or unilateral mistake to avoid the agreement to relinquish. The alleged mistake was that the repair costs of the damaged engine would be below or marginally above the total deductible of US$325,000 under the Governing Policy when in fact it was three times more. The doctrine of unilateral mistake has no application as the alleged mistake went to the factual circumstances in which the agreement to relinquish was made, rather than to its terms. The mistake was not “common” as it was not shared by the defendants, and even CIBL’s view as to the repair costs was tentative at the time. The alleged mistake was not “fundamental” in that it did not make the “contractual adventure” impossible or render performance essentially different to what parties had anticipated. So the plaintiff’s reliance on the doctrine of mistake is unsustainable. 13.As for the plaintiff’s reliance on waiver and estoppel, it was held that the words or conduct of the defendants did not convey a clear and unequivocal promise to the plaintiff that they would not enforce the agreement to relinquish. The 1st defendant’s instruction of PNA to investigate the cause of the Damage could not, without more, constitute a representation that it would not rely on the agreement to relinquish to reject the plaintiff’s claim. In any case, the 2nd and 4th defendants have not made any representation or undertaken any act pursuant to the plaintiff’s request to re-open the case. At most they remained silent or acquiesced in the 1st defendant’s instructions to PNA. And as the plaintiff’s claim was “doomed” at the latest by the time the Renewed Policy was issued on 28 August 2006, it could not have altered its position to its detriment. For the above reasons, the plaintiff cannot invoke waiver by estoppel, promissory estoppel or estoppel by convention. 14.Regarding the scope of the writ ground under the 1st summons, the judge held that the scope of the amended writ is limited to a claim under the 2nd Cover Note and the plaintiff’s claim under the 1st Cover Note constitutes a new cause of action which is time-barred and has in any event been relinquished by the plaintiff. The judge therefore struck out the plaintiff’s claim under the 1st Cover Note as an abuse of process. 15.I turn to consider the main arguments advanced before the judge and repeated on appeal. It is not necessary to rehearse the principles on striking out a claim, which are set out adequately and correctly by the judge in §§24 to 33 of the decision. The agreement to relinquish 16.The communications between the parties are well documented. For the purpose of considering the arguments regarding the agreement to relinquish, there are three material emails. I will set them out in full. 17.The first one, dated 31 July 2006, was from Lawrence Lau of CIBL to Evelyn Lo of the 1st defendant and read:
18.The second message, dated the following day on 1 August 2006 was Evelyn Lo’s reply to Lawrence Lau making an offer in these terms:
19.The third message, dated 4 August 2006, was from Lawrence Lau to Evelyn Lo and it read:
20.As noted by the judge, the 2nd and 4th defendants also renewed the insurance cover on the same terms as those specified by the 1st defendant, see the emails exchanged between Lawrence Lau and Clement Chow of the 2nd defendant on 1, 3 and 4 August 2006, and the emails between Patrick Ho of Fairway Insurance Agencies Ltd (the 4th defendant’s agent) and Simon Wan and Ma of the 4th defendant on 2 and 4 August 2006. 21.There is no suggestion in any of the affirmations filed that there was any relevant oral communication outside the written exchanges. As rightly pointed out by the judge, it is the legal effect of the parties’ communications and conduct, not the facts themselves, that is in dispute. 22.Mr Russell Coleman, SC raised a number of arguments to challenge the holding that there was a binding agreement to relinquish the plaintiff’s claim. 23.He argued that the judge had focused on the words “closed at nil value” in the 1st defendant’s offer and failed to take into account there was no mutuality in the acceptance message of CIBL, as the response on 4 August 2006 was to agree to “withdraw” the claim. He submitted that is at least capable of not amounting to relinquishing or abandoning the claim for all purposes, for all time, and irrespective of any change of circumstance. So it is plainly not unsustainable to say that insurers would think that the “withdrawal” of a claim does not necessarily mean it has been abandoned for all time and for all purposes so that the claim has been extinguished. He also contended that the term “withdrawal” should be construed with regard to how it has been understood in the marine insurance industry. 24.I agree with Ms Janet Ho for the defendants that the above argument is fanciful and contrived. The message of 4 August 2006 clearly stated that the terms quoted in the offer were “accepted by Assured”. It went on to confirm that the claim for the damage to the main engine was “withdrawn”. And the 1st defendant was asked to instruct its surveyors PNA to close their file. The only reasonable interpretation is that the parties were ad idem, not that they meant different things just because one had used the words “closed at nil claim” and the other confirmed that the claim was “withdrawn”. Mr Coleman was vague about the custom or practice in the marine insurance industry that might have a bearing on how “withdrawal” would be understood in the sense as contended by him. The judge rightly held that the meaning of the words used is clear. 25.Mr Coleman argued that the subsequent conduct of the parties is relevant and relied on the fact that the defendants did not assert there was an agreement to relinquish over the five-year period after the plaintiff had sought to reopen the claim and did so for the first time only one year after the writ was issued. He submitted that the agreement to relinquish was plainly a lawyer created forensic afterthought. In support of this, he cited Chitty on Contracts, vol 1 (31st ed) at §12-126; American Orient Capital Partners Ltd v General Enterprise Management Services Ltd, HCA 4451/2003, 7 April 2006 at §§105 to 106 and CACV 175/2006, 20 July 2007 at §4, for the proposition that subsequent conduct is admissible “to show whether there was a contract and what the terms of the contract were”. He claimed he was not relying on subsequent conduct to construe the terms of the agreement but was using this to show that it was consistent with the proper interpretation of the agreement as contended by him and inconsistent with the defendants’ interpretation. 26.It does not appear to me that the present situation would fall within any of the recognised exceptions to the rule that it is not legitimate to use as an aid in the construction of the contract anything which the parties said or did after it was made. The exception mentioned in Chitty in the sentence quoted is limited to the situation where a contract is incompletely expressed in writing so that its unexpressed terms cannot be ascertained otherwise than by looking at what the parties did (Liverpool City Council v Irwin [1977] AC 239 at 253D; Wilson v Maynard Shipbuilding Consultants [1978] QB 665 at 675D). As for American Orient Capital Partners, it was concerned with a verbal agreement and fell squarely within the exception in Chitty. There is no suggestion of any relevant verbal communication in the present situation. In any event, as submitted by Ms Ho, the subsequent conduct relied on by the plaintiff does not assist its case. The fact that the defendants did not reject the plaintiff’s claim on the basis of the relinquishment agreement at an earlier stage does not mean they did not have the right to do so. As stated in Schuler AG v Wickman Machine Tool Sales Ltd [1974] AC 235 at 260G: “If on the true construction of a contract a right is given to a party, that right is not diminished because during some period either the existence of the right or its full extent was not appreciated”. 27.There is nothing in the plaintiff’s contention that underwriters who wish to ensure that a claim will never be presented would usually renew the insurance cover with an express warranty to that effect. As the judge rightly held, since there is no legal requirement for the relinquishment agreement to be embodied as an express warranty in the Renewed Policy, the absence of such a warranty does not affect the binding nature of the relinquishment agreement. 28.The judge held that the relinquishment agreement was a collateral contract and the consideration for it was the entering into of the Renewed Policy. She disregarded the defendants’ assertion that the premium might not have been discounted if the plaintiff had not agreed to close the claim as irrelevant. The plaintiff’s assertion was to the opposite, alleging that there was an increase rather than a decrease in premium under the Renewed Policy. Mr Coleman submitted that the contrary assertions should be open to testing through the interlocutory and trial process. I do not see how the judge’s approach could be faulted. It is clear from the messages exchanged that the defendants’ offer to renew the insurance cover was premised on a requirement that the plaintiff should relinquish the claim for the Damage. The plaintiff accepted the offer and the very fact of the defendants entering into the Renewed Policy constituted the consideration for the relinquishment agreement. The present dispute as to the level of the premium under the Renewed Policy is immaterial. 29.The judge was right to hold that the relinquishment agreement could also be regarded as a condition precedent to the conclusion of the Renewed Policy. Insofar as the plaintiff argued that any breach of the condition precedent would only avoid the Renewed Policy and not its right to claim under the Governing Policy, this is a circular argument, not to mention that it renders the relinquishment agreement completely meaningless if the plaintiff is permitted to unilaterally revive its claim under the Governing Policy after it was withdrawn. 30.For all the above reasons, I reject the plaintiff’s contention that the judge’s holding was in error regarding the existence of the relinquishment agreement and the nature and effect of its terms. Common mistake 31.I turn to the fallback position of the plaintiff that the relinquishment agreement could be avoided due to the doctrine of common mistake. 32.Mr Coleman submitted that the judge was wrong to accept the untested evidence of the defendants that none of them ever harboured any positive belief as to the amount of the repair costs. He pointed to the message of 31 July 2006 from CIBL to the 1st defendant quoted above as identifying the fact on which all parties proceeded in the negotiations for the renewal of the insurance cover, namely, that subject to the further investigation of the plaintiff, the claim for the Damage should not exceed the deductibles under the Governing Policy. 33.I think Mr Coleman has a viable point and it was wrong for the judge to hold on an application to strike out that the mistake could not be “common”. Looking at the relevant messages passing between CIBL, the 1st, 2nd and 4th defendants as mentioned earlier, it could be said that all the parties had proceeded with negotiating a renewal of the policy on the basis that no claim would be made under the Governing Policy. A claim record is clearly a material consideration to the insurers as this would affect the level of the renewal premium. It could be said it was on the basis that the claim was not expected to exceed or greatly exceed the deductibles under the Governing Policy that the defendants offered to the plaintiff to renew the Governing Policy on condition that the plaintiff was to relinquish the claim, and the plaintiff accepted the condition based on the same consideration as to the anticipated amount of its claim. 34.I am also inclined to agree with Mr Coleman that the judge was wrong to hold on a striking out application that the mistake was not “fundamental” in the sense that it makes the “contractual adventure” impossible, or makes performance essentially different to what the parties anticipated. Ms Ho had argued to the contrary in that the agreement was for the plaintiff to relinquish the claim under the Governing Policy, the mistake about the amount of repair costs and hence the amount of the claim would not make it impossible to perform the agreement or make the performance essentially different. 35.I think that may be taking a too narrow view of the factual circumstances in which the agreement was made. It could be said that the performance envisaged by the parties was that it would be commercially viable for the plaintiff to relinquish the claim as it was anticipated that the repair cost would be below or marginally above the deductibles and it was based on this condition that the defendants had quoted terms to the plaintiff for the renewal of the policy. If the amount of repair cost was considerably above the deductibles, the plaintiff would not have found it commercially feasible to relinquish the claim, the defendants would not have offered to renew the insurance cover on the terms they did, and the parties might not even have entered into a renewal policy. 36.Ms Ho further argued that the plaintiff should not be able to rely on common mistake as it would not be able to satisfy the requirements that (1) under the express or implied terms of the contract, neither party is treated as taking the risk of the situation as it really is; and (2) neither party was responsible for or should have known of the true state of affairs, citing Chitty on Contracts at §5-017. 37.It seems to me these matters are arguable too. It would not be right to draw a firm conclusion at this stage that the plaintiff must be treated as having assumed the risk of what the repair cost should be. And I do not think the plaintiff should be held responsible for or should have known of the true state of affairs. The message of CIBL dated 31 July 2006 stated expressly it was subject to further investigation that the claim should not exceed the deductibles. 38.On this ground alone, that the plaintiff is entitled to rely on the doctrine of common mistake, the order striking out the plaintiff’s claim must be set aside. Waiver and estoppel 39.I do not propose to deal with the arguments on waiver and estoppel at length. If the claim should not be struck out as I have reasoned and the action is to proceed to trial, it seems to me that the plaintiff should be allowed to rely on waiver and estoppel as well. 40.The main argument of the defendants is that there was no unequivocal conduct that could be relied on as conveying a promise not to enforce the relinquishment agreement, citing Fortisbank SA v Trenwick International Ltd [2005] 1 Lloyd’s Rep IR 464 at §30(ii). Ms Ho argued forcefully that if the conduct relied on (such as entering into communications with various parties regarding the handling of the claim, instructing PNA to investigate the cause of the Damage) was capable of more than one explanation, such conduct would be equivocal. And mere silence and inaction, particularly in the case of the 2nd and 4th defendants, are of their nature equivocal. 41.Mr Coleman urged us to look at the totality of the acts and communications over a five-year period, which have been helpfully set out in the plaintiff’s chronology. I also took into account that a true analogy could not be drawn with the cases relied on by Ms Ho, in which the pleas of waiver and estoppel were raised unsuccessfully to counter a limitation defence. The mere fact that a party has continued to negotiate with the other party about the claim after the limitation period had expired, does not necessarily mean that the time bar would not be relied on if the negotiations break down. But what we have here is an agreement to relinquish a claim, and there is no room to revive or reopen the claim once the agreement was struck. It raises the question whether the extensive follow-up inquiries over the five-year period could be regarded as unequivocal representation by the defendants that they would not rely on the agreement to relinquish. 42.I am not required to come to a definite view on the merits of the plaintiff’s case on waiver and estoppel. Suffice it to say I do not think it is obviously unsustainable. I do recognise the plaintiff may have a weaker case against the 2nd and 4th defendants, who had a more passive role throughout. But, as mentioned earlier, if the plaintiff’s claim against the 2nd and 4th defendants is not to be struck out on the basis of common mistake, it is not of any moment that apart from running a case of waiver and estoppel against the 1st defendant, the plaintiff should also be permitted to advance a similar case against the 2nd and 4th defendants. Scope of the amended writ 43.The amended endorsement of claim in the amended writ reads as follows:
44.The statement of claim pleaded not merely the 2nd Cover Note but also the 1st Cover Note (for the insurance cover accepted by the 1st defendant covering 50% of the value of the Vessel’s H&M at US$8 million for 12 months from 11:00 hours of 23 May 2005) and the endorsement to the 1st Cover Note (extending the insurance cover of the 1st Cover Note to expire on 4 August 2006). The defendants sought to strike out those parts of the statement of claim pleading the claim against the 1st defendant as founded on the 1st Cover Note and its endorsement, on the basis that such claim offends Order 18 rule 15(2) of the Rules of the High Court, which provides that “[a] statement of claim must not contain any allegation or claim in respect of a cause of action unless that cause of action is mentioned in the writ or arises from facts which are the same as, or include or form part of, facts giving rise to a cause of action so mentioned.” 45.The judge accepted the submission of Ms Ho which is to this effect. A plaintiff cannot, without amending the writ, add in his statement of claim a new cause of action based on facts not disclosed in the writ. Here, the endorsement of claim only mentioned the 2nd Cover Note, which evidenced the contracts of insurance between the plaintiff and each of the four defendants in respect of the insurance of 50% of the value of the Vessel’s H&M for 12 months from 4 August 2005 in these proportions: the 1st defendant (20%), the 2nd defendant (15%), the 3rd defendant (10%) and the 4th defendant (5%). The claim pleaded in the statement of claim as founded on the 1st Cover Note was not mentioned in the endorsement of claim, nor does it arise from facts which are the same as or form part of the facts giving rise to the cause of action mentioned in the endorsement of claim. 46.Ms Ho further submitted it is well established that where an application is made to amend the writ to add a new cause of action after the limitation period has expired, leave to amend would be refused unless the plaintiff could satisfy the requirements in section 35(6)(a) of the Limitation Ordinance, Cap 347 and Order 20 rule 5(5) of the Rules of the High Court, namely, that the new claim arose out of the same or substantially the same facts as a cause of action in respect of which relief has already been claimed in the existing action. Here, the claim under the 1st Cover Note constitutes a new cause of action which is time barred since 1 July 2012. The two cover notes evidenced contracts of insurance between the plaintiff and different defendants, so the plaintiff’s cause of action under the 1st Cover Note does not arise from facts which are the same as or form part of the facts giving rise to the cause of action under the 2nd Cover Note. 47.The judge rejected the arguments of the plaintiff, which Mr Coleman renewed before us. 48.I am inclined to agree with Mr Coleman that it is not appropriate to strike out the claim against the 1st defendant in this situation. 49.The endorsement of claim stated that the claim is founded on a single policy of insurance, namely, “the Hull & Marine Insurance Policy”. The 2nd Cover Note mentioned in the endorsement is evidence of that policy, as is the 1st Cover Note not mentioned in the endorsement of claim. The plaintiff had made repeated requests to the defendants’ solicitors for discovery of the Governing Policy. The 1st defendant only provided a copy of the Renewed Policy, according to which it was “renewing policy No. PHHH-05-00055-3” for 70% of the Vessel’s value. As noted by the judge in §5 of the decision, the Governing Policy was policy No. PHHH-05-00055-3. 50.I think it is reasonably arguable that the claim in the endorsement of claim was founded on a single policy, that the single policy was evidenced by the 1st and 2nd Cover Notes, and that no new cause of action was added by pleading the 2nd Cover Note in the statement of claim. It would not be right to strike out parts of the plaintiff’s claim against the 1st defendant as sought in the 1st summons. Conclusion and costs 51.For the above reasons, I would allow the plaintiff’s appeal and set aside the orders made by the judge on the 1st and 2nd summonses. The judge’s order awarding the costs of the two summonses would also be set aside. 52.We have not heard arguments on costs. So the orders I propose to make would be on a nisi basis. 53.For the costs below, I see no reason why costs should not follow the event. So the 1st, 2nd and 4th defendants should bear the plaintiff’s costs of the striking out applications, which should have been dismissed by the judge. 54.For the costs on appeal, I propose to award only part of the costs to the plaintiff, notwithstanding its appeal is to be allowed. My reasons are as follows. The plaintiff did not succeed on the main grounds of appeal advanced in its notice of appeal, which all relate to the judge’s holding on the agreement to relinquish. The arguments successfully advanced on the scope of the writ, although raised in the notice of appeal, would not have carried the day for the plaintiff, if it should fail in its appeal against the striking out under the 2nd summons. What saved the day for the plaintiff were the arguments on common mistake and waiver and estoppel. These arguments did not form any part of the grounds in the notice of appeal. It was at the hearing that Mr Coleman sought and obtained leave from this court to amend the notice of appeal to argue those matters. 55.I think it would be right to deprive the plaintiff of some of its costs in this appeal, taking into account the grounds of appeal which are unsuccessful and the grounds of appeal which are successful but did not feature in the notice of appeal and were added with the leave of the court only on the day of the hearing. A fair apportionment in my view would be to award 40% of the costs of the appeal to the plaintiff. 56.If the parties should wish to vary the costs orders nisi, they may apply to this court within 14 days of the handing down of this judgment. The application would be dealt with on paper. The applying party should serve its submission within seven days of lodging the application, and the respondent or respondents should serve their submissions within seven days thereafter. No further submissions would be allowed without leave. Hon Chu JA: 57.I agree with the judgment and the orders proposed by Kwan JA. Hon Barma JA: 58.I agree with the judgment and the orders proposed by Kwan JA.
Mr Russell Coleman SC, instructed by Brenda Chark & Co, for the Plaintiff (Appellant) Ms Janet W Y Ho, instructed by Holman Fenwick Willan, for the 1st, 2nd & 4th Defendants (1st, 2nd & 4th Respondents) |
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