KANSON CRANE SERVICE CO LTD v. BANK OF CHINA GROUP INSURANCE CO LTD

HCA 4246/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4246 OF 2002

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D E C I S I O N

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1. The Plaintiff was previously known as Lik Ying Crane Hire Company Limited. It was and still is an owner of what Mr Bharwaney, counsel for the Defendant, called a super crane. It was a valuable piece of equipment and its proper description was, as stated in the pleadings, "Liebherr" LTM 1500 mobile crane ["the Crane"]. I was told that there are not many cranes of this type in Hong Kong. It was made in 2001 and the Plaintiff purchased the same at the price of EUR 950,195.79.

2. The Defendant carried on business as insurer. By a Contractors' Plant and Machinery Insurance Policy dated 14 February 2001 ["the Policy"], the Plaintiff insured the Crane at an annual premium of $120,000 from 24 December 2000 to 23 December 2001.

3. The Policy contained, inter alia, the following provisions,

"Exclusions

The Insurers shall not be liable for ...

(k) loss or damage occurring whilst any Insured item ... is being used in any manner or for any purpose other than that for which it was designed;

(p) loss or damage directly or indirectly caused by, or arising out of, or aggravated by the wilful act or willful negligence of the Insured or his representatives.

...

Conditions

1. The due observance and fulfillment of the terms of this Policy in so far as they relate to anything to be done or complied with by the Insured ... shall be a condition precedent to any liability of the Insurers.

5. In the event of any occurrence which might give rise to a claim under this Policy, the Insured shall

a. immediately notify the Insurers by telephone or telegram as well as in writing, giving an indication as to the nature and extent of the loss or damage; ...

d. furnish all such information and documentary evidence as the Insurers may require; ...

The Insurers shall on no account be liable for loss or damage of which no notice has been received by the Insurers within 14 days of its occurrence. Upon notification being given to the Insurers under this condition, the Insured may carry out repairs of any minor damage or replace items which have sustained any minor damage; in all other cases a representative of the Insures shall have the opportunity of inspecting the loss or damage before any repairs or alterations are effected. ...

8. a.	If the proposal or declaration of the Insured is untrue in any material respect, or if any claim made is fraudulent or substantially exaggerated, or if any false declaration or statement is made in support thereof, then this Policy shall be void and the insurers shall not be liable to make nay payment hereunder.
b.	In the event of the Insurers disclaiming liability in respect of any claim and if an action or suit is not commenced within three months after such disclaimer or (in the case of arbitration taking place in pursuance of Condition 7 of this Policy) within three months after the arbitrators or umpire have made their award, all benefit under this Policy in respect of such claim shall be forfeited."

4. Clause 8(b) is the key provision relied on by the Defendant in this application and I shall call this "the Limitation Clause". There is no term or condition in the Policy prescribing the format under which a claim should be made to the Insurer. Memo 2 at page 2 of the Policy stipulated that the Insurer would only make payments after being satisfied by production of the necessary bills and documents that the repairs have been effected or replacement has taken place.

5. On 2 August 2001, the Crane toppled and was damaged as a result. Notice in writing was given to the Defendant on the same day. A loss adjuster attended the scene of accident on 3 August 2001. The Crane was salvaged and repaired at Liebherr Hong Kong Limited's workshop. Repair works were completed in November 2001. The relevant invoices concerning the salvage and repair of the Crane were sent by the Plaintiff to the surveyor appointed by the Defendant on 24 October and 27 November 2001. The respective sums were $408,800 and EUR 660,187.84.

6. On 8 March 2002, the Plaintiff wrote to the Claims Department of the Defendant asking for a response to the Plaintiff's claim. On 2 May 2002, the Plaintiff wrote to the Defendant again and said, inter alias,

"We are greatly disappointed with your handling practice for a claim that occurred over 9 months ago. You have failed to affirm or deny coverage within a definite time after the proof of loss statements has been completed. ... We are unable to tolerate your slow action in dealing with this matter without providing us with a valid solution. Unless we receive your response within the next fortnight, we will be forced to put this matter with our solicitor for handling without further notice."

7. On 10 May 2002, the Defendant instructed its solicitors to reply. After referring to how the accident happened, the operation manual and the proper operation procedure for the Crane, the Defendant came to a conclusion that the case came within Exclusions (k) and (p) of the Policy. The solicitor concluded by saying,

"Based on the above reasons, we are instructed to decline your claim on behalf of our clients. All of our clients' rights are expressly reserved. In particular, we reserve our clients' rights to raise further grounds to decline your claim should further evidence surface."

It is the defence case that this letter constituted a disclaimer of liability and triggered the time limit under the Limitation Clause.

8. The Plaintiff engaged a solicitor firm to act for it in the matter. On 13 June 2002, Messrs Yu & Associates ["Y&A"] wrote to the solicitors for the Defendant asking for copies of statement obtained by the Defendant from the Plaintiff's employees and other witnesses. The declared purpose of such request was "to enable us to advise our client on the matter". On 21 June 2002, solicitors for the Defendant wrote back inviting Y&A to identify the witness statements they asked for and stating that witness statement or expert statement are "privileged in contemplation of legal proceedings". Y&A replied on 24 June 2002 asking for all witness statements and documents which are now in the other side's possession. Y&A also stated that if privileged documents are withheld, they were at least entitled to have copies of statements given by the Plaintiff's employees.

9. Pausing here, it seems that both side envisaged that there would be legal proceedings. There were further correspondences on witness statements. On 1 August 2002, the solicitors for the Defendant wrote to Y&A saying as follows,

"...Before we spend time on correspondence regarding discovery of witness statement, would you please let us know your client's position in response to our letter dated 10 May 2002 to your client. We are also instructed that the investigation carried out by our clients' loss adjuster was with your client's knowledge. Therefore, your client should be able to know what investigation was carried out."

10. According to the Defendant's reckoning, the time limit for commencement of action expired on 9 August 2002. Y&A did not respond nor issue a writ on behalf of the Plaintiff prior to such deadline.

11. Y&A replied on 2 September 2002 and set out in that letter the arguments of the Plaintiff as to why Exclusions (k) and (p) were not applicable in the present case. Reference was made to a statement by one Leung Ming Ho to the loss adjuster. Hence, the Plaintiff did have access to the witness statement of the crane operator and was able to give a substantial reply basing on such information. It was therefore unnecessary for the Plaintiff to ask for statements to be supplied through the Defendant's solicitors.

12. The Writ was eventually issued on 8 November 2002. The Statement of Claim was filed on 17 December 2002 and on 30 December 2002, the Defendant took out a summons to strike out the Plaintiff's claim on the basis that the claim was time barred by reason of the Limitation Clause. The matter was heard by me on 16 July 2003.

13. I agree with Mr Bharwaney that in a case where it is clear that a defendant would rely on a limitation defence and it is plain that the plaintiff could not overcome such plea, the court can strike out the claim on the basis that it is frivolous, vexatious and an abuse of the process of the court (see Riches v. DPP [1973] 1 WLR 1019 and Ronex Properties v. John Laing [1983] 1 QB 398). The question is whether the present case is such a clear case.

14. Mr Bharwaney took me through a number of authorities showing that it has been a long standing commercial practice for contractual provision imposing a time limit for the commencement of action to be included and such time limit could be shorter than the time allowed under the Limitation Ordinance. The cases also showed that the court always gave effect to such a clause and did not regard the same as against public policy. I do not doubt this principle applied to insurance contracts although a lot of the cases cited by Mr Bharwaney concern claims under charterparties, sale of goods contracts instead of insurance policies. Walker v. Pennine Insurance Co. Ltd [1980] 2 Ll Rep 156 was a decision in respect of a motor insurance policy and the Court of Appeal upheld a decision rejecting a claim by the insured because it was out of time in accordance with the terms of the policy.

15. An insurance contract is a contract for indemnity. It is a commercial transaction and an insurer is entitled to offer such indemnity solely on the basis of the terms and conditions set out in the policy. Hence, in the present case, under Condition 1, it is stipulated that the due observance and fulfillment of the terms of the Policy by the Plaintiff is a condition precedent to the liability of the insurer. The Limitation Clause is one of the terms of the Policy. Before the Plaintiff could establish the liability of the Defendant to indemnify it, it is necessary to show that it has complied with the terms of the Policy, including the Limitation Clause.

16. Mr Gidwani, counsel for the Plaintiff, argued that the Limitation Clause was not necessarily fatal to the Plaintiff's claim based on a number of points. The first point was that the Limitation Clause was not engaged because there had not been any effective disclaimer by the Defendant on 10 May 2002. Relying on two Singaporean authorities (Federal Insurance Co. v. Nakano Singapore (Pte) Ltd [1992] 1 SLR 390 and Shimizu Corporation v. Lim Tiang Chuan [1993] 3 SLR 77), Mr Gidwani submitted that a claim is not made by mere notification of the occurrence of an event, it was made when a demand for payment is made. The English Court of Appeal's decision in Walker v. Pennine Insurance Co. Ltd [1980] 2 Ll Rep 156 suggested otherwise. For reasons given below, it is not necessary for me to decide whether Mr Gidwani's submission is correct as a matter of law. Although in an affidavit filed on behalf of the Plaintiff, Mr Yu of Y&A suggested that no claim had been made by the Plaintiff, Mr Gidwani was unable to support this stance. Instead he accepted in Paragraph 7 of his skeleton submission that a claim was made by the Plaintiff when the invoices were sent to the Defendant's loss adjuster in November 2002. In my judgment, that concession was made properly. In view of the indisputable facts of this case as set out above, it is impossible to argue that no claim had been made by the Plaintiff prior to 10 May 2002.

17. Mr Gidwani contended that the disclaimer was ineffective because the Defendant wrongly identified the notification of the accident on 2 August 2001 as the claim. I do not accept this submission. There was no reference in the letter of 10 May 2002 to the claim as being a claim made on 2 August 2001. The so-called wrong identification of the claim was a reference to a paragraph in the affirmation of the Defendant's solicitors. In my judgment, reading the letter of 10 May 2002 in context, there cannot be any doubt to any reasonable recipient of the letter that the Defendant was rejecting the Plaintiff's claim arising out of the accident of 2 August 2001.

18. Mr Gidwani referred to the reservation of right to rely on further grounds by the Defendant in the letter of 10 May 2002 and argued that the disclaimer was not clear and unequivocal. I am of the view that this point is without merit. The reservation did not detract from the fact that the Defendant's solicitors clearly stated that the Defendant declined the claim.

19. Counsel then argued that the conduct of the Defendant's solicitors after 10 May 2002 constituted waiver and representation to the effect that negotiations were still ongoing. Mr Gidwani submitted that the Defendant was estopped from relying on the Limitation Clause in these circumstances. I fail to see how the post 10 May 2002 correspondence can be read as containing a representation (whether by words or by conducts) by the Defendant that it would not rely on the Limitation Clause. In the absence of such a representation, there is no basis to support any waiver or estoppel. Neither do I see any basis to suggest that the letters written by the solicitors for the Defendant after 10 May 2002 had the effect of inducing the Plaintiff not to issue a writ within the three months' limit. The Plaintiff was represented by Y&A and there was no duty on the part of the Defendant to remind the Plaintiff to issue legal proceedings. Whether Y&A had reasons to believe that negotiation was still ongoing is beside the point. It is trite law that the fact that negotiating was ongoing did not stop time from running.

20. Mr Gidwani's next point was that the Limitation Clause should be construed strictly and contra proferentem against the Defendant. I agree that this should be the approach adopted by the court in construing the Limitation Clause (see Chitty on Contracts, 28th Edn., Para. 29-116). However, if the court reaches a conclusion on the proper construction of an exemption clause which have sweeping effects, it has no power to rewrite the contract for the parties. In Yien Yieh Commercial Bank Ltd v. Kwai Chung Cold Storage Co. Ltd [1989] 2 HKLR 639 at p. 646H to I, Lord Goff said,

"True, exemption clauses will be scrutinized with some stringency, with the effect (for example) that, in accordance with the established principle, a party will not be held to have contracted out of liability for negligence except upon clear terms; but principles such as these are designed to do no more than to assist in ascertaining the intention of the parties from the contractual documents. Where the contractual intention is plain it should, in their Lordships' opinion, be given effect to, even though this may result in a very restricted obligation resting upon the party relying upon the exemptions in the contract."

To the same effect is the judgment of Lord Oliver in Coughlan v. SH Lock (Australia) Ltd (1987) 3 BCC 183

"At the outset [counsel] has reminded their Lordships of certain well-known principles of construction in relation to guarantees. Such a document falls to be construed strictly; it is to be read contra proferentem; and, in case of ambiguity, it is to be construed in favour of the surety. But these principles do not, of course, mean that where parties to such a document have deliberately chosen to adopt wording of the widest possible import that wording is to be ignored. Nor do they oust the principle that where wording is susceptible of more than one meaning regard may he had to the circumstances surrounding the execution of the document as an aid to construction."

21. In his oral submission, Mr Gidwani invited this court to construe the Limitation Clause by reading the same together with Clause 8(a). He submitted that the disclaimer for liability in the Limitation Clause should be construed as a disclaimer based on the grounds set out in Clause 8(a). Hence, it does not apply to a denial of liability on the basis of the Exclusions in the Policy. On the other hand, Mr Bharwaney argued that there was no ambiguity in the Limitation Clause and it clearly encompassed a disclaimer by reason of the Exclusions. He submitted that the two clauses were placed together for convenience, Clause 8(a) dealt with situations where the Policy would be rendered void ab initio whilst the Limitation Clause dealt with forfeiture of benefit.

22. In my judgment, although I can have regard to the fact that the two clauses were placed together, my primary duty is to give effect to the clear meaning of the Limitation Clause. I am of the view that there is no ambiguity in respect of the phrase "in the event of the Insurers disclaiming liability in respect of any claim". Read in the context of the Policy as a whole, the time limit of 3 months was clearly intended to govern all sorts of claims under the Policy instead of just confining to the rejection of claims under Clause 8(a). The reference to the arbitration award pursuant to Clause 7 in the Limitation Clause makes this clear. I therefore reject the submission of Mr Gidwani as to the construction of the Limitation Clause.

23. Mr Gidwani further submitted that an implied restriction should be added to the Limitation Clause. He formulated the implied restriction as "subject to a right of relief against such forfeiture in appropriate circumstances". He submitted that this was necessary to give business efficacy to the Limitation Clause. Whilst in some cases the court will exercise its equitable jurisdiction to grant relief against forfeiture, one should be cautious against extending such power to intervene in commercial transactions generally when the exercise of such power tantamount to rewrite a contract for the parties. We have been reminded about that in the context of charterparty in Scandinavian Trading Tanker Co. v. Flota Petrolera Ecuatoriana [1983] 2 AC 694, see in particular the dicta of Robert Goff LJ cited with approval by Lord Diplock at p. 703-4. Similar sentiment was expressed by Lord Hoffmann in Union Eagle Ltd v. Golden Achievement Ltd [1997] HKLRD 366, in particular at p. 370D to F,

"The principle that equity will restrain the enforcement of legal rights when it would be unconscionable to insist upon them has an attractive breadth. But the reasons why the courts have rejected such generalizations are founded not merely upon authority (see Lord Radcliffe in Campbell Discount Co Ltd v Bridge [1962] AC 600, 626) but also upon practical considerations of business. These are, in summary, that in many forms of transaction it is of great importance that if something happens for which the contract has made express provision, the parties should know with certainty that the terms of the contract will be enforced. The existence of an undefined discretion to refuse to enforce the contract on the ground that this would be "unconscionable" is sufficient to create uncertainty. Even if it is most unlikely that a discretion to grant relief will be exercised, its mere existence enables litigation to be employed as a negotiating tactic. The realities of commercial life are that this may cause injustice which cannot be fully compensated by the ultimate decision in the case."

24. As I said, the contract for insurance in the present case is a contract for indemnity and it is a commercial transaction. As Mr Bharwaney pointed out, similar type of time limits have been inserted in insurance policies for many years. There is a good reason why such time limits are important for the insurance industry since an insurer has to maintain the necessary reserve for potential liability under disputed claims. I am not aware and counsel have not referred me to any case where relief against forfeiture was granted in respect of such time limit.

25. Mr Gidwani submitted that this time limit imposed under the Limitation Clause is very harsh and unreasonable and if the Policy is governed by the consumer protection legislations, this clause is likely to be struck down. However, he accepted that the Policy does not fall within the scope of these legislations. I note that in Schedule 1 to the Control of Exemption Clauses Ordinance Cap. 71, the legislature specifically stipulated that the ordinance is not applicable to contracts of insurance. In the light of that, it would require at least very strong and cogent grounds before equity should provide similar relief. Mr Gidwani was unable to convince me that such strong and cogent reasons existed.

26. I therefore come to the conclusion that equity should not intervene to alter this time limit set by the parties under the Limitation Clause. Hence, even if there were an implied term as argued by Mr Gidwani, it could not have assisted his client. In fact, I will go further to say that in view of my above analysis, there is simply no basis for such a term to be implied into the Policy to cut down the scope of the Limitation Clause. I cannot see how such a term could be said to be necessary for business efficacy. To the contrary, for the reasons given by Lord Hoffmann, I think the addition of such an implied term would defeat the business purpose for inserting the Limitation Clause in the first place.

27. In the circumstances, I see no prospect whatsoever on the part of the Plaintiff to overcome the limitation defence which the Defendant indicated clearly that it would rely upon. Therefore, the claim should be struck out as being frivolous, vexatious and an abuse of the process of the court and the action should be dismissed. I order accordingly. I also make an order nisi that the Plaintiff pays the Defendant the costs of the action.