YOUNG CONQUEROR CO LTD v. COMMERCIAL UNION ASSURANCE CO PLC AND OTHERS

1987 No.A8217

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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J U D G M E N T

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1. At about 9.20 p.m. on the 8th March 1987, the Plaintiffs motor car, a BMW, was involved in a collision, in Canton Road, Kowloon immediately after it emerged from the junction with Austin Road. At the time it was being driven by the 3rd Defendant and a girlfriend of his was in the car at the time of the collision. The car was seriously damaged and the total cost of repairs amounted to HK$150,000.00. The 3rd Defendant was later summonsed for careless driving which he admitted and for which he was fined. The Plaintiff pleaded and relies on the 3rd Defendant's conviction for careless driving as evidence of the 3rd Defendant's negligence.

2. Earlier on in the evening the car and car keys had been left with the parking service offered by the 2nd Defendant at the entrance to the 2nd Defendant's restaurant. Mr. Chan Wu Cheong, a director of the Plaintiff, who was the only witness called at the hearing, had driven to the 2nd Defendant's restaurant, arriving there at about 6 p.m. or 7 p.m. He was unable to be more precise about the time. This was the first time he had been to this restaurant. It was his evidence, which I accept, that he had tried to find a parking space without success so he had to use the restaurant's parking service. When he handed over the car keys to the parking attendants, he was given a chit or a ticket which had something printed on it, the contents of which he did not recall when giving evidence and which he possibly had not read at the time.

3. The 3rd Defendant worked part-time as a parking attendant at the 2nd Defendant's restaurant. It is not disputed by any of the parties that on the evening in question he was given the keys to the Plaintiffs car for the purposes of parking it.

4. The car was insured under a private motor car policy ("the policy") with the 1st Defendant ("the Insurers"). The Plaintiff now claims against the Insurers to be indemnified under the policy of insurance for the cost of repairs to the Plaintiffs BMW. The amount claimed by the Plaintiff pursuant to the said indemnity is HK$96,500.00 being the insured value of the motor car less HK$3,500.00 excess.

5. By their Amended Defence, the Insurers pleaded that it was an . express condition of the policy that they would not be liable to indemnify the Plaintiff against loss of or damage to the car unless it was driven by the Plaintiff or any other person driving on the Plaintiffs order or with its permission and the car was used exclusively for social and domestic and pleasure purposes or for the Plaintiffs business or profession and that as the 3rd Defendant was wrongfully using the car for purposes of his own at the time of the accident, it was not being driven by a person on the Plaintiffs order or with the Plaintiffs permission. The Insurers pleaded further or in the alternative that the car was being driven by the 3rd Defendant for the purposes of parking the vehicle for and on behalf of the 2nd Defendant which purpose was in connection with the business or profession of the 2nd Defendant, or alternatively the journey in question was for the dual social, domestic or pleasure purpose of the 2nd Defendant and for the 2nd Defendant's purposes.

6. In the course of closing submissions by Counsel it became apparent that the Plaintiff would still have an argument that it was entitled to be indemnified under the policy if the Court were to find that at the time when the collision occurred the 3rd Defendant was , to use the expression well-known to students of Tort, on a frolic of his own'. This led to yet further amendments being made to the Re- Amended Statement of Claim and to the Amended Defence for which I gave leave. The net result is that the Plaintiff now pleads in paragraph 2 of the Re-Re- Amended Statement of Claim that at the material time the 3rd Defendant was driving for the purpose of parking the Plaintiffs car or alternatively on a joyride for his own social, domestic or pleasure purposes whereas the Insurers now put their case primarily on the basis that the car was being driven by the 3rd Defendant for the purposes of parking and therefore for the business purposes of the 2nd Defendant. They now do not admit that the 3rd Defendant was driving on a joyride but plead that if he was, the car was not at the material time being driven by a person on the Plaintiffs order or with its permission.

7. The Plaintiff also claimed against the 3rd Defendant the full cost of repairs to the car together with damages for loss of use whilst the vehicle was being repaired as loss and damage suffered as a result of the 3rd Defendant's negligent driving. Judgment in default of notice of intention to defend has been entered against the 3rd Defendant for the full amount totalling HK$251,000.00 together with interest and costs.

8. Initially, the Plaintiff claimed against the 2nd Defendant the full cost of repairs totalling HK$150,000.00 and damages for loss of use whilst the car was being repaired totalling $101,000.00 on the basis that the car was being driven by the 3rd Defendant in the course of his employment with the 2nd Defendant or alternatively the 3rd Defendant was the agent of the 2nd Defendant and the 2nd Defendant was therefore vicariously liable to the Plaintiff for the negligence of the 3rd Defendant. By a late re-amendment to the Amended Statement of Claim, the Plaintiff put its case against the 2nd Defendant also on the basis of a contract to park the car for a fee and breach of an implied term of the contract that the 2nd Defendant would take all necessary steps to ensure that the Plaintiffs motor vehicle was safely handled while in the charge of the 2nd Defendant, its servants or agents. At the hearing, the Plaintiff no longer sought damages for loss of use of the car against the 2nd Defendant.

9. By its Defence, the 2nd Defendant admitted that on the evening in question the Plaintiffs car was left with the 3rd Defendant for the purpose of parking and that an accident involving the Plaintiffs car took place but denied that the 3rd Defendant was at the material time its servant or agent. It averred that the 3rd Defendant was driving the Plaintiffs car on a journey of his own without the authority, knowledge or consent of the 2nd Defendant and denied liability for the 3rd Defendant's alleged negligence.

The 2nd Defendant's pleaded case was that it employed one Chan Chi Wah trading as Racing Autocentre to provide the parking service for its customers and that Chan in turn employed 2 persons to perform this service neither of whom was the 3rd Defendant. The 2nd Defendant averred that the Plaintiff, thinking that the 3rd Defendant was responsible for parking, handed over the car to the 3rd Defendant who was a friend of one of Chan's employees and that the 3rd Defendant drove the Plaintiffs car away without the authority, knowledge or consent of either Chan or the 2 employees. The 2nd Defendant also pleaded an exemption clause which was alleged to have been conspicuously displayed on the parking stand located outside the 2nd Defendant's premises to the effect that the 2nd Defendant shall not be responsible in the event of any damage caused to the customers vehicles left for parking. In Further and Better Particulars of the Defence, it was pleaded that the parking cards or tickets distributed to the 2nd Defendant's customers also contained the same exemption clause.

10. Neither the 2nd Defendant nor the 3rd Defendant appeared at the hearing.

The claim against the 2nd Defendant

11. It is convenient at this point to deal with the case against the 2nd Defendant and certain issues of fact that arise on the 2nd Defendant's Defence. The only evidence before me as to the relationship between the 2nd Defendant and the 3rd Defendant consists of the contents of the 3rd Defendant's statements, one made to the police in the early hours of the morning following the collision and the other to the Loss Adjusters engaged by the Insurers, both those statements being admitted in evidence under the 'hearsay' procedure and 2 Employer's Returns signed by a partner in the 2nd Defendant showing that Chan Chi Wah was employed as a driver and that he had been so employed from at least the 1st April 1986 to the 31st March 1988.

12. In the statement to the police, the 3rd Defendant said that he worked as a clerk at a company and worked part-time at night in Fat To Hot Pot at Chatham Court as a parking attendant. He also said in that statement that on the night of 8/3/1987, a customer asked him to park a private car, CP635. There is no dispute that this was indeed the Plaintiffs car. In the other statement, the 3rd Defendant said that he was employed by Chan Chi Wah as a casual parking attendant in Ah To Restaurant and was not a permanent employee, in other words that if Mr. Chan was short of workers, Mr. Chan would ask the 3rd Defendant's friend, one Ah Hung to ring up the 3rd Defendant and tell him to go to work.

13. Clearly on the 2nd Defendant's own admission made in the form of the Employer's Return, Mr. Chan Chi Wah was not an independent contractor but an employee employed as a driver. On the basis of the 3rd Defendant's statements, although he was employed on a casual basis as a part-time parking attendant at the 2nd Defendant's, he was so employed upon Mr. Chan's authority and with his knowledge and consent. In the circumstances, I hold that the 2nd Defendant will be vicariously liable for the 3rd Defendant's negligent driving unless I find that the 3rd Defendant was not driving in the course of his employment at the material time.

14. According to the 3rd Defendant's statement to the police, he was still trying to find a parking space at the time when the collision occurred; although he had spotted a girlfriend of his whilst driving along Austin Road, he said, he asked her to get into the car to look for a parking space with him. The other statement is less clear. However, it seems to me that it is implicit in that statement too that the 3rd Defendant was still looking for a parking space at the time when the collision occurred.

15. The 3rd Defendant was, as I have already found, employed to park cars for the 2nd Defendant's customers. When the 3rd Defendant took charge of the Plaintiffs car and the car keys, he was clearly doing so in the course of his employment. That being so, the burden must lie on the 2nd Defendant to show that at the material time when the collision occurred, the 3rd Defendant was no longer driving in the course of his employment. In this case, the 2nd Defendant must show that the 3rd Defendant was no longer driving to look for a parking space but was on a joyride. The fact that he picked up a girlfriend may be some evidence tending to disprove the 3rd Defendant's assertions but that fact alone does not mean that the 3rd Defendant had ceased to be acting in the course of his employment if as he says he asked her to help him look for a parking space which is how I understand his statement. In that event, the situation would be similar to the facts in Rose v. Plenty [1976] 1 WLR 141 where the employer was held to be liable to the 13 year old Plaintiff whom the employee had contrary to the employer's express prohibition engaged to help him on his milk rounds and who was injured through falling from the milkfloat as a result of the employee's negligent driving.

16. The 2nd Defendant has in my view not discharged that burden.

17. Even if the 3rd Defendant was driving the car on a frolic of his own, that does not excuse the 2nd Defendant of liability where as here the car was handed to the custody of the 2nd Defendant's servant and the 2nd Defendant was therefore the bailee. (See Aitchison v. Page Motors Ltd. (1935)154 L.T. 128).

18. So far as the allegation is concerned that there was a clause on the parking stand and on the tickets distributed to customers exempting liability, the onus of proof must be again on the 2nd Defendant. The 2nd Defendant having called no evidence and in the light of the evidence of the Plaintiffs witness, I cannot find that there was a clause exempting the 2nd Defendant's liability which was displayed on the night in question either on the parking stand or on the ticket handed to the customer.

19. In the circumstances, I hold that the 2nd Defendant is liable to the Plaintiff for the total cost of repairs to the car damaged as a result of the 3rd Defendant's negligent driving.

The claim against the 1st Defendant

20. This turns largely though not exclusively on the proper construction of the policy. For the Insurers, it was contended that clauses 5 and 6 of the Certificate of Insurance defined the risk that was covered by the policy so that it was for the Plaintiff to show that the driver was at the material time within Clause 5 and that the car was at the material time being used only for social domestic and pleasure purposes or for the Policyholder's business or profession. I should mention that the Insurers accepted that for the purposes of this case, no distinction should be drawn between the Plaintiff which was the policyholder and the director of the plaintiff, Mr Chan Wu Cheong. I am grateful to be relieved of the knotty problem of deciding how a limited company can have domestic or pleasure purposes although Clause 6 is not in terms confined to the Policyholder's such purposes.

21. Clause 5 reads under "Persons or classes of persons entitled to drive", "Any person who is driving on the Policyholder's order or with his permission. Provided that the person driving holds a licence to drive the Motor Vehicle or has held and is not disqualified for holding or obtaining such a licence" and clause 6, under the heading "Limitations as to use", "Use only for social domestic and pleasure purposes and for the Policyholder's business or profession. The Policy does not cover use for hire or reward racing pacemaking reliability trial speed testing nor use for any purpose in connection with the Motor Trade."

22. For the Plaintiff, it was contended that those clauses had no independent effect and that they had to be read with the policy. Miss Lau for the Insurers referred me to the case of Farr v. Motor Traders Mutual Insurance Societv Ltd. [1920]3 K.B. 669 and Roberts v. Anglo-Saxon Insurance Association (1927) 96 LJKB 590. In the former case, the issue was whether a statement made in answer to a question in a proposal form was a warranty or merely descriptive of the risk. The holding was that it was a statement descriptive of the risk In the latter case, a declaration contained in a proposal form which warranted that the specified motor car was to be used only for commercial travelling was similarly held to be a statement descriptive of the risk covered by the insurance. In both cases, the policy incorporated the proposal and contained words to the effect that the statements in the proposal were to be the basis of the contract.

23. Miss Pinto argues that these cases are distinguishable because the statements made in the proposals were positive representations made by the Insured that the vehicles concerned would only be used in a particular way or for a particular purpose. That may well be so. However, what makes these cases distinguishable in my view is that the statements in the proposal form were expressly stated to form the basis of the contract of insurance.

24. There is nothing in the Certificate of Insurance which provides that it is to form the basis of the contract of insurance. I do not read Clause 5 and 6 as having an independent effect or as in themselves defining the scope of the risk undertaken by the Insurers. In my view, Clause 5 and 6 in the Certificate are incorporated by reference in the policy so that wherever the expression "Authorised Driver" occurs in the policy, that expression is to be read as meaning those persons or classes of persons entitled to drive specified in Clause 5 of the Certificate, and that wherever the expression "Limitations as to Use" occurs in the policy, that expression is to be read as meaning the Limitations as to use specified in Clause 6 of the Certificate.

25. The consequence is that the damage to the insured car is prima facie covered by the policy and it is for the Insurers to show that the car was not covered at the time when the collision occurred by reason of some exception under the policy.

26. I am fortified in that conclusion because to accept Miss Lau's argument would have meant that if the car was damaged whilst being driven by a thief, the accident would have been outside the scope of cover, the thief not being within the description of a person who is driving on the Policyholder's order or with his permission. When I raised this example, as it seemed to me to be one of the principal risks car owners wished to be insured against, Miss Lau sought to say that the word "Comprehensive" in the body of the policy would have an overriding effect and by necessary implication it should be construed to cover loss and damage to the vehicle arising out of theft. There is simply no warrant for so construing this policy. "Comprehensive" in the context of this policy is clearly intended to bring into operation Sections I, II and III of the policy whereas Third Party, Fire and Theft brings into operation Section. I as amended' by subsection 2 and Section II and Third Party only brings into operation Section II. In the Schedule to the policy against the words "Terms of Cover", is written the word "Comprehensive". Thus, it is plain to me that the word "Comprehensive" does not have the effect contended for by Miss Lau.

27. It is agreed that the applicable exception is that contained in General Exception 1(b)(i) and (ii). Now that the Insurers no longer allege that the 3rd Defendant was at the material time wrongly using the car for purposes of his own and therefore not a person driving on the Policyholder's order or with the Plaintiffs permission, it may not be strictly necessary for me to consider the true construction of General Exception Clause 1(b)(ii). The burden of proof is on the Insurers to show that the damage occurred through an event for which they are not liable by virtue of the exception and they do not now seek to show that the 3rd Defendant was not an authorised driver.

28. However, as the matter was argued at some length I should deal with the construction argued for by the Insurers. Miss Lau submitted that Clause 1(b)(ii) should be read as though the words "whilst on the Insured's order or with his permission or to his knowledge" were not there as Clause 1(b)(ii) cannot make sense otherwise. She argues that a car cannot at one and the same time be being driven on the Insured's order or with his permission or to his knowledge and be being driven by a person who is not an Authorised Driver.

29. The words are there and unless it is impossible to give them some effect I should not ignore them.

30. Miss Pinto points out that if one substitutes for the word "Authorised Driver" the full meaning given to those words by virtue of the incorporation of Clause 5 of the Insurance Certificate into the policy, there is no absurdity. On her construction, the Insurers escape liability for loss or damage or liability caused or sustained where someone who is driving on the policyholder's order or with his permission or to his knowledge is driving whilst not the holder of a valid licence. This is a fair result and an entirely commercial construction as the policyholder can verify whether the person driving holds a valid licence or not.

31. On this construction, as the 3rd Defendant was driving on the Policyholder's order or with his permission, the Insurers do not escape liability on this ground. I decline so to construe Clause 1(b)(ii) as to deprive the Policyholder of cover in relation to damage to the insured car where the driver who begins a journey driving on the Policyholder's order or with his permission at some point uses the car for a purpose outside the terms of the Policyholders order or permission. I bear in mind the case of Browning v. Phoenix Assurance Co. Ltd. [1960] 2 Ll. L. Rep. 360. However that case is of persuasive authority only and is distinguishable both because the clause there was different from Clause 1(b)(ii), the issue being whether the driver was driving on the Insured's order or with his permission and because on the facts it was held that the driver was from the commencement of his journey not a person driving on the Insured's order or with his permission.

32. So far as the indemnity afforded against third party claims is concerned, the Insurers here have already provided in Section II of the policy, the section dealing with third party risks, that the indemnity only extends to an Authorised Driver of the insured car. Thus if the claim here had been made under Section II, the 3rd Defendant claiming to be indemnified against a claim made by the injured passenger, the 3rd Defendant would have to show under clause 2 of Section II that he was an Authorised Driver. In such a situation, the Insurers do not need to have resort to the General Exception Clause 1(b)(ii).

I therefore turn to Clause 1(b)(i). 2 questions arise here.

33. 1) What is the effect to be given to the words "whilst on the Insured's order or with his permission or to his knowledge" in sub-clause (b)? Do those words have a temporal effect or ought they to be given a purposive construction as urged on me by Miss Pinto?

34. 2) Was the car being used otherwise than in accordance with the Limitations as to Use?

35. As to the 1st question, it seems to me that the clause is ambiguous; the expression can be read as having either a temporal effect or as having a purposive effect such that the Insured must have ordered or permitted or known that the car was being used otherwise than in accordance with the Limitations as to Use.

36. It being ambiguous, I should construe it "contra proferentem" the Insurers. I therefore hold that the purposive construction is to be preferred. Thus the Insured must have ordered or permitted or known that the car was being driven otherwise than in accordance with the Limitations as to Use.

37. On the 2nd question, Miss Lau for the Insurers, relying on the case of Tam Hing Wah v. Mo Choi and others (Unrep.) argues that the car was being used for the 2nd Defendant's business in that the 2nd Defendant offered a parking service as part of its business in order to attract customers. In the case of Tam Hing Wah, the facts were that persons were injured by the negligent manoeuvring of the insured car whilst it was being driven by the restaurant staff. The manoeuvring was done to enable the parking attendants to release the car of another customer and it was the restaurant staff who were claiming to be indemnified under the policy against the claims of the persons injured.

38. Miss Pinto urges that this is a case on its own narrow facts but it seems to me that the learned (then) Deputy Judge took the view that any journey for the purposes of parking the customers' cars would have been for the restaurant's business purposes.

39. Insofar as it necessary for me to do so, I respectfully differ from the view taken by the learned Deputy Judge in that case. It seems to me to be an abuse of language to say that the car is being used for the business of the restaurant when it is being driven for the purposes of parking the customer's car. It may be that the parking attendants are driving in the course of their employment but the car is not being used for the restaurant's business purposes. To hold otherwise is to confuse 2 different concepts. The Plaintiffs witness here said that he only used the 2nd Defendant's parking service because he could not find a parking space himself. He gave the keys to the 3rd Defendant so that the car could be parked. I bear in mind he also answered in cross-examination that he didn't think that he had for one moment regarded the parking attendant as his agent. However, it seems to me that he cannot be taken to have, understood the legal concept of agency. Had the question been more simply posed as "Did you regard the parking attendant as parking the car for you?" he would have answered "Yes" consistently with his earlier evidence.

40. Thus I find that the purposes of the Plaintiff attached to the journey and that it was being used for social, domestic or pleasure purposes or of the Policyholder's business or professional purposes and not for the business purposes of the 2nd Defendant.

41. Again the Insurers do not seek to assert that the 3rd Defendant was on a joyride and it is unnecessary for me to make a finding. Of course, the burden would have been upon them to show that at the material time the car was being used otherwise than in accordance with the Limitations as to Use. In any event if the car was being driver by the 3rd Defendant on a joyride, I find it was being used for social, domestic or pleasure purposes and therefore not otherwise than in accordance with the Limitations as to Use.

42. It is unnecessary on my findings to give consideration to the cases of Passmore v. Vulcan Boiler and General Insurance Co. Ltd. (1936) 54 Ll. L. Rep. 92 and Seddon v. Binions (1978] 1 Ll. Rep. 381 as in my judgment, no question of "dual use" arises. Even if I am wrong on the 1st question therefore, it is irrelevant to the result of this case. I am indebted to both Counsel for their very careful and thorough arguments. I have not dealt with those arguments unnecessary to this judgment.

43. Accordingly I give judgment for the Plaintiff against the 1st Defendant in the sum of HK$96,500.00 and against the 2nd Defendant damages in the sum of HK$150,000.00.