THE MING AN INSURANCE CO. (H.K.) LTD v. CHAN MAN DUN & ANOTHER

HCMP2437/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.2437 OF 2004

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REASONS  FOR  DECISION

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1. The plaintiff is seeking a declaration, inter alia, that it is entitled to and did avoid a policy of motor vehicle insurance taken out by the 1^st defendant upon which notice to insurer has been given pursuant to the Motor Vehicles Insurance (Third Party Risks) Ordinance, Cap.272 by the plaintiffs in an action against the 1^st and 2^nd defendants arising from a fatal accident.  I have given judgment for the plaintiff at the hearing and I now give my reasons.

Background

2. The plaintiff is an insurance company, and it carries on the business of, inter alia, motor vehicle insurer.

3. The 1^st defendant is the owner of a van with registration mark JB 4251 under Vehicle Registration Document dated 31 May 2000 specifying chassis no. CONV240NJ-00106 and engine no. 4D56-ED8179 with seating capacity excluding driver of 6.

4. On 17 May 2002, Mr Cheung Shui Ming, of Mass Insurance Brokers Ltd, an agent of the plaintiff, went to the 1^st defendant’s office and gave him a Motor Vehicle Insurance Proposal Form of the plaintiff.  The 1^st defendant replied to the questions in the proposal form, and attached the Vehicle Registration Document.  The chassis number as per the Vehicle Registration Document and seating capacity including driver of seven were entered into the proposal form.  The Vehicle Registration Document showed that the 1^st defendant was the current owner of the vehicle JB 4251 with the engine number stated therein.  The 1^st defendant signed underneath the declaration in the proposal form :

“I/We hereby declare that all the particulars of this proposal are true, and I/we agree that this proposal shall be the basis of Contract between myself/ ourselves and the Ming An Insurance Co (HK) Ltd.”

5. An insurance policy no. PMPG-02-00506-8 and a certificate of insurance covering 30 May 2001 to 29 May 2003 was issued by the plaintiff upon the payment of premium of $2,677.50.  The insurance policy contained the following condition :

“The due observance and fulfilment of the Terms of this Policy is so far as they relate to anything to be done or not to be done by the Insured or any person claiming to be indemnified and the truth of the statements and answers the proposal shall be conditions precedent to any liability of the Company to make any payment under the Policy.”

6. On 19 August 2002, the 1^st defendant authorised his son, the 2^nd defendant, to drive JB 4251.  JB 4251 collided with motor cycle JF 197 and the motor cyclist was killed in the accident.

7. The administrators of the deceased motor cyclist issued proceedings in HCPI734/2004 against the 1^st and 2^nd defendants, and served notice to insurer under the Motor Vehicles Insurance (Third Party Risks) Ordinance on the plaintiff.  The plaintiff has served counter notice avoiding the policy.

8. The plaintiff relied on the evidence of Mr Lung Pui Wah, Motor Vehicle Examiner of the Transport Department at the trial before a magistrate against the 1^st and 2^nd defendants on, inter alia, charges of respectively permitting to be driven or used on the road, and driving or using, an unregistered or unlicensed vehicle JB 4251.  At the trial, Mr Lung’s expertise was not challenged by 1^st and 2^nd defendants.  He testified that JB 4251 had a different chassis no. V24-4020549 and different engine no. 4D56-EK2099.  He also said that the purportedly registered vehicle should be a long wheel based vehicle with seating capacity of seven, and JB 4251 in question was a short wheel based vehicle with seating capacity of four, and it was impossible for it to accommodate six seats.

The plaintiff’s case

9. Under section 10(3) of the Motor Vehicles Insurance (Third Party Risks) Ordinance :

“(3) No sum shall be payable by an insurer under the foregoing provisions of this section, if, in an action commenced before, or within 3 months after, the commencement of the proceedings in which the judgment was given, he has obtained a declaration that, apart from any provision contained in the policy, he is entitled to avoid it on the ground that it was obtained by the non-disclosure of a material fact, or by a representation of fact which was false in some material particular, or, if he has avoided the policy on that ground, that he was entitled so to do apart from any provision contained in it ……”

10. Mr Wong SC for the plaintiff submitted that the insurance policy was vitiated on the ground that it was obtained by non-disclosure of material facts, or by representation of facts which were false in some material particulars. 

11. The misrepresentation and/or non-disclosure are :

(1)	the chassis number entered into the proposal form as per the Vehicle Registration Document was different to the actual one;
(2)	the seating capacity entered into the proposal form was seven including the driver while it should have been four;
(3)	the engine number as appearing in Vehicle Registration Document attached to the proposal form was different to the actual one; and
(4)	the 1st defendant was the current registered owner of JB 4251 as per the Vehicle Registration Document while in fact no such vehicle with such chassis and engine numbers was owned by him.

12. Mr Wong was not relying on any fraudulent misrepresentation, but submitted that either negligent or innocent misrepresentation is sufficient to set aside the contract in equity.

13. Mr Wong submitted that the policy expressly provided that the proposal form and the declaration thereof should be the basis of contract of insurance and were deemed to be incorporated therein and the truth of the statements in the proposal form should be conditions precedent to any liability of the plaintiff in making any payment under the policy.

14. Ms Diana Lam, Senior Clerks of the Claims Department of the plaintiff deposed that any prudent insurer as was the plaintiff would find it so important and material in the decision in fixing the premium or in determining whether to take the risk and the terms thereof the factors of the chassis of the vehicle; the engine of the vehicle; and those particulars were different from those contained in the Vehicle Registration Document.

15. Mr Wong referred to position of representation pending negotiation a marine insurance contract under the Marine Insurance Ordinance, Cap.329, which similar provision had been held by the House of Lords to apply by analogy to a non-marine case in Pan Atlantic Insurance Co. Ltd v. Pine Top Insurance Co. Ltd [1995] 1 AC 501.

16. Under the Marine Insurance Ordinance section 20 :

“	(2)	A representation is material which would influence the judgment of a prudent insurer in fixing the premium, or determining whether he will take the risk.
	(3)	A representation may be either a representation as to a matter of fact, or as to a matter of expectation or belief.”

17. In the Pan Atlantic Insurance case, it was held that a “material circumstance” was one that would have an effect on the mind of the prudent insurer in estimating the risk and it was not necessary that it should have a decisive effect on his acceptance of the risk or on the amount of premium demanded.

18. Mr Wong submitted that under the Road Traffic Ordinance, Cap.371, every vehicle of a class specified in Schedule 1 which is in used on any road shall be licensed (section 22(1)); and a vehicle shall not be licensed unless it is registered (section 22(2)(a)).  The Commissioner for Transport may refuse to register any motor vehicle which does not accord with the particulars contained in the application for the registration thereof (section 24(1)); and the Commissioner may refuse to register any vehicle which is already registered (section 24(3)).  The Commissioner may cancel the licence of a vehicle if any of the particulars contained in the application for the licence do not accord with the particulars contained in the register (section 25(1)(b)(iv)).

19. As such, the JB 4521 “as is” is not properly registered under the Road Traffic Ordinance by reason of the discrepancies in the particulars entered in the register, and the purported registration is liable to be cancelled.

20. Mr Wong submitted that not only is there express evidence of reliance on the particulars, those matters are of such importance as to the validity of the registration of the vehicle as must be presumed to be material and having induced the plaintiff in the decision in the issuance of the policy.  In support, Mr Wong referred to MacGillivray on Insurance Law (10^th Ed., 2002), p. 421, para.17-28 :

“Where the materiality of the undisclosed matter is so obvious it may justify the court in presuming that the underwriter was induced, but this an evidential presumption which may be rebutted by contrary evidence adduced by the assured.”

The defendants’ case

21. The case of Miss Sun for the defendants can be summarised as follows :

(1)	the 1st defendant was not aware of the discrepancies and did not induce the plaintiff in entering into the contract;
(2)	the JB 4251 insured for was the vehicle “as is”, and the particulars as to the chassis number and engine number and seating capacity were not material;
(3)	the plaintiff did not rely on the particulars of the chassis number and engine number and seating capacity in the proposal form, and hence was not induced into issuing the policy thereby;
(4)	the plaintiff has waived the proposer’s duty to disclose by not inquiring in the matter;
(5)	the plaintiff had own knowledge of the discrepancy of the seating capacity, and/or was negligent in not making enquires as to the chassis number and engine number and seating capacity; and
(6)	the 1st defendant did not know English, and was never explained that the insurance policy was issued on the conditions precedent of the statements and answers in the proposal, and the policy should be construed contra proferentem.

22. As to (1), Mr. Wong is not relying on fraudulent misrepresentation.

23. As to (2), Miss Sun submitted that the 1^st defendant’s evidence was that there was that no disposal of the vehicle from purchase until the accident.  Hence, we are still looking at the same vehicle.  But when queried on that JB 4251 was not properly registered by the accurate particulars, Miss Sun had to concede that she could not argue against that.

24. As to (3), Miss Sun submitted that he accident had nothing to do with either the chassis number, engine number or seating capacity.  If the vehicle had less seat, it only meant there would be less passengers, and the risk covered would be less.  Hence, Miss Sun was in fact submitting what is or is not a material fact is to be judged not at the time of the contract, but some time afterwards, at the time of the accident.

25. As to (4), Miss Sun referred to Malcolm Clarke on The law of Insurance Contracts (4^th ed.), para.23-12A :

“If there is evidence that insurers in general do not inquire about a particular matter, that indicates that the matter is not material.  If, on the contrary, the evidence is that most insurers (and thus the prudent insurer) would regard the matter as material, is there waiver, if the particular insurer does not ask about it?  In England, the usual answer has been negative; thus, in a motor case in 1934, Scrutton LJ said of the proposer that ‘it does not matter whether he is asked questions about it, he must tell every material fact’.  This orthodoxy seems, however, to have overlooked some observations of Lord Mansfield, who said in 1782 that the underwriter ‘waived the inquiry by putting no questions to him, though they naturally arose from the subject-matter’.  Today, there is some movement back to Lord Mansfield.”

26. With the utmost respect, be it the line of authorities per Lord Mansfield or Scrutton LJ, the plaintiff did in the proposal form ask for the particulars of the chassis number.

27. As to (5), Miss Sun at one point submitted that the particulars on the Vehicle Registration Document were patently false, but however she was unable to demonstrate her point.  Miss Sun conceded that there is no evidence that the broker knew about any of the discrepancies between the vehicle and the Vehicle Registration Document, nor was there evidence of an opportunity to examine the vehicle by him, but she added that there might just be a doubt as to whether the broker might have knowledge.

28. Miss Sun also conceded that the proposal was handled in the normal way in the ordinary course of business, and there was no warning bells upon which the plaintiff should be placed on enquiry, but she nevertheless submitted that in dealing with insurance for second hand vehicle, the plaintiff should have been more prudent.

29. As to (6), Miss Sun conceded that the proposal form itself and the declaration was in both English and Chinese.  She nevertheless cited Yau Shun-po v. Oriental Insurance Co. Ltd [1986] HKLR 72 per Rhind J as authority for the application of the contra proferentem rule against the insurer who drafted the document.  The facts turned on interpretation of the definition of “driver” under the policy, and are not recited as not directly relevant for the present purpose.

30. Miss Sun picked on the wording of the declaration and the conditions in the policy.  Miss Sun submitted that while the English wording in the declaration was that the particulars are the basis of the contract, the Chinese words were “依據” or that the contact was pursuant to the particulars.  Miss Sun further complained that in the policy, the status of the particulars was elevated to conditions precedent.  Miss Sun submitted that the words “依據” (or pursuant to) are ambiguous, and must be given a meaning least favourable to the plaintiff.

Consideration of the case

31. I find that the chassis number and engine number are material particulars for the registration of a vehicle under the Road Traffic Ordinance, for it is by those particulars a vehicle is registered, and not by the registration mark, which is given only as a result of registration.  Miss Sun’s argument that we are looking at the same car is not sound, as the registration is liable to be cancelled for inaccurate particulars.

32. It is so obvious that it goes without saying that those particulars would be regarded by a prudent insurer as material in deciding upon the writing of a motor vehicle insurance, as the validity of the registration of the vehicle is liable to be impugned upon material discrepancies such as different chassis and engine number.

33. There is no evidence nor indication that the plaintiff or its agent had any knowledge of the discrepancies.  I do not find that the plaintiff has been negligent in not checking for the discrepancies.  The discrepancies were not apparent on the face of the document, and the proposal form was handled in the normal way in the ordinary course of business without inspection of the vehicle.  If there were to be any duty to inspect, 1^st defendant as owner would be better placed to be more diligent and informed than the plaintiff.

34. Further, Mr Wong submitted that the plaintiff is not precluded from relying on misrepresentation even if their conduct in not pursuing any chance of enquiry may have amounted to negligence.  He referred to MacGillivray at p.402, para.16-48 :

“…If the true facts are made known to, or discovered by, the agent of the insurers, in circumstances where the knowledge of the agent can properly be deemed to be the knowledge of his principals, the company must be taken to know the true facts.  Where, however, the insurers merely have the opportunity or means of discovering the truth aliunde and fail to do so, they are not precluded from relying upon the misrepresentation even though their conduct in not pursuing the chance offered them may have amounted to negligence.”

35. The wording of the declaration in the proposal form is in clear language, both in English and Chinese, to give notice to the proposer that the contract is formed either on the basis or pursuant to the particulars given by the proposer.  There is no prejudice or unfairness that the policy is later stated to be upon the conditions precedent of those particulars, which notice has been clearly given in substance in the declaration.

Conclusion

36. All the facts being before me, and there being no factual disputes which ought to be investigated, I was satisfied that there were misrepresentation or non-disclosure which were material, and the plaintiff  did rely on them and was induced into issuing the policy.  Hence, I found for the plaintiff and entered judgment in terms of paragraphs 1 to 3 of the Originating summons.

37. I have also awarded costs of the action to the plaintiff, to be taxed if not agreed.