UNITED INDIA INSURANCE CO LTD v. THE NEW INDIA ASSURANCE CO LTD AND ANOTHER

HCCT 2/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION & ARBITRATION PROCEEDINGS

NO. 2 OF 2005

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J U D G M E N T

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I.  Introduction

1.  Hyundai obtained employees’ compensation insurance for construction works at Tung Chung Station from United India.  When arranging the insurance Hyundai acted through Willis Carroon China (HK) Ltd. as brokers.  United India’s insurance portfolio is now in run-off with New India.

2.  United India and New India (the Insurers) seek leave to appeal against the First Partial Award of Mr. Robin Peard (the Arbitrator).  The Award was made on a claim by Hyundai for a downward adjustment (and consequent refund) of premium.

3.  The Insurers contend that the Arbitrator went wrong in construing the insurance slip and policy.  They also say that the Arbitrator erred when applying condition 10 of the policy to the facts.

II.  Discussion

4.  The specific issues before me are as follows:

(1)	Was the Arbitrator wrong in his construction of the phrase “Premium adjustable at the Certified Total Contract Value” (the phrase) in the slip?
(2)	Was the Arbitrator wrong to conclude that condition  of the policy should be rectified?
(3)	Was the Arbitrator wrong to conclude that Mr. Park had not affirmed the unrectified policy when negotiating for its renewal?
(4)	Was the Arbitrator wrong in his construction of condition 10 of the policy?
(5)	Was the Arbitrator wrong to conclude that, even if condition 10 was construed as the Insurers assert, Hyundai did not abandon its claim for a refund?

A.  Construction of the phrase

5.  The Arbitrator construed the phrase by reference to its words and market practice.  He concluded that the phrase referred to the value of construction works at the end of the insurance period (as Hyundai claimed), rather than at the end of the construction contract (as the Insurers maintained).

6.  Mr. Bharwaney (acting for the Insurers) suggests that the Arbitrator was plainly wrong because the phrase was too uncertain.  It was not a term of art in the insurance trade.  Moreover, the Arbitrator attached too much weight to the dropping of the word “Final” before “Total” in a previous draft of the phrase.

7.  In my view, the Arbitrator’s approach to the construction of the phrase was impeccable.  There is no obvious or even serious error apparent. 

8.  I note that Mr. Bharwaney criticises the Arbitrator’s reliance on evidence from Mr. Ho, Hyundai’s expert on market practice.  According to the Award, Mr. Ho’s evidence was to the effect that “according to market practice the Phrase refers to the total contract value at the end of the period of insurance”. I do not see how the Arbitrator can be said to have been obviously wrong to have regard to Mr. Ho’s evidence.

B.  Rectification of condition 8

9.  Having construed the phrase, the Arbitrator held that it was clear evidence of a prior agreement and common intention between Hyundai and the Insurers.  That prior agreement was not accurately reflected by condition 8. 

10.  As drafted (following negotiation between the parties) condition 8 referred to the adjustment of premium by reference to “the amount of salaries and wages and other earnings paid by the Insured to employees during each Period of Insurance”. 

11.  Condition 8 (the Arbitrator thought) should have referred to the adjustment of premium by reference to total contract value at the end of the insurance period.  This would reflect the prior agreement evidenced by the slip as construed by the Arbitrator.  He accordingly held that Hyundai was right in seeking rectification of condition 8.

12.  Mr. Bharwaney questions whether, given the phrase’s ambiguity, the Arbitrator could have had the “high degree of conviction” needed to support rectification.  At best, the construction of the phrase favoured by the Arbitrator could only be a possible construction.  It follows (Mr. Bharwaney submits) that, prior to the issue of the policy, the Arbitrator could not have been satisfied that the parties had actually agreed as the Arbitrator found.

13.  I disagree.  Having construed the phrase objectively, the Arbitrator came to a view as to its meaning.  To all intents and purposes, that meaning reflected the parties’ common intention and agreement. 

14.  Indeed, the Arbitrator was sceptical of the competing constructions advanced by the Insurers.  He expressly stated that he did not find that the Insurers’ interpretations of the phrase were likely intended by the parties.

15.  In my view, the Arbitrator was entitled to regard his construction as sufficient to support Hyundai’s claim for rectification.  Again there appears to be no obvious or serious error.

C.  Affirmation by negotiation

16.  The policy was renewed unrectified. 

17.  The Insurers argued that Hyundai knew that it was entitled to a premium adjustment at the time of renewal.  But Mr. Park of Hyundai did not raise the matter of a refund in renewal negotiations.  It follows (the Insurers say) that Hyundai waived any right to an adjustment.

18.  The Arbitrator held that Mr. Park’s actions in the course of negotiations were consistent with maintaining a right to premium adjustment.  Mr. Park did not raise the question of refund simply because “[h]e was anxious to get a renewal or extension with very little time available and so agreed to pay the extension premium”.

19.  Mr. Bharwaney challenges the Arbitrator’s conclusion. 

20.  This issue is essentially a question of fact.  In substance, the Arbitrator had to decide whether Mr. Park had acted in such a way that it would now be inequitable to allow Hyundai to raise rectification. I therefore think that the Arbitrator’s conclusion on this point is not susceptible to appeal.  In any event, it does not seem to me that the Arbitrator was obviously or seriously wrong in his conclusion.

D.  Construction of condition 10

21.  Condition 10 provided as follows:

“.... If the Company [United India] shall disclaim liability to the Insured for any claim hereunder and such claim shall not within twelve calendar months from the date of such disclaimer have been referred to arbitration under the provision herein contained then its claim shall for all purposes be deemed to have been abandoned and shall not thereafter be recoverable hereunder.”

22.  The Arbitrator construed the word “claim” in the condition as referring to “claims against [Hyundai] for which it seeks indemnity under the Policy and not to other claims which may arise (for instance in respect of premium refund)”.

23.  Therefore, Hyundai’s right to a refund did not fall within condition 10.  Such right would persist, even if not pursued within 12 months after any disclaimer by United India.

24.  Mr. Bharwaney questions the Arbitrator’s construction.  He says that condition 10 is a standard (as opposed to a one-off) provision in employees’ compensation policies.  He submits that the expression “any claim hereunder” must mean “any claim under this policy”.  That is wide enough to encompass a “claim” for a premium refund.  There is no reason to restrict the expression or (as the Arbitrator did) apply the contra proferentem rule.

25.  Assume that condition 10 is a standard term.  Even so I am not persuaded that the Arbitrator was seriously wrong.  Indeed, in my view, he was probably correct in his construction.

26.  I note that, if the Insurers are right, it is curious that condition 10 would not operate symmetrically.  As interpreted by the Insurers, a disclaimer by them can bar the right of the insured to a refund after 12 months, but a disclaimer by an insured can never bar an insurer’s entitlement to demand more premium if total contract value is alleged to exceed initial estimate.

27.  It is possible that the policy was intended by the Insurers to have the unilateral effect for which they contend.  But, like the Arbitrator, I think that if it was to operate in that manner, it should have used clearer words to say so.

E.  Abandonment of claim

28.  The Arbitrator examined whether, if condition 10 were read as the Insurers submitted, the dealings among the parties could amount to an abandonment by Hyundai of its rights.  He considered correspondence and meetings among Hyundai, Willis and United India accordingly.  He concluded that there was no abandonment.

29.  Mr. Bharwaney challenges the Arbitrator’s assessment of the correspondence and meetings.  In particular, Mr. Bharwaney criticises the following matters:

(1)	The Arbitrator wrongly thought that “any fresh negotiations or discussions [after disclaimer by United India] must be specifically without prejudice to a previous disclaimer if it is to remain effective”.
(2)	The Arbitrator ignored clear words of disclaimer in various communications between United India and Willis.  The Arbitrator wrongly failed to treat Willis as Hyundai’s agent for the purpose of receiving disclaimers.
(3)	The Arbitrator ignored the clear communication of a disclaimer as evidenced by the minutes of meeting on 6 March 2002.  Willis attended that meeting.
(4)	The Arbitrator wrongly held that a disclaimer communicated by letter dated 11 March 2002 was subsequently withdrawn.
(5)	The Arbitrator ignored the clear communication of a disclaimer as evidenced by the minutes of a meeting on 19 April 2002.  Messrs. Clyde & Co. attended that meeting on Hyundai’s behalf.  The Arbitrator wrongly concluded that at the end of the meeting “the question of premium refund was left in the air”.

30.  Mr. Bharwaney is in effect seeking to re-litigate matters of fact, not questions of law. 

31.  Take, for example, the question whether Willis was authorised to received United India’s disclaimers on behalf of Hyundai.  That seems to me largely a question of fact, that is, whether Hyundai by its conduct authorised Willis to receive such disclaimers.

32.  As issues of fact, I cannot consider the matters raised by Mr. Bharwaney on an application for leave to appeal.

33.  In any event, I do not think that, in assessing the impact of the events identified by Mr. Bharwaney, the Arbitrator was obviously or seriously wrong.

IV.  Conclusion 

34.  The Insurers have failed to persuade me of significant error on the Arbitrator’s part.  Leave to appeal against the Award is refused.  The Insurers’ application is dismissed.