Universal Dockyard Ltd v. Trinity General Insurance Co Ltd

HCA005498/1985

1985, No. A5498

IN THE HIGH COURT OF JUSTICE

HONG KONG

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BETWEEN

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Coram: Hon. Jones, J. in Court

Dates of hearing: 9, 10, 14, 15, 16, 17 and 20 October 1986

Date of delivery of judgment: 5 November 1986

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JUDGMENT

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1. On the 27th December 1983, the plaintiff, a firm of ship builders in Hong Kong entered into a contract with the China National Technical Import Corporation to build a dredger with a gross tonnage of 420 tons at a cost calculated in Japanese Yen which is equivalent to about HK$10,000,000. After construction was completed, the plaintiff agreed to deliver the vessel to the Qin Huang Dao Port Management Authority (the Port Management Authority) in China under a ship delivery agreement that was dated the 26th December 1983. For this purpose, the Port Management Authority arranged for a crew of 10 seamen to be sent to Hong Kong to collect the vessel and to sail it from Hong Kong to China. By the agreement, the plaintiff agreed to be responsible for the personal safety of the seamen during the voyage and to take the necessary steps to insure them whilst employed on board. Accordingly on the 29th October 1984 the plaintiff placed with the defendant a Personal Accident Travel policy (the Policy) to cover 11 of the Chinese personnel in the sum of HK$200,000 for each individual. The eleventh person was a ship building engineer who had been in Hong Kong to supervise the the construction of the vessel. The plaintiff also took out a separate policy of insurance to cover the sea transit of the vessel from Hong Kong to China with another insurance company.

2. The vessel left Hong Kong for China on the 2nd November 1984 but capsized on the 4th November 1984 off Shantou in the South China Sea with the loss of 12 lives including 8 of the Chinese seamen.

3. The plaintiff has paid to the beneficiary under the policy the Port Management Authority the sum of HK$1,600,000 in respect of the 8 seamen who lost their lives that were purported to have been covered under the policy. A claim for reimbursement by the plaintiff against the defendant under the policy has been repudiated with the result that the present proceedings were commenced on the 4th September 1985. However, at the hearing it was conceded by the plaintiff that it is not entitled to claim under the policy for by Clause 6(3)(d) cover is not extended to the death of an insured whilst the insured is engaged in manual work in connection with the insured's occupation.

4. The plaintiff's claim is now based upon a collateral contract which it is alleged was entered into between the parties on the 29th October 1984 when oral representations were made in a telephone conversation by the defendant's representative Mr. I.M. Chang to the plaintiff's representative Mr. Tony Leung. It is the plaintiff's case that Mr. Chang the defendant's office manager told Mr. Leung that the policy would effectively serve as effective insurance to cover them for the risk of personal injury to the insured during the voyage from Hong Kong to China. By their defence, the defendant contends that they were informed by Mr. Leung that the insured were merely travelling as passengers on the vessel from Hong Kong to China and would not be carrying out any work during the voyage. All the insured were described in the policy as 'ship building engineers'. The defendant therefore maintains that Mr. Leung deliberately misrepresented the occupations of the insured with the result that they were entitled to repudiate liability under the policy.

5. The principal witness for the plaintiff was Mr. Leung whose wife Mrs. Ruth Leung is an executive director of the plaintiff. In 1984 he was employed by the Century Insurance Company dealing mainly in life insurance. He met Mr. Chang in December 1983 and during 1984 he negotiated several policies of insurance with him which resulted in premiums of at least HK$250,000 being paid to the defendant. Two of these policies were the Contractor's All Risks Policy and the Hull Policy for the dredger which he negotiated on behalf of the plaintiff. He also negotiated with Mr. Chang for the Sea Transit Policy of the vessel from Hong Kong to China, but as the quotation was too high it was placed with another company. With regard to the policy Mr. Leung says that he first spoke to Mr. Chang about the matter on the 25th October 1984 when he said that he wished to insure eleven crewmen and required insurance of $200,000.00 for each insured. Mr. Chang informed him that the cost of the policy would be between $100 to $1,000. Mr. Leung said he would telephone later to let him know the position and subsequently sought quotations from other companies. From another company he learnt that the premium for each insured would be $300 whilst he ascertained that his own company did not write such insurance. On the 29th October 1984 he telephoned Mr. Chang from his home in the presence of his wife and asked that insurance be placed for crewmen. He was then asked to give particulars of the names and ages of the insured, but as he did not have this information, he said he would telephone back later. His wife then telephoned her office for these particulars which she obtained from Miss Tse, the plaintiff's administration officer and wrote them down on a used envelope which was produced as exhibit D9. Mr. Leung then telephoned Mr. Chang again and read out to him the details of the insured from that document. After he had done so, Mr. Chang asked him for details of the occupation of each insured. It was again necessary for Mr. Leung to ask his wife, who told him that they were China crewmen which information he relayed to Mr. Chang. Mr. Chang then enquired whether there were any engineers which question had to be put to his wife who thought that there were. After this information had been given Mr. Chang asked whether he should put down the occupations as ship building engineers. As neither Mr. Leung nor his wife regarded the occupation to be a matter of importance, and Mr. Chang had given an assurance to this effect, that nothing would happen, and it was only a formality, they agreed.

6. It appears that the initial period for insurance that had been given by Mr. Leung was for five days whilst there was evidence from the defendant's witnesses to the effect that this period was later extended to seven days and ultimately to fourteen days. Before he was recalled to give evidence, Mr. Leung was unable to give any explanation for either extension. However, after Mr. Sunny Liu of the defendant had produced some documents during his cross examination, Mr. Pritchard on behalf of the plaintiff sought to recall Mr. Leung to deal with certain evidence to which he made no reference when he was originally in the witness box. This evidence related to the extension of the period of insurance to fourteen days which he remembered after he was shown the envelope upon which his wife had written down the names and ages of the insured. As a result of seeing this document, he said that he paid a visit to the defendant's office after lunch or. the 29th October 1984 when he handed it to Mr. Chang and also informed him that according to his wife the duration of the voyage would be between ten to fourteen days. This was the only visit that he made to the defendant's office in connection with the policy.

7. When he was cross examined about the periods of insurance, he says that he may have made a mistake when he said that the first period was five days when he meant a few days. He explained that the basis upon which he gave a period of five days was because he had overheard some people at the plaintiff's shipyard say that the voyage would take at least a few days and upon this information, he obtained a quotation for five days from another insurance company before seeking a quotation for the same period from the defendant.

8. Mrs. Leung corroborated her husband's evidence with regard to the telephone conversations that he had with Mr. Chang whilst Miss Tse who is no longer employed by the plaintiff confirmed that in October 1984 when she was employed by the defendant, she gave the details of the names and ages of the mainland Chinese personnel to Mrs. Leung when she requested this information on the telephone. During the conversation she heard Mr. Leung's voice in the background. Mrs. Leung also testified that the policy was delivered to her at her office by a messenger on the 30th October 1984 and that she showed it on that evening to some of the Chinese representatives at a dinner.

9. A significant part of the plaintiff's evidence related to a meeting that was held on the 30th August 1984 when Mr. Chang came to see Mrs. Leung at the plaintiff's office when Miss Tse was present to discuss a possible extension of the Hull Policy and insurance for the vessel for its voyage to China. During this meeting it was alleged by both Mrs. Leung and Miss Tee that Mr. Chang read the contents of the ship delivery agreement. Mr. Chang denied this allegation and also alleged that Mr. Leung was present at the meeting.

10. Mr. Chang agrees that he received a telephone call from Mr. Leung at about noon on the 29th October 1984 when he was asked to write insurance for a group of mainland Chinese ship builders to cover them for their voyage back to China. He asked for the names and ages of these ship builders and also details of the period of the voyage. As Mr. Leung did not have this information, he phoned back later with this information, together with the period of the journey which at that stage was five days. The premium quoted for this period was just over $610.00. Mr. Leung agreed to the terms and said that as he needed the policy urgently, he would come to the defendant's office after 5 p.m. to collect it as it was necessary to show the policy to the group of ship builders at a dinner to be held that evening. Mr. Chang then gave instructions to his underwriting supervisor Mr. Sunny Liu to prepare the policy. For this purpose it appears that Mr. Liu had in front of him exhibit D8 which was a sheet of paper on which Mr. Chang had recorded instructions he had received from Mr. Leung for the preparation of the policy. I reproduce this document which is in Mr. Chang's handwriting apart from some additions and alterations that were made by Mr. Liu.

UDL

P. A. T. cone for the working group after jobs returning to China together with newly constructed dredges.

Period 14 days from 31-10-84 (Wednesday)

Journey : HK/QINHUANG DAO PORT CHINA

Insured persons (males) shipbuilding engineers.

11. Other writing that features on the document together with some alterations is in the handwriting of Mr. Liu. The period of insurance was originally for 5 days which has been altered by Mr. Liu to 7 and then to 14 days.

12. After he received instructions, Mr. Liu asked Mr. Chang whether the persons to be insured would be working on the vessel and was informed that they would not be working as they had completed their work and were taking a free ride home. On the same day, shortly after 3 p. m. Mr. Chang says that he received another telephone call from Mr. Leung to the effect that he wished the period for the voyage to be extended to seven days as the vessel might encounter winds and currents which would affect the duration. ' This resulted in an increase of the premium by a sum of about $50 and instructions were then given to Mr. Liu to this effect. The policy was ready shortly after 5 p.m. and Mr. Leung came to the defendant's office at about 5:30 p.m. to collect the policy. When he arrived, he had with him a list of the insured persons which he took to Mr. Liu so that he could check the names and other particulars. Two names were spelt incorrectly but they were not corrected until the following day. However, an amendment was made by deleting the amount of the premium which appeared in the policy to 'As Arranged'. Whilst the details of the premium were being erased, Mr. Chang spoke to Mr. Leung about the policy to the effect that it would be suitable for those persons, as they would not be working on board the vessel and the period was only for a few days and they were not the plaintiff's employees. He also claimed that after this conversation, Mr. Leung went over to talk to Mr. Liu.

13. On the 30th October 1984, Mr. Chang says he received a further telephone call from Mr. Leung to the effect that as the insured persons were to have a free ride, the vessel would require to be refuelled on its way to China and therefore requested a further extension of the period of insurance to 14 days and was told that the premium for this period would now amount to $860. Mr. Chang said that Mr. Leung came to collect the corrected policy on the following day at about noon.

14. After the accident, Mr. Chang went to China to make enquiries and he ascertained in Shantou that the persons insured were not ship building engineers, but were crewmen. Upon his return to Hong Kong he made a recommendation that the Salvage Association be instructed to make investigations into the cause of the accident. However, he did not contact Mr. Leung to inform him of the details that he had ascertained in China that the insured were not passengers on the vessel, but were crewmen. He explained that he did not do so because he wanted independent documentary evidence to confirm this information and to await the report of the Salvage Association.

15. He disputed Mr. Leung's evidence that he had visited the defendant's office to discuss the proposal for a policy before the 29th October 1984.

16. Mr. Liu said that after he received instructions from Mr. Chang, he contacted the Pioneer Insurance & Surety Corporation (Pioneer) and the Equatorial Reinsurance Company Limited (Equatorial) for the purposes of reinsurance of the policy. When he telephoned Miss Chow of Pioneer, she asked him if the persons to be insured would be working on the vessel to which he replied in the negative as they were ship building engineers. However, she enquired if he had personally asked the client whether this was so, and he said that he had not, but as the client was coming in that afternoon, he would do so on that occasion. Having ascertained from Mr. Leung that the insured would not be working, he communicated this fact to Miss Chow on the following day, the 30th October. He also gave evidence with regard to the amendments for the period of the voyage from 5 to 7 and lastly to 14 days. Acceptance of the reinsurance was confirmed by both Pioneer and Equatorial on the 29th October 1984 at 2:30 p.m. with the period of insurance stated to be from the 31st October 1984 to the 13th November 1984. Neither document shows details of any amendment to the period of insurance. Both these companies took 20% of the risk whilst another company, China Reinsurance Company (HK) Limited also took a further 20% of reinsurance on the 30th October 1984. As the defendant had treaty reinsurance for 35% the defendant was left with only 5% of the risk. Evidence was also given by Mr. Liu that he saw Mr. Leung on the 29th October after 5:30 p.m. and also on the 30th October.

17. Miss Chow of Pioneer and Miss Leung of Equatorial confirmed that they received telephone calls from Mr. Liu at about 2:30 p.m. on the 9th October for reinsurance of the policy and confirmed the information that had been given to them. Miss Chow did not have any evidence of the extension from 5 to 7 days, but Miss Leung said that both amendments had been given to her by Mr. Liu although she did not have any documents to support this evidence. Miss Chow said that as it was a special case she asked Mr. Liu to check whether the insured were to work on the vessel during the voyage. She confirmed that Mr. Liu later telephoned her to the effect that they would be purely passengers and eventually the policy of reinsurance was accepted. Miss Chow produced her worksheet, exhibit D13 which reveals a period of 5 days for the policy, but there is no reference to the final amendment to 14 days. Miss Chow testified that she may have forgotten to enter the amendment on her worksheet.

18. During the course of the trial it was difficult to determine where the truth lay. The allegations that Mr. Leung had deliberately misrepresented the occupations of the insured appeared as a matter of commonsense to be without foundation, for although the insured persons could no doubt be travelling as passengers, it was in the circumstances inherently unlikely. On the other hand, it was difficult to understand why Mr. Chang who had negotiated several policies with Mr. Leung that resulted in some substantial premiums being paid, would insist in describing the insured as ship building engineers when he knew perfectly well that they were crewmen. The defendant's benefit under the policy amounted to about $40. However, having heard all the evidence and having had ample time to reflect, I am now in no doubt where the truth lies. After a successful business relationship with Mr. Leung, Mr. Chang was in my opinion disappointed not to receive instructions to write the Sea Transit Policy from Hong Kong to China. Accordingly, in order that he did not entirely lose Mr. Leung as a client, he arranged to negotiate the policy, in effect, as a favour. The premiumfor this policy was considerably cheaper than the other quotation obtained by Mr. Leung although both sums were trivial by comparison to the premium paid for the Contractor's All Risks Policy and the Hull Policy. The defendant was not authorised to transact business that involved the insurance of crewmen but was only able to write insurance for passengers. That is why Mr. Chang decided that the only way to negotiate the policy was to describe the insured as ship building engineers. I am sure that he was told that one of the insured was a ship building engineer, but despite his knowledge that the others were crewmen, he decided to take a risk as in the words used by Mr. Leung which I accept "it was unlikely that anything would happen on the voyage". It is surprising if Mr. Chang was telling the truth that after his visit to China when he discovered the actual occupations of the insured that Mr. Chang did not communicate with Mr. Leung to ascertain why he had falsified the details for the policy. Again the evidence given by the defendant's witnesses that a full investigation had to be made by the Salvage Association into the cause of the accident before repudiating liability was inexplicable. It is conceivable that the defendant did not appreciate the significance of the exclusion clause in the policy, but I incline to the view that stalling tactics were employed in order to put off the evil day when a positive decision had to be made. Liability was not in fact repudiated until the 20th May 1985.

19. This is a case of fact which is based upon the evidence given in the two telephone conversations between Mr. Leung and Mr. Chang which took place on the 29th October 1984. Some of the evidence given by Mr. Leung was unsatisfactory. In particular the period of time for the voyage from Hong Kong to China. However, I consider that at the outset he had no idea how long the voyage would take other than that it would be for a few days. When he sought a quotation he was required to provide a specific period which is probably why five days was mentioned. Having obtained a quotation for this period from one insurance company, he sought a quotation from the defendant by way of comparison. The reasons given by Mr. Chang for the alleged increase of the period from 5 to 7 days and then to 14 days appear improbable, but were, at the end of the day, not of great significance. Mr. Leung gave great thought to his evidence and answers to many questions that were put to him took a long time to give. He was cross-examined at great length, and in particular when he was recalled after it had been established that his previous denial of having been to the defendant's office on the 29th October was wrong. However, I am quite satisfied that having heard his evidence he had forgotten about this visit and was not reminded until he had seen his wife's handwriting on exhibit D9. In fact, if there had been full discovery in this case before the hearing, it is highly probable that he would not have forgotten this visit. I also find that this was his only visit to the defendant's office with regard to the policy. Mr. Leung was, in my opinion, a truthful witness and I find as a fact that when he made the telephone call to Mr. Chang he specifically asked for insurance for crewmen and not for ship building engineers. I am also satisfied that Mrs. Leung was present during this telephone conversation and have no hesitation in accepting the evidence that she gave with regard to this matter. I also accept her evidence that she received a copy of the policy on the 30th October. Mrs. Leung was an impressive witness as was Miss Tse and I believe their evidence that Mr. Chang read the contents of the Ship Delivery Agreement at the meeting on the 30th August. It was clearly in the interest of Mr. Chang to study this document when he was discussing proposals to insure the vessel for the voyage. I find Mr. Chang's denial unconvincing and I reject his evidence that he did not read the agreement.

20. In fact Mr, Chang did not tell the truth about this policy of insurance. In my judgment, he wrote down ship building engineers as the occupations of the insured because as passengers they would be covered by the policy. He did not anticipate that anything would happen on the voyage and was therefore prepared to take a risk. There was clearly no reason why Mr. Leung should have informed Mr. Chang that the occupations of all the insured was that of a ship building engineer when it was clearly apparent to him that they were crewmen and would not be passengers on board the vessel during the voyage.

21. Mr. Liu gave his evidence, in my opinion, to support that of Mr. Chang. In particular his evidence was flawed with regard to the matter of the reinsurance policies for when he telephoned Miss Chow and gave the information that she set out in her worksheet, there is no mention of the occupation of the 11 persons to be insured. If exhibit D8 to which I have referred had been in the form in which it now appears, it is quite clear that Mr. Liu would have been able to inform her that the insured were ship building engineers who were returning to China after completing their work. In those circumstances, there would have been no necessity for Mr. Liu to obtain such information from Mr. Leung when he was due to call as alleged by Mr. Liu that afternoon. Further there was no evidence from Miss Chow that Mr. Liu did in fact telephone back with regard to this information. There is therefore considerable merit in the submission made by Mr. Pritchard for the plaintiff that the words in the first paragraph "after jobs" were not included at the time when Mr. Liu first saw this document and that they were added later together with the words "ship building engineers". Having carefully considered this document, I find that the alterations were made by Mr. Chang at a later date.

22. Further I reject Mr. Liu's evidence that he saw Mr. Leung after 5:30 p.m. on the 29th October and on the 30th October.

23. Both. Mr. Chang and Mr. Liu were unsatisfactory witnesses whose evidence was unconvincing.

24. There was an implied contract by the defendant with the plaintiff to provide an effective insurance policy for the personal safety of the insured on the voyage from Hong Kong to China which was accepted by the plaintiff. There has been a clear breach by the defendant to provide such insurance for the insured by their failure to issue the appropriate policy. Accordingly the plaintiff is entitled to judgment against the defendant for the sum of $1,600,000. The counterclaim is dismissed.

Representation:

Mr. R. Pritchard inst'd by Sit Fung Kwong & Shum for Plaintiff.

Mr. K. Bokhary, Q.C. & Miss P. Cheng inst'd by Woo, Kwan, Lee & Lo for Defendant.