XCHRX SUN HUNG PROPERTIES INSURANCE LTD. v. AXA SIME ASSURANCE LTD.

1994 No. A3142

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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The Proceedings

1. On 31 March 1994, the plaintiff commenced proceedings against the defendant claiming an account, debatement of that account and payment of the amount found due.

2. In its statement of claim, the plaintiff alleges that it agreed to reinsure the defendant in respect of its employment compensation business from 1 January 1984 to 30 June 1991. The plaintiff says that its liability to the defendant would be calculated solely upon losses occurring during the validity of the agreement and would be liable only up to an agreed maximum amount in respect of any one event or occurrence. During the period 1 January 1984 and 30 June 1993, the plaintiff says that the defendant claimed $13,135,527.38 and the plaintiff paid this sum. The plaintiff alleges that it has overpaid the defendant.

3. The defendant filed a defence to this claim. For those who believe that a defence should say as little, and conceal as much, as possible about the defendant's case, this defence is a model. It denies pretty well all the plaintiff's allegations. It does admit that there were certain agreements entered into between the parties, but pointedly fails to say what these were. It says that the plaintiff was liable for certain payments, but declines to give any details. About the only positive allegation, if it may be called such, the defence makes is that the plaintiff's cause of action did not arise within the six years before the commencement of action and is barred under the Limitation Ordinance (Cap. 347).

4. The plaintiff has now taken out a summons under Order 43 in which it asks for an account, all necessary and proper inquiries and directions in connection with the taking of such account and payment of the amount found due to the plaintiff.

5. In its supporting affidavit, the plaintiff produces copies of the relevant documents, cites demands for a proper account since September 1992 and failures by the defendant to render one.

6. In its opposing affidavit, the defendant, true to its faith, says very little of substance. It makes no attempt to state the nature of its case. It contents itself with sniping at what it says are the weaknesses and lack of particulars in the plaintiff's case. It is, perhaps, an indication of the merits of what the defendant says in its affidavit for the purpose of opposing these proceedings that Mr Clifford Smith, who appears for the defendant, could not bring himself to argue the points made. In particular, it should be said that the defendant says not one word about whether or not, under the agreements it admits it had with the plaintiff, it had any duty to account, whether or not it has done so, and, if not, why not.

The Rules

7. Rule 1(1) and (3) of Order 43 says -

(1) Where a writ is endorsed with a claim for an account or a claim which necessarily involves taking an account, the plaintiff may, at any time after the defendant has acknowledged service of the writ or after the time limited for acknowledging service, apply for an order under this rule.

(3) On the hearing of the application, the Court may, unless satisfied that there is some preliminary question to be tried, order that an account be taken and may also order that any amount certified on taking the account to be due to either party be paid to him within a time specified in the order.

The Duty to Account

8. Mr Smith's contention in relation to the alleged duty to account is that a contract of reinsurance does not give rise to a fiduciary relationship. In support, he cites a passage from MacGillivray and Parkington on Insurance Law (paragraph 1252, footnote 11) - ". . . a fiduciary relationship . . . is not created under a reinsurance treaty." The authority cited for this proposition is Law Guarantee Trust and Accident Society Ltd. v. Munich Reinsurance Co. [1914] 31 T.L.R. 572. That case goes no further than saying that the duty of disclosure usually applicable to contracts of insurance as part of the broader fiduciary relationship existing between the parties does not apply where, as in that case, the contract between the parties was one of indemnity and indemnity only. It says nothing about the issue in the case before me; that is, whether, in a contractual relationship in which X is obliged to pay money to Y according to the sum of money Y has been obliged to pay out, Y is obliged to account to X regarding its dealings in that respect so that X is able to see for himself what money Y has been obliged to pay out and otherwise the basis for the calculations of the alleged debt due by Y to X.

9. As Field J. said in Plowright v. Lambert (1885) 52 L.T. 646 at 652 - "The fiduciary relation . . . as it is called, does not depend upon any particular circumstances. It exists in almost every shape." In particular, in my judgment, it exists in the situation posed at the end of the last paragraph. In my view, it cannot possibly be the case that the defendant here is entitled to say to the plaintiff - "You owe me $100,000", without explaining and giving details, supported with the appropriate vouchers if required, of what it has been obliged to pay out and how the debt said to be due by the plaintiff is calculated. The defendant cannot be permitted to say - "That is what you owe me. I am not going to show you the basis for the claim or how I calculate it. You must just trust me." Whether one wants to ascribe this obligation to account as arising out of a fiduciary relationship or as an implied term of the contract (as was done in Phoenix General Insurance Co. Of Greece S. A. v. Halvanon Insurance [1985] Vol. 2 Ll.L.R. 599) is, in my view, immaterial. The plaintiff, in its pleadings, does not put its case specifically on either basis. It is true that Mr Ma, who appeared for the plaintiff, argued his case mainly on the contention that a fiduciary relationship existed between the plaintiff and the defendant, but I put to both Mr Ma and to Mr Smith my view that it did not matter how one chose to categorise the obligation; if there was an obligation to account, that was the end of the matter.

Settlement of Accounts

10. Mr Smith advanced another argument. This was based firmly on the premise that the parties had settled their accounts. A settled account is an agreed account. There is no allegation in the defendant's pleadings and no evidence whatsoever in the affidavit filed by the defendant or elsewhere that the plaintiff ever agreed the accounts between the parties. I reject this argument.

Limitation of Action

11. There remains only the matter of the plea of time bar.

12. Section 4(2) of the Limitation Ordinance (Cap. 347) says -

An action for an account shall not be brought in respect of any matter which arose more than 6 years before the commencement of the action.

13. There is no corresponding provision to this section in the English legislation. Section 23 of the English Limitation Act, 1980 provides -

An action in respect of an account shall not be brought after the expiry of any time limit under this Act which is applicable to the claim which is the basis of the duty to account.

Mr Ma points to section 4(7) of our Ordinance. This says -

This section shall not apply to any claim for specific performance of a contract or for an injunction or for other equitable relief except in so far as any provision thereof may be applied by the court by analogy in a like manner as the corresponding enactment contained in the Limitation Act, 1980 is applied in the English Courts.

14. An order to account is equitable relief, although there was, a long time ago, a common law claim for an account. The second limb of section 4(7) does not apply because there is no "corresponding enactment" in the 1980 Act, although there was one in the English Limitation Act, 1939. There is a fascinating discussion of the position in England under the 1939 Act in Tito v. Waddell [1977] 1 Ch. 106, at pages 250 and 251. Attorney General v. Cocke [1988] 1 Ch. 414 contains discussion about the position in England under the 1980 Act.

15. In Tito v. Waddell, Megarry V.-C. considered, obiter, that, while the equivalent of our section 4(2) applied a six year time limit on equitable actions for an account, the equivalent of our section 4(7) disapplied such a limit, leaving section 4(2) to apply only to obsolete common law action for an account - substantially empty of any effect at all.

16. I cannot agree with this. I cannot apply this interpretation to our Ordinance. I do not believe that the legislature intended, in the same breath, to say that a six year time limit applies to actions for an account, but, in effect, it does not. This would be utter nonsense and an affront to common sense. In my judgment, having dealt specifically with actions for account in section 4(2) and prescribed a time limit for them, the legislature did not intend to refer to them again in section 4(7) and remove the time limit it had prescribed a few subsections before.

17. Accordingly, I hold that section 4(2) applies to the relief claimed before me and I cannot order an account of "any matter which arose" before the commencement of the action; that is, 31 March 1994. The question is: What are the matters with which we are concerned and when did they arise? It seems to me that the defendant's call upon the plaintiff to pay under the contractual relationship between them is a matter contemplated by the provision and it arises when the defendant makes the call.

The Result

18. Accordingly, I find that the defendant is obliged to account to the plaintiff in respect of all claims it has made upon the plaintiff within a period of six years before 31 March 1994.

19. I will hear counsel on the form of the order I should make and the directions I should give in relation to the taking of the account.

20. The plaintiff also asks for an order for payment of "such amount . . . as may be found due to" the plaintiff, and costs. I am inclined to leave consideration of this relief until the account has been taken, but I will also hear counsel on this.