NATIONAL UNION FIRE INSURANCE CO. OF PITTSBURGH, PA v. GRAND UNION INSURANCE CO. LTD.

IN THE COURT OF APPEAL

1992, No. 105
(Civil)

________________

________________

J U D G M E N T

________________

Penlington, J.A.:

1. This is the judgment of the court.

2. The plaintiff herein ("National Union") is an insurance company incorporated in the United States of America and carrying on business in Hong Kong. The 1st defendant ("Grand Union") is an insurance company incorporated in Hong Kong against which a winding-up order was made on the 19th December 1990. It is not certain whether or not it will have any available assets but in any event proceedings against it are stayed pursuant to s. 186 of the Companies Ordinance. The 2nd defendant ("Mercantile Mutual") is an insurance company incorporated in Australia with its registered office in Sydney, New South Wales.

Background

3. It is National Union's case that on the 7th June 1983 Mercantile Mutual, acting through agents in London, International Reinsurance Management Pty Ltd ("IRM"), entered into a contract of reinsurance whereby it reinsured 50% of National Union's 80% liability in respect of a policy of insurance relating to the construction of a railway station in Germany. This is evidenced by a reinsurance slip which has on it a chop which reads "Mercantile Mutual Ins. Co. Ltd. per: IRM (U.K.) Ltd. UK 8/3/1/5/1/9/6. Confirmed HK944". The figures "50%" and "100% of 80% of whole" appear in the margin. It is National Union's contention that the reinsurance slip must be read as containing the following clauses:

"2 This reinsurance is subject in all respects to the same terms and conditions (excluding rate and retention) as and to follow the settlements of the National Union Fire Insurance Company of Pittsburgh, P.A. and to bear its proportion of any expenses incurred, whether legal or otherwise, in the investigation and defence of any claim hereunder.

6. Reinsurers hereunder agree to pay their shares of any loss hereon simultaneously with the reinsured hereunder."

These clauses would mean that Mercantile Mutual was obliged to repay National Union in accordance with the contract if National Union elected to meet any claim, without any consultation or approval from Mercantile Mutual. National Union alleges it did so pay the joint venture company which was building the railway station in respect of claims under the policy. It now claims from Mercantile Mutual DM345,045.77 being its share of the losses under the reinsurance contract.

4. The matter first came before Mayo J. on the 18th September 1989 when he made an order ex parte giving leave to National Mutual to issue a concurrent writ against Mercantile Mutual and to serve it on that company at its registered office in Sydney. Mercantile Mutual then issued a summons seeking orders that Mayo J.'s order be set aside and that the action be stayed in favour of the courts of England, later amended to those of New South Wales. Nothing now turns on that. It was also sought to set aside the order for service out of the jurisdiction. This came before Jones J. on the 18th May 1992 and in a judgment of 29th May 1992 he dismissed the summons and in doing so set out his reasons. Mercantile Mutual now appeal against that order.

The evidence

5. National Union rely on the insurance slip, a copy of which has been included in its points of claim, and on three affidavits sworn by Mr. Nicolas Stone, a partner of National Union's firm of solicitors in Hong Kong. He deposes that the facts and matters in his first affidavit are "derived from my conduct of this case on the Plaintiff's behalf from documents read and instructions received in relation thereto and are true to the best of my information and belief". In that affidavit he then goes on to produce a copy of the reinsurance slip (it was in fact the wrong slip but that has been corrected) and to refer the court to the decision in Insurance Company of the State of Pennsylvania v. Grand Union [1991] 1 Lloyds LR 208 as authority that if there is a full reinsurance clause, as here, the reinsurer must follow any settlement made by the insurer. The claims here have been settled and National Union has a good cause of action. He goes on to say that as the cause of action against Mercantile Mutual and Grand Union is identical a concurrent writ should be issued. Mercantile Mutual has no office in Hong Kong and the writ against them must be served in Sydney. In his second affidavit, sworn on the 16th May 1992 (following the filing of two affidavits by Mr. A.J. Brown, Mercantile Mutual's Assistant General Manager), he exhibits a letter from Mr. Brown dated the 10th April 1989 to the Lowndes Lambert Group in London, who are very well known reinsurance brokers, regarding the affairs of IRM in which he refutes a statement in Mr. Brown's second affidavit that Mercantile Mutual only received notice of the claim on the 15th October 1991. The letter says that Mercantile Mutual hopes that Lowndes Lambert can "convince Cedants to be patient until August this year".

6. Mr. Stone's third affidavit was sworn on the 8th June 1992, i.e. after the judgment of Jones J. and National Union had to seek leave to rely on it. That application was opposed but having heard counsel, we granted leave subject to the matter being adjourned so that Mr. Geoffrey Ma, counsel for Mercantile Mutual, could take instructions from Australia and, if thought necessary, file a further affidavit in reply. That however was not done. In that third affidavit Mr. Stone also exhibits copies of "Reinsurance Losses Paid Borderaux" which have been produced by National Union which he says show that the losses have been settled and paid. Each defendant owed DM345,186.62. He also produced a helpful schedule showing how that figure was reached.

7. For Mercantile Mutual two affidavits have been sworn and filed by Mr. Brown. In the first he says he is familiar with the documents held by Mercantile Mutual in relation to risks accepted on its behalf by IRM and he exhibits a copy of the agreement between Mercantile Mutual and IRM in December 1980, with an addendum of June 1981. He says that Mercantile Mutual terminated IRM's authority as from 31st December 1983 and took over the business itself. However Mercantile Mutual have not been able to recover all the underwriting and claims files. A writ was issued against IRM seeking delivery of files and also damages. Judgment was obtained but has not been satisfied. IRM is now in liquidation.

8. Mr. Brown says that as a result of this lack of co-operation from IRM the relevant file did not come into Mercantile Mutual's possession until late 1986 or early 1987. He goes on to say that at no time during the operation of the underwriting agreement between Mercantile Mutual and IRM was he or any other employee of Mercantile Mutual aware that IRM had a related office in London. The office of IRM was in Sydney and the only persons authorised to accept business on behalf of Mercantile Mutual were also there.

9. Mr. Brown goes on to say that Mercantile Mutual has received from Lowndes Lambert in London a statement of account showing a balance as at 30th April 1990 of DM13,426.84 in favour of Mercantile Mutual. He says that the first time he became aware of this claim was when a letter was received from Lowndes Lambert dated 25th October 1991. Mercantile Mutual firstly dispute the authority of IRM (U.K.) Ltd to bind them and on that the crucial issue there will be several witnesses for Mercantile Mutual who all reside in Australia. There are also a great number of documents relative to the activities of IRM in underwriting risks on behalf of Mercantile Mutual, all of which are also in Australia. Mercantile Mutual has been unable to obtain any papers from IRM (U.K.) and has been told they have been lost or destroyed.

The Law

10. It was submitted by Mr. Ma that in order to obtain an order for service out of the jurisdiction National Union must satisfy the court firstly that the claim is such that it has a good chance of succeeding on its merits. Secondly that the claim falls within the letter and spirit of one of the sub-heads of Order 11 rule 1 of the Rules of the Supreme Court. Thirdly that the courts of Hong Kong is the forum in which the case can most suitably be tried in the interests of all the parties and for the ends of justice (Metall & Rohstoff A.G. v. Donaldson Lufkin & Janrette Inc. [1990] 1 QB 391 at 434). There is no dispute that that is the correct test.

Has National Union shown a good arguable case?

11. National Union have produced the reinsurance slip which, on its face, seems to show that IRM (U.K.) on behalf of Mercantile Mutual did accept 50% of National Union's 80% liability on this insurance policy. If that is so National Union rely, as they did below, on Insurance Company of the State of Pennsylvania v. Grand Union for the further proposition that Mercantile Mutual must follow the settlement of the insurer.

12. Mr. Ma contends however that Mr. Stone's affidavits do not go for enough to show a case that the insurance slip does evidence a contract between National Union and Mercantile Mutual. Mr. Stone is not an officer of National Union and simply says it has been shown to him and that all claims have been settled by National Union. He produces the slip as evidence that there was a contract of reinsurance but does not state the exact source of the documents. It was only in Mr. Stone's third affidavit that the borderaux were exhibited which purport to show that losses and expenses have been paid in relation to this claim. It is submitted that simply producing these borderaux as being documents which speak for themselves is not enough - it is pure hearsay, as is the reinsurance slip and there should be evidence from somebody, such as National Union's Finance Director, who can personally speak to the alleged reinsurance contract and as to any losses arising therefrom. These are simply computer print-outs with no supporting evidence from somebody who fed the information into the computer. Complaint is also made that the borderaux, even if properly produced, lack details of how, when and in what circumstances the claims were paid - if they were paid at all. Mr. Ma points to a statement of account exhibited to Mr. Brown's affidavit from Lowndes Lambert in London, which shows a payment of DM854 claimed by National Union. The exhibit seems to indicate that this sum was paid. There is also a fax sent from Lowndes Lambert in London to Mercantile Mutual dated 15th October 1991 saying that final claims had not been received from National Union in Germany in respect of this cover and any action taken by them is "premature to say the least". The writ was issued on the 23rd September 1990. Mr. Ma cited Tay Choo Wah and Anr. v. The Singapore-Johore Express (Pte.) Limited [1992] 1 HKLR 19 as authority that the exorbitant jurisdiction under Order 11 rule 1(1) was not to be lightly exercised (per Clough J.A. at p. 32). It was contended that Jones J. had not considered these matters when he found that it was "abundantly clear that the plaintiff has shown a good arguable case against the 2nd defendant by reason of the reinsurance slip".

13. Mr. John Scott, counsel for National Union here but not below, submitted that Mr. Stone's production of the reinsurance slip and the borderaux was perfectly proper. He was the solicitor for National Union and has access to its documents which clearly are the source of his information and belief to which he is allowed to depose in interlocutory proceedings, pursuant to Order 41 rule 5(2). The reinsurance slip forms part of National Union's documents as do the borderaux. That the contents may be hearsay is not a reason for not receiving them and considering the contents at this stage of the proceedings to see if National Union has a good arguable case. Mr. Stone has also exhibited a schedule which he has prepared on the basis of the borderaux showing the losses and expenses paid by National Union which amount to DM345,186.62 in respect of each defendant. These may well be challenged at the trial and if found wanting National Union will not succeed. The matter has not however reached that stage.

14. There is certainly a challenge as to the source and authenticity of the documents produced but we consider they could be produced by National Union's solicitor at this interlocutory stage. There will be many matters to be gone into at trial regarding how the documents came into existence and to what extent they truly reflect the contractual relationship between the parties, though it does seem from the content of Mr. Brown's affidavit that the main thrust of Mercantile Mutual's defence to this action is that IRM's authority to accept reinsurance risks on behalf of Mercantile Mutual was withdrawn before the date of the reinsurance slip and that in any event IRM (U.K.) was never so authorised. These will also be matters to be gone into at the trial. We are however satisfied that National Union have shown a good arguable case against Mercantile Mutual.

Order 11 rule 1(1)

15. The second requirement is that the claim comes within one of the categories set out in the rule. Jones J. considered that it did come within paragraph (c) being one which "is brought against a person duly served within or out of the jurisdiction and a person out of the jurisdiction is a necessary or proper party thereto". That is not challenged.

Forum conveniens

16. It is the case for National Union that it has an office in Hong Kong and Grand Union is a Hong Kong registered company which, while it is in liquidation is not an empty shell and it may be possible to recover part at any rate of any amounts found to be due by it to National Union. The witnesses for National Union are in Hong Kong or the United Kingdom. The matter will be governed by English common law and there is no juridical advantage to either side whether the locus be Hong Kong or Australia. The case against Mercantile Mutual is founded on very similar if not identical documents to that relating to Grand Union and the evidence will inevitably be the same. If National Union succeed in Hong Kong against Grand Union only it will then have to prosecute the same case against Mercantile Mutual in Australia. Such duplication of actions should be avoided.

17. In his affidavits Mr. Brown states that all Mercantile Mutual's witnesses are in Australia as are its documents. These include not only some five senior officials of Mercantile Mutual but it is very likely that witnesses will be required from IRM and its liquidators. They will have to produce documents and records, all of which are in Australia. They are also resident in Australia. The all important relationship between Mercantile Mutual and IRM should be decided in accordance with Australian law. Finally Mr. Brown states that his information is that any judgment against Grand Union is likely to be worthless and no dividends will be available to creditors.

18. The test as to forum conveniens is now well established to be in the well known dicta of Lord Goff in Spiliada Maritime Corporation v. Cansulex Limited [1987] AC 460 at 476 where he said:

"The basic principle is that a stay will only be granted on the ground of forum non conveniens where the court is satisfied that there is some other available forum, having competent jurisdiction, which is the appropriate forum for the trial of the action, i.e. in which the case may be tried more suitably for the interests of all the parties and the end of justice."

That was also quoted by Jones J. in his judgment and clearly he fully considered this question in the light of that authority. It is easier to lay down the sort of test proposed by Lord Goff than it is in any particular case to decide what forum will be most suitable for the interests of all parties because inevitably those interests will clash but this is a question where this court should not lightly interfere with the discretion exercised below. There are good arguments in favour of a trial in Australia but we consider that Jones J. was right in deciding that the whole matter had a strong connection with Hong Kong and multiplicity of actions, with the related increase in costs, should be avoided. He was of the view that the matter should be decided in one trial in Hong Kong. We would not interfere with that decision.

Material non-disclosure

19. It was argued before Jones J. that National Union had failed to put before Mayo J. the fax sent from Lowndes Lambert, their London brokers, to Mercantile Mutual dated the 15th October 1991 saying that it seemed to them that the action was premature. Jones J. said he considered that a plaintiff seeking leave to serve proceedings out of the jurisdiction had to show a good arguable case. The fax was a matter which may be raised as part of the defence but that is for the trial and failure to exhibit the fax was not material non-disclosure.

20. The borderaux on which National Union rely and which will have to be proved at the trial appear to show payments made and expenses incurred by National Union from October 1984 to September 1987 which, if the reinsurance slip is correct, were covered as to 50% by Mercantile Mutual. The writ was issued on the 23rd September 1990. There may well be evidence not contained in the affidavits as to Lowndes Lambert not receiving information regarding claims paid when they should have. There will also no doubt be evidence as to the relationship between Lowndes Lambert and Mercantile Mutual which is also not clear from the material now before us but we do not consider the contents of the fax of 15th October 1991 were such that it should have been exhibited to the affidavit sworn in support of the original ex parte application.

21. We would dismiss this appeal with costs to National Union except that as to the application to put in evidence Mr. Stone's third affidavit there will be no order as to costs.