K Master & Co Ltd v. Eagle Star Insurance Co Ltd

HCA002343/1966

IN THE SUPREME COURT OF HONG KONG

ORIGINAL JURISDICTION

ACTION NO.2343 OF 1966

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Coram: Blair-Kerr, J. in chambers.

Date of Judgment: 18 MAY 1968

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JUDGMENT

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1. The plaintiffs allege that they shipped 30 bales of cotton goods from Hong Kong to Port of Spain, Trinidad; that under a policy of marine insurance the defendants insured them for £1,925 against perils of the sea, risk of damage caused by sea, rain, and fresh water; and that during the voyage, whilst the plaintiffs were interested, the 30 bales were so damaged by sea water that they were a total loss.

2. The writ was issued on 5th December 1966. It is specially endorsed with the plaintiffs' claim, which is for $30,800 being the Hong Kong dollar equivalent of £1,925.

3. It appears to be common ground that although the goods arrived at the port of destination on 15th November 1965, the plaintiffs' agents did not apply for a survey till 24th May 1966. In their statement of defence, filed on 6th January 1967, the defendants plead that it was a condition of the policy that, upon the happening of any loss or damage, immediate notice should be given, and an application for survey made; that the plaintiffs failed to give such notice, and failed to apply for a survey, as soon as the existence of the loss or damage as known to them. The defendants also plead that the policy had expired before the application for survey was made.

4. On 29th December 1967, the managing director of the defendants' Hong Kong agents swore an affidavit in which he said, inter alia:-

"Mr. K. Master, the managing director of the (plaintiffs) ................. informed me that the consignees in Trinidad had refused to accept the shipment of the bales but not for the reasons pleaded in the statement of claim on account of any damage to the said bales or to any of them ....... Mr. Master made me aware of certain correspondence which had passed between his company and the said consignees but he has not supplied me with any copies of any letter or cable."

5. The plaintiffs did not disclose any of this alleged correspondence in their list of documents filed on 4th March 1968; and the defendants have therefore made three applications. Firstly, they have applied under O.72 r.5 for an order that the action be transferred to the commercial list. Secondly, they have applied under O.72 r.10 for an order that the plaintiffs produce and show to them, on oath, all, or at least the majority, of the various classes of documents referred to in Form 94 in Appendix A of the Rules of the Supreme Court. Thirdly, they have applied under O.24 r.7 for an order requiring the plaintiffs to file an affidavit stating whether they have, or have had, possession of:

"correspondence, letters, memoranda, deeds, instruments, or other acts in writing whatsoever passing between the (plaintiffs) or any agents on (their) behalf and the consignees in Trinidad or any agent on (their) behalf of the cargo the subject matter of this action and relating thereto."

The parties agree that all the documents in regard to which discovery is sought under O.24 r.7 would be covered by the order sought under O.72 r.10. Mr. Mills-Owens, counsel for the defendants, explained that the application under O.24 r.7 was made in case the Court refused to make an order under O.72 r.10 for the more extended form of discovery.

6. Mr. Ching, counsel for the plaintiffs, strenuously opposed all three applications. He argued that in the Supreme Court of Hong Kong there is no commercial list; that whereas the English O.72 r.2(1) reads: "There shall be a list, which shall be called 'The commercial list' ........", the corresponding Hong Kong rule reads: "There may be a list which shall be called ' the commercial list' ......."; that the Chief Justice has not yet declared that there is a commercial list; and that it would be pointless for me to purport to transfer a case to a non-existent list. However, counsel agreed that, if there is a commercial list, this case is suitable for transfer to it.

7. Mr. Mills-Owens also appeared to be in some doubt as to whether there is a commercial list in this Court but he argued that long before the "commercial court" began to function in England, the common law courts there had consistently made orders for discovery of what is sometimes referred to as "ships' papers" in substantially the same form as is now prescribed in Form 94; and that it made no difference to his applications for discovery whether there was, or was not, a commercial list in Hong Kong. He safeguarded his position by applying to have the words 'inherent jurisdiction of the court' added to his summons taken out under O.24 r.3 and O.72 r.10. I granted his application.

8. Mr. Mills-Owens submitted that the practice of ordering discovery in a very much more extended form if applied for by an insurer in an action on a policy of marine insurance goes back to the time of Lord Mansfield; that the courts invariably protected an insurer in such an action because the essential facts relating to a loss were seldom in the possession of the insurer and were usually in the possession of others, but not necessarily in the possession of the plaintiff in the action that, in the present case, the alleged damage was discovered in Trinidad; that it appeared from the survey report that, twenty-four hours after the bales had been landed, only one bale was found to be in a damaged condition; that, in view of the fact that there had been five months' delay in asking for a survey, and in view of the affidavit evidence of the managing director of the defendants' Hong Kong agents in regard to the statements alleged to have been made by the plaintiffs' managing director, there was considerable doubt as to whether the bales had been damaged whilst they were at sea, and to what extent, if any, they might have been damaged after they had been landed at the port of destination. In support of his submissions Mr. Mills-Owens cited China Steamship Co. v. Commercial Assurance Co.⁽¹⁾ ; China Traders' Insurance Co. Ltd. v. Royal Exchange Assurance Corporation⁽²⁾; Teneria Moderna Franco Espanola v. New Zealand Insurance Company⁽³⁾; and Leon v. Casey⁽⁴⁾ Counsel relied particularly on the following passage from the judgment of Lord Justice Scrutton in Leon v. Casey ⁽⁴⁾ (page 586):-

"When damage to the goods is discovered while the goods are in a warehouse at the end of the marine adventure, it is extremely important that the order should be made, for there may be a question whether the goods were damaged at sea, and if so whether the ship was seaworthy; or whether the damage occurred on land through some cause unconnected with the sea."

9. Mr. Ching submitted that the common law rules relating to the wide form of discovery usually ordered in actions on policies of marine insurance have now been superceded by the English O.72 r.10; that the English courts have therefore no inherent jurisdiction in the matter; and that consequently the Hong Kong courts have no inherent jurisdiction; that if this Court has power to grant this wide form of discovery, it must be by virtue of O.72 r.10 of the Hong Kong Rules; and that O.72 r.10 is inoperative because there is no commercial list; that, in any event, O.72 r.10 must be read together with O.24 r.3 which, in turn, is subject to O.24 r.8 which requires the court to be satisfied that the discovery sought under rules 3 or 7 is necessary either for disposing fairly of the cause or for saving costs; and that the defendants have not shown that the documents sought to be discovered are relevant to any issue raised on the pleadings. Mr. Ching also referred to Volume 2 of "Arnould" on Marine Insurance⁽⁵⁾ para. 1261 which reads: -

"It was stated in previous editions of this work that the underwriter was entitled to the order" (that is the order referred to in O.72 r.10) " as a matter of course as soon as the writ was issued. This is no longer the practice. Presumably owing to the comprehensive powers of ordinary discovery which the courts of common law now possess the order for ship's papers is used sparingly, and will normally only be made when there is a definite allegation of fraud or when an ordinary order for discovery has proved pointless, or when it appears from the suspicious or unusual circumstances of the loss, that the ordinary order for discovery is likely to be ineffective; and even in these cases the order is discretionary. Moreover a defendant who considers that he may be entitled to an order for ship's papers must apply for it promptly, and at all events as soon as the statement of claim is delivered, otherwise the order may be refused."

10. I am unable to accept the proposition that this court has no inherent jurisdiction to regulate its procedure in a manner best calculated to do justice to the issues which it has to try. The fact that the Rules of the Supreme Court have the force of statute does not mean that the court is powerless to act otherwise than under the Rules. I also agree with Mr. Mills-Owens that whether I grant the orders sought by the defendants should not depend on the existence, or non-existence, of a commercial list.

11. However, there is a commercial list in this Court. Clearly, counsel were not aware of the practice directions given by the Chief Justice on 1st September 1967 the first of which reads:-

On 4th September 1967, the Chief Justice appointed Mr. Justice Briggs to be the judge in charge of the commercial list.

12. The expression "commercial court" does not occur in O.72; and, indeed, this expression seems to be synonymous with the expression "commercial list". In the editorial note to O.72 r.1, the editors of the Supreme Court Practice (1967) say:

"The commercial list (often referred to as the commercial court) ............";

and in Mathew's Practice of the Commercial Court, the editors of the second edition say (p.11):-

"To Mathew J., who was the first to take charge of the newly-created commercial list, fell the task of shaping the procedure during the preliminary stages of the action. The course taken by him was followed by the other judges who presided over the commercial list or, as it soon came to be called, the commercial court ........"

In my view, there is clearly a commercial list in the Supreme Court of Hong Kong. Of course, no cases have yet been transferred to it; and therefore, technically, there is no "list" of cases. But, to enable Mr. Justice Briggs to operate the commercial list, it does not seem to be necessary that there should be a further practice direction to the effect that "there shall be a commercial court". The "commercial court" has never been a separate court with a defined jurisdiction; and this expression would appear to be synonymous with the expression "commercial list".

13. I agree that this case should be transferred to the commercial list; and I so order.

14. As regards the application for discovery under O.72 r.10, I have been unable to find any authority to support some of the assertions made by the learned editors of "Arnould"⁽⁵⁾ para.1261. An insurer is not, of course, entitled to an order under this rule as a matter of right. The Court has a discretion. But I am unable to find any authority for the proposition that the court will not normally make the order unless there is "a definite allegation of fraud, or when an ordinary order for discovery has proved fruitless." The reason for the order lies in the nature of the contract of marine insurance, which calls for the utmost good faith on the part of an assured. In Leon v. Casey⁽⁴⁾ , Lord Justice Scrutton said:-

"I need hardly explain that, whereas the usual order for discovery is made after the pleadings are closed, and relates only to documents which are, or have been, in the possession of the party giving discovery, an order for ship's papers may be made before the statement of claim is delivered and covers a much wider range, in that it requires the plaintiff to produce from all persons interested not only in the policy but in the adventure to which the policy relates, all material documents in their possession, or else to show that he has tried and failed to get them .............. In consequence ............. partly of the fact that insurance has always been regarded as a transaction requiring the utmost good faith between the parties, in which the assured is bound to communicate to the insurer every material fact within his knowledge not only at the inception of the risk, but at every subsequent stage while it continues up to and including the time when he makes his claim, the Common Law courts invented the order for ship's papers, an order which is made as soon as the writ is issued in an action on a policy of marine insurance;"

and at page 585 Lord Justice Scrutton said:-

"In my view, in order to decide whether the case is one in which the order should be made, regard must be had to the policy of insurance and to the adventure giving rise to the action. Is the policy a marine policy? That is the question. In connection with every marine policy the order should be made ............ if the policy is in the form of a marine insurance policy involving risk at sea, the order must be made."

Leon v. Casey⁽⁴⁾was decided in 1932. The present rule (formerly O.31 r.12A) was first enacted in 1936; and there is no doubt that the court today has a discretion. Nevertheless, I am unable to find any authority to support the sweeping statements made in the latest edition of "Arnould⁽⁵⁾ (para.1261)

15. When the commercial court begins to function in Hong Kong, it may be that judges will frown upon any undue delay on the part of an insurer in making an application under O.72 r.10. But, as this is the first case to be transferred to the commercial list, I see nothing in the criticism that the application has been made after the close of pleadings; nor do I think that there is anything in the criticism that in the pleadings, as at present framed, there is nothing to suggest that the insurers are questioning the bona fides of the claim.

16. In an ordinary action, the parties themselves to a large extent decide what is, and what is not, relevant to the issues raised on the pleadings; and the court simply decides those issues on such material as the parties choose to place before it. But actions on policies of marine insurance are in a very special class. It is clear from the cases that, long before the commercial court began to function, the common law courts went out of their way to order the fullest discovery if applied for by an insurer under a policy of marine insurance. The application was usually made as soon as the writ was issued. What might well have been regarded as a "fishing expedition" on the part of an ordinary litigant has never been so regarded in the case of an insurer in an action on a policy of marine insurance. In this class of action, the courts do not usually permit an assured to be the judge of what documents are relevant to his claim. The insurer is entitled to amend his pleadings so as to raise any defence which is open to him upon a perusal of all documents discovered pursuant to an order under O.72 r.10.

17. In view of the attitude of the plaintiffs in regard to the issues raised in the affidavits, I have no hesitation in acceding to the defendants' application under O.72 r.10; and there will be an order in terms of that application.

18. I do not think that it is necessary to make a further order on the application under O.24 r.7

19. The question of costs has not yet been discussed. There will therefore be liberty to the parties to appear and argue that matter.

18 MAY 1968

Representation:

Mr. C. Ching (H. A. Hoosenally & Co.) for the Plaintiff

Mr. Mills-Owens (Deacons) for the Defendant

(1) (1881) 8 Q.B.D. p.142

(2) (1898) 2 Q.B. p.187

(3) (1924) 1 K.B. p.79

(4) (1932) 2 K.B. P.576

(5) British Shipping Laws Vol. 10.