Sealegend Holdings Ltd v. China Taiping Insurance (HK) Co Ltd and Others

HCAJ 95/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ADMIRALTY ACTION NO 95 OF 2012

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D E C I S I O N

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INTRODUCTION

1.This is an application by the 1^st, 2^nd and 4^th defendants (collectively “the defendants”) to strike out the plaintiff’s claims.

BACKGROUND

2.The plaintiff was the registered owner of MV Princess Rowena (“the Vessel”). The defendants were and are insurance companies.  The 3^rd defendant has ceased to be a party as the court has refused to extend the validity of the writ for service on it.

3.The hull and machinery of the Vessel (“H&M”), originally valued at US$4,000,000, was insured as to US$2,400,000 from 4 August 2004 to 4 August 2005 by Dongbu Insurance Co Ltd (“Dongbu”). 

4.In 2005, as a result of refitting, the value of the H&M was increased to US$8,000,000.  The plaintiff sought additional insurance cover in respect of the increased value (i.e. 50% of US$8,000,000) through its broker COSCO (Hong Kong) Insurance Brokers Ltd (“CIBL”). 

5.The insurance policy governing the relationship between the plaintiff and the defendants (“the Governing Policy”) was Policy No, PHHH-05-00055-3, evidenced by the following documents:

Date	Document	Defendants involved	Insurance cover
26.05.2005   21.06.2005 (according to P)	Agreement by email   Additional cover by emails	D1   D1	50% of value of H&M up to 4.8.2006. Additional 20%
28.06.2005	1st over Note   No. 2005DHNM000040HM/C001 issued by CIBL	D1	50% of value of H&M for 12 months from 23.5.2005
04.08.2005	Endorsement to 1st Cover Note	D1	To evidence extension of the original 50% insurance to 4.8.2006
04.08.2005	2nd Cover Note No. 2005DHNMC000043HM/C001 issued by CIBL	D1 (20%) D2 (15%) D3 (10%) D4 (5%)	50% of value of H&M for 12 months from 4.8.2005

6.The Governing Policy incorporated the Institute Time Clauses Hulls 1.10.83 and the Institute Machinery Damage Additional Deductible Clause.  Under clause 6.2 thereof, the insurance only covered “loss of or damage to the subject-matter insured caused by… negligence of Master Officers Crew or Pilots… provided such loss or damage has not resulted from want of due diligence by the Assured, Owners or Managers.” (“Clause 6.2”)

7.On 1 July 2006, the Vessel allegedly sustained damage to her starboard main engine (“the Damage”).  The plaintiff informed CIBL, which in turn informed the defendants. 

8.The 1^st defendant appointed Peter Y C Ng & Associates Ltd (“PNA”) to survey the Damage. PNA issued 2 reports to the 1^st defendant in July 2006.  The 1^st defendant also issued a Claim Advice (via CIBL) to its reinsurer, Swiss Re.

9.The plaintiff’s initial estimate of repair cost was less than or only slightly over the amount of deductible (US$325,000) under the Governing Policy.  As a result, the plaintiff decided not to lodge any claim.

10.On 31 July 2006, CIBL emailed the 1^st defendant to request a quotation for the renewal of the H&M insurance.

11.On 1 August 2006, the 1^st defendant offered to CIBL to renew such that the 1^st defendant “would like to quote at premium rate 0.70% in TLO basic, with deductible USD150,000.00 applied to Salvage, Salvage Charges and Sue and Labour, provided that the outstanding premium to be cleared off prior to expiry and the claim on starboard main engine damage on 1/July/2006 to be closed at Nil claim” (emphasis added).

12.On 4 August 2006, CIBL emailed the 1^st defendant stating that the above offer was accepted by the plaintiff.  CIBL also specifically confirmed that the plaintiff had “settled all o/s premium and confirmed that M/E claim withdrawn”. This was also evidenced by a closing advice dated 17 August 2006 from CIBL to (a) Ming An Insurance Co (HK) Ltd; and (b) the 2^nd and 4^th defendants, respectively.

13.The 2^nd and 4^th defendants also renewed their respective insurance cover of the H&M on the same terms as stated in paragraph 11 above.  See emails dated 3 and 4 August 2006 between CIBL and the 2^nd defendant, and the internal emails of the 4^th defendant on 2 to 4 August 2006. 

14.On 4 August 2006, the 1st defendant emailed to CIBL a Particulars Slip showing the terms of renewal for the latter’s reference. On 17 August 2006, CIBL issued a Closing Advice to the 1st defendant. 

15.On 28 August 2006, the 1st defendant issued the “Marine Hull Policy”, (the “Renewed Policy”), with a schedule setting out the terms of the policy.  It was not disputed that the remark therein, “Renewing Policy No. PHHH-05- 00055-3”, was a reference to the Governing Policy.

16.In late 2006/early 2007, the plaintiff discovered that the Damage required more extensive repairs and the estimated costs net of deductibles were about US$1.11 million. 

17.Upon request of the plaintiff, on 19 January 2007, CIBL asked the 1^st defendant to re-open the case and request PNA to re-attend.  Three days later, the 1^st defendant did asked PNA to follow up.

18.For over 5 years between January 2007 and March 2012, the defendants had made extensive follow-up inquiries.  PNA made 2 more survey reports (in 2009 and 2011) on the cause of Damage.  The parties had had many communications.  The plaintiff even appointed an average adjuster and its own expert to assist the defendants and PNA.

19.On 9 March 2012, the 1^st defendant emailed CIBL stating, amongst others, that,

“Based upon the available information and documentary evidence, we, without prejudice, consider that the damage to starboard M/E caused by alleged crew negligence has resulted from want of due diligence by the insureds.” (emphasis added)

20.The 1^st defendant was relying on Clause 6.2 to inform CIBL effectively that the Damage did not fall within the scope of the Governing Policy. 

21.On 15 March 2012, CIBL informed the plaintiff, the 2^nd and 4^th defendants of the 1^st defendant’s views in its email of 9 March 2012.   The plaintiff strenuously denied that the Damage had resulted from want of due diligence.

22.On 18 May 2012 and shortly before the limitation period was to expire, the plaintiff issued the writ herein. The writ initially only named the 1^st defendant as defendant but it was subsequently amended on 12 June 2012 to add the other defendants.  The general endorsement only relied on the 2^nd Cover Note. 

THE APPLICATION AND GROUNDS IN OPPOSITION

23.After the plaintiff filed its statement of claim, the defendants seek to strike out all of the plaintiff’s claims on the grounds that:

A.  Under the 1^st summons dated 6 November 2013, the claims constituted an abuse of process for exceeding the scope of the writ (“the scope of writ ground”); and

B.  Under the 2^nd summons dated 21 March 2014, the plaintiff has agreed to relinquish its claims upon renewal of the policy in August 2006 (“the relinquishment ground”).

PRINCIPLES ON STRIKING OUT

24.The court may, either of its own motion or on application, at any stage of the proceedings order to be struck out any claim on the basis, amongst others, that it is scandalous, frivolous or vexatious or is otherwise an abuse of the process of the court: Order 18, rule 19(1)(b) and (d).

25.A proceeding is frivolous when it is incapable of reasoned argument, without foundation or cannot possibly succeed.  A proceeding is vexatious when it is oppressive or lacks bona fides.  The expression “frivolous or vexatious” includes proceedings which are an abuse of the process: Hong Kong Civil Procedure 2014, §18/19/8.

26.An “abuse of the process of the court” connotes that the process of the court must be used bona fide and properly and must not be abused.  The court will prevent the improper use of its machinery, and will, in a proper case (eg where an action is absolutely groundless or time-barred) summarily prevent its machinery from being used as a means of vexation and oppression in the process of litigation: Hong Kong Civil Procedure 2014, §18/19/10. 

27.The court has inherent jurisdiction to stay all proceedings before it which are obviously frivolous or vexatious or “hopeless” in the sense of being bound to fail: Hong Kong Civil Procedure 2014, §18/19/12, 16 and 21.

28.There should be no trial on affidavit.  Disputed facts are to be taken in favour of the party whose pleading is under attack. See Hong Kong Civil Procedure 2014, at §18/19/4, paragraph (1).

29.The power to strike out should only be exercised in plain and obvious cases where the claim is obviously unsustainable.  A claim must be so obviously unsustainable, the pleading unarguably bad, and it must be impossible, not just improbable, for the claim to succeed before the Court would strike it out.  That a case may be weak and unlikely to succeed is no ground for striking it out. See Hong Kong Civil Procedure 2014, at §18/19/4, paragraph (1).

30.Strike out is not justified merely because the story told is highly improbable, and one which it is difficult to believe would be proved. A party’s claim or defence would be struck out only if it is a sham so that to rely on it must be an abuse of the process of the court.  Even if one side has a “formidable case”, it does not mean that the other has no case.  See Hutchvision Asia Ltd v. Asia Television Ltd, HCA 6757/1992, 8 September 1993, per Godfrey J (as he then was), p6.

“But any lawyer with any experience of private practice will be able to remember, only too well, those cases which appeared to be certainties but which, to his surprise, nevertheless failed and, by the same token, those cases which seemed bound to fail but which, to his surprise, nevertheless succeeded. It is for just this reason that the court will not embark, at this stage of an action, on a consideration whether the case of one side or the other is true or false. It will consider only whether the nature of the defence is such that it has to be characterised as an abuse of the process of the court, which is something else altogether.”

31.Where a party seeks to strike out another’s case as unsustainable, he will have to show the other party’s case to be “wholly imaginary, a myth or not bona fide”: Overseas Trust Bank Ltd v Coopers & Lybrand & Ors, CACV 109/1989, Fuad VP, 15 December 1989, p15.

32.It is not sufficient to adduce evidence that is relevant for consideration.  The lack of proper explanation from the party whose pleading is sought to be struck out is not enough.  See Viva Steamship Co Ltd v. Chow Lim Choy & Ors [2003] 1 HKLRD 663 (CA), at §11.

33.However, if all the relevant information necessary to decide the question of interpretation is before the court at the hearing and, after full argument, the court comes to the conclusion that the case is plainly and obviously one for striking out, it would not be right for the court to refuse to strike out the pleading on the ground that the issues arising are difficult or complicated.  For however difficult or obscure the point may be it will not become any less so by waiting for decision on a preliminary issue under Order 33 rule 3 or for the trial.  See Byjoy Ltd v Thorogood Estates Ltd [1985] 2 HKC 746, at 758E-G, Clough J.

APPLICATION OF THE LEGAL PRINCIPLES

34.I have taken the plaintiff’s case on the facts at its highest.  The history was well documented.   It is the legal effect of the parties’ communications and conduct, not the facts themselves, that is in dispute.  In my view, it is more logical to deal with the 2 summonses in reverse order as in the skeleton submission of Ms Ho, counsel for the defendants.

A.  THE RELINQUISHMENT GROUND IN THE 2^ND SUMMONS

A1.  The parties’ respective case

35.It is the defendants’ case that the parties had entered into binding agreements upon renewal of the H&M insurance that the plaintiff would relinquish its claim in respect of the Damage (collectively “the Relinquishment Agreement”).  But for the plaintiff’s promise to relinquish its claim, the defendants allegedly would not have agreed to renew the insurance on the quoted terms.

36.The plaintiff’s  position is that:

(1) It has not relinquished its claim. 

(2) In any case, its claim was re-opened. 

(3) Even if there was a legally binding agreement for the plaintiff to forever give up its claim, the Plaintiff relies on the doctrines of “common mistake”, “unilateral mistake” and waiver/estoppel.

A2.  Whether there had been relinquishment

37.In my view, the matters in paragraphs 11-15 above evidenced a clear offer from the defendants through CIBL and acceptance by the plaintiff and hence a binding agreement to relinquish the plaintiff’s claim for the Damage.  For present purposes, the defendants’ assertion that the premium might not have been discounted if the plaintiff had not agreed to close the claim could be disregarded, as it did not appear that the plaintiff was so informed before the Renewed Policy was entered into.

38.Mr Li, counsel for the plaintiff, however, contends that:

ars Slip or Closing Advices. It could not be said that the parties had a binding agreement as to any withdrawal, closing, settling, extinguishing etc. of any claim. 

(ii)There are 4 possibilities to the nature of the Relinquishment Agreement with different legal consequences.

(iii) What the parties might have agreed was at best ambiguous and requires evidence of trade usage to ascertain the meaning of “closed at nil claim”.

39.With regard to contention (i), it is true that a marine insurance contract has to be embodied in a policy, otherwise the contract is inadmissible in evidence: sections 21, 22 and 89 of the Marine Insurance Ordinance, Cap 329 (“MIO”).  In my view, however, an agreement not to pursue a claim (whether one labels it as withdrawal, closing, settling, or otherwise), is not a marine insurance contract that needs to be embodied in a policy.

40.With regard to contention (ii), Mr Li points out that whilst the defendants labelled the Relinquishment Agreement as a “condition precedent” to the renewal of the policy, Ms Ho labelled it as “collateral agreement”.  He doubts if those labels were correct.  He said that there could have been 4 possibilities:

(a) That it formed part of the Governing Policy;

(b) That it was a condition precedent, in which case it should have no effect on the Governing Policy; the failure to comply with the condition precedent would only avoid the Renewed Policy;

(c) That it was a collateral contract;

(d) That it was a term of the Renewed Policy but had never been written into the Renewed Policy (eg see the 2^nd defendant’s email to CIBL dated 31 August 2006 which referred to the 2^nd defendant’s confirmation of their 15% share on “terms and conditions” as per CIBL’s email of 1 August 2006).

41.The construction of a document is an attempt to discover what a reasonable person would have understood the parties to mean.  This involves having regard, not merely to the individual words they have used, but to the agreement as a whole, the factual and legal background against which it was concluded and the practical objects which it was intended to achieve.  See Jumbo King Ltd v Faithful Properties Ltd & ors (1999) 2 HKCFAR 279, at 296D-E; Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896, at 912H.

42.The Relinquishment Agreement, having been formed about a year after the Governing Policy came into force, could hardly have been a term of the Governing Policy.

43.The Relinquishment Agreement had clearly been a condition precedent. It had been acted upon and the plaintiff had taken the benefit under the Renewed Policy.  The plaintiff cannot undo that condition. 

44.The Relinquishment Agreement could also be regarded as a collateral contract. It was clearly supported by consideration, namely the entry into the Renewed Policy. 

45.The plaintiff has suggested in the evidence that there was no request by the defendants for the plaintiff to commute the insurance policies (meaning the termination of an insurance obligation by an agreement by the insurer to pay, at present value, funds that were not yet due under the insurance agreement) or include an express term under the Renewed Policy such as “Warranted ME damage claim withdrawn and will not be presented for payment”.  I agree with Ms Ho that these matters do not affect the binding nature of the Relinquishment Agreement.  There is no legal requirement for the suggested warranty to be embodied in the Renewed Policy.

46.With regard to contention (iii), trade usage has never been the plaintiff’s case.  The plaintiff has not suggested that there was another meaning to the phrase “closed at nil claim”.  In my view, the plain and ordinary meaning of that phrase is that “the Plaintiff’s claim is closed with $0 compensation and there will be no more claim”.

47.In summary, the evidence shows clearly an offer and acceptance of the terms for entry into the Renewed Policy.  The intention of the parties under the Relinquishment Agreement was that, upon the renewal of the insurance in August 2006, the plaintiff would relinquish any right to claim in respect of the Damage and receive no compensation.  The contentions of Mr Li are unsustainable.

A3.  Re-opening of the claim

48.Mr Li points out that:

(i) The 1^st defendant’s own evidence was that “the Plaintiff has agreed to withdraw its claims: §6 of the 4^th affirmation of Patrick Yeung; 

(ii)The 2^nd defendant’s own evidence was that “the right of that claim, if any, has been extinguished by the renewed contract”.

(iii) There were no emails other than internal ones of the 4^th defendant as to the plaintiff’s withdrawal of its claims.

49.Mr Li submits that if “withdrawal” was what was agreed, then the question is whether the agreement precluded “re-lodging” of the claim. 

50.For present purposes, I am prepared to accept that the claim was re-opened in the sense of the 1^st defendant re-investigating it and coming to a view on 9 March 2012.  The question is whether as a result of the re-opening the Relinquishment Agreement was “put aside”, as Mr Li contends.  Mr Li submits that the defendants’ position was ambiguous and would have justified the proceedings going on.

51.Whenever the rescinding agreement does not generate its own consideration, such separate consideration must be provided by B (usually in the form of some additional performance rendered or promise made by B) to make A’s promise binding.  There must be not merely accord (the agreement) but also satisfaction (the consideration for it).  See Chitty on Contracts, (31^st ed) Vol 1, §3-078.

52.There was no consideration provided to the defendants for reopening the claim.  The re-opening was wholly detrimental to the defendants in that their liabilities have been opened up.  This line of argument does not assist the plaintiff.

A4.  Alleged common/unilateral mistake

53.The alleged common or unilateral mistake was that the repair costs of the damaged engine would be below or marginally above the total deductible of US$325,000 when in fact it was 3 times more.  In fact, that mistaken information was what CIBL drew to the 1^st defendant’s attention in the very first communication on 31 July 2006 about renewal. 

54.The following principles regarding the doctrine of mistake in contract law are relevant.

(i) A vital distinction has to be drawn between (a) mistakes as to the factual circumstances in which a contract is made, and (b) mistakes as to the terms of the contract such as the price or contractual description of what was sold.  For type (a), only a mistake that is common and fundamental can be relied upon to avoid a contract. A unilateral mistake can only be relied upon to avoid a contract where the mistake is of type (b).  See Chitty on Contracts, 31^st ed, vol 1, §5-005.

(ii) A mistake is “fundamental” if it “lies at the basis of the contract” and “is so fundamental that it makes the ‘contractual adventure’ impossible, or makes performance essentially different to what the parties anticipated”: Chitty, §5-017.

(iii) A “mistake” refers to a positive belief in something which is not in fact true.  It does not encompass the situation where a party has simply not thought about a particular issue: Chitty,§5-006.

55.Applying the above principles, the alleged mistake only went to the factual circumstances in which the Relinquishment Agreement was made, rather than to its terms.  It is immediately apparent that the doctrine of unilateral mistake has no application.

56.The mistake was not “common” either because it was not shared by the defendants.  None of the defendantsever harboured any positive belief as to the amount of repair costs.  Even CIBL’s view was tentative as evidenced in its email to the 1^st defendant dated 31 July 2006, stating, “Subject to [the Plaintiff’s] further investigation the claim for [the Damage] should not exceed the policy deductibles.”

57.Nor was the alleged mistake “fundamental”.  This is because the performance of the Relinquishment Agreement required terminating the plaintiff’s claim and entering into the Renewed Policy.  That was neither impossible nor essentially different to what the parties anticipated. 

58.In the premises, the plaintiff’s reliance on the doctrine of mistake is unsustainable.

A5.  Alleged waiver/promissory estoppel/estoppel by convention

59.The term “waiver” encompasses two separate doctrines, namely “waiver by election” and “waiver by estoppel”:

60.“Waiver by election” arises when a state of affairs comes into existence which entitles one party to a contract to exercise a right and he has to decide whether or not to do so.  It concerns an election between inconsistent rights arising within a contractual relationship, eg where a party has repudiated or breached the contract, the innocent party may elect between avoiding or affirming the contract, thereby waiving or abandoning the right to terminate it.  See The Kanchenjunga [1990] 1 Lloyd’s Rep 391 at 398,  per Lord Goff. 

61.In the present case, the doctrine of “waiver by election” is clearly inapplicable.  The defendants were never put to elect between inconsistent rights. 

62.“Waiver by estoppel”, on the other hand, is a doctrine which is substantially similar to “promissory estoppel”.  They refer to situations in which it is alleged that one party to a legal relationship has made a clear and unequivocal promise that he will not insist upon his strict legal rights against the other, and detrimental reliance by the promisee renders it inequitable for the promisor to go back upon his promise. 

63.“Waiver by estoppel” and “promissory estoppel” both require the following elements:

(i) The parties are in a relationship involving enforceable or exercisable rights, duties or powers (“requirement (1));

(2) One party (the promisor) by words or conduct conveys a clear and unequivocal promise to the other (the promisee) that the promisor will not enforce or exercise some of those rights, duties or powers (“requirement (2));  and

(3) The promisee reasonably relies upon that promise and is induced to alter his or her position on the faith of it, so that it would be inequitable or unconscionable for the promisor to act inconsistently with the promise (“requirement (3)).

See Luo Xing Juan v Estate of Hui Shui See (2009) 12 HKCFAR 1,at §55, per Ribeiro PJ.

64.To be “clear and unequivocal” under requirement (2),

(i) The promise need not be express but its meaning conveyed by the promisor’s words or conduct must be clear and unequivocal.  He must make it clear that he is promising not to enforce the relevant rights or powers.  The message must be conveyed with a clarity similar to that needed to vary a contract.  Whether there is sufficient clarity is to be assessed objectively by the court.  See Luo Xing Juan, at §59;

(ii)Where conduct is relied upon as conveying the promise, the claimant must establish that the conduct relied upon is not capable of more than one explanation, since such conduct is indeed equivocal: Fortisbank SA v Trenwick International Ltd [2005] Lloyd’s Rep IR 464 at §30(ii), per Gloster J; and

(iii) Silence and inaction is by nature equivocal: Allied Marine Transport Ltd v Vale do Rio Doce Navegacao SA [1985] 1 WLR 925, at 937E and 941A-D, Robert Goff LJ (silence of the charterers for 5 years).

65.Under requirement (1), estoppel can only be used as a “shield” to restrict the enforcement by the promisor of pre-existing rights against the promise.  It cannot be used as a “sword” to found a claim, which the plaintiff is doing in this case. 

66.Under requirement (2), the plaintiff attempts to rely on the fact that in January 2007, pursuant to the plaintiff’s request to “re-open” the case, the 1^st defendant instructed PNA to investigate the cause of the Damage and did not simply reject the claim in reliance of the Relinquishment Agreement. 

67.The 1^st defendant explains in the affirmation of Lee Hon Ming that PNA was instructed to investigate the matter because:

“First, the Defendants were interested to find out the true cause of the Vessel’s engine damage as the Vessel was still insured by the three Defendants at that time and it was not uncommon for insurers, on a without prejudice basis, [to] provide additional services to their customers by providing assistance in the assessment of the repair costs to facilitate the insured’s negotiation with repairers on the repair plan and costs. Second, by flatly rejecting CIBL’s request without taking the chance to make the proper investigation, it indicated that the Defendants did not give any face to CIBL and that would have an adverse effect on the commercial relationship between the Defendants and CIBL. Third and most important of all, the 1^st Defendant had never indicated or represented in words or by conducts (sic) that it would abandon the right to reject the claim on the ground that the Plaintiff’s right of claim had been extinguished by the agreement on policy renewal made in August 2006. The investigation revealed a better ground for rejecting the Plaintiff’s claim and the 1^st Defendant used that ground to reject the claim. The two different grounds for rejecting the Plaintiff’s claim are not mutually exclusive. By using or emphasizing the want of diligence ground, the 1^st Defendant believed that would be more readily acceptable by the Plaintiff and it could help to preserve the commercial relationship between the parties including CIBL.”

68.In my view, the 1^st defendant’s subjective intention is not of much importance and so the first 2 reasons given by Mr Lee can be disregarded.  The third reason is more important.

69.Firstly, despite its instruction of PNA to investigate the cause of the alleged damage to the Vessel, the 1^st defendant has neither clearly nor unequivocally suggested that it would not rely on the Relinquishment Agreement to reject the Plaintiff’s claim. 

70.Secondly, 5 years’ silence of the defendants until March 2012 (similar to the 5 years’ silence of the charterers in Allied Marine Transport Ltd v Vale do Rio Doce Navegacao SA) in not referring to the effect of the Relinquishment Agreement is equivocal. In any case, unlike the 1^st defendant, the 2^nd and 4^th defendants have not made any representation or undertaken any act pursuant to the plaintiff’s request to “re-open” the case in January 2007.  There was no “lead underwriter clause” in the Governing Policy to oblige the 2^nd and 4^th defendants to follow the 1^st defendant’s decision.  At most, the 2^nd and 4^th defendants remained silent or acquiesced in the 1^st defendant’s instructions to PNA.  The plaintiff clearly has no plausible case of waiver or estoppel against the 2^nd and 4^th defendants.

71.Thirdly, investigation and discussion of a claim cannot, without more, constitute any representation by an insurer that it would not rely on a defence: Super Chem Products Ltd v American Life and General Insurance Co Ltd  & Ors [2004] 1 CLC 1041 at §23, where Lord Steyn says,

“… insurers are entitled to investigate liability and quantum at the same time and to negotiate about both at the same time, and often prudence will require them to do so. Moreover, the mere fact that a party has continued to negotiate with the other party about the claim after the limitation period had expired, without anything being agreed about what happens if the negotiations break down, cannot give rise to a waiver or estoppel …”

72.Fourthly, statements made “without prejudice” that did not lead to an agreement could not found a waiver or estoppel: IMT Shipping and Chartering GmbH v Chansung Shipping Co Ltd [2009] 1 CLC 582, at §18, per Tomlinson J. 

73.The use of the words “without prejudice” in its email dated 9 March 2012 to CIBL plainly showed that the 1^st defendant had no intention to waive any of its rights, including that of rejecting the plaintiff’s claim on the basis of the Relinquishment Agreement.

74.Fifthly, Mr Li submits that the defendants had not treated the plaintiff’s claim as extinguished, but to the contrary, the communications showed that all parties treated the plaintiff’s claim as alive.  The following contains the communications relied on by Mr Li and my views:

(a) On 23 October 2007, the average adjuster wrote to CIBL: “When the cause of damage and cost of repairs are agreed by [PNA], we shall be in a position to prepare a payment on account recommendation.”  However, there was nothing to show that PNA had ever agreed to or even commented on the repair costs.

(b) On 11 April 2008, the 2^nd defendant requested for an update from CIBL.  This was just a general inquiry with nothing near a representation or promise by the 2^nd defendant.

(c) On 20 August 2009, the 4^th defendant’s agent wrote to CIBL acknowledging the re-opening of the claim and requested advice on the status of the case and claim reserve as put up by the Leader.  Again this was a general inquiry with nothing near a representation or promise by the 4^th defendant.

(d) On 27 November 2009, CIBL wrote to the 1^st defendant: “… Perhaps [PNA] can deal with the ‘undisputed portion’ of the repair costs so that a payment on account can be considered?” However, there was no evidence that the defendants entertained such a request at all. 

(e) On 9 February 2010, Swiss Re emailed CIBL: “We refer to your debit note dated 14 Jan 2010 with regard to above claim … we request you to inform us if you have closed this claim … or you proceeding with further investigation.  Also, please provide us with reserves to be maintained if you are keeping this claim file open.”  This does not assist the plaintiff in establishing any representation.

(f) On 4 March 2010, CIBL requested the agent of the 4^th defendant to keep this file open.  There was nothing near a representation or promise made.

75.In my view, such communications merely showed that the claim was still under investigation, which the defendants do not deny. There was no clear and unequivocal representation by the defendants which could have met requirement (2).

76.There is still requirement (3) of reliance.  In this respect, one can draw analogy to the position of a plaintiff who pleads waiver or estoppel in answer to a limitation defence on the strength of a promise or representation made by the defendant after the expiry of the limitation period.  The courts have emphasised that in such cases, it is impossible for the plaintiff to alter his position to his detriment because his claim was doomed to failure and he could not be worse off.

77.In Seechurn v ACE Insurance SA NV [2002] 2 Lloyd’s Rep 390, the plaintiff sued on an accident policy and prayed in aid promissory estoppel to answer a limitation defence.  Thorpe LJ drew a distinction between (i) the period before the claim was statute barred and (ii) the period after the claim had become statute barred. 

78.In respect of the former period, he said that:

“If the necessary promise had been established, [he] would have had no difficulty in accepting that it was intended to be acted upon, and was relied upon with the result that Mr. Seechurn suffered the detriment of losing his right to approach the judgment seat. It would then have been inequitable and unconscionable for the defendant to plead the time bar.” (§56)

79.However in respect of the latter period, Thorpe LJ emphasised that:

“After the limitation period had expired it is difficult to see how the claimant could have altered his position to his detriment. His claim was doomed. He could not be worse off.” (§59)

80.Applying Seechurn, the plaintiff’s claim in the present case was already “doomed”, at the latest, by 28 August 2006, when the Renewed Policy was issued.  Hence, even if the defendants had made any unequivocal promise afterwards, the plaintiff could not have altered its position to its detriment.

81.The fact that the plaintiff had provided documents to PNA in support of its claim was clearly insufficient to constitute detrimental reliance, in the sense of a material change of position.

82.In summary, the plaintiff’s opposition premised on waiver/ estoppel fail to meet requirements (1) to (3) and is bound to fail.

A6.  Estoppel by convention

83.Estoppel by convention requires the following:

(i) The parties must enter into some legal relationship on the basis of a shared assumption of fact or law;

(ii) The content of the common assumption must be sufficiently certain to enable the court to give effect to it;

(iii) The assumption must have been communicated between the parties and acted upon;

(iv) There must be an attempt by one party to depart from the common assumption which departure would be unjust; and

(v) The other party would suffer detriment arising out of his having entered into the relevant transaction on the basis of the common assumption.

See Unruh v Seeberger (2007) 10 HKCFAR 31, at §§133, 135, 138-139, 150 per Ribeiro PJ.

84.Estoppel by convention is clearly inapplicable in the present case for reasons given in paragraphs 66-81 above in respect of requirements (2) and (3). The defendants did not share any clear and unequivocal common assumption with the plaintiff that they would not reject the plaintiff’s claim on the relinquishment ground. Nor was there any detriment suffered by the plaintiff in the face of a doomed claim.

85.In summary, none of the grounds in opposition to the 2^nd summons are sustainable.

B.  THE SCOPE OF WRIT GROUND UNDER THE 1^ST SUMMONS

B1 The legal principles

86.The 1^st defendant seeks, in the alternative, to strike out the plaintiff’s amended claim on the ground that it has exceeded the scope of the amended writ.  The 1^st defendant relies on Order 18, rule 15(2) which provides that:

“[a] statement of claim must not contain any allegation or claim in respect of a cause of action unless that cause of action is mentioned in the writ or arises from facts which are the same as, or include or form part of, facts giving rise to a cause of action so mentioned”.

87.A plaintiff therefore cannot, without amending the writ, add in his statement of claim a new cause of action based on facts not disclosed in the writ: Hong Kong Civil Procedure 2014, §18/15/7.

88.A cause of action means “a factual situation the existence of which entitles one person to obtain from the court a remedy against another person”: Letang v Cooper [1965] 1 QB 232, Diplock LJ. 

89.Under section 35(1)(b) of the Limitation Ordinance, Cap 347 (“LO”), any new claim made in the course of any action shall be deemed to be a separate action and to have been commenced, in the case of any other new claim, on the same date as the original action.  Where an application to amend seeks to add a new cause of action after the expiry of the relevant limitation period, the effect of granting leave to amend would be to deprive a defendant of an accrued limitation defence by virtue of the operation of the relation back rule under this sub-section.

90.Therefore leave to amend must be refused unless the plaintiff can show that the proposed amendment satisfies the requirements under LO s35(6)(a) and RHC Order 20 rule 5(5), ie that the new cause of action arose out of the same or substantially the same facts as a cause of action in respect of which relief had already been claimed in the existing action: Hong Kong Civil Procedure 2014,Vol 1, §20/8/7, 8, and 16.

B2 Application of the legal principles

91.The scope of the amended writ is limited to a claim under the 2^nd Cover Note, but the statement of claim relies also on the 1^st Cover Note (and the Endorsement).   

92.I agree with Mr Li that in law, a marine insurance contract is not embodied in a cover note but in a policy.  A cover note is evidence, not the contract itself.  See MIO sections 21, 22, and 89.  Hence, both the 1^st and 2^nd Cover Notes were merely evidence of one single Governing Policy. 

93.Mr Li submits that by the time the 1^st Cover Note was issued, the plaintiff had already agreed to insure 70% of the value of the Vessel until 4 August 2006.  The Renewed Policy renewed the Governing Policy.  Reliance on the 1^st Cover Note would not add a new cause of action but simply refer to further evidence on the scope of the 1^st defendant’s liability under the Governing Policy, so he submits.

94.With respect, it can be seen from the table in paragraph 5 above that the 1^st and 2^nd Cover Notes respectively evidences the contracts between the plaintiff and different defendants, with different extent of liability.  The plaintiff’s cause of action under the 1^st Cover Note does not arise from facts which are the same as or form part of those giving rise to the cause of action under the 2^nd Cover Note. 

95.The plaintiff has previously applied to re-amend the amended writ to add a reference to the 1^st Cover Note.  Such application has not so far been determined by the court as the plaintiff now takes the stance, erroneously in my view, that no re-amendment is necessary. 

96.In my view, the plaintiff’s claim under 1^st Cover Note:

(i) constitutes a new cause of action which has been time-barred by 30 June 2012 (6 years after the Damage was sustained); and

(ii) has been relinquished.

97.The claim is incurable by the proposed re-amendment.

CONCLUSION

98.The plaintiff’s claim has been relinquished by agreement.  Even if the claim has been re-opened, the plaintiff has failed to provide consideration for “putting aside” the Relinquishment Agreement.  It has also failed to show that there was a common mistake, unilateral mistake, waiver or estoppel that barred the defendants from asserting the Relinquishment Agreement.  Alternatively, the claim goes beyond the scope of the amended writ. The proposed re-amendment to the writ would introduce a cause of action under the 1^st Cover Note that has been relinquished and time-barred. 

99.Despite the many legal issues involved, it is plain and obvious that the claim is unsustainable and incurable by re-amendment. It is impossible for the plaintiff to succeed.  The plaintiff’s claim ought to be struck out on the basis that it is frivolous, vexatious and/or constitute an abuse of process.

100.In respect of the 1^st summons, I order that the plaintiff’s claim founded on the 1^st Cover Note be struck out.

101.In respect of the 2^nd summons, I order that the claim against the 1^st, 2^nd and 4^th defendants be struck out as the plaintiff has relinquished its claim upon renewal of the policy in August 2006.

102.On a nisi basis, costs on both summonses together with the costs of the action should follow the event and be to the 1^st, 2^nd and 4^th defendants to be summarily assessed on the papers.

103.I thank Ms Ho and Mr Li for their thorough preparation and their succinct submissions.

Mr Laurence Li, instructed by Brenda Chark & Co, for the plaintiff

Ms Janet Ho, instructed by Holman Fenwick Willan, for the 1^st, 2^nd and 4^th defendants