CHINA PING AN INSURANCE (HONG KONG) CO LTD v. TSANG FUNG YIN JOSEPHINE AND ANOTHER

HCA 308/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 308 OF 2010

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BETWEEN

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D E C I S I O N

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Introduction

1.  This is the plaintiff’s (“Plaintiff’s”) appeal against the order of Master de Souza made on 24 November 2011 dismissing the action under Order 14A of the Rules of the High Court with costs to the           1^st defendant (“1^st Defendant”).

2.  This action is about an insurer’s right to recover from the assured any sum paid by the insurer which it would not otherwise be liable to pay under the terms of the insurance policy.

Factual background

3.  As this is an Order 14A application in which the court is asked to determine a question of law or construction of a document arising in a cause or matter without a full trial of the action, the facts of the case have not been fully disclosed by the parties.  Hereunder are the facts which are not in dispute.

4.  On 1 June 2006, the 1^st Defendant proposed to the Plaintiff for a third party liability motor vehicle insurance to be taken out in respect of her Honda saloon covering the period from 1 June 2006 to     31 May 2007 and agreed to accept a policy in the Plaintiff’s usual insurance policy for such class of insurance (“Proposal”).  On the same day, the Plaintiff issued her a cover note number 52767 (“Cover Note”).  The Cover Note states that the 1^st Defendant having proposed for insurance in respect of her motor vehicle the risk is thereby held covered in terms of the Plaintiff’s usual form of third party only policy applicable thereto for a period of thirty days from 1 June 2006 unless the cover be terminated by the Plaintiff.

5.  On 4 July 2006, after the period covered by the Cover Note had expired, the Plaintiff issued a formal insurance policy (“Policy”) to cover the same risk for a period of twelve months from 1 June 2006.  The Policy contained two provisions which formed the basis of the Plaintiff’s claim against the Defendants: general condition 18(b) and clause 14.  General condition 18(b) imposed an obligation on the 1^st Defendant to give immediate notice to the Plaintiff of the occurrence of any event which may give rise to a claim under the Policy.  Clause 14 provides that if the Plaintiff was obliged by law or by virtue of any agreement between the Plaintiff and The Motor Insurers’ Bureau of Hong Kong to pay any sum which it would not otherwise be liable to pay under the Policy, the 1^st Defendant or any other person on whose account the payment was made shall repay such sum to the Plaintiff.

6.  On 12 July 2006, the 2^nd defendant (“2^nd Defendant”) rammed the Honda saloon into another vehicle causing injuries to two persons on board that other vehicle (“the Injured”). 

7.  On 13 July 2006, the 2^nd Defendant allegedly filled in the Plaintiff’s standard claim form, signed as driver and faxed it to Sun Wah Motors Company (“Sun Wah”).  The Plaintiff denied having received the claim form.

8.  On a date prior to 22 July 2006, the Plaintiff sent the Policy to Kai Fung Insurance Brokers Limited which delivered it to Sun Wah by courier on 22 July 2006.  The Policy was received by the 1^st Defendant but she lost it.

9.  The 2^nd Defendant was subsequently convicted of careless driving on 7 November 2006.

10.  On 20 March 2007, the Plaintiff’s solicitors sent letters to both the 1^st and 2^nd Defendants to disclaim liability and decline providing indemnity for any claims arising out of the accident on 12 July 2006. 

11.  On 31 March 2007, the Plaintiff’s solicitors presented a letter  to the 1^st and 2^nd Defendants proposing to take over the conduct of the personal injuries proceedings which might be taken out by the Injured on condition that the 1^st and 2^nd Defendants agreed to indemnify the Plaintiff for any loss, expenses and legal costs in respect of their breach of the terms and conditions of the Policy.  The 1^st and 2^nd Defendants signed the letter (“2007 Agreement”).

12.  The Injured subsequently commenced personal injuries actions in the District Court against the 1^st and 2^nd Defendants jointly   and severally for damages caused by the accident on 12 July 2006.  The Plaintiff paid a total sum of $895,000 in settlement of both claims. 

13.  On 3 March 2010, the Plaintiff commenced this action seeking to recover the said sum of $895,000 and legal costs in the sum   of $236,837 which it claimed to have incurred in handling and settling the two personal injuries actions in the District Court.  The Plaintiff’s claim pleaded in the statement of claim is based on general condition 18(b) and clause 14 of the Policy.

14.  On 8 April 2011, the 1^st Defendant took out an Order 14A summons seeking a determination on a question of law and/or construction of a document arising in the contract of insurance without a full trial of the action, and that this action against the 1^st and 2^nd Defendants be dismissed.

15.  On 27 April 2011, the Plaintiff filed the amended statement of claim pleading an alternative cause of action by relying on the Defendants’ indemnity under the 2007 Agreement.

16.  At the hearing of the Order 14A summons on 24 November 2011, Master de Souza made a determination dismissing the Plaintiff’s action with costs to the 1^st Defendant.

The legal principles applicable to an Order 14A application

17.  Under Order 14A rule 1, the court has jurisdiction to determine any question of law or construction of document arising in any cause or matter where it appears that such question is suitable for determination without a full trial of the action and that such determination will finally determine the entire cause or matter, or any claim or issue therein.  A question or issue is a disputed point of fact or law relied on by way of claim or defence: Korso Finance Establishment Anstalt v John Wedge, unreported, February 15, 1994, CA Transcript 94/387.

18.  The question of law or construction of document to be determined by the court under this Order should be stated or formulated in clear, careful and precise terms, so that there should be no difficulty or obscurity, still less any ambiguity, about what question has to be determined: Allen v Gulf Oil Refining Ltd [1980] QB 156.

19.  The court’s discretion under Order 14A is very wide.  The procedure can be invoked not only in respect of questions which finally determine the entire cause or matter, but also questions which finally determine any claim or issue, but the process does not contemplate that trivial matters would be submitted for determination: Shell Hong Kong Ltd v Yeung Wai Man Kiu Yip Co Ltd & Another (2003) 6 HKCFAR 222.  The court also has residual discretion not to embark on a determination of a question under this procedure even if the two requirements set out above are satisfied, if the court is not seized of all relevant facts: Rockwin Enterprises Ltd v Shui Yee Ltd & Others [2003] 3 HKC 174.  The court is always uneasy in having to decide questions of legal principle without knowing the full facts: E (A Minor) v Dorset CC [1995] 2 AC 633.  In deciding whether to make a determination, the court has to take an overall view of the matter to discern the context in which the question arises and whether the determination goes to the core of the plaintiff’s case or the defendant’s defence or is merely one of a variety of issues for decision.  If the determination will not finally or substantially determine the entire cause or matter, the court should exercise its residual discretion not to make a determination.  This is because such a determination is often made in the absence of knowledge of the full facts of the case.  If the court is not seized of all relevant facts and there are outstanding issues which have to proceed to trial, the court should not place itself in a precarious position in the event that the basis on which it made its determination earlier may turn out to be inconsistent with the facts subsequently found.  In any event, it should not by making such determination bind its hands in its future fact finding.

20.  In considering an Order 14A application, the court has to determine: (1) if the question raised is a disputed point of fact or law relied on by way of claim or defence; (2) if such question is suitable      for determination without a full trial of the action; and (3) if such determination will finally determine the entire cause or matter or any claim or issue therein.  The decision whether to make a determination will have to be made on the basis of the parties’ pleadings and so much of the facts which are not in dispute.  Upon making a determination, the court may dismiss the cause or matter or make such order or judgment as it thinks fit.

21.  It is trite law that an appeal from a master’s decision to a judge in chambers is dealt with by way of a rehearing of the application which led to the order under appeal, and the judge treats the matter as though it has come before him for the first time, save that the party appealing has the right to open the appeal: Hong Kong Civil Procedure 2012 Vol 1 paragraph 58/1/2.

The parties’ pleaded case

22.  In paragraphs 4 and 5 of the amended statement of claim,  the Plaintiff pleaded:

“4.   By a Private Motor Vehicle Insurance Policy No. HKO/MPT/2006/16807 (“the Policy”) taken out by the 1^st Defendant, the Plaintiff agreed to insure the 1^st Defendant and any other person who was driving the 1^st Defendant’s Vehicle on the 1^st Defendant’s order or with her permission against all sums including claimant’s costs and expenses in respect of death of or bodily injury to any person and/or damage to property arising out of an accident caused by or in connection with the 1^st Defendant’s Vehicle subject to the terms exceptions and conditions contained in the Policy.

5.   It is a condition precedent to the liability of the Plaintiff under the Policy that the terms and conditions of the Policy in so far as they relate to anything to be done or not to be done or to be complied with by the 1^st Defendant or any other person claiming to be indemnified shall be duly observed and fulfilled.”

Then in paragraphs 6 and 7, the Plaintiff pleaded general condition 18(b) and clause 14 of the Policy.  In paragraphs 20A and 20B, the Plaintiff pleaded an alternative cause of action based on the 2007 Agreement.

23.  In paragraphs 2 and 3 of the amended defence, the 1^st Defendant denied paragraphs 4 to 7 of the amended statement of claim.  In paragraph 5, she denied that general condition 18(b) formed part of the contract of insurance at the material time and in the alternative relied on the 2^nd Defendant’s completing and faxing the Plaintiff’s standard claim form to Sun Wah.  In paragraph 12, she responded to the Plaintiff’s alternative case by denying that the 2007 Agreement had the effect of inferring any liability on the 1^st Defendant or incorporating any of the terms of the Policy into the contract of insurance between the Plaintiff and the 1^st Defendant.  Those paragraphs are as follows:

“2. Paragraphs 4, 5, 6 and 7 of the Statement of Claim are denied.

On or about 1^st June 2006, the 1^st Defendant was issued with a Certificate of Insurance hereinafter the “Cover Note”. No policy of insurance was delivered to the 1^st and/or 2^nd Defendants prior to 12^th July 2006.

3. The terms of the policy pleaded at paragraphs 5, 6 and 7 of the Statement of claim are not terms of the Cover Note and neither the 1^st and/or 2^nd Defendants knew or had the opportunity of knowing the conditions and terms of the policy as they are alleged to be in the Statement of Claim before the contents of the alleged policy were communicated to them by delivery of the document which did not take place prior to the accident which occurred on or about 12^th July 2006. In the premises the terms of the contract as at 12^th July 2006 are those contained in the Cover Note.

5. Paragraph 10 of the Statement of Claim is denied. The said General Condition 18(b) formed no part of the contract of insurance at the material time. Further at no time was the 2^nd Defendant, who was driving the 1^st Defendant’s motor vehicle with her consent at the time of the accident on 12^th July 2006, a party to any contract of insurance with the Plaintiff and in any event the Plaintiff has no cause of action against the 2^nd Defendant.

Further or in the alternative, the 2^nd Defendant completed and sent to Sun Wah Motors Co. (“Sun Wah”), the Plaintiff’s agent a Motor Vehicle Insurance Claim form by facsimile transmission on or about 14^th July 2006 two days following the accident. The said form was a standard form issued by the Plaintiff and given to the 2^nd Defendant by the Plaintiff’s agent Sun Wah and was fully completed giving all details required by the Plaintiff on its standard form.

12. Paragraph 20A is admitted insofar as the 1^st Defendant received a letter dated 31^st March 2007 from Messrs. Li, Kwok & Law.  Paragraph 20B is admitted insofar as the Plaintiff took over conduct of the proceedings.  It is denied that the effect of the said letter infers any liability on the   1^st Defendant or incorporates any of the terms of the policy document into the contract of insurance between the Plaintiff and the 1^st Defendant.”

It is accepted by counsel that the “Certificate of Insurance” referred to in the amended defence is the Cover Note and the “Certificate of Insurance” exhibited by the 1^st Defendant in her affirmation is in fact the schedule attached to the Policy issued on 4 July 2006. 

24.  To the above-mentioned paragraphs of the amended defence, the Plaintiff replied in paragraph 2 of its amended reply to defence joining issue with the 1^st and 2^nd Defendants on their amended defence and in paragraph 5 denying that Sun Wah was at any time its agent for any purpose under the Policy.  It replied to paragraphs 2 and 3 of the amended defence in paragraphs 3 and 4 of its amended reply to defence as follows:

“3. In respect of paragraph 2, save it is admitted that a Certificate of Insurance was issued to the 1^st Defendant, no admission is made to paragraph 2. The Plaintiff avers that Sun Wah was the broker and agent for the 1^st Defendant when she applied to the Plaintiff for the issuance of the Policy, and hence the delivery and receipt of the relevant policy of insurance was a matter between the 1^st and 2^nd Defendants and Sun Wah.

4. In reply to paragraph 3, the Plaintiff repeats its averment in paragraph 3 hereinabove.  The Plaintiff will also refer to the full terms of the Policy at the trial of the action.”

25.  In the amended statement of claim, the Plaintiff assumed the Policy as the contract of insurance.  That is a misnomer.  A contract of insurance is an agreement between the parties by which the insurer provides insurance coverage for the assured in respect of certain risks in exchange for a premium.  The policy and the cover note which are often misleadingly called the insurance contract should be more properly regarded as documentary evidence of the contract of insurance or of its terms.

The issues raised by the pleadings

26.  It is common ground that the parties’ rights and obligations were governed by a contract of insurance.  The dispute is about the terms of that contract.  The Plaintiff’s pleaded case is that the terms of the contract of insurance were as set out in the Policy which was incorporated into and then replaced the Cover Note and that the 1^st Defendant was in breach of general condition 18(b) by failing to give immediate notice of the accident to the Plaintiff. 

27.  The basis of the 1^st Defendant’s defence is that different terms applied at different stages during the currency of the twelve month period covered by the Policy and that at the time of the alleged breach the Policy not having been incorporated into the Cover Note was not in force.  The 1^st Defendant could not have knowledge of the requirement to give immediate notice and was not in breach of general condition 18(b) of    the Policy.  During the course of submission, it became clear that the     1^st Defendant’s case is that there were at least two or possibly three consecutive contracts of insurance: (1) an interim insurance contract (“first interim contract”) evidenced by the Cover Note covering a period of thirty days from 1 June 2006 (“first period”); (2) a second interim insurance contract (“second interim contract”) covering the period between the expiry of the Cover Note and the receipt of the Policy by the 1^st Defendant on a date after 22 July 2006 (“second period”); and (3) a contract of insurance (“formal contract”) covering the period after receipt of the Policy by the 1^st Defendant until 31 May 2007 (“third period”).  The terms of the first interim contract were those as stated in the Cover Note and no more.  The Policy was not incorporated into the Cover Note.  The first interim contract was extended to cover the second period or that the terms of the first interim contract were implied into the second interim contract.  Alternatively, the second interim contract was an extension of the first interim contract.  The terms of the formal contract were those as stated in the Policy.  As the accident occurred during the second period covered by the extended first interim contract or the second interim contract, into which the Policy was not incorporated, general condition 18(b) was not in force.  The 1^st Defendant could not have knowledge of the requirement to give immediate notice of the accident to the Plaintiff and was not in breach.  

28.  Two issues are raised by the pleadings: (1) what were the terms of the contract of insurance governing the parties’ contractual relationship at the material time; and (2) whether the 1^st Defendant was in breach of those terms.  Adapting to the factual situation in this case, the first issue is whether general condition 18(b) and clause 14 of the Policy were incorporated into the contract of insurance at the material time, whether that contract be one contract throughout as counsel for the Plaintiff Mr Leung submits; or the extended first interim contract or the second interim contract as counsel for the 1^st Defendant Mr Parker submits.  If the answer to the first issue is in the affirmative, the second issue is whether the 1^st Defendant was in breach of general condition 18(b).  The second issue involves sub-issues such as: (1) whether notice was given to Sun Wah; (2) whether the notice amounted to immediate notice; and (3) whether Sun Wah was the Plaintiff’s agent for receiving such notice.  If the answer to the issue (1) is in the negative, that would be the end of matter; issue (2) would not arise.  These are the core issues which have to be resolved to finally dispose of the controversy in dispute.  There is no dispute that if the 1^st Defendant was in breach of general condition 18(b), she would be liable to reimburse the Plaintiff under clause 14 of the Policy.

29.  Mr Leung argues that there are further issues raised by the Plaintiff’s alternative case pleaded under paragraphs 20A and 20B of the amended statement of claim based on the 2007 Agreement.  I respectfully disagree because the cause of action pleaded under the alternative case is also premised on the 1^st Defendant’s breach of the terms of the Policy.

The question of law framed for determination under Order 14A

30.  On the basis of the above facts which are not in dispute, the 1^st Defendant narrowed down the issues and framed the following question of law for determination under Order 14A:

“That, the accident having occurred on 12^th July 2006 … and the policy of insurance having not been delivered to the 1^st Defendant and/or the 2^nd Defendant and/or their agent prior to the accident …, general condition 18(b) and clause 14 of the Policy pleaded in paragraphs 6 and 7 of the Statement of Claim formed no part of the contract of insurance between the Plaintiff and the 1^st Defendant at the accident date and in consequence thereof the Plaintiff has no cause of action against the 1^st Defendant and/or the 2^nd Defendant.”

31.  On the issues as I have identified, the question posed by the 1^st Defendant would only deal with the first issue but not both.  If the Plaintiff fails in proving that the Policy was incorporated into the contract of insurance, that would finally dispose of the entire cause or matter as the Plaintiff would have no cause of action against her.  But the question does not cover the alternative scenario under which the three sub-issues would have to be resolved.  Thus, the question posed by her will not finally determine the entire cause or matter unless it is resolved in her favour.  If the question posed is determined against her, the matter will still have to go to trial.  The question posed is not one in respect of which a determination either way will necessarily result in a judgment against either of the parties.   

Whether one or three consecutive contracts of insurance

32.  Mr Leung presents his argument on the basis that there was just one contract of insurance covering the entire twelve month period from 1 June 2006 to 31 May 2007.  On the other hand, Mr Parker contends that there were three or at least two consecutive contracts of insurance governing the parties’ contractual relationship at different stages during that twelve month period.

33.  Mr Leung submits that as stated in the 1^st Defendant’s Proposal, the period of insurance was to be from 1 June 2006 to 31 May 2007 and the terms were to be those in the Plaintiff’s usual insurance policy form for the class of insurance in question, i.e. third party liability only insurance as set out in the Policy.  That was the 1^st Defendant’s offer to enter into a contract of insurance in the Plaintiff’s usual terms which was accepted by the Plaintiff’s issue of the Cover Note. 

34.  Mr Leung referred to Wyndham Rather Ltd v Eagle Star & British Dominions Insurance Company Ltd (1925) 21 Lloyd’s List Law Reports 214.  In that case, an assured obtained from the insurer’s brokers an insurance slip insuring the assured against fire, burglary and theft subject to the proposal form.  The insurance slip did not refer to or incorporate the conditions of the policy, but the proposal form did.  The policy was issued four months later after the insured risk had accrued as a result of a burglary.  The English Court of Appeal held that the assured was bound by the terms of the policy.  Mr Leung submits that this case is on all fours with the present case.  The 1^st Defendant made a proposal declaring that the Proposal shall be incorporated in and taken as the basis of the proposed contract of insurance and that she agreed to accept a policy in the Plaintiff’s usual insurance policy form for the class of insurance.

35.  I do not think the Plaintiff’s case is as simple as Mr Leung puts it.  Wyndham Rather Ltd is distinguishable from the present case.  That was a case of an insurance slip incorporating the usual policy by incorporating the proposal form and not a case of a cover note providing for an interim cover over a short period only leaving what was to happen thereafter subject to contract.  In the present case, the 1^st Defendant did make an offer to be insured for a twelve month period, but it was not unconditionally accepted, whether by implication or by conduct, for example, by an insurance slip or letter of acceptance.  Instead, the Plaintiff’s broker issued the Cover Note providing cover for a period      of thirty days only.  That was the extent of the Plaintiff’s acceptance, partial and conditional.  Mr Parker argues that a cover note is an interim insurance or a preliminary contract of insurance granted in anticipation  of the acceptance of the assured’s proposal and the issue of a formal policy and that the Cover Note and the Policy were two distinct and consecutive contracts.

36.  In MacGillivray on Insurance Law, the learned author wrote in paragraph 4-002:

“Nature of interim insurance. An interim insurance, usually evidenced by a cover note, is a preliminary contract of insurance granted in anticipation of the acceptance of the assured’s proposal and the issue of a formal policy. Its function is to provide immediate cover until the proposal is either accepted and superseded by the policy, or declined upon notice to the assured. A loss occurring during the currency of this preliminary protection is usually governed by the terms of the interim insurance and not by those of any policy which supersedes it. Like any insurance contract it requires agreement to be reached on all essential terms and takes effect subject to its own particular terms. As a contract of utmost good faith the proposer is required to give disclosure of material facts before it is concluded.”

I respectfully agree with and adopt that opinion.  A third party liability insurance is required to enable a vehicle owner to obtain a vehicle licence to permit the vehicle to be driven on the road.  If an owner has not obtained a policy for third party risk insurance, he will have to obtain a cover note before the transport authority will issue a vehicle licence.  The purpose of a cover note is precisely what the learned author said it is.  That was precisely what happened in the present case.  The 1^st Defendant made the Proposal and the Plaintiff’s broker instantaneously issued the Cover Note on behalf of the Plaintiff for a period of thirty days.  Effectively, by the Cover Note, the Plaintiff agreed to provide interim insurance for a period of thirty days during which period it will consider whether to provide coverage for the balance of the term after having fully assessed the 1^st Defendant’s circumstances.  In terms of offer and acceptance, the 1^st Defendant’s Proposal was the offer, the Cover Note constituted a conditional and partial acceptance of the offer resulting in an interim contract of insurance.  Alternatively, it was a counter offer of interim insurance which was accepted by the 1^st Defendant taking advantage of the Cover Note to obtain the vehicle licence or to actually use the vehicle on the road.  Whatever the situation, it could not be doubted that an interim contract of insurance emerged as a result, ie the first interim contract.

37.  In the normal course of events, a policy would have been issued before the expiry of the period covered by the cover note.  The terms of the contract of insurance would be as stated in the policy.  However, in the present case, the Policy was not issued until 4 July 2006 and not delivered to or received by the 1^st Defendant until after 22 July 2006.  The first interim contract expired on 30 June 2006.  Mr Parker submits that the first interim contract was either extended on similar terms to cover the second period or that the second interim contract on similar terms was to be implied.

38.  The cover note is a peculiar creation of the third party liability insurance regime.  It is usually stated to cover a specified period, say one month.  The assured pays or undertakes to pay the premium for the full year.  But in actual practice, it is usually replaced by a formal policy during that period if not terminated by either of the parties.  The party seeking to put an end to that contractual relationship has to give notice of termination to the other party.  A vehicle licence has been issued to permit the vehicle to be driven on the road, usually for a year or at least three months which would usually be beyond the period covered by the cover note.  In the circumstances, it would not be difficult to infer that the intention of the parties is that unless informed otherwise, the insurance cover will be extended by yet another interim contract of insurance on similar terms, if both parties affirm the extension, whether by implication or by conduct.  In the present case, the 1^st Defendant continued to use the vehicle without acquiring any other third party liability insurance from another insurer and the Plaintiff issued the Policy on 4 July 2006.  I have no difficulties in finding that by conduct the parties entered into the second interim contract on similar terms as the first interim contract to cover the second period, or alternatively that the first interim contract was extended to cover the second period.

39.  The second interim contract or the first interim contract as extended provides the spring board for Mr Parker to launch his argument that the terms in the Policy were not incorporated into the contract of insurance between the parties at the time of the accident.  Whether there were three or at least two consecutive contracts as Mr Parker submits or one contract as Mr Leung contends, the ultimate issue is whether the Policy was incorporated into the Cover Note. 

Whether general condition 18(b) and clause 14 of the Policy were incorporated into the Cover Note

40.  Mr Leung argues that the Policy was incorporated into the Cover Note.  He referred to paragraphs (5) and (6) of the declaration contained in the Proposal signed by the 1^st Defendant which provided as follows:

“(5) I/We hereby agree that this Proposal and Declaration shall be incorporated in and taken as the basis of the proposed contract between me/us and the Company; and

(6) I/We agree to accept a policy in the Company’s usual insurance policy form this class of insurance.”

He then referred to the Cover Note which read:

“TSANG FUNG YIN JOSEPHINE having proposed for insurance in respect of the Motor Vehicle … and having paid the sum of … the risk is hereby held covered in terms of the Company’s usual form of THIRD PARTY ONLY Policy applicable thereto for a period of 30 days … .”

41.  Mr Leung submits that given the express incorporation of the Plaintiff’s usual terms for third party liability insurance by reference to the Proposal, the parties’ intention must be that the 1^st Defendant agreed to be bound by whatever were the usual terms for third party liability insurance contained in the Policy to be issued by the Plaintiff.  It could not have been the parties’ intention that a different set of terms and conditions more favourable to the 1^st Defendant would have applied during the period from 1 June 2006 to the time when the Policy was actually issued by the Plaintiff or received by the 1^st Defendant. This raises the question of what is the proper construction of the Cover Note, particularly in the light of the expression “the risk is hereby held covered in terms of the [Plaintiff’s] usual form of third party only policy”.

42.  Mr Parker submits that on a fair reading of the Cover Note, what was incorporated into the Cover Note was the scope of the risk covered under the Policy, such as excesses and the various limits to      the indemnity but not exemption clauses.  Mr Leung argues that the expression amounted to a whole scale adoption of the Policy and draws no distinction between the scope of risks covered and exemption clauses.  He referred to Wyndham Rather Ltd.  The facts of that case has been briefly set out in paragraph 34. The policy was issued four months after the issue of an insurance slip to the assured and when the risk had accrued as a result of a burglary.  The policy contained an arbitration clause.  The assured commenced action on the insurance slip but not on the policy.  However, the action was stayed because of the arbitration clause in the policy.  On appeal, the Court of Appeal dismissed the appeal.  Atkin LJ said at 215:

“The only question we have to determine is whether, on the contract of insurance, there was a submission to arbitration. I think there was such a submission because the slip states that it is subject to the proposal form. The proposal form states that it is subject to the usual conditions of the company’s policy. To my mind, therefore, this written contract in fact contained a promise to submit the matter to arbitration. The cover note is subject to the usual terms of the company’s policy, and as one of those terms is an arbitration clause the contract of insurance put forward in this case is, to my mind, a contract which contains a submission to arbitration. The result is that this appeal fails and must be dismissed with costs.”

In much the same vein, Sargant LJ said at 215:

“I am of the same opinion. The slip contains a clear reference to the proposal form, and the proposal form contains a clear incorporation of the usual conditions of the company’s policy. Looking at it from the broad business point of view, it appears that just as Mr Justice Mathew held that a slip must be deemed to constitute a contract, and that it could not be properly held that the assured was left unprotected in the interval between the slip and the preparation of the policy, so in a case of this kind it cannot be properly supposed that the insurers are giving the assured in that interval a protection upon greater or other conditions than those which are to be embodied in the ultimate policy.”

Mr Leung submits that that case is on all fours with the present case.  He argues that the 1^st Defendant made a Proposal declaring that it shall be incorporated in and taken as the basis of the proposed contract of insurance and that she agreed to accept a policy in the Plaintiff’s usual insurance policy form for the class of insurance.

43.  Mr Parker distinguishes Wyndham Rather Ltd from the present case on the basis that the words “subject to” were used in that case but not in the present case.  It is not entirely clear from the law report what were the precise words used in the insurance slip and the proposal form in that case which led the Court of Appeal to its conclusion except that the words “subject to” were used.  Mr Parker places great emphasis on the fact that the Proposal and Cover Note were the Plaintiff’s standard form documents drafted by the Plaintiff and that general condition 18(b) was of the nature of an exemption clause.  Applying the rule of strict construction which is usually applicable to construction of exemption clauses and the contra proferentum rule of construction, he submits that the true and proper construction is that what were referred to and incorporated were the terms relating to the scope of risks covered in the Plaintiff’s usual Policy and not conditions or exemptions.  He further submits that had the parties, particularly the Plaintiff, intended otherwise, they should have adopted the phrase “subject to the usual terms of the Company’s usual form of third party only policy” as in Neil v South   East Lancashire Insurance Co [1932] SC 35 instead.  Is there any real difference between the expression “the risk is covered in terms of the Policy” and “the Cover Note is subject to the Policy”? 

44.  Interpretation of a document or a contract is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract: Investor’s Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 897, per Lord Hoffmann at 912 to 913.  It is not the same as interpretation of the meaning of particular words or expressions used in the contract.  Cover note is a creation of the insurance regime.  It is intended to provide instant but interim cover for risks on usual terms, while in the meantime the insurer assesses the risk, considers the background of the assured, calculates the premium on an actuarial basis for the purpose of deciding  if a premium over and above the usual standard premium should be charged, if necessary, and generally in preparing the policy.  A valid insurance is required before the transport authority would issue a vehicle licence to permit the vehicle to be used on the road.  The Cover Note was issued instantaneously upon receipt of the 1^st Defendant’s Proposal.  Obviously, the Cover Note was issued to enable the 1^st Defendant to obtain a vehicle licence to enable her to use the vehicle as soon as possible.  The 1^st Defendant declared that she agreed to accept a policy in the Plaintiff’s usual policy terms for third party risk insurance.  It was on that basis the Cover Note was issued.  This was the factual matrix in which the Proposal was made and Cover Note issued and against which the Cover Note should be construed. 

45.  The 1^st Defendant has little bargaining power if she wanted her Honda saloon to be used on the road instantly.  Otherwise, she would have to incur much time to obtain a proper policy or to hunt for other insurance companies in the market, thereby delaying the use of the vehicle.  By her declaration, she must be taken to mean that she was prepared to be bound by or to subject herself to the terms of the Plaintiff’s usual third party liability insurance policy.  The parties were clearly negotiating on the basis of the Plaintiff’s usual policy.  For the same reasons as given by Sargant LJ in the dicta quoted above, it could not have been the Plaintiff’s intention to give the 1^st Defendant during that interim period a protection upon more favourable terms than those which were to be embodied in the ultimate policy.  To give the Cover Note the construction contended by Mr Parker would be to interpret the words used in the Cover Note out of the factual matrix and not to construe the document as a whole.  That the words “subject to” used in Neil v South East Lancashire Insurance has the effect of incorporating the policy was based on the construction of the cover note in that case.  It does not necessarily mean that if those words are not used, the policy is not incorporated.  The distinction based on the absence of the words “subject to” is just semantic.  The Cover Note must be construed against its factual matrix, in particular the 1^st Defendant’s declaration in the Proposal.  I find that on the true and proper construction of the Cover Note, the common intention of the parties was that all the terms and conditions of the Plaintiff’s usual third party liability insurance policy were to be incorporated into the first interim contract evidenced by the Cover Note.  The terms and conditions were not limited to those relating to the scope of risks covered but also include the exemption provisions.  General condition 18(b) and clause 14 were incorporated into the Cover Note and formed terms of the first interim contract and the second interim contract.

Whether the 1^st Defendant was in breach of general condition 18(b)

46.  The conclusion reached has destroyed the basis on which the question of law was sought to be determined.  The 1^st Defendant, as applicant, has to prove that notwithstanding the incorporation of the Policy into the contract of insurance at the time of the accident, she was not in breach of general condition 18(b). Given the state of the evidence now before me, the burden which the 1^st Defendant has to discharge to seek a determination in her favour poses an impossible hurdle. 

47.  Mr Parker argues that certain conditions contained in a policy may not be applicable to the contract of insurance provided by a temporary cover note.  Specifically, a condition in the policy may be discarded as inapplicable on the ground that it imposes obligations on the assured to do certain things which it would be unreasonable to expect him to do, unless he had actual notice of the condition in question.  He quoted MacGillivray on Insurance Law, paragraph 4-002 and Coleman’s Depositories, Limited and The Life And Health Assurance Association [1907] KB 798 in support of his proposition.

48.  In Coleman’s Depositories Limited, an employer signed a proposal form for employees insurance and received a cover note, to which no conditions were attached.  About two weeks later, the insurer sealed and delivered to the employer a policy containing a provision    that immediate notice of accident must be given to the insurer as a condition precedent to the employer’s right to recover compensation under the policy.  An accident occurred resulting in an injury which     was believed to be slight and no notice was given to the insurer.  About two months later, the employee died as a result of the injury.  Notice   was given to the insurer a day before the employee’s death.  The insurer repudiated liability on the basis that immediate notice had not been   given in breach of the policy.  The majority of the English Court of Appeal held that in the absence of evidence that the employer either  knew of, or had the opportunity of knowing of, the existence of the condition at the date of the accident, the condition was one which was impossible to comply.  Mr Parker submits that Coleman’s Depositories Limited is on all fours with the present case. 

49.  In reply, Mr Leung argues that Coleman’s Depositories Limited is distinguishable from the present case in that the English Court of Appeal’s decision was premised on the fact that the cover note contained no condition, the policy not having been incorporated into the cover note.  This is of course a valid distinction.  The issue which was decided in Coleman’s Depositories Limited was whether the policy was incorporated into the cover note and the English Court of Appeal held that it was not.  The issue was not whether the policy incorporated into the cover note may be discarded as inapplicable on the ground that it imposes obligations on the assured to do certain things which it would be unreasonable to expect the assured to do.

50.  Mr Leung also relied on Trollope & Colls Ltd and Others v Atomic Power Constructions Ltd [1963] 1 WLR 333 as authority for his proposition that a contract has retrospective effect if the parties acted in the course of negotiations on the understanding and in the anticipation that if and whenever a contract was made, it would govern what was being done meanwhile.  He then quoted Wyndham Rather Ltd as example of a case where a policy issued four months after the insured risk had accrued was upheld.

51.  I have no doubt as a general proposition that a contract has retrospective effect if it is the common intention of the parties that it  shall have such effect.  However, how that operates depends on the   terms of the contract and the factual circumstances in each case.  Having said that, it does not necessarily follow that an assured will be liable      for breach if the term incorporated was only brought to his notice      when the circumstances were such as to render compliance impossible.  For example, if the obligation under the policy was to report any   accident within seven days but the policy was not delivered to the assured until fourteen days after the accident.  Such a term must be held to     have been suspended until such time when the policy has been brought   to the notice of the assured or at least been delivered to the assured.  In Wyndham Rather Ltd, the policy provided for arbitration.  The assured was not required to perform any act for which retrospectivity has         any effect.  The policy was held to have retrospective effect.  Had the court in Coleman’s Depositories Limited held that the policy had been incorporated into the cover note, I have no doubt that it would have    held that the term was suspended until reasonable time after delivery of the policy to the employer and whether the notice given a day before    the employee’s death was immediate notice would have to be determined on that basis.  

52.  In the present case, the obligation under general condition 18 was to give immediate notice of any accident.  General condition 18(b) provided:

“In the event of any occurrence which may give rise to a claim under this Policy the Insured shall immediately give notice thereof to the [Plaintiff] with full particulars. Every letter claim writ summons and process shall be notified or forwarded to the [Plaintiff] immediately on receipt by the Insured. Notice shall also be given in writing to the [Plaintiff] immediately the Insured or any person claiming to be indemnified shall have knowledge of any impending prosecution inquest or fatal inquiry in respect of any occurrence which may give rise to a claim under this Policy …”

53.  The Policy was not delivered to the 1^st Defendant until   some ten days after the accident.  It has not been so argued, but I do      not think immediate notice means such a chronological immediacy that the 1^st Defendant was obliged to give notice to the Plaintiff immediately after an accident without even attending to her injuries.  In my view, “immediate” means no more than as soon as practicable.  The obligation would have been discharged by giving notice usually within a couple of days depending on the circumstances of the case.  The 1^st Defendant alleged that the 2^nd Defendant had given notice to Sun Wah as agent of the Plaintiff one day after the accident.  If that was the case, the obligation has been discharged and the 1^st Defendant has a defence.  But those facts are in dispute.  The Plaintiff disputes if such notice had been given and denies that Sun Wah was its agent.  In the circumstances,   those factual disputes will have to be resolved at trial.  The question posed by the 1^st Defendant, as I have indicated earlier, does not cover  this possibility and cannot finally dispose of the entire cause or matter.  

Conclusion

54.  In conclusion, the first issue of whether on the true and proper construction of the Cover Note the Policy was incorporated into the contract of insurance between the parties is determined against the   1^st Defendant; while the second issue of whether the 1^st Defendant was in breach of general condition 18(b) of the Policy raises factual disputes which cannot be resolved by the determination.  The question posed by the 1^st Defendant was framed in such a manner that it will only finally dispose of the entire cause or matter if the first issue is resolved in her favour.  In the circumstances, as the matter could not be finally disposed of without proceeding to full trial to investigate into the second issue, the proper course for the master would have been to refuse to make a determination and dismiss the application with costs to the Plaintiff.  Accordingly, the appeal is allowed.  The order of Master de Souza made on 24 November 2011 is set aside; and the 1^st Defendant’s application for determination is dismissed with costs to the Plaintiff with certificate for counsel, including the costs in the court below.  Such costs are to be taxed, if not agreed.