VASTGRAND INDUSTRIAL LTD. v. HONGKONG & SHANGHAI INSURANCE CO., LTD.

HCA 22005/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO. 22005 OF 1998

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J U D G M E N T

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1. This is an insurance claim made by the Plaintiff under two fire insurance policies taken out by the Plaintiff with the Defendant. For all practical purposes, the two insurance policies are of the same terms and may be regarded as one.

2. The Plaintiff had a factory in a suburb area of Zhongshan (中山) city known as Langwang (浪網) in the Guangdong province in the Mainland. On 19th June 1994, the goods in the factory were seriously damaged by floodwater. The loss is agreed in the sum of $3.2 million. The Plaintiff claims an indemnity of the loss under the two policies.

3. The Defendant denies liability on two grounds. First, it contends that the loss in question was not covered by the policies as it was not "directly caused" by, or the flood did not "directly result from", a typhoon. Second, the Plaintiff did not commence the present action within 12 months after the repudiation of liability by the Defendant on 24th June 1994, the present action having been commenced on 23rd December 1998 only.

4. The Plaintiff counters that the loss was "directly caused" by or the flood "directly result[ed] from" a typhoon known as "Russ" in Hong Kong. In relation to the time bar, the Plaintiff argues that by reason of an agreement or understanding reached between the Plaintiff and the loss adjusters representing the Defendant to withhold proceedings pending the outcome of a litigation already commenced by a related company under a similar policy relating to loss of goods stored in the Plaintiff's factory, the Defendant is estopped from taking the time point. I shall deal with the issues in turn.

Policy cover

5. Under each of the policies, the Defendant agrees that if the insured property situated at the Plaintiff's factory shall suffer any loss, destruction or damage caused by, amongst other things, "any Extra Peril specified in the Schedule" to the policy, the Defendant will pay to the Plaintiff the value of the property insured at the time of the happening of its loss or destruction or the amount of such damage. As I said, the quantum of loss is no longer in dispute.

6. In the relevant schedule of each of the policies, the policy is specifically extended to cover, amongst other things, "typhoon and windstorm (EP09B) ... as per Extra Perils Endorsement attached".

7. The standard-form Extra Perils Endorsement contains a number of extra perils that may be incorporated into the policy, which otherwise is a fire insurance policy only, by the agreement of the parties. Amongst them, one finds the following extra peril actually incorporated into the two policies in question:

"EP09B - Typhoon & Windstorm (including Flood)

Damage by fire or otherwise, directly caused by typhoon or windstorm but excluding

(i) ...

(ii) ...

(iii) Damage caused by

(a) the escape of water from its normal confines whether natural or artificial

(b) inundation from the sea

unless directly resulting from typhoon or windstorm."

Typhoon Russ

8. Typhoon Russ originated from a disturbance associated with a trough of low pressure over the South China Sea. It developed into a tropical depression on the afternoon of 3rd June 1994 about 290 km south of Hong Kong. It became a tropical storm that night. On the following day, it continued to intensify and deepened into a severe tropical storm on the afternoon of 4th June. On the 5th, Russ obtained peak intensity with a minimum pressure of 980 hPa and maximum sustained winds of 108 km/h respectively near the centre that night. It was steered to the west at the speed of 12 km/h on 6th June. It started to move west-northwest along the left flank of the subtropical ridge of the Mainland on the night of 7th June. It then curved north and headed towards the west coast of Guangdong.

9. On the morning of 8th June, Russ made landfall over Guangdong at about 430 km west-southwest of Hong Kong. It weakened rapidly into a tropical storm due to land interaction early on 9th June. Further degeneration took place and Russ became a tropical depression that afternoon.

10. According to a report made by the World Meteorological Organization ("WMO") under the United Nations Economic and Social Commission for Asia and the Pacific,

" Cloudbands associated with Russ became disorganized over southern China. A secondary centre formed over central China about 920 km southwest of Shanghai ... on the night of 9 June. This secondary centre then tracked east-northeast towards the East China Sea at about 38 km/h on 10 June. After traversing the East China Sea, Russ finally dissipated over what is to the south of Japan on the morning of 12 June.

In China, 77 persons died and 691 others were injured. About 700 000 houses were destroyed or damaged leaving 131 400 families homeless. The economic loss was estimated at US$36.54 million."

The flood

11. It is the Plaintiff's case that Russ brought in a very substantial rainfall in Guangdong and Guangxi provinces, resulting in a tremendous amount of rainwater being carried downstream by two rivers, the Xijiang (西江) (literally the Western River) coming from the west and Beijiang (北江) (literally the Northern River) coming from the north, which merge with each other near Sanshui (三水) as they enter the Pearl River Delta where Zhongshan is located before the water reaches the South China Sea. The extraordinary amount of water carried downstream by the rivers caused widespread flooding in the Pearl River Delta. Zhongshan experienced flooding from 16th to 25th June 1994, and there is no dispute that the Plaintiff's factory was seriously affected by the flood on 19th June. Apart from Zhongshan, Wuzhou (梧州), an upstream city of Xijiang, and Yingde (英德), an upstream city of Beijiang, both witnessed historical high river levels on 19th June.

12. Apart from the typhoon, it is common ground that there was a low pressure trough independent from Russ which started affecting the same region in mid-June causing torrential rain. The Plaintiff accepts that this also contributed to or aggravated the flood brought about by the earlier Russ, but argues that Russ nonetheless remains a "direct cause" of the flood damaging the Plaintiff's factory. (Windstorm is not relied on as a ground of claim under the policies.)

13. The Defendant disagrees. Expert evidence by Professor Johnny Chan, an expert in meteorology, of the City University of Hong Kong, was adduced to the effect that in fact Russ' demise or dissipation took place on 9th June, as per the Hong Kong Observatory and the Japan Meteorological Agency, as well as his own expert judgment. It was only the Chinese meteorological authorities which insisted that Russ developed into a secondary centre over central China on the night of 9th June, tracked east-northeast towards the East China Sea and only finally dissipated over what is to the south of Japan on the morning of 12th June, as per the WMO report. Professor Chan takes the view that any rainfall after 10th June in the relevant parts of the Mainland had nothing to do with Russ, but was the result of an independent weather system, i.e. a low pressure trough, which came from the north and began to affect the southern part of the Mainland from mid June onwards. The Defendant therefore argues that the flood in Zhongshan, particularly the floodwater that damaged the goods of the Plaintiff in its factory in Zhongshan on 19th June, did not directly result from Russ.

14. The Plaintiff's expert, Dr. Kyle, an expert climatologist, of the University of Hong Kong, relies principally on the WMO report as the factual basis for the track and eventual dissipation of Russ. In other words, he relies on the report to maintain that Russ did develop into a secondary centre on 9th June and did not dissipate until 12th June. But he accepts that any rainfall after 12th June, even on his factual assumption, had nothing to do with Russ. But Dr. Kyle maintains that, that notwithstanding, Russ was still responsible for the subsequent flood affecting the Plaintiff's factory in Zhongshan on 19th June, i.e. a week after the eventual dissipation of Russ even on his case.

15. According to Dr. Kyle, all this has to do with drainage basin hydrology. Dr. Kyle argues that it cannot be presumed that flooding in the delta zone of a large river system, such as the Pearl River Delta, is a direct result of heavy rain occurring immediately over the flooded area in the time period immediately preceding and during the flood event. So for instance, in the famous Mississippi floods of 1993 much of the flooding occurred under sunny skies. According to Dr. Kyle, because of the large hydraulic capacity of the spatially-extensive basins of the two rivers (each covering several hundred thousand kilometres square in area), the initiation and progress of a flood is more directly dependent on antecedent rainfall conditions over the whole drainage basins, than it is on the input of rainwater directly over the area of flooding at the time of the event. In those circumstances, he takes the view that the primary cause of flooding was the very large amounts of rain that fell over the drainage basin areas of the rivers in the time period prior to the flood event. He opines that given the time delay in the transfer of that water downstream, during which the responsible authorities issued flood warnings, the high flood stage of the rivers was not reached until around one week later in the Delta region, resulting in the distributaries overtopping their banks and flooding the low-lying land around Zhongshan. The continuing rainfall after the dissipation of Russ, much of it due to the trough of low pressure, added to the problem of high water levels, but was not the primary cause. Rather it may be viewed in hydrological terms as a secondary flood-intensifying factor.

16. But Dr. Kyle's expert evidence on the mechanism of flooding in the present case is not without limitation. His opinion is based solely on the limited data available to him as well as general hydrological theories. He has no details or data about the actual geography of the rivers or the region in the Mainland involved, with some minor exceptions he has not been to any part of the rivers or neighbouring regions, and he does not have much actual data relating to the rainfall in the region at the material times. So for instance, he has no idea of the pace of river flow during the material times, and he has no idea about how long water would take to travel from a particular point like Wuzhou upstream to Zhongshan under normal circumstances or at the material times. In other words, all that he can say is that it is possible that the large amounts of rainfall over the drainage basin areas of the rivers brought in by Russ caused the flood in Zhongshan more than a week later. Beyond that, I do not think he can take his theory or expert opinion any further.

17. Whilst Dr. Kyle as a climatologist claims the necessary expertise in hydrology to give evidence on it although he has not been specifically trained as a hydrologist, Professor Chan makes no such claim and restricts his expert evidence in this case to meteorology. But that is of no use to the Plaintiff in the sense that the Plaintiff obviously bears the burden of proving that its loss was directly caused by Russ, or put another way, the flood did not directly result from the typhoon. If the matter had stopped there, I would be inclined to think that based only on the expert opinion of Dr. Kyle the Plaintiff had not discharged its burden of proof.

18. However, the matter does not stop there. Apart from Dr. Kyle's expert opinion, the Plaintiff has also obtained various letters and certificates from the meteorological stations in the affected region of the Mainland, including Wuzhou, Guangzhou and Zhongshan. It is a fair summary to say that all of them attribute the cause of the flood experienced in the region since mid June to the combined effect of the large amounts of rain brought in by Russ as well as the extraordinary rainfall resulting from the low pressure trough appearing in the region since mid June.

19. Furthermore, it can be seen from the WMO report extracted above that the report describes a serious loss of life and damage to property in the Mainland as a result of Russ. According to my own reading of the report, which is accepted by Mr. Lai, counsel for the Defendant, the loss and damage described there includes that which was caused by the subsequent flood, as corroborated by the various letters and certificates from the relevant meteorological stations in the Mainland. Even accepting Professor Chan's explanation or, perhaps more correctly, speculation, that this part of the report only represents the views of the Chinese meteorological authorities, rather than that of those in Japan or Hong Kong, or for that matter the WMO, the point still remains, i.e. that according to the Chinese meteorological and related experts' opinion, Russ caused the flood which led to the substantial loss of life and damage to property.

20. Professor Chan tries to discredit these certificates and letters by pointing out mistakes here and there in the certificates and letters. Having given due weight to these criticisms, the fact remains that they represent the official and expert opinion of the Mainland meteorological authorities. These authorities, in my judgment, are in a much better position than Professor Chan, or for that matter, Dr. Kyle, to judge the actual effect of Russ on the weather and rainfall condition in the relevant parts of the Mainland at the material times, as well as the cause of the subsequent flood, based on the actual data collected by or available to them, as well as their obviously superior knowledge about the geography and related information of the rivers and the flooded area, most of which are not available to either Professor Chan or Dr. Kyle. Their views on the actual effect of Russ in terms of weather and rainfall as well as the cause of the flood must be accorded due weight in this Court's determination, on the civil burden of proof based on probabilities only, of the cause of the flood that damaged the Plaintiff's goods.

21. From the material available, the city of Wuzhou at upstream Xijiang observed a rapid rise in river level in the morning of 15th June. According to a certificate from the meteorological station in Wuzhou, Russ brought in a lot of rain between 8th and 10th June in the basin area of Xijiang. From 12th to 17th, the low pressure associated with Russ combined with another low pressure trough brought in a lot of rain in the upstream region again. In my judgment, the rapid rise in water level of the river observed on the morning of 16th June was quite probably caused by the rainfall from Russ. Any rainfall brought in by the independent low pressure trough, which only started affecting the region in mid June could not, on balance, have been responsible for the rapid rise in water level so observed. The time sequence would not fit very well, particularly when one is concerned with a spatially-extensive river basin here. If this is right, i.e. that the substantial amounts of rainwater from Russ only entered the river upstream and passed through Wuzhou on 15th even though heavy rain started on the 8th, this would be some proof of the rainwater from Russ being responsible for the flood which caused the loss to the Plaintiff's goods on the 19th in the Zhongshan area, Zhongshan being about 300 km downstream from Wuzhou.

22. According to the meteorological station in Zhongshan, Zhongshan started experiencing flooding, which it attributed to Russ and the low pressure trough associated with it, on 16th and it lasted until 25th. On the 19th, the city was flooded to a level of 1.66 m, which was a historical record. There can be little dispute that the initial flooding of Zhongshan must have come from rainwater carried downstream from Beijiang. This is because as mentioned above, the heavy rain that fell over the catchment basin of Xijiang did not reach the upstream city of Wuzhou on the 15th. Given the distance between Wuzhou and Zhongshan, it is most unlikely that the water could have reached Zhongshan within the day and caused the initial flooding on the 16th.

23. Likewise, the heavy rain brought in by the independent low pressure trough over the catchment basin of Beijiang could not have been responsible for the initial flooding in Zhongshan because the distance between the catchment basin and Zhongshan would be too great. This would leave the rainwater of Russ that fell on the catchment basin of Beijiang as the source of the initial flooding in Zhongshan. This of course does not help the Plaintiff directly because the Plaintiff's factory was not flooded on the 16th but only three days later on the 19th. But the time lapse between the heavy rain of Russ between the 8th and 10th in the catchment basin of Beijiang and the initial flooding of Zhongshan would give one a rough idea of the time it would take for the subsequent round of heavy rain brought in by the independent low pressure trough which only started affecting the region in question in mid June to travel downstream and cause further flooding in the Zhongshan area. Of course, this is just a very rough comparison because the rate of flow of water would obviously depend on how heavy the rain was, and how saturated the soil and subsoil were with water, i.e. the water-table level, prior to the raining.

24. There is also a third river, Dongjiang (東江) (literally the Eastern River) flowing in from the east into the Pearl River Delta. There is no data on whether there was any heavy rain over the catchment basin of the river, like what happened in Xijiang and Beijiang, as it is located further away from the region hit directly by Russ and the low pressure trough.

25. The above analysis is of course inconclusive, but is nonetheless relevant and useful to one's task of weighing up the probabilities.

"Directly caused"

26. At this stage, I should turn to the proper construction of the extra peril clause in question. The only real contention in relation to construction lies with "directly caused". Cases have been cited to me on the proper construction of the words or similar words both in similar and not so similar contexts. The parties also dispute as to whether I can or should look at two related extra peril provisions also included in the Extra Perils Endorsement attached to the policies, which were not chosen by the parties for inclusion into the schedules to the policies.

27. In Weld-Blundell v Stephens [1920] AC 956, 984, a case concerning the proper damages to be awarded in respect of libel, Lord Sumner said as follows:

"Direct cause excludes what is indirect, conveys the essential distinction, which causa causans and causa sine qua non rather cumbrously indicate, and is consistent with the possibility of the concurrence of more direct causes than one, operating at the same time and leading to a common result ..."

28. In Boiler Inspection and Insurance Company of Canada v Sherwin-Williams Company of Canada Ld. [1951] AC 319, concerning an insurance claim under an accident policy excepting fire, the Privy Council said at pp. 333 to 334 as follows:

"Whatever meaning of the word "direct" may have in qualifying the word "result", it does not imply that there can be no step between the cause and the consequence. It is unnecessary to multiply examples. Leyland Shipping Co. v. Norwich Union Fire Insurance Society [1918] A.C. 350 sets forth the principle; though Lord Dunedin's words at p. 363 will require consideration later. At p. 362, he says: "I think the case turns on a pure question of fact to be determined by common-sense principles. What was the cause of the loss of the ship?" To the like effect are Lord Wright's words in delivering the judgment of the Board in Canada Rice Millas Ld. v. Union Marine and General Insurance Co. [1941] A.C. 55, 71: "It is now established by such authorities as Leyland Shipping Co. v. Norwich Union Fire Insurance Society, and many others, that causa proxima in insurance law does not necessarily mean the cause last in time, but what is 'in substance' the cause, ... or the cause 'to be determined by common-sense principles'".

If this be, as their Lordships believe, the true view, then the matter is concluded by the evidence of Dr. Lipsett, which was accepted by the judge who tried the case."

29. I accept all this. For my part, whether Russ was or was not the direct cause of the damage done to the Plaintiff's goods must be determined according to common sense. The words "directly caused" are ordinary English words and must be given their ordinary and natural meaning, subject to what has been said about the words in the authorities. In my judgment, a direct cause need not be the immediate cause or the last step in the chain of events leading to the consequence in question. There can be more than one direct cause for a particular consequence. One looks at the efficiency of the cause in causing the consequence to determine whether the cause is a direct cause. A direct cause need not be the most important cause in causing a particular consequence, so long as it is a substantive cause for the consequence.

30. Turning to the actual extra peril clause in the present case, counsel on both sides agree that there is no difference between "directly caused" and "directly resulting from" used in the endorsement. Nor is there any difference between the "damage ... directly caused" by the typhoon and "the escape of water from its normal confines ... directly resulting from" the typhoon.

31. I do not find any difficulty or ambiguity in applying the words to the facts in the present case. I do not need to decide on whether I can look at the other extra peril clauses in the Endorsement. In my judgment, even if I were to look at these other clauses and contrast their wording with the wording used in the clause actually incorporated into the schedules of the policies, my construction of the clause would still remain the same.

Finding on cause of flood

32. As I said, the Plaintiff bears the burden of proof. But this is only a civil burden on a balance of probabilities. I have already outlined above the main evidence adduced by the parties before me. Suffice it to say, I have taken all of the relevant evidence and material into account in my deliberation. On the totality of the evidence, I find, on a balance of probabilities, that the floodwater that damaged the Plaintiff's goods on 19th June was directly caused by the typhoon. I do not exclude, and in fact I include, the extraordinarily heavy rainfall brought in by the low pressure trough, as another cause, or in other words, a concurrent, if not also the more immediate, cause of the flood. But that is neither here nor there, because a direct cause need not be the sole cause or the immediate cause.

33. During submission, an interesting argument was raised as to whether Russ would constitute the direct cause of the flood and the damage done to the Plaintiff's goods if the rainwater brought in by Russ only managed to saturate the soil and subsoil of the catchment basins of the two rivers in question but did not significantly increase the water quantities or river levels, and if it was only the rainwater from the independent low pressure trough that caused the water levels to rise and eventually the flood. I need not express any final view on the matter. For in my finding of the facts, the rain that fell on the catchment basins of the two rivers from Russ did significantly raise the water level of Xijiang as observed in Wuzhou on the 15th and cause the initial flooding on the 16th in Zhongshan respectively; and further, so I also find, it combined to cause the flooding in Zhongshan on the 19th, which was aggravated by the rainwater from the independent low pressure trough. But if it had been necessary to do so, I would be prepared to find that in the scenario posed, the flood was still directly caused by Russ. In that scenario, without the prior saturation of the soil and subsoil by rainwater from Russ, the magnitude of the flood would have been much smaller and the flood would probably have occurred much later. This in my judgment accords very well with the analysis of the experts in the Mainland.

34. Furthermore, in this regard, I am not concerned with the scientific proof of the cause of the flood. That is not what is required in a civil court of law. In Lee Kin-kai v Ocean Tramping Co. Ltd. [1991] 2 HKLR 232, a case concerning the cause of death of a workman in the context of employees' compensation, Hunter JA explained thus (at pp.235 to 236):

"First causation is essentially a matter for the judge not for the doctors. It is a matter upon which the judge will no doubt be assisted by the medical evidence but he is not dictated to by it. Secondly it is important to bear in mind that the law and medicine here, it seems to me, apply quite different standards. In law there is a sufficient causal connection if it is shown on the balance of probabilities that the accident was a substantially contributing cause of the injury. A cause is sufficient; it need not be shown to be the sole cause. The doctors' practice, what is known as the science of aetiology. In the words of one in particular, they look for "clinical cause", proof certainly beyond reasonable doubt and perhaps beyond any doubt. They are looking for what Lord Kilbrandon called in McGhee v. National Coal Board [1973]1 WLR 1 at p. 10 "an irrefragable chain of causation".

Thirdly, a judge when considering causation is not only entitled, he is bound, to use his common sense, to approach the question in the same way as would a juror. The point was conveniently made in McGhee v. National Coal Board which was a case where owing to limitations of medical knowledge, the Plaintiff was unable to prove a strict causal connection in the medical sense between the negligence and his injury. He failed in the courts below. The House of Lords agreed that common sense could be used to fill the gap. Lord Reid at p. 5 said:

"It has often been said that the legal concept of causation is not based on logic or philosophy. It is based on the practical way in which the ordinary man's mind works in the everyday affairs of life."

Lord Salmon, at page 11, repeated an earlier dictum of his own where he said:

"I consider, however, that what or who has caused a certain event to occur is essentially a practical question of fact which can best be answered by ordinary common sense rather than abstract metaphysical theory"."

35. Of course, in that case, the court was concerned with the medical cause of death, and the court was reminding everybody that that was a question of fact for the court to decide using ordinary common sense rather than a question for the experts to determine using medical standard of causal connection. But the same rationale must be applicable here in determining whether the theory of Dr. Kyle lacks the support of scientific proof, experiment or empirical data. In my judgment, what is involved here is really a matter of common sense based on the known facts and material available, and bearing in mind the applicable burden and standard of proof. For this reason, I reject the Defendant's expert's criticism of Dr. Kyle's theory of the rainwater from Russ causing the flood many days later after the rainfall as lacking in empirical data in support. One is concerned with inherent probabilities here, which have to be decided according to common sense.

36. Moreover, as I say, the Plaintiff does have the letters and certificates from the Chinese meteorological authorities to backup Dr. Kyle's theory, the views of which I attach due weight to. Mr. Lai on behalf of the Defendant comments that the basis of analysis of these Chinese meteorological authorities was not set out in these letters in any detail. But he accepts that the authorities must have been in possession of the relevant data and empirical information and they must have stood in a much better position than any expert in Hong Kong or elsewhere to analyse the typhoon and the consequences it brought about. In those circumstances, even though the exact reasoning behind the analysis or the conclusion has not been set out in these letters and certificates, that should not substantially detract from the respect the expert opinion of these authorities should command. Moreover, the flood was a major event in the Mainland. It is difficult to believe that the relevant authorities in the Mainland, including the weather experts and hydrologists, did not carry out in depth investigation into the typhoon and the cause of the flood, and if that was indeed carried out, that would only add to the weight that one must attach to these letters and certificates, which summarise the opinion formed by the experts based on the investigation. I do not accept for a moment the suggestion that these authorities deliberately included Russ as a cause of the flood with some irrelevant reason or motive in mind. There is nothing in the evidence to support such a bald allegation.

37. As I said, on the totality of the evidence adduced at trial, I am satisfied that the flood directly resulted from Russ, which directly caused the Plaintiff's loss.

Waiver of time bar

38. Turning to the second issue argued between the parties, it is common ground that the policies require the Plaintiff to commence action within 12 months after the rejection of its claim for indemnity, failing which all benefits under the policies shall be forfeited: Condition 8(e). Mr. Chong, counsel for the Plaintiff, accepts that if his argument based on estoppel mentioned above fails, his client's claim under the policies will fall apart.

39. As mentioned above, the flood damaged not only the goods of the Plaintiff, but also those stored at the Plaintiff's factory by a related company comprising a common director and shareholder. Soon after the flooding of the factory, the Defendant sent loss adjusters to the factory to investigate the losses and the cause thereof. They came to the conclusion that the losses were not covered by the policies issued in favour of the two companies, and their respective claims for indemnity were rejected through the loss adjusters on 24th June 1994. The related company commenced an action against the Defendant in January 1995, having received legal advice about the 12-month bar. Meanwhile, the Defendant had agreed to quantify the losses suffered by the two companies on a without prejudice basis, and this was done through the loss adjusters. The assessments were completed in April 1995, but they were not accepted by the two companies.

40. It is the Plaintiff's case that during a telephone conversation between a director of the Plaintiff and a senior adjuster in the employ of the loss adjusters responsible for undertaking the initial investigation and the subsequent on-site quantification work at around the time of completion of the assessment exercise in April or May 1995, the latter suggested to the former that as the related company had already commenced an action against the insurer raising the same issue of liability to indemnify under the same facts, the Plaintiff need not commence another action but could wait until after the outcome of the litigation already commenced was known, so as to save time and costs. The Plaintiff's director was further told that he need not worry about the 12-month time bar if the Plaintiff agreed to withhold proceedings as suggested, as in such an event, the time bar would not be held by the Defendant against the Plaintiff. It is the Plaintiff's case as supported by the oral evidence from two directors of the Plaintiff that that suggestion was accepted by the Plaintiff, as a result of which no action was commenced by the Plaintiff despite the lapse of the 12-month period in June 1995.

41. It is the Plaintiff's case that the litigation between the related company and the Defendant was eventually settled in October 1998, and having received no response from the Defendant in respect of indemnity, the Plaintiff duly commenced the present action in December the same year.

42. This allegation of a telephone conversation is strenuously denied by the senior loss adjuster allegedly involved in making the suggestion, and his superior, the managing director of the loss adjusters. Besides their denial, I should mention that there is nothing in writing, including the correspondence between the Plaintiff and the loss adjusters, the solicitors' correspondence at the material times, the internal documents of the Plaintiff, and the communications between the Plaintiff and its then solicitors, to evidence the alleged oral agreement or understanding to withhold proceedings.

43. But Mr. Chong made a strong point during submission when he asked rhetorically how else could one explain the failure of the Plaintiff to commence proceedings against the Defendant for such a substantial amount of claim within time or at all until December 1998, almost four and a half years after the flood, when it was, according to the evidence, aware of the existence of the 12-month time bar, when because of that the related company had commenced an action in January 1995, when as evidenced by the correspondence the Plaintiff never accepted the Defendant's repudiation of liability, when the Plaintiff had instructed solicitors to represent it to make claim against the Defendant under the policies at a very early stage, and when the Plaintiff insisted despite the Defendant's denial of liability that there should be an assessment of its loss by the loss adjusters which was done and completed in April/May 1995. Nothing was done, and there was no correspondence whatsoever, following the Plaintiff's disagreement of the assessment of quantum made by the loss adjusters in May 1995 for more than three years until December 1998. Moreover, the Plaintiff almost immediately sued the Defendant under the policies after the settlement of the action between the related company and the Defendant. All this fits very well the agreement or understanding maintained by the Plaintiff.

44. The Plaintiff's witnesses explained in Court that nothing was reduced to writing because they trusted the word of the senior adjuster, and so far as they could see, the suggestion was a sensible one benefiting not only the Plaintiff but the Defendant as well. It may also be noted that after the present action was commenced, the initial defence did not place any reliance on the 12-month time bar. The time point was only taken after the defence was amended in early April 1999.

45. I have seen and heard the witnesses. I have taken into account their respective demeanour in Court. I have also weighed the respective inherent probabilities of the competing stories. I have borne in mind that the burden is on the Plaintiff to establish the alleged agreement or understanding based on which the case of estoppel is run. I have come to the conclusion that on the balance of probabilities, the Plaintiff's story and the Plaintiff's witnesses are to be preferred. Without the agreement or understanding, there was no reason for the Plaintiff not to commence proceedings against the Defendant, there being clear evidence which I accept that the Plaintiff's directors had received legal advice on the time bar provisions. The failure to reduce the understanding or agreement to writing is not fatal to the Plaintiff's story. I have given it its due weight in weighing up the possibilities. As I said, I have come to the conclusion that the Plaintiff's version is to be preferred.

46. On that basis, I do not think it can be seriously suggested that the Defendant can now go back on the understanding and rely on the time bar as a defence to the Plaintiff's claim. In other words, I hold that the Defendant is estopped from relying on the relevant condition in the policies to deny the Plaintiff's claim under the same. On the material before me, I have no doubt that the senior adjuster had the actual or apparent authority to represent his employer, and his employer had the actual or apparent authority to represent the Defendant, in reaching the agreement or understanding relating to withholding proceedings. The letters repudiating liability were written by the loss adjusters on behalf of the Defendant. As for the senior adjuster, he was throughout the contact man between the Plaintiff and the loss adjusters. He undertook the initial investigation as well as the subsequent quantification work. Moreover, he wrote a fax in his own name but on behalf of the loss adjusters to the Plaintiff setting out the result of the without prejudice assessment of the quantum of loss, whilst at the same time reserving the position of the Defendant on repudiation of liability.

47. In any event, I agree with Mr. Chong that any argument based on lack of authority of the senior adjuster to represent the loss adjusters, or the lack of authority of the loss adjusters to represent the Defendant, is a point which must be pleaded so as not to take the other side by surprise. Although this would have to be done by way of a rejoinder with leave of the Court, this does not detract from the point that this was something that should be pleaded. It was not. I do not allow this point to be run.

Outcome

48. For the above reasons, I have come to the conclusion that the Plaintiff is entitled to be indemnified under the policies in question in respect of its loss and damage suffered in the flood, the quantum of which is agreed at $3.2 million.

49. I therefore order that judgment be entered in favour of the Plaintiff against the Defendant for the sum of $3,200,000. As regards interest, it should run from 1995, instead of 1998 when writ was issued as argued by Mr. Lai, because it was the understanding or agreement reached between the parties as found by me above in 1995, which delayed the Plaintiff's commencement of action. The Defendant cannot now turn around and make use of this to argue that interest should only run from 1998. Although loss was incurred in June 1994, time was required by the loss adjusters to quantify the loss in any event, and on the evidence that process was not completed until April 1995. Until that was done, the Defendant could not pay up even if it had wanted to. And I am quite sure that had the Defendant paid up by end of April 1995, no question of interest would arise. In the exercise of my discretion, I order that there be interest on the judgment sum at the rate of 9% per annum from 1st May 1995 to the date of judgment and thereafter at the judgment rate until full payment.

50. I also make an order nisi that the Defendant pay to the Plaintiff its costs of the action to be taxed if not agreed. Unless either party applies to vary this order nisi as to costs within 14 days after this judgment is handed down, it shall become absolute upon the expiry of the period.