FONG WING SHING CONSTRUCTION CO LTD v. ASSURANCES GENERALES DE FRANCE (HK) LTD

HCA 5465/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 5465 OF 2001

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J U D G M E N T

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1. By this action the plaintiff claims indemnity and damages from the defendant, the successor in title to the insurer in an insurance policy contracted between the plaintiff and insurer.

2. This all came about when the plaintiff contracted with the Hong Kong Government to carry out certain construction work at the Holy Angels Canossian School in Hung Hom. The contract was dated October 1997. The work was scheduled to begin in November and to be completed by June 2000. The plaintiff sub-contracted the work to Judea Construction Co. Limited (Judea). The work to be undertaken included the construction of a new building within the grounds of the school and certain alterations to an existing building.

3. The policy taken out was headed Contractors 'All Risks' Insurance Policy. The insured included the plaintiff, Judea and their sub-contractors. The period of cover was from 5 November 1997 to 4 January 2000. Paragraph 4 section II provided cover to the insured for any liability resulting from (inter alia) bodily injury to any person arising from the performance of the contract. Exceptions to cover under this head were material to this case, but are not now. Under the heading 'General Conditions', clause 5.3 dealt with conditions precedent to any entitlement to indemnity. The relevant clause and sub-clauses are as follows:

"5.3 All the terms, exceptions and conditions contained herein or endorsed hereon are incorporated in and form part of this contract of insurance and are deemed to be conditions precedent to any liability on the part of the Insurers so far as they relate to anything to be done by the Insured.

...

5.8 In the event of any occurrence which might give rise to a claim under this Policy the Insured shall:

5.8.1 notify the Insurers as soon as possible and in writing give an indication as to the nature and extent of the damage;

...

5.8.4 submit a formal claim and furnish all such information and documentary evidence as the Insurers may require within six months of the occurrence or such further time as the Insurers may in writing agree, such agreement not to be unreasonably withheld;

... "

4. The work began on time and was finished within schedule, by February 1999. A Mr Frankie Kwok was at the material time and remains a director of Judea. During the course of the contract he was the designated Project Manager and responsible for overall supervision and day-to-day management. A Mr Yeung Siu Chuen was the Site Foreman. His duties included co-ordinating the works of the various sub-contractors and ensuring that the work was carried out safely. He was required to be on site throughout the working hours of the contract. He was answerable to Mr Kwok.

5. On 7 June 2000 the plaintiff received a letter dated 3 June 2000 from solicitors who stated they represented a Mr Lau Yee on instruction from the Director of Legal Aid. They wrote that Mr Lau had been injured whilst working on the Canossian School site during the course of the construction work; namely, on 31 July 1998. The letter claimed the accident was attributable to negligence holding the plaintiff liable as main contractor and gave notice of Mr Lau's intention to sue for damages. The letter was copied to the defendant. The next day the plaintiff reported to the defendant that it had received notice of a prospective claim and that it was looking to the defendant to take over conduct of the claim. Receipt by the defendant of the copy solicitors' letter and the plaintiff's report were the first notifications received by the defendant of a prospective claim arising from an accident that had apparently occurred nearly 2 years prior. The defendant's initial response was to deny liability because of an exception under clause 4 of the policy. That ground for denial persisted until the morning of the trial when it was then abandoned. A second ground later emerged in correspondence and that has remained a live issue. By letter dated 6 September 2000 solicitors for the defendant wrote to those representing the plaintiff stating that the plaintiff was in breach of the conditions precedent under sub-clauses 5.8.1 and 5.8.4 for not having given notice of the prospective claim in time. As a consequence the defendant denied liability and refused to have conduct of the claim.

6. Meanwhile Mr Lau issued a writ against the plaintiff. In the statement of claim he said that at the material time he was engaged as a painting sub-contractor to undertake painting and other decoration work at the Canossian School. This was in a part of the existing building not affected by the plaintiff's contract. He was sub-contracted to another company altogether; there was no connection with the plaintiff or Judea or any other of its sub-contractors. Mr Lau claimed that he was inspecting his work on the morning of 31 July 1998 when he was struck by a flying piece of timber and injured. He was taken to Queen Elizabeth Hospital, treated and discharged, but readmitted subsequently. The plaintiff filed a defence with no admissions and a denial of liability. The matter proceeded to trial but on the courtroom steps it was settled. By consent judgment was entered in the sum of $300,000.00 with costs, which were settled at $351,700.00. The plaintiff paid to Mr Lau $651,700.00 in compliance with the judgment and its own costs came to $277,398.00. Its all up liability of $929,098.00 is not contested. Challenging the defendant's claim that it was in breach of the conditions in the insurance policy it now sues for a declaration of indemnity and recovery of the $929,098.00 paid out.

7. At the trial there were two witnesses; Messrs Kwok and Yeung, both for the plaintiff. The defendant called no evidence.

8. Mr Kwok said that the work Judea contracted to undertake at the Canossian School was completed uneventfully. There were no reported accidents. Were there to have been any he would have been informed, as Project Manager, under procedures in place. The police would have notified and as well the Labour Department and a report would have been compiled for the company's records. There was no report or any other record of any accident, or anything else untoward. The letter from Mr Lau's solicitors was the first indication to him and to Judea and to the plaintiff that there had been, on their client's account, an accident on site. He made enquiry and established that Mr Lau was a painter undertaking work unrelated to Judea's contract. But there had been, apparently, no call to the police and no investigation by the police or by the Labour Department or any other Government Department. Mr Yeung in evidence said that he was on site throughout the life of the contract. During its entire term he was not informed of any accident on site. His memory was quite clear on this. Had it been so it would have been his duty to notify the police and Inspector of Factories and to report to Mr Kwok. In particular he was not informed and had no knowledge of the accident allegedly to Mr Lau. The daily site report for 31 July 1998 revealed that work undertaken that day included the dismantling of formwork following the curing of concrete poured on the previous day. There was no report of anything unusual; in particular, an accident.

9. Evidence in the admitted bundle included medical reports that Mr Lau was brought by ambulance to Queen Elizabeth Hospital on 31 July 1998 for head and neck injuries said to have been caused by his having been struck by timber. He was discharged but readmitted on 7 August for persistent dizziness. Subsequent reports revealed that he had suffered a minor head injury incorporating post-concussional syndrome, and a loss of earning capacity estimated at 8%.

10. That being the evidence before me I am satisfied that Mr Lau was the victim of an accident suffered on the Canossian School site that caused the minor head injury including PCS, and was taken to hospital by ambulance. But Mr Lau and no one else with knowledge having been called there was no one to tell me how it happened, who may have witnessed it, who was informed, how he came to be taken by ambulance to Queen Elizabeth Hospital or help me with any other clue. There was no police or Inspector of Factories' report available because, apparently, there was no official enquiry undertaken. I am satisfied that Messrs Yeung and Kwok had no knowledge of the accident; that had they or either of them witnessed it or been told of it there would have been reports compiled for Judea's records and there were none. There is nothing before me to suggest that Judea's system for reporting and recording accidents on site was in any way wanting. I conclude that the plaintiff did not know of the accident at or shortly after the time it took place and was not in any way to blame for that.

11. But the question remains to be answered; was the defendant entitled to treat the delay in reporting of the accident by nearly two years as a breach of a condition precedent, giving it the right to repudiate liability?

12. The answer of course lies in the contract document, the policy, and the proper interpretation of the relevant clauses. To avoid liability the defendant must satisfy one of two criteria. The first is that the plaintiff did not notify it as soon as possible of Mr Lau's potential claim. The second is that by the time it submitted a formal claim with supporting information and evidence it was not unreasonable for the defendant to deny it an extension of time beyond 6 months after the accident to do so.

13. The starting point is what the words mean. Ms Cruden for the plaintiff produced an excerpt from the Law of Insurance Contracts, fourth edition, by Malcolm A. Clarke at page 419:-

"

15-3 CONTEXT

The ordinary meaning of words is the meaning when read not in isolation but in context. The context is a series of circles: the phrase, the sentence, the paragraph, the part of the policy, the whole of the policy, and then, outside the policy itself, the past dealings of the parties, the trade context, and the object which the policy was intended to achieve. The court moves outward through the circles until it is satisfied that it has found the meaning intended by the parties."

14. So, what of the meaning of the words 'as soon as possible' in the context of this policy, and this case?

15. I turn first to consider three decided cases.

16. Vireselst's Administratrix v. Motor Union Insurance Company Ltd [1925] 2 KB 137 was about an insured who died in a motor accident in India in January 1923. Her personal representative in England got to hear of her demise shortly afterwards but not of the existence of the policy until January 1924, when the insurer was notified. The policy provided that notice of an accident giving rise to a claim had to be made as soon as possible after it had come to the knowledge of the insured or representative. The insurer repudiated liability on the ground that the condition had not been complied with. 'As soon as possible after it has come to the knowledge' referred to knowledge of the accident. Ignorance of the existence of the policy was not a proper excuse for delay. But Rorke J rejected that argument. He found that the words in the context required all existing circumstances to be taken into account. He said that there was no finding that the administrator was in default in not having learned of the existence of the policy more speedily. In all the circumstances notice had been made 'as soon as possible' and the insurer was liable to pay up.

17. In Chan Yiu Sun v. Yip Kim Cheung [1990] 2 HKC 524, a more recent case and one decided in Hong Kong, Ryan J was required to rule on whether an insurer was entitled to repudiate a liability to indemnify its insured when the policy contained the words ' in the event of any occurrence which may give rise to a claim under this policy, the insured shall, as soon as possible, give notice ...' In that case the insured was involved in a motor accident in which others were injured. He had immediate knowledge of the accident, of the injuries to others and the terms of the insurance policy. But he did not notify the insurer until he came to be prosecuted, which was some time after the accident. Ryan J found the delay inexcusable. Notice had not been given 'as soon as possible' and the insurer was entitled to repudiate.

18. The third case goes back in history to the 19th century. In Gamble v. The Accident Assurance Company Limited [1869] Irish Reports 204, the insured died in an accident. The policy in question contained a condition precedent that liability depended on notice specifying the particulars of the accident being given within seven days of its occurrence. The personal representative of the deceased not knowing of the existence of the policy did not give notice within the seven days and sought dispensation on that ground. Pigot C.B. rejected that argument. He said that the words in question were clear in meaning. That the insured because of his unfortunate demise was not around to give notice did not excuse his failure to notify those he might leave behind of the existence of the policy. The insurer was entitled to repudiate.

19. It is apparent from these authorities that in each case there are distinctions in the wording of the so-called condition precedent and in the circumstances surrounding the claims made. But a theme emerges; namely, that the ordinary meaning of the words is the meaning read in context.

20. Reverting back to the case before me; I have found as facts that the plaintiff had no knowledge of the accident until the date before it reported it and that lack of knowledge was through no lack of diligence on its part. In the context of these findings, it is quite plain to me that it did report to the defendant as soon as possible the prospective claim. In the circumstances of the case it would have been an impossibility to have achieved an earlier notification. The defendant stumbles at the first hurdle. So what of the second?

21. It is apparent from a reading of clauses 5.8.1 and 5.8.4 that notification to the insurer of an occurrence which might give rise to a claim must be given first to alert it to potential liability as soon as it is known, followed in due course by the claim itself within a time sufficient in the circumstances for the claim to be formalised with supporting evidence and so on. In the normal course and as a matter of commonsense one would expect the preliminary advice to be given within a matter of a few days, and that six months would be an appropriate time frame within which to formalise the claim, but with an extension of time available should it be necessary in the given circumstances of a particular case.

22. This, as Ms Cruden puts it, is a sequential exercise. In my view it would be a nonsense to find failure by the insurer to give an extension as 'not unreasonably withheld' where it has been found, as I have found, that the preliminary notice even though given nearly two years after the occurrence was, in fact, given as soon as possible in the context. It follows, then, that the defendant has failed to justify that in withholding an extension of time to allow the plaintiff to file its claim it was behaving reasonably in the circumstances.

23. I am satisfied the defendant was not justified in repudiating liability. The plaintiff was entitled to require the defendant's predecessor in title to take over the claim and now to be compensated because it refused to do so. I award it judgment as asked for. The amount in the second prayer is $300,000.00, and those in the third $351,700.00 and $277,398.00 respectively. Interest at 2% above prime shall run from the various dates payments on account were made; thus on $100,000.00 from 29 January 2002, on $200,000.00 from 28 February 2002, and on $351,700.00 and $277,398.00 from 16 May 2002 until this date in each case; thereafter at the judgment rate.

24. Costs nisi at first instance are to the plaintiff taxed if not agreed.