The Oriental Fire & General Insurance Co Ltd v. Cheuk Ma Yee

CACV000075/1980

Insurance - Third Parties (Rights Against Insurers) Ordinance - claim by third party against insurer - defence that insured in breach of conditions of policy - sufficient evidence of failure to give written notice of accident - allegation of waiver - insurer defended claim against insured in name of insured, as permitted by policy - no waiver.

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Coram: Sir Alan Huggins, V.-P., McMullin, V.-P. & O'Connor, J.

Date of Judgment: 19 December 1980

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JUDGMENT

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McMullin, V.-P.:

1. O'Connor, J. has authorised me to say that he agrees with this judgment.

2. The respondent is the administrator of the estate of Cheuk Kan Yan who was killed in a motor accident on the 7th of December 1973. The deceased was a passenger in a private motor car owned and driven by one Lau Koon Ki on that occasion. Judgment on behalf of the deceased's estate was recovered against Lau Koon Ki on the 15th December 1977 the order being for damages in the sum of $79,300 together with costs which, upon subsequent taxation, amounted to $16,258.80. Lau Koon Ki was unable to satisfy the judgment and was adjudicated bankrupt on the 24th of May 1979.

3. The present action was brought by the administrator of the deceased's estate against the appellant company, The Oriental Fire and General Insurance Co. Ltd., pursuant to the provisions of section 2 of the Third Parties (Rights Against Insurers) Ordinance, Cap. 273. It is claimed on behalf of the deceased that he is entitled to enforce the indemnity granted to Lau Koon Ki under a valid policy of insurance held by the latter from the appellant company at the time of the accident.

4. The appellant company resisted the claim on the basis that the insured had been in breach of certain conditions in the policy the breach of which entitled the appellant company to repudiate liability thereunder. It is common case that the plaintiff in these actions was entitled to assert only such rights as may have been available to the insured under the terms of the policy.

5. In his reply to the company's defence in the present action the plaintiff puts the company to the proof of these breaches and in addition, alternatively, pleads that there has been waiver of these alleged breaches. The same conduct which is alleged to support such waiver is also pleaded as constituting an estoppel by conduct.

6. It may be said at the outset that the appellant company had good reason to complain of the behaviour of its insured. From the date of the accident onward he appears to have been almost wholly uncooperative. Whether through ignorance or crass indifference he made little attempt to discharge a number of the obligations imposed upon him under a contract with the company. The relevant clauses in the contract are as follows:

7. It should be added for completeness that the policy was one which covered third party risks in respect of passengers in a motor car although at the date when the policy was taken out it was not obligatory to cover such risks.

8. The accident occurred on the 7th of December 1973. The company maintains that the insured did not notify it in writing, or indeed in any other way, of the occurrence of the accident immediately thereafter within the requirement of Condition 1.

9. On the 2nd of July 1974 Lau Koon Ki (the insured) pleaded guilty at Fanling Magistracy to a charge of driving the vehicle when its steering gear was not maintained in good and efficient order. This plea is relied upon in proof of the breach of Condition 5. It is also relied upon as a breach of Condition 2. He also pleaded guilty to a charge of dangerous driving causing death. That charge postulates a notice of intention to prosecute having been given within fourteen days of the accident.

10. The company received a notice from the Director of Legal Aid dated 2nd of July 1974 informing it that Lau Koon Ki had applied for legal aid. The company then wrote to the officer-in-charge of the Traffic Accident Enquiry Office, New Territories asking for a copy of the driver's statement. The third paragraph in that letter reads as follows:

"          We were informed that a male was seriously injured in the above accident, but unfortunately we do not have the details of the accident because we could neither get in touch with our Insured, nor the driver."

Mr. C.K. Chan, who gave evidence for the company was unable to say where this information had come from and the learned judge relied on this in finding that the company had not proved a failure to inform the company of the occurrence of the accident. However that may be, this is also a fair indication of the difficulties the company was experiencing in relation to the insured.

11. This letter did not receive a reply until the 2nd of September 1974. In this reply the officer of the Accident Enquiry Section gave a brief and not very helpful outline of the occurrence but said that he could not supply the driver's statement without first obtaining his consent.

12. On the 22nd February 1975 the insured presented himself at the company's offices and filled in a "Notice of Accident under Motor Policy" form. This bears a statement written in Chinese under the heading "Explanation as to how the accident occurred" but no English translation of that statement was before us nor was such translation apparently before the court of trial in the present action. Nothing however appears to turn upon that and no issue has been made of it. It has not been argued that this belated notice was a proper fulfilment of the requirement to inform the company of the occurrence of the accident under Condition 1.

13. It would seem that Lau Koon Ki did not take the opportunity of the 22nd of February to inform the company that he had already pleaded guilty to charges arising from the accident. This information was first conveyed to the company by a letter from the Accident Enquiry Section dated 26th February 1975.

14. On the 15th March 1975 the company obtained a copy of the motor vehicle inspector's report which contains the details of the deficiency discovered in the vehicle immediately upon its inspection after the accident. These are described in the particulars set forth in paragraph 6 of the defence and are as follows:

15. In the event the learned trial judge found that the company had failed upon the balance of probabilities to prove breach of any of the conditions save the third particularised in relation to Condition 5 viz. the badly worn tyres. Even this breach however he found to be of no effect on the company's liability to its insured for reasons which will appear. It is a minor oddity of the appeal that it is now conceded on behalf of the defendant company that this alleged breach is one which was not supported by admissible evidence. The reason for this is that although the report by the inspector of vehicles was introduced in evidence at the conclusion of the trial and marked as an exhibit it was admitted solely for the purpose of substantiating the testimony of the third witness for the defendant, Chan Chai Kwong, the managing director of the Kowloon Branch of the defendant company, who stated that he had received a copy of that report and went on to describe the action that he had taken as a result of reading its contents.

16. The judge's rejection of the evidence relied upon by the defendant company to show the other breaches is of course disputed upon the appeal. It is said that they were adequately proved and that they afford good ground for the defendant company in repudiating liability under this policy.

17. But the point which weighed most heavily with the learned judge, and the point which has raised the most controversial issue on this appeal, arises from the plea of waiver which the trial judge resolved in favour of the plaintiff (respondent). It is plain that even if he had found all or any of the other breaches proved he would nevertheless have held that the conduct of the appellant company could only be interpreted as an unmistakable waiver of all such breaches.

18. The facts upon which the judge relied in coming to his conclusion are as follows: After its insured's visit to the insurance company's offices on the 22nd of February 1975 the company appears to have lost contact with him despite requests that he should return and give them further information. The insured in fact disappears from the picture altogether after that date.

19. On the 16th of June 1976 the solicitors acting for the deceased's estate sent a copy of the writ in the negligence action against Lau Koon Ki (the insured) to the appellant company together with the usual notice to insurers. On the 21st of June the solicitors of the appellant company wrote to the estate's solicitors informing them of their interest in the matter and asking that further correspondence be directed to them. On the same date letters were sent to the first clerk at Fanling Magistracy and to the officer-in-charge of the Accident Enquiry Section, New Territories the purpose of which was to procure or preserve evidence which might be useful to the company at the trial of the action.

20. It would appear that those representing the plaintiff in the action were having difficulties comparable with those experienced by the insurance company in making contact with the insured for on the 30th of June a further letter was sent to the solicitors for the appellant company stating that the plaintiff's solicitors were endeavouring to effect service of the writ of summons and asking whether the company's solicitors would accept such service. There does not seem to have been any reply to this letter.

21. Communications were received by the company's solicitors on the 7th and 8th of July from the Police and from the clerk of Fanling Magistracy concerning the details of the criminal case heard in Fanling Magistracy in which the insured had pleaded guilty to charges of driving with defective steering and dangerous driving causing death.

22. We thus come to the correspondence which is of the greatest significance in relation to the issue of waiver. On the 23rd of July 1976 the solicitors for the appellant company addressed the following letter to the insured, Mr. Lau Koon Ki:

Yours faithfully,"

In October, the following month, the solicitors for the plaintiff once more inquired whether the solicitors on the other side had instructions to accept service on behalf of the insured. Neither party to the action in fact ever succeeded in locating the insured and on the 28th of December the solicitors for the appellant company were informed by the other solicitors that an order had been obtained for substituted service on the insured. The appellant company was warned that unless a defence had been entered within 14 days following that letter on behalf of the defendant there would be an application for interlocutory judgment against him.

23. However, prior to the date of that letter (28th of December) two other letters were written by the solicitors for the insurers which are of special interest in relation to the question of waiver.

24. On the 23rd of December 1976 the following letter was sent to Mr. Lau Koon Ki (the insured) and it was directed to the same address to which correspondence had been directed throughout:

Defective steering: excessive steering wheel free play (about SIX inches) - drag rod ends worn.

Your faithfully,"

25. On the same day the appellant's solicitors wrote to the plaintiff's (respondent's) solicitors in the following terms:

Yours faithfully,"

26. Pursuant to its rights under Condition 2 of the policy the appellant's solicitors prepared a defence in the insured's name and a copy of this was sent to Lau Koon Ki at the same address with a covering letter dated 14th of March 1977. In that letter he was invited to consider the terms of the defence and the letter concluded with the following words:

"          If we do not receive any comments on the said Defence from you within 3 DAYS we will file the said Defence accordingly and conduct the proceedings in whatever manner we consider to be best without further reference to you."

Nothing further was heard from the insured and that defence was filed on the 22nd of March 1977 and served upon the same date.

27. On the 24th of May 1977 the solicitors for the plaintiff (respondent) by letter of that date referred to the letter of the 23rd of December 1976 and asked why the insurers considered that they were not liable for their client's claim. The reply to this letter, which was not given until after the trial of the negligence action, is dated 21st December 1977. The material part is as follows:

"          Owing to the breach of policy conditions on the part of the driver/owner of vehicle AW6151, our clients do not consider themselves liable to satisfy your client's claim in the captioned action."

The defence which had been filed in the name of the defendant in the former action put the plaintiff to the proof of negligence, pleaded counter-negligence and put the plaintiff to the proof of damages. On the 25th of November, three weeks before the trial, the company's solicitors applied to have themselves removed from the record as the solicitors for the defendant. This was granted on the 30th of November. The action came on for hearing and was tried before Mr. Justice Li on the 14th and 15th of December and judgment was given in favour of the plaintiff.

28. Notwithstanding the warning in the letter to Lau Koon Ki of the 23rd of July and the disclaimer of liability contained in the letter of the 23rd of December the learned judge found that there had been waiver on the part of the insurance company in respect of the breaches of which they had complained and on which they sought to rely. He said:

"On the facts before me, I regard the defendant company's solicitors entering an Appearance on Lau Koon Ki's behalf on the 30th of December 1976 as an unequivocal act of waiver of any breach of the Conditions of the policy which he might have committed. The only conceivable basis on which the defendant company's solicitors could have taken over his defence in that action was that the policy was still on foot, such power to take over the defence stemming from Condition 2 of the policy itself."

He regarded the letters of the 23rd of December as "a transparent attempt to secure the best of all worlds for the defendant company: to repudiate while remaining immune from the consequences of repudiation." He thought there might even have been waiver of the one particular breach which he had found proved viz. that relating to the bald tyres (which is no longer relied upon by the appellant company as has been stated earlier) and he concluded:

"All breaches of the Conditions in the policy were waived on that day at the latest." (i.e. the date of entry of appearance).

29. The learned judge went on to find that even if he should be wrong on the question of waiver he would nevertheless have held that

"the defendant company was estopped as against the plaintiff from denying that Lau Koon Ki was entitled to rely on the policy. By its conduct, the defendant company, through its solicitors, held out to the plaintiff that Lau Koon Ki was covered by an enforceable policy. How else could the plaintiff reasonably be expected to interpret the defendant company's assertion in the letter of 23rd December 1976 (Exh. A22) that it would take over the defence in Lau Koon Ki's name? This was surely a representation that the policy was valid, and the plaintiff was left with no choice other than to act on that representation."

30. Mr. Ching for the appellant company points out that it had never been the company's case that it was repudiating its policy. It was indeed the company's case that the policy remained a valid policy and it was in accordance with the terms of the policy that it proposed to repudiate liability in respect of this particular claim because of the breaches of which it complained. This was not, counsel said, a case of approbating and reprobating in the sense that it was seeking both to affirm and at the same time disaffirm its whole contract with its insured. On the contrary it was relying on its very rights under the policy to escape liability. That is clearly so. Mr. Ching relies on the succinct statement of Lord Denning M.R. in Barrett Brothers (Taxis) Ltd. v. Davies⁽¹⁾. The learned Master of the Rolls said:

"The principle of waiver is simply this: If one party by his conduct leads another to believe that the strict rights arising under the contract will not be insisted upon, intending that the other should act on that belief, and he does act on it, then the first party will not afterwards be allowed to insist on the strict rights when it would be inequitable for him so to do: see Plasticomoda Societe Per Azioni v. Davidsons (Manchester) Ltd."

What the judge's finding in the present case would appear to mount to is the proposition that if an insurance company elects to take over the defence in the name of the insured it is necessarily taking over that defence on his behalf and is thereby necessarily making a representation to him, a representation indefeasible by any manner of express disclaimer, that it will stand over its indemnity to him whatever the result of the action. In Soole v. Royal Insurance Company Ltd.⁽²⁾ there appears the following passage:

"... the assumption of control of the proceedings is equivocal. It does not necessarily imply a representation by the insurers that they regard the claim which is the subject matter of those proceedings as one which must give rise to a liability to indemnify the insured. It indicates no more than it appears that it may give rise to such liability. Hence the insurers would not be estopped from asserting that the particular claim was, in the event, never within the ambit of the policy. The defendant company's conduct would not, in those circumstances, be unequivocal, definite, clear and cogent so as to indicate that they regarded themselves as inevitably liable under the policy of insurance."

and at page 342 there is this passage

"In the present case I do not see that the insurers in January, 1966, were confronted with two alternative and mutually exclusive courses of action, between which they had, in fairness to the insured, to make an irrevocable choice. What happened then was, it seems to me, of a provisional or tentative character. One cannot impute to the insurers more than that they were saying: 'it may well be that this claim is one which will give rise to a right of indemnity under the policy, and, that being so, it is right that our mutual interests should be protected as far as possible by resisting the claim in the best way. We are prepared, in accordance with the provisions of the policy, to take the responsibility of making that resistance to the claim.'"

31. If, with notice of a breach of condition, an insurer undertakes or continues the defence of a claim against the insured, they may, depending on the circumstances, find that they are in difficulties if they later seek to dispute their liability to the insured. They may find themselves held to have waived the breach or be estopped from relying on it. Such was the case of CHAN Lam-chun v. National Insurance Co. Ltd.⁽³⁾. In the present case, the judge said, that the company had had two and a half years in which to make up its mind and he added:

"If it wanted to repudiate, it had to wash its hands of LAU Koon-ki. Instead of that, it chose to take up his defence by entering an appearance for him, thus bringing about waiver."

It is hard to see how that can be right upon general principle. An insurance company has a legitimate interest in seeing that the claim against its insured does not go by default. It may of course be at risk in defending the issue of negligence where, in circumstances such as the present, it is depending upon scanty or uncertain information. But its right to put the plaintiff's case to the test on the question of damages is not embarrassed by any such considerations.

32. Mr. Bokhary points up his argument on waiver by drawing attention to the fact that there were other courses open to the company which it could, in his submission, have taken which would have protected its interests while leaving it free from any imputation of an intention to waive its rights against the insured under the policy. Thus it might simply have folded its hands and taken no steps in the action and then, when judgment had gone by default against the defendant, it could have resisted any claim to enforce the indemnity by the plaintiff.

33. Alternatively, he submits, it could have applied to be joined as a party under Order 15 r. 6 by analogy with what was permitted in Gurtner v. Circuit⁽⁴⁾. As to this latter possibility I am by no means sure that that case is a very helpful authority since there the Motor Insurers' Bureau was permitted to defend a negligence action in the name of the insured (who could not be traced) only upon its undertaking to satisfy any award in damages which might follow upon the failure of the defence or defences it might see fit to put forward. Assuming that the company in the present case could have been joined as a defendant in its own name under r. 6(2)(b) of Order 15 would that have placed it in a position to controvert the plaintiff's claim on negligence and damges? I do not think that it would in the absence of any claim directly impleading it in those issues. But if the answer is yes then the issue of waiver might well be raised once more and the argument is thus no further advanced towards the answer to the question: may an insurance company exert a contractual right to raise issues by way of defence in the name of its insured without waiving its right to repudiate under the policy?

34. It is acknowledged, I think, by the respondent in this case that an essential aspect of the doctrine of waiver as of that of estoppel is the occurrence of some detriment to the party whose position has been affected by the conduct which is said to amount to waiver or to raise an estoppel. As regards to the plea of waiver it is said that this detriment to the insured consists in his being made liable to costs by defending in his name an action which he possibly was content to let go by default.

35. As regards the estoppel the detriment is said to consist in forcing the plaintiff to a contest at law in place of summary judgment which the plaintiff could have had at very much less trouble and expense while still leaving it open to the insurance company to attempt to repudiate liability.

36. What is fundamental to the judge's finding in relation to both pleas is this contention that the insurance company is not entitled to defend the action in the plaintiff's name without thereby abandoning its right to repudiate liability in respect of its indemnity to the insured. This is in effect an assertion that by taking over the defence the insurer must be held to have elected to waive the breach. However I cannot see that taking over the defence is inconsistent with asserting that the insurer is in any event not liable. The insurer is surely entitled to say "We affirm the policy but repudiate liability for this particular claim. However in the event that we may be held liable, we take over the defence and will conduct it with due regard to the insured's interest". The conclusion of the learned judge in this case is of the widest import and we must look carefully at the ground on which it is supported.

37. In forming this opinion it is clear that the learned trial judge was greatly influenced by the decision of this court in CHAN Lam-chun v. National Insurance Co. Ltd. . The circumstances there were somewhat similar to those in the present case. The owner and the driver of the motor vehicle were sued in damages arising from injuries suffered by a passenger in a motor vehicle. Clauses 2 and 9 of the policy were for all practical purposes in terms identical with Clauses 2 and 9 of the present policy. The owner and the driver were equally uncommunicative as the owner/driver has been in the present case. The company took over the defence of the proceedings under a clause very similar to that under which the company in the present case has purported to act. Defence was filed in April 1972 and it was amended in November of that year, an order for costs being made against the defendants. It was set down for trial in February of 1973 but two days before the trial date counsel for the defendant applied in Chambers on behalf of himself and his solicitors to withdraw for want of instructions. On the date of the hearing counsel was permitted to withdraw after an unsuccessful application for adjournment and the case proceeded. There was no cross-examination of the witnesses called by the plaintiff. After a number of the witnesses had been taken the driver suddenly turned up and was informed that his counsel had withdrawn and at this stage it would appear that the solicitors were also given leave to withdraw. The driver applied for an adjournment which was refused. The driver gave evidence on his own behalf and judgment was given in favour of the plaintiff.

38. Subsequently the owner and the driver were declared bankrupt and an action was brought on behalf of the injured person against the insurance company. The trial judge found that the defendants in the original action had been in breach of the conditions of Clause 2 in the contract. He found that the insurance company was entitled to rely upon this breach in repudiating liability under the contract and he dismissed the claim.

39. The case went upon appeal and by majority this decision was reversed. Briggs, C.J. took the view that the company had not proved the alleged breach but he went on to consider the point of waiver and he concluded as follows:

"When the defendants had asserted their rights under the policy to conduct proceedings on the owner and driver's behalf and asserted them as fully as they did in this case, it is clear to me that they have waived any supposed breach of conditions which the owner and driver may have committed. And I do not think it was a proper exercise of the discretion of the judge to allow the solicitors for the defendants to withdraw at such a very late stage for the reason given."

40. By contrast, Leonard, J. (as he then was) found that the company had proved breaches of the terms of the policy but he too was satisfied that waiver had taken place. He held that the behaviour of the solicitors for the insurance company had been throughout such as to indicate that they were representing the interests of the company and not that of their nominal clients the defendants in the action. He said (at page 433):

"I have no doubt but that waiver did take place. In my view it took place as soon as an appearance was entered for by its entry the owner and the driver were placed in a position where they could become liable for costs in the future - a liability which eventually crystallised."

41. If these judgments are to be construed as meaning that an insurance company, acting under clauses in a policy of the kind with which these cases have been concerned, can never assume responsibility for the defence without ipso facto affirming the insured's right to his indemnity under the policy then, whatever the members of the court as presently constituted might think of the principle so enunciated, I think that we must hold ourselves bound by that authority. (See A.G. of St. Christopher v. Reynolds⁽⁵⁾.) For my own part I very much doubt whether any such wholly general principle was intended by the learned judges who formed the majority in CHAN Lam-chun. I take the view that what was said should be and was intended to be restricted to the precise circumstances with which the court in that case was confronted. What is perceptible in each judgment is a strong condemnation of the conduct of the affair by the solicitors whose performance of their duties in relation to the insured is impugned as falling below the standard of duty and care exercisable by any solicitor on behalf of his client. Certainly there was evidence to suggest that the driver at least was led to believe that his interests were being served by the insurers as appears from his belated appearance in court and his vain plea that their lawyers continue to represent him. In the present case, by contrast, the insured is apprised, long before action, that the action will be defended both in his interests and in those of the company should he not do so himself and that, in any event, the company holds itself free of liability to him under the policy.

42. In his dissenting judgment in that case Huggins, J.A. recites the very passage from the judgment of Lord Denning in Barrett Brothers (Taxis) Ltd. v. Davies to which I have referred earlier in this judgment. I very much doubt whether either of the other judges would have been concerned to dispute in any way the propriety and authority of that quotation. Clause 2 of the policy entitles the company to take over the proceedings in the name of the insured "for its own benefit". In any case covered by such a clause where it appears that the solicitors acting both for the company and for the insured have done as much as they might reasonably be expected to do in order to apprise the insured of their intentions I would not think it reasonable to hold that they must abandon the attempt to defend the case even as to damages simply because the insured has, through crass indifference or obdurate silence, placed them in a position of considerable difficulty.

43. For waiver to operate there must be a representation, whether by conduct or otherwise, sufficient to induce the other party to the contract to act to his own detriment. In the present case it has not been suggested that the letters directed to the insured in July and December of 1976 were not received by him. I do not see why I should assume that they were not. Those letters contain a fair and clear warning of what will happen if the insured does not co-operate. Confronted with that the insured could not conceivably any longer imagine that if the defence were permitted to proceed under the tutelage of his insurance company he would nevertheless be indemnified should the action against him succeed. Where silence and inactivity are the only response to such a warning it is difficult to see how it can be said that the insured was led in any way to damage his own interests through a belief that they were in good hands.

44. I feel sure that the solicitors for the appellant company were perfectly prepared to proceed with the defence of the action in accordance with the pleadings and were prepared to mount as spirited an attack as they could muster against the plaintiff's claim both in their own interest and in that of the insured. Like the trial judge I am inclined to regard their action in applying to have themselves discharged as solicitors for the insured three weeks before the date of trial as a precautionary and perhaps somewhat dismayed reaction to the decision in CHAN Lam-chun.

45. On the general principle which has been argued before us I am prepared, therefore, to say that there is as yet no authoritative pronouncement of this court disabling an insurance company pursuant to rights under such contractual clauses as we have here been concerned with from both defending an action for negligence in the name of the insured and at the same time insisting upon breaches of that contract to escape liability to the insured.

46. Cadeddu v. Mt. Royal Assurance Co.⁽⁶⁾ on which Mr. Bokhary relies is to my mind distinguishable upon its facts. The representative of the insurance company in that case merely expressed himself to be doubtful whether the company (which was defending the action pursuant to its rights under the policy) would hold itself bound to the insured should the defence fail, the insured having made a declaration admitting negligence in breach of a condition in the policy. The extent of the difference between that case and the present case can be well collected from the short judgment of Galliher, J.A. from which I quote the following (at p. 868):

47. There are features in the company's behaviour in the present case which might, perhaps, have offered other and surer ground for the plea of waiver. It would, for example, be possible to view the sole complaint in the letter of the 23rd of December (failure to maintain the car properly) as an emphatic election to adhere to that and to abandon the earlier complaints but that is not how the defendant's case has been put. The plea of waiver is restricted to the one circumstance: the taking over of the defence by the appellant company.

48. The same ground is urged in support of the alleged estoppel and it must have the same answer. From the outset of the contact between the solicitors of the parties to the present claim it was made plain that the company was denying liability under the policy.

49. Thus far, it appears to me, the argument for the appellant company succeeds. But I come now to a final question. Assuming that the company in the present case is not fixed with the effects of waiver merely through the entry of appearance and filing of defence what of the alleged breaches?

50. It has been said on more than one occasion that an insurance company is perfectly entitled to insist upon breaches of condition however technical they may be. Clause 9 of the present policy provides that the observance of these various requirements are to be conditions precedent to the insurers' liability to pay. In Barrett Brothers Salmon, L.J., while agreeing that waiver was the answer to the insurance company's defence, was in no doubt that the mere failure to forward the summons in accordance with Condition 1 of the policy imposed an absolute obligation which, but for waiver, would have entitled the company to escape liability.

51. The learned judge in this case, however, found as a fact that one only of the alleged breaches had been proved. This concerned the condition of the tyres and it is conceded here that the evidence to support that (as well as the other matters touching on the maintenance of the vehicle) is inadequate to prove the breach of Condition 5 which is pleaded in the defence.

52. The pleaded failure (a) to inform immediately of the occurrence of the accident and (b) to notify of the intended prosecution (Condition 1) were found not proved. That is a finding of fact which can only be disturbed if this court is satisfied that the judge so found upon a view of the evidence which was clearly mistaken or by virtue of an inference which the evidence could not reasonably be said to sustain.

53. The trial judge inferred from the contents of the letter of the 8th of July 1974, which has been set out in part earlier in this judgment, that by the time the company received notification of an application for legal aid dated the 2nd of July the company must already have had information from some source of the details of the accident although Mr. Chan Chi Kwong had said that that notification was the first intimation the company had had of its occurrence. Mr. Chan was unable to say that the insured had not phoned the company after the accident. He was the managing director of the Kowloon Branch and twenty other persons were employed there. He had not dealt with this claim and apparently did not deal with claims generally. His knowledge was derived from the records of the company. Thus far at least it cannot be said that the inference drawn by the judge is in any way unreal. Condition 1 obliges written notification both of the occurrence of the accident and of the information concerning an impending prosecution. It also requires the forwarding of any "writ, summons or process". Mr. Chan did not deny, when it was put to him in cross-examination, that whatever information the company had received might have been in a letter which had later been lost. On that it was possible to say without too greatly straining the evidence in favour of the plaintiff that such a letter, if it existed, might have discharged the obligation to inform at once in writing that an accident had happened.

54. Can that hypothesis be enlisted to do duty also for the finding that the company had failed to prove that the defendant had not informed them that he had been notified of an intended prosecution? If notification of the accident was given "immediately" as Condition 1 obliges, I suppose it is possible that it also referred to the intention to prosecute if such notice of intention had already been given. I must say that that seems to me to be unlikely. It does not seem possible that the summons can have been issued immediately after the accident. Police investigation was necessary before the decision to prosecute. Two drivers were involved and prosecution in court did not follow for another six months. An information would have to be laid before the magistrate before a summons could issue. Moreover, the whole tone of the letter of the 8th of July, written three weeks after the plea of guilty, is eloquent of the insurer's ignorance of the criminal proceedings. I cannot think it reasonable to postulate a series of lost documents to explain the absence from the company's case file of anything relating to the criminal prosecution. Yet such a supposition is probably necessary to explain the absence of the notification of intent to prosecute and certainly necessary to explain the absence of the summons. Mr. Chan was speaking from the file and had such documents been available he would no doubt have produced them. With all respect to the learned judge I think it was unrealistic to require of the appellant company positive proof that the slender possibility upon which he rested his opinion could not have occurred.

55. I would say that the evidence was plainly sufficient to show breaches of Condition 1 of the Policy. They have been referred to as technical breaches but that is less than fair to the company. Any insurance company is entitled to full co-operation by the insured and early information may be vital in bringing to light circumstances which may afford good grounds of defence; alternatively, in making it clear that no such grounds exist. Prompt compliance with such provisions as those here under consideration will also help to eliminate the possibility of collusion between the parties to a motor accident.

56. On this ground alone the company was entitled to repudiate liability to its insured and the plaintiff has no wider right upon which to rely. I would allow the appeal.

Sir Alan Huggins, V.-P.:

57. I entirely agree with what McMullin, V.-P. has said concerning the findings as to the alleged breaches of condition. The insurers' letter of 8th July 1974 to the officer in charge the Traffic Accident Enquiry Office, New Territories, showed that someone had notified them of the accident, but the insurers failed to establish when the notification was made. What they did prove was a failure to give notice of the intended prosecution and to forward the summons. With respect to the trial judge I think he must have placed too heavy a burden upon them when he said that he was left in a position where he could not say that it was more probable than not that the insured had so failed. There was unchallenged evidence that the relevant file in the insurers' office contained no summons and no notice of the criminal proceedings, that being the place where information concerning the accident would be gathered. That evidence was not strong but it was enough, in the absence of evidence to the contrary, to establish the breach of condition alleged.

58. My main difficulty in this case is concerned with the alleged waiver and has stemmed from the decision in Chan Lam-chun v National Insurance Co. Ltd. 1977 H.K.L.R. 417, where I delivered a dissenting judgment. McMullin, V.-P. has rightly said that if the judgments of the majority are to be construed as meaning that an insurance company, acting under clauses in a policy of the kind with which this case has been concerned, can never assume responsibility for the defence without ipso facto affirming the insured's right to an indemnity under the policy, then, whatever the members of this court as presently constituted might think of the principle so enunciated, we would have to hold ourselves bound by that authority. As it seems to me there are dicta in both judgments which would justify such a construction. At 1977 H.K.L.R. 422 Briggs, C.J. said:

"When the defendants had asserted their rights under the policy to conduct proceedings on the owner and driver's behalf and asserted them as fully as they did in this case, it is clear to me that they have waived any supposed breach of conditions which the owner and driver may have committed".

With respect, it seems to me that a person with a legal right is entitled to exercise it to the fullest extent, so that it was the assertion of their rights which the learned Chief Justice held to be a waiver. The exercise of the right is either a waiver or it is not, and the extent of the exercise cannot govern whether there is a waiver or no waiver. At p.433 Leonard, J. said:

"I have no doubt but that waiver did take place. In my view it took place as soon as an appearance was entered for by its entry the owner and the driver were placed in a position where they could become liable for costs in the future - a liability which eventually crystallised".

Again, the crystallisation of the liability was not there indicated to be a material factor. The Editor of the Hong Kong Law Reports understood the effect of these judgments to be "that the insurers in asserting their rights under the policy to conduct proceedings on behalf of the owner and his driver had waived any breach of conditions committed by them": see p.417. That may be ambiguous and the other members of this court take the view that neither Briggs, C.J. nor Leonard, J. intended to lay down a principle in the wide terms that the passages I have cited from their judgments suggest. There are references in both judgments to other factors which could have affected the decision as to waiver and it is said that they in fact formed part of the ratio decidendi. In particular it is suggested that the act of waiver relied upon was not the mere defending of the action, with the inevitable risk of incurring costs, but the conducting of the defence without proper regard for the interests of the owner and the driver. I have never so understood the judgments but am not prepared to say that such an interpretation is impossible.

59. In Cadeddu v Mount Royal Assurance Co. 1929 2 D.L.R. 867 there are also dicta which seem to suggest that the mere continuing of the defence in the name of the insured after the insurers had knowledge of a breach of condition was a conclusive representation that the breach of condition was waived. Thus Macdonald, J.A. said at p.875:

"It was urged that appellant's solicitor by continuing to act after knowledge was obtained in this way did not thereby elect to treat the policy as valid, because waiver is a question of intention and he gave expression to a doubt as to the possible attitude of the appellant. His action however in continuing to represent the Insurance Co. in the Dickson action against the respondent was a clear indication not of an intention to repudiate but of an election to proceed in the hope that notwithstanding the declaration he might successfully resist the claim. He could only continue to act on the footing that the appellant company was vitally concerned."

Elsewhere, however, emphasis is placed upon the failure by the insurers in that case to do more than indicate that they might repudiate liability: see the passage from the judgment of Galliher, J.A. which has been cited by McMullin, V.-P. At p.876 Macdonald, J.A. refers to the equivocal nature of the words there used:

"However, once the breach came to the knowledge of the appellant, it had to take a stand. The solicitor by continuing to defend after knowledge could only do so on the assumption that the policy was valid and subsisting. It was a representation by acts that the appellant would assume any judgment obtained within the limits of the policy. The solicitor's right to act at all only arose on the basis that the claim was within the policy unless there was an additional retainer from the respondent to act for him also. Election may be by words or acts. The words were equivocal carrying a proviso but the action or conduct was unequivocal. If he had repudiated liability electing to stand on the breach of conditions the respondent would naturally reconsider his position. He might seek a settlement knowing that he was in jeopardy and succeed in doing so for a less amount than the judgment finally obtained, or at all events, save further costs. What took place was in effect an agreement by conduct with the acquiescence of the respondent that the appellants would assume liability."

Again I am not sure that that leaves open the possibility that the learned judge thought that the insurers could by unequivocal words effectively repudiate liability while by their "unequivocal" conduct continuing the defence. If not, then with respect I could not agree. No case has been cited to us giving reasons why insurers with a contractual right to defend proceedings in the name of their insured should not do so for their own protection despite an express repudiation of liability to him, lest a court should subsequently hold the repudiation to be ineffective.

60. Accordingly, although I have with some hesitation concluded that the present case is distinguishable from Chan Lam-chun v National Insurance Co. Ltd. and that we are not bound by it to uphold the judgment in the court below, I agree with McMullin, V.-P. that the evidence did not establish waiver. This enables me to concur in what I have no doubt is the just result.

61. I also would allow the appeal.

19th December 1980.

(1) (1966) 1 W.L.R. 1334. at p. 1339.

(2) (1971) 2 Lloyd's Law Reports 332 at 339.

(3) (1977) H.K.L.R. 417

(4) (1968) 2 Q.B. 587

(5) (1979) 3 All E.R. 139

(6) (1929) 2 D.L.R. 867