LEIGHTON CONTRACTORS (ASIA) LTD. v. KELISTON MARINE (FAR EAST) LTD.

CACV 189/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 189 OF 1998

(ON APPEAL FROM DCEC 342 OF 1996)

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J U D G M E N T

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Keith, J. (giving the first judgment at the invitation of Godfrey, J.A.) :

Introduction

1. Leighton Contractors (Asia) Ltd. ("Leighton") were the main contractors engaged to construct the cooling water system at a power station in Tuen Mun. They needed divers to assist with the installation of underwater culverts. Those divers were provided to Leighton by Keliston Marine (Far East) Ltd. ("Keliston"). One of the divers provided to Leighton by Keliston was Mr. Stephen Watchorn. On 16th November 1994, he was injured in an accident which occurred while he was engaged on that work. He lost the top joint of his left thumb.

2. In June 1996, Mr. Watchorn commenced proceedings in the District Court against Keliston under the Employees' Compensation Ordinance (Cap. 282). The following month, judgment was entered against Keliston by consent for compensation to be assessed. That compensation was eventually assessed by consent at $420,272.00 odd including costs. Subsequently, Keliston issued third party proceedings against Leighton in which Keliston sought to recover from Leighton the sum which it was required to pay to Mr. Watchorn. The third party proceedings were heard on 2nd June 1998. The judge found for Keliston, and ordered Leighton to pay Keliston the sum of $420,272.00 together with (a) interest from the date on which the compensation had been assessed and (b) the costs of the third party proceedings. Leighton now appeal against that judgment. They contend that the third party claim against them should have been dismissed.

The insurance cover

3. Employers are required to insure themselves against claims made against them under the Employees' Compensation Ordinance. Leighton had an employees' compensation policy with Eagle Star. That policy covered not only their employees, but also "subcontractors of every tier for their respective rights and interests". It was not disputed that these words were sufficiently wide to cover Keliston's employees. In due course, a claim was made under that policy. However, that claim was not made until after Mr. Watchorn had commenced his proceedings. That was more than 18 months after the accident, and Eagle Star repudiated liability under the policy on the ground that notice had not been given to them "as soon as possible" after the accident as required by condition 5 of the policy.

The nature of Keliston's third party claim against Leighton

4. When Keliston realised that they would not be reimbursed by Eagle Star the compensation which they had had to pay to Mr. Watchorn, they looked to Leighton for an indemnity. They relied on the terms on which Leighton had engaged Keliston to provide divers. It is not disputed that those terms were contained in Keliston's quotation to Leighton dated 11th March 1994, which Leighton accepted a few days later. One of those terms, contained in clause 2.3 of the quotation, read as follows :

"We [Keliston] require our interest to be noted on the Main Contractors [Leighton's] Insurance Policy."

Keliston's pleaded case in their Amended Third Party Notice was that by agreeing to note Keliston's interest on Leighton's policy of insurance, Leighton

"impliedly agreed to indemnify [Keliston] in respect of [Mr. Watchorn's] claim".

No other cause of action and no other facts were pleaded.

The issue on the appeal

5. For my part, I have had some difficulty construing Leighton's obligation to ensure that Keliston's interest be noted on Leighton's policy. It could simply have meant that Leighton had to inform Eagle Star that Keliston were one of their sub-contractors. Alternatively, it could have meant that Leighton had to ensure that Keliston's employees were covered by the policy. But since it has never been disputed that Keliston's employees were in fact covered by Leighton's policy, the only question which the judge then had to decide in the light of the pleaded claim was whether the fact that Keliston's employees were covered by Leighton's policy implied an agreement on Leighton's part to indemnify Keliston in the event of liability being repudiated by Eagle Star or in the event of Eagle Star not paying up under the policy for some other reason. The judge did not address that question. Having referred to the fact that there was a dispute between Leighton and Eagle Star as to whether Eagle Star had been entitled to repudiate liability, the judge simply said that he found for Keliston.

6. In my view, the answer to the question which the judge did not address is that the fact that Keliston's employees were covered by Leighton's policy did not imply an agreement on Leighton's part to indemnify Keliston in the event of Eagle Star not paying up under the policy. I see no basis whatever for implying such an agreement, which would have had the effect of substituting Leighton for Eagle Star as the insurer. Just because Keliston's employees were covered under Leighton's policy does not mean that Leighton were agreeing to finance the statutory compensation payable to Keliston's employees in the event of their insurers not paying up. As Mr. Simon Westbrook for Leighton said in his clear and concise skeleton argument, Leighton's argument is tantamount to saying that if an insurance broker arranges a policy of insurance for his client, but the insurance company subsequently repudiates liability on a claim submitted under the policy, the broker is obliged in those circumstances to indemnify the insured for the claim. That example demonstrates how untenable Keliston's pleaded case against Leighton was.

Conclusion

7. For these reasons, I would allow the appeal, I would set aside the judgment, and I would order that judgment be entered on the third party claim in favour of Leighton. However, I should add two things. First, I should not be taken as saying that there were no circumstances in which a third party claim by Keliston against Leighton could have succeeded. It would have been open to Keliston to argue that once Leighton knew of Mr. Watchorn's accident, Leighton should have notified Eagle Star of the possibility of a claim under the policy. That would have prevented Eagle Star from subsequently repudiating liability under the policy. I do not say that such a claim would definitely have succeeded, because it would have depended on whether there was an obligation on Leighton (as opposed to Keliston) to notify Eagle Star of the claim. This issue was one of the points taken before the judge, and from the comments which the judge made during the case, I suspect that that was the basis on which he found in favour of Keliston. However, it is not something which should have been taken into account because that was not the way in which the case had been pleaded against Leighton.

8. Secondly, there was one feature of Eagle Star's conduct which was unusual. Although Eagle Star repudiated liability under the policy, they had nevertheless a few weeks earlier taken over the proceedings on behalf of Keliston and had consented to judgment against Keliston. In those circumstances, it might have been open to Keliston to argue, in proceedings against Eagle Star, that having taken that action Eagle Star had waived their right to rely on condition 5 as a ground for repudiating liability under the policy. However, that is a matter which does not relate to Leighton's liability to Keliston under their agreement. It relates to Eagle Star's liability to Keliston under the policy.

Rogers, J.A. :

9. I agree.

10. I would only add this that insofar as there may be a possible claim based upon perhaps Leighton' s failure to notify the insurers in due time, it is not simply a matter of pleading that this matter cannot be raised. The facts necessary to decide the issue, if indeed there be an issue, were not investigated below, therefore, it is not open to this Court even to consider the matter.

11. I too would allow the appeal.

Godfrey, J.A. :

12. I agree with both the judgments which have just been delivered and I cannot usefully add anything.

13. The appeal will accordingly be allowed.