DAVID ANTHONY HENSHAW v. GOOD EARTH MACHINERY LTD AND ANOTHER

Headnote

Personal Injuries: Defendant Limited Company taking no active part: Insurer third party: trial of third party issue before trial of main action: provisions of the Third Party (Rights Against Insurers) Ordinance Cap. 273

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J U D G M E N T

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Silke, V.-P.:

1. On 22nd February Mayo J., upon the application of the third party, made an order that a question of mixed fact and law in the third party proceedings, namely whether the third party was entitled to repudiate liability to indemnify the defendant in respect of the plaintiff's claim, and-any costs incurred be tried before the trial of the main action A consequential order was made that a commission to take evidence in London, following upon an order of the Master made on 28th September 1987, set to start on 21st March, be adjourned until after the final determination of the preliminary issue.

2. There was an order for speedy trial of the issue and the third party pot their costs.

3. The plaintiff now appeals against that order.

4. These proceedings have an excessively long history.

5. The plaintiff was injured on 29th June 1981 when he was a youth of just 21. He was employed by Good Earth Machinery Limited-"the defendant". He was the son of a serving soldier then stationed in Hong Kong and he has long since returned to the United Kingdom.

6. The generally endorsed writ was issued on 12th March 1984 and the Statement of Claim was dated 5th June 1984. Both were served on 25th July 1984. Prior to this, a Legal Aid Certificate had been given on 23rd October 1981 to claim both compensation under the Employee's Compensation Ordinance and damages at common law.

7. The Statement of Claim, after amendments on 10th April 1985 and reamendments on 26th June 1987, alleges negligence and breach of statutory duty. The injuries were said to be severe compound fractures of the right tibia and fibula and a comminuted fracture of the proximal phalanx of the right index finger.

8. The employee's compensation proceedings, in which their present solicitors acted for the third party, the insurers, were concluded on 31st March 1983 when the terms of a consent application were approved.

9. An application for the listing of the common law action in the fixture list was taken out on 11th July 1985 and an order was made on the 18th of that month for a four day hearing. Between then and now there have been many steps in the action and matters have arisen which have affected it.

10. The most important are: On 25th July 1985 the defendant's insurer repudiated liability on three grounds, first: that they were not notified of the issue of the writ; second: the defendant had made an unauthorised admission of liability; third: the defendant had employed without authorization their own solicitors. These were said to be contraventions of clauses 4, 5 and 9 of the policy of insurance.

11. A defence having been filed on 26th September 1984, application was made on 1st October 1985 by the defendant for leave to issue a third party notice. The third party notice was issued to Sovereign Marine and General Insurance Company Limited - the third party-on 2nd October 1985. On 4th November 1985, a consent order for third party directions was made. This reads:

"BY CONSENT, IT IS ORDERED that:-

1. The Defendant do have leave to amend the Defence in accordance with the copy Amended Defence annexed thereto the summons dated 28th day of October, 1985 and amended in red;

2. Service of the said Amended Defence on the Plaintiff and the 3rd Party he dispensed witb;

3. The Defendant's 3rd Party Notice issued pursuant to the order of Master Suttill on the 1st October, 1985 do stand as the Defendant's Statement of Claim against the 3rd Party;

4. The 3rd Party do file a Defence thereto within 14 days from the date hereof;

5. The Defendant and the 3rd Party do respectively exchange Lists of Documents within 14 days after these pleadings are closed;

6. There be inspection of documents 7 days thereafter.

7. The 3rd Party be at liberty to appear at the trial of this action and take such part as the Judge shall direct and be bound by the result of the trial;

8. The question of the liability of the 3rd Party to indemnify the Defendant be tried at the trial of this action but subsequent thereto;"

On one view of the matter this order still stands in its entirety.

12. The defence of the third party which followed the terms of the letter of the 2nd July was filed in December 1985. There were orders for discovery and for further discovery: lists and supplemental lists of documents were lodged. The massive reamendment of the Statement of Claim on 26th June 1987 widened considerably the basis of the quantum of damages and may lead to interesting arguments on remoteness of damages.

13. Before this on 12th March 1987 the plaintiff's advisors wrote to the solicitors for the third party informing them of the possibility of Letters of Request being issued for the examination of witnesses in London.

14. On 14th September 1987 the plaintiff took out a summons for the appointment of an examiner to take evidence in the United Kingdom and for directions This was heard by the Master on 28th September 1987 with the plaintiff, the defendant and the third party being represented.

15. An order was made in its terms, as amended, appointing an examiner, setting out the names of 13 witnesses who were to be examined - medical, expert, liability and quantum. There was also provision that other witnesses, of any of the parties, could be called provided 21 days notice was given.

16. Reports of the expert witnesses were to be disclosed 50 days prior to the hearing. Provisions were made as to the taking of the evidence and the parties were at liberty to video tape the examination of all the witnesses: this for the use of the trial judge in Hong Kong.

17. If any party decided not to call evidence of a witness named or of one of whom notice of intention to call was given, then 21 days notice should be given of the non-calling.

18. There was liberty to apply for directions: there was liberty to each party to call three medical and three non-medical experts.

19. There was general liberty to apply and there was a specific term in the order that the expression "party" was to include the third party.

20. That order still stands.

21. On 5th November 1987 the third party took out a summons: "the first stay application". This sought an order that the preliminary issue of liability as between the defendant and the third party be heard before the trial of the main action and that the English proceedings be stayed. .

22. This was heard by Macdougall J. and the third party's application was granted on 6th January 1988

23. From it there was an appeal and on 15th January 1988 another Division of this Court allowed the appeal on the grounds that the defendant had not been served with notice of the hearing. The position of the defendant is a matter which is bedeviling these proceedings but more of this in a moment.

24. On 21st January 1988 a new summons: "the second stay application" was taken out by the third party. This asked for relief in similar terms to the first stay application save that, having regard to considerations as to jurisdiction, it asked to adjourn the London hearing rather than to stay it.

25. This resulted in the "Mayo Order" now appealed from.

26. The plaintiff's advisors have booked a hall and appointed an examiner in London. They have collected as best they could their witnesses and arranged for the hearing, starting on 21st March 1988 to last for approximately two weeks.

27. The difficulty in these Proceedings is that the defendant first changed its solicitors and then, after the hearing before the Master on 28th September 1987, discharged its new solicitors and has taken no further active party in these proceedings. Affidavits sworn by the plaintiff's advisors made it clear that they believe that the defendant would be unable to meet any award of damages which might he made. On the evidence before us that is a belief worthy of credit.

28. As the plaintiff has not yet obtained judgment he is in no position to wind up the defendant. There is no evidence that any other person has brought a petition nor that there is any voluntary winding up in progress.

29. Mr. Mills-Owens, with him Mr. Graham, for the plaintiff, makes the point that the plaintiff is denied the assistance of the provisions of the Third Party (Rights Against Insurers) Ordinance Cap. 273 - "the Ordinance". He emphasises the difficulties that this causes the plaintiff and asks, rhetorically: "What is he to do?" Should he defend the preliminary issue to which he is not a party? Save as provided by the order for third party directions, the third Party is not involved in the main action though the Mayo Order referred to "trial in the action". The preliminary point is not, as a matter of law, decisive of the litigation. There has already been a lengthy delay in the plaintiff coming to Court and it is his submission that if the Mayo Order stands that delay will be extended even further. Instead of avoiding excessive litigation the order has increased it - which is not the object of third party proceedings.

30. There has been no order for discovery expressly encompassed by the Mayo Order nor have the costs thrown away of the London proceedings been, provided for.

31. However, on the first of those points an order for discovery was made in the order for third party directions and by Macdougall J. and we understand that, in any event, any necessary application will be made to Mayo J. whose order was drawn up in the circumstances of the urgency to allow this matter to come before us. The matter of the costs thrown away has still to be argued. The trial judge however was fully aware of both of these matters.

32. Mr. Mills-Owens further submits that the provisions of O.16 r.7 and the fact that the third party consent directions still stand precludes the making of the order appealed from in any event. Overall, there is grave prejudice to the plaintiff which so outweighs any benefit to the third party that a proper balancing exercise does not permit the making of the order.

33. As the hearing progressed, the procedural difficulties became more apparent than real. It is not presently clear, and it is not referred to in the judgment, whether the order was made under the provisions of O.33 r.3 or under one of the provisions of O.16. However, we do not think that there was a jurisdictional or technical bar to the making of the order and the ultimate question for us is: Did the trial judge properly exercise his discretion?

34. Mr. Rodway, with him Mr. Lai, who appears for the third party made in opening his reply to Mr. Mills-Owens the point that the London expenditure would be a waste of a great deal of public money. If the defendant is not good for any prospective award of damages then it is far better to have the issue of the indemnity, upon which he suggests the third party has a strong case, determined first. If the third party is, as he thinks he will be, successful, whatever the avenues of appeal might be thereafter explored, this makes the London expedition a costly exercise in futility. Further the third party would be in difficulty as to whether it should or should not appear and what, if any, evidence it should itself call in the course of that hearing.

35. I interpolate here at Mr. Mills-owe has specifically undertaken not to take the point of any waiver or estoppel arising from the third party's appearance in London.

36. At a late stage in the hearing it became apparent, to me at least, that Mr. Rodway's concern was not with the costs involved but with the possibility that, in the absence of the defendant, the issues in the London proceedings, and in the trial proper, might go by default unless the third party issues have been determined. Either the third party is effectively put in place of the defendant and thus can mount a full defence, or it is out of the picture and the whole action would be rendered useless there being no one to collect from.

37. This is of course the direct concern of the parties to these proceedings but the plaintiff makes the further point that the opporturity may arise whereby he can in separate, or by an admendment as to parties in the instant, proceedings sue two other persons in negligence, as to their handling of the matter and, if successful, enforce his judgment, if he gets one, against those persons.

38. Mayo J. in his judgment was, and properly so, influenced by the judgment on the first stay application by his brother Macdougall. I do not however think that as has been argued, he felt bound to and did follow it. He clearly embarked on his own balancing exercise independently of anything Macdougall J. might have said. That he came to the same conclusion, accepting as correct the submission of counsel then appearing for the third party that, unless there are good grounds, he should - all other things being equal - "come to a similar decision to Mr. Justice Macdougall" is not in my judgment sufficient warrant to hold that in an exercise of judicial comity he followed that judge's conclusion as being ones binding, upon him.

39. In the balancing exercise he conducted he weighed, on the plaintiff's side, the time which has elapsed since the accident and the submission that an adjournment would entail a lengthy further delay. He also considered the problem, as he put it, that at least two of the intended London witnesses might not be available if there were such an adjournment.

40. Counsel then appearing for the plaintiff had urged upon the judge that the third party had brought the situation upon its own head. It could easily have sought at any time since 1985, by way of Originating Summons, a declaration as to its entitlement to repudiate. On this submission the judge felt that as the case was already in the fixture list at the time of service of the third party notice there might have been insufficient time for the determination of such a Summons before the trial of the action.

41. He accepted that the massive reamendments of the Statement of Claim in 1987 - rather more than "some months later" as the judge put it - made the amount of a possible award much larger than it had at first appeared. For myself, I think that it was this widening of a possible award of damages that caused the third party to pause and think but, I would equally have thought, the original quantum was sufficiently great to make it well worthwhile for the third party to get its house in order at a much earlier stage in these proceedings - whatever the effect the defendant's discharge of its solicitors might have had on the Third Party's view of the litigation.

42. The London witnesses are either people who do not live there, or people who are based there but travel frequently abroad, or busy professional men, or those who live a somewhat hand to mouth existence. Contact with one of them has already been lost. I accept that it will be difficult to again gather them all together and it would clearly take time to set up fresh arrangements but these difficulties are not unsurmountable They were however, with respect, understated by the judge.

43. On the scales of the third party he placed the submission that it did not have any real opportunity to obtain instructions so as to be in a position to meet the case to he evidentially made in London. Further that its becoming a necessary participant in the London proceedings would involve very substantial costs.

44. The judge then tipped scales in favour of the third party.

45. I am not impressed with the "opportunity to obtain instructions" point. The third party has been aware of this action since at least 1985. The substantial reamendments were in June 1987. It must have been aware from the correspondence that, during the time when the defendants were represented, a medical examination of the plaintiff had been carried out in the United Kingdom and a report thereon furnished. It had been aware for at least six months, and certainly from the 29th September 1987, of the probability of the London hearing. It would have been well advised to seek to protect its rear. This, apparently, it has not seen fit to do.

46. Representation in London would be at its own desire. The form that would take, from a single solicitor, to counsel with a watching brief, to full participation lies at its choosing. It can decide how and in what manner it limits its costs.

47. On the success or otherwise of the third party in the proceedings peculiar to it we have been asked to avoid giving any indication of our views. I shall abide by that request save to say, and this only for the purpose of  leading into the next part of this judgment, that the determination of the issues therein will depend very much on the evidential background and this will, in turn, depend on the result of discovery. I note that, for one thing, there were two agents of the insurer involved in the policy.

48. Were the third party proceedings to go ahead now and were the plaintiff to seek to defend them, for they cannot afford to allow them to go by default, in place of the defendant they would be denied the undoubted benefits of the third Party (Rights Against Insurers) Ordinance. If the main action were to proceed to its conclusion and were the Plaintiff successful in it then he, under its provisions could ensure that he stood in the shoes of the defendant and further he could discover against persons who might provide him with useful rebuttal material and in respect of whom he is now inhibited from so acting

49. As I have already intimated I am not impressed by the matters the judge held to he of sufficient weight to tip the balance in favour of the third Party. I accept that this, if there were no more, would not be enough, on well settled principles which need no setting out, for this Court to upset the judge's exercise of his discretion.

50. But there is no reference in his judgment to his having weighed in the balance the assistance the plaintiff would derive from the provisions of the Ordinance Because of the course these proceedings have taken this is a factor of weight.

51. Had it been placed on the plaintiff's side of the scales then, in my judgment, those scales would have tipped very firmly on his side. It may be, and I think this to have influenced the judge, that the London expedition costs will be wasted. The side issue on this is the manner in which those proceedings are to be conductd and in particular the use of a video. But when the time comes, if it ever does, for taxation those matters of individual costs in London can be considered by the taxing master.

52. But it is not, as yet, certain that these costs will in fact be wasted. Apart from any appearance at those proceedings the third party is already at risk as to costs but only in respect of the stay application hearings and its own professional fees. The third party would be, if its action were to come to trial with the plaintiff standing in the shoes of an impecunious defendant, and if it were to succeed, be in a better position to have some form of costs order mane in its favour.

53. With great respect I do not think the judge to have considered matters which he should have and that he was wrong in the exercise of his discretion.

54. That being so we are free to exercise our own discretion and I, for my part, would in all the circumstances as disclosed to us here, refuse to allow the trial of the third party issues to take place before the trial of the main action and, consequentially, refuse to adjourn the London proceedings.

55. I would allow the appeal and set aside the Order of the 22nd February.

Kempster, J.A. :

56. The order here appealed against was made by Mayo J., on a summons adjourned to him by the Master, in the exercise of his discretion. Perhaps having regard, by way of analogy, to what was said by Denman J. in The Tasmanian Main Line Railway Co. v. Clark, Punchard, and Others⁽¹⁾, it has not been urged that he had no jurisdiction to make it and thereby, to use a colloquialism, to put the cart before the horse. Further, a decision in favour of the third party on the preliminary issues would dispose of the potential claim against it irrespective of the outcome of the action. Carl Zeiss Stiftung v. Herbert Smith & Co.⁽²⁾.

57. On well-known principles we will not interfere with an exercise of discretion, whatever course we might severally have taken had we been faced with the relevant application below, unless it is plainly wrong or the judge is shown to have erred in law or in relation to the factors which he took or failed to take into account. It is, accordingly, appropriate to determine the validity of the submissions made on the plaintiff's behalf in this regard and to bear in mind that the interlocutory order in question may "be of decisive importance on the final issue of the case and one which requires a careful examination by the Court of Appeal". Osenton & Co. v. Johnston⁽³⁾ at p. 130 per Viscount Simon L.C.

58. The order for third party directions dated 14th November 1985 provided that the question of the liability of the third party to indemnify the defendant was to be tried "at the trial of this action but subsequent thereto" while by the terms of the application before the judge, expressed to be made pursuant to R.S.C. Order 33 rule 3, the third party sought an order that the matters raised by the Defence in the third party proceedings, not in issue in the action, should

"be tried as a preliminary issue in this action before trial

of the action and that .... the London hearing scheduled for 21st March 1988 be adjourned to a date to be fixed .... after the final determination of the preliminary issue".

59. The terms of Order 33 render it debatable whether or not there was jurisdiction to make an order in the action relating to "any question or issue arising in" the third party proceedings but jurisdiction was available if, despite its terms, the application be deemed also made pursuant to R.S.C. Order 16 rules 4(3)(b) and (5) for variation of the directions already given in the third party proceedings. As Denman J. also said in The Tasmanian Main Line Railway Co. v. Clark & Others⁽¹)

    "It would be mischievous to lay down a rule that an order must be set aside because the summons did not ask for the particular remedy given ...."

Albeit the Order of 14th November 1985 was, on its face, "by consent" the plaintiff had not been represented at the hearing of the summons and affirmations were put before Mayo J. showing that in fact "no objection" had been made by the third party to the directions sought by the defendant These circumstances would not permit the word "consent" so to be construed as to import a contract inhibiting the exercise of the Court's normal powers. Siebe Gorman Co. Ltd v. Pneupac Ltd.⁽⁴⁾.  Having seen such evidence and since his impugned Order allows for matters not raised in the third party pleadings to be ventilated at the hearing of the preliminary issues I feel entitled to presume that all the foregoing procedural considerations were taken into account although not explicitly referred to in the judgment. In any event they do not go to the heart of the matter which involves a balancing exercise similar to that undertaken on a contested application for an interlocutory injunction. American Cyanamid v. Ethicon Ltd.⁽⁵⁾.

60. I accept the general proposition, to be derived from authorities relating to the grant of leave to issue a third party notice, that delay in the prosecution of the main action and prejudice to the plaintiff are considerations which the judge should have taken into account. Swansea Shipping Co. v. Duncan⁽⁶⁾ Bower v. Hartley⁽⁷⁾; Wyre Valley Co. v. Hawes⁽⁸⁾ Mayo J. did weigh delay in the balance but, as regards prejudice to the plaintiffs only, it would appear, the possibility that witnesses might not be available at a later date. A further significant factor in this context received no mention and here, although by reason of the terms of Mr. McCormick's affidavit dated 9th February 1988 it was before the judge, I am not prepared to assume that it was taken into account.

61. The factor in question was the present disadvantage of the plaintiff, by the terms of the order of 22nd February 1988 implicitly permitted to take part in the trial of the preliminary issues, in relation to discovery as compared with the advantages that he would enjoy pursuant to sections 2 and 3 of the Third Parties (Right against Insurers) Ordinance (Cap 273) after obtaining a judgment for damages against the defendant and, as his advisers think likely, the defendant had been shown unable to satisfy it and a winding-up order been made at his instance. I feel it unnecessary to add to what has already fallen from my Lord the Vice-President in this regard. As to the possibility of the joinder of other defendants at the plaintiff's instance, suggested on the plaintiff's behalf, a court is usually bound to take the proceedings as it finds them.

62. The judge did not infer, as Jessel M.R. said in terms in Piercy v. Young⁽⁹⁾ at pp 479 and 480 that

"Separate trials of separate issues are nearly as expensive as separate actions .... and they should only be grantee on special grounds .... the application of the rule should be limited to extraordinary and exceptional cases .... ".

 Nor did Macdougall J. with whose judgment, while, I am satisfied, exercising his own discretion, Mayo J. was happy to express himself as "almost entirely in agreement". No more did either judge apparently observe that the truth of the facts alleged in the Defence of the third party had not been deposed to and might well be a matter of serious dispute, Hesperides Hotel Ltd. v. Sermet "Times" 15th March 1982. From the provisions made in his order, it is apparent that Mayo J. had the possibility of issues relating to waiver and estoppel in mind and, had the issues been ones of law only, the third party's good prospects of success might well have been a significant factor. Farrell v. Federated Employers Insurance Association Ltd.⁽¹⁰⁾; Pioneer Concrete (UK) Ltd. v. National Employers Mutual General Insurance Association Ltd.⁽¹¹⁾.

63. Clearly the third party had been made aware of and had had conduct of the defendant's case in proceedings taken by the plaintiff under the Employees' Compensation Ordinance (Cap 282) during the currency of which a claim for damages at common law was foreshadowed by a "letter before action" dated 3rd August 1982; liability having been, prima facie, already conceded by the defendant as stated in its letter of the l7th. The circumstances in which documents were handed to the third party's agents, Hanford United Insurance Agents Ltd, on 25th April 1985 are unexplained. Further, the third party had other agents, Good Faith Insurance Agency. Again I am not prepared to assume that a judge who was well aware of the obligation to explain his reasoning took these matters into account.

64. On the other side of the coin the judge did regard as valid the submission that the third party had not had a real opportunity of obtaining instructions in order to deal with the London hearing. With this conclusion I am unable to agree. On its own account of the matter the third party had had since 29th September 1987 if not 25th April 1985 so to do. It was not entitled to assume that its applications for trial of a preliminary issue and stay of the action would succeed

65. In the premises I find that this Court is entitled to exercise its own discretion and to weigh the considerations already outlined against the factors tending to support the third party's application.

66. Claiming to be entitled to accept specified breaches of the contract of insurance dated 8th December 1980 as a repudiation by the insured the third party found to its chagrin that the defendant would not further contest the plaintiff's claim whether on the issues of liability or quantum and, into the bargain, be unlikely to be good for costs. Thus it was faced with an election either to allow the action to go by default and rely on its third party Defence as against the plaintiff in due course or to seek to be added as a defendant in the action and to contest it pursuant to R.S.C. Order 16 rule 4(4). As Miss Hung deposed on its behalf on 19th December 1987 this scenario was known to the third party by 29th September 1987 when Master Jones ordered the appointment of an Examiner in London on terms permitting it to play a full part. That the order impugned relieves the third party from the necessity of such election is apparent. Further, as stated in the letter from its solicitors to those acting for the plaintiff dated 13th October 1987, if the preliminary issue were determined in favour of the third party much money, public and private, would be saved in costs. But if, contrary to its contentions, the third party were held liable to indemnify the defendant its costs would not exceed its contractual and statutory obligations. In my opinion the plaintiff should not be prejudiced in the ways already canvassed, including those recited in the judgment of Mayo J., in order to obviate a difficult decision by the defendant's insurers. What is more, due to the third party's procedural defaults, only 10 days remain before the arrangements made for the examination of witnesses in London should take effect.

67. In the event I too would so exercise the discretion of this Court as to allow the appeal and set aside the Order of 22nd February 1988.

Penlington, J.:

68. While clearly it is tempting to have the issue of whether or not the 3rd party is liable to indemnify the defendant decided before the London hearing, which may then be pointless, I would also allow the appeal and set aside the order made. It is fundamental that 3rd party proceedings should not be allowed to prejudice the plaintiff or defendant in the conduct of the action. The accident giving rise to the claim occurred in June 1981. The plaintiff says, and I accept, that if the arrangements made in London for the taking of evidence are cancelled it may be another year before those proceedings can be again organised and no doubt cancellation at this stage would involve substantial cost. In my view there would have to be very strong reasons indeed to make such an order and as far as I understand it the only real reason for doing so is to avoid the 3rd party incurring costs which may prove to be wasted. In view of the order made in September 1987 for the appointment of an examiner in London, the 3rd party's representatives being present, I do not consider that is a sufficient reason.

69. I agree with the judgments of Silke, V.-P. and Kempster, J.A. and in particular the point made that no sufficient weight was given to the advantages to the plaintiff under the Third Party (Rights Against Insurers) Ordinance if the defendant is wound up.

70. I also would allow the appeal and set aside the order of 22nd February 1988.

(1) [1879] 27 WR 677

(2) [1979] 1 Ch 93

(3) [1942] AC 130

(4) [1982] 1 WLR 185

(5) [1975] AC 396

(6) [1876] 1 QBD 644

(7) [1876] 1 QBD 652

(8) [1876] 16 ChD 489

(9) [1880] 15 ChD 475

(10) [1970] 1 WLR 498

(11) [1985] 1 Lloyds Rep 274