T v. A and Another
Read the full judgment text of HCCT 57/2017 on BabelCite. This 高等法院原訟法庭 judgment was delivered on 30 July 2018 before Hon Chow J in Chambers.
Arbitration Jurisdiction — Subrogation and Assignment — Authority to Commence Arbitration — Proper Law of Contract — Interplay of PRC and English Law — Interpretation of Subrogation Form — Procedural Requirement for Joinder of Assignor in English Law — Arbitration commenced by insurer and assured as co-claimants — Dispute over authority and joinder. T was insured cargo owner and A the subrogated insurer who paid settlement and obtained a Subrogation Form intending to pursue recovery against V. The court held that under English/Hong Kong law, subrogation alone does not authorize insurer to commence arbitration using assured's name without assignment; here, the Subrogation Form governed by PRC law effects an assignment of all rights from T to A. The clause permitting proceedings in T's name applies only if legally required, as agreed in pre-contractual negotiation. Under English law procedural rules, joinder of T as party is required to bind T by judgment, rendering the arbitration commenced with T's authority. The court dismissed T's summons challenging jurisdiction and ordered costs against T.
Legal issues: Authority of subrogated insurer to commence arbitration using assured's name · Proper law of the Subrogation Form · Effect of the Subrogation Form: assignment of rights or mere subrogation · Meaning of 'if required' clause in the Subrogation Form · Requirement to join T as a party in arbitration under English/Hong Kong law
Outcome: Dismissal of Originating Summons; T is bound by arbitration and tribunal has jurisdiction over T.
Cited by 5 cases · Cites 2 cases
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HCCT 57/2017 [2018] HKCFI 1756 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE CONSTRUCTION AND ARBITRATION PROCEEDINGS NO 57 OF 2017 ________________________
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________________________ JUDGMENT ________________________ INTRODUCTION 1.The issue which requires determination in this action is whether the on-going arbitration seated in Hong Kong between (i) T and A as co-claimants, and (ii) V as respondent, was commenced with T’s authority or consent. BACKGROUND FACTS 2.By a Bill of Lading No MRW/CHN-111201 dated 19 December 2011 (the “Bill of Lading”), V by its servants or agents acknowledged the shipment on board its vessel known as MV “Vinalines Queen” (the “Vessel”) at Morowali, Sulawesi, Indonesia, of a cargo of approximately 54,400 MT of Nickel Ore (the “Cargo”) for carriage to and delivery at Ningde Port, PRC, for reward. T was named as the Notify Party in the Bill of Lading. It was also the holder of the Bill of Lading. 3.Also on or about 19 December 2011, T as assured and C, now known as A, as insurer entered into a Cargo Policy No EM72501813 (the “Cargo Policy”) in respect of the Cargo, for the insured amount of US$4,015,000. 4.The Cargo Policy expressly incorporates “Institute Cargo Clauses (A) 1/1/82” into the policy. Clause 19 thereof provides that “[t]his insurance is subject to English law and practice”. 5.On or about 25 December 2011, the Vessel carrying the Cargo sank off Luzon, the Philippines, resulting in the loss of, inter alia, the Cargo and the Vessel. 6.As a result of the loss of the Cargo, on 26 June 2012, T commenced legal proceedings in the Shanghai Maritime Court against (i) C Shanghai Branch (“C Shanghai”), and (ii) C, under the Cargo Policy. On 7 November 2012, T (as Party A), C Shanghai (as Party B) and C (as Party C) entered into a settlement agreement (“the Settlement Agreement”) after mediation. The following provisions of the Settlement Agreement are relevant for the present purpose:-
Pausing here, it has not been suggested by any parties that there should be any distinction drawn between C and C Shanghai for the present purpose. C and C Shanghai shall hereinafter collectively be referred to as “C” or “A”, as appropriate. 7.Pursuant to the Settlement Agreement, A paid the sum of US$3,400,000 to T on 19 November 2012, following which T executed the (i) “收据及免除责任书 (Receipt and Release Form)” (the “Receipt/Release Form”), and (ii) “权益转让书 (Subrogation Form)” (the “Subrogation Form”) in accordance with Clause 3 of the Settlement Agreement. 8.The Receipt/Release Form, so far as material, states as follows:-
9.The Subrogation Form, so far as material, states as follows:-
10.On 24 December 2012, Smyth & Co in association with RPC (as it was then known) (“RPC”) purportedly on behalf of A and T appointed Mr James Wort as their arbitrator in an intended arbitration (“the Arbitration”) against V claiming for the loss of the Cargo. On or about 25 December 2012, RPC gave notice of the Arbitration to V. 11.Subsequently, V appointed Mr Andrew Sheppard as its arbitrator, and Mr Wort and Mr Sheppard appointed Capt Lee Fook Choon as the third arbitrator. The arbitral tribunal (“the Arbitral Tribunal”) was thereby constituted. 12.According to T, it was unaware of the commencement of the Arbitration in its name until around 8 May 2017 when it received a “without prejudice” letter from Clyde & Co (V’s lawyers) in which reference to the on-going Arbitration purportedly commenced on behalf of both T and A against V was mentioned. The events which happened in the Arbitration during the period of time between December 2012 and May 2017 are not relevant for the present purpose and will not be set out here. 13.On 18 August 2017, Reed Smith Richards Butler (“RSRB”) informed the Arbitral Tribunal of T’s position that A had no authority to commence the Arbitration using T’s name and that T was not a proper claimant in, or party to, the Arbitration. 14.On 14 September 2017, the Arbitral Tribunal gave a Decision holding, inter alia, that “A has every right in law to proceed with this Arbitration. In English law (and Hong Kong law), it is common for the subrogated insurers to name the assured in the action or reference. It is also the unanimous decision of the Tribunal that whether it is a case of assignment or subrogation, the assured T has an obligation to co-operate and assist the insurers in this recovery action”. By an (Interim) Award on Costs dated 14 September 2017, the Arbitral Tribunal ordered T to bear the costs of the tribunal, A and V in respect of its failed application to challenge the authority of A to use the name of T as a claimant in the Arbitration. 15.Upon RSRB’s request for clarification of its Decision and Interim Award, the Arbitral Tribunal, in a further email to the parties dated 1 October 2017, stated, or clarified, that it “obviously has jurisdiction over T in this Hong Kong Arbitration”. 16.On 12 October 2017, RPC purportedly on behalf of T and A served written Claim Submissions on V in the Arbitration alleging (inter alia) that the Vessel was not seaworthy. The claim was quantified at US$3,972,404.50. 17.On 7 December 2017, V served its Defence and Counterclaim Submissions in the Arbitration, raising a counterclaim for US$24,727,528.73 against T for the loss of the Vessel on the ground that the Cargo was of “inflammable, explosive or dangerous” nature (in that it liquefied on the voyage) causing the Vessel to lose stability and capsize. I am given to understand that the question of whether the Arbitration was commenced with T’s authority has, or may have, an implication on the validity of the counterclaim against T. This is not, however, an issue which I have to determine in this action. 18.In the meantime, on 12 October 2017, T commenced the present action against A (as 1st Respondent) and V (as 2nd Respondent) seeking, inter alia, a declaration that –
DISCUSSION 19.Article 16(3) of the Model Law, which is given effect in Hong Kong by Section 34 of the Arbitration Ordinance, Cap 609, states as follows:-
20.In deciding whether an arbitral tribunal has jurisdiction in respect of any particular reference under this article, the court determines the matter afresh and is not in any way bound by the tribunal’s decision (see S Co v B Co [2014] 6 HKC 421, at paragraph 35 per Mimmie Chan J). 21.An absence of authority to commence arbitral proceedings in the name of a party is a matter which goes to the jurisdiction of the tribunal, in so far as that party is concerned (see SEB Trygg Holding Aktiebolag v Manches [2005] 2 Lloyd’s Rep 129, at paragraphs 37 and 40 per Gloster J). 22.In order to determine whether the Arbitration was commenced with T’s authority, the following issues arise for determination:-
Issue (1): A had no authority, as subrogated insurer, to commence the Arbitration using T’s name 23.The starting point is the proper law of the Cargo Policy. By virtue of Clause 19 of Institute Cargo Clauses (A) 1/1/82 which has been incorporated into the policy by express reference, the proper law of the Cargo Policy is English law. In the absence of evidence to the contrary, English law is presumed be the same as Hong Kong law for the present purpose. 24.The subrogation of an insurer to the rights of the assured is governed by the proper law of the contract of insurance: see Dicey and Morris on The Conflict of Laws, 11th Edn (1987), Vol 2, p1396. Accordingly, the rights of A as subrogated insurer under the Cargo Policy are also governed by English/Hong Kong law. 25.Under English/Hong Kong law, the principle of subrogation is derived from the nature of an insurance contract as a contract of indemnity, and the insurer’s right of subrogation arises upon payment under the policy. In Edwards (John) & Co v Motor Union Insurance [1922] 2 KB 249 at 254-255, McCardie J stated the position as follows –
26.Notwithstanding the insurer’s right of subrogation, it is clear that the right of action for recovery of the loss remains vested in the assured. Thus, if the insured wishes to bring a claim for compensation or damages against a third party, it must do so in the name of the assured. This having been said, if the assured refuses to lend its name to the insurer to make the claim, the insurer can compel, in equity, the assured to allow his name to be used for legal proceedings against the third party. See
27.In the present case, upon the payment of US$3,400,000 to T on 19 November 2012, A became entitled to the right of subrogation in respect of T’s claim against V under the Bill of Lading. Under English/Hong Kong law, A as subrogated insurer had no right or authority to commence the Arbitration using the name of T. 28.In passing, I should mention that any right of subrogation that A had or might have upon payment of the settlement sum would have been overtaken by the assignment of T’s rights to it under the Subrogation Form (see Issue 3 below). Once the relevant rights have been assigned to A, they would become vested in A which could exercise them in its capacity as assignee. There would be no further rights vested in T to which A could subrogate. Issue (2): the proper law of the Subrogated Form is PRC law 29.Notwithstanding the opinions given by Mr Li Hai (T’s PRC law expert) and Mr Yang Wengui (V’s PRC law expert) on this issue, it is clear that the Hong Kong court applies its own conflict rules to determine the proper law of the Subrogation Form. Under Hong Kong law, the proper law of a contract is generally determined by any express or inferred choice of law, failing which the residual rule of the closest and most real connection applies (see Johnston, The Conflict of Laws in Hong Kong, 3rd Edn, paragraph 5.004). 30.In my view, it is clear that the proper law of the Subrogation Form is PRC law. I consider it to be the inferred choice of law of the parties in view of the fact that the Subrogation Form was issued and delivered to A pursuant to the Settlement Agreement which (i) prescribed the precise form and contents of the Subrogation Form, and (ii) contained an express choice of law clause providing for PRC law as the governing law of the Settlement Agreement. 31.If I am wrong on the issue of inferred choice of law, I consider that the residual rule of the closest and most real connection would point to the same result. In addition to the matters mentioned in paragraph 30 above, other factors which support the view that the proper law of the Subrogation Form should be PRC law include:-
32.I accept that the Subrogation Form has some connection with English law given that it was issued against the backdrop of a claim under an insurance policy governed by English law. However, this factor is not, in my view, sufficient to override the other considerations mentioned above which point clearly to PRC law as being the proper law of the Subrogation Form. Issue (3): the Subrogation Form effects an assignment of T’s rights and remedies against V to A 33.Given PRC law as the proper law of the Subrogation Form, the interpretative rules of PRC law are applicable for the purpose of construction of the Subrogation Form. 34.Article 125 of the Contract Law of the People’s Republic of China states as follows –
35.It can be seen that the interpretative rules under PRC law are not significantly different from those under Hong Kong law, save the “principle of good faith” which I shall consider under Issue (4) below. 36.The Subrogation Form is a bilingual document in Chinese and English. There are some discrepancies or inconsistencies between the two versions. Clause 8 of the Settlement Agreement provides that any inconsistency between the Chinese and English versions should be resolved in favour of the Chinese version. I consider this principle to be equally applicable to the Subrogation Form in view of the fact, as mentioned in paragraph 30 above, that it was issued and delivered to A pursuant to the Settlement Agreement which prescribed its precise form and contents. 37.The document is entitled “权益转让书” in Chinese and “Subrogation Form” in English. The ordinary meaning of the Chinese words “权益转让” is an assignment of rights. 38.In the body of the Subrogation Form, it is provided that “我们同意将有关保险标的的一切权益和救济 … 转让给上述保险人” in Chinese, and “we agree that the underwriters are SUBROGATED,assigned, and transferred with all our rights, interests and remedies in respect of the subject matter insured” in English. Again, the Chinese text suggests an assignment, instead of subrogation, of rights. 39.In this regard, it may be noted that under PRC law, there is a term in Chinese for the expression or concept of “subrogation” in English, namely “代位” or “代位行使” (see Article 60 of the Insurance Law of the People’s Republic of China, and Articles 93, 94 and 95 of the Special Maritime Procedure Law of the People’s Republic of China). Although the term “转移” in Chinese is used for “subrogation” in English in Article 252 of the Maritime Code of the People’s Republic of China, I accept the explanation given by Mr Li that under PRC law, “转移” means “transfer” and covers both the concepts of “转让” (assignment) and “代位” (subrogation): see paragraph 32 of Mr Li’s 1st Affirmation dated 21 March 2018. 40.The parties have, in the course of the hearing, produced various “Receipt and Subrogation Forms” used by other insurance companies in China and they were commented upon by the parties’ respective PRC law experts. I do not propose to examine those forms in detail in this judgment because I do not consider that they add much to the debate. I also consider that one should focus on the actual form and contents of the document agreed to and signed by the parties for the purpose of determining their true intention and agreement. 41.On behalf of A, Mr Chain argues, in reliance on the opinion of Mr Chen Weidong, that the Subrogation Form is a “Dual-Purpose” document which (i) recognizes and evidences subrogation, and (ii) assigns the balance of the right to sue beyond the amount of US$3,400,000 paid by A. I do not accept that the Subrogation Form effects an assignment of only the balance of the right to sue beyond the amount of US$3,400,000 paid by A, because that would be inconsistent with the express wording of the Subrogation Form, which states that all T’s rights and remedies in respect of the Cargo against third parties are transferred to A. In this regard, I recognize that under PRC law, the insurer’s right of subrogation is regarded, or operates, as a statutory assignment whereby the insurer can exercise the right to sue in its own name. However, A’s right of subrogation in the present case is governed by English law and not PRC law. A did not obtain any assignment of T’s rights or remedies by way of subrogation under the applicable law of subrogation. There was thus no good reason for A to obtain an assignment of only a portion of T’s rights. I do not consider that it is right to construe or interpret the Subrogation Form on the false premise that A had obtained an assignment of T’s right of action by subrogation to the extent of the settlement amount of US$3,400,000 paid by A to T. In any event, I am of the view that the express wording of the Subrogation Form is sufficiently clear to negate the contention that the parties intend to effect an assignment of only the balance of the right to sue beyond the amount of US$3,400,000 paid by A. 42.V’s PRC law expert, Mr Yang Wengui, is of the view that the Subrogation Form merely provides for A to be subrogated to the rights of T without any assignment of rights. For essentially the same reasons mentioned above, I do not accept this view. There is a further point raised by Mr Yang that I should briefly deal with here. Mr Yang argues that if the Subrogation Form was intended to effect an assignment of T’s right of action against third parties to A, it would have been completely unnecessary and redundant for T to agree to allow proceedings to be brought in its name (if required), as provided for in the Subrogation Form. It seems clear, however, that the relevant provision was included in the Subrogation Form because it was envisaged that recovery action would, or might, be taken in some foreign jurisdictions where the applicable law required the proceedings to be commenced in the name of T. I shall come back to this matter when I consider the meaning of the words “if required” in the Subrogation Form later in this judgment. 43.In all, I prefer the opinion of Mr Li to those of Mr Chen or Mr Yang that the Subrogation Form effects an assignment of the entirety of T’s rights and remedies to recover compensation or damages for the loss of the Cargo from third parties (including, in particular, V) to A. 44.Article 80 of the Contract Law of the People’s Republic of China states as follows:-
45.It is not in dispute that no notice of assignment of T’s rights and remedies under the Subrogation Form was given to V prior to the commencement of the Arbitration. It would appear, therefore, that under PRC law, the assignment is not binding on V. Nevertheless, none of the parties has suggested that the absence of notice means that the assignment is void:-
I shall come back to the question of the legal effect of the Subrogation Form under English/Hong Kong law when I consider Issue (5) later in this judgment. Issue (4): the meaning and effect of the words “if required” in the Subrogation Form 46.The Subrogation Form states (inter alia) that -
47.On their own, there are a number of possible meanings which may be given to the words “如有需要 (if required)” in the Assistance Clause in the Subrogation Form. As mentioned by Mr Sussex in his Skeleton Submissions, they may mean “required by law”, or “needed” or “necessary” as a matter of prudence in the conduct of litigation, or “need” or “wish to have” (as in “If you’re going out, you’re likely to require an umbrella”), or “rendered necessary” (as in “It would have required much research for the solicitors even to form a tentative view of whether T’s name was required as a matter of strict law to be added as co-claimant in the arbitration”). 48.In order to reach a proper conclusion on this issue, it is necessary to see how the Assistance Clause came to be agreed and included in the Subrogation Form. 49.In an email dated 31 October 2012 from Wintell & Co (lawyers for T, “Wintell”) to Wang Jing & Co (lawyers for A, “Wong Jing”), Wintell proposed to Wang Jing to delete the provision in the Subrogation Form which permitted or allowed proceedings to be brought in the name of T for recovery against third parties, on the ground that T would assign its rights and remedies in relation to the subject of the insurance to A after payment of the settlement sum and A could then use its own name to pursue claims against third parties. Since the parties have not been able to agree on the English translation of this email (and other emails mentioned below), I shall set out the original Chinese words here (the views that I have reached are based on my reading and understanding of the Chinese text):-
50.In their reply email dated 2 November 2012, Wong Jing stated that they were not prepared to accept the proposed amendment because in some jurisdictions, recovery claims against the vessel interests could only be made in the name of the cargo receiver under the bill of lading, and the law did not permit C to use its own name to pursue such recovery claims because it was not a party to the bill of lading:-
51.Wintell replied on 6 November 2012 stating that they could accept the proposed provision in the Subrogation Form provided that Wong Jing (on behalf of C) warranted that C would use the name of T to pursue recovery claims only if (or in the situation where) the applicable law required the recovery proceedings against third parties to be brought in the name of the cargo receiver named in the bill of lading; otherwise the proceedings would be brought in the insurer’s own name:-
52.In their reply email dated 7 November 2012, Wing Jing gave the warranty sought by T:-
53.Under English law, evidence of pre-contractual negotiation is generally inadmissible as an aid to the construction of a contract. However, the Subrogation Form is governed by PRC law. It is common ground amongst the PRC law experts that evidence of pre-contractual negotiation is admissible for the purpose of assisting in the interpretation of a written contract under the principle of “good faith” referred to in Article 125 of the Contract Law of the People’s Republic of China. In any event, it is clear that A had expressly agreed that it would only use T’s name to pursue recovery proceedings against third parties if it is a requirement of the applicable law that the proceedings must be brought in the name of T. Such agreement is, I consider, binding on A on the basis of a collateral warranty, or estoppel, or upon the true construction of the Subrogation Form. It does not matter, in my view, which legal route is used to arrive at this result. Issue (5): A had authority to commence the Arbitration using T’s name because that was “required” for pursing the recovery claim against V 54.Although no notice of the assignment was given to V prior to the commencement of the Arbitration, for the reason mentioned in paragraph 45 above, I shall proceed on the basis that the Subrogation Form takes effect as an equitable assignment of T’s right of action against V to A. The question is whether A, as equitable assignee, is required by English law/Hong Kong law, being the applicable law for the present purpose, to join T as a party in order to pursue the recovery claim against V in the present Arbitration. 55.I have been referred to a number of authorities bearing on the question of whether an equitable assignee may sue the obligor without joining the assignor (or obligee) in the action. I do not propose to review those authorities in detail here, but will set out what I believe to be the principles which can be derived from them.
See The Aiolos [1983] 2 Lloyd’s Rep 15, at 32-34 per Oliver LJ; Sim Swee Joo Shipping Sdn Bhd v Shirlstar Container Transport Ltd [1994] CLC 188 at 190 per Mance J (as he then was); Allson Classic Hotel (HK) Ltd v Harvest Star International Ltd [1996] 2 HKLR 330, at 336 per Mortimer JA; Robert v Gill & Co [2011] 1 AC 240, at paragraphs 63 to 68 per Lord Collins of Mapesbury JSC; and Kapoor v National Westminster Bank plc [2012] 1 All ER 1201, at paragraphs 30-40 per Etherton LJ. 56.I should mention that there is some support for the view that the requirement to join the assignor in an action by the equitable assignee against the obligor should be regarded as a substantive, and not merely procedural, requirement: see Meagher, Gummow and Lehane on Equity: Doctrines and Remedies, 4th Edn (2002), p286 at 6-520, referred to by Etherton LJ in Kapoor, ante, at paragraph 38. However, the balance of the authorities suggests that it should be treated as a procedural requirement. In Secretary for Justice and Global Merchant Funding Ltd (2016) 19 HKCFAR 192, at paragraph 40, Ribeiro PJ (giving the reasons for the judgment of the Court of Final Appeal) quoted the following passage in the judgment of Windeyer J in Norman v Federal Commissioner of Taxation (1963) 109 CLR 9 at 29:-
57.Since the issue of whether the requirement to join the assignor in an action brought by the equitable assignee was a procedural or substantive requirement was not before the Court of Final Appeal in Secretary for Justice and Global Merchant Funding Ltd, it would probably be reading too much into that judgment to assume that the Court of Final Appeal had decided that the requirement was a substantive one. Nevertheless, that judgment confirms the general understanding that the assignor is a necessary party to the action (save in exceptional circumstances). 58.Applying the principles mentioned in paragraph 55 above to the present case, I consider the joinder of T as a party to the arbitral proceedings against V can fairly be said to be “required” under English/Hong Kong law. The fact that the requirement is regarded as a procedural, as opposed to a substantive, one does not make it any less a requirement of the applicable law for T to be made a party to in the Arbitration. While is it true that the court (or arbitral tribunal) may, in an exceptional case, dispense with the requirement, that is not something which A can insist upon as a matter of legal right. 59.There are two other matters raised in the course of the hearing which I should briefly deal with here.
60.In all, I conclude that the Arbitration was commenced in the name of T with its authority, and Arbitral Tribunal has jurisdiction over T. This conclusion seems to me to accord with the purpose of the Assistance Clause, which is to facilitate, instead of frustrate, recovery actions taken by A against third parties who might have been responsible for the loss of the Cargo. DISPOSITION 61.For the forgoing reasons, I dismiss the Originating Summons dated 12 October 2017. I also make an order that T shall pay A and V’s respective costs of this action, to be taxed if not agreed. 62.Lastly, it remains for me to thank counsel for the assistance that they have rendered to the court.
Mr Clifford Smith, SC and Mr Jason Yu, instructed by Reed Smith Richards Butler, for the Applicant Mr Christopher Chain, instructed by Reynolds Porter Chamberlain, for the 1st Respondent Mr Charles Sussex, SC, instructed by Clyde & Co, for the 2nd Respondent [1] The parties have been anonymized pursuant to the court’s direction given on 31 July 2018. | ||||||||||||||||||||||||
Cases cited in this judgment