UNI INDUSTRIES LTD v. OMEGA INTERNATIONAL LTD

CACV370/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO.370 OF 2003

(ON APPEAL FROM HCA NO. 6707 OF 2000)

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J U D G M E N T

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Hon Woo VP :

Introduction

1. This is an appeal by the defendant against the order made by Deputy High Court Judge Gill on 30 October 2003.  

2. By that order, the judge determined the following questions of construction to be in the negative:

(a)	Whether the Fire Insurance Master Policy No. FMD93001, the Certificate of Insurance No. F0879150/99 dated 20th August 1999 and the Public Liability Extension as contained in the Endorsement dated 1st May 2000, properly construed, should cover the liability of the Defendant in respect of the Plaintiff’s claim in the present proceedings; and
(b)	Whether the Public Liability Extension as contained in the Endorsement dated 1st May 2000, properly construed, can be relied upon by the Defendant to seek an indemnity from the 3rd Third Party in respect of the Plaintiff’s claim in the present proceedings.

3. Having so determined, the judge ordered that the 3^rd Third Party be at liberty to enter judgment against the defendant for:

(1)	Paragraphs 19, 26 to 30 and paragraph (1)(a) of the prayer of the Defendant’s Statement of Claim against the 3rd Third Party filed on 19th July 2002 (“the Statement of Claim”) in so far as they relate to the claim by the Defendant against the 3rd Third Party herein based on the Public Liability Extension as contained in the Endorsement dated 1st May 2000 be struck out; and
(2)	There be an order nisi that costs be to the 3rd Third Party, to be taxed and paid forthwith.

Background

4. It will be noted that the questions determined as well as the orders for striking out made by the judge only concern the defendant and the 3^rd Third Party, and so is this appeal.  However, it is necessary to briefly refer to the background of the action in order to understand the issues between these two parties.

5. The plaintiff in this action is the owner of Flat D, 3^rd Floor, Block 2, Estoril Court, Garden Road.  The defendant is the owner of Flat D on the 4^th Floor immediately above.  The plaintiff’s claim against the defendant is for damage to wallpapers, ceilings, installations and fixtures that has resulted from water seepage from the defendant’s flat into the plaintiff’s flat.  In its statement of claim, the plaintiff specifically pleads that there is a constant nuisance and it is unable to particularise all losses to its flat “as the water leakage was still continuing”.  In its answer to the defendant’s request for further and better particulars of the statement of claim, the plaintiff states that “… the nuisance is still continuing.  At present, water is still infiltrating from the Defendant’s premises” to various parts of the plaintiff’s flat.  In another answer to the defendant’s request for further and better particulars, the plaintiff also states that it had made repeated requests and demands to the defendant who had failed and/or neglected to inspect and repair the condition of the water pipes and/or drains and/or cistern and/or bathroom bowl of the defendant’s flat, which requests and demands were made orally directly and/or through Estoril Court Management Company Limited to the occupants of the defendant’s flat on numerous occasions from mid April 2000, and also in writing by two letters dated respectively 26 April 2000 and 6 May 2000 to the defendant.  

6. The writ of summons with the statement of claim endorsed was issued by the plaintiff on 5 July 2000.  The defendant filed a defence in June 2001, denying its responsibility for the water seepage, and asserting that it originated from the flats above the defendant’s flat, being Flats D respectively on the 5^th Floor and 6^th Floor.  The defendant then took out third party proceedings against the owners of Flat D of those two floors respectively as the 1^st and 2^nd Third Parties.  

7. Moreover, the defendant joined the 3^rd Third Party to claim an indemnity against it for the plaintiff’s claim for which the defendant may be held liable.  This claim for indemnity is based on a contract of insurance. 

8. The contract of insurance arose in these circumstances.  When the defendant bought its flat in August 1996, it mortgaged the flat to Dao Heng Bank (“the bank”) for a loan to cover part of the purchase money.  As a standard condition of the loan, the bank required the flat to be covered by a fire insurance policy with the 3^rd Third Party, which was taken out in its name as the mortgagee and the defendant’s name as owner.  The policy was in the form of a fire insurance master policy No. FMD93003 that came in the existence from 1 March 1993 (“the master policy”).  The defendant’s flat came under the cover of the master policy by virtue of a certificate of insurance which identified the defendant’s flat, the bank as the mortgagee and the defendant as owner, the sum insured and the premium paid.  A separate certificate of insurance was issued every year, the first term ran for one year to 22 August 1997.  What we are concerned with are two certificates of insurance that were issued in subsequent years, namely, one numbered F0879150/99 dated 20 August 1999, and another numbered F0891325/00 dated 22 August 2000.  In between these two dates, a document most crucial to the present proceedings called “Public Liability Extension” (“PLE”) emerged.  This PLE was incorporated into the master policy by way of an endorsement to the master policy.  The endorsement reads:

“It is hereby declared and noted that with effect from 1 May 2000, Public Liability Extension as per attached is deemed to be incorporated into the Clauses and Warranties of this Policy.

Subject otherwise to the terms, conditions and exceptions of this Policy.”

9. The only provisions of the PLE with which we are concerned are as follows:

“It is hereby declared and agreed that the Insurer will, subject to the Limit of Indemnity, indemnify the Insured against all sums for which the Insured may be legally liable as owner of the Property Insured in respect of :

…

2)    accidental damage to property of third party

occurring in the situation of risk during the Period of Insurance.”

10. On 14 June 2003, the 3^rd Third Party took out a summons which sought relief on two alternative bases, namely, the determination of questions of construction pursuant to O 14A rules 1 and 2 of the RHC, Cap 4A and/or for an order to strike out pursuant to O 18, r 19 of the RHC.  As can be seen above, the order of 30 October 2003 made by the judge allowed the O 14A application, rendering it unnecessary for him to deal with the application under O 18, r 19.  The paragraphs 19, 26 to 30 and paragraph (1)(a) of the prayer of the defendant’s Third Party Statement of Claim that were ordered to be struck out by the judge are those relevant to the question of indemnity described above. 

The judgment

11. The judge decided the questions before him in favour of the 3^rd Third Party.  The judge identified the issue before him thus:

“The application now before me concerns only the defendant’s claim for indemnity under the public liability extension.  The short point argued is that the extension came into being no earlier than 1 May 2000 and was not effective in the defendant’s cover under 22 August 2000. …”

12. The rationale for the judge’s decision was succinctly set out in his judgment, as follows:

“… The plaintiff’s claim stems from a nuisance which predates the date of the writ.  The fact that damage is ongoing does not demonstrate a new cause of action.  A writ cannot lie for future misconduct; fresh proceedings have to issue.  That argument fails along with all the others mounted.  By virtue of the public liability extension not being in existence at the time of the alleged nuisance, there is no prospect of the defendant’s claim for indemnity succeeding; I rule accordingly.”

13. Pausing here, it is convenient to recapitulate that the writ in this action was issued by the plaintiff on 5 July 2000, the plaintiff’s claim is based on water seepage discovered in April 2000, complaints in respect of which were made to the defendant also in April 2000 and subsequently, the PLE came into existence only on 1 May 2000, and the endorsement of the PLE was first introduced into the master policy by the certificate of insurance dated 22 August 2000 to cover the defendant and its flat.  That was the reason why the judge said that the nuisance predated the writ, because the defendant had been notified of it in April 2000 while the writ was issued in July 2000, and that the PLE was not in existence at the time when the nuisance was discovered.

The appeal

14. The main ground of appeal raised on behalf of the defendant is that the judge erred in failing to appreciate that the plaintiff’s claim against the defendant is in respect of a continuing nuisance which is capable of establishing losses at any time prior to the assessment of damages, which is a continuing cause of action.  This ground has factual support in that the plaintiff has alleged that the water seepage, ie the nuisance, is continuing and for that reason it cannot particularise all the losses to its flat.

15. The ground also has support from O 37, r 6 of the RHC which reads:

“Where damages are to be assessed (whether under this Order or otherwise) in respect of any continuing cause of action, they shall be assessed down to the time of the assessment.”

16. In Hole v. Chard Union [1894] 1 Ch 293, where the plaintiffs claimed against the defendants for permitting sewage to fall into and pollute a stream running through the plaintiffs’ land, the Court of Appeal in England was concerned with the meaning of O 36, r 58 of the Rules of the Supreme Court 1883, which was in almost identical terms:

“Where damages are to be assessed in respect of any continuing cause of action, they shall be assessed down to the date of the assessment.”

17. At p 295, Lindley LJ stated:

“… What is a continuing cause of action?  Speaking accurately, there is no such thing; but what is called a continuing cause of action is a cause of action which arises from the repetition of acts or omissions of the same kind as that for which the action was brought.  In my opinion, that is a continuing cause of action within the meaning of the rule.  The cause of action complained of and existing in the present case appears to me precisely the kind of mischief at which rule 58 was aimed, its object being to prevent the necessity of bringing repeated actions in respect of repeated nuisances of the same kind.  To adopt the argument of the Defendants would be to render the rule altogether a nullity.  I feel no doubt that the present case is a continuing cause of action within the rule.  It is a repetition of acts of the same kind as those which had been investigated at the trial, and had been decided to constitute a nuisance.  The Judge was, therefore, right in treating it as a continuing cause of action, and in assessing the damages down to the date of the Chief Clerk’s certificate.”

18. A L Smith LJ was of the same opinion.  He said at p 296:

“ The principal question in this appeal turns upon the construction of Order XXXVI., rule 58.  It is contended by the Appellants, that when the act on which an action is brought is established the cause of action can have reference to that one act and to no other.  In my opinion, that is not necessarily so.  If once a cause of action arises, and the acts complained of are continuously repeated, the cause of action continues and goes on de die in diem.  It seems to me that there was a connection in the present case between the series of acts before and after the action was brought; they were repeated in succession, and became a continuing cause of action.  They were an assertion of the same claim—namely, a claim to continue to pour sewage into the stream—and a continuance of the same alleged right.  In my opinion, there was here a continuing cause of action within the meaning of the rule.”

19. It is generally correct, as opined by the judge, that a writ cannot lie for future misconduct and that fresh proceedings have to issue.  However, that rule does not apply to the facts of the present case, which deals with a continuing nuisance and in the terms of O 37, r 6, the successor of the English O 36, r 58 as interpreted in Hole v. Chard Union, a continuing cause of action.  Although the nuisance was discovered in April 2000 as occurring, its effect on or damage to the plaintiff’s flat has been continuously occurring minute after minute.  If it succeeds on its claim against the defendant, depending on the circumstances, the plaintiff is entitled to claim damages for all the damage that occurred in April 2000 and that occurring right up to the date of the assessment of damages.  That is what the plaintiff is claiming against the defendant.  Depending on the evidence to be adduced by the parties, there can be no certainty at this stage whether the damage to the plaintiff’s flat and therefore the resulting damages to be awarded if the plaintiff succeeds, will be limited up to the time of the issue of the writ and not thereafter.  One cannot therefore decide at this stage whether the damage to the plaintiff’s flat caused by the continuing nuisance would not be damage that has occurred after 22 August 2000 when the PLE was included by endorsement to the master policy.  

20. On behalf of the 3^rd Third Party, Mr Barrie Barlow refers us to Kelly v Norwich Union Fire Insurance Ltd [1990] 1 WLR 139 for the proposition that the insured peril in the case before us is the water seepage and since it occurred before the existence of the PLE, the 3^rd Third Party is not obliged to indemnify the defendant against its possible liability for the plaintiff’s claim.

21. Kelly v Norwich dealt with the construction of the terms of the policy involved which was to indemnify the insured “in respect of events occurring during the period of insurance”, and in the particular circumstances of that case, the court considered that the proper construction of the “events” as relating to the water seepage and not the damage resulting from it.

22. In the instant case, one must note that the master policy is to cover

“Damage directly caused by bursting or overflowing of water tanks apparatus or pipes …”

and the PLE is for the 3^rd Third Party to indemnify the defendant against all sums for which it may be legally liable as owner of the flat in respect of :

“accidental damage to property of third party occurring in the situation of risk during the Period of Insurance.”

23. The peril that is covered giving rise to the indemnity relates, on terms, to damage to the property of third parties and does not relate to an event that causes that damage.  It relates to the effect rather than to the cause.  Due to the nature of the plaintiff’s claim, being a continuing nuisance, a continuing cause of action, it must include, by virtue of O 37, r 6 of the RHC, a claim for damages in respect of the damage caused by water as prescribed by the master policy which damage has occurred in the period of insurance. 

24. Mr Barrie Barlow contends that as the endorsement explicitly states that it took effect “from 1 May 2000”, the insurance did not indemnify the defendant for any pre-existing damage which had occurred before 1 May 2000.  He argues that the issue is “Did the damage concerned occur before the cover took effect?”  He submits that clearly it did.  However, in my view, insofar as the damage to the plaintiff’s flat occurred before the effective date of the coverage by the PLE, that would not be covered by that extension, but insofar as the damage occurred after the effective date during the period of insurance, it should be covered.  It is to depend on the evidence as to when the damage occurred, which is not a matter that can be decided without hearing evidence that may be adduced by all relevant parties.  Thus O 14A is not the appropriate procedure for resolving the issue.

25. I consider that the judge was wrong to fail to pay heed to the continuing nuisance and the continuing cause of action relied on by the plaintiff against by the defendant in ruling that the defendant cannot seek indemnity against the 3^rd Third Party under the insurance policy.  This point alone disposes of this appeal in favour of the defendant.  I should not be misunderstood as holding that the defendant is entitled to be indemnified by the 3^rd Third Party for the plaintiff’s entire claim against the defendant or any part of it; it will all depend on the evidence.  Nor do I need to decide on the effective date of the coverage by the PLE at this stage.  What I consider to have been the right course to take is for the judge to refuse to determine the questions posed to him pursuant to O 14A of the RHC.  The questions should only be resolved in the light of relevant evidence at trial. 

Respondent’s notice

26. By a respondent’s notice dated 19 December 2003, the 3^rd Third Party contends that the judge’s decision should be affirmed on additional or alternative grounds and also, if necessary, it cross-appeals that paragraphs 19, 26 to 30 and paragraph (1)(a) of the prayer of the defendant’s Third Party Statement of Claim should in any event be struck out pursuant to O 18, r 19 of the RHC. 

27. I have already dealt with some of the grounds raised in the respondent’s notice.  I need only deal with the remaining two grounds very briefly.  One of these grounds in support of a striking out is that the defendant cannot seek to rely on the master policy and the certificate of insurance dated 22 August 2000 incorporating the PLE because the defendant was guilty of material non-disclosure of the plaintiff’s claim prior to the commencement of the period of the insurance under that certificate.  It is contended that the said material non-disclosure or omission is clear and can be inferred from the affidavit evidence filed on behalf of the defendant that it only informed the 3^rd Third Party of the existence of the plaintiff’s claim on 23 February 2001 after the commencement of the period of insurance as from 22 August 2000.

28. In respect of this argument, I agree with the submission of Mr Nigel Kat, for the defendant, that whether a party is guilty of material non-disclosure is a three-fold question of fact.  The party alleging material non-disclosure, in this case the insurer, has the onus to prove that there was non-disclosure; that it was material; and that he would not have made the same insurance contract had he known of that piece of non-disclosed fact/information, ie inducement or reliance: see MacGillivray at paras 17-26, 17-28 and 17-40.

29. Moreover, I note in the two affirmations filed on behalf of the 3^rd Third Party in support of its summons dated 14 June 2003, no reference was made nor information given on any alleged material non-disclosure.  Quite to the contrary, that affidavit evidence described the close relationship between the 3^rd Third Party and the bank and that the PLE endorsement was issued on 1 May 2000 without any reference to any prior discussion or requirement of an increase of premium or indeed anything at all before the endorsement was issued.  If, indeed, the 3^rd Third Party wishes to rely on material non-disclosure to defeat the defendant’s claim of indemnity against it, it can do so in its defence to the defendant’s Third Party Statement of Claim, but one can find no trace of it in any pleading of the 3^rd Third Party.  

30. The other point relied on by the 3^rd Third Party is that the defendant has not pleaded or sought to rely on the certificate of insurance dated 22 August 2000 in its re-amended third party notice against the 3^rd Third Party.  This is technically correct.  However it is abundantly clear from the defendant’s pleadings against the 3^rd Third Party that the defendant is relying on the master policy and the PLE, which was issued on 1 May 2000 and incorporated by endorsement by virtue of the certificate dated 22 August 2000.  This slight defect in the defendant’s pleading can be corrected by a very simple amendment, which does not justify in the present circumstances to strike out the relevant paragraphs of the defendant’s claim against the 3^rd Third Party pursuant to O 18, r 19 of the RHC.  

Conclusion

31. For the above reasons, I would allow the appeal, set aside the order made by the judge, and dismiss the summons dated 14 June 2003.  The parties are in agreement that costs should follow the event.  I would therefore also make an order that the defendant do have the costs of this appeal, including the costs of the respondent’s notice, and the costs below, to be taxed if not agreed and to be paid forthwith. 

Hon Cheung JA :

32. I agree.

Hon A Cheung J :

33. I agree.