INGO INTERNATIONAL LTD v. CANADIAN EASTERN LIFE ASSURANCE LTD

HCA 19675/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 19675 of 1999

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J U D G M E N T

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The background:

1.  In this action the Plaintiff, Ingo International Limited, (Ingo), sues the Defendant, Canadian Eastern Life Assurance Limited, (Canadian), for US$1,350,000 on a Debtor/Creditor life insurance policy, issued by Canadian, covering the life of one Ng Hiu Tung, who owed debts to Ingo, which sums had been borrowed by Mr Ng to finance his business activities.

2.  Mr Ng died in Buenos Aires, Argentina, on about 19 November 1997, when the policy was in force.

3.  Ingo notified Canadian of the death by letter dated 20 November 1997.  By letter dated 3 August 1998, following correspondence between solicitors for the parties, Canadian denied liability on the policy on the grounds of misrepresentation, and what were alleged to be substantial matters of non-disclosure.  Comprehensive particulars were set out in the letter.

4.  The writ was issued by Ingo on 31 December 1999, and the defence filed on 9 February 2000.  There the matter went to sleep, for over 2 years, until 28 March 2002, when Ingo filed a notice of change of solicitors.  Again the matter went to sleep, this time for a further 18 months, reviving on 3 September 2003, when a Notice of Intention to Proceed was filed by Ingo.  There was a further delay of 5 months, until 10 February 2004, before Ingo filed a summons for directions.

5.  Following the directions and the exchange of lists of documents, Canadian took out a summons to strike out, for want of prosecution.  That summons was subsequently dismissed, although it must be said that the Master found that Ingo’s delay in prosecuting the claim was inordinate and inexcusable, and that Canadian had been prejudiced.  However as the Master was not satisfied that the prejudice identified had been caused by the delay, the summons was dismissed.

Application for Security for costs:

6.  On 23 December 2004, Canadian made an application for security for costs.  On 5 January 2005, the Master granted leave to set the action down for hearing within 60 days, for four days in the fixture list.  Canadian’s application for security for costs came on before the Master on 7 March 2005.  A sum of HK$1,741,162 was sought by way of security.  The Master ordered that security of HK$900,000 be provided within 32 days, failing which the proceedings were to be stayed.  From that order Ingo appeals.

7.  Counsel for both parties accept that the law as to the matters that a court might take into account are conveniently summarised in Keary Developments v Tarmac Construction Ltd [1995] 2 BCLC 395, which law has been applied in Hong Kong by the Court of Appeal in Wing Hing Provision, Wine & Spirits Trading Co Ltd v Hanjin Shipping Co Ltd [1998] 4 HKC 461.  In Keary, at pp 400G-403I, Peter Gibson LJ set out seven matters.

8.  The court has a complete discretion whether to order security and it must act in the light of all relevant circumstances.  There are in this case a number of relevant circumstances.  I shall deal with those as I consider the matters to be taken into account.

Will an order for security stifle the action?

9.  The position of Ingo is that if ordered to give security it will be unable to do so and in all probability will be deterred from pursuing the claim.  That is a consequence of the order, and not a basis upon which security should not be ordered.

10.  The affidavit on behalf of Ingo asserts that Ingo is owned by a large state textile corporation in Shanghai, with the shares in Ingo being held by Mainland officials as nominees.  It is asserted, in the complete absence of any evidence, that

“by reason of macro financial control in the mainland, as matter of national policy, since 2000, (the shareholders) are not permitted to provide any financial assistance to the plaintiff.”

That is hardly satisfactory evidence that no other person can provide the necessary financial assistance to Ingo.  Indeed the primary inference that arises from the assertion that Ingo is owned effectively by the state or a provincial or city government in the PRC, is that ample funds would be available to fund the litigation.

11.  That inference is substantially reinforced by the following statement made by the solicitors for Ingo, in a letter to the solicitors for Canadian, dated 5 August 1999:

Our client was and still is the Shanghai Group’s representative office in Hong Kong and has been engaged in the principal business of marketing and exporting textile products to African and other Third World countries with an average turnover of not less than HK$100 million.  Although our client was incorporated with a modest capital of HK$10 million divided into 10,000 shares of HK$1.00 each (as to which 5,000 shares were at all material times and still are registered in the name of Ting representing the interests of the Shanghai Group; 1,500 shares in the name of Cui Yi representing the interest of the governing body of the textile industry in Shanghai and the balance of 3,500 shares in the name of Wong Yu representing his personal interest in the joint ventures/representative office), our client has the financial backing and resources of the entire Shanghai group behind it and support of financial institutions in Hong Kong who have offered and from time to time made available to our client General trade facilities of up to HK$30 million and US$1 million merely on the strength of a corporate guarantee by Shanghai Textile United Company Ltd and a personal guarantee furnished by the directors of our client.

12.  Wong Yu completed the proposal for the insurance and has made the affidavits on the half of Ingo in this matter.  Mr Ho said that the plaintiff could not be expected to prove a negative, that is, that it does not have any money, and I accept that that may be difficult.  But here there is a positive assertion by the plaintiff's own solicitors of its strength and the strength of those behind it.  It is clear that in the determination of the issue as to security for costs the court is perfectly entitled to look at those behind corporation to see whether or not they have the resources to fund the litigation.  The overwhelming inference here is that those behind Ingo could fund this litigation if they chose to.

13.  For these reasons I am not satisfied that it would not necessarily follow that if security is ordered Ingo would be unable to pursue the claim.  Before the court refuses to order security on the ground that to do so would unfairly stifle a valid claim, the Court must be satisfied that, in all the circumstances, the claim would be stifled.  I am not so satisfied.

14.  Mr Stock submits that that is the end of the matter and the appeal should now be dismissed.  It is right that it could be dismissed on the ground.  But in case I am wrong on that ground, I go on to consider Mr Stock’s second ground.

Is there a high degree of probability of the failure of the action?

15.  In considering all the circumstances the court may have regard plaintiff’s prospects of success, but it should not go into the merits in detail unless it can be clearly demonstrated that there is a high degree or probability of success or failure.  In the present case I am satisfied that there is a sufficiently high degree of probability of failure on the part of Ingo that I should look at the merits.  The primary defences raised by Canadian are defences of non-disclosure and misrepresentation. 

16.  As to misrepresentation, the evidence establishes that Ingo procured the policy without disclosing to Canadian that a Manulife policy on the life of Mr Ng had been assigned to Mr Wong, the director of Ingo.  Mr Wong, who gave the instructions for the Ingo policy, stated that the purpose of the Manulife policy was to provide protection for Mr Ng’s family.  Given that at that time the policy had been assigned to Mr Wong, to cover debts owed by Mr Ng to Mr Wong, there appears to be a very strong argument that the assertion as to the purpose of the Manulife policy by Mr Wong was a misrepresentation.  The extent and nature of that policy would plainly be relevant to Canadian’s decision to accept the risk proposed.  On its face the circumstances raise an issue of potential over-insurance, a matter an insurer is plainly entitled to take into account.

17.  The policy issued by Canadian was a creditor/debtor policy, the particular purpose of the policy being to protect a creditor in relation to debts owed to it by a debtor.  It is abundantly plain that the life insurer, when assessing the risk in such a policy, will regard the financial circumstances of the life insured as a major consideration.  Any information on the financial circumstances of the subject of the policy is plainly material to the assessment of the risk.

18.  A financial disclosure form, signed by Mr Wong for Ingo, expressly stated that the amount of the loan in respect of which the insurance was granted was HK$10,418,939.00.  A section in the form requesting information as to personal loans and other liabilities on the part of Mr Ng, was struck out, indicating that there were no such liabilities.

19.  Following the claim investigations into the circumstances of the deceased, at the time the policy was taken out, have been conducted by Canadian.  Two particular liabilities have been discovered.  First, on 28 January 1997, an action was commenced in the High Court in Hong Kong by Jebson and Co Ltd against Mr Ng for unpaid invoices totalling HK$1,420,625.25.  Second, it is asserted that there were amounts owing by Mr Ng to Mr Wong Yu, the director of Ingo who has made affidavits in this matter, totalled HK$4,824,511.07.  This assertion is not denied by Mr Wong.  These additional liabilities were not disclosed.

20.  Mr Ho attempted to mount an argument, not pleaded, based on a suggestion that Mr Wong did not understand English.  I reject the proposition entirely.  In the first place Mr Wong elected to sign the document and cannot be heard to say that he did not understand it.  In second place it was explained to him by the agent and there is no suggestion in the evidence that she did not explain it properly.  But most significantly, the document is in both English and Chinese, and any lack of English knowledge cannot in any way be an explanation.

21.  It is beyond argument that an assured is under a duty of utmost good faith to disclose to the insurer every fact which would influence the judgment of a prudent insurer in fixing premium or determining whether to insure the risk.  The principle of utmost good faith imports a duty not to misrepresent material facts.  The policy was one in which Canadian sought reinsurance and they were obliged to disclose the circumstances of the debtor to the reinsurer.  Those circumstances, having not been disclosed to Canadian, were not able to be disclosed by them to the reinsurer.  It is now not possible to say whether, in the light of that further formation, the reinsurer would have accepted the risk, or if it did, what the premium level would be at, that potentially calling into question the profitability of the contract on the part of Canadian.  If there was no proper profit in accepting the risk, Canadian may well not have proceeded with the insurance contract.

22.  In his affidavits, and in his witness statements, Mr Wong has conveniently avoided any real reference to these matters and they, at present, remain largely unanswered.  They are straightforward matters, and ought to have been the subject of proper response.  Mr Ho attempted to rely upon the witness statement of Ms Chan, the agent involved, filed by Canadian, saying that he would subpoena her at the trial.  He may well do that, but the witness statement does not provide any answer at all either to the misrepresentation as to the true purpose of the Manulife policy, or of the nondisclosure of very significant debts which were plainly relevant.

23.  I accept Mr Stock’s submission that these points of defence are short and simple, and provide a very strong defence, and as there is no answer to those points, it is appropriate for the court to go into the merits of the matter.  Do not need to find that these points would necessarily succeed.  It is sufficient that I am satisfied that there is a sufficiently high degree of probability of failure on the part of Ingo in the action that that consequence, with the attendant liability of Ingo to meet Canadian’s costs on the action, must be taken into account.

24.  finally, it is no answer to say that Canadian is a wealthy insurance company which can afford the costs.  A wealthy company must be equally entitled to protection as to its costs as is an impecunious defendant.

The issue of delay:

25.  The action was commenced in 1999 and it is only now, in 2005, that the application for security for costs is made.  It is contended by Ingo that the application has been made deliberately late.  It is argued that Canadian has had Ingo’s accounts for the year ending 1997, since October 1998, and its impecuniosities have been known since then.  Accordingly it is argued that the application for security for costs ought to have been made long ago.

26.  I reject the argument.  Ingo is fortunate indeed that its claim has not been struck out for want of prosecution.  A finding has been made that its delay is inordinate and inexcusable.  In the four years and two months, following the issue of the writ, that it took for the summons for directions to be filed, nothing happened other than that a notice of change of solicitors and a notice of intention to proceed being filed.  Until February 2004, when the summons for directions was filed, Canadian was perfectly entitled to believe that the matter had completely died and gone away.  In these circumstances it hardly lies in the mouth of Ingo to complain about delay.

27.    At the time the matter came before the Master it had been placed on the fixture list but was not yet been set down for hearing.  It has now been set down for hearing in February 2006.  This is not an application for security, filed at the last minute before a pending trial date, which could be seen as an application for security brought at the last minute in an effort to stave off litigation to which the defendant has no substantive answer.

Conclusion:

28.  I am satisfied that this is a proper case in which security for costs ought to be ordered.  The Master was in a much better position than me, with his experience in taxation, to fix the sums for which security ought to be given.  I do not disturb his decision as to the sum for which security ought to be given.

29.  Mr Ho makes the point that if security is to be given, some time will be needed to arrange the security, if it can be arranged, bearing in mind that Ingo’s backers are in the mainland.  That is a reasonable submission.

30.  Mr Stock says however that in default of security the action should be dismissed, and not stayed.  There is no doubt that the Court has power to dismiss an action for default by a plaintiff in complying with an order for security: see Hong Kong Procedure 2004, para  23/3/33.  The matters to be taken into account are whether the action is being pursued with due diligence, whether there is no reasonable prospect that the security will be paid, and whether the time limit prescribed by the court as to giving security has been disregarded: see Speed Up Holdings Ltd v Gough & Co [1986] FSR 330, Multi Sky Ltd v Hong Kong Chinese Insurance Co Ltd [1994] HKC 108.

31.  Having regard to those matters, I am not satisfied that time has yet arrived for an order for dismissal.  Ingo has been aware of the likelihood that it may have to give security since the application was filed in December 2004.  They have had ample time to put matters in hand to give security if they are able.  There is no need to extend the time for security any further, but there ought to be an actual default before issues of dismissal are brought before the court.

32.  The Master’s order that the Ingo must give security for costs in the sum of HK$900,000 within 32 days of today, failing which the proceedings are to be stayed, is confirmed.   Ingo must pay Canadian’s costs on the appeal, and before the Master, to be taxed on a party and party basis.