Cheung for Kuen v. Tang Wai Kwong

HCA002350/1975

IN THE SUPREME COURT OF HONG KONG

(ORIGINAL JURISDICTION)

ACTION NO.2350 of 1975

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Coram: Trainor, J. in Chambers

Date of Judgment: 11th October, 1976.

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JUDGMENT

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1. On the 22nd September, 1972 the plaintiff was involved in a motor accident. On the 20th September, 1975 he applied for legal aid and on the same day a generally endorsed writ was issued against the owner of the car involved. On the 26th September a notice under sub - section 2 (a) of section 10 of the Motor Vehicle Insurance (Third Party Risks) Ordinance was given to the insurers. On the 29th September, 1975 the insurers replied that they had received no report of the accident. On the 22nd June, 1976 the plaintiff's legal advisors wrote to the insurers asking whether they intend to instruct solicitors to accept service, to which the insurers replied on the 28th June, 1976 that they had "no obligation and owe no responsibility" to accept service. On the 14th July, 1976 the writ was served personally on the defendant and on the 16th July notice was given to the insurers that the writ had been served and a copy of the writ, with the address at which the defendant had been served, was enclosed. No appearance was entered to the writ, and on the 3rd August, 1976 the solicitors for the plaintiff wrote to the insurers informing them that they intended to enter judgment in default if no appearance was entered by the 9th August. The insurers ignored that letter and judgment against the defendant was entered on the 12th August, 1976. On the 18th August a hearing to assess damages was fixed for the 8th September and the insurers were notified of the judgment of the date fixed for assessment of damages. On the 25th August the insurers took out a summons applying to be added as a defendant, and on the 31st August an order was made that they be so joined without any order as to costs. On the 8th September by reason of Order 37 rule 3 the hearing to assess damages was adjourned sine die. The plaintiff now appeals against the order of the learned Registrar that the insurance company be joined as a defendant.

2. On the hearing of the appeal Mr. von Pokorny appeared for the appellant. Mr. Robert Tang, of counsel, appeared for the insurers, now the second defendant in the action and to whom I shall refer as the respondent. The first defendant was not represented.

3. Sub rule 2 of rule 6 of Order 15 of the Rules of the Supreme Court by reason of which the respondent was joined as the defendant in the proceedings reads as follows:

"(2) At any stage of the proceedings in any cause or matter the Court may on such terms as it thinks just and either of its own motion or on application - ......

The basis of the respondent's application to be joined as a defendant was this. They were the insurers of the first defendant at the time of the action and had issued a certificate of insurance in his favour. As a result of that they were liable, under section 10 of the Motor Vehicle Insurance (Third Party Risks) Ordinance, to pay any sum due on foot of any judgment obtained against the first defendant. It was a condition of the policy of insurance that the defendant should give notice in writing to the insurers immediately upon the occurrence of any accident or loss or damage, or in the event of any claim. It was a further condition that the due observance and fulfilment of the terms, conditions and endorsements of the policy in so far as they related to anything to be done or complied with by the insured should be a condition precedent to any liability of the company to make any payment under the policy. From an affidavit of one Paul Lee Fo-Wah filed in support of the respondent's application to be made a defendant to the proceedings, it would appear that the first defendant never notified his insurers of the accident which gave rise to the proceedings, and the first intimation that the insurers had of the accident was the letter of the 26th September 1975 from the Director of Legal Aid. In such circumstances the insurers, though liable under the Ordinance to pay any sum awarded on the judgment to the plaintiff were entitled to repudiate their liability to the first defendant and to demand indemnity from him for any sum they might have to pay on the judgment pursuant to the Ordinance. That arises from a provision in the policy of insurance which reads:

"But the insured shall repay to the Company all sums paid by the Company which the Company would not have been liable to pay but for the said provisions." (i.e. Section 10 of the Ordinance)

There was another condition in the policy of insurance upon which Mr. von Pokorny very strongly relied in his submissions. It is to the effect that the insurance company is entitled, if it so desires, to take over and conduct in the name of the insured the defence or settlement of any claim, and have full discretion in the conduct of any proceedings or in the settlement of any claim. It was Mr. von Pokorny's contention that as from the 16th July, 1976 when the respondents received a copy of the writ and were informed of its service on the defendant, they might have taken over the defence of the proceedings and were in a position to do everything that the defendant himself might have done in opposing judgment and the award of damages. He submitted that there was no necessity for joining the respondent as a defendant.

4. It was a further contention of Mr. von Pokorny that the respondent did not fall within the category of those who may be admitted to defend according to sub-rule 2 (b) of rule 6 of Order 15.

5. It was Mr. Tang's contention that where an insurance company has no contractual right to take over the defence on behalf of its insured, but is liable to pay any damages that he may be ordered to pay, there can be no doubt that the insurers may be joined as a defendant if the insured himself fails to defend. It is only by being joined that it can take any legal steps to challenge the plaintiff's claim both as to liability and damages. He then asks the question: even if the insurer has such a contractual right is there any reason why it should not be permitted to be joined. He submitted that if a person is ultimately liable to pay, must suffer in his pocket, it would he unfair and unjust if he is not allowed to defend when otherwise the case would go by default.

6. Mr. Tang admitted that one of the first things the respondent intended to do as a defendant is to apply to have the default judgment set aside and if successful, to defend the case both as to liability and damages. He further intimated that the respondent, if a defendant, would commence third party proceeding against the defendant to establish its right to be indemnified by the first defendant. As to Mr. von Pokorny's contention that, as the respondent had a contractual right to take over the defence of the case on behalf of the defendant. there was no necessity for the respondent to be added, Mr. Tang would say that should the respondent in pursuance of its contractual right do so, it might subsequently be held to have waived its contractual right to be indemnified by the defendant against any damages it might have to pay.

7. In opening Mr. von Pokorny referred to the case of Windsor v. Chalcraft (1938) 2 A.E.R. 751. That was a case in which an insured behaved as the defendant in the instant case and judgment was obtained in default. It differed from the instant case in that although the insurers were notified of the issuing of the writ they were not informed that the writ had been served or that the case had been set down for trial. The case also differed from the instant case in that the insurers' application was to have the judgment set aside. The case resembled the instant case in that the insurers had a contractual right to defend any proceedings in the name of the insured. The decision of the master setting aside the judgment was overruled on appeal to Du Parc J. but the Master's order was restored on appeal to the Court of Appeal, Slessor L.J., however, dissenting from the decisions of Greer and MacKinnon, L.JJ.

8. I am not going to dwell on that case because the ratio decidendi of the two lord justices is to be found in what MacKinnon called "the rule" of Bowen L.J. in Jacques v. Harrison (1883) 12 Q.B.D. 165. The headnote to the case reads:

"If a person, who is not a party to the record, seeks to set aside a judgment by which he is injuriously affected, which the defendant in the action has allowed to go by default, he ought by summons, taken out in the name of the defendant, or if not entitled to use the defendant's name, then taken out in his own name, but in that case served on both the plaintiff and the defendant, apply for leave to have the judgment set aside, and to be allowed either to defend the action on such terms of indemnifying the defendant as the judge may consider right, or to intervene in the action in the manner pointed out by the Judicature Act, 1873, s. 24, sub-s.5. ......"

In his judgment Bowen L.J. at 167 said:

"There are, so far as we can see, only two modes open by which a stranger to an action, who is injuriously affected through any judgment suffered by a defendant by default, can set that judgment aside: and these two modes are amply sufficient to protect any such stranger in all cases in all his rights. He may, in the first place, obtain the defendant's leave to use the defendant's name, if the defendant has not already bound himself to allow such use of his name to be made: and he may thereupon, in the defendant's name, apply to have the judgment set aside on such terms as the judge may think reasonable or just. Or he may, if he is not entitled without further proceedings to use the defendant's name, take out a summons in his own name at chambers to be served on both the defendant and plaintiff, asking leave to have the judgment set aside, and to be at liberty either to defend the action for the defendant on such terms of indemnifying the defendant as the judge may consider right, or, at all events, to be at liberty to intervene Judicature Act, 1873, s.24, subs. 5. By one or other of these two methods all that justice requires in any case can be done."

The judgment of Bowen L.J. was that of the Court and there does not seem to be any doubt that his view was that where a person, not a party a suit, is injuriously affected by a judgment he may proceed in the name of the defendant to have the judgment set aside if the defendant has bound himself to allow his name to be used. Neither does there appear to be any doubt as to views of Greer, L.J. or MacKinnon L.J. in the Chalcraft case as to the rights of such a person or the procedure to be followed by him.

9. I was referred by Mr. von Pokorny to the case of Gurtner v. Circuit (1968) 1 A.E.R. 328; (1968) 2 Q.B. 587. That was a case where a body called the Motor Insurers' Bureau sought, before judgment, to be added as a defendant. That body, by reason of an agreement with the Minster of Transport in England would have considered itself, and possibly would be so held in law, to be liable to pay any damages that might be awarded to the plaintiff. It had no privity whatever with the defendant and there was, therefore, no question of a contractual right to defend in the defendant's name.

10. It was held that the Bureau should be added as a defendant on their undertaking to pay any damages that might be awarded.

11. In his judgments Denning M.R. said, 332 G:

"It is thus apparent that the Motor Insurers' Bureau are vitally concerned in the outcome of the action. They are directly affected, not only in their legal rights, but also in their pocket. They ought be allowed to come in as defendants. It would be most unjust if they were bound to stand idly by watching the plaintiff get judgment against the defendant when they are the people who have to foot the bill."

One must respectfully agree with what the learned Master of the Rolls there said. It would indeed be unjust if the Motor Insurers Bureau had been compelled to stand idly by and watch a judgment be entered by default on foot of which they would have to pay up. And they would have had to stand idly by if not joined as a defendant as they could not have defended in the defendant's name. But Diplock L.J. had this to say (336 A.E.R.):

"A matter in dispute is not, in my view, effectually and completely 'adjudicated upon' (my italics) unless the rules of natural justice are observed, and all those who will be liable to satisfy the judgment are given an opportunity to be heard."

He then went on, and this is very relevant:

"In the case of an ordinary insurer, this does not arise in practice, since the standard terms of a third-party liability policy give to the insurer a contractual right to conduct the defence of the running-down action in the name of the assured. As I read his judgment in the Fire, Auto and Marine case (1964) 2 A.E.R. 761; (1964) 2 Q.B. 687), however, John Stephenson J., would have allowed an ordinary insurer to be added as a party to a running-down action if the policy of insurance did not contain such a term; and this, I think, would be right." One must, again, note the qualification: if the policy of insurance did not contain such a term.

12. I was also referred to the unreported case of Lee Kwan-Hung v. Hung Kwok Cheung and another, an appeal from a decision of the Registrar in O.J. action No. 1606 of 1973. In his judgment Cons J., speaking obiter, said:

"Where an insurance company has a contractual right to take over the conduct of proceedings it does not seem to me to be 'necessary' for that company to be joined in its own right under Order 15 rule 6(2). This view is confirmed by Diplock L.J. in Gurtner v. Circuit (1968) 2 Q.B. 587 at 603".

13. In my opinion the respondents ought not be permitted to be joined as defendants. In September 1975 they were aware that a writ had. issued against their insured and notice was served on them pursuant to Section 10. They were asked in June, 1976 if they would accept service but refused. In July they received a copy of the writ which they were advised had been served on their insured. At all times they were entitled to assume control of the proceedings and endeavour to settle the claim or enter an appearance and defend. This they did not do. Even when they were warned of the plaintiff's intention to obtain judgment by default they sat back and did nothing. One can have no sympathy for them. But why do they now wish to be added as a defendant? Firstly to enable them to seek to set aside the judgment. But on the strength of the English authorities of Jacques v. Harrison (1883) 12 Q.B.D.165 and Windsor v. Chalcraft (1938) 2 A.E.R. 751, decisions of the Court of Appeal, they are entitled to apply to have the default judgment set aside (though having regard to the notice they had of the proceedings, as distinct from the Windsor v. Chalcraft case where the insurers were unaware of the service of the writ, I would hesitate to forecast a result in their favour) and they are still in a position to continue in the defendant's name.

14. Mr. Tang has said that if the respondents do take over the defence it might subsequently be argued they had waived their right to be indemnified by the defendant. I do not feel it incumbent on me to pronounce on that point though I consider there is no substance in it. Indeed Mr. Commissioner Yang as he then was held in the unreported case of the Australian and Eastern Insurance Co. Ltd. v. Luen Fat Hong, Action No. 1201 of 1972, that in the circumstances of that case, the same circumstances as in the present case, the plaintiffs had not waived their right to indemnity by the defendant as a result of defending a motor claim in his name. I am informed that in another unreported case Yang J. gave a contrary decision but no judgment is available. That being so I am unable to derive any assistance from what I have been told.

15. But even if the possibility of waiver might exist, and I do not think McCormick v. National Motor Accident Insurance Union Ltd., 49 L1.L.R. 361 is any support for contending that it does, this is something that might easily have been overcome by the respondents notifying their insured that in the circumstances they intended to defend in the insured's name without prejudice to their right to claim indemnity from him.

16. But do the respondents fall within the category of parties who may be joined as a defendant by reason of Order 15 rule 6(2)(b). In my opinion they do not. They are not necessary in the circumstances of this case to ensure that all matters in dispute in the cause of matter may be effectually and completely determined and adjudicated upon: Order 15 rule 6(2)(b)(i). They can ensure that all things in dispute are determined and adjudicated upon if they exercise the right to defend conferred on them by the policy of insurance; unlike the position in the Gurtner case. But it is on rule 6(2)(b)(ii) that Mr. Tang mostly relies. But that applies to (a) a person between whom and any party to the proceedings there may exist (b) a question or issue relating to or connected with any relief or remedy in the cause or matter (c) which in the opinion of the court it would be just and convenient to determine as between him and that party as well as between the parties to the cause or matter.

17. The first question that arises then is there an issue and if so between whom. The issue in the proceedings, if any, between the appellant and the respondent can be effectively dealt with without the respondent being joined if the respondent acts in the defendant's name. What is the issue between the respondent and the defendant. I am not aware of any. It may well be that an issue as to indemnity may arise if damages are assessed and the respondent pays them, but I have no evidence whatever that the defendant intends to repudiate liability to indemnify the respondent on the ground of waiver or at all. The result is that as yet there is nothing more than the possibility of waiver.

18. But supposing for the sake of argument there were such an issue, is it one that would be just and convenient to determine between the respondent and the defendant in these proceedings? The answer to that is it certainly would not. In my opinion it is not a matter which could be determined in these proceedings, apart from the injustice that might result to the plaintiff by reason of the delay that would be involved. It is a condition of the policy of insurance that all differences arising out of it will be referred to arbitration. It is further provided that if the company disclaims liability to the insured the insured has twelve months within which to refer the matter to arbitration. How then could the issue of indemnity be disposed of in the present action. The answer is it cannot.

19. In all the circumstances therefore I consider this appeal must be allowed and the decision of the Registrar set aside with costs to the appellant both here and before the Registrar.

Representation:

Mr. von Pokorny of Legal Aid Department for applicant.

Mr. R. Tang (H.H. Lau & Co.) for respondent.