FALCON INSURANCE COMPANY (HONG KONG) LTD v. BING LEE CRANE-LORRY TRANSPORTATION CO LTD AND ANOTHER

HCMP 1063/2022

[2023] HKCFI 1129

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1063 OF 2022

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D E C I S I O N

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INTRODUCTION

1.  In the present proceedings, the plaintiff (“Falcon”) is seeking a declaration that it is entitled to avoid a commercial vehicle insurance policy (“Policy”) issued to the 1^st defendant (“Bing Lee”) under section 10 (3) of the Motor Vehicles Insurance (Third Party Risks) Ordinance, Cap 272 (“Ordinance”).

2.  On 11 November 2022, Tugu Insurance Company Limited (“Tugu”) was granted leave to be added as the 2^nd defendant in these proceedings. The amended originating summons was later filed on 22 November 2022 (“AOS”), and directions were given for the substantive hearing of the AOS to be fixed. The substantive hearing for Falcon’s AOS was eventually fixed before this Court on 6 March 2023.

3.  In paragraph 1 of the AOS, Falcon seeks the following:

“A declaration that [Falcon] is entitled to avoid the Policy on the ground that the Policy was obtained by the non-disclosure of a material fact, and/or a presentation of the fact which was false in some material particular”. (“Declaration”)”

4.  On 27 January 2023, Bing Lee issued a summons seeking an order for all further proceedings herein be stayed and that the parties to refer their disputes to arbitration in accordance with section 18(g) of the Policy (“Stay Summons”). The Stay Summons was issued under section 20(1) of the Arbitration Ordinance, Cap 609 (“AO”), Order 12 rule 8 and Order 73 rule 2 of the RHC, and inherent jurisdiction.

5.  Both the AOS and the Stay Summons are now before this Court.

BACKGROUND

6.  Falcon was the motor insurer of Bing Lee in relation to a lorry crane with registration number TV 4982 (“Vehicle”) for the period from 19 November 2017 to 18 November 2018, under the Policy, which is a commercial vehicle insurance policy numbered 81A-P5036901-MCV17-NS issued on 20 December 2017 by Falcon to Bing Lee.

7.  The owner and director of Bing Lee is Mr Wong Tak Wing (“Mr Wong”) and the named driver of the Vehicle stated in the “Motor Insurance Proposal Form” (“Proposal Form”) submitted for subscribing the Policy was Mr Leung Siu Lung (“Mr Leung”).

8.  On 14 September 2018, whilst driving the Vehicle, Mr Leung was involved in an accident at LOHAS Park Package Five in Tseung Kwan O, whereby part of the crane of the Vehicle fell and caused injuries to 3 persons including one Wong Kwai Tak (“Accident”).

9.  Mr Wong Kwai Tak (“WKT”) subsequently commenced a Personal Injuries Action No 280/2021 in the High Court on 27 August 2021, and claimed against 4 defendants, namely (1) WKT’s direct employer, (2) the subcontractor of the site, (3) the principal contractor of the site, and (4) Bing Lee, being the owner of the Vehicle and employer of Mr Leung (“PI Action”).

10.  TS Tong & Co are solicitors acting for Bing Lee’s co-defendants (1), (2) and (3) in the PI Action (“PI Co-Defendants”) and for their insurers, namely Tugu. On 8 April 2022, TS Tong & Co issued a letter to Bing Lee giving notice that the PI Co-Defendants shall seek contribution and indemnity from Bing Lee. A copy of that letter was also sent to Falcon.

11.  On 18 May 2022, TS Tong & Co served on Falcon a Notice Claiming Contribution and Indemnity by the PI Co-Defendants against Bing Lee, a copy of the Notice to Insurer and the Defence of the PI Co-Defendants in the PI Action (“Contribution Proceedings”).

12.  Falcon took the view that the Policy was rendered void as a result of Bing Lee’s breach of the “Clean Claims Warranty”. This led to Falcon issuing the present proceedings on 5 August 2022 seeking the Declaration. Falcon notified TS Tong & Co of the present proceedings on 9 August 2022 whereupon Tugu applied to be joined in the present proceedings.

13.  The Stay Summons was served also on Tugu. Tugu’s position is neutral in relation to the Stay Summons, and has indicated that if this Court were to grant a stay sought by Bing Lee, Tugu would agree to a case management stay of these proceedings pending the outcome of the arbitration between Falcon and Bing Lee.

14.  At the hearing before this Court, counsel Mr Leon Ho appeared for Falcon, Mr Martin Ho appeared for Bing Lee and Mr Daniel KK Chan appeared for Tugu.

15.  I shall consider the Stay Summons first.

THE STAY SUMMONS

General legal principles

16.  In Chu Kong v Lau Wing Yan [2019] 1 HKLRD 589, the Court of Appeal noted at paragraph 10 thereof that the requirement to stay for arbitration under section 20(1) is mandatory and that in dealing with an application under section 20(1) of the AO, the Court asks the following questions[1] (collectively “4 Questions”):

(1)  Is the arbitration clause an arbitration agreement? (“Question (1)”)

(2)  Is the arbitration agreement null and void, inoperative or incapable of being performed? (“Question (2)”)

(3)  Is there in reality a dispute or difference between the parties? (“Question (3)”)

(4)  Is the dispute or difference between the parties within the ambit of the arbitration agreement? (“Question (4)”)

17.  The onus is on the applicant for a stay to show that there is a prima facie case or it is plainly arguable, that the parties are bound by an arbitration clause and unless the point is clear, the Court should not resolve the issue, and the matter should be stayed in favour of arbitration for the arbitral tribunal to determine its own jurisdiction: Polytec Overseas Ltd v Grand Dragon International Holdings Co Ltd [2017] 3 HKLRD 258, at paragraph 24.

Question (1) – Is the arbitration clause an arbitration agreement

18.  There is no dispute that Question (1) is satisfied. A copy of the Policy has been exhibited in the affirmation of Sin Man Hon, Vice President of the Claims Division of Falcon[2]. It consists of the “Specimen Terms” and “Other Terms”.

19.  Section 18(g) in the “Specimen Terms” provides as follows:

“All differences arising out of this Policy shall be determined by arbitration in accordance with the prevailing Arbitration Ordinance. If the parties fail to agree upon the choice of arbitrators or umpires, then the choice shall be referred to the Chairman for the time being of the Hong Kong International Arbitration Centre. It is expressly stipulated that it shall be a condition precedent to any right of action or suit upon this Policy that an arbitration award shall be first obtained. If the Company 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 provisions herein contained then the claim shall for all purposes be deemed to have been abandoned and shall not thereafter be recoverable hereunder.” (“Arbitration Clause”)

20.  The above underlined words in the Arbitration Clause show that the parties have contractually agreed to resolve all differences arising out of the Policy by arbitration, and that the arbitration is mandatory under the Arbitration Clause.

Question (2) - whether the Arbitration Clause is null and void, inoperative, or incapable of being performed

21.  Falcon’s arguments are essentially that:

(1)  A declaration under section 10(3) of the Ordinance can only be obtained in court proceedings, any arbitration agreement purporting to refer a dispute under section 10(3) is inoperative and/or incapable of being performed;

(2)  Due to public policy considerations, the subject declaratory relief is non-arbitrable;

(3)  Under the “Clean Claims Warranty” in the Policy, the Policy has been rendered null and void.

22.  First, as pointed out by Mr Martin Ho who appeared on behalf of Bing Lee, Falcon’s contention that a section 10(3) declaration could only be obtained in a court action/proceedings was “neither here nor there”. There was no dispute that a section 10(3) declaration could only be granted by the court in an action or court proceedings.

23.  It was accepted by Falcon that notwithstanding that Falcon was entitled to avoid or cancel, or may have avoided or cancelled the Policy, Falcon would subject to section 10(1) still have to pay to the PI Co-Defendants, if they were to succeed in obtaining a judgment against Bing Lee in the Contribution Proceedings, unless Falcon has obtained a declaration under section 10(3) of the Ordinance. That was why Falcon issued the present action/proceedings to seek the Declaration.

24.  As pointed out on behalf of Bing Lee, the reason why the insurer must obtain a court declaration under section 10(3) is to ensure that the third party claimant, who is the person which the statute aims to protect, can fully participate and argue against the insurer obtaining such a declaration which would take away the third party claimant’s right to enforce any judgment obtained against the insurer directly under section 10(3) of the Ordinance.

25.  However, in my view, even though the declaration can only be granted by the court and not by the arbitral tribunal, this does not mean that the underlying disputes, or the subject matter, between the insurer and the insured are not arbitrable. As submitted by Mr Martin Ho, on behalf of Bing Lee, if the arbitral tribunal is to rule against Falcon on the underlying disputes, that is the end of the matter for Falcon. If on the other hand, Falcon succeeds in arbitration, it can reactivate the present proceedings by applying for the stay to be lifted so that (a) Tugu may have a chance to make submissions and (b) the Court may rule on the same, taking into account the arbitral award, which would be binding between Falcon and Bing Lee. Indeed, it has been observed by Menon CJ of the Singaporean Court of Appeal in paragraphs 100-103 of Tomolugen Holdings v Silica Investors Ltd [2016] 1 SLR 373, that the arbitral tribunal may not have powers to grant certain relief exclusively reserved to the courts does not make the subject matter non arbitrable.

26.  Further, I agree with Mr Martin Ho that the mandatory stay under section 20 of AO is not inconsistent with and does not undermine the regime of section 10 of the Ordinance. There is a strong public interest to uphold arbitration clauses and there are no authorities produced on behalf of Falcon to suggest that the enforceability and validity of an insurance policy cannot be arbitrable.

27.  Having considered above, even though the arbitral tribunal will not be able to grant the Declaration, I am of the view that the underlying disputes between Falcon and Bing Lee, namely the enforceability and validity of the Policy, including whether the Policy has been rendered null and void under the “Clean Claims Warranty” (defined below) are matters that are arbitrable. I do not find there being sufficient basis for saying that the Arbitration Clause is inoperative or incapable of being performed.

Question (3) - whether a dispute or difference between the parties

28.  Falcon relies on the “Clean Claims Warranty” under “Other Terms”, which provides as follows:

“Other Terms

Subject otherwise to its terms and conditions this Policy is subject to the following additional Clauses/Extensions/Notes:

……

Clean Claims Warranty (EPS 30237)

Warranted clean claims record for the past 3 year(s). Any breach of this warranty shall render the policy void”

(“Clean Claims Warranty”)

29.  Falcon’s case is that as a result of Bing Lee’s breach of the Clean Claims Warranty, the Policy has already been rendered void. On 19 October 2018, Falcon had sent a letter to Bing Lee referring to the Clean Claims Warranty and notifying Bing Lee that as Bing Lee and the driver (Mr Leung) had breached the terms of the Clean Claims Warranty, Falcon was entitled to repudiate liability under the Policy and that Falcon would not be liable under the Policy accordingly (“Disclaimer Letter”)[3].

30.  There was no response from Bing Lee to the Disclaimer Letter. Thereafter, Falcon did not participate in the PI Action and that Falcon was only sent documents in the PI Action on 18 May 2022 from the PI Co-Defendants.

31.  It was therefore Falcon’s position that as Bing Lee had not referred Falcon’s disclaimer within 12 months for arbitration after the Disclaimer Letter, Bing Lee should be deemed to have abandoned its claim against Falcon under the Policy under the last sentence of the Arbitration Clause (“Deemed Waiver”) and there is no longer any dispute/difference between Falcon and Bing Lee which is arbitable.

32.  On the other hand, it was submitted on behalf of Bing Lee that there is plainly a dispute/difference between Falcon and Bing Lee under the Arbitration Clause, on (i) whether Bing Lee had made any alleged misrepresentations which would entitle Falcon to avoid the Policy; and (ii) the proper scope and ambit of the Deemed Waiver.

33.  Insofar as (ii) above is concerned, it was submitted by Mr Martin Ho that, the Deemed Waiver only applies to a “claim” made by the insured under the Policy, such that upon the insurer’s disclaimer of liability for that “claim”, and if that “claim” is not referred to arbitration within a 12 month period, such “claim” shall be deemed to be abandoned. In the present situation, there is no extant “claim” made by Bing Lee under the Policy, as Bing Lee has no liability incurred as of today and consequently no claim has been made under the Policy. Further, Falcon is seeking to avoid the whole Policy altogether and not just disclaiming liability for a particular “claim”.

34.  Mr Martin Ho also argued that whether the “Clean Claims Warranty” as contained in the “Other Terms” purported to insert additional warranties and obligations on Bing Lee on top of the usual form policy is (a) part of the contractual bargain between Falcon and Bing Lee (ie whether there was a meeting of minds) and(b) supported by consideration flowing from Falcon are further disputes/differences between Falcon and Bing Lee.

35.  As seen, in the recent Court of Appeal judgment in Re Lam Kwok Hung Guy, and Ex Parte: Tor Asia Credit Master Fund LP [2022] 4 HKLRD 793, at paragraph 90, per G Lam JA, the perceived lack of merits by the judge of any defence does not mean that there is no genuine dispute between the parties which should be referred to their contractually agreed dispute resolution forum, and the judge should not embark upon a review of the underlying merits in the first place.

36.  As no claim has yet been made by Bing Lee, it is arguable whether the time under the Deemed Waiver has started to run against Bing Lee. This is in my view is a dispute/difference under the Arbitration Clause.

37.  Having considered all above, I have come to the view that Question (3) has been satisfied.

Question (4) – whether a dispute or difference within ambit of the Arbitration Clause

38.  It was the contention of Falcon that the AOS would not affect the rights of Bing Lee since Falcon had already validly repudiated the Policy and that only the rights of Tugu/PI Co-Defendants would be affected. It was also argued that since Bing Lee’s allegedly false representations were made prior to the entering into of the Policy, it is not a dispute covered by the Arbitration Clause.

39.  However, the Arbitration Clause is drafted in wide terms, in that it covers “all differences arising out of the Policy”. It goes on to say that “it shall be a condition precedent to any right of action or suit upon this Policy that an arbitration award shall be first obtained”.

40.  It has been said by M Chan J in VK Holdings (HK) Ltd v Panasonic Eco Solutions (Hong Kong) Co Ltd HCCT 19/2004, 19.12.14, at paragraph 30 that:

“Turning to the words used in the arbitration clause contained in Article 20, it refers to “any and all”, “disputes, controversies or differences”, “arising out of or in connection with” the Agreement. All these phrases have been considered to confer the widest possible jurisdiction and a wide meaning ….. Of course, they are to be construed by reference to the subject matter of the contract in which the words were contained, but a dispute “arising out of” the contract has been held to cover every dispute except a dispute as to whether there was ever a contract at all…….”

41.  Having considered the above, I am of the view that the validity and enforceability of the Policy is a matter covered by the Arbitration Clause. In my view, Question (4) has been satisfied.

Conclusion on the Stay Summons

42.  In light of my view that the 4 Questions have been satisfied, I am prepared to grant an order for stay as sought by Bing Lee.

THE AOS

43.  Mr Daniel KK Chan’s skeleton submissions on behalf of Tugu were essentially on the merits of Falcon’s AOS, or of the parties’ disputes/differences.

44.  In light of the order for stay, I will not embark on a review of or to consider the merits of Falcon’s AOS or of the parties’ disputes/differences in the present proceedings.

45.  As said earlier, Tugu has no objection to a case management stay as adopted by M Chan J in paragraphs 58-59 in the Polytec Overseas Ltd v Grand Dragon International Holdings Co Ltd [2017] 3 HKLRD 258, namely for this Court to order a case management stay of the claim/s between Falcon and Tugu, pending the outcome of the arbitration between Falcon and Bing Lee. I will accordingly order a case management stay.

ORDER

46.  My order is thus:

(1)  All further proceedings in this action as between Falcon and Bing Lee be stayed;

(2)  Falcon and Bing Lee shall refer the underlying disputes in this action to arbitration administered by the Hong Kong International Arbitration Centre (“HKIAC Arbitration”) in accordance with the Arbitration Clause;

(3)  All other claim(s) in this action not covered in paragraphs above (including those claim(s) between Falcon and Tugu) be stayed on case management grounds pending the final resolution of the HKIAC Arbitration, if such has not been resolved during arbitration.

COSTS

47.  Bing Lee has sought costs of the Stay Summons against Falcon on an indemnity basis. Having considered the circumstances of this case, I am of the view that costs of all parties should be reserved for further argument after the final resolution of the HKIAC Arbitration, if such has not been resolved during arbitration.