Cheuk Ma Yee v. The Oriental Fire and Geneal Insurance Co Ltd
Read the full judgment text of HCA 3375/1979 on BabelCite. This High Court CFI judgment.
1. This case harks back to the period when it was not compulsory for the driver of a private car in Hong Kong to be insured against third party risks in respect of his own passengers.
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HCA003375/1979 Non-compulsory motor-vehicle third party insurance policy - breach of Conditions - waiver - estoppel - S.2 of Third Parties (Rights Against Insurers) Ordinance, Cap. 273.
IN THE SUPREME COURT OF HONG KONG HIGH COURT -----------------
----------------- Coram: Rhind, J. in Court Date of Judgment: 21st May, 1980. ----------------- JUDGMENT ----------------- 1. This case harks back to the period when it was not compulsory for the driver of a private car in Hong Kong to be insured against third party risks in respect of his own passengers. 2. On the 7th December 1973, Cheuk Kan Yan (hereafter called "the deceased"), who was a passenger in private car AW6151 owned and driven by Lau Koon Ki, was killed as the result of AW6151 colliding with vehicle AE5832 on Tai Po Road and over-turning. 3. In due course, the plaintiff in the present case brought High Court Action No. 1205/76 against Lau Koon Ki, claiming damages for negligence on behalf of the deceased's estate under the provisions of the Law Amendment and Reform (Consolidation) Ordinance, Cap. 23 and on behalf of the dependants of the deceased under the provisions of the Fatal Accidents Ordinance, Cap. 22. Final judgment was entered against Lau Koon Ki for the sum of $79,300 together with costs, which on taxation amounted to $16,258.80. 4. Lau Koon Ki being a man of straw, the judgment remains unsatisfied, and he was adjudicated bankrupt on 24th May 1979 in Bankruptcy Proceedings No. 71/78. 5. It so happens that, covering the period from 24th October 1973 to 23rd October 1974, Lau Koon Ki of his own volition had chosen to insure his car AW6151 against third party risks to his own passengers. The policy effecting this was taken out by Lau Koon Ki with the defendant company through its General Agents, Mutual Underwriters Limited. 6. The policy is in standard form. It starts off with the usual qualification that it is subject to the terms, exceptions, and conditions which it contains. Under the heading "Liability to Third Parties" it provides that:-
The defendant company refuses to pay the plaintiff under the policy. 7. Relying on S.2 of the Third Parties (Rights Against Insurers) Ordinance, Cap. 273, the plaintiff claims that he is entitled to step into the shoes of Lau Koon Ki to enforce the right of indemnity against the defendant company. 8. That cannot avail the plaintiff anything, the defendant company maintains, because Lau Koon Ki was not entitled to an indemnity, being in breach of the conditions of the policy. 9. According to the defendant company's pleadings, Lau Koon Ki was in breach of the following numbered conditions of the policy:-
10. It is common ground that the onus of proving the breach of these conditions rests with the defendant company which seeks to be excused from liability on the policy (see Bond Air Services Ltd v. Hill (1955) 2 Q.B. 417). 11. Particulars of the alleged breaches will be looked at in a moment, but by way of general comment it can be said at this point that the plaintiff disputes that there were any breaches. Moreover, so the plaintiff pleads, even if there were any breaches, the defendant company has waived them or is estopped from relying on them. 12. Immediately following the accident, AW6151 was detained for inspection, and in his report (Exh. D3) the Government Motor Vehicle Inspector stated that the steering was defective with excessive steering wheel free play (about six inches) and the off-side steering tie-rod end was badly worn. He also found that two tyres were bald and another "worn 80%". 13. On 12th June 1974, at Fanling Magistracy, Lau Koon Ki pleaded guilty to a charge that, at the time and place of the accident, he drove AW6151 when its steering gear was not maintained in good and efficient order. On 2nd July 1974 he also pleaded guilty to dangerous driving causing death in relation to the same accident. 14. A perusal of the exhibited correspondence makes it clear that, throughout, the alleged breach of condition arising from Lau Koon Ki's alleged failure to maintain AW6151's steering in proper order has been the defendant company's main concern, although by its pleadings it has also sought to rely on other breaches of the Conditions of the policy. This came across, too, in the way the defendant company presented its case in court, the main thrust of the defence being directed towards the question whether the vehicle's steering had been properly maintained, while other alleged breaches of the Conditions were never presented as if they were much more than make-weights. When, by its solicitors' letter dated 23rd December 1976 (Exh. A21), the defendant company purported to inform Lau Koon Ki that it was repudiating its liability under the policy, the only breach complained of was defective steering amounting to failure to maintain. Complaints of other alleged breaches seem to have been afterthoughts on the defendant company's part. 15. As far as one can gather from the evidence, the main cause of the accident appears to have been the extremely negligent manner in which Lau Koon Ki drove in trying to over-take six other vehicles. Those were the facts to which he admitted before the magistrate in pleading guilty to dangerous driving. It is, nonetheless, quite conceivable that defective steering could also have played a part in the outcome of that accident, and it might well be that the defendant company considered that the defective steering contributed to the loss for which indemnity is now sought under the policy. There is no suggestion, however, that any of the other alleged breaches of the Conditions on which the defendant company now seeks to rely were connected with the loss. 16. The defendant company is, however, entitled to avoid liability under the policy even for breaches of the Conditions unconnected with the loss. Reliance on technical breaches of conditions can afford a good defence in this branch of the law, but in practice, of course, reputable insurance companies normally do not like their names to be associated with that type of defence. 17. Two technical breaches of the Conditions of the policy alleged by the defendant company are that Lau Koon Ki failed to inform them of the accident immediately upon its occurrence, contrary to Condition 1, and that he also failed to notify them of his prosecution for driving with defective steering gear, contrary to Condition 2. To prove these two omissions, DW3, the managing director of the defendant company's Kowloon branch, was called. He was a truthful witness, but his evidence did not carry the defendant company's case far. All he was able to say in effect was that he was unaware of any record of Lau Koon Ki having reported this accident or his impending prosecution. It turned out that DW3 is not even concerned with claims, and was really in no position to say what reports might have been made to the defendant company's Hong Kong branch. 18. According to DW3, the defendant company first got to hear of this accident from the Director of Legal Aid's letter (Exh. A1) of 2nd July 1974, which merely mentioned that there had been an accident without even going into particulars of whether anyone had been injured. Presumably prompted by that letter, the defendant company was able to write a letter (Exh. A3) on 8th July 1974 which showed that the defendant company already knew then that a man had been seriously injured in the accident. There is no indication of what was the source of this knowledge on the defendant company's part, and DW3 was not able to help on this. He was not in a position to deny or affirm that this information could have come from Lau Koon Ki himself. 19. I was left in a position where I could not say that it was more probable than not that Lau Koon Ki had made these omissions, so that the defendant company failed to establish that he had committed the particular breaches now under consideration. In any event, as will appear later in this judgment, the question of whether Lau Koon Ki was in breach is all rather academic, because the defendant company has well and truly waived any such breaches. In so far as breaches of Conditions 1 and 2 are concerned, it was not seriously urged upon me by the defendant company's counsel that his client had failed to waive them. 20. A further breach of Condition 2 is said to have occurred when Lau Koon Ki made admissions by pleading guilty in the Magistrate's Court. Waiver aside, the short answer to that is that a provision in an insurance policy seeking to inhibit an accused person from pleading guilty is contrary to public policy. (See e.g. David Shuai v. Chan Tim Wo v. London Star Insurance Co. Ltd HCA 1544/78). 21. It is now convenient to consider whether Lau Koon Ki broke Condition 5 which required him to take all reasonable steps to maintain the car in an efficient condition. 22. Significantly, paragraph 6 of the Defence is in the following terms:-
23. That paragraph directs attention towards whether the vehicle was in fact maintained in an efficient condition, whereas the crucial question for the purposes of Condition 5 is whether Lau Koon Ki took all reasonable steps to maintain the vehicle in an efficient condition. Throughout, the defendant company and its legal advisers seem to have been addressing themselves to the wrong question. 24. There is no doubt that, at the time of the accident, the steering was not maintained in an efficient condition - it had a badly worn off-side tie-rod end. However, that is not necessarily something which would be obvious to a driver unless the vehicle was dismantled. After the accident, there was six inches of steering wheel free play, but I am by no means persuaded that there would have been anything like that degree of free play before the accident. From what DW2, the defendant company's expert, told me in court, it sounded as if it would have been impossible to control the car at all if there had been that amount of free play before the accident. Such evidence as there is does not suggest to me that the vehicle ran out of control, but rather that the driver embarked on a reckless piece of driving. I would have thought it more likely than not that the massive amount of free play with which the steering finished up was occasioned by the accident itself. 25. Certainly, the defendant company's experts' reports (Exh. D1 and D2) are consistent with the maintenance of the steering in fact being deficient, but they do not bear directly on the problem of the steps Lau Koon Ki took to maintain his steering. Inferentially, the fact that the maintenance of the vehicle turned out to be defective could at least point in the direction that he had not taken reasonable steps to maintain it. 26. I do not propose embarking on a detailed exegesis of the experts' reports when their significance is doomed to be eclipsed by the view I take on waiver and estoppel in any event. Suffice it to say that the defendant company just failed to tip the balance in its favour. 27. By having bald tyres, Lau Koon Ki was in breach of Condition 5 about taking reasonable steps to maintain the vehicle. Unlike a defect in the steering mechanism, bald tyres are a patent defect which any reasonable driver should know about. However, waiver and estoppel have relegated this breach to a matter of mere history. 28. Next we move on to the question whether, in so far as there were breaches, were they waived? 29. At the latest, the defendant company first knew of this accident in early July 1974, when it received the Director of Legal Aid's letter of the 2nd July 1974 (Exh. A2) to which reference has already been made. Immediately on receipt of that, the defendant company set its enquiries in motion (Exh. A3 refers). 30. There was then a lull till the middle of February 1975 when the defendant company received a letter (Exh. A5) from the plaintiff's solicitors in relation to the plaintiff's claim against Lau Koon Ki. That prompted the defendant company to arrange for Lau Koon Ki to call at their office where, on the 22nd February 1975, he made a written report on the accident on one of the defendant company's "Notice of Accident Under Motor Policy" forms (Exh. A6). 31. After this, the defendant company again started to pursue active enquiries into the accident, learning from the Police Accident Enquiry Section's letter of 26th February 1975 (Exh. A8) that as a result of the accident, Lau Koon Ki had been convicted of Dangerous Driving Causing Death and Using a Vehicle With Defective Steering. 32. On 15th March 1975, so DW3 told the Court, the defendant company came into possession of the Government Motor Vehicle Inspector's report (Exh. D3), which described the defective steering and the bald tyres. 33. Again, there was a long lull which was broken on 16th June 1976, when the plaintiff's solicitors sent (Exh. A9 refers) the defendant company a copy of the writ it had issued that day for the plaintiff against Lau Koon Ki, in High Court Action 1205 of 1976, together with a Notice To Insurers (Exh. A10). 34. This seems to have stirred the defendant company a bit more. It got on to its solicitors who started to make enquiries into the accident (Exh. A12 and A13 refer), and the defendant company itself, by a letter dated 23rd June 1976 (Exh. P1), sought an expert opinion on the defects in the vehicle revealed by the Motor Vehicle Inspectors Report (Exh. D3), that expert's opinion being embodied in a letter in reply (Exh. D2) dated 25th June 1976. 35. On 21st June 1976 the defendant company's solicitors wrote to the plaintiff's solicitors announcing that they acted for the defendant company. 36. On 23rd July 1976 the defendant company's solicitors wrote to Lau Koon Ki in the following terms:-
37. No reply was received to that letter. 38. Next on 20th October 1976 the plaintiff's solicitors wrote to the defendant company's solicitors enquiring whether they were prepared to accept service of the writ in High Court Action No. 1205/76 on behalf of Lau Koon Ki. 39. That was followed by silence until the plaintiff's solicitors received the following letter (Exh. A22), dated 23rd December 1976, from the defendant company's solicitors:-
40. It will be noted that this letter does not explain to the plaintiff why the defendant company do not consider themselves liable to any of the parties - there is no reference to the defendant company repudiating liability under the policy on account of any breach of condition. It was not till a year later that the plaintiff's solicitors were informed of this purported repudiation (Exh. A28 refers). The significance of this omission will be taken up later in this judgment when the Court considers whether the defendant company is estopped from denying repudiation as against the plaintiff, even in the absence of a like estoppel as against Lau Koon Ki. 41. That same day - 23rd December 1976 - the defendant company's solicitors wrote a somewhat longer letter (Exh. A21) to Lau Koon Ki, the text being as follows:-
42. Lau Koon Ki never got in touch with the defendant company's solicitors. 43. Already on 2nd December 1976, the plaintiff's solicitors had got an order for substituted service of the writ against Lau Koon Ki, and on 28th December 1976 they wrote to the defendant company's solicitors (Exh. A23 refers) that unless they entered an appearance on behalf of Lau Koon Ki and filed a defence within 14 days the plaintiff would obtain interlocutory judgment. 44. On 30th December 1976 the defendant company's solicitors duly entered an appearance on Lau Koon Ki's behalf. They then proceeded to draw up his Defence which they sent to him under cover of the following letter on 14th March 1977 (Exh. A24):-
45. Without receiving any reply from Lau Koon Ki, the defendant company's solicitors filed his Defence on 22nd March 1977. 46. Next there followed conventional steps along the road to trial, such as the plaintiff's solicitors filing a Summons for Directions on 19th April 1977 and the Registrar's Order of the 4th May 1977 consequent thereon. The final step taken by the plaintiff's solicitors to bring the case on for trial was to file their Application To Set Down For Trial on 6th October 1977. 47. Then, on 25th November 1977, which was three weeks before the case came on for trial on 14th December 1977, the defendant company's solicitors filed an application with the Court to have themselves removed as Lau Koon Ki's solicitors, that application being granted on 30th November 1977. 48. Between the time that the defendant company's solicitors took over the conduct of Lau Koon Ki's defence by filing an appearance for him on 30th December 1976, and their applying to cease to act as his solicitor on 25th November 1977 there had been two new developments. 49. One was that as a result of the defendant company's letter of 12th October 1977 to Toplis & Harding (Hong Kong) Ltd, loss adjusters, they got a letter in reply (Exh. D1), dated 17th October 1977, expressing an opinion on the defective steering of AW6151. There was no reason the defendant company could not have procured this opinion more than two and a half years earlier when they first became aware that the vehicle had defective steering, and as a matter of interest I do not consider that the opinion expressed by Toplis and Harding (Hong Kong) Ltd in Exh. D1 added appreciably to what the defendant company already knew as the result of the expert opinion it had already obtained from R.N. Richards & Company (Exh. D2) on 25th June 1976. 50. While I do not regard the defendant company's motives as particularly significant for the purpose of my decision, I observe as a matter of interest that I do not believe that it was Toplis & Harding (Hong Kong) Ltd's opinion, contained in its letter (Exh. D1), which led to the chain of events resulting in the defendant company's solicitors applying to cease to act for Lau Koon Ki. The part Exh. D1 played would have been tangential in the extreme, I would have thought. 51. The second of the two developments was the Court of Appeal's decision, delivered on 26th July 1977, in the case of Chan Lam Chun v. The National Insurance Co. Ltd (now reported at 1977 H.K.L.R. 417), which shares many factual similarities with the case before me. 52. It is no criticism of the defendant company's solicitor's Affirmation dated 25th November 1977 in support of the application to cease acting for Lau Koon Ki, to say that it was obviously drafted with a view to minimising the impact which the Court of Appeal's decision would have on the situation in the present case. 53. Just because waiver was found to be present on the peculiar facts of Chan Lam Chun's case, it, of course, by no means follows there is any waiver present on the facts before me. Whether waiver is present will depend on the particular combination of circumstances in any given case. 54. On the facts before me, I regard the defendant company's solicitors entering of an Appearance on Lau Koon Ki's behalf on the 30th 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. 55. In entering an appearance for Lau Koon Ki and taking such steps as filing a Defence in his name, the defendant company's solicitors acted to Lau Koon Ki's detriment: they made him potentially liable for the other side's costs, besides also tieing him to a particular line of defence on account of the admissions and assertions embodied in the Defence filed on his behalf. 56. I will waste few words on the effect of the defendant company's solicitor's letter (Exh. A21) of 23rd December 1976. This was a transparent attempt to secure the best of all worlds for the defendant company: to repudiate while remaining immune from the consequences of repudiation. The vocabulary of the law is rich in expressions to the same effect as the vernacular: "You can't have your cake and eat it". Two common ones are "You cannot blow hot and cold" and the other is "You cannot approbate and reprobate". Exh. A21 tried to do all of those things but in vain. The defendant company needed to make its mind up: it had had over two and a half years within which to do so. 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. 57. On the view I have taken of the facts, there was only the one proved breach of the Conditions which needed to be waived, namely the failure to take reasonable steps to maintain the vehicle efficiently by virtue of the defective tyres. It is arguable that the defendant company had waived that particular breach long before the appearance was entered for Lau Koon Ki, but as nothing turns on pin-pointing the precise time that particular breach was waived, suffice it to say it was waived on the date of entering Lau Koon Ki's appearance at the latest. All breaches of the Conditions in the policy were waived on that day at the latest. 58. On the point of whether Lau Koon Ki suffered any prejudice through the defendant company taking over his defence, it has been pointed out that he need not suffer any financial loss as the result of this because the defendant company's solicitors, at the time of applying to cease to act for him, undertook to indemnify him against the costs thrown away. 59. This ex post facto offer makes no difference. Lau Koon Ki was prejudiced by his potential primary liability for the plaintiff's costs. The plaintiff must succeed in the present action because the defendant company has waived any breaches of the policy. 60. Estoppel has also been pleaded by the plaintiff. This affords another ground on which the plaintiff is entitled to succeed in the present action. What is present here is estoppel by matter in pais. The defendant company's action in causing an appearance to be entered against Lau Koon Ki was conduct amounting to an unequivocal representation of fact that the policy of insurance was still valid, and from that point on, Lau Koon Ki, as a reasonable man, would have been entitled to act on the assumption that the policy was valid. How Lau Koon Ki's position was altered to his prejudice has already been explained in relation to waiver, and the same material can be relied upon for establishing prejudice in relation to estoppel. 61. By a straight forward application of S.2 of the Third Parties (Rights Against Insurers) Ordinance, Cap. 273, the plaintiff is entitled to succeed against the defendant company by relying on the same estoppel as Lau Koon Ki. 62. Normally, in the present type of case, the claimant has to rely on being directly subrogated to the rights of the insured person. However, in the instant case before me, there existed a basis on which I would have allowed the plaintiff to succeed against the defendant company even without being able to step into the shoes of Lau Koon Ki. 63. It will be recalled that on 23rd December 1976, the defendant company's solicitors sent two letters, one (Exh. A21) to Lau Koon Ki purporting to inform him that the defendant company no longer considered itself liable under the policy because of a specified breach of a Condition, namely defective steering, and the other (Exh. A22) to the plaintiff merely making a general denial of liability without condescending to any particulars of why this should be so. Both letters, it will also be remembered, sought to keep the defendant company's options open by providing for the defendant company to take over the defence of the action in Lau Koon Ki's name. 64. Supposing I am wrong, and that despite the defendant company's entering an appearance on 30th December 1976, there was no waiver, whether by virtue of its letter (Exh. A21) to Lau Koon Ki of 23rd December 1976 or for some other reason. 65. Although in those circumstances the defendant company could rely on any unwaived breach of the Conditions it pleaded to defeat a claim by Lau Koon Ki for indemnity under the policy, I would, nonetheless, 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. Once the defendant company, through its solicitors, caused an appearance to be entered in the name of Lau Koon Ki, the plaintiff was landed with the inescapable situation that he was now fighting a contested action. The defendant company knew full well that the plaintiff would have to act on the new situation it had created - there was no choice if he was to proceed with his action. The prejudice caused to the plaintiff by the defendant company's action is self-evident: instead of being able to move swiftly to interlocutory judgment by default the plaintiff was held up for nigh on a year while gradually overcoming each of the procedural obstacles which defended litigation inevitably put across his path. Equity could not allow the defendant company to slip away so easily from the consequences of what it has done, and the doctrine of estoppel would provided the tool for ensuring that justice gets done. 66. There will be judgment for the plaintiff for the following amounts:
67. The plaintiff's claim for the taxed costs of Bankruptcy Proceedings No. 71/78 will be disallowed because that claim does not fall within the ambit of section 2 of the Third Parties (Rights Against Insurers) Ordinance, and I am not aware of any other basis on which the defendant could be held liable for that amount.
Representation: Mr David Yam (Poon & Sum) assigned for plaintiff Mr Donnelly (Gallant Y. T. Ho & Co.) for defendant |