LOO KAM BU t/a HUNG HING CHEUNG MACHINERY FACTORY (a firm) v. SUN HUNG KAI INSURANCE CO LTD

IN THE DISTRICT COURT OF HONG KONG

HOLDEN AT VICTORIA

CIVIL JURISDICTION

ACTION No. 7514 OF 1984

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BETWEEN

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JUDGMENT

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1. Mr. Lo Kam Bu (the Plaintiff) has a small mould manufacturing business at Kwai Chung employing one or two general workers. The Plaintiff is clearly a prudent man, since he had arranged to cover himself against common law and statutory liability to his employees even before such insurance was made obligatory by the terms of the Employees' Compensation Ordinance Cap. 282 s.40(1) on the lst of January 1984.

2. The Plaintiff effected his insurance in what appears to be the Standard Employees Compensation Policy of the Defendants and the policy I have to consider in the context of this dispute is a renewal of a previous policy and signed on the 27th October 1982. The proposal upon which it is based to expressed to be made 2 years previously namely on the 3rd November 1980.

3. I think I should state at the outset that what was given rise to this dispute is the Defendants refusal to indemnify the Plaintiff, contained on a letter from the Defendants dated 5th January 1984 in respect of an accident to a workman Law Chung Ping occurring on the 31st March 1983 during the currency of the Policy dated 27th October 1982.

I set out the letter, as follows:-

"Dear Sirs,

Our Claim No.: CD761

Injured Person: Law Chung Ping

Date of Accident: 31 March 1983

We wish to advise the following:

 

In the circumstances, we regret that your claim is inadmissible.

Yours faithfully,

 

        Sgd.

Authorised Signature.      "

4. The Plaintiff and the injured workman Law Chung Ping gave evidence as did Mr. Yung Loy Lak the former Marketing Executive of the Defendants and who had been responsible as he said, in neutral terms, for "servicing" the policy issued to the Plaintiff.

5. There is an unfortunate conflict of testimony as to the facts referred to be the letter of the 5th January 1984, but having heard the injured workman I can say that certain underlying facts relating to the injury are either not in dispute or found by me as follows:-

6. I should have had no need to make any further findings of fact relating to the injury had the Defendants not, by an amendment to these Defence on the 1st day of the trial, added a paragraph to their Defence alleging that, in breach of the policy conditions, the Plaintiff had failed to take care for the safety of the injured man, a matter not raised in the letter of the 5th January 1984, and as far as I am aware not raised in any shape or form until the morning of the trial.

7. The added paragraph of the Defence reads as follows:-

"8. Further, it was an express term of the said policy that the Plaintiff should take reasonable precautions to prevent accidents and disease and should comply with all statutory obligations. In breach thereof the Plaintiff had failed to comply with Regulation 5 and/or Regulation 7 of he Factories and Industrial Undertakings (Protection of Eyes) Regulations, Gap. 59.                                                      "

8. Those regulations require the proprietor of any industrial undertaking to which the regulations apply, and in general terms, to protect the eyes of any person employed in any "specified process".

9. Breach of the regulations amounts to a criminal offence, punishable with a fine of up to $30,000. Before I go any further I should say that I was not convinced by the Plaintiff that he was telling the truth when he said he had eye shields available for his workers if needed and this was made the more unlikely when Mr. Law the injured man said it never occurred to him to wear eye protectors and that whilst they would have prevented his injury, no employer has ever suggested wearing them since he started his trade apprenticeship in 1977. I do not think I need deal with this apsect of the matter further than by saying that when considering the Protection of Eyes Regulations, the Defendants pinned their case to one particular process which is described as follows, in the Schedule to the Regulations:-

10. Whilst the shorter Oxford Dictionary does not give a definition of "Fettling" and whilst I heard no evidence of its technical meanings the concise Oxford Dictionary under the hearing "Fettle" N. & V.T. does indicate that to "fettle" is to trim or clean (rough edge of metal casting, pottery before firing, etc.)

11. I cannot see how on the evidence before me the Defendant has come any where near showing that the process on which he was engaged was such that Law Chung Ping was entitled to the protection demanded by the Regulations. The relevant policy condition was No. 4, which reads as follows:-

12. Mr. Lui for the Plaintiff cited to me the well known case of Woolfall v. Moyle⁽¹⁾ where an exactly similar clause was considered and by the Court of Appeal in England and I can not put the matter more succinctly than Lord Justice Goddard (as he was) did when he said that such a condition meant the underwriter was saying: (at page 311).

"I will insure you against the consequences of your negligence but understand that I am insuring you on the footing that you are not to regard yourself, because you are insured, as free to carry on your business in a reckless manner. You are to take those reasonable precautions to prevent accidents which ordinary business people take. That is to say, you are to run your business in the ordinary way, and not in a way which invites accidents. "

13. There was here not only no evidence of the breach of any statutory obligation but the injured man's evidence, even when tested in cross-examination, failed to show anything reckless in the Plaintiff's failure to provide eye shields or indeed any failure to take precautions which ordinary business people take and so the late point raised by the amendment to the defence in my judgment fails and I will now deal with the other two original issues.

Late Notification

14. The relevant clauses in the Policy read as follows:-

15. The Policy thus made compliance with the conditions thereof a condition precedent and if the Plaintiff did not give notice as soon as possible and in compliance with Condition 5 he is precluded from recovering under the policy. Notice in writing was given on the 21st April 1983, 3 weeks after the injury was sustained but the Plaintiff says he gave oral notice on or about the 6th April 1983; Easter and Ching Ming having occupied the days intervening since the day of the injury, on the 31st March. Had this notice been in writing I should have had no hesitation in saying that it was given as soon as possible after the accident, but it was not, and so I have to consider if the Defendants have waived their entitlement in that respect.

16. Having heard the evidence of the Plaintiff and of Mr. Yung Loi Lak who was in the employment of the Defendants at the material time, but not now, I am satisfied that the Plaintiff told Mr. Yung on or about the 6th April of the accident occuring on the 31st March. This was on the telephone and Mr. Yung said that the Plaintiff should prepay the Statutory notice to the Commissioner for Labour of the accident - Form 2 and that if necessary he would help fill it in. I am satisfied that he did that on the 21st April, but then that was 15 days after the oral notification and having read Mr. Yung's terms of employment (page 28 of the agreed bundle) I am satisfied that he had no authority to waive the Defendants written requirement in that respect.

17. But then the notice completed on the 21st April to comply, albeit late, with the statutory requirements, was in a form accepted as a matter of practice by Defendants even an the evidence of their assistant General Manager, Francis Au Yeung Wing. There is no evidence of any refusal by the Defendant to accept that notice due to its lateness until the letter of 5th January 1984. I am driven to the conclusion that until the seriousness of the injury was apparent, the Defendants did not propose to take the point that they had not received notice as soon as possible but underwriters must make decisions not sit on the fence, and I hold that by accepting written notice on the 21st April and doing nothing to avoid their liability to meet the claim for nearly 9 months the Defendants have clearly accepted late notice and waived their right to rely on the requirement in the policy, that notice be given as soon as possible, which had otherwise clearly not been complied with.

18. The other point is then:-

        The circumstances surrounding the endorsement of 13th Apri1 1983.

19. The Defendants by the letter of 5th January 1984 alleged that when requesting an endorsement to the policy to cover an extra workman (who was the injured man) the Plaintiff failed to disclose the accident of 31st March 1983 which non-disclosure rendered the policy void and null (sic).

20. There is an issue of fact put before me as well as one of law. I think for the reasons I shall give later that the factual issue is, in reality, not relevant to the liability of the Defendants to indemnify.

21. The Plaintiff says he gave notice to Mr. Yung Loy Lak on the 29th March 1983 that he had taken on another worker, and that he wanted cover extended in respect of this extra person. Mr. Yung confirmed this, and gave evidence that he had told the Defendants Chief Clerk of this that day by writing a "memo" to the underwriting department that with effect from 30th March the policy would be increased by one worker. That was significantly the day before the accident and Mr. Yung explained the fact that the endorsement was not prepared until the 13th April, as being due to the delay in the underwriting department.

22. I would have been prepared to accept the coincidence of the date of the accident, and the date of notification of extra employees had the Plaintiff not shown himself to be a quite unmitigated liar in the witness box, he gave evidence in conflicting terms about the salary paid to the injured man, saying, first of all that he paid him $70 approximately per day, then when Mr. Lee cross-examining, pointed out that he had inserted, or signed, Form 2 showing the man's average wages, as $64 per day - he said that was for a trial period and he then compounded his lies by saying the man had started earning $75 but this was about 10 days after joining him. When I attempted to clear up the matter with a question from the bench he said that he had inserted $64 to bring the claim within what he and Yung thought were the limits of the indemnity under the policy, it was no wounder therefore that Mr. Lee was able to extract an admission that he had lied to the Labour Department, although he denied lying to the Defendants. His attempt to retrieve the position in re-examination, by saying that he meant that, if he had worked after the accident, the injured man would have earned $75 per day was lame, and merely a further indication of his willingness to lie recklessly.

23. Mr. Yung who had acted as the Defendants agent for most purposes at all material times but who must have been the Plaintiffs agent when the Labour Department form was filled in had been dismissed by the Defendants prior to the trial and I did not find him a particularly impressive witness but on the other hand I found the Defendants General Manager Mr. Francis Au Yeung Wing to be careful candid and very creditworthy so that I have no hestitation in accepting his version of the events leading up to the endorsement "C" which he himself had signed and in so far as they were within his knowledge.

24. Mr. Au had said that for a simple endorsement to be propared such as that varying the number of workers, the Defendants would only take a half a day and that only 2 days would be needed at the very most. He said he was almost 100% sure this the endorsement was for retrospective "cover” as he called it and said he would not have issued the endorsement had he had notice of the claim. Now I accept his evidence and I am satisfied that the Plaintiff and Mr. Yung did conceal the fact of an injury, which might lead to a claim, from the Defendants. Mr. Yung knew full well that notice had to be in writing and said he did so by memo on or about 29th March 1983, yet no copy was produced and no notice to produce the original was referred to before me and significantly it was not put to Mr. Francis Au that such a memo was in existence. I find Mr. Yung to be lying in that respect.

25. In all these circumstances I am satisfied that the endorsement "C" dated 13th April 1983 was prepared before the Defendant Company had any written notice of the injury to Law Chung Ping; whether Mr. Yung had oral notice is inmaterial, because it is common ground that he had received no written notice from the Plaintiff, who relied entirely on him to deal with the documentation, so that no question arises of his position at law in that respect, no question of waiver stands to be resolved in the light of the findings which I have to make on the nature and effect of the endorsement itself. To do this I must refer first of all to the nature of the policy and to its general terms and special conditions, and it is as well that I should record at this stage Mr. Lee's submission's made during the trial that he would contend that the policy amendment was a variation of the contract which required offer and acceptance, and also at the close of his case that each endorsement was a new contract, so that material non-disclosure would give the Defendants the right to decline to issue the endorsement or to repudiate liability for any claim already existing, and indeed by their Defence the Defendants had plead d para. 6(d).

"in the premises the Defendant is ontitled?? to avoid the said endorsement. The Plaintiff as?? duly avoided the same. "

if waiver was an issue here I should have held and do so formally (in case the premise of the rest of any judgment is wrong) that since the insuring Defendants knew of the claim on the 21st April 1983 but nevertheless issued a receipt for the adjustment of the premium which they had accepted on the 13th May 1983 and took no further step to indicate repudiation until 5th January 1984 that they had waived their right to repudiate liability to meet this claim.

26. Whilst therefore on the premise of a fresh contract arising and being evidenced by the endorsement there would be attached thereto the implied uberrimae fidei provision and condition entitling the Defendant to repudiate that contract for non-disclosure, this is my judgment is not the present case.

27. The Policy issued in what appears to be the Defendants standard from of "Employees' Compensation Policy" and the first three clauses provide as follows:-

"WHEREAS the Insured carrying on the Business described in the Schedule and no other for the purpose of this insurance by a proposal and declaration which shall be the basis of this contract and is deemed to be incorporated herein has applied to the Company for the insurance hereinafter contained and has paid or agreed to pay the Premium as consideration for such insurance;

NOW THIS POLICY WITNESSETH that if any employee in the Insured's immediate service shall sustain bodily injury by accident disease caused during the Period of Insurance and arising out of and in the course of his employment by the Insured in the Business;

THE COMPANY WILL subject to the Jurisdiction Clause and the others terms Exceptions and Conditions contained herein or endorsed hereon (all of which are hereinafter collectively referred to as the Terms of this Policy) indemnify the Insured against liability at law including liability under the Legislation set out in the Schedule) to pay compensation and Claimant's costs and expenses in respect of injury and will in addition pay all costs and expenses incurred with its written consent. "

Then the Schedule provides, (inter alia).

Business: Mould Manufacturing.

Period of Insurance:

Premium: HK$1125.00.

Subject to adjustment in the terms of Condition 8.

28. This Policy does not indemnify the Insured in respect of any claim arising in connection with the use of machinery for cutting or pressing metal.

29. Then Condition 8, referred to above, in connection with the premium adjustment, reads as follows:-

"8. The first premium and all renewal premiums that may be accepted are to be regulated by the amount of salaries and wages and other earnings paid by the Insured to employees during each Period of Insurance. The name of every employee together with the amount of salary wages and other earnings shall be properly recorded and the Insured shall at all times allow the Company to inspect such records and shall supply the Company with a correct account of all such salaries wages and other earnings paid during any Period of Insurance within one month from the expiry date of such Period of Insurance. If the amount so paid shall differ from the amount on which premium has been paid the difference in premium shall be met by a further proportionate payment to the Company or by a refund by the Company as the case may be. "

and then there is provision (Clause 9) for cancellation of the Policy on 7 days written notice by the Defendant.

30. I do not think I am straying beyond reasonable and proper judicial cognizance to say that this is a not unusual form of policy. An employer of labour is likely to have a fluctuating number of persons working for him, some may work for just one week or even for the occasional day and it would be impracticable to expect the employer or the insurer to adjust the policy and the premium with the same frequency that numbers of employees may change. Hence the provision, in Clause 8, for calculation of the premium by reference to total salaries paid in each period of insurance; and particularly for adjustment. The Schedule significantly refers to the "Estimated Number of Employees" and estimated total salaries, and whilst a prudent underwriter evaluating his risk from inception of the policy would obviously be misled if the number of employees was grossly misstated he would nevertheless in addition to his implied right to repudiate have his additional options of collecting an increased premium (Clause 8) or of cancelling on 7 days notice (Clause 9).

31. I therefore hold that on the true construction of this policy there was no warranty or condition whether precedent or not as to any number of employees. The facts of this case show that during the period in question the variation was between 1 and 2 employees. That may cynically be a 100% variation but from a commonsense point of view the picture is of a very small business.

32. It follows necessarily from the way in which I hold the policy to be properly construed that firstly there was no need for an endorsement during the currency of the policy to reflect the change in the number of employees and secondly that such, if any, endorsement, was not a contract based on offer and acceptance but merely a running record, it is true that when, firstly the number of employees estimated at the inception of the policy was reduced, and then later increased there was an immediate adjustment of premium, but there was no obligation on the insurer to give such refund or right on his part to upward adjustment until the expiry of the period of insurance.

33. The Defendants contention by para. 6(a) of their Defence that the Plaintiff was guilty of material non-disclosure prior to the endorsement being given is not in my judgment well founded.

34. Non-disclosure only relates, in the context of this policy, and is only material, to the liability of the Defendants to meet any particular claim; that is to say the Plaintiffs duty to preserve the utmost good faith extends to the making of claims. I have not had my attention directed nor can I see any "false claim clause" in the Policy, providing for total avoidance of the policy in the event of a false claim being lodged but this in my judgment is a right which is vested in the Insurer whether expressed or not. There is no allegation in the Defence of the claim being false and no application was made to me to amend to add such a claim in the light of the Plaintiffs evidence; and indeed it does seem that the claim lodged with the Department of Labour, although false in the sense that the injured man's stated salary, appears to have been tailored to meet the misconceived, idea of the limited indemnity available under the policy, the Defendants have suffered no harm thereby, but it is the unfortunate workmen who has probably compromised his claim for less than he was entitled, to who has suffered, and it would be a monstrous injustice for me to invite an allegation that or to hold on the evidence that, fraud was shown which would enable the Defendants to avoid meeting the claim. Their own evidence showed that they accepted the notice to the Labour Department as notice to themselves and on the 21st April 1983, and I therefore have to deal with the allegation in the Defence that because that notice has late and not given within statutory the time limits (of 7 days) prescribed by S.15 of Cap. 282, the Plaintiff has not complied with his "statutory obligations", thus breaching Condition 4 of the policy and entitling the Defendants to repudiate the policy. I think the answer to that is that particular statutory provision does not relate, to the risk, because non-compliance imposes only a penal provision on the Employer, and that further the Ordinance provides expressly (S.15(7)) that non-(illegible) by the employer shall not prevent a person from making a claim. Late notice to the Defendant was as I have already held waived by the Defendants and they cannot in my judgment contend for a right to repudiate for breach of a statutory condition which neither affects their risk nor prejudices their chances of minimising their loss.

35. The Plaintiff claims the sum of $53,341 - 86¢ being the Compensation agreed between him and the injured workman. That appears to be based on the figure for daily earrings of $64, which also appears to have been an incorrect figure, but it is certainly lower than the figure which on the evidence the Defendants might have been liable for had the Plaintiff not been caught in his own web of deception, since there was no limit of liability in the policy - the Defendants witness agreeing that the figure appearing in the indorsement to indicate such was in fact in error - (Page 8 Endorsement "C" in the agreed bundle) - the premium being based on total earnings; it was those "total earnings" which should have appeared, he said, not, "Sum insured additional limit $20,000".

36. The Plaintiff is therefore in my judgment and in spite of the deception he has sought to impose on the Department of Labour and on the Defendants, nevertheless entitled to be indemnified within the limits of the policy and subject to any premium adjustment to which the Defendants are entitled by virtue of Condition No. 8. To hold otherwise because of the Plaintiffs lack of credibility in the circumstances of this case would be to relieve the Defendants at the expense of an innocent Third Party; their rights are as to premium or cancellation.

37. Now I have to consider what relief the Court should give. The agreement which the Plaintiff asserts he has entered into with the injured man is pleaded in para. 4 of the Statement of Claim, it was not admitted by the Defence, and only a Chinese version was included in the agreed bundle but the Plaintiff gave brief evidence as to the figure of $53341.86 which he agreed to pay under the provisions of the Employees' Compensation Ordinance. At that point Mr. Lee for the Defendant indicated there was no dispute on that point, so I will take cognizance of the provisions of SS. 17 and S.17A of Cap. 282 and hold that the Plaintiff is bound to pay $53341.86 and under the Legislation referred to in the Schedule to the Policy and is thus entitled to his indemnity and in the sum claimed namely $53341.86 and there will be judgment for the Plaintiff in that sum, together with the costs of the action to be taxed in default of agreement and on the Upper Scale.

38. Delivered in Open Court this 30th day of November, 1984.

By me,

(1) Woolfall &. Rimmer Ltd. v. Moyle & Another [1941] 3 A.E.R. p.304