HUA TYAN DEVELOPMENT LTD v. ZURICH INSURANCE CO LTD AND ANOTHER

HCA 480/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 480 OF 2009

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REASONS FOR RULING

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Introduction

1. This concerns the application of the 2^nd defendant (“the Broker”) for leave to resile from admissions made in its defence.  After hearing the parties, leave to do so was refused.  Below are the reasons.

2. The background leading to the above application is summarized below.  The plaintiff (“the Insured”) was the trader of round logs shipped from Southeast Asia to China.  The claim in this action (US$1.5 million, being the insured sum) arose out of an insurance policy issued by the 1^st defendant (“the Insurer”) through the Broker in favour of the Insured.

3. The main dispute between the Insured and the Insurer is whether the Insured has breached the terms of the policy, as a result of which the Insurer became entitled to avoid the policy.  The relevant term being a condition that the vessel’s deadweight tonnage must be not less than 10,000.  It has been called “the Purported Warranty”.  For convenience, it will be so called below.

4. In the statement of claim, the Insured avers against the Insurer (among other things) that, as a matter of construction, the Purported Warranty was not part of the policy (para 8 and 9 thereof). Alternatively, it was mistakenly inserted by the Insurer and did not represent the true intention of the parties.  Accordingly, the policy ought to be rectified by deleting the same (para 16 to 19 thereof).  An estoppel is also pleaded (para 21 thereof).

5. As against the Broker, the Insured alleges a duty on the Broker’s part to ensure (among other things) that the shipped cargo was properly insured under a valid and enforceable policy (para 22 thereof), and that the Broker breached its contractual and/or tortuous duty in failing to discover the Purported Warranty (para 25 thereof).

6. The facts in support of the Broker’s alleged failure of duty include:

(a)  the Insurer inserted the Purported Warranty without the Insured’s knowledge or consent (para 27(k) thereof);

(b)  the Insurer and the Broker failed to alert the Insured to the insertion of the Purported Warranty (para 27(l) thereof).

7. In its defence, the Broker admits:

(1)  para 4 above (para 9, 16 and 18 thereof);

(2)  para 6(a) above (para 21(9) thereof);

(3)  para 6(b) above (para 21(10) thereof).

The Broker further avers that:

“[the Insurer] was obliged, but failed, to alert [the Insured] to the fact that the Purported Warranty had been inserted into the Policy … ” (para 21(10) thereof).

8. To understand the significance of the above averments, the following common grounds should be borne in mind:

(a)  all the insurance dealings between the Insured and the Insurer were conducted through the Broker; the Insured and the Insurer never dealt directly with each other;

(b)  the terms of the policies including the Purported Warranty set out in subject cover note and policy were compiled by the Broker.

9. Despite the above, in the witness statements filed herein, the Broker intends to adduce evidence to the following effect:

“… [the Insurer] stipulated that two warranty terms had to be added [including the Purported Warranty] … ” (para 11, witness statement dated 24 January 2011);

“… [the Broker] informed [the Insured] of the [Purported Warranty] and [the Insured] also accepted this insurance arrangement … ” (para 12, witness statement dated 24 January 2011);

“… [the Insurer] also said two warranties needed to be added [including the Purported Warranty] … ” (para 6, witness statement dated 16 May 2012);

“… I then telephoned [the Insured] … then told [the Insured] as follows: ‘But [the Insurer] needs to have two conditions [including the Purported Warranty]’ … ” (para 7, witness statement dated 16 May 2012);

“… I repeat [among other paragraphs, paragraphs 11 and 12] … ” (para 12, witness statement dated 16 May 2012).

10. The Insured objected to the Broker’s attempt to adduce evidence which is inconsistent with its own pleadings.  More importantly, the relevant parts of the pleading contain admissions of fact averred to in the statement of claim.

11. The Broker asserted that there is no inconsistency.  At one stage it also asserted there was no admission of facts but ultimately it conceded that the defence contains such admissions.  In view of the matters set out above, the concession was correct.  An averment that the Insured did not have knowledge of the Purported Warranty cannot logically stand together with one alleging that the Insured has been informed of (and accepted) the same.

12. Accordingly, a draft amended defence was produced.  It effectively sought to delete all the above admissions.  The Broker sought leave to file and serve the draft pleading; the Insured opposed the application for leave.

13. A summary of the legal principles relating to an application to withdraw admission is set out in Hong Kong Civil Procedure 2012, Vol 1, para 27/3/9.  Leave to do so should normally be given in circumstances where:

(1)  it can be done without injustice to the other party;

(2)  there is no question of bad faith;

(3)  a triable issue with reasonable prospects of success is raised.

14. In brief, the Insured’s objection was based on the Broker’s inability to show the lack of bad faith.

15. The law in relation to this issue is undisputed.  Hong Kong Civil Procedure 2012, Vol 1 says:

“The question whether there is a proper explanation or not goes to the issue of good faith” (emphasis supplied) (para 27/3/9 citing Ho Wai Yin and Others v Cheng Suet Yee [2006] HKEC 1356).

16. Tse Yuk Tin v Chee Cheung Hing & Co Ltd [1984] HKLR 391 (relied on in Ho Wai Yin) was a decision concerning the withdrawal of an admission that a deceased worker was an employee.  In refusing the application, the court said:

“My understanding of the practice is and always has been, that the court allows a party to withdraw an admission deliberately made or to resile from a conscious choice for good reason, and if good reasons is shown. In particular it expects the party to put before it a convincing credible explanation of the circumstances in which the admission was in fact made, which is sought to be said to have been made under a mistake. A typical sort of case is where a party is able to say ‘yes, when I said this, or when I admitted this, I believed that to be the case, I have now got some totally fresh evidence in my possession which if true suggests that it was not the case, and I want to advance that proposition’ ” (emphasis supplied) (p 395E-F);

“… Conversely if no credible or convincing explanation is given, that is a powerful factor in favour of the exercise of discretion against the application” (p 395G)

17. In this application, it was initially said that the admissions were mistakenly made by the Broker’s solicitors; but that was later not maintained.  Instead, an undertaking was offered for an affidavit to be filed stating in short that the admissions were made in a pleading drafted by counsel practising in London, UK.  It was however not asserted that the admissions were London counsel’s mistake.

18. In these circumstances, I agreed with the Insured that the Broker fell far short of satisfying the requirement to give a credible or convincing explanation so as to show that this application was made in good faith.

19. Taking all the matters into account, I exercised my discretion in refusing this application.