HARBOURFIELD ENGINEERING CO LTD v. FALCON INSURANCE CO (HONG KONG) LTD

HCMP 245/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 245 OF 2003

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ASSESSMENT OF DAMAGES

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Application

1. This is an application by the Plaintiff (“Harbourfield”) against the Defendant (“Falcon”) for an assessment of damages for wrongful repudiation of the contract of insurance pursuant to the order made by the Hon. Suffiad J. on 28 July 2003 herein.

Background

2. At the material times, Harbourfield operated decorating and building engineering works in Hong Kong.  For the period from 1 April 1998 to 31 March 1999, it contracted with the Incorporated Owners of Cosmopolitan Centre to provide maintenance of the water systems for drinking and flushing water for the Centre at No. 700 Nathan Road, Mongkok (“the Centre”).  It is noted that the maintenance agreement does not include the fire service system, fire services pumps and back up dynamo of the Centre.

3. To protect its public liability, Harbourfield insured the same through the Defendant, formerly known as Winterthur Swiss Insurance (Asia) Ltd, under policy no. 01270432  (“the Policy”) from 15 April 1998 to 14 April 1999.

4. On 28 January 1999, a case of arson happened on the ground floor of the Centre causing, inter alia, a death of an innocent person (“the Deceased”).  On 27 April 1999, under NKS 8203/1999, Harbourfield was charged under the following summons:

“…… YOU on 8 January 1999 at Allied Plaza, 760 Nathan Road, Kowloon being a person other than a registered contractor did maintain, the fire service installation or equipment Fire Service rising main between 2/F and 3/F which was installed in the premises.

Contrary to: Regulations 7 and 12 Fire Service (Installations and Equipment) Regs. made under Fire Services Ordinance, Cap. 95”

5. The charge of “maintaining” fire service installation was later amended to be “repairing” the same, and on 26 May 1999, Harbourfield pleaded guilty to it only for convenience.

6. Then, after some 2 years later, on 26 September 2002, the estate of the Deceased served the proceedings under HCPI No. 71 of 2002 (“the PI Action”) upon 6 Defendants, including Harbourfield.  It was stated in the Endorsement of Claim therein that Harbourfield was sued for damages for breach of “statutory duties and negligence” causing injuries and death of the Deceased, his estate and dependants.  Harbourfield immediately passed the Writ, the Maintenance Agreement, the Summons and Certificate of Trial in NKS 8203/1999 to Falcon.

7. Falcon instructed Messrs. Deacons to look into the matter.  However, upon investigations, on 19 November 2002, Falcon, through Messrs. Deacons, wrote to Harbourfield repudiating the liability under the Policy.

8. Facing with such decision made by Falcon, Harbourfield went to retain its own solicitors to defend the PI Action on it at its own costs.  On 12 July 2004, a settlement was reached, among others, by the estate of the Deceased and Harbourfield that it would be discharged from all liabilities therein with no order as to costs.  Up to that time, Harbourfield incurred legal costs and disbursement in the total sum of HK$1,012,260.00.

9. In the meantime, on 17 January 2003, Harbourfield also commenced the present proceedings to seek, inter alia, a declaration against Falcon that it had wrongfully repudiated the Policy.  The matter went before the Hon. Suffiad J. on 27 June 2003.  By a judgment dated 28 July 2003, the learned Judge ruled in favour of Harbourfield in that the grounds sought by Falcon to repudiate the Policy was wrongful.  It was said that:

“	24.	There can be no dispute but that Harbourfield was not directly involved in the arson attack.  As such there could not have been any duty on Harbourfield, even if they knew of the arson attack, to report that matter to Falcon under the terms and conditions of the Policy.
	25.	……
	28.	I am of the view therefore that until that allegation was made by the plaintiff in HCPI No. 71 of 2002 and communicated to Harbourfield, nothing triggered off Condition 2 of the Policy such that Harbourfield was under a duty to report to Falcon either the arson attack or its plea to the Summons in NKS 8203/1999.
	29.	The Writ with Endorsement of Claim was served on Harbourfield on 26 September 2002 and on the following day notice was given by Harbourfield to Apex, the agent of Falcon, not only of the claim in HCPI No. 71 of 2002 but also of the Summons in NKS 8203/1999 as well as the plea and conviction Harbourfield thereto.  As such there is no breach of Condition 2 of the Policy.
	30.	……
	31.	As for Condition 3 of the Policy, if Falcon sought to rely on Condition 3 as being breach by reason of the guilty plea by Harbourfield to the Summons in NKS 8203/1999, then the short answer to that would be as per the decision of Woo J (as he then was) in the case of Euro-America Insurance Ltd v. Speedbird Tours Ltd [1993] 2 HKC 552 where he held that condition 6 in the policy under consideration in that case (the wording of which is closely similar to Condition 3 in our present case) when properly construed, the word “admission” in its context could only relate to civil claims and proceedings but excluded criminal charges.  Moreover, if that condition did apply to criminal charges it was void for being against public policy.”

10. The learned Judge further awarded damages to Harbourfield for the wrongful repudiation to be assessed as well as costs, to be taxed if not agreed.

11. Falcon was not happy and therefore took up the matter to the Court of Appeal under CACV 275/2003.  However, the appeal was dismissed with costs on 3 June 2004.  On 2 July 2004, Falcon issued a notice of motion for leave to appeal to the Court of Final Appeal.  However, the motion was eventually withdrawn in November 2004 with costs to Harbourfield.  On 14 September 2004, Harbourfield and Falcon came to agreements on costs the present proceedings and subsequent appeals in the sums of $190,000 and $150,000 respectively.

12. On 9 December 2004, the parties appeared before Mr. Registrar Chan who gave a number of directions for the purpose of assessment of damages by Harbourfield, including:

“	2.	The following Affirmations do stand as evidence at the hearing of the assessment of damages, namely:-
		(i)	1st Affirmation of Lam Mei Kiu, Vivian filed herein on 17th January, 2003;
		(ii)	3rd Affirmation of Lam Mei Kiu, Vivian filed herein on 11th September, 2003;
		(iii)	4th Affirmation of Lam Mei Kiu, Vivian filed herein on 25th August, 2004;
		(iv)	5th Affirmation of Lam Mei Kiu, Vivian filed herein on 24th November, 2004.
	3.	There shall be discovery of documents within 14 days in accordance with Order 24, rule 2, and inspection with 7 days thereafter in accordance with Order 24, rule 9.”

13. On 24 March 2005, the parties appeared before me for the assessment of damages.  Mr. Roland Lau of Counsel, instructed by Messrs. Kong & Tang, acted for the Plaintiff, and Mr. John Bleach S.C. represented the Defendant upon instructions from Messrs. Deacons.

14. Originally, the Plaintiff sought to seek a total of sums of $1,446,969 against the Defendant, particulars of which are:

		$
(a)	Costs of HCMP No. 245/03 of $329,379
	less $190,000 agreed costs	139,379
(b)	Costs of CACV 275/03 of $210,150
	less $150,000 agreed costs	60,150
(c)	Costs of the said abortive appeal to CFA	235,180
(d)	Costs of the PI Action	1,012,260
		1,446,969

However, probably upon receiving the skeleton submissions of Mr. Bleach, Mr. Lau represented that his client would not pursue damages under (a), (b) and (c).  The Plaintiff would only sought to recover the costs in defending the PI Action as damages by reason of the fact that they reasonably flowed from the repudiation of the Policy by the Defendant.

15. On the other hand, Mr. Bleach also indicated that the Defendant would not challenge the “reasonableness” of the legal costs incurred in the PI Action.  However, it was the “entitlement” being vigorously disagreed.  In the words of Mr. Bleach,

“…… these are not recoverable from the Defendant by way of damages as the “risk” or “event” that was the subject matter of the Personal Injury Action was not within the cover of the Policy; hence these costs are not sums that the Defendant can, whether as a matter of contract or otherwise, be legally liable for.” (para 2(i) of Mr. Bleach’s skeleton)

Hence, it will be a “all-or-nothing” argument between the parties.

16. As a result of the stands taken by the parties, unlike the usual assessment of damages, there was no examination of witnesses.  Upon careful consideration of the evidence authorities and submissions before the Court, I have come to the conclusion that the Plaintiff is not entitled to recover the said costs in the PI Action from the Defendant.  My reasons appear as follows.

17. First, in my view, the Defendant was entitled to rely on legal submissions to defend for an assessment of damages.  During the submissions of Mr. Lau, he appeared to complain that the Defendant was “ambushing” the Plaintiff in the sense that the Defendant’s case was not made known to the Plaintiff until the receipt of Mr. Bleach’s skeleton.  With respect, one can foresee that the Defendant will vigorously defend for the assessment of damages.

(a)	Shortly after the delivery of the said Judgment of the Hon. Suffiad J. on 27 June 2003, the Defendant through their solicitors, stated clearly on 18 August 2003 that:
	“	… We write to place on record that our client shall not provide any indemnity to you in respect of the arson attack, in particular, the Plaintiff’s claim in HCPI No. 71 of 2002.”
(b)	The parties proceeded with the assessment.  The Defendant did not seek to cross-examine the witness(es) of the Plaintiff.  The Defendant did not intend to call any witnesses.   It was an unusual course.
(c)	Afterall, the burden lies on the Plaintiff to prove that it was entitled to the damages sought.

18. Second, when the Hon. Suffiad J. granted the judgment to the Defendant, he expressly refused to award 2 further declarations also sought by the Plaintiff, viz:

“	2.	A declaration that the Defendant is liable to indemnify the Plaintiff under the terms of the Policy in respect of any potential liability incurred by the Plaintiff for the loss of or damage to any building, structure or property in the care, custody or control of the Plaintiff;
	3.	A declaration that the Defendant is liable to indemnify the Plaintiff against all costs, expenses and damages caused by and incidental to the claim or claims against the Plaintiff arising out of the proceedings of the High Court of the Hong Kong Special Administrative Region Number HCPI 71 of 2002;”

Further, the learned Judge did indicate that Falcon was entitled to raise “other” defences when Harbourfield would seek indemnity in accordance with the Policy:

“	40.	There was one further point raised by Ms Molloy who appeared for Falcon in this matter.  It is strictly speaking not a ground put forward for repudiation of the Policy when it was repudiated by letter from Messrs Deacons dated 19 November 2002.  Since the point has been raised, I shall nevertheless deal with it as well.
	41.	It was contended by Ms Molloy that the Policy does not cover this incident on the grounds that the business of the insured (i.e. Harbourfield) stated in the first page of the Policy (at page 23 of the Bundle) being “Decoration/Building Engineering Works” does not cover maintenance works which Harbourfield was engaged in at the Cosmopolitan Centre.
	42.	In my view that is not a contention which can be raised in this matter since even if Ms Molloy is correct in her contention on this point, it is not a ground for repudiation of the Policy by Falcon.  That point may be raised by way of defence by Falcon when and if Harbourfield makes a claim against it to be indemnified under the Policy arising from the arson incident.  It is therefore not a point which I need to determine in this case to decide the question whether there was or was not any wrongful repudiation of the Policy by Falcon.”

19. Third, legally, I agree with Mr. Bleach that the Policy is a contract, and on a proper construction of the Policy,

“	(iii)	……the liability of the Defendant to indemnify the Plaintiff only arises in respect of “accidents caused … through the fault or negligence of [the Plaintiff] or his employees whilst engaged in the business upon or about the premises.”
	(iv)	……
	(v)	It has always been the Plaintiff’s case that the “accident” was not caused through any fault or negligence of the Plaintiff or any of its employees and the Plaintiff has never sought to suggest and certainly there is no evidence to suggest that the “accident” with which we are concerned (namely the arson and resulting fire and resulting injury) occurred whist any of the Plaintiff’s employees were “engaged in the business” upon or about the premises.
	(vi)	Quite simply, and as a matter of straightforward contract the “event” or the “risk” that was the subject of the Plaintiff’s claim against the Defendant for an indemnity under the Policy was not an “accident” that fell within the mandatory terms of the Policy and hence the Plaintiff was not entitled to any indemnity under the Policy in respect of the claim that it put forward.
	(vii)	Equally, the Defendant’s liability under the Policy to indemnify the Plaintiff for legal costs and expenses only arises in respect of legal costs and expenses incurred in respect of a “risk” or “event” which is covered by the Policy.”
	(paragraph 6 of Mr. Bleach’s skeleton)

20. Fourth, factually, Harbourfield has failed to prove upon the evidence before me that, on balance of probabilities, Falcon, but for the “wrongful repudiation”, would have taken up the PI Action for Harbourfield and as such, the said legal costs of HK$1,012,260.00 are the damages caused or reasonably flowed from the said repudiation.

(a)	When Messrs. Deacons were instructed by Falcon to investigate into the matters, it was done on a without prejudice basis.  It did not file any notice to act for Harbourfield in the PI Action at all.
(b)	At the hearing before the Hon. Suffiad J., Harbourfield raised that Falcon was estoppeled from repudiating liability under the Policy because it has instructed Messrs. Deacons to handle the matter.  However, the learned Judge refused to accept the estoppel point because:
	“	34.	For estoppel to arise, it is incumbent upon Harbourfield to show an unequivocal act on the part of Falcon (or its legal representative) affirming the validity of the Policy.  Moreover such an unequivocal act must also be communicated to Harbourfield.
		35.	In this connection, Harbourfield can only seek to rely on two possible acts giving rise to estoppel.  Firstly, the letter of 15 October 2002 when Falcon wrote to Messrs Deacons asking Messrs Deacons to handle the matter for them on a without prejudice basis and secondly, Messrs Deacons’ letter of 25 October 2002 to Messrs Yip, Tse & Tang ascertaining the basis of the plaintiff’s claim in HCPI No. 71 of 2002 against Harbourfield and asking Messrs Yip, Tse & Tang to reconsider such claim.
		36.	In so far as Falcon’s letter of 15 October to Messrs Deacons is concerned, that is certainly not an act affirming the validity of the Policy.  Nor was it communicated to Harbourfield.  Falcon was entitled to place the matter in the hands of its solicitors for them to handle.
		37.	As for Messrs Deacons’ letter of 25 October, it does not in any way affirm the validity of the Policy.  Indeed that letter does not even indicate the Messrs Deacons was acting for or representing Harbourfield.  Messrs Deacons chose their words carefully by saying they have been “consulted” by Harbourfield.  Moreover, the law is clear that Falcon (or Messrs Deacons on its behalf) is entitled to investigate a claim.  That was all that letter was doing.
		38.	At no time had Messrs Deacons stepped in to take over the conduct of HCPI No. 71 of 2002 on behalf of Harbourfield nor in any way indicate that it was representing Harbourfield in defending that action.  Moreover nothing to that effect was communicated to Harbourfield to lead it to believe that was the case.”
(c)	On 19 August 2003, the solicitors for Harbourfield wrote to Messrs. Deacons complaining that Falcon having repudiated the Policy on 19 August 2003.  It was then confirmed that Harbourfield had accepted such repudiation.  Messrs. Kong & Tang said:
	“	We refer to your letter dated 13th August, 2003 upon which we have taken instructions from our client.
		In the above letter, you state that “our client shall not provide any indemnity to you (sic) in respect of the arson attack, in particular, the Plaintiff’s claim in HCPI No.71 of 2002”.  By referring to the Judgment of Mr. Justice Suffiad given on 28th July, 2003, the learned Judge held that the repudiation of the Policy by your client was wrongful.  Therefore, your client is being held liable to perform the terms and conditions of the Policy and to indemnify our client whatever damages, which it may have suffered as a result of the arson incident.  In regard to your client’s statement aforesaid, it clearly evinces your client’s intention not to perform the Policy.  In this connection, we consider that it amounts to an anticipatory breach of the Policy in the light of the said Judgment.  We are now instructed by our client to give notice to your client through your firm, which we hereby do, that our client accepts your client’s repudiation of the Policy and reserves its rights to claim against your client for such breach without further notice.”
(d)	I find that, with or without the “wrongful repudiation” in the present case, it is more likely than not that Falcon would still refuse to take up the PI Action and agree to indemnify Harbourfield under the Policy.

21. Finally, to complete my ruling, I should add that it is not the wrongful repudiation of the Policy by Falcon causing Harbourfield to spend the legal costs in the PI Action.  In my view, it is the “pleading of guilty” to the charge in NKS 8203/1999 for “convenience” which dragged Harbourfield into the PI Action.  Probably, but for these breach of “statutory obligations” under the Fire Service Ordinance, Harbourfield would not have been get involved into such lengthy and unnecessary litigation.

Costs

22. I do not have the benefit of hearing argument on costs from the parties.  However, there appears to be no reason why costs should not follow the event.  By concession and my ruling, Harbourfield has lost completely in the present assessment.  I also see fit for counsel’s assistance in the matter.  As such, there will be an order nisi, which will become absolute within 14 days from today, that costs of the assessment, including Certificate for Counsel for hearing before me on 24 March 2005, be paid to Falcon by Harbourfield, to be taxed if not agreed.