GRANDREGAL ENTERPRISES LTD. v. SITWELL ESTATES LTD.

DCCJ 483/2002

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 483 OF 2002

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DECISION

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1. This is an application by the Defendant to strike out the Plaintiff's claim pursuant to O. 18 r. 19 of the Rules of the District Court, Cap. 336. In the hearing on 23 October 2002, I was not satisfied that the parties had supplied all the relevant authorities to me, and I therefore directed the parties to file further written submissions within 7 days. Unfortunately, the last piece of written submissions only arrived in my desk 3 weeks after the hearing, and this partly resulted in the delay in the handing down of this decision.

2. The Plaintiff was the owner of the premises known as 15th Floor, Hong Kong Diamond Exchange Building, Nos. 8-10 Duddell Street, No. 20 Ice House Street, Hong Kong ("the Premises"). At the material time, the Plaintiff had leased out the Premises to one Patt Manfield & Co. Ltd. ("the Tenant"). On 18 July 2001, the Tenant discovered the escape of water from the false ceiling in one of the rooms of the Premises. Report was then made to the Defendant who was responsible for the management of the building concerned ("the Building"), but the water continued to escape for more than one hour after the making of the first report. As a result, the Tenant suffered considerable damage to the Premises.

3. It is the Plaintiff's case that the water escaped from the malfunctioned air-conditioning system in the Building, and the loss could have been reduced had the Defendant's representatives taken proper and efficient action after the report of the incident. Under the Deed of Mutual Covenant of the Building ("the DMC"), the Defendant was responsible for the good repair and condition of the air-conditioning system. Likewise, there was a similar obligation on the part of the Plaintiff in the tenancy agreement made between the Plaintiff and the Tenant ("the Tenancy Agreement"). According to the Plaintiff, as the Defendant had breached the terms of the DMC, the Plaintiff was liable to pay compensation to the Tenant pursuant to the terms of the Tenancy Agreement, and hence the Plaintiff is asking the Defendant to indemnity it in respect of such loss.

4. The Defendant seeks to strike out the Plaintiff's claim on the ground that there was no accrued action at the time of the commencement of the action. It is common ground that the Plaintiff's claim is founded on both contract and tort. According to Mr. Leung, counsel for the Defendant, the Tenant had not filed any claim in court against the Plaintiff when the latter issued the Writ in the present case. Neither did the Plaintiff conclude any settlement agreement with the Tenant by that time. In such circumstances, Mr. Leung argues, the Plaintiff had not suffered any loss at the time of the commencement of the action, and so the Plaintiff's claim should therefore be struck out.

5. In support of his application, Mr. Leung submits that a tortious claim is not actionable per se. Damage being an essential ingredient of the tort, the cause of action accrues and time begins to run only from the date when the plaintiff first sustains damage as a result of the tortious act. As the Plaintiff in the present case had not paid any compensation to the Tenant at the time of the commencement of the action, Mr. Leung argues, there was no accrued action in tort by that time.

6. So far as the claim in contract is concerned, Mr. Leung submits that the Plaintiff's claim is one based on implied general indemnity. The rule relating to such kind of claim was explained by Fletcher Moulton LJ in In re Richardson, Ex parte Governors of St. Thomas's Hospital [1911] 2 KB 705, 712 (cited in p. 567 of Telfair Shipping Corpn. v Inersea S.A. [1985] 1 WLR 553):

"If, for instance, B. was bound to pay a sum to A. and C. was bound to indemnify B., ... then B. could not sue C. unless he could aver payment to A. It was the same thing whether it was a case of suretyship, indemnity, or contribution. In all cases before you could make a guarantor pay you must prove that you had actually paid the money. No matter example of this could be given than the case of Collinge v Heywood (1839) 9 A & E 633. ...... There the court applied the well-known common law principle that before you can avail yourself of your right of indemnity you must shew that you have paid the money ... the rule in Chancery was somewhat different, and yet, for my mind, it emphasizes the fundamental principle that you must have paid before you have a right to indemnity, because the remedy which equity gave was a declaration of a right. You could file a bill against the principal debtor to make him pay the debt so that you would not be called upon to pay it, and then you obtained a declaration that you were entitled to an indemnity. You could in certain cases have a fund set aside in order that you might be indemnified, to avoid the necessity of your having to pay and then to sue for the money you had paid, which perhaps would not repair your loss and credit even if it discharged the debt. But I do not think that equity ever compelled a surety to pay money to the person to whom he was surety before the latter had actually paid. He might be ordered to set a fund aside, but I do not think that he could be ordered to pay."

As the Plaintiff's claim is one based on general indemnity, and that the Plaintiff had not paid any damages to the Tenant before the commencement of the action, the argument follows, there was no accrued action when the Plaintiff issued the Writ in the present case. The Plaintiff could have relied on equity and sought a declaration that it was entitled to be indemnified by the Defendant, but that was not how the Plaintiff had pleaded its case. Hence, Mr. Leung submits, the Plaintiff's claim should be struck out.

7. In the hearing, I have tried to ascertain from the Plaintiff's solicitor, Mr. Downey, whether the Plaintiff, in addition to the claim for indemnity, is also claiming for loss suffered by the Plaintiff itself. I imagine that there would have been some damage to the Premises after the incident, and as an owner of the Premises, the Plaintiff should have suffered some loss in this regard. In reply, Mr. Downey indicated that, at least at that particular stage, the Plaintiff's claim was only restricted to a claim for indemnity. However, in paragraphs 1.7, 1.8 and 1.9 of the Further Submissions of the Plaintiff submitted after the hearing, the Plaintiff indicates that it will re-amend the Amended Statement of Claim to include a claim for the physical damage to the Premises suffered by the Plaintiff itself. By reason of such intended amendment, it is then the Plaintiff's case that it had suffered actual loss at the time of the commencement of the action, and so it is not appropriate for me to strike out the Plaintiff's claim. However, as the case has been extensively argued by both parties, I would still address the issue whether the Defendant is entitled to have the Plaintiff's claim be struck out in the absence of the proposed amendment. This would also have an implication on the issue of costs of the application.

A claim on breach of duty or a claim on implied general indemnity?

8. In support of his application, Mr. Leung relies very heavily on the Telfair case mentioned above. In that case, the owners of a ship chartered the ship to charterers. Under clause 8 of the agreement, the charterers were to load, stow, trim and discharge the cargo and that the captain, who was the owners' agent, was to sign bills of lading for cargo "as presented". Upon the discharge of a cargo of bagged rice during the operation of the charterparty agreement, it was found that part of the cargo was damaged. The receivers of the cargo claimed damages from the owners' agents. Later, an Iraqi court found that the damage was due to bad stowage and allowed the claims. The owners claimed an indemnity from the charterers on the footing that the charterparty made the charterers responsible for the loading, stowage, and discharge of the cargo, and that it was to be implied from clause 8 that the charterers would indemnify the owners in respect of matters for which the characters were responsible. An issue of limitation then arose in the case, and the court held that the indemnity to be implied as a result of the incorporation of clause 8 into the charterparty was a general indemnity against the consequences of the master signing the bills of lading, and that the general indemnity could not become enforceable by action until the liability of the owners to the receivers had been ascertained. In such circumstances, the earliest date that the liability could have been ascertained was when the Iraqi court gave judgment for the receivers, and the court therefore affirmed the decision of the arbitrator and held that the claim was not statute-barred.

9. In that case, Neill J. analyzed that there were at least 3 ways that such kind of action could be framed (at p. 566):

"From a consideration of these cases and other authorities to which my attention was directed it seems to me that it is possible to identify at least three ways in which a person, A, who has become liable to B may be able to obtain redress from C.

The first way is by an action for damages for breach of contract (or warranty). In such a case A will be in a position to claim that the incurring of his liability to B flowed directly from an act of C which constituted a breach of a contract between A and C or of a warranty given by C to A. The damages will be assessed in accordance with Hadley v Baxendale (1854) 9 Exch. 341 principles. The cause of action will date from the date of breach.

The second way is by a claim on an express indemnity. In such a case the extent of the indemnity and the time at which the cause of action arises will depend on the construction of the contract. If the indemnity is an indemnity against liability, as it was held to be in Bosma v Larsen [1966] 1 Lloyd's Rep; 22, the cause of action will come into existence when A incurs a liability to B. It may be that in certain circumstances a liability may be incurred for this purpose when the liability is still merely contingent: see Forster v Outred & Co. [1982] 1 WLR 86. If, however, the indemnity is a general indemnity, as the relevant clause was held to be in R & H Green & Silley Weir Ltd. v British Railways Board (Note) [1985] 1 WLR 570, then time will not begin to run against A for the purpose of pursuing his indemnity against C until A's liability to B has been established and ascertained .........

The third way in which A may claim against C in respect of sums which he has had to pay to B is under an implied indemnity. As I understand the matter, such an implied indemnity would prima facie be a general indemnity of the kind recognized by the common law. The rules relating to what I have described as a general indemnity were explained by Fletcher Moulton LJ in In re Richardson, Ex parte Governors of St. Thomas's Hospital [1911] 2 KB 705, 712:

[the passage quoted in paragraph 6 above]

It seems clear, however, that even in equity time does not begin to run for the purposes of any limitation period until the liability of the person to be indemnified has been ascertained. I can see no satisfactory distinction on this point between claims on an indemnity and claims between sureties or trustees."

10. However, the claim was put forward as a claim for general indemnity in the Telfair case, and that was the reason why Neill J. held that the cause of action arose at a later time when the Iraqi court gave the judgment. If the case was framed in the first way as described by the learned judge, the result could have been different. Indeed, Neill J. himself agreed that such kind of claim could be framed in more than one ways, as he said the following in pp. 567-568:

"With this introduction I return to the facts of the instant case. It will be remembered that in paragraph 7 of the points of claim in the arbitration the indemnity was put forward as an indemnity against liability to be implied from clause 8 of the charterparty - in other words an implied contractual indemnity against liability. ......

The owners' right to recover can, as I see it, be formulated in a number of different ways as follows. (a) As a claim on a breach of an implied term of the charterparty, the breach consisting of the presentation of the bills of lading for signature. On this basis the cause of action arose at the moment of breach. (b) As a claim based on an implied indemnity against liability. On this basis the cause of action arose when a liability to the receivers was incurred. Mr. Cooke argued that a contingent liability to the receivers was incurred as soon as the bills of lading were signed, and he relied on Forster v Outred & Co. [1982] 1 WLR 86. If such a contingent liability is not enough it seems clear that, as to the majority of the claim at any rate which was a claim for shortages, the cause of action did not arise until the cargo was discharged in the period between 2 and 21 April 1975. (c) As a claim based on an implied general indemnity. Such an indemnity would ... ... indemnify the owners from the "consequences" of the master signing the bills of lading in terms which were more onerous than the charterparty.

......... Furthermore, it appears that where a person is entitled to rely on an implied indemnity he can make a claim on such an indemnity in addition to making a claim based on some express provision of his contract with the indemnifier or (semble) a claim for damages for breach of contract. I turn therefore to implied indemnity."

11. Based on the observations of Neill J., the result of the case may be different depending on how one is framing his claim. In the present case, the Plaintiff's claim is not a claim for indemnity between sureties or trustees, and so there is no reason why the claim cannot be framed in the first way as described by Neill J., which is a claim for damages for breach of contract or duty of care. According to such formulation, the Defendant was under a duty to maintain the air-conditioning system of the Building in good order under the provisions of the DMC. Then, by reason of the breach of such duty, both in contract and in tort, the Plaintiff has suffered loss including the liability to compensate the Tenant for the latter's loss. Indeed, as pleaded in paragraphs 31 and 35 of the Amended Statement of Claim, the Plaintiff does put forward its case in such manner:

" 31. The Tenant's loss is HK$106,078.60 as listed in paragraph 23. The Plaintiff claims against the Defendant for satisfaction of damages to the extent of the Tenant's loss or, alternatively, for damages to be assessed.

.........

35. AND the Plaintiff claims against the Defendant:

(a) Damages for breach of the DMC pursuant to paragraph 22 as set out in paragraph 23 or as assessed by the Court;

.........

(d) Damages for breach of duty of care pursuant to paragraph 31 or as assessed by the Court."

12. At this stage, it is at least arguable that the Plaintiff's claim can be framed as a claim for breach of contract and duty of care, and as such the cause of action arose at the moment of breach. In such circumstances, the Plaintiff arguably had a cause of action against the Defendant when the Writ was issued, and hence in my judgment, the claim should not be struck out at this stage even in the absence of the proposed amendment.

Claim under the Civil Liability (Contribution) Ordinance

13. In order to maintain a claim of indemnity against the Defendant, the Plaintiff is also relying on s. 3 of the Civil Liability (Contribution) Ordinance, Cap. 377 ("the Contribution Ordinance"), which reads as follows:

"S. 3 Entitlement to contribution

(1) Subject to the following provisions of this section, any person liable in respect of any damage suffered by another person may recover contribution from any other person liable in respect of the same damage (whether jointly with him or otherwise).

(2) A person shall not be entitled to recover contribution by virtue of subsection (1) notwithstanding that he has ceased to be liable in respect of the damage in question since the time when the damage occurred, provided that he was so liable immediately before he made or was ordered or agreed to make the payment in respect of which the contribution is sought.

.........

(4) A person who has made or agreed to make any payment in bona fide settlement or compromise of any claim made against him in respect of any damage (including a payment into court which has been accepted) shall be entitled to recover contribution in accordance with this section without regard to whether or not he himself is or ever was liable in respect of the damage, provided, however, that he would have been liable assuming that the factual basis of the claim against him could be established."

14. However, if the Plaintiff is going to rely on such statutory provision to establish a claim for indemnity, it needs to plead the same in the Statement of Claim. As a cause of action itself, the Plaintiff should have expressly included such a claim in the pleading in order to avoid any surprises to the other party. Even if the cause of action needs not be specifically pleaded, all the relevant facts and matters in support of such a claim need to be included in the pleading. Hence, in order to establish that the Defendant is liable in respect of the same damage to the Tenant under s. 3, the Plaintiff needs to plead that: (i) the Tenant was a person entitled to sue under the DMC; (ii) the Defendant owed a duty of care to the Tenant to maintain the air-conditioning system in good order; and (iii) the Defendant was in breach of both the contractual duty and duty of care owed to the Tenant. With the omission of such material facts and allegations, the Plaintiff simply cannot maintain such a claim against the Defendant.

15. The Plaintiff relies on the case of Bank of East Asia v. Tsien Wui Marble Factory Ltd. [2000] 1 HKC 1, and argues that a claim based on the Contribution Ordinance needs not be specifically pleaded. However, so far as such a claim was concerned, the court in that case only had to deal with the issue of apportionment between two defendants. All the matters which sought to establish that both defendants were liable in respect of the same damage to the plaintiff had already been pleaded in the plaintiff's statement of claim, and so it was not necessary for either of the defendants to plead the same again in the apportionment proceedings. The present case is different. The facts and allegations which form the basis of liability under s. 3 are missing in the pleading, and so the Plaintiff cannot maintain such a claim against the Defendant by just relying on the existing pleading.

16. Apart from the pleading point, there is dispute between the parties whether the Plaintiff can in substance maintain such a claim. As I understand it, it is the Plaintiff's case that it had agreed to pay damages to the Tenant at the time of the commencement of the action, but the amount of damages had yet been agreed. In such circumstances, it is at least arguable that the Plaintiff qualified as a person "who [had] agreed to make payment in bona fide settlement" under s. 3(4) of the Contribution Ordinance when the Writ was issued. Hence, as such a claim is at least arguable, the Plaintiff should be allowed to re-amend the Amended Statement of Claim to include such a claim.

Conclusion

17. Based on the aforesaid, I will not strike out the Plaintiff's claim. However, as the Plaintiff is going to re-amend the Amended Statement of Claim in any event, I will make an order in the following terms:

(i) the Defendant's summons dated 9 July 2002 be dismissed;

(ii) leave to the Plaintiff to re-amend the Amended Statement of Claim within 21 days to include:

(a) a claim for physical damage to the Premises; and

(b) a claim based on the Contribution Ordinance;

(iii) there be liberty to apply.

18. As I have not heard the parties' submission on the issue of costs, I will only make an order nisi in this regard. My preliminary view is that costs should follow the event. However, it is obvious that the Plaintiff has not formulated its case properly at the outset, and as a result a number of amendments are necessary. Further, if the Plaintiff has indicated to the court earlier that its claim is not just limited to a claim for indemnity but also covers the Plaintiff's loss relating to the physical damage to the Premises, the proceedings could have been shortened considerably. Hence, I make an order nisi that the Defendant do pay to the Plaintiff half of the costs of the summons. The order nisi is to be made absolute 14 days after the date of the handing down of this decision.