New World Harbourview Hotel Co Ltd and Others v. Ace Insurance Ltd and Others

FACV No 12 of 2011

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO 12 OF 2011 (CIVIL)

(ON APPEAL FROM CACV NO 97 OF 2010)

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J U D G M E N T

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Chief Justice Ma :

1.Following counsel’s submissions at the hearing of the appeal, this Court dismissed the appeal with costs.  I agree with the Reasons for dismissing the appeal articulated by Sir Anthony Mason NPJ.

Mr Justice Bokhary PJ :

2.I agree with Sir Anthony Mason NPJ’s judgment, adding only this.  In the course of his able argument, leading counsel for the appellants managed to demonstrate that the word “notifiable” is sometimes capable of the meaning for which he contends. But the question of construction is, as Willes J pointed out in Kidston v Empire Insurance Co (1865-66) 1 LRCP 535 at p 546, “not as to the extension of which [the term to be construed] is capable, but of the sense in which it ought to be understood in the particular context with which it is to be reconciled”.  Once due regard is paid to the context, it becomes clear that the word “notifiable” in the clause calling for construction bears the meaning which the courts below attributed to it.  That meaning being clear, the contra proferentem rule does not enter the picture.

Mr Justice Chan PJ :

3.I agree with the judgment of Sir Anthony Mason NPJ.

Mr Justice Ribeiro PJ :

4.I agree with the judgment of Sir Anthony Mason NPJ.

Sir Anthony Mason NPJ:

Introduction

5.At the conclusion of the hearing of this appeal, the Court made an order dismissing the appeal with costs and stated that the Court would deliver its reasons at a later date.  These are my reasons for joining in the orders then made.

6.The question in the appeal, which comes from a judgment of the Court of Appeal (Rogers VP, Stone and Lam JJ), concerns the construction of two “Composite Mercantile Policies” issued by the respondent insurers.  The appellants (members of the New World Group), who own or operate convention centres, hotels, car parks and other businesses, sued on the policies to recover losses sustained from interruption of their businesses caused by Severe Acute Respiratory Syndrome (“SARS”)  in 2003.  Each appellant, other than the 5^th appellant, was insured under one of the policies.  The 5^th appellant was insured under both policies.

History of the proceedings

7.When the matter came before Reyes J at first instance, his Lordship, on the application of the respondents, directed the trial of five preliminary issues, the expectation being that resolution of the issues would facilitate assessment of the respondents’ liability.  The issues relate to the construction of the policies in the light of undisputed facts connected with the SARS outbreak in Hong Kong.  His Lordship determined the five issues substantially but not wholly in favour of the respondents and ordered the appellants to pay 80% of the respondents’ costs.

8.The Court of Appeal agreed with the trial judge’s determination of the first four issues and dismissed the appeal with costs.  The appellants did not contest the trial judge’s determination of the fifth issue.

9.The Appeal Committee granted leave to appeal to this Court on the ground that the case involved a point of law of great general or public importance namely:

“Whether, in common form and widely issued policies of the type in question, the provision of insurance cover in respect of loss sustained ‘as a result of notifiable human infectious or contagious disease’ is limited to cover losses resulting from infectious diseases which are by statute compulsorily notifiable or whether such cover extends to losses caused by diseases subject to administrative reporting requirements although not backed by statutory sanctions.”

The grant of leave seemingly confined the subject matter of the appeal to the first issue identified by Reyes J.  However, in the light of the arguments advanced in support of the appeal, I shall deal briefly with the second issue as well.    

The SARS outbreak in Hong Kong

10.The undisputed facts were taken from a Summary Report entitled “SARS in Hong Kong: From Experience to Action” (“the Report”) released by a Government-appointed Expert Committee on 2 October 2003.  The chronology arising from these facts is important in the determination of liability under the policies.

11.In late 2002 and early 2003 there was an outbreak of a pneumonia-like disease in Guangdong.  On 10 February 2003 the Hong Kong media reported that outbreak.

12.On 11 February 2003 the Guangzhou Bureau of Health confirmed that Guangzhou had been affected by an outbreak of an infectious and atypical form of pneumonia.  On the same day, the World Health Organization (“WHO”) announced that it had received reports from Mainland authorities of an epidemic of acute respiratory syndrome with 300 cases and 5 deaths in Guangdong.  In Hong Kong, on the same day, the Hospital Authority set up a Working Group to consider how to deal with Severe Community-Acquired Pneumonia (“CAP”).

13.On 12 February 2003 the Working Group set out procedures whereby public hospitals were requested to notify the Department of Health of CAP cases.  On 13 February 2003 the Department of Health also requested private hospitals to notify it of all cases of severe CAP.  But, as at this date, the reporting of CAP cases remained voluntary.

14.On 21 February 2003 a Mainland visitor (since known as Patient AA) checked into the Kowloon Metropole Hotel.  AA became the “index patient” for SARS in Hong Kong.  This was because in all likelihood AA was the source of the SARS outbreak here.  WHO suggests that nearly half of the 8,000 or so persons affected by SARS worldwide may be traced to AA or persons who came into contact with him. 

15.On 22 February AA was admitted to Kwong Wah Hospital.  He died on 4 March 2003 and was confirmed as having had SARS in mid-April 2003.

16.On 10 March 2003 some 11 health workers in Ward 8A of Princess of Wales Hospital went on sick leave simultaneously.

17.On 12 March 2003 WHO issued a high alert notice about cases of acute respiratory syndrome in Hong Kong, Guangdong and Vietnam. This was followed on 15 March 2003 by a WHO emergency travel advisory statement which identified the disease as SARS for the first time.  WHO declared SARS to be a worldwide health threat.

18.On 22 March 2003 scientists identified a previously unknown corona virus as the cause of SARS.

19.On 26 March 2003 the Department of Health was notified of the admission into hospital of 15 persons with suspected SARS. All 15 resided in the Amoy Gardens housing estate.

20.On 27 March 2003 the Hong Kong Government announced new measures to control the spread of SARS.  Among other things, SARS was added to the list of infectious diseases in the 1^st Schedule to the Quarantine and Prevention of Diseases Ordinance (Cap 141) (“the Ordinance”) then in force[1]. As a result, it became mandatory for SARS cases to be notified to the Government.

21.The number of SARS cases began to abate from mid-April 2003 and on 23 June 2003 the SARS epidemic was officially declared over.

The policies

22.Section 3 of the policies provides insurance cover to the appellants for what was described, somewhat inaccurately, as “Consequential Loss of Revenue”.  The appellants’ claim for lost revenue due to the SARS outbreak falls within s 3.  It is agreed that the policies are governed by Hong Kong law.

23.Clause 14.5 of each policy, which is the critical provision, is in similar form and is in these terms:

“This Policy is extended to insure actual loss sustained by the Insured, resulting from a Reduction in Revenue and increase in Cost of Working as a result of murder, suicide, infectious or contagious disease, food or drink poisoning or Contamination, and closure by a competent authority due to vermin or pests all occurring on the Premises of the Insured or of notifiable human infectious or contagious disease occurring within 25 miles of the Premises.”

Under this clause, loss is covered arising from two causes.  The appellants claim that, under the second of these causes, namely their loss resulted from infectious or contagious disease, being “notifiable human infectious or contagious disease occurring within 25 miles of the premises”.  The parties have proceeded on the basis that the 25-mile condition is satisfied once SARS occurs anywhere within Hong Kong.

24.Clause 13 of s 3 defines a number of terms, including in cl 13(2) the expression “Loss Period”.  It provides:

“13.2 LOSS PERIOD means the period during which the Revenue of the Insured Business has been affected in consequence of Damage from the date of loss to the resumption of the business and thence 180 days.”

25.Clause 14.5 defines “Damage” as “physical loss, loss of use, damage or destruction”.

26.Clause 15 on the “Basis of Settlement” stipulates:

“The Insured is indemnified with respect to actual loss of Revenue and increase in Cost of Working calculated in the following manner:

15.1  In respect of Reduction in Revenue, the amount by which the Revenue shall, in consequence of Damage, fall short of the Standard Revenue less all sums saved during the Period of loss in respect of the charges and expenses of the Insured Business payable out of Revenue as may cease or be reduced as a consequence of the Damage;

15.2  In respect of Increase in Cost of Working, the additional expenditure necessarily and reasonably incurred for the sole purpose of avoiding or diminishing the Reduction in Revenue which, but for that expenditure, would have taken place in consequence of Damage, but not exceeding the amount of the Reduction in Revenue thereby avoided.”

27.The period of insurance under each of the policies was from 1 July 2002 to 1 July 2003.  The earliest of the losses claimed by the appellants was 9 March 2003 which was within the period of insurance, but such losses occurred before 27 March 2003 when SARS became a notifiable infectious disease under the Ordinance.

THE TWO ISSUES

The first issue

28.The first issue was:

“On the proper interpretation of the Insurance Policies, and on the facts as set out in the Report entitled ‘SARS in Hong Kong: From Experience to Action’ released by the SARS Expert Committee on 2 October 2003, on what date did SARS become a ‘notifiable human infectious or contagious disease occurring within 25 miles of [Hong Kong]’ within the meaning of clause 14.5 of the Insurance Policies.”

29.The trial judge’s answer was “27 March 2003”.  His Lordship was of the view that “notifiable” in cl 14.5 imports a legal or mandatory requirement to notify.  The Court of Appeal came to the same conclusion.

The appellants’ case

30.Mr Benjamin Yu SC, for the appellants, submits that the policies should be construed by reference to their object which is to indemnify the insured against actual loss sustained as a result of serious human infectious disease likely to cause loss to the appellants’ businesses.  He argues that the interpretation given to “notifiable” by the courts below is too narrow and that the words “notifiable … disease” mean infectious or contagious diseases which are so serious as to warrant notification to the authorities.  There is, he says, no requirement for a legal or statutory obligation to notify.  Further, the clause should not be given a technical construction and should be construed contra proferentem.

31.In argument, however, Mr Yu SC sought to explain his interpretation of “notifiable … disease” by saying, as I understood him, that it would be satisfied by an administrative system or scheme of non-mandatory notification instituted by a relevant public authority under which such persons as may be determined by the authority would be requested to notify cases of infectious or contagious disease to that or some similar authority.  Such a system might involve a degree of informality, it was suggested, yet still fall within the words in question. 

Discussion

32.There are several problems with the appellants’ case.  First, the argument that the words in question signify an infectious or contagious disease so serious as to “warrant” notification, suffers from the absence of a clear and objective criterion by which it can be determined whether the disease is so serious as to be notified.  When is a disease so serious that it is appropriate or necessary to notify?  This is a question on which medical minds might be expected to differ.

33.Secondly, the administrative system or scheme posited by Mr Yu SC suffers from the weakness that it is based on a request rather than a requirement.  In this respect, the argument is at odds with the notion inherent in the appellants’ first submission and in cl 14.5 that the disease to be notified is a serious disease.  A serious disease, it is to be expected, would require notification.  Thirdly, there is no definition or description of the class of persons who are requested to notify the existence of the disease, except by reference to a class identified by the relevant public authority.  Surely such a system or scheme would need to extend not only to all hospitals but also to all medical practitioners and carers.  That would be a bridge too far for the appellants because the steps taken on 13 February 2003 were confined to notification by hospitals.  Finally there is the question whether the concept of notification of a disease contemplates a specific disease or a vague description such as the “pneumonia like” symptoms, which characterised the “severe CAP” referred to on 13 February 2003.  That expression was imprecise, to say the least of it.

34.The interpretation which should be adopted in the case of an insurance contract, as with other commercial contracts, is that which gives effect to the context, not only of the particular provision but of the contract as a whole, consistently with the sense and purpose of the provision[2]. In arriving at the true interpretation, the court will read the words and expressions of the contract as ordinary commercial people would understand them in their context[3], preferring in appropriate cases that understanding to any technical legal meaning that the words or expressions may otherwise have.  This proposition might be re-stated in terms of the passage in the judgment of Lord Hoffmann NPJ in Jumbo King Ltd v. Faithful Properties Ltd[4] without producing a different outcome in this case.  And, certainly in cases of ambiguity, the courts will construe the relevant provision contra proferentem. Indeed, it has been said that this principle “strongly applies” to insurance policies[5].

35.The object of cl 14.5 is not, as the appellants suggest, to indemnify against loss which results from serious infectious disease which is “likely to cause loss” to the appellants’ businesses.  Rather, it is to indemnify against actual loss of revenue sustained as a result of a notifiable human infectious or contagious disease.

36.Although the courts below concluded that “notifiable” in the context of infectious or contagious diseases, meant notifiable as a matter of mandatory legal obligation, the leading dictionaries do not speak with a single voice on this point.  The Cambridge Advanced Learner’s Dictionary defines “notifiable” as:

“a disease or offence that must be reported to public health or legal organizations”[6] (emphasis supplied)

Likewise, the Oxford English Dictionary supports the view taken in the courts below.  It defines “notifiable” as “That should be notified to some authority”[7] (emphasis supplied). 

37.Other definitions are not quite so prescriptive.  Thus the Oxford English Dictionary Online states:

“That should be notified to the relevant authority; (esp. of a serious transmissible disease) of a type such as to warrant or legally require such notification”[8]

And the Shorter Oxford Dictionary states:

“That should be notified to some authority; (esp. of a serious transmissible disease) of a type such as to warrant notification to some authority.”[9]

These definitions, though expressed in terms of obligation, appear to contemplate that there may be some cases where the seriousness of a disease is enough to make it notifiable, even though there is no mandatory obligation to do so.

38.On the other hand, well-known medical dictionaries state that “notifiable” or “notification” signifies an obligation or requirement to notify and, in most cases, they specify requirement as a matter of legal obligation.[10]   Although medical dictionaries offer definitions which reflect the understanding of the medical community, in a context which is concerned with “notifiable” infectious and contagious diseases, it should be accepted that the understandings of commercial people and the medical community would coincide.  In other words, in such a context, commercial people would look to the medical understandings and expect and intend their words to be understood accordingly.  So in cl 14.5, the expression “notifiable human infectious or contagious disease” should be understood as meaning an infectious or contagious disease which is required by law to be notified to an authority.  This interpretation is consistent with the dictionary meanings (or most of them) and gives effect to the immediate context.

39.Other contextual considerations support this interpretation.  There is a difference between the two types of cover provided by cl 14.5.  The first provides cover in respect of any infectious or contagious disease which occurs at the premises.  The second provides cover in respect of a notifiable infectious or contagious disease which occurs within 25 miles of the premises.  In other words, there is, as one might expect, a more stringent requirement in the case of an outbreak of disease away from the premises.  In this setting, it is sensible to give “notify” a clear and certain meaning.

40.Of more importance is the well-known existence of statutory regimes in many jurisdictions which require the notification of specified serious infectious or contagious diseases.  These regimes, and the Ordinance, as it then stood, was an instance of such a regime, typically require notification of a serious infectious or contagious disease which is likely to have a significant impact on the population with all its attendant consequences.  The parties would have been well aware of these regimes and the fact that they provide for compulsory notification and the parties would have contracted with that knowledge in mind.  It cannot be doubted that, against this background, commercial people would read the words in question as referring to infectious or contagious diseases which are required by law to be notified to a public authority.  So read, the words in question provide a clear and certain criterion for determining whether a disease is “notifiable”.

41.In passing I should mention that s 8(1) of the Ordinance conferred a wide-ranging power to make regulations for the purpose of preventing the introduction into, the spread in and the transmission from Hong Kong of any disease.  Section 8(2) enabled such regulations to provide for reporting to Government by medical practitioners or others of cases of disease.  Regulations 4 and 5 of the Prevention of the Spread of Infectious Diseases Regulations (under Part II of those Regulations, headed “NOTIFICATION”) made provision for the compulsory notification of the infectious diseases listed in the First Schedule to the Ordinance by medical practitioners to the Director of Health and by others to a health officer or a police officer.  The First Schedule could readily be amended by the Director by order in the Gazette.  Although there was no definition in the Ordinance specifically embracing contagious diseases, it is clear that the word “infectious” was used in a sense which would cover contagious diseases.

42.Accordingly, I conclude that “notifiable” imports a legal obligation or requirement to notify the infectious disease to an authority and I do not find any ambiguity in the relevant provision which would attract the contra proferentem principle.

The second issue

43.The second question is:

“In the premises, what is the commencement date of coverage under clause 14.5 of the Insurance Policies in respect of any claim made as a result of SARS?”

The answer given by the courts below to this question was “27 March 2003”.

44.The appellants’ case on this point is that, if an insured peril occurs during the period of the policy, the indemnity applies even if it is not possible to quantify the loss until later or even if the fact that the insured peril has occurred is not apparent at the time.  Mr Benjamin Yu SC makes the point that there is no temporal restriction in cl 14.5 and that the clause does not stipulate that the insured can only recover loss sustained after the infectious disease becomes notifiable.  The only requirement is that the loss was caused by a notifiable infectious or contagious disease.  So long as the loss was so caused, it is the subject of the indemnity even if it occurred before the disease became notifiable, so long as it was incurred within the period of insurance.

45.The appellants’ argument overlooks the point that the cause of the loss must be a notifiable disease and a disease does not become notifiable until it is required to be notified.  That was on 27 March 2003.  Before that date any loss caused by SARS was caused by a disease which was not notifiable.  It is for this reason that the appellants fail on this issue.  In reaching this conclusion I do not find it necessary to attempt to reconcile cl 14.5 with other provisions in the policies which do not all sit comfortably with that clause.  Clause 14.5 incorporates a discrete indemnity and requires effect to be given to the expression “notifiable human infectious or contagious disease” according to its true interpretation.

46.It is for these reasons I joined in the order dismissing the appeal with costs.

Mr Benjamin Yu SC and Mr Chua Guan-Hock SC, instructed by Wan and Leung, for the plaintiffs (appellants)

Mr Charles Manzoni, instructed by Clyde & Co, for the defendants (respondents)