Marquis Trading Co (A Firm) v. Associted Bankers Insurance Co Ltd

Case No.

Court

Date—

Judge—

Case Document

100%Judiciary

HCCL000047A/1980

1980 No. CL-47

IN THE HIGH COURT

(1st Action)

	1979 No. 4664

BETWEEN
	MARQUIS TRADING COMPANY (a firm)	Plaintiffs
	and
	ASSOCIATED BANKERS INSURANCE COMPANY LIMITED	Defendants

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(2nd Action)

	1979 No. 4665

BETWEEN
	LAERTES CORPORATION (a firm)	Plaintiffs
	and
	ASSOCIATED BANKERS INSURANCE COMPANY LIMITED	Defendants

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(3rd Action)

	1979 No. 4666

BETWEEN
	MARQUIS TRADING COMPANY (a firm)	Plaintiffs
	and
	OCEANIC UNDERWRITERS LIMITED	Defendants

-----------------

Coram: A. Zimmern

Date of Judgment: 25th November, 1981.

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DECISION

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1. This is an adjourned hearing of an application for further and better discovery and ship's papers under Order 72 rule 10 by the defendants in these consolidated actions at the suit of the plaintiffs. The applicants have produced a list of the documents, they require to be produced. Some of the items at the outset of the hearing were agreed to by Mr. Rix, Senior Counsel for the respondents and some abandoned by Mr. Waung, Counsel for the applicants leaving the balance for the decision of the Court.

2. The two plaintiffs by their three writs transferred to the Commercial Court and consolidated claim against 2 defendants' insurance companies as parties interested in marine insurance policies issued by the defendants covering branded electronic goods shipped aboard the vessel "Amelia" from Singapore to Hong Kong. They allege the vessel foundered by reason of damage sustained due to heavy weather and the cargoes were lost. They claim their values and the defendants have failed and refused to pay.

3. By their consolidated points of defence, the defendants

	1.	allege the plaintiffs were under a common management
	2.	deny that any of the goods alleged to be insured were loaded on board the vessel "Amelia"
	3.	put the plaintiffs to strict proof of their claims and further

	a)	they deny that the vessel "Amelia" sank or foundered as alleged or at all
	b)	and that if it did sink it sank fortuitously and such sinking was not within the risks insured against and
	c)	deny that the goods alleged to be loaded were lost at sea.

allege the plaintiff failed to disclose material facts which if disclosed would have led the defendants to refuse to issue any policy of insurance to the plaintiffs. Under the particulars of non-disclosure I need only set out the allegation that the plaintiffs had failed to disclose that Marquis had allegedly shipped similar goods from Hong Kong to Singapore aboard the vessel "Starter" insured for over $6 million and which goods were allegedly lost.

4. The first matter to be dealt with is Mr. Rix's submission that the defendants' application for any discovery under Order 72 rule 10 is misconceived for it has been the practice in England and approved by the Court of Appeal in Probatina Shipping Ltd. v. Sun Insurance Office Ltd. ⁽¹⁾ (The "Sageorge") that discovery under Order 72 will only be ordered where scuttling is alleged or will be alleged.

5. He relies firstly on the judgment of Kerr J. in the "Sageorge"⁽²⁾ at first instance wherein at p.523 he said:-

" The importance of Keevil v. Boag is that it is the only reported case which considered the newly introduced discretion to refuse the order. Mr. Justice Singleton, as he then was, had refused to make the order on a summons for directions but had added : "Liberty to apply for affidavit of ship's papers hereafter if so advised". This was upheld by the Court of Appeal as a proper exercise of his discretion in the circumstances of that case, and the Court for the same pleadings. But the important point about Keevil v. Boag is that it was not a scuttling case; it was a claim under a marine warehouse-to-warehouse policy in which the intended defence was a plea of inherent vice of the goods insured. The effect of this decision on the practice relating to orders for ship's papers was however that applications for such orders appear thereafter to have been limited to scuttling cases; at any rate I have never heard of any case since then other than a scuttling case, whether only relating to ship or to both ship and cargo, in which such an order has been asked for, let alone made.

In effect, therefore, applications for orders for ship's papers have since war been limited to scuttling cases. On the other hand, neither the experienced solicitors and Counsel in the present case, nor I, know of any scuttling case in which such an order has ever been refused. To the extent that such applications have always ultimately been successful in scuttling cases it can therefore be claimed, as the defendants claim her, that a settled practice has crystallized. But it is also within my own experience, and evident from the notes relating to earlier applications which were put before me, that there have been many instances in which applications for ship's papers in scuttling cases have been strongly resisted, though ultimately always unsuccessfully."

6. On the facts of that case though scuttling was alleged Kerr J. refused to order the ship's papers sought expressly departing from accepted practice. He was upheld by the Court of Appeal and I shall return to the judgment of one their Lordships later.

7. Order 72 rule 10 reads :-

	"10. (1) Where in an action in the commercial list relating to a marine insurance policy an application for an order under Order 24, rule 3, is made by the insurer, then, without prejudice to its powers under that rule, the Court, if satisfied that the circumstances of the case are such that it is necessary or expedient to do so, may make an order, either in Form No. 94 in Appendix A or in such other form as it thinks fit, for the production of such documents as are therein specified or described.
	(2) An order under this rule may be made on such terms, if any, as to staying proceedings in the action or otherwise, as the Court thinks fit.
	(3) In this rule "the Court" means the judge."

8. This rule was first introduced in 1936, Kerr J. in the "Sageorge" at p.522 summarised its origin in part thus :-

"Before 1936 the order did not rest upon any rule of the Supreme Court, but it had been the settled practice of the common-law Courts for well over 100 years to grant such orders as of right to defendants to claim under marine policies irrespective of whether allegations of scuttling or other fraud were to be raised or not. A full account of the historical development of the order is to be found in the judgment of Lord Justice Scrutton in Leon v. Casey. ⁽³⁾"

9. That Order and rule did away with the settled practice of over 100 years of ordering ship's papers on the application of the defendants to claims under marine policies irrespective of whether scuttling or fraud was alleged or not, but nothing in the rule expressly confines it to cases only where scuttling or fraud is alleged. The pre-requisites are first the action is in the commercial list, second it relates to a marine insurance policy, third the application is made by the insurer then the judge is given an unfettered discretion to make the Order if in his opinion it is necessary or expedient to do so. Kerr J. was bothered that the discretion might have been fettered by a settled practice of making the Order automatically when scuttling was alleged. If the fetter ever existed he unshackled it and was upheld by the Court of Appeal. Nowhere in either Court in the "Sageorge" case can I see in any of the judgments imposing a new shackle on the judge's discretion whereby the Commercial Court may make an Order only if the insurer were to make an allegation of scuttling.

10. Since the introduction of the Order and rule in 1936 nearly all applications thereunder in England have been based on an allegation of scuttling made or intended to be made. That is clear from the "Sageorge" though Mr. Waung, has discovered a case in which the Order was made post-1936 without any allegation of scuttling. The case is North British Rubber Company Ltd. v. Cheetham. ⁽⁴⁾

11. It must be remembered that the "Sageorge" dealt with an application for ship's papers and stay of proceedings before defence where scuttling was alleged.

12. Roskill L.J. at p.650 said :-

" I think a crucial question - not necessarily the only question - which the commercial judge should ask himself is not (with all respect to Kerr J.) whether there is a prima facie case for pleading scuttling but whether when the application for ship's papers is made, the plaintiffs have already voluntarily given sufficient disclosure of documents whether before or after action brought. If they have I see no reason why in such cases the points of defence should not be delivered with the best particulars then available. But if the plaintiffs have not, then I think a judge can and should order further discovery either in Form 94 or in such other form as he thinks fit, as for example by ordering discovery of specific classes of documents with or without stay. If therefore a plaintiff wants to avoid the risk of an order for ship's papers and the attendant delay and expense, he will be wise in most cases (especially if he is completely innocent) to disclose everything as early as possible and perhaps even more than he is strictly obliged to disclose even under an affidavit of ship's papers.

Where I most respectfully but emphatically part company with the judge is when he said:

"I therefore consider that counsel for the insurers should always give some sufficient indication to the court of the justifiability of the plea before any question of a prima f entitlement to an order for ship's papers can arise. Otherwise the court is in the dark as to what may be necessary or expedient in the particular case ....."

At the end of his judgment he said:

"...... I am satisfied on the general information put before the court that a plea of scuttling is justifiable. I am therefore also satisfied for the reasons already given that it is prima facie expedient in accordance with the practice of the court that the insurers should be entitled to a wider range of discovery than the ordinary discovery afforded by the rules ....."

I cannot, with great respect, think that it can be right for counsel for underwriters to be obliged as distinct from volunteering to tell the court what his view is about the strength (for that is what it amounts to) of the intended plea of scuttling. For him to be required to do so comes near to infringing the fundamental rules of privilege. Counsel may in the course of his application choose to tell the commercial judge what the factual foundation for the plea of scuttling is in order to make his application for ship's papers or for discovery more attractive to the judge; but that must be a matter for him without becoming in any way obligatory for him to do so."

13. Whether to make a plea of scuttling or not is a matter for Counsel advising insurers, and I cannot see why such an allegation must be made upon application. Why should not be defendant insurer serve a defence and after time for discovery go before the Commercial Court for further discovery including under Order 72 rule 10 setting out his grounds for suspicions of fraud on the part of the insurer. A contract of marine insurance is uberrimae fidei and that obligation survives the loss. The Commercial Court on such an application would then know what documents the defendants are seeking, what the plaintiff has so far discovered, the grounds for the defendants' suspicions and the plaintiffs' reply thereto. The Court would then be in a position to assess whether the bona fidei of the insured is genuinely suspected on the evidence before him and if he so suspects he will then take into consideration all matters such as relevance, hardship, oppression, delay and in all the circumstances of the case order discovery in any form he thinks fit.

14. I now turn to the grounds of suspicions advanced by the defendants in support of their application.

15. First is the sinking of the Amelia. The defendants allege it sank without cause, with no radio message received in normal weather condition. The Master and crew of the vessel were alleged to have landed in Tsuan Hai, Vietnam on 12th November, 1978 at 1700 hours. Calculations have shown that according to the Master's alleged two noon positions the vessel should have sunk at the position given by him at 1900 hours on the 12th November, Yet the crew landed at 1700 hours the same day some distance away. The vessel was not insured and the owners say they did not get any report of the loss from the Master or other members of the crew.

16. Then as to the plaintiffs they are associated companies under common management. In August 1978 Marquis Trading allegedly shipped aboard the vessel "Starter" over $6,000,000 worth of similar goods bound for Singapore. The vessel was reported sunk en route without cause and later was reported seen in China.

17. The defendants doubt the plaintiffs' financial capacity to trade in such large sums and indeed the very nature of the transactions - a two way traffic between Hong Kong and Singapore of expensive branded Japanese goods. As to finance the plaintiffs counter this by saying the defendants' failure to pay has caused them financial hardship yet their resources and reputation with their Bankers are such that they have succeeded in paying off a large part of their loss and the Bankers are giving them time. This argument cuts both way. If they are innocent merchants then their resources and reputation are what they say they are. On the other hand if they are not so innocent it would only be largely the Bank's money being used for repayment for the plaintiffs having opened documentary credits on 20% margin and the shippers in Singapore having drawn on them.

18. Further grounds for suspicions have been advanced by the defendants but I do not have to say more than that I am satisfied that there are grounds for suspecting the bona fides of the plaintiffs in their claims and it will be necessary and expedient to exercise the powers given under Order 72 rule 10.

19. I now turn to the documents sought.

20. By their list of documents the plaintiffs have discovered :

	A)	Documents in respect of insurance, shipping, documentary credit covering the Amelia shipment,
	B)	Correspondence between the parties,
	C)	Correspondence between plaintiff and the Amelia's owners or their agents,
	D)	Correspondence between solicitors of the parties.

21. By their solicitor's affidavit sworn on 4th June 1981 the plaintiffs conceded that on the pleadings the defendants were also entitled to the documents showing how the plaintiffs financed the letters of credit and have exhibited some documents.

22. By their Counsel the plaintiffs have volunteered to discover items 3, 4, 9, 11 in the list of documents which the defendants require the plaintiff to produce.

Item 1

23. Each plaintiff to produce its Profit and Loss Account for the accounting years 1977, 1978 with the Balance Sheet as at the last day of the accounting years 1977, 1978. Liberty to the defendants to apply to the Court in respect of items (b), (c) and (d) after inspection of the accounts under (a).

Item 2

24. It was argued on behalf of the plaintiffs that the documents under Item 2 do not arise on the pleadings therefore not in issue hence end of the matter. The fact remains that Lee Hok Foon on behalf of the plaintiffs in an affirmation in these proceedings affirmed on the 4th June 1981 deposed in part.

	Paragraph 7	"Marquis Trading Company and Laertes Corporation substantially deal in supply of electrical goods and have so dealt in these goods since commencement of the businesses in 1975 and 1978 respectively. The two Plaintiff firms buy and sell electrical goods in Hong Kong as well as outside Hong Kong. Because of the substantial volume of the Plaintiff firms' businesses, the plaintiff firms buy and keep stock whenever the price is competitive and the Plaintiff firms have had and still have long and substantial trading relationship with Sankei Private Ltd. of Singapore as they supply goods to the Plaintiff firms at very competitive price structure."
	Paragraph 8	"The Plaintiff firms sell the goods locally as well as to places outside Hong Kong including Singapore. Singapore is a gateway to markets such as the Philippines, Malaysia, Indonesia and Thailand. When the supply for the goods in Singapore is exhausted, Singapore parties would buy from any available source goods at competitive prices. These sources include Hong Kong."
	Paragraph 9	"The Plaintiff firms will also endeavour to sell off stock available when the market is good whether that market be in Hong Kong or in the region or alternatively when the Plaintiff firms anticipate that price of any particular line of goods may drop generally when the Plaintiff firms will seek to sell as much as possible the stock available prior to the drop in price. This is general business sense."

25. The depositions are positive assertions by the plaintiffs in support of their case and the documents under item 2 may contain the information which may fairly lead the defendants to a train of inquiry to test the truth or otherwise of such assertions. Accordingly it is ordered that the plaintiffs do produce all the documents under this item confined to the years 1977, 1978.

Item 5

26. This comes under Order 72 rule 10 and I have dealt with arguments thereon. Accordingly I order production of the documents sought.

Item 6

has been abandoned.

Item 7

27. It is argued that the documents under this item go to show ability to finance. I cannot agree. First it is doubtful whether any of the documents exists. Second, the plaintiffs have deposed as to how the Amelia purchases were financed - by letters of credit opened with a 20% marginal deposit. This item is refused.

Item 8

28. The defendants have abandoned (c). This item is tied up with Item 1. No order is made but the defendants do have liberty to apply to the Court after inspection of the documents ordered under Item 1.

Item 10

29. The defendants have abandoned items (b), (c) and (k).

30. This is an Order 72 rule 10 item and production of the following documents are order namely 10(a), (d), (e), (f), (g), (h), (i), (j).

Item 12

31. The defendants have abandoned (r) and (u).

32. This item covers documents in respect of the vessel Starter. It is argued that fraud has not been alleged on the pleadings in respect of the Starter. I have dealt with this point and I accordingly order their production.

33. May I say that I cannot see anything oppressive in the orders made against the plaintiffs though they may encounter difficulties in respect of Items 5 and 10 but they are nevertheless required to utilise their best endeavours to produce the documents ordered thereunder.

34. Defendants costs in the cause.

(A. Zimmern)

Representation:

Bernard Rix, Q.C. and W. Lane (Robert W.H. Wang & Co.) for Plaintiffs.

William Waung (Ince & Co.) for Defendants.

(1) [1974] 1 Q.B. 635

(2) [1973] 2 Lloyd's Law Report 520

(3) [1932] 2 K.B. 576.

(4) [1938] Lloyd's List Law Reports 337.