BOUYGUES S A AND OTHERS v. RED SEA INSURANCE LTD.

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J U D G M E N T

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Sir Derek Cons, VP:

1. The forensic battle lines in the court below are somewhat curiously drawn. The plaintiffs, who are numerous and come exclusively from jurisdictions other than Hong Kong, fall conveniently into three groups. The first comprises three parties to a joint venture formed for the construction of the academic area of a new university in Riyadh in the Kingdom of Saudi Arabia ("the Contractors"). The second group form a consortium ("the Precast Construction Group") which supplied the precast prime building units required for the project. The remaining 10 plaintiffs were the architectural and engineering consultants and form a consortium known, for some reason, as "the HOK + 4 Consortium".

2. The plaintiffs' claim is based on an All Risks insurance policy taken out in 1981 with the defendants, the Red Sea Insurance Company Ltd, a company incorporated in Hong Kong although they are said to have their head office in Saudi Arabia.

3. The statement of claim alleges that during the currency of the policy structural damage occurred to the property insured, being made manifest over the period May 1983 to May 1984. The damage was made good by the plaintiffs at a cost of a little under US$6 million, but the defendants refuse to indemnify.

4. The defence in general is that the costs incurred by the plaintiffs were for correcting bad design or workmanship, risks specifically excluded from the policy. A particular defence against the Precast Construction Group is that those plaintiffs were not covered by the policy, or alternatively, by refusing to pay the premium, they are estopped from relying on the policy. The pleader then refers to various other matters, such as the failure of the Precast Construction Group to notify the defendants of the damage or to cooperate with them and the need of the other plaintiffs to give credit for monies received and so on. He finally adds a counterclaim. This is directed only against the Precast Construction Group, alleging breach of a duty of care owed by that group to the other plaintiffs in the design and manufacture of the particular elements of the building, which breaches caused the damage complained of and for which the defendants are entitled to recover "by way of subrogation" of the other plaintiffs' rights. The prayer is for an order that the defendants recover from the Precast Construction Group whatever they may be found liable to pay to the other plaintiffs, or a declaration to similar effect.

5. On the 18th April last year the Precast Construction Group took out a summons to strike out the counterclaim as disclosing no reasonable cause of action; on the 28th October the defendants sought leave to amend the counterclaim by adding a new paragraph:

    "24. The Defendant will contend in  relation to the Counterclaim herein:

(a) that the law governing:

(i) relations between the Precast Construction Group and the Contractors and/or the HOK + 4 Consortium; and

(ii)the claim by the Defendant herein against the Precast Construction Group is the law of and applied in Saudi Arabia;

(b)that by the law of and applied in Saudi Arabia, the Defendant is entitled to and does stand in the shoes of the Contractors and/or the HOK + 4 Consortium insofar as, which is denied, there is any liability by the Defendant to make payments under the claim herein to the Contractors and/or the HOK + 4 Consortium or any of them."

(We have interpolated the names we are using.)

6. The two summonses were heard together before Jones, J. In a reasoned judgment handed down on the 21st November he struck out the counterclaim and dismissed the application to amend. By this appeal this court is asked to rule that the learned judge should have made no order on the application to strike out and have given leave to amend in the terms we have just set out, albeit there is pending below a more recent application to amend by way of a completely re-drafted counterclaim. It is conceded that the pleading, as it stood before Jones, J, was defective and liable to be struck out. But it is contended that it could have been cured by amendment and that therefore that course ought not to have been taken.

7. The new pleading, if we understand the submissions correctly, will put the counterclaim in two ways, both relying on a foundation in Saudi Arabian law. The first, referred to by Mr Tong for the defendants as "a direct cause of action", will rely on what is said to be in that law a right in negligence vested directly in the defendants themselves as insurers. The second, "the indirect cause of action", relies upon a right given by that law to the defendants to enforce for themselves the similar rights of the other plaintiffs.

8. The classic exposition of the law relating to torts committed beyond the jurisdiction is to be found in the judgment of Willes, J, in Phillips v Eyre (1870) LR 6 QB 1. It was considered in depth by the House of Lords in Boys v Chaplin [1971] AC 356. In consequence, the learned editor of the ninth edition of Dicey & Morris on the Conflict of Laws re-formulated what was then rule 172, now rule 205, in these words:

"Rule 205. - (1) As a general rule, an act done in a foreign country is a tort and actionable as such in England, only if it is both

(a) actionable as a tort according to English law, or in other words is an act which, if done in England, would be a tort; and

(b) actionable according to the law of the foreign country where it was done.

    (2) But a particular issue between the parties may be governed by the law of the country which, with respect to that issue, has the most significant relationship with the occurrence and the parties."

9. Sub-rule (2) is derived from the speech of Lord Wilberforce, supported by that of Lord Hodson and possibly that of Lord Pearson. Lord Donovan was contrary minded and Lord Guest, with respect, abstained.

10. The position in Hong Kong was considered by another division of this court in The Adhiguna Meranti [1987] HKLR 904. That appeal arose from the grounding in Taiwan of an Indonesian owned vessel and was concerned with an application to stay proceedings here in favour of Jakarta. Hunter, JA, delivering the judgment of the court, said at 914:

"     The defendant's alternative formulation is based upon the new sub-rule (2) to Dicey's rule 172. Dicey's hopes here have not yet been fulfilled. The formulation still has the support only of Lord Wilberforce and has not been adopted since in England. In Australia it was rejected in Kolksy v. Mayne Nickless for reasons which carry conviction with us. We do not think that it can yet be regarded as part of the law of Hong Kong."

11. The court took note of their lordships' concern that a strict application of the basic rule might encourage forum-shopping, but was nevertheless satisfied that such conduct could be sufficiently controlled by the discretion to stay proceedings:

" ... we think that the proper exercise of the jurisdiction does provide a more convenient answer to forum-shopping than some uncertain relaxation of the substantive law."

12. We take these passages to be a firm exclusion of the sub-rule from the law of Hong Kong. Whether today, being addressed with different arguments, we would come to the same conclusion is a question not open for consideration. This court has long considered itself bound by its own decisions, subject to the usual exceptions: Ng Yuen Sui v AG [1981] HKLR 352. We accept the caveat in the court's opinion, introduced by the inclusion of the word "yet", but all that has happened in the last five years is that the Court of Appeal of Ontario and the majority of the High Court of Australia have spoken of the desirability of permitting, in appropriate circumstances, some relaxation of the basic rule. In our view that would not be sufficient to justify this court's departing from its earlier decision.

13. We are likewise not persuaded that the decision was given per incuriam, as that phrase is properly understood: see per Lord Evershed, MR, in Morelle v Wakeling [1955] 1All ER 708 at 718. None of the authorities to which Mr Tong has referred us, namely Church of Scientology of California v Commissioners of Police of The Metopolis, 1976, unreported, English Court of Appeal Transcript 335/76, Coupland v Arabian Gulf Oil Co [1983] 1 WLR 1136, Warren v Warren [1972] Qd R 386, Corcoran v Corcoran [1974] VR 164 and Borg Warner (Rust) Ltd v Zupan [1982] VR 437, and which were not apparently cited to the court, are of binding authority. Nor are we persuaded that the decision was obiter. It was a necessary decision en route to the overall question as to whether, should the action continue in Hong Kong, a foreign law of limitation of liability should apply in preference to that of Hong Kong. Finally we do not think the earlier decision can be distinguished on the facts, the suggestions being that there was in that case a choice between two possible laws (as opposed to simply one in the present); that neither of those foreign laws provided a complete defence; and that the present proceedings are brought by way of counterclaim. These factors seem to us to have no bearing upon the principle behind the decision. It is conceded, we think, that the proposed direct cause of action is unsustainable without the benefit of Dicey's sub-rule (2). In our view that inevitably follows from the decision of this court in the The Adniguna Meranti.

14. We turn then to the "indirect cause of action", i.e. the defendants' claim to pursue in their own name rights which they say the Contractors and the HOK + 4 Consortium will have against the Precast Construction Group. It is clear that they cannot do so by Hong Kong law, partly because they would be obliged to sue in the name of the Contractors and the Consortium, and partly because no action would lie until they themselves had paid up. But if they may be able, in due course, to establish by Saudi Arabian law, which is accepted as the proper law of the contract of insurance upon which the plaintiffs sue, a contractual right to such a claim, we see no reason why they should be deprived of the opportunity of doing so, subject to the limitation point to which we now turn.

15. Before doing so it may be convenient to dispose of the suggestion that the counterclaim should be struck out because of the principle that no claim is sustainable for damages arising from negligence in building works where such damage consists only of economic loss. With respect, this is not an argument relevant at this stage. The true nature of the loss in question, and if only economic, whether there is nevertheless sufficient proximity for its recovery, are questions which in our view can only properly be dealt with at a trial.

Section 35(1) to (6) of the Limitation Ordinance, Cap 347, provides as follows:

"     (1) For the purposes of this Ordinance, any new claim made in the course of any action shall be deemed to be a separate action and to have been commenced -

(a) in the case of a new claim made in or by way of third party proceedings, on the date on which those proceedings were commenced; and

(b) in the case of any other new claim, on the same date as the original action.

    (2) In this section a new claim means any claim by way of set-off or counterclaim, and any claim involving either-

(a) the addition or substitution of a new cause of action; or

(b) the addition or substitution of a new party,

and 'third party proceedings' means any proceedings brought in the course of any action by any party to the action against a person not previously a party to the action, other than proceedings brought by joining any such person as defendant to any claim already made in the original action by the party bringing the proceedings.

    (3) Except as provided by section 30 or by rules of court, the court shall not allow a new claim within subsection (1)(b), other than an original set-off or counterclaim, to be made in the course of any action after the expiry of any time limit under this Ordinance which would affect a new action to enforce that claim.

    (4) For the purposes of subsection (3), a claim is an original set-off or an original counterclaim if it is a claim made by way of set-off or (as the case may be) by way of counterclaim by a party who has not previously made any claim in the action.

    (5) Rules of court may provide for allowing a new claim to which subsection (3) applies to be made as there mentioned, but only if the conditions pecified in subsection (6) are satisfied, and subject to any further restrictions the rules may impose.

    (6) The conditions referred to in subsection

(5) are  -

(a) in the case of a claim involving a new cause of action, if the new cause of action arises out of the same facts or substantially the same facts as a cause of action in respect of which relief has already been claimed in the action by the party applying for leave to make the amendment; and

(b) in the case of a claim involving a new party, if the addition or substitution of the new party is necessary for the determination of the original action.",

16. The relevant order in the Rules of the Supreme Court is Order 20 rule 5 and imposes no further restrictions than those contained in subsection (6).

17. The plaintiffs' argument, as we understand it, and resting on subsections (3) and (4), is that as the counterclaim as originally drafted discloses no cause of action, there is nothing effective which could now, the defendants being well out of time, properly be amended; or to put it in another way, the defendants have squandered the one and only opportunity given to them by the Ordinance.

18. We find ourselves unable to accept that argument.We express no opinion as to the effect of the subsections once a counterclaim has in fact been struck out, but until that has been done it seems to us that, whether it is viable or not, it remains a counterclaim and may be amended with leave provided the amendment complies, in the present instance, with order 20 rule 5(5), i.e. if the effect is to add a new cause of action, that the new cause arises out of the same or substantially the same facts already pleaded.

19. In Robinson v Unicos Proprietary Corporation Ltd [1962] 1 WLR 520 at 525 Holroyd Pearce, LJ, explained "new cause of action" in this context as "a claim made on a certain basis". Adopting that approach here it seems to us that, however inelegantly it may have been drafted, the claim in the original counterclaim was clearly made on the basis that the defendants were entitled to enforce for themselves whatever rights the Contractors and the HOK + 4 Consortium might have by reason of what is said to be the negligence of the Precast Construction Group. That is the same claim as is made, so we are told, in the proposed amendment. The only difference is that the amendment will contain an express, and we assume properly pleaded, reference to Saudi Arabian law. That is technically a question of fact, but as Holroyd Pearce, LJ, observed in the same case, the rules do not necessarily exclude the amendment of a material _.averment after the period of limitation. This difference is insufficient, in our view, to cast the mantle of "newness" upon what is substantially the same claim as originally made. The defendants are therefore in a position to take advantage of Order 20 rule 5(5).

20. It is, we think, well established that the court will in general not strike out as defective a pleading which is capable of being cured by amendment. The amendment proposed below was by no means sufficient to achieve that purpose. Whether that now proposed will be more successful is a matter for whichever judge hears the application stayed pending the outcome of this appeal. But we would hold it unjust, if that indeed would be the consequence of striking out the counterclaim, to deprive the defendants of the opportunity to make the application at all.

21. For these reasons we allow the appeal to the extent of setting aside the order dismissing the counterclaim, but no more. We are pleased to be able to come to that conclusion, for it seems to us eminently sensible that all the disputes between the various parties should be disposed of at one and the same time. In handing down this judgment we make an order nisi that the defendants shall have their costs of the appeal.