CHAN YIU SUN v. YIP KIM CHEUNG AND OTHERS

1986, No. A2306

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HEADNOTE

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THIRD PARTY INSURANCE - INSURED FAILED TO GIVE NOTICE AS SOON AS POSSIBLE AFTER OCCURRENCE - NOTICE A CONDITION PRECEDENT TO LIABILITY - INSURED NOT REQUIRED TO SHOW PREJUDICE.

1986, No. A2306

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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JUDGMENT

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1. On the 28th December 1983 the plaintiff was a passenger in a private car owned by the 2nd defendant and driven by the 1st defendant.  As the result of a traffic accident he sustained serious injuries.  At the hearing on liability for the accident I found that the private car was being driven in the outer lane of Ting Kok Road and that a taxi driven by the 3rd defendant was at the time travelling in the inner lane ahead of the private car.  In my judgment at page 5 I had this to say:-

"There is no doubt in my mind that the accident occurred because of two factors. First, the 3rd Defendant being aware that he had to move into the outer lane because of a merger of the two lanes did not first ensure that the outer lane was clear before proceeding to change lanes. He was aware that the private car was approaching from behind and clearly made a gross error in judgment in moving into the outer lane without checking again the position of that on-coming vehicle. Secondly, the 2nd Defendant was driving at a speed in excess of the speed limit and one which was too fast for the circumstances."

2. I apportioned liability in respect of the accident 80% to the 3rd defendant and 20% to the 1st and 2nd defendants.

3. The third party had been joined in the action as the insurer of the 3rd defendant and the 3rd defendant now seeks an indemnity in respect of the award of damages and costs.

4. The policy of insurance provided:

"Condition 2

The Due observance and fulfilment of the Terms of this Policy in so far as they relate to anything to be done or not to be done by the Insured or any person claiming to be indemnified and the truth of the statements and answers in the proposal shall be conditions precedent to any liability of the Company to make any payment under this policy.

 

Condition 5

 

In the event of any occurrence which may give rise to a claim under this Policy the Insured shall as soon as possible give notice thereof to the Company with full particulars:..:"

 

5. The third party now seeks to avoid liability under the policy by pleading that the 3rd defendant wrongfully and acting in breach of Condition 5 of the policy failed to give notice of the accident or occurrence which gave rise to the plaintiff's claim, and thereby failed to comply with the condition precedent contained in Condition 2.

6. The 3rd defendant gave three statements to the police, on the 28th December 1983 the date of the accident, the 8th January 1984 and the 13th March 1984.  He was not prosecuted for any breach :of the Traffic Regulations and heard nothing more of the matter until he received a letter dated the 21st January 1986 from the solicitors acting for the plaintiff advising him of the claim for damages and asking for details of the third party insurer. The 3rd defendant had by then sold the taxi and could not locate the relevant policy nor could he remember the name of the insurance company.  There was an exchange of letters between solicitors and the Transport Department in an endeavour to trace the policy. This was eventually done and by a letter dated the 30th April 1986 the third party was advised of the plaintiff's. claim by the 3rd defendant's solicitors. In that letter the 3rd defendant was described as having witnessed an accident. There was an exchange of correspondence between the 3rd defendant's solicitors and the solicitors acting for the third party, and by a letter dated the 16th August 1988, the third party repudiated liability under the policy on the ground that the 3rd defendant was in breach of Condition 5 of the policy:

7. In the statements to the police the 3rd defendant described. how he had initially seen the private car in the lane behind him but that he had only become aware of the accident after having heard a bang and then looking in the rear view mirror at which time he saw the private car collide with a lamp post. His evidence at the hearing was that before moving his taxi from the inner lane to the outer lane, he had checked the rear view mirror and had seen the private car as a very small spot in the distance behind him then travelling in the inner lane. He had then moved his taxi to the outer lane and had travelled for "forty lengths of a five-seater taxi" before he heard the bang. Having seen the accident he stopped his vehicle and went back to give assistance.

8. I found that in their evidence both the 1st defendant and the 3rd defendant had not given totally true accounts of the  incident and that they had tailored their evidence in an attempt to exonerate themselves from liability. In respect of the 3rd defendant, this finding related to his evidence as to the position of the private car in the inner lane and the distance behind him at which he had said he had seen it. It may well be, however, that at the time of the accident the 3rd defendant did honestly believe that he was not in any way responsible for the accident and that he had, as he claimed, stopped his vehicle and gone back to the scene as a concerned citizen and not because of any involvement in the accident.  I am not satisfied that the third party has proved on balance that at that time he must have known he was a party to an accident which might lead to a claim for damages. There is however another piece of evidence which needs to be considered in this regard. In the statement given to the police on the 13th March 1984, the following question and answer appeared:-

9. The 3rd defendant was, immediately after the accident, aware that people in the private car had been injured, possibly seriously. Having been made aware on the 13th March 1984 that an allegation had been made that he was responsible for the accident, and knowing at that time as he did that people had been injured, he was then obligated under the terms of the insurance policy to give notice as soon as possible to the third party.  This he failed to do.  I find that as a consequence of this failure he was in breach of Condition 5 of the policy and that the requirement to give such notice was a condition precedent to any liability of the third party to make any payment under the policy.

10. I turn now to consider whether having established a breach of a condition of the policy, it is also necessary for the third party to show that it suffered some prejudice as a result of that breach.

11. In Barrett Bros. (Taxis) Ltd. v. Davies-Lickiss and Milestone Motor Policies at Lloyd's, Third Parties[1966]1 WLR 1334, the Court had to consider an alleged breach of a requirement to give notice under an insurance policy. The Court found that the insurers had waived the breach of the condition. Lord Denning M.R., however, went further when he stated at page 1340:-

"Apart from these two points, I would put the matter more broadly.  This condition 1 was inserted in the policy so as to afford a protection to the insurers so that they should know in good time about the accident and any proceedings consequent on it. If they are not prejudiced at. all by the failure of the insured himself to tell them, then they cannot rely on the condition to defeat the claim."

12. Danckwerts L.J. agreed entirely with the judgment of the Master of the Rolls. Salmon L.J., while agreeing that the insurers had waived the breach of the condition, had this to say about prejudice at page 1340 :-

"For my part I would have held that there was a clear breach of condition I of the policy.  This implied an absolute obligation upon the motor-cyclist to forward. the summons to the insurers when he received it and to notify them about the intended prosecution.  The observance of that obligation was by condition 13 made a condition precedent to the insurers' liability to pay. But for waiver, I should have felt obliged to hold that, although there is absolutely no merit in the defence - indeed, it is somewhat surprising to find insurers of this standing in circumstances such as these taking the point - they were entitled to succeed."

13. In Farrell v. Federated Employers' Insurance Association Limited [1971] ALL E.R. 360, MacKenna, J., in considering an alleged breach of a condition precedent,   referred to the Lickiss case and at page 364 said :-

"I do not regard Lord Denning M.R.'s judgment as authority for the wider proposition that an insurer cannot rely on a breach of condition 'unless he had suffered actual prejudice: If I am wrong I would hold that the insurers were prejudiced here."

14. When the matter came before the Court of Appeal, Lord Denning M.R. and Megaw L.J. both found that there had been a breach of a condition precedent and that the insurers had, in the circumstances, been prejudiced Sir Frederic Sellers, in agreeing with their judgments, expressed complete agreement with the judgment of MacKenna J.

15. In C.V.G. Siderurgicia Del Orinoco S.A. v. London Steamship Owners' Mutual Insurance Association, the Vainqueur Jose [1979] 1 Lloyds Rep. 557, Mocatta, J. was of the view that if prejudice was necessary to sustain a defence against a claim relatively little prejudice need be shown by the insurer to escape liability.

16. In Pioneer Concrete (UK)  Ltd v. National Employers Mutual General insurance Association Ltd [1985] 2 All E.R. at 395, Bingham J. had to consider the effect of a breach of a condition requiring the insured to immediately give notice of any accident or claim or proceedings: At page 403 he stated:-

"Having considered the cases with the benefit of cogent and helpful argument from counsel on both sides, I find myself in respectful agreement with the view expressed by MacKenna J.  in Farrell's case [1970] 1 All ER 360 at 364, [1970]1 WLR 498 at 502.  Lord Denning MR put the ratio of his decision in Lickiss's  case on two grounds, to which he. added an observation of a general nature. He did not, as I read his judgment, advance those observations as part of the ratio of his decision. Nor in Farrell's case did he correct MacKenna J.'s expression of belief that those observations did not form part of the basis of the decision.  I furthermore infer that Megaw L.J. entertained some doubts about the correctness of that proposition in Farrell's case and read Sir Frederic Seller's commendation of the judgment of MacKenna J. as including the observations which that judge made as to the requirement of prejudice.  I find no support in any later authority for the requirement of prejudice and, as a matter of general contractual principle, it appears to me that this, cannot be required of an insurer before he relies on a breach of a condition precedent in the policy."

17. Bingham J. did, however, go on to consider whether the insurer had in fact beer, prejudiced by the breach and found that there had been slight prejudice.  However, as I read his judgment he would have found for the insurer even if such slight prejudice had not existed.

18. In The Oriental Fire & General Insurance Co. Ltd.  v. Cheuk Ma-yee [1981] HKLR 41, the Court of Appeal had to consider an alleged breach of a condition of a policy of insurance and whether the actions of the insurer amounted to waiver. McMullin, V.-P. in dealing with the alleged breaches said at page 52:-

"It has been said on more than one occasion that an insurance company is perfectly entitled to insist upon breaches of condition however technical they may be.  Clause 9 of the present policy provides that the observance of these various requirements are to be conditions precedent to the insurers' liability to pay.  In Barrett Brothers  [1966] 1 W.L.R. 1334 Salmon, L.J., while agreeing that waiver was the answer to the insurance company's defence, was in no doubt that the mere failure to forward the summons in accordance with Condition 1 of the policy imposed an absolute obligation which, but for a waiver, would have entitled the company to escape liability:"

The Court of Appeal went on to find that there had been a breach of the conditions which have not been waived and found for the insurer.

19. In Anglo Starlite Insurance Co. Ltd: formerly known as Starlight Insurance Co. Ltd. v. Wong Ping Fai Civil Appeal No.  162 of 1983, the Court of Appeal again had to consider an alleged breach of a condition in a contract of insurance. Con, V.-P. said at page 3:-

"The majority decision in Barrett Bros. (Taxis) Ltd. v. Davies (Lickiss case) suggests that where it is a question of information then it is sufficient compliance with the condition that the company receive the information from another source.  However that conclusion has not passed without criticism, at least, by implication : see Farrell v. Federated Employees Insurance Association Ltd.  And in The oriental Fire & General Insurance Co. Ltd. v. Cheuk Ma-yee McMullin V-P appears to accept the dissenting view of Salmon LJ that an absolute obligation was imposed upon the insured himself.  Every condition must of course be construed in accordance with the actual words used and the words used in Lickiss case were by no means the same as those used in the present.  But insofar as the approach adopted in one case may assist in another we would, with the greatest respect to the majority there, also incline to the approach adopted by Salmon LJ."

20. In that case the Court found on an interpretation of the wording of the condition that proper notice had been given.

21. The authorities then, since Lickiss case, support the approach adopted by Salmon L.J.; that where there is a breach of a condition precedent in an insurance policy, the insurer is, in the absence of waiver, entitled to succeed. This is the approach that I also adopt. I do so with reluctance as I do not consider that in the circumstances of his case the third party suffered any prejudice from the delay in receiving notice of the accident. There were no criminal proceedings brought against the 3rd defendant and accordingly the third party's position in that regard was not compromised. At the time the third party received notice the parties to the accident were still available as were their statements to the police.  The writ had been issued but nothing further had been done in respect of the action. The third party was in a position to take over the defence to the claim and if it has seen fit, negotiate a settlement.

22. However, finding as I do that the third party does not have to show prejudice, the 3rd defendant's claim against the third party is dismissed and there will be judgement for the third party against the 3rd defendant on the counterclaim: Liberty to apply. There will be an order nisi for the 3rd defendant to pay the third party's costs of the action to be made absolute unless an application is filed within 14 days.