LAW LAI HA AND ANOTHER v. ZURICH INSURANCE CO (AN OVERSEAS CO)

HCA 2082/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2082 OF 2005

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BETWEEN

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J U D G M E N T

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1.  The plaintiffs are the co-administratrices of the estate of Cheung Hung Fat (“the deceased”) who died intestate on 11 July 1996.

2.  The first named plaintiff Law Lai Ha (“Law”) is the widow of the deceased.

3.  The deceased was at all material times an employee of Chon Bon Machinery Mfy Ltd. (“Chon Bon”).

4.  The plaintiffs’ case is that by a policy of insurance numbered EH 0141254 EMC (“the policy”) issued for the purposes of Part IV of the Employees’ Compensation Ordinance (Cap. 32) (“the Ordinance”), Eagle Star Insurance Company Ltd (“Eagle Star”) agreed to insure and indemnify Chon Bon in respect of the liability of Chon Bon towards its employees both under the Ordinance and independently of the Ordinance covering the period between 12 December 1995 and 12 December 1996.

5.  The defendant acquired Eagle Star in 1998.  However, it was only on 1 June 1994 that all the rights and obligations of Eagle Star under every contract of insurance effected by Eagle Star on or before 29 February 2004 comprising its general insurance business carried on in or from Hong Kong including all outstanding claims under such contracts and the continuation of any legal proceedings by or against Eagle Star which relate to the rights and obligations of Eagle Star under such contracts were transferred to the defendant. This included the rights and obligations under the policy.

6.  I heard evidence from Law and Tang Suk Kuen, the assistant manager in the claims department of the defendant.  In my view, they both gave truthful and reliable evidence.  I have no hesitation in accepting their evidence.

7.  The background facts are that Chon Bon was in the business of manufacturing and selling machinery.  The deceased commenced working for Chon Bon on 8 February 1995 at a monthly salary of HK$13,000 or an annual salary of HK$169,000 based on 13 months’ salary according to his employment contract.  

8.  The deceased was employed as a production manager.  Law described the deceased’s job also as a factory manager.  Law said, and I accept, that about a month after the deceased joined Chon Bon he was stationed in the Mainland.  That was where Chon Bon had its factory. 

9.  There is no dispute that from that time onwards to the time of his death the deceased was mainly stationed in the factory in the Mainland and that he stayed in Hong Kong about one or two days a week over the weekend with his family.

10.  Chon Bon’s factory was in the Mainland but Chon Bon also had an office in Hong Kong at Flat 3, 2/F, Block B Vigor Industrial Building, 14-20 Cheung Tat Road, Tsing Yi, New Territories (“the Hong Kong office”).

11.  The undisputed evidence also shows that one of Chon Bon’s clients Siusco Enterprises (HK) Ltd (“Siusco”) had delivered a plant which was produced by Chon Bon for PVC Pipe Production Line to Siusco’s client in Eldoret, Kenya.  

12.  The deceased together with his boss Chan Chiu Cho, a director of Chon Bon, were sent to that client’s factory in Kenya to install and test run the plant and to provide training for the staff of the factory there.

13.  They arrived in Kenya on 19 June 1996 and stayed there until 29 June 1996.

14.  After returning to Hong Kong from Kenya the deceased went back to work in the factory in the Mainland on 4 July 1996.  

15.  On 5 July 1996 the deceased developed a fever and returned to Hong Kong for medical treatment on 6 July 1996.

16.  He was subsequently admitted to hospital but unfortunately his condition deteriorated drastically.  Tragically he passed away on 11 July 1996. 

17.  There is no dispute that whilst he was in Kenya the deceased contracted cerebral malaria and that he died in Hong Kong as a result of this.

18.  The above facts are undisputed and I find them proved.

19.  Law subsequently applied for legal aid in respect of intended claims for employees’ compensation and also common law damages.

20.  By letter dated 9 May 1997 the Legal Aid Department notified Eagle Star of Law’s application for legal aid for the intended claims.

The EC proceedings

21.  On 15 October 1997 proceedings for employees’ compensation (“the EC proceedings”) were commenced against Chon Bon in the District Court being DCEC 735 of 1997.  Notice of the EC proceedings was given by Messrs Robin Bridge & John Liu (“RBJL”) to Eagle Star on 29 October 1997.

22.  By letter dated 13 November 1997 Eagle Star wrote to its solicitors Messrs Y. C. Lee Pang & Kwok (“YCLPK”) asking them to take over the conduct of the proceedings.

23.  YCLPK took the view that the policy did not cover the incident and advised Eagle Star accordingly.  YCLPK also by letter dated 25 November 1997 notified Chon Bon that it would deny liability under the policy and would not act on behalf of Chon Bon in the EC proceedings.

24.  Chon Bon was then represented by its own solicitors Messrs Wilfred K H Lam & Co (“WKHL”).  However, WKHL subsequently applied for and were granted an order that they ceased to act for Chon Bon.

25.  On 29 April 1999 judgment was entered against Chon Bon in default as Chon Bon had failed to comply with an unless order.

26.  The employees’ compensation was assessed and awarded in the sum of $716,951.07 (“the EC award”) after taking into account payments already received from Chon Bon.

HCPI 632 of 1999

27.  On 12 June 1999 the common law claim for damages against Chon Bon and two doctors were commenced by the writ of summons issued on 12 June 1999 in HCPI 632 of 1999 (“HCPI 632”).

28.  On 10 December 1999 interlocutory judgment in default was entered against Chon Bon.

29.  The proceedings against the two doctors were subsequently discontinued.

30.  Damages were assessed on 23 November 2001. Final judgment after assessment of damages was entered against Chon Bon on 7 January 2002 for the sum of HK$2,001,019 with interest and costs as set out in the final judgment.

31.  The plaintiffs failed to recover anything from Chon Bon. 

32.  Winding up proceedings were commenced against Chon Bon in HCCW 327 of 2003.  On 28 May 2003 a winding up order was made with the appointment of the Official Receiver as provisional liquidator.  Joint and several liquidators were subsequently appointed.

33.  By letter dated 20 December 1999 the plaintiffs’ solicitors RBJL wrote to the Employees’ Compensation Assistance Fund Board (“the Board”) on behalf of the plaintiffs seeking payment of the EC award and costs from the Board as RBJL took the view that the deceased was not covered by the policy.

34.  By letter dated 26 September 2001 RBJL informed the Board that interlocutory judgment had been entered in HCPI 632 and of its intention to seek recovery from the Board.

35.  On 14 June 2005 Messrs Gallant Y T Ho & Co (“GYTH”) on behalf of the Board wrote to the Director of Legal Aid expressing the view that notwithstanding the geographical limits set out in the policy, there was a policy of insurance “in force” at the time of the accident and that the plaintiffs ought to have commenced proceedings against the insurer.

36.  By letter dated 7 October 2005 RBJL wrote to GYTH informing them that they had been re-assigned by the Director of Legal Aid to commence enforcement proceedings against the defendant under section 44 of the Ordinance despite their reservations about the chances of success on this claim.  They also stated that should the claim against the defendant fail the plaintiffs would apply to the Board again for assistance in respect of the compensation and damages plus interest and costs including the costs of these proceedings.

37.  On 21 October 2005 the plaintiffs commenced these proceedings against the defendant as insurer.

38.  As set out and particularized in the document handed up to the court in the course of the closing submissions of Mr Khaw, for the plaintiffs, the amounts claimed against the defendant is for the EC award, the damages awarded in HCPI 632, interest and costs awarded and taxed for those proceeding.  Credit is also given for the EC award.

39.  The total sum claimed by the plaintiffs against the defendant is the sum of HK$4,377,986.48 as fully particularized in the document handed up to the court.  The amounts are not disputed by the defendant as confirmed by Mr Ismail, for the defendant.  What the defendant does dispute is its liability to indemnify under the policy.  The defendant denies that the deceased was covered under the policy.

The issues

40.  There are 2 issues:

(1)   Did the policy cover the deceased?

(2)   If so, did the defendant have sufficient notice of the institution of HCPI 632 which would have enabled it to apply to be added as a party to those proceedings?

41.  Issue (1) depends on the proper construction of the policy.  Issue (2) is a question of fact and only arises if issue (1) is determined against the defendant.  In the event that issue (1) is determined against the plaintiffs, issue (2) does not arise. 

42.  It is clear that Part IV of the Ordinance deals with the compulsory insurance of liabilities of employers whether in the context of employees’ compensation or in the context of proceedings for common law damages. 

43.  Section 40(1) provides that no employer shall employ any employee in any employment unless there is in force in relation to such employee a policy of insurance issued by an insurer.

44.  No doubt Chon Bon was obliged to take out compulsory insurance for all of its employees including the deceased. 

45.  The claim of the plaintiffs against the defendant is under section 44(1) of the Ordinance.  This provides

“ (1) Every policy of insurance issued for the purposes of this Part shall be deemed to provide that any employee or other person having a claim against the person insured in respect of the liability in regard to which such policy was issued shall, subject to section 42, be entitled to recover in his own name, as though he were a party to the policy, directly from the insurer any amount which he would have been entitled to recover from the person insured.” (Emphasis supplied)

46.  Section 43(1) of the Ordinance provides

“ Subject to this section, where in relation to an employee there is in force a policy of insurance issued for the purposes of this Part and the employer of the employee becomes liable to pay any sum under this Ordinance or independently of this Ordinance in respect of an injury to the employee arising out of and in the course of his employment, such sum shall forthwith become due and payable by the insurer, including any sum payable in respect of interest and costs, notwithstanding anything to the contrary in the policy of insurance.” (Emphasis supplied)

47.  Section 43(2) sets out the conditions under which liability for payment by the insurer arises.  These include the condition in (b) that “the insurer had sufficient notice of the institution in the court or tribunal of proceedings for compensation or damages, as the case may be, to enable such insurer to be added as a party to the proceedings.”

48.  It seems to me that one must first consider whether the deceased was an employee of Chon Bon who was covered under the policy.  This depends on the construction of the policy.

49.  There is no doubt that the policy is an Employees’ Compensation policy under Part IV of the Ordinance.  The preamble states that the insured is “carrying on the business described in the Schedule and no other for the purpose of this insurance”.  It further states that

“ Now this Policy Witnessesth that if any employee in the insured’s immediate service shall sustain bodily injury by accident or disease during the Period of Insurance and arising out of and in the course of his employment by the Insured in the Business.

The Company will subject to ………………………….. indemnify the Insured against liability at law (including liability under the Legislation set out in the Schedule) to pay compensation and claimant’s costs….. in respect of such injury…….”

50.  Condition 1 of the policy provided that the Schedule and the policy “shall be read together as one contract”.  There is no doubt that the policy and the Schedule as a whole should be considered together and shall be read together as the contract of insurance.

51.  According to the Schedule, the effective date of insurance was 12 December 1995 to 12 December 1996.  The injury to the deceased occurred during this period.

52.  The business of the insured Chon Bon was described in the Schedule as “Trading”.  The geographical limits were “Anywhere in Hong Kong”.

53.  The risk address was at the Hong Kong office. It was not at the Mainland factory of Chon Bon.

54.  It is of significance that the occupation and estimated number of employees set out in the Schedule was office attendant, one and clerk, one.  These were the only categories of employees specified in the Schedule.   The estimated annual salary of each of the office attendant and the clerk was HK$91,000.

55.  It was on the above basis that the risk premium was calculated and paid by the insured.

56.  It is of course open to an insurance company to limit the ambit of the risk to which a policy of employees’ compensation relates by restricting it to a business of a particular description.

57.  In the Australian case of Wesfarmers Insurance Ltd v Cotter and Velint Pty Ltd (1990) 1 WAR 493, the insured issued an employer’s indemnity insurance policy to the employer in respect of the employer’s business which was described in the proposal for insurance and the policy as retailing and servicing swimming pools.  The employer subsequently entered into a contract for the laying of a tram line.  A worker who was one of the employer’s employees was injured whilst laying the tram line.  The worker made a claim for compensation against the employer under the Workers’ Compensation and Assistance Act 1981.  The insurer declined to indemnify the employer in respect of the worker’s claim.  It was held on appeal that section 160 of the Workers’ Compensation and Assistance Act did not impose an obligation on an insurer to provide a policy of insurance to an employer other than the one requested by the employer and therefore the insurer’s obligation to indemnify was determined by the contract of insurance.  It was also held that the employer’s request for insurance was it worker was not employed in that business the insurer was not obliged to indemnify the employer.

58.  In MLC Insurance Limited v Fai Traders Insurance Co Limited (1994) 49 FCR 23 it was held that it was open to an insurance company to limit the scope of a worker’s compensation policy by restricting it to a business of a particular description.

59.  At page 34 Black CJ and Burchett J said

“    There would seem to be nothing illogical nor contrary to the scheme of compulsory insurance imposed by s 18 of the 1926 Act for an employer who conducts a multiplicity of business activities to insure different aspects of his business with different insurers.  His statutory obligation is to insure against his liability to all of his workers. Whether this is done by way of one policy or more than one policy of insurance does not appear to matter.  In a competitive commercial environment there may be sound reasons to insure one type of business activity with a particular insurer and another with a different insurer.  In so far as s 18(1) provides that “every employer shall obtain from an insurer a policy of insurance or indemnity” the normal rule of construction which enables the singular to import the plural applies and the obligation imposed by the section would be met by an employer who obtains more than one policy, provided that in so doing he is insured against liability in respect of all workers employed by him.  That being so, apart from Aickin J’s reasoning in Registrar v NEM, the proposition that the prescribed form of policy is inconsistent with the Act and of no operation to the extent that it limits the insured person’s indemnity for liability to workers engaged in a nominated, business or occupation carried on by the insured, lacks support.

     In the instant case, the MLC policy imposed obligations on MLC in respect of any liability the employer may be under in respect of workers employed in the business of painting and no other business.  As the plaintiff was injured whilst working in the employer’s demolition business, MLC is not liable to indemnify the employer, and is not liable to contribute to the amount payable by FAI (NSW).”

60.  As submitted by Mr Ismail, correctly in my view, the Ordinance does not impose an obligation on an employer to insure against his statutory liability to all his employees in respect of all his businesses in one policy with one insurer.

61.  An employer is, of course, under a statutory duty to insure all his employees in his employment in relation to all of his businesses.  It seems to me that the obligation of an employer to take out compulsory insurance under section 40(1) of the Ordinance for its employees can be met by an employer who obtains more than one policy.  There is no obligation upon an employer to insure against his statutory liability to his own employees of all his businesses in one policy with one insurer.  The singular “a policy of insurance” in section 40(1) would include the plural (section 7(2) Interpretation and General Clauses Ordinance Cap 1).  It seems to me that the obligation of the employer can be met by taking out more than one policy of insurance.  (See also Kennedy J in Wesfamers Insurance Ltd v Cotter and Velit Pty Ltd at page 499.)

62.  Mr Ismail, for the defendant, submitted that by the policy Chon Bon was only insured for its trading business in Hong Kong and not for its non trading business of installing machinery and training workers of its customers in Kenya.  It seems to me, however, that the word “Trading” in the Schedule should be liberally and not narrowly construed.  In my view, installing machinery and training workers to properly operate such machinery was incidental to the trading business of Chon Bon which was manufacturing, selling and supplying machinery.  I so find.

63.  Mr Ismail also relied on the letter dated 23 May 1996 from Siusco addressed “To Whom It May Concern”.  The letter stated that Siusco would send their technicians, namely Chan Chiu Cho and the deceased to Kenya for the installation, testing, running and training in Kenya.  It was submitted that this letter shows that the deceased was not working for Chon Bon but was working for Siusco instead when in Kenya.  I disagree.  The letter was plainly a letter written by Siusco to assist in the obtaining of the necessary visas for Chan Chiu Cho and the deceased for them to enter and remain in Kenya for the said purposes.  Siusco were holding themselves responsible for the expenses of their stay in Kenya.  This is clear from the letter where it is stated

“ Would you please kindly issue visa for the above gentlemen for the purpose. Our company will bear all of the expenses involved during the trip and their stay in Kenya.”

64.  In my view, the said letter dated 23 May 1996 does not provide satisfactory evidence that the deceased was ever employed by Siusco and not by Chon Bon when he went to Kenya.  I am satisfied and find that at all material times the deceased was an employee of Chon Bon. 

65.  The question to consider is whether the deceased who was a production or factory manager of Chon Bon stationed mainly at its Mainland factory and earning an annual salary of HK$169,000 was ever covered by the policy.

66.  In my view, quite clearly the deceased was neither an office attendant nor a clerk.  Mr Khaw, for the plaintiffs, has fairly and properly accepted that.  The deceased was not earning HK$91,000 but significantly more at HK$169,000 annually.  Although the estimated number of employees given as set out in the Schedule was one office attendant and one clerk this was an estimate of the numbers of employees in those categories only namely, office attendant and clerk.  The Schedule did not set out any other categories of employees such as factory workers or factory managers or production managers.

67.  The fundamental issue in this case is whether the coverage of the policy was confined only to the categories of employees set out in the Schedule namely, office attendant and clerk. 

68.  In Leung Chack v Asia Insurance Co Ltd [1991] 2 HKLR 496 the appellant was the employee of a sub-contractor on a construction site.  The respondent was the insurer of the principal contractor.  The appellant sustained personal injury in an accident at work on the site.  He obtained judgment against his employer and against the principal contractor but the judgment was not satisfied.  He therefore sought satisfaction of the judgment under section 44 of the Ordinance.  It was argued that in relation to the principal contractor and his insurer the term “employer” used in Part IV of the Ordinance was extended to include the employees of a sub-contractor.  It was held by the majority of the Court of Appeal that the clear wording of the policy in that case restricting liability to immediate employees could not be ignored.  The policy covered only direct employees of the principal contractors and not employees of the sub-contractors.

69.  It seems to me to be clear on a proper construction of the policy, and I so find, that the coverage of the policy was confined only to the employees of Chon Bon which fell into the categories of office attendant and clerk and which were estimated to be one in number for each category.  The deceased was neither an office attendant nor a clerk.  In my judgment the deceased was not covered by the policy.

70.  I was referred to Chan Chu Ngan v Wong Woon Pui & anor [1992] 2 HKC 193.  In that case the appellant sustained serious injuries in the course of his employment while delivering goods to a vessel.  It was held by the district judge that the insurers were not liable to pay compensation to the appellant on the ground that his claim against the employer fell outside the scope of the policy and that there was not in force a policy of insurance in relation to the appellant.  On appeal it was held by the Court of Appeal that at all times other than when the appellant was delivering goods to vessels, he was covered by a policy of insurance.  The policy was in terms of section 43(1) of the Ordinance plainly a policy of insurance for the purposes of Part IV of the Ordinance which was in force in relation to the appellant.

71.  In my view Chan Chu Ngan is clearly distinguishable on the facts.  Mr Khaw has also fairly and properly conceded that Chan Chu Ngan is distinguishable.  In that case it was clear that at all times other than when the appellant was delivering goods to vessels, he was covered by the policy of insurance.  It was therefore held that the insurance policy in terms of section 43(1) was plainly “a policy of insurance for the purposes of [Part IV] of the Ordinance which was in force in relation to the appellant” (per Nazareth JA at page 198).  On this basis it was held that the insurer was liable to pay the appellant the sum awarded, interest and costs.

72.  In this case, however, it seems to me to be clear that, as I have found, the deceased was not covered by the policy.  In terms of section 43(1) of the Ordinance, there was not in force a policy of insurance in relation to the deceased.

73.  In my view, it matters not that the deceased contracted cerebral malaria in Kenya rather than in Hong Kong. If the deceased were covered by the policy it seems that Chan Chu Ngan is authority for the proposition that the insurer could not escape liability as section 43(1) of the Ordinance provides that the sum shall be due and payable by the insurer “notwithstanding anything to the contrary in the policy of insurance.”

74.  However, as I have said, Chan Chu Ngan is clearly distinguishable.  The words “notwithstanding anything to the contrary in the policy of insurance” in section 43(1) do not assist the plaintiffs here.

75.  Section40(1)does not, in my view, impose an obligation on an insurer to provide a policy of insurance to an employer other than the one requested by the employer.  The insured’s obligation to indemnify is determined by the contract of insurance.  It seems to me that the only insurance that was sought and was provided was as set out in the Schedule namely, for the categories of office attendant and clerk of Chon Bon at the risk address in Hong Kong and not for other workers of Chon Bon including factory workers or factory managers or production managers.  Obviously Chon Bon should have taken out a policy of insurance to cover other employees like the deceased but the fact that it did not cannot impose any obligation on the part of the defendant to indemnify under the policy. 

76.  I have no hesitation in finding that the deceased was not covered by the policy.  Issue (1) is resolved in favour of the defendant.

77.  Issue (2) does not arise in the circumstances.

78.  I give judgment in favour of the defendant.  The plaintiffs’ claim is dismissed.

79.  I also make an order nisi for costs of the action in favour of the defendant against the plaintiffs.  The plaintiffs’ own costs are to be taxed in accordance with Legal Aid Regulations.