CHAN CHI KUEN t/a MING HING CONSTRUCTION CO v. GRAND UNION INSURANCE CO LTD

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JUDGMENT

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1. This is an appeal by the defendant against a decision of Master Betts given on the 8th August 1984 when he made an order that judgment be entered for the plaintiff under Order 14 for $180,950 interest and costs.

2. The claim arises under a policy of insurance dated the 4th March 1981 made by the defendant through their agent Union Underwriters Ltd. to insure the plaintiff against liability under the Employees Compensation Ordinance and the Workmen's Compensation (Amendment) Ordinance 1980 during the period from the 5th March 1981 to the 4th March 1982.

3. On the 31st October 1981 Chan Hin an employee of the plaintiff suffered personal injuries which arose out of and in the course of his employment. On the 26th October 1983 Chan Hin made an application in the Victoria District Court for compensation under the Employees Compensation Ordinance. In accordance with the terms of the policy the defendant's former solicitors Messrs. Woo, Kwan, Lee & Lo took over the conduct of the case on behalf of Chan Hin. Compensation in the sum of $177,600 was awarded on the 2nd March 1984 with costs.

4. Payment of the award and costs has been made by the plaintiff, but the defendant has repudiated liability to indemnify the plaintiff. The grounds for repudiation were set out in a letter from the defendant's present solicitor Messrs: C.T. Chan & Co. to the plaintiff dated. the 16th March 1984 which reads:-

"         Our clients are in receipt of a letter dated 6th March 1984 from Messrs. Woo Kwan Lee & Lo requesting them to make payment of the sum of $177,600.00 being the amount of compensation awarded by His Honour Judge Scriven on 2nd March 1984.

        It has now come to our clients knowledge that you have been in breach of the conditions of the policy in question, in that, inter alia, you have failed to supply our clients with a correct account of all such salaries wages and other earnings paid during the period of insurance within one month from the expiry date of such period of Insurance (Condition 8 of the Policy). Our clients are now investigating further into this matter.

        In view of the said breach we will not make any payment of the said sum of $177,600.00.

        Further we are instructed to place on record that our clients hold you liable for whatever damage and loss that our clients have and may suffer by reason of your said breach.".

5. The defendants rely upon a breach by the plaintiff of Conditions 2 and 8 in the policy. These Conditions are in the following terms:-

6. During the period of insurance claims were also made by the plaintiff against the defendant on behalf of six other employees who were injured one fatally. The plaintiff was indemnified by the defendants under the policy in respect of two of these claims.

7. The defendant has based its denial of liability on the grounds that the plaintiff might have supplied false information under the policy by under-stating the estimated total earnings of their employees in order to save payment of a higher premium. On the 2nd April 1982 the plaintiff submitted to the defendant a record of wages for 7 workers for the period of insurance which totalled $163,236 whereas the defendant contends the figure would amount to $202,176. However, the defendant further alleges that as an admission was made by Chan Hin to the police that 20 workers had been employed by the plaintiff at the time of his accident, the total estimated earnings for this number would be about $559,104. The premium payable to cover this sum would be $44,728.32 instead of the $13,200 that was paid by the plaintiff. The defendant therefore alleges that the plaintiff did not provide truthful answers when the proposal form was signed.

8. In spite of service of a notice to produce the defendant did not produce the proposal form at the hearing although another document relating to the previous year signed by the defendants' agent was tendered. This document provided no assistance.

9. Mr. Mumford who appeared for the plaintiff submitted that the Court was required to consider whether the policy contained any condition precedent that had to be observed by the plaintiff, if so whether there had been any breach and whether any serious triable issue had been raised.

10. A condition similar to Condition 8 was considered in Re Bradley and Essex and Suffolk Accident Indemnity Society [1912] 1 K.B. 415 a decision of the English Court of Appeal where it was held that the claimant was entitled to indemnity by the society from liability to pay compensation as the sole object of the condition was to provide for the adjustment of premiums and that compliance with the clause was not a condition precedent to liability.

11. Mr. Wong for the defendant referred to an Australian authority Southern Union Insurance Co. of Australia Ltd. v Altinier and Another (1969) 2 N.S.W.R. 333 a decision of Macfarlan J. at first instance where the proposal for insurance under a Workers' Compensation policy contained an undertaking to keep a proper wages book in respect of every employee and a condition of the policy was that this would be done. The policy also provided that indemnity was made subject to the due and proper observance and fulfilment by the employer of the conditions thereunder.

12. It was held:-

Macfarlan J. distinguished Re Bradley on the grounds that it was a very special and different case. However, I would respectfully disagree with the observations that were made in that case for I have always understood that in order to create a condition precedent the words used must be sufficiently clear and without ambiguity. The following words of Farwell L.J. in his judgment in Re Bradley at page 430 are particularly apposite:-

"It is especially incumbent on insurance companies to make clear, both in their proposal forms and in their policies, the conditions which are precedent to their liability to pay, for such conditions have the same effect as forfeiture clauses, and may inflict loss and injury to the assured and those claiming under him out of all proportion to any damage that could possibly accrue to the company from non-observance or non-performance of the conditions. Accordingly, it has been established that the doctrine that policies are to be construed "contra proferentes" applies strongly against the company: In re Etherington [1909] 1 K.B. 591.".

In my opinion Re Bradley was correctly decided and should be followed. Condition 8 is not a condition precedent to liability, but relates to the adjustment of the premium payable up or down if the wages paid should differ from the original estimate.

13. The evidence in any event presented by the defendant does not amount to more than speculation based upon a suspicion that false information may have been supplied. The figures calculated by the defendant are assumptions for there was no evidence either that 7 workers worked 6 days per week throughout the year or that 20 workers were employed for the whole year. Apart from these criticisms the defendant has taken no steps to carry out an investigation to verify their suspicions. The defendant has also failed to show that the estimate of wages submitted by the plaintiff at the beginning of the year was not correct. If it is established that the estimate made by the plaintiff was wrong this does not entitle the defendant to treat the policy as void.

14. Waiver was raised as an issue before the Master. Initially the Master held in favour of the plaintiff, but later decided that there was a triable issue on this ground. However in the absence of evidence to substantiate the defendants' allegation of breach the matter of waiver becomes irrelevant. Accordingly the appeal will be dismissed with costs.