XCHRX ARABIAN AMERICAN INSURANCE CO. (BAHRAIN) E.C. v. GRAND UNION INSURANCE CO. LTD. and Another

1990. No. CL-107

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

COMMERCIAL LIST

___________

___________

JUDGMENT

___________

1. The second defendant is making a counterclaim in this action. In this counterclaim, the second defendant alleges that there was an agreement that the plaintiff would pay to the second defendant a premium. In its defence to the counterclaim, the plaintiff denies this allegation and, in this connection and elsewhere in the defence, pleads - "The Plaintiff avers that the 2nd Defendant operated in account with Lowndes Lambert Construction Limited.".

2. In respect of this allegation, the second defendant asked for particulars - "State fully the nature of the Plaintiff's case with respect to this allegation, stating in particular what account was operated and whether and how this affords any defence to the Counterclaim."

3. In response to this, the plaintiff said - "This request is too vague. In any event, the matter is adequately pleaded. Without prejudice to the foregoing, operating in account is a well understood term of art in the insurance/reinsurance industry from which legal consequences flow.".

4. Before these particulars were supplied, the second defendant had taken out a summons under Order 3, rule 5 for an order that the plaintiff serve the particulars within 14 days. The second defendant does not regard the particulars given as adequate, and the parties are agreed that I should, on this summons, decide if the particulars should be supplied.

5. In support of his allegation that the phrase "operating in account" is a well understood term, Mr Stone cited The "Admiral C" [1981] Lloyd's Reports 9. In that case, Sir David Cairns referred to affidavits sworn for the purposes of Order 14 in which it was alleged that there should be mutual set-off, and that there was a custom "that as between the insurance brokers and policy holders all dealings were on an 'in-account' basis; that is to say, subject to set-off, as I have described." He also cited an unreported case AA Mutual International Insurance v Bradstock Blunt & Crawley, QBD Commercial Court, 26 February 1993, in which it was said in the unofficial summary that "the plaintiffs and the defendants accounted to each other in account, in other words, the defendants periodically collated the cross-liabilities of the plaintiffs under business transacted through them, and the balance would be settled." It is also said that Hobhouse, J. gave judgment on the basis that "the defendants had authority to effect settlement in account, but the plaintiffs had withdrawn that authority.". Hobhouse, J. also, it appears, discussed the matter of set-off.

6. I do not think that these cases help Mr Stone a great deal. It is not possible to see from the reports how the allegation "operating in account" was pleaded, but it does appear that the decisions were made after evidence, and the courts were considering "in account" as the operation of set-off as between the immediate parties to the action.

7. The allegation in question is at the heart of the plaintiff's defence to the counterclaim. The second defendant is entitled to know what defence is being pleaded here. The nature of this defence is not clear to me. I think I can assume that what the plaintiff is saying is that, as between the second defendant and Lowndes Lambert Construction Limited, there were debits and credits in an account between them. What these debits and credits were, and what the result of this mutual set-off was in the end result, is not stated. It is also not stated how the result of this mutual set-off effects the second defendant's claim against the plaintiff. I believe the second defendant is entitled to know this.

8. To put the matter another way, I think the second defendant is entitled to say - "You say that I operated in account with Lowndes Lambert. So what? What was the effect of this operating in account, and how does it concern me?"

9. Accordingly, I make an order requiring the plaintiff to state details of the relevant debits and credits operating as between the second defendant and Lowndes Lambert, what result of those debits and credits is alleged, and how the resulting position as between the second defendant and Lowndes Lambert effects the second defendant's claim against the plaintiff.

10. It seems to me that the second defendant is entitled to its costs. Accordingly, I make an order nisi that the plaintiff pay the second defendant's costs of this application in any event.