HARBOURFIELD ENGINEERING CO. LTD v. FALCON INSURANCE CO. (HONG KONG) LTD

CACV 275/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 275 OF 2003

(ON APPEAL FROM HCMP NO. 245 OF 2003)

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J U D G M E N T

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Hon Rogers VP:

1. This is an appeal from the judgment of Suffiad J given on 28 July 2003 wherein he held that the defendant had wrongfully repudiated the policy of insurance taken out by the plaintiff and made a declaration to that effect. The defendant was ordered to pay the plaintiff damages to be assessed for the wrongful repudiation of the contract of insurance. At the conclusion of the hearing of this appeal, judgment was reserved which we now give.

Background

2. The plaintiff is engaged in the business of decorating and building engineering works with a declared annual turnover as at 14 April 1998 of $5 million. It took out a policy of insurance with Winterthur Swiss Insurance (Asia) Ltd. That company has now changed its name and is the defendant in this matter. The insurance was for the period 15 April 1998 to 14 April 1999. The insurance covered the plaintiff in respect of, amongst other matters, any liability that the plaintiff may incur at law to pay compensation for bodily injury or loss or damage to material property within Hong Kong.

3. As part of the plaintiff's business it contracted with the Incorporated Owners of Cosmopolitan Centre ("the Incorporated Owners") to provide the maintenance of the water systems for drinking and flushing water for which the Incorporated Owners were responsible. The maintenance agreement covered the period 1 April 1998 to 31 March 1999. The maintenance contract specifically provided that "The above maintenance service areas do not include the fire services systems, fire services pumps and backup dynamo of the building".

4. On 28 January 1999 there was a case of arson in Allied Plaza, which was the ground floor shopping area of the Cosmopolitan Centre. Details of this incident have not been provided other than the fact that there were a number of people involved. They threw flammable material at a shop causing a fire. One person was fatally injured.

5. On 27 April 1999 information was laid before a magistrate by the Director of Fire Services as a result of which the plaintiff was charged with the following offence:

"Information has been laid THAT YOU on 8 January 1999 at Allied Plaza, 760 Nathan Road, Kowloon being a person other than a registered contractor did maintain, the fire service installation or equipment Fire Service rising main between 2/F and 3/F which was installed in the premises.

Contrary to: Regulations 7 and 12 Fire Service (Installations and Equipment) Regs. made under Fire Services Ordinance, Cap. 95"

Regulation 7 of the Fire Service (Installations and Equipment) Regulations provides as follows:

"7. Maintenance or repair of fire service installations or equipment

(1) Subject to paragraph (2), no person other than a registered contractor shall maintain, inspect or repair any fire service installation or equipment which is installed in any premises.

(2) Paragraph (1) shall not apply to any portable equipment which is not required by law to be installed in any premises."

6. The copy of the summons that was exhibited in this case indicates that the defendant pleaded guilty and had nothing to say. However, the Certificate of Trial issued by the Magistrate's Clerk of the North Kowloon Magistracy shows that the offence in respect of which the plaintiff was convicted was "Non-registered contractor repairing fire service installation contrary to Reg 7 and 12 Cap 95, Laws of Hong Kong." No record of the proceedings before the magistrate has been provided. It would therefore appear that whilst the plaintiff had been charged with maintaining fire services installation, the conviction was in respect of repair. The obvious explanation is that there was an amendment to the charge prior to the plea of guilty. That is the sort of amendment that is doubtless made many times every day. The difference between the original charge and the charge in respect of which the plaintiff was convicted goes some way to explaining the statement made in paragraph 13 of the affirmation of Lam Mei Kiu, Vivian, filed on 17 January 2003, where it is stated that the offence was admitted by the plaintiff only for convenience. If one of the plaintiff's employees had carried out some repair work on 8 January 1999, even of a minor nature, it is understandable that the plaintiff might plead guilty rather than contest that charge.

7. A charge of carrying out repair work is, of course, very different from a charge of maintaining an installation since maintenance is generally something which carries with it a continuing obligation over a period of time. It also carries with that the continuing responsibility of seeing that whatever is being maintained is in working order. At least according to the contract with the Incorporated Owners that has been produced, it would seem that the plaintiff did not undertake maintenance obligations for the fire services systems and pumps since that would be contrary to the agreement.

8. It was not until 26 September 2002 that the plaintiff was served with a writ claiming damages on behalf of the estate of the deceased as a result of the death caused by the arson attack that had occurred on 28 January 1999. The writ was passed to the defendant together with copies of the maintenance agreement, the certificate of trial and also the Summons before the magistrate.

9. Although initially, solicitors instructed by the defendant took the matter up on behalf of the plaintiff, on 19 November 2002, the defendant's solicitors wrote to the plaintiff complaining of breach of the conditions of the policy namely, clauses 2, 3, 5 and 9. The letter went on to indicate that the defendant was entitled (in the words of the letter) to "repudiate liability under the Policy" due to the plaintiff's breach. The letter concluded that the defendant would not indemnify the plaintiff for any claim arising out of the incident on 28 January 1999. The clauses to which reference had been made read as follows:

"2. On the happening of any event which may give rise to a claim under this Policy the Insured shall give immediate notice to the Company and shall retain anything connected with such event for such time as the Company may reasonably require Every letter claim writ summons or process shall be forwarded to the Company immediately it is received.

3. No admission offer promise payment or indemnity shall be made or given by or on behalf of the Insured without the written consent of the Company which shall be entitled if it so desires to take over and conduct in the name of the Insured the defence or settlement of any claim or to prosecute in the name of the Insured for its own benefit any claim for indemnity or damages or otherwise and shall have full discretion in the conduct of any proceedings and in the settlement of any claim and the Insured shall give all such information and assistance as the Company may require.

5. The Insured shall take all reasonable care in the selection and employment of competent employees and shall take reasonable precautions to prevent accidents and to comply with statutory requirements. The Insured shall give immediate notice of any alterations which materially affect the risk covered by this Policy.

9. The due observance and fulfilment of the Terms Limitations and Conditions of this Policy so far as they relate to anything to be done or complied with by the Insured and the truth of the statements and answers in the said Proposal shall be conditions precedent to any liability of the Company to make any payment under this Policy."

10. It should be noted that in the letter of 19 November 2002 the defendant's solicitors referred to the conviction in the magistrate's court as outlined above and continued:

"Contrary to the Contract provided by your company to our client dated 28th March 1998, it appears from the enclosed documents that your company was the contractor responsible for the maintenance of the fire service installation or equipment at Allied Plaza at the time of the incident, ie. 28th January 1999. Further, your company was prosecuted and convicted of an offence under the Fire Services Ordinance Cap. 95 as per the attached Summons. Your company was fined $1,500 as a result."

11. As already pointed out, it would appear that the plaintiff did not plead guilty to being a contractor responsible for the maintenance of the fire service installation; rather, it pleaded guilty to repairing it on a specific day. Thus when the letter went on to say:

"Further, your company being a non-registered contractor has failed to take reasonable care to comply with statutory requirements and failed to give accurate information to our client when required to do so."

that was clearly based on the misapprehension that the plaintiff had undertaken the maintenance of the fire service installation at Allied Plaza. It was, therefore, an erroneous ground for rejecting liability.

12. Furthermore, if the provisions of clause 5 are to be relied upon by the defendant as a ground for avoiding liability under the contract of insurance, the breach of the statutory regulations which are relied upon must have relevance to matters which give rise to a claim under the insurance policy. There are, no doubt, numerous statutory requirements, whether they be in relation to the Fire Services Regulations or some completely different regulations. It cannot be that a breach of any statutory regulation, whether culpable or otherwise, would give rise to a right to hold that the policy holder had repudiated a policy of insurance. In this instance all that can be said is that, on 8 January 1999, the plaintiff carried out some repair work on the rising main between the 2nd and 3rd floors of the Cosmopolitan Centre. Those facts alone cannot give rise to the inference that in some respect the plaintiff has been guilty of negligence that has caused or contributed to the death of the deceased as a result of an arson attack on the ground floor of the same building. There is nothing to connect the repair of the rising main between the 2nd and 3rd floors of the building with the consequences of an arson attack on the ground floor some 3 weeks later.

13. Hence, whilst the ground upon which the defendant's solicitors sought to reject liability was, on the face of it, erroneous, the attempt to do that on the basis that some repair work had been carried out also fails because, seemingly, it had no relevance to the matter in respect of which the claim arises.

14. The other matter relied upon by the defendant as a ground for declining to accept liability under the contract of insurance was that the plaintiff had been in breach of condition 2 in failing to report the happening of an event until 27 September 2002, namely 3 1/2 years after its occurrence. Whilst the defendant's solicitors' letter of 19 November 2002 appears to identify the relevant event, or in the words of the letter "incident", as being the arson attack on 28 January 1999, in the course of argument Miss Molloy, who appeared on behalf of the defendant, sought to argue on a number of alternative bases, namely, that the relevant event could have been the repair on 8 January 1999, the arson attack on 28 January 1999, the service of the summons on 27 April 1999 or the conviction on 26 May 1999.

15. Taking the first of those dates, namely 8 January 1999 when the repair work was carried out, that, in my view, cannot have been an event of which the plaintiff was required to notify its insurer. It did not give rise to any liability at all. The arson attack did not concern the plaintiff either. It was not the contractor responsible for maintaining any fire service equipment. There was and is nothing to connect the result of the arson attack with anything that the plaintiff had done. Likewise the service of the summons and the plea of guilty in itself could not have been events that gave rise to any liability. Whereas the plaintiff was aware of the arson attack there is nothing to indicate that the subject matter of the summons, namely, the repair work on the rising main between the 2nd and 3rd floors had anything whatever to do with the arson attack or the damage arising as a result of that.

16. Miss Molloy's argument was in effect that even if the plaintiff was not conscious at the time of the arson attack that any liability could arise, it should have appreciated at the time of service of the summons or the conviction that it might have incurred liability in respect of the damage caused by the arson attack. This seems to assume that there was some connection between the repair work and the extent of the damage caused by the fire. There is absolutely nothing, even now, to suggest that there was any such connection, still less that the plaintiff should have appreciated there was. On the face of it the plaintiff carried out repair work. There is no suggestion that that was done badly or that it had any adverse affect on the system, let alone the ground floor of the building.

17. In my view, therefore, the judge below came to the correct conclusion. The grounds put forward by the defendant's solicitors for denying liability were not valid and the plaintiff was entitled to the declaration and order. I would therefore dismiss this appeal and make an order nisi of costs in favour of the plaintiff.

Hon Le Pichon JA:

18. I agree.

Hon Yuen JA:

19. I agree.