TAN CHOU t/a WAH NGAI v. MARCH INSURANCE CO LTD

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HEADNOTE

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                Insurance - Motor Vehicles Insurance (Third Party Risks) Ordinance Cap 272 ss.6(1)(b) and 10(1) - "any liability", meaning of - Employees Compensation Ordinance Cap 282 s.25 - whether a judgment in favour of an employer against a negligent driver, requiring driver to reimburse employer for employees compensation paid to employee injured in motor accident as result of driver's negligence is a judgment in respect of a liability required to be covered by third party insurance.

                An employer paid employees compensation to his employee injured as a result of negligent driving by the driver of a motor vehicle in which the employee was a passenger. The employer sued the driver for reimbursement of the compensation as he was entitled to do by virtue of s.25, Employees Compensation Ordinance. Proper notice of the proceedings was given to the insurer of the driver. No notice of intention to defend was filed by the driver or the insurer. Having obtained jugment in default, the employer brought an action against the insurer, pursuant to s.10 of the Motor Vehicles (Third Party Risks) Ordinance for the sums due under the judgment, which was unsatisfied. In order to meet the requirements of s.10, the employer had to show that the unsatisfied judgment was in respect of a liability which was required to be covered by a policy under s.6(1)(b) of the Motor Vehicles (Third Party Risks) Ordinance and which was covered by the policy in question. Section 6(1) refers to "any liability ... in respect of ... bodily injury to any person caused by or arising out of the use of the motor vehicle on a road". The policy referred to "all sums including claimant's costs and expenses which the Insured shall become liable to pay in respect of ... bodily injury to any person ... where such ... injury arises out of an accident caused by or in connection with the Motor Vehicle....".

                It was submitted for the defence that s.10 was intended to benefit only a person who had suffered bodily injury and not his employer and that in any event the plaintiff could not rely on the judgment as establishing the driver's liability because it was a judgment in default and not on the merits.

Held:

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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BETWEEN

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JUDGMENT

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1. The hearing of this case took place in Chambers but I have adjourned into open court to deliver this judgment because it deals with a point of interest to employers and their insurers and to persons concerned with motor vehicle insurance against third party risks.

2. This case turns upon the meaning of the words "any liability" in s.6(1) of the Motor Vehicles Insurance (Third Party Risks) Ordinance. The question is whether a liability in respect of which the plaintiff has already obtained judgment against one Tsang Kong Kau is one which was covered by a policy of insurance issued by the defendant.

3. The facts are not in dispute. It is common ground that on the 4th October 1985, Mr Tam Yiu Luen, an employee of the plaintiff was travelling, in the course of his employment, on board a motor vehicle owned and driven by Mr Tsang Kong Kau. The vehicle was involved in an accident due to Mr Tsang's failure to maintain it and Mr Tam was injured.

4. The plaintiff as employer paid $252,534.70 to Mr Tam in accordance with the provisions of the Employees' Compensation Ordinance. Having paid Mr Tam, the plaintiff brought a High Court Action No. A5173 of 1988 against Mr Tsang, pursuant to s.25 of that Ordinance, seeking reimbursement of the compensation paid.

5. Section 25 creates a statutory right of action: an employer, where the injury in respect of which compensation is payable was caused in circumstances creating a legal liability in some person other than the employer, has a right of action against that person for the recovery of any sum which the employer is obliged to pay as a result of the accident.

6. The writ was issued on the 21st July 1988 and duly served. Notice of the proceedings was given two days  later on the 23rd July to the present defendant by a letter from the plaintiff's solicitors.

7. Neither Mr Tsang Kon Kau nor his insurer (the defendant in the present proceedings) gave notice of  intention to defend and judgment was accordingly entered against Mr Tsang on the 30th September 1988. A curious aspect of the matter is that according to evidence filed on behalf of the defendant in this case, its solicitors wrote to Mr Tsang on the 30th March 1988 telling him that if he chose not to defend the action against him, their client would take over the defence in his name. For reasons best known to the defendant and its solicitors, that was not done. Perhaps it was because they realised that there was no defence. The Assistant Manager of the defendant, in an affirmatiion filed in the present proceedings, says:-

"5.         I am advised by my' legal advisors and verily believe that the failure of Tsang to maintain the steering, footbraking system, chassis and cross members in efficient condition caused the accident."

8. On the 18th October 1988 the plaintiff's solicitors wrote to the defendant giving notice of the judgment, enclosing a copy of it, and saying that they were authorized to receive payment. In due course, the solicitors for the defendant informed the solicitors for the plaintiff that their client was not prepared to settle the judgment debt.

9. The judgment remains unsatisfied and the plaintiff has brought these proceedings claiming payment by the defendant of the sums due under that judgment. The plaintiff can only succeed if he can establish that s.10(1) of the Motor Vehicles (Third Party Risks) Ordinance applies. In order to do that he must show that the liability in respect of which judgment was obtained against Mr Tsang (i) was a liability required to be covered by a policy under s.6(1)(b) of the Motor Vehicles (Third Party Risks) Ordinance; and (ii) was covered by the terms of the policy.

10. The defendant says that the policy was not required to and did not cover the liability in respect of which the judgment was obtained.

11. Section 10 (l) of the Motor Vehicles Insurance (Third Party Risks) Ordinance reads as follows:-

"10.     Duty of insurers to satisfy judgments against persons insured against third party risks.

Certain exceptions are set out in subsections (2) and (3) of s.10 but they do not apply in this case.

12. The parties have proceeded on the basis that a certificate was issued under s.6(3) in respect of Mr Tsang in whose favour the policy was effected.

The liability "required to be covered by a policy under section 6(1)(b)"

13. The relevant parts of s.6(1)(b) read as follows:-

There follows a proviso which excludes certain types of liability but which does not apply in this case.

"A liability covered under the terms of the policy"

14. The policy appears in the agreed bundle at pages 63-67 inclusive. It is a commercial motor vehicle policy, providing third party insurance under section II thereof.

15. The material part of the policy for present purposes is the first clause of the section headed "SECTION II - LIABILITY TO THIRD PARTIES". It reads:

"1.         The Company will subject to the limits of liability and the Jurisdiction Clause indemnify the insured against all sums including claimant's costs and expenses which the Insured shall become legally liable to pay in respect of

 

(a)death or bodily injury to any person

 

            (b) damage to property

where such death or injury or damage arises out of an accident caused by or in connection with the Motor Vehicle or the loading or unloading of the Motor Vehicle."

Liability is expressed in the policy to be unlimited.

16. The wording of the policy does not follow precisely the wording of s.6(1)(b). It does, however, cover a "liability required to be covered by a policy under s.6(1)(b)", for it indemnifies Mr Tsang against all sums payable by him "in respect of bodily injury to any person" (in this case Mr Tam) "where such ...... injury ..... arises out of an accident caused by or in connection with the Motor Vehicle ...".

17. At an early stage in the proceedings, the defence sought to rely upon avoidance of the policy by virtue of certain breaches of condition but that line of defence had to be abandoned since it is excluded by s.10(1) of the Motor Vehicles Insurance (Third Party Risks) Ordinance.

18. There was also an early indication of an intention to rely upon the proviso in s.6(1)(b)(i) of the Motor Vehicles  (Third Party Risks) Ordinance which excludes liability in respect of bodily injury sustained by an employee of the insured. This line was not pursued when it was pointed out that Mr Tam, the injured person, was not an employee of the insured.

19. The case put at the hearing by Mr Ramanathan, counsel for the defendant, may be summarised as follows:-

20. The basis of Mr Ramanathan's argument appeared to be that the plaintiff was a person claiming to be indemnified under section II of the policy. This was incorrect. The plaintiff was making a claim in respect of a liability against which the defendant had purported to indemnify the insured.

21. In reply to Mr Ramanathan's first argument, Mr Leong for the plaintiff submitted that the words of s.6(1) were plain. "Any liability" must mean what it says and must cover any liability arising whether at common law or by statute. He relied for support of his argument upon the decision of Lawson, J. in Ladd and Another v. Jones and Another (1975) RTR 67. There the court was concerned with the meaning of "liability" in s.145(1) of the Road Traffic Act 1972 which is the equivalent to our s.6(1). It reads, so far as is material:

22. In that case, a wife was injured in a road accident caused by the negligence of a motorist who was covered against third party risks by a policy of insurance in accordance with s.145. Her husband claimed damages against the motorist for loss of his wife's society and services and claimed against the insurers the amount awarded to him on his claim against the motorist. He succeeded on the basis that his right to sue for damages reflected a liability incurred by the motorist in respect of bodily injury to a person caused by or arising out of the use of the vehicle by the motorist.

23. I respectfully agree with the reasoning of Lawson J. and it disposes of the suggestion made on behalf of the defendant that the only claims contemplated by the policy are claims made by persons who have themselves suffered bodily injury.

24. Mr Leong pointed out that what Lawson J. said in relation to the Fatal Accidents Acts applied equally to the case of our Fatal Accidents Ordinance and that it had never been suggested by the defence that the policy would not cover claims under that Ordinance.

25. It seems to me that had the legislature wished to limit the scope of liability to claims for damages for negligence made by persons who had suffered bodily injury, it could have said so. There is no ambiguity in the words used. Their scope is so wide that it was felt necessary by the legislature to exclude "any contractual liability" (s.6(1)(b)(iii)).

26. With regard to the Third Parties (Rights Against Insurers) Ordinance, Cap. 273, mentioned by Mr Ramanathan, it is designed to enable a claimant to claim directly against the insurer where the insured is insolvent. It applies generally to contracts of insurance and it puts the claimants in no better position vis-a-vis the insurer than that in which the insured would have been, so that the insurer can, for example, claim avoidance of the policy for breach of condition. Section 10 of the Motor Vehicles Insurance (Third Party Risks) Ordinance is designed to ensure that persons who obtain judgment against an insured in respect of bodily injury to any person caused by or arising out of the use of a motor vehicle on a road may claim payment from the insurer notwithstanding any technical defence which the insurer might be able set up against the insured.

27. I now turn to the second limb of the defence case, namely that the judgment relied upon being a default judgment, there has been no decision on the merits such as there had been in the Ladd case. The argument was that there having been no finding on the merits that Mr Tam was injured by the negligence of Mr Tsang, the plaintiff cannot claim the benefit of s.10. of the Motor Vehicles (Third Party Risks) Ordinance.

28. Subsection (2)(a) of s.10 provides:-

29. In this case, the insurer was given the necessary notice and chose not to take over the defence.

30. The clear intention of s.10(2)(a) is to ensure that a judgment cannot be enforced against an insurer who had no notice of the proceedings. The reason for this provision can only be to enable an insurer who faces a potential claim for payment under the judgment to join in the proceedings and establish any defence which may be available. If the insurer is given notice as the defendant was and ignores it as the defendant did, he must accept the consequences. If judgment is entered, and is unsatisfied, the statutory cause of action arises against him in favour of the employer and he must pay.

31. It is true that there was no trial so that the judgment is not a judgment on the merits, but it is  not a valid judgment of the court and, while it stands, the defendant cannot go behind it. The allegations in the statement of claim endorsed on the writ must be taken as admitted - Cribb v. Freyberger (1919) WN 22(A). The defendant is estopped from denying them now. It may be seen from the Particulars of Claim which are in evidence before this court, that the averments therein cover all the matters which the plaintiff needed to establish in order to succeed in the action against Mr Tsang.

32. I am satisfied that the liability of Mr Tsang, the insured, in respect of which judgment was entered, was a liability "in respect of .... bodily injury to any person" which was required to be covered and was covered by the policy.

33. I would add that there are provisos to s.25(1)(a) and (b) of the Employees' Compensation Ordinance which are designed to ensure that any payment of Employees' Compensation will be taken into account when damages are calculated, so that an insurer will not have to pay a combined amount greater than the proper damages. He is in the same position as he would be in if the court awarded the full sum of damages to the employee against the driver and then ordered the employee to pay the compensation back to the employer in accordance with s.25(4) of the Employees' Compensation Ordinance. There is, therefore, nothing in the suggestion that if the plaintiff succeeds, insurers will face the risk of claims for greater sums, leading to higher premiums. The legislation does not increase the overall sum payable. Its effect is upon the distribution of that sum.

34. Accordingly I give judgment for the plaintiff for the sums payable under the earlier judgment, to wit

35. I shall now hear counsel on the question of the costs of these proceedings.