MOON FUNG HONG CO LTD v. HONG KONG INTERNATIONAL TERMINALS LTD

DCCJ6139 of 2003

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION  NO. 6139 OF 2003

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D E C I S I O N

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1.  Moon Fung Hong Company Limited (“Moon Fung”) purchased employee’s compensation insurance from The Bank of China Group Insurance Co. Ltd. (“the Insurers”. The insurance policy will be referred to herein as “the Insurance Policy”). The Insurers exercised their right of subrogation and commenced the present action in the name of its insured, Moon Fung. The Defendant has filed a Defence and Counterclaim.

2.  The Insurers consider that there is a “conflict of interest” between them and Moon Fung. The present application is really an application by the Insurers asking for separate legal representation for the named Plaintiff in the sense that the Insurers will have their own legal team to meet the Defence and Moon Fung will have its separate legal team to meet the Counterclaim (“the principal application”). In the alternative, the Insurers ask that the Counterclaim be disposed of by a separate action and tried concurrently with the present action (“the alternative application”, which no doubt the Insurers think will in effect give them what they want in the principal application). In any event, time is asked for the filing and serving of Defence to Counterclaim.

3.  I dismiss both the principal application and the alternative application for reasons stated in paragraph 14 to 16 below. I allow the Plaintiff to file and serve its Defence to Counterclaim within 14 days of the date hereof. I make an order nisi that the Plaintiff is to pay the Defendant’s costs arising out of and in connection with the present application. There will be certificate for Counsel. Such costs are to be taxed if not agreed.  I will now explain the reasons for my decision.

4.  In order to understand better the application, I should state something more about the background of the case.

5.  Background

The Defendant is in the business of operating a container terminal at Kwai Chung (“the Terminal”). The Defendant entered into a contract with Moon Fung whereby Moon Fung was to provide drayage services (“the Agreement”).

6.  On 28 October 2000, an employee of Moon Fung, Mr Chan Kam Chin (“Mr. Chan”), was injured in the course of employment whilst working at the Terminal. Mr. Chan laid claim in DCEC 855 of 2002 (“the EC Application”) against Moon Fung for employee’s compensation under the Employee’s Compensation Ordinance, Cap. 282 (“the Ordinance”). The Court ordered Moon Fung to pay $434,483.10 plus costs. The Insurers paid up.

7.  Subsequently, Mr. Chan commenced action in DCPI 541 of 2003 against the Defendant and Moon Fung for damages under common law for personal injuries suffered. The Defendant settled with Mr. Chan by paying $150,000 (after the amount of $434,483.10 in the EC Application had been taken into account). Mr. Chan discontinued his claim against Moon Fung.

8.  On 26 October 2004, the present action was commenced by the Insurers (in the name of Moon Fung) by exercising their right of subrogation. The claim is for the $434,483.10 plus costs paid in the EC Application as well as costs incurred by Moon Fung/ the Insurers in defending the EC Application.   

9.  The Counterclaim of the Defendant pleaded, inter alia, that Moon Fung had contracted a) under Section 9.1 of the Agreement to fully indemnify the Defendant for “all its loss and expenses, including legal costs, arisen (sic) out of” the accident involving Mr. Chan (paragraph 15 of the Counterclaim. See Bundle of Documents [“Bundle”] page 20 and page 47) and b) under Section 10.2 and 10.3 of the  Agreement “to take out and maintain adequate insurance cover with the Defendant named as a joint insured in the insurance policy” to cover any compensation or damages payable to Mr. Chan (“Limb b”. See paragraph 16 of the Counterclaim. See also Bundle page 20 and pages 47 to 48).

10.  The Counterclaim does not indicate clearly the significance of pleading Limb b). For example, was the Defendant saying that it could take the benefit of the Insurance Policy or  was the Defendant saying something else? The answer is not to be found in the pleadings but in the affirmation  of Chang Woon Kong, Stanley, assistant solicitor acting on behalf of the Defendant (“the Affirmation”).

11.  I refer to paragraph 4 of the Affirmation. The material part states that the Plaintiff “failed to negotiate amendments to the standard terms and conditions of BOC’s EC Policy with the result that the policy specifically excluded liability in respect of ‘the Insured’s liability to employees of contractors to the Insured’ and ‘the Insured’s liability to any person who is not an employee of the Insured within the meaning of the Ordinance’. The effect of the terms and conditions…was that the Defendant was not insured in respect of its liability to the Chan Kam Chin…” The Defendant is not saying that it can take the benefit of the Insurance Policy.

I further refer to paragraph 6 of the Affirmation the material part of which states: “…Further, by reason of clause 10 the Plaintiff assumed liability for all risks in relation to the drayage and related services, including the risk of injury to its employees. That was the mutual contemplation of the Plaintiff and the Defendant and it is for that reason that clause 10 of the Agreement was so drafted.”

I thus understand Limb b) to mean that the Plaintiff had agreed not to hold the Defendant liable in connection with injuries suffered by Mr. Chan (see similar situations in, for example, Coupar Transport (London) Ltd. v Smith’s (Acton) Ltd. (1959)1 Lloyd’s Rep. 369 and Thomas and Co. v Brown (1899) 4 Com. Cas. 186).

12.  Basis of Application – Conflict of Interest

“2.    By their Defence and Counterclaim, the Defendant claims a contractual indemnity against the Plaintiff for, inter alia, the Plaintiff’s negligence in the accident causing injuries to Chan Kam Chin and breach of contract for failing to ensure their interest as per the agreement between them. The BoC policy provides that any liability which arises solely by agreement between the Plaintiff and some other party is excluded under the terms of the BoC policy.

3.     The Plaintiff has been advised by their (sic) own solicitors since the counterclaim was pleaded. As the counterclaim is not covered by the terms of the BoC policy the solicitors instructed by the insurers have no instructions to take over the conduct of the counterclaim.” (Emphasis added)

(See paragraph 2 and 3 of The Plaintiff’s Note of Submission prepared by Miss Lee, Counsel pursuing the application.  The “BoC policy” is the Insurance Policy.)

13.  The affidavit of Lai Kwai Yuk, solicitor, in support of the application, had this to say:

“8.    In the Counterclaim, the Defendant avers that pursuant to Clause 9.1 of the Agreement…between the Plaintiff and the Defendant, the Plaintiff is liable to provide indemnity to the Defendant for all its losses and expenses, including legal costs, arising out of the subject accident.

9.     The Defendant further avers that pursuant to Clauses 10.2 and 10.3 of the Agreement, the Plaintiff is obliged to take out and maintain adequate insurance cover with the Defendant named as a joint insured in the insurance policy.

10.    The pleadings showed that the Counterclaim relates to a contractual dispute between the Plaintiff and the Defendant and it is excepted by the EC policy.

11.   A conflict of interest will arise if my firm continues to defend the Counterclaim on behalf of the Plaintiff. Accordingly the Plaintiff has instructed Messrs. Cheung, Chan and Chung to assist in its Defence to the Counterclaim.

12.   Therefore, we seek an order that there be separate legal representation for the Plaintiff…” (Emphasis added).

14.  Matters considered

Regardless of what I may think about the merits of the “conflict of interest” point, it is incumbent on the applicant to show the proper factual basis for it. As it stands, I only have the word of Counsel and solicitor that  “The BoC policy provides that any liability which arises solely by agreement between the Plaintiff and some other party is excluded under the terms of the BoC policy” and that the Counterclaim involves a “contractual dispute between the Plaintiff and the Defendant and it is excepted by the EC policy.” Counsel and solicitor are entitled to their interpretation of the Insurance Policy. The Court, however, must form its own conclusion whether the alleged exclusion or exception exists. The Insurance Policy was never produced. For this reason alone, I am prepared to refuse the application. 

15.   “An insurer is not entitled to make any claim which the assured himself could not have made. The best known example of the principle is the case of Simpson v Thomson, in which two ships owned by the same person collided through the fault of one. It was held that the insurers of the ship not at fault could not recover from the owner for the negligence of the other ship because the owner could not bring an action against himself. Similarly, if the assured has, before a loss is incurred, agreed to limit his rights against the wrong-doer, the insurer will only be subrogated to the rights so limited” (MacGillivray on Insurance Law, 10 ed. Paragraph 22-39. The citation for Simpson v Thompson is (1877) 3 App. Cas. 279.)

In this context, I will further refer to the case of Thomas and Co. v Brown (supra) where the defendant undertook by a verbal agreement to lighter the plaintiff’s goods. No express bargain was made as to the further terms upon which the goods should be carried. It was stated that the plaintiff would insure the goods which were in fact insured under a policy expressed to be “without recourse to lightermen”. The barge which carried the goods sank at its moorings and the goods were damaged. The plaintiff recovered for the loss on the policy. The underwriters commenced action in the name of the plaintiff by exercising their right of subrogation. The Court held, inter alia, that there was an implied term in the contract between the plaintiff and the defendant that the defendant should not be liable for the loss suffered. The claim was therefore dismissed.

The Court did go on to say that “There is a further difficulty in the way of the underwriters. They are endeavouring to get out of the contract contained in their policy, they have agreed to surrender the right of proceeding against the lighterman, and I cannot understand how they can now come forward and say that that right which they have relinquished has been subrogated to them.” This, however, does not detract from the point made here viz. the insurer can only claim by subrogation what the insured can claim. If the insured is not entitled to claim anything, the insurer cannot be placed in any better position.

16.  The Insurers are therefore only entitled to subrogate to such rights vested in the Plaintiff, the insured. The Counterclaim alleges that the Plaintiff has no rights against the Defendant. By the same token, the Counterclaim is really also saying that the Insurers have no rights against the Defendant. I fail to see why the Insurers will not want anything to do with trial on this issue. I fail to see how the Insurers can be heard to say that they will fight the issue of liability (e.g. whether the Defendant had been negligent) but they will not fight the issue of whether they have any rights against the Defendant (leaving it to Moon Fung to decide whether to fight it and, if so, how to proceed). My view is that the Insurers, having exercised their right of subrogation, are bound to deal with the Counterclaim. The point of “conflict of interest” is simply a red herring.

17.  Miss Lee, Counsel for the Insurer, made reference to a number of cases :

a)       Secker v Oxfordshire County Council and another; Mason v Secker and others, unreported English Court of Appeal hearing on 25 February 1992;

b)      Wong Yat Chiu & Another v Chan Kwok Wa & Others (1999) 2 HKLRD 849; and

c)      Nishimatsu-Costain-China Harbour Joint Venture v Ip Kwan & Co. (a firm) (2000) 2 HKC 445.

I do not think these cases relevant. However, out of respect to Counsel I will deal with them in turn.

18.  In Secker (supra), the car Mr. Morley was driving skidded and went out of control. It collided with a van driven in the opposite direction by Mr. Mason. Mr. Morley was killed and Mr. Mason was injured. Mr. Morley’s widow became administratrix of his estate. She remarried and became known as Mrs. Secker.

Mrs. Secker engaged Counsel and solicitors. On their advice she sued the Oxfordshire County Council (“the Council”) for Mr. Morley’s death alleging that the Council was the highway authority and the road used by Mr. Morley was in an unsafe state. She deliberately did not sue Mr. Mason. In this action, Mrs. Secker did not have the benefit of any insurance cover.

Mr. Mason then commenced action against Mrs. Secker as administratrix of the estate of Mr. Morley claiming damages for injuries suffered. Mr. Mason also sued a Brooklands Aviation Limited (“Brooklands”) which was alleged to be vicariously liable for the negligent driving of Mr. Morley. For this second action, Mrs. Secker (and Brooklands) had the benefit of insurance cover by the Royal Insurance Company (“Royal”). Royal, in exercise of their subrogation rights, engaged Counsel and solicitors different from those already engaged by Mrs. Secker in the first action. Counsel and solicitors were of the view that a cross-claim against the Council was less likely to succeed than a defence based on the negligent driving of Mr. Mason.

An Order had been made that the 2 actions be tried at the same time. This resulted in “the highly unusual situation of two actions about the same road traffic accident with both drivers involved in each action, but one Mr. Morley, or more accurately his estate, being represented by different solicitors and counsel in each of the two actions” (see Lord Donaldson MR at page 2 of the judgment).

The Council objected to different legal representation for Mrs. Secker in the 2 actions. The trial judge did not find favour with the objection and indicated that he intended to prevent duplication of speeches or of evidence, and to prevent cross-examination by counsel for Mrs. Secker, in her capacity as defendant in the second action, of witnesses called by counsel for Mrs. Secker in her capacity as plaintiff in the first action and vice versa. The Council appealed. 

The Court of Appeal by a majority (Lord Donaldson MR and Balcombe LJ) dismissed the appeal. The majority of the Court was of the view that:

a) the 2 actions had not been consolidated (into 1 action). Though ordered to be tried together, they were 2 separate actions. There was thus no power in the Court to require Mrs. Secker to change her solicitors in either action. Lord Donaldson MR, however, went on to say that the trial judge had “undoubtedly power to restrict representation in an appropriate case”;

b) Relying on Lewis v Daily Telegraph (No.2) (1964) 2 QB 601, Lord Donaldson MR said that if the 2 actions had been consolidated, then Mrs. Secker could not have continued to be represented by different teams of lawyers.

(I digress to say that Lewis (supra) did not really decide that co-plaintiffs in a consolidated action can never be separately represented. At most, it indicated that such separate representation w ould rarely be authorised by the court. On this subject, Pearson LJ said: “…I am not saying that it would be impossible ever in any case to have separate representation, wholly or partially, in a consolidated case. It is not easy to envisage such cases; but they can arise; and an illustration is Healey v A. Waddington & Sons, Ltd….” Russell LJ said: “…Prima facie, co-plaintiffs, whether in one original action or in an action consisting of consolidated actions, must be jointly represented by solicitor and counsel. In a proper case, an order may be made authorising severance in point of representation; but this must be, I think, rare and should only be done to avoid injustice…” Sellers LJ said: “…It may well be that a method can be found for applying for an order of the court to have separate representation. I do not want to prejudge it…”); and

c)     the trial judge properly exercised his judicial discretion to allow different legal representation for Mrs. Secker. The trial judge would control the conduct of the trial to see that Mrs. Secker’s dual representation should not be allowed to work unfairly.

19.  I think it worthwhile to mention the practical problems identified by Stuart-Smith LJ in his dissenting judgment if dual representation were permitted. The learned judge said: “ There are all sorts of practical problems which will arise if dual representation is permitted. Are they to be allowed two speeches? Can they cross-examine each other’s witnesses? Can they both cross-examine the other party’s witnesses? If there is to be a settlement, who has authority to negotiate? Mrs. Secker may be subjected to conflicting advice from her two sets of lawyers. Which advice is she to take? It may be that some of these problems may be resolved by the trial judge, but…he is placed in a very difficult position. He must not allow inconsistent cases to be advanced by Mrs. Secker’s different counsel; yet if they are not to be inconsistent I can see no point in separate representation.” 

Mr. Pao, Counsel for the Defendant, reminded me of some of these practical problems if the present application were acceded to.

20.  No matter how one views the decision in Secker (supra), it can be distinguished from the present case. The present case does not involve the “highly unusual situation” obtaining in Secker (supra). In particular, the present case is not concerned with 2 actions. Indeed, Lord Donaldson MR considered that if the case involved only one (consolidated) action, then there could not be different teams of lawyers representing the co-plaintiffs. It would seem to follow that where there is  only one plaintiff, that one plaintiff certainly will not be allowed to be represented by different legal teams. I do not think Secker (supra) helps to advance the present application.

21.  I turn now to consider the case of Wong Yat Chiu etc. (supra).

22.  Gammon Construction Limited (“Gammon”) hired from Fei Kow Transportation Co. (“Fei Kow”) the use of a truck mounted with crane (“Truck-Crane”). At all material times, the Truck-Crane was driven or operated by a Mr. Wong (“Wong”). Mr. Wong drove the Truck-Crane to a site at Kennedy Road (“the site”) which was under the control of Keir Sun Fook Joint Venture (“KSF”). KSF provided the site for Gammon to make and store steel frameworks (“cages”) to be used in construction.

23.  In the course of operating the crane on the Truck-Crane to lift one of the cages, the cage fell and injured Wong and 1 of the employees of Gammon. Another employee of Gammon was unfortunately killed in the incident.

24.  In PI No. 1289 of 1997, Wong claimed damages for his injuries against Fei Kow, Gammon and KSF. The bases of claim included negligence and failure to provide a safe system of work. All defendants alleged contributory negligence on the part of Wong.

25.  In HCA No. 7939 of 1997 Gammon claimed indemnity from Wong and Fei Kow for sums paid to its injured and deceased employee. The 2 defendants pleaded, inter alia, contributory negligence and breach of statutory duty on the part of Gammon.

26.  The 2 actions went before a Deputy High Court Judge for a joint trial pursuant to orders by Masters.

27.  It is noted that Fei Kow (1^st defendant in the PI case and 2^nd defendant in the HC case) was represented in the 2 actions by different teams of legal representatives. Miss Lee, Counsel for the Insurers, had represented Wong in the 2 cases. In the PI case, Wong was plaintiff. In the HC case, Wong was the 1^st defendant.

28.  Miss Lee pointed to this case to illustrate that a party (in this instance, Fei Kow) could be represented by 2 different legal teams.

29.  In answer to my query, Miss Lee explained that the 2 cases before the Deputy High Court Judge were in fact tried one after the other. Such a scenario is of course very different from that of the present one. I have only one case before me. In any event, no one in Wong Yat Chiu etc. (supra) seemed to be concerned over Fei Kow being represented by different legal teams in the 2 cases. There was no argument on the point.

30.  I do not think Wong Yat Chiu etc. (supra) provides any assistance in the present case.

31.  I now turn to the case of Nishimatsu-Costain-China Harbour Joint Venture  (supra).

32.  An employee of the plaintiff drove a vehicle that collided with a van driven by an employee of its sub-contractor. There was a passenger (“the Passenger”) on board the van, an employee of a sub-sub-contractor of the plaintiff.

33.  The Passenger commenced a personal injury action against the plaintiff alleging that the plaintiff was vicariously liable for the negligence of its employee. The plaintiff notified its insurer, Ming An Insurance Co. (HK) Ltd. (“Ming An”). Ming An denied liability to indemnify the plaintiff. Pursuant to the insurance policy, however, Ming An took over conduct of the defence to the action but expressly reserved its position on liability to indemnify the plaintiff. Ming An instructed a firm of solicitors, the defendants, to represent the plaintiff in the action. The defendants duly filed notice to act for the plaintiff in the personal action in lieu of the plaintiff’s own solicitors.

34.  The plaintiff referred Ming An’s repudiation of the insurance policy to arbitration in accordance with the policy. Ming An instructed the defendants to represent it in the arbitration proceedings.

35.  Subsequently, Ming An applied to the Court of First Instance for an order to revoke the authority of the appointed arbitrator (“revocation proceedings”). Ming An instructed the defendants to represent it in those proceedings.

36.  The plaintiff did not want the defendants to represent it in the personal injury action. The plaintiff commenced action and asked the court for, inter alia, an injunction restraining the defendants from so acting.

37.  The majority in the Court of Appeal held, inter alia, that representation of both the plaintiff and Ming An by the defendants clearly gave rise to a conflict of interest. The majority concluded that as there was absence of informed consent by the plaintiff that the defendants should represent it in the personal injury proceedings, it was  inappropriate for the defendants to do so. The Court ordered that the defendants be restricted from acting for the plaintiff whilst also acting for Ming An in relation to other matters (i.e. the arbitration and revocation proceedings).

38. I do not see the need to go any further into Nishimatsu-Costain-China Harbour Joint Venture  (supra). I will only say that I am still awaiting enlightenment as to how that case supports what is prayed for in the present application viz. that the Insurer (and its legal team) be authorised by the court to conduct only part of the case (i.e. the Defence) and Moon Fung be left to its own designs for the remaining part of the case (i.e. the Counterclaim).