Australian & Eastern Insurance Co Ltd v. Luen Fat Hong

HCA001201/1972

IN THE SUPREME COURT OF HONG KONG

ORIGINAL JURISDICTION

ACTION NO. 1201 of 1972

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Coram: Commissioner Yang in Court

Date of Judgment: 10 October 1973

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JUDGMENT

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1. At all material times the plaintiff company were the insurers and the defendant firm the insured under a comprehensive motor insurance policy dated 24th March 1969. On 22nd April 1969, the motor vehicle covered by the insurance policy, whilst being driven by a Mr. Man Hon-hung (hereafter called the driver) with the permission of the defendant firm, was involved in a traffic accident in which a Mr. Wong Ten-shing was injured. The driver informed the manager of the defendant firm of the accident some the days after the event. By Condition One of the insurance policy, notice must be given in writing by the insured to the insurers immediately upon the occurrence of any accident or loss or damage or in the event of any claim. It is common ground that the defendant firm failed to notify the plaintiff company of the traffic accident.

2. On 23rd February 1970, Mr. Wong Ten-shing's solicitors Messrs. C.Y. Kwan & Co. wrote to the plaintiff company's agents in Hong Kong, namely the Tak Lee Shipping & Trading C ., Ltd. (hereafter referred to as the plaintiff company's Hong Kong agents), and made a third party claim in respect of injuries and losses suffered by their client. On receipt of this claim the plaintiff company's Hong Kong agents immediately sent to the defendant firm accident forms for their completion. However on 3rd March 1970, nearly one year after the accident, the defendant firm still had not notified their insurers of it. On that day the plaintiff company's Hong Kong agents wrote to the defendant firm in these terms:

3. On 9th June 1970, Mr. Wong Ten-shing took out a writ against the defendant firm as well as the driver claiming special damages in the sum of $14,091, and also general damages and costs.

4. It appears that at some stage - it has not been disclosed in evidence when - the plaintiff company's Hong Kong agents took over the conduct of the proceedings in pursuance of Condition Two of the insurance policy. This Condition stipulates:

"No admission offer promise payment or indemnity shall be made or given by or on behalf of the Insured without the written consent of the Company which shall be entitled if it so desires to take over and conduct in the name of the Insured the defence or settlement of any claim or to prosecute in the name of the Insured for its own benefit any claim for indemnity or damages or otherwise and shall have full discretion in the conduct of any proceedings or in the settlement of any claim and the Insured shall give all such information and assistance as the Company may require."

5. On 21st July 1970, a defence was filed on behalf of the defendant firm and the driver. On 20th October 1971, the a ction was settled after negotiations between the plaintiff company's solicitors and the solicitors for Mr. Wong Ten-shing, accordingly this Court made an order by consent for judgment to be entered for Mr. Wong Ten-shing against the defendant firm and the driver for $14,000 and costs which came to $1,953.45 on taxation. The $14,000 was paid by the plaintiff company on 29th October 1971 and the $1,953.45 on 8th February 1972, the total amount paid being $15,953.45.

6. On 13th March 1972, the plaintiff company's Hong Kong agents wrote to the defendant firm in the following terms:

7. And on 28th March 1972, the plaintiff company's Hong Kong agents again wrote to the defendant firm:

8. The plaintiff company now claim from the defendant firm $15,953.45 on the ground that the latter had committed a breach of Condition One of the insurance policy.

9. On those facts Mr. Fung as counsel for the defence conceded, quite properly if I may say so with respect, that the defendant firm was in breach of Condition One. However be sought to base his defence on waiver. It was argued that by the letter dated 3rd March 1970 written by the plaintiff company's Hong Kong agents to the defendant firm, and by their failure to do anything further about the defendant firm's breach, and further by their taking over the defence of Mr. Wong Ten-shing's claim, the plaintiff company had waived the breach of Condition One. It was further argued that if the plaintiff company had not intended to dispense the defendant firm from the necessity of performing that Condition they should have informed the defendant firm from the beginning or refrained from taking over the defence of Mr. Wong Ten-shing's claim. Negotiations for a settlement were conducted by solicitors, so the defendant firm had not been given the opportunity of expressing any opinion on the matter; they had no opportunity to deny liability or dispute the quantum of damages claimed. Mr. Fung also submitted that after relying on Condition Two, the plaintiff company could not "blow hot and blow cold" by also relying on Condition One and say that they had repudiated their reponsibility under the insurance policy. In support of his contentions, three authorities were cited, namely, Farrell v. Federated Employers Insurance Association Ltd. (1) Barrett Bros. (Taxis) Ltd. v. Davies (2), and Yorkshire Insurance Co. and Colonial Mutual Fire Insurance Co. v. Thomas Craine (3) I shall refer to these cases in due course.

10. Mr. Eddis, counsel for the plaintiff company, pointed out that by Section 10 of the Motor Vehicles Insurance (Third Party Risks) Ordinance, the plaintiff company as insurers were obliged to pay to the person entitled to the benefit of the judgment (in this case Mr. Wong Ten-shing) any sum payable thereunder, including costs, but the statutory provision did not take away the insurers' contractual right to insist on the due performance of a condition in the insurance policy. Mr. Eddis maintained that there was no waiver on the part of the plaintiff company. It was further argued that by settling Mr. Wong Ten-shing's claim on behalf of the defendant firm, the defendant firm's position was in no way prejudiced, and that the plaintiff company, faced with a statutory liability under Section 10, was obliged to do their best to minimize it, particularly as they had received no help whatsoever from the defendant firm. Farrell's Case was also referred to.

11. In Farrell's Case, Condition One of the insurance policy was that every claim, notice, letter, writ or process or other document served on the insurer should be notified or forwarded to the insurance company immediately on receipt. On 28th July 1964, the insurance company received a letter from Farrell's solicitors asking who would accept service of proceedings on their insured's behalf. On 4th August 1964, the insurance company wrote in reply, saying "...... we would state that we have not concluded our enquiries into this matter, and should you wish to issue proceedings, we have no objection to their being issued on our insured." The writ was issued on 28th September 1964, and served on the receiver of the insured on 17th January 1966. The insurance company was not notified of the proceedings until 2nd March 1966, and they sought to repudiate liability because they had not been notified of the service of the writ either "immediately" or with all reasonable speed. It was argued on behalf of Farrell that the insurance company's letter dated 4th August 1964, constituted a waiver of the breach of Condition One. The Court of Appeal Held that since the duty to notify them of the receipt of the writ still subsisted in spite of this letter, there was no waiver on the part of the insurance company.

12. In Barrett's Case, the insurance policy covering a motorcycle contained a condition that the insured must give particulars to the insurers as soon as possible after the occurrence of any accident, loss or damage and "shall forward immediately any letter, notice or intended prosecution, writ, summons or process relating thereto." The motorcycle was involved in an accident and the motorcyclist (i.e. the insured) later received notice of intended prosecution from the police and still later a summons for careless driving. He did not forward these documents to the insurers, who however were given reliable information about them by the police themselves. On 23rd June, 1964 the insurers wrote to the motorcyclist asking why he had not notified them of the proceedings, as they wished to arrange the defence. Lord Denning, M.R. said in his judgment :-

And Salmon L.J. said :

"In my judgment any reasonable person receiving that letter would have concluded that the insurers, having learnt all about the intended prosecution, no longer required him to notify them of it or send them the summons. All they wanted was to be told why he had not done so already."

13. The last authority cited by defence counsel, the Thomas Craine Case, hinges on the construction of certain conditions in an insurance policy the language of which varies considerably from that in the condition of the policy now under consideration.

14. It may be helpful also to consider Allen v. Robles, (5) decided by the Court of Appeal. The headnote reads:-

"On Apr. 9, 1967, R. 's car collided with plaintiff's house and plaintiff sustained damages. R. was insured by third party insurers under a policy which provided:

Art. 22 - Claims. Obligations of the Insured when claim occurs. The Insured must, at the risk of forfeiture (except in unavoidable circumstances or due to act of God) advise the insurer immediately he has knowledge of a claim and at the latest within five days (Twenty-four hours in case of theft) in writing or verbally against a receipt, either to the head office of the insurer or to the agency indicated on the policy.

The third party were informed of the accident in July, 1967, and on August 10, 1967, accident forms having been sent in by R's solicitors to the third party's solicitors, the third party stated that they reserved their position under the terms of the policy. On Nov. 29, 1967, the third party stated categorically to the plaintiff's solicitors that they would only indemnify R. in respect of the plaintiff's damages for personal injuries and loss of earnings. The plaintiff obtained judgment against R for damages of £190 (personal injuries); £54 (loss of earnings); and £1131 (damage to house). In third party proceedings by R.against insurers, Mocatta, J., held that R had not given notice within five days and was in breach of the policy condition; but that the third party had to make up their mind whether to repudiate liability within a reasonable time; that the delay until Nov. 20, 1967, was unreasonable; and that, therefore, the third party had lost their right to repudiate. On appeal by the third party. ---- Held, by C.A. (Danckwerts, Fenton Atkinson and Phillimore, L. JJ.), that when the third party discovered (a) that there was a claim and (b) that R.was in breach of policy conditions, they could elect to refuse indemnity or to accept liability or to delay their decision; and mere lapse of time, on the facts of this case, would not lose them their right ultimately to decide to refuse indemnity; lapse of time would only operate against them if there was prejudice to R.or third party rights intervened or delay was so long as to be evidence that the insurers had decided to accept liability; and that none of those possibilities arose in this case. Appeal allowed."

15. Whilst in Farrell's Case the insurers did nothing to indicate to the insured that they no longer insisted on the performance of the condition, in Barrett's Case, the insurers by their failure to ask for the notice of intended prosecution quite clearly led the insured to believe that he was not required to do so. Both cases may be regarded as illustrations of the general principle enunciated by Lord Denning above.

16. In the present case the letter of 3rd March 19...(illegible) said in effect: "We have asked you to give us an accident report, but up to now you still have not done so. In the circumstances we have no alternative but to deny liability." The two letters written in 1972 show that throughout the whole of the relevant period the insurers had been pressing the defendant firm for an accident report. The present case may therefore be distinguished from Barrett's Case. In my view the plaintiff company had not by their letters waived the breach of Condition One. And as they had promptly denied liability upon the receipt of a claim, it has not been suggested that there had been a waiver similar to that described in Allen v. Robles.

17. The next question is whether the taking over by the insurers of the conduct of the action between Mr. Wong Ten-shing on the one hand and the defendant firm and the driver on the other constituted a waiver. The plaintiff company was caught between their statutory obligation under Section 10 and the lack of response from the defendant firm. In the light of the defendant firm's indifference and failure to co-operate, the reasonable and safe course for the plaintiff company to take in order to safeguard their own interests was to take over the conduct of the proceedings. Not having been given any information about the accident, they were in no position to admit or deny liability on behalf of the defendant firm whom they had been pressing unsuccessfully for an accident report for a very long time. A reasonable course would therefore be to settle the case for the best terms possible. In the circumstances of this case the action they took under Condition Two did not in my view constitute a waiver or otherwise preclude them from relying on Condition One.

18. Condition Two specifically provided that the plaintiff company "shall have full discretion in the conduct of any proceedings or in the settlement of any claim." It is therefore not open to the defendant firm to argue that they were prejudiced by the plaintiff company's conduct over, and subsequent settlement of, Mr. Wong Ten-shing's claim.

19. Judgment for plaintiff company for $15,953.45 with interests computed at the rate of eight per cent per annum, as regards the $14,000 from 29th October 1971, and as regards the $1,953.45 from 8th February 1972, until the date of this judgment. Costs of this action to the plaintiff company.

Representation:

F.A.L. Eddis (J.S.M.) for Plaintiff

Patrick P.T. Fung (Y.Y.Y.) for Deft.

(1) (1970) 1 WLR 1400

(2) (1966) 1 WLR 1334

(3) (1922) Lloyd's List Law Reports 399

(4) [1952] 1 Lloyd's Law Reports 527, 539.

(5) [1969] 2 Lloyd's List Law Reports 61