RAI NARAYAN PARSHAD v. CHIT HING CONSTRUCTION ENGINEERING AND OTHERS

HCPI 604/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

PERSONAL INJURIES ACTION NO. 604 OF 2008

______________

DECISION

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I. BACKGROUND

1.  At all material times, the Plaintiff (“P”) was employed by the 1^st Defendant (“D1”).  As between the 3^rd Defendant (“D3”) (a logistics company providing crane lorry and operator service and the registered owner of the Vehicle in paragraph 2 below) and AXA General Insurance Hong Kong Limited as Third Party (“AXA” or “TP”), there is no dispute that:

(a)  at the material time (i) the 2^nd Defendant (“D2”) was the principal contractor of the works at a construction site at Lantau Power Station (“Site”), and (ii) D1 and D3 were sub-contractors of D2 [1];

(b)  AXA was the public liability insurer concerned in respect of the Site, and Wing Lung Insurance Company Limited (“Wing Lung”) was the employees’ compensation (“EC”) insurer concerned for D1, D2 and D3 (collectively, “Ds”).

II.  MAIN ACTION

2.  P claims that on 23 August 2005 he was assigned to assist in loading a mini-lorry onto the truck bed of a lorry-mounted crane (“Vehicle”).  The Vehicle lifted up the mini-lorry, and as P was leaving from underneath after adjusting a sling, the mini-lorry fell down on him causing him to suffer personal injuries (“Accident”).  P further claims that the Accident was caused by (a) default on the part of D1 as P’s employer and/or on the part of D3 as the Vehicle’s operator, and/or (b) breach of duty as occupier(s) of the Site on the part of D1 and/or D2 and/or their servants/agents.

3.  Ds deny liability and aver that the Accident was solely caused by or contributed to by P’s negligence.  D1 and D2 by their Amended Defence have abandoned their initial plea of contributory negligence on the part of D3 (see paragraph 39 below).

III.  PUBLIC LIABILITY POLICY

4.  On 6 April 2001, AXA issued a Contractors’ Indemnity Insurance Policy (“Policy”) upon the request of The Hongkong Electric Co Ltd (“Employer”).  The Schedule to the Policy defines the “Insured” as follows:

“The [Employer] as Principal and/or its parent, associated, subsidiary and affiliated companies and all main contractors, sub-contractors of any tier, suppliers, engineers, consultants and/or others engaged to provide goods and services in connection with the performance of the Project and/or any interested parties and/or their respective subsidiary companies as now exist or hereinafter become incorporated for their respective rights and interests.”

There is no dispute that the period of insurance under the Policy has been extended to cover the period from 25 April 2004 to 15 May 2007.

5.  Section 2 of the Policy sets out the relevant policy coverage inter alia as follows:

“Section 2 – Public Liability

[AXA] will indemnify the Insured except as hereinafter provided in respect of all sums which the Insured shall become legally liable to pay consequent upon:

(i) Personal Injury suffered by any person

(ii) Loss of or damage to property

occurring during the Period of Insurance anywhere within the Territorial Limits in connection with the performance of the Project ……” (“Coverage Clause”)

6.  Clause 1 of the Particular Exclusions to Section 2 of the Policy (“Exclusion Clause”) sets out the relevant exclusion to the policy coverage inter alia as follows:

“[AXA] shall not be liable for:

1.   death bodily injury illness or disease or personal injury suffered by any person employed by an insured Contractor or employed by any party to whom part or parts of the insured Contract have been subcontracted however this exclusion shall not apply to any liability which may attach to any subcontractor insured under this Policy in respect of death bodily injury illness or disease or personal injury suffered by a person employed by any subcontractor.”

For convenience, the latter part of the Exclusion Clause which specifies the circumstances in which the Exclusion Clause is inapplicable is described as the “Proviso” below.

7.  Clause 4 of the Section 2 Clauses of the Policy contains a cross liability provision (“Cross Liability Clause”) inter alia as follows:

“Cross Liability Clause

Each of the parties comprising the Insured shall for the purpose of this Section be considered as a separate and distinct party and the words “the Insured” shall be considered as applying to each party in the same manner as if a separate policy had been issued to each of the said parties and [AXA] hereby agree to waive all rights of subrogation or action which they may have or acquire against any of the aforesaid parties arising out of any occurrence in respect of which any claim is made hereunder provided nevertheless that nothing in this Particular Condition shall be deemed to increase the Limit of Indemnity in respect of any one occurrence or series of occurrences as stated in the Schedule.”

8.  Clauses 5(c) and 10(e) of the General Conditions Applicable to Sections 1 and 2 of the Policy (“Conditions 5(c) and 10(e)”) provide inter alia as follows:

“ 5. On discovery of any event likely to give rise to any loss or damage the Insured shall forthwith give notice thereof to [AXA] or the appointed loss adjuster, and shall as soon as possible deliver to [AXA]

……

(c) forward any writ summons or other proceedings which may be commenced against the Insured.

……

No claim under this Policy shall be payable unless the terms of this condition have been complied with.

……

10. All benefits under this Policy shall be forfeited if

……

(e)     the claim be made and rejected and an action or suit be not commenced, either within three months after such rejection, ……”

IV.  THIRD PARTY PROCEEDINGS

9.  D3 commenced third party proceedings against TP in 2009 on the basis that if it were adjudged to be liable to P, it would be entitled to an indemnity or contribution from TP pursuant to the Policy in respect of loss/damages claimed by P.

10.  D3 notes that P alleges the Accident was caused by default on the part of D3 as the Vehicle’s operator, and argues that if liability attaches to D3 (as D2’s insured sub-contractor under the Policy) towards P (as an employee of D1 being another of D2’s insured sub-contractors under the Policy), TP as insurer shall be liable under the Policy to indemnify D3 in respect of all sums which D3 shall become legally liable to pay in respect of loss and damages consequential upon personal injuries suffered by P as a result of the Accident (“D3’s Liability”).  D3 claims that in refusing to indemnify D3’s Liability, TP has committed a breach of contract constituted by the Policy between D3 as insured and TP as insurer.

11.  D3 therefore seeks inter alia (a) a declaration that TP is liable to provide an indemnity in accordance with the Policy for any damages and legal costs liable to be paid by D3 in the present proceedings and for any EC and legal costs incurred by D1 and D2 in related EC proceedings that D3 is liable to reimburse, and (b) further or alternatively, damages to be assessed in respect of TP’s breach of the Policy.

12.  TP denies liability and argues that by virtue of the Coverage and Exclusion Clauses it is not liable to indemnify D3 as alleged.  Further or alternatively, if P’s claim falls within policy coverage under the Policy (which TP denies), D3 has committed breach of Condition 5(c) by failing to give notice of or to forward any writ, summons or other proceedings commenced against D3 in respect of (a) its prosecution and conviction “of various offences under actions ESS Nos.4833-4838 of 2006” (“ESS Summonses”) and (b) the Writ of Summons in the present proceedings. Still further or alternatively, in breach of Condition 10(e) D3 only commenced the third party proceedings by a third party notice issued on 23 July 2009 (“2^nd TPN”) outside the period of 3 months after TP’s rejection of D3’s claim for indemnity under the Policy on 14 April 2009.  By virtue of the above matters, TP claims that D3 is not entitled to any indemnity claim under the Policy.

13.  D3 responds and pleads as follows in its Reply:

(a)  the Exclusion Clause does not apply to any liability which may attach to D3 as an insured within the meaning of the Policy in respect of personal injuries suffered by P as an employee of D1;

(b)  immediately on the date of the Accident, D3 reported the Accident to D2, and D2 reported to the Employer, who as agent of D3 notified TP of the Accident and of the intention to claim under the Policy on 14 March 2006, so TP appointed a loss adjuster who has investigated into the matter;

(c)   further or alternatively, D3 immediately reported to TP as soon as it was made aware of the terms/conditions of the Policy;

(d)  still further or alternatively, TP (not being prejudiced) has waived the operation or compliance of Condition 10(e) on the basis that (i) TP has rejected D3’s claim for indemnity under the Policy on the ground that the Exclusion Clause is applicable, (ii) on 4 May 2009 D3 “issued” a third party notice against AXA (“1^st TPN”), and TP through their solicitors Messrs Winnie Leung & Co (“WL”) have accepted and treated it as a valid action or suit in the third party proceedings within the meaning of Condition 10(e) (which position is fortified by the 1^st affirmation of TP’s solicitor Kwong Wing Ho (“Mr Kwong”) filed on 2 December 2009) and has filed an acknowledgement of service in response thereto on 25 May 2009 (“AS”), (iii) the 1^st TPN has been deemed to be valid pursuant to my order dated 8 December 2009 (“8/12/09 Order”), and (iv) the 1^st TPN and AS have been filed within the 3 months specified under Condition 10(e).

14.  At the hearing before me, Mr Sakhrani, counsel for D3, has abandoned the follow pleas in D3’s Reply (“Abandoned Pleas”):

(a)  D3 has not been provided with and has not obtained/received any copy of the Policy, so it has never expressly or impliedly agreed to and/or cannot have been in breach of the terms and conditions of the Policy;

(b)  Condition 10(e) is a general condition, and TP is only entitled to repudiate liability to indemnify D3 under the Policy upon proof of prejudice and/or loss and damage, which do not exist or have not been pleaded;

(c)   Condition 10(e) is inapplicable, invalid, limited in operation, vague and uncertain and/or has been waived by reason of the fact that (i) D3 has not been aware of or has not consented to the terms and conditions of the Policy, (ii) Condition 10(e) only applies if at all to a claim genuinely or reasonably rejected by TP on reasonable ground/basis, and/or (iii) it will be contrary to public policy for TP to rely on Condition 10(e) to repudiate liability under the Policy on frivolous or unmeritorious ground;

(d)  Condition 10(e) constitutes an exemption clause or a term which is invalid by reason of the Control of Exemption Clauses Ordinance Cap.71 and/or the Unconscionable Contracts Ordinance Cap.458.

V.  STRIKING OUT SUMMONS

15.  On 14 July 2010, TP issued a summons against D3 to strike out the 2^nd TPN on the ground that D3’s third party claim against TP was frivolous, vexatious and an abuse of process of the court (“Summons”).  TP has filed Mr Kwong’s 2^nd affirmation in support of the application. D3 opposes the Summons by the affirmation of Leung Wai Po (“Leung”) being one of its directors.  At the hearing before me, Mr Sakhrani concedes that the Abandoned Please are liable to be struck out, and has refrained from addressing me on those contentions.

VI.  UNDISPUTED FACTS

16.  On 20 August 2008, P commenced the present proceedings to claim against Ds.  On 5 February 2009, P filed the Statement of Claim, the Statement of Damages and his Medical Reports.  On 26 February 2009, Messrs W K To & Co (“WKT”) filed an acknowledgment of service giving notice of intention to defend on behalf of D1 and D2.

17.  On 28 February 2009, WKT acting for Wing Lung wrote to advise D3 (with copy to AXA) to seek indemnity from AXA under the Policy (since the Exclusion Clause was inapplicable) and to file an acknowledgment of service pending notification to AXA.  On 4 March 2009, WL acting for AXA wrote to ask WKT the detailed grounds for saying that the Exclusion Clause was inapplicable.

18.  On 5 March 2009, WKT replied that at the material time (a) P was D1’s employee, (b) D1 and D3 were D2’s sub-contractors, (c) the Policy covered D3, and (d) the evidence so far suggested that the Accident was caused by the malfunctioning of the crane and/or the mistaken control of the crane by D3’s operator, which situation fell within the Proviso that rendered the Exclusion Clause inapplicable to any liability that might attach to D3 (as an insured sub-contractor under the Policy) in respect of P (as an employee of another sub-contractor) over the Accident.

19.  On the same date, WL replied to deny any liability on the part of AXA to indemnify D3.  WL argued that since the Proviso drew a distinction between “any subcontractor insured under this Policy” and “any other subcontractor”, the proper construction of the Exclusion Clause meant the Policy only covered personal injuries suffered by employees of uninsured sub-contractors as a result of the liability of insured sub-contractors.  Since (a) P was employed by D1, (b) D1 was a sub-contractor of D2, (c) D2 sub-sub-contracted the transportation of the mini-lorry to D3, and (d) all Ds were insured sub-contractors, WL argued that:

“[in] the circumstances, this is a claim by a worker of insured subcontractor for personal injuries against the liability of insured subcontractors.

The claim therefore falls outside the [Proviso] of the [Exclusion Clause] of [AXA’s] Policy. The [Proviso] does not apply.

[AXA], as a result, is not liable to indemnify any of the [Ds] for this present claim and will not take over the conduct of the defence of any of the [Ds].”

20.  On 5 March 2009, D3 (a limited company then acting without legal representation) filed an acknowledgment of service giving notice of intention to defend.

21.  On 12 March 2009, WKT acting for Wing Lung wrote to WL rejecting their construction of the Exclusion Clause, which it claimed did not make sense and was tantamount to rewriting the Policy to cover only personal injuries suffered by a person employed by any other sub-contractor “not on the site” as a result of some act or omission of a contractor on the Site.  WKT claimed such construction “is not something physically or realistically possible in any real sense” and was misconceived, and the phrase “any other subcontractor” in the Proviso meant the Policy in fact covered liability of all sub-contractors of any tier regarding their performance on the Site.

22.  On 2 April 2009, WKT on behalf of D3 wrote to WL “in connection with [AXA’s] liability vis-à-vis [D3] under the Policy” to state that “[WL’s] earlier letter for repudiating liability under the Policy is noted but rejected”. WKT reiterated that WL’s interpretation of the Exclusion Clause was misconceived, and urged AXA to reconsider taking over D3’s defence, failing which D3 might commence arbitration proceedings against AXA.

23.  On 14 April 2009, WL replied by reiterating AXA’s stance and stating that the Proviso was inapplicable to the present claim.  They went on to say as follows:

“By virtue of the aforesaid, we write to give [D3] notice that the policy does not cover the claim in the present action. [AXA] therefore shall not provide indemnity to [D3] and to any [Ds] in the captioned action [ie the present proceedings].

[D3] is kindly advised to seek indemnity under the relevant [EC] insurance policy.”

24.  On 15 April 2009, WKT wrote to WL stating it had D3’s instructions to commence arbitration proceedings against AXA for indemnity under the Policy, and asking whether WL had instructions to accept service.  On 17 April 2009, WL confirmed they had such instructions.

25.  On 6 May 2009, AXA received the 1^st TPN dated 4 May 2009 and signed by Leung on behalf of D3 (a limited company then acting without legal representation).  The 1^st TPN did not have any filing date and/or court seal endorsed thereon. It was not issued out of the High Court registry, but was accompanied by a statement of truth signed by Leung as D3’s director.

26.  On 7 May 2009, WKT filed the Defence in the main action on behalf of D1 and D2.

27.  At the Checklist Review (“CLR”) hearing on 8 May 2009 before Master B Kwan, P’s solicitors and WKT representing D1 and D2 were present.  D3 was formally absent but sent a representative to attend the hearing. Paragraph 1 of the Order of Master B Kwan made at the CLR hearing provides as follows:

“The representative of [D3] is reminded to either instruct solicitors to act for [D3] or apply for a Director to represent [D3] as soon as possible, or risk Judgment being entered against [D3].”

28.  On 23 May 2009, WL wrote to the High Court (with copy to D3 and WKT) (a) to report refusal of their attempt to file the acknowledgment of service on behalf of AXA on that day on the ground that no third party notice had been filed, and (b) to enquire whether any third party notice had been filed, and if so, the date thereof.  On 25 May 2009, not having received any reply, WL on behalf of AXA filed the AS giving notice of intention to defend.  The filed AS was marked “INSIST ON FILING without 3^rd Party Notice filing record”.

29.  On 3 June 2009, D2 faxed to WKT copies of the AS and correspondence from P’s solicitors, including a letter to D3 dated 1 June 2009 enquiring whether D3 had engaged any legal representative to act for them in the present proceedings.  On 30 June 2009, WKT filed and served Notice to Act on behalf of D3.

30.  On 23 July 2009, WKT on behalf of D3 issued the 2^nd TPN out of the High Court registry against AXA as Third Party.  The 2^nd TPN bore the court seal on its face and was accompanied by a statement of truth signed by Leung as D3’s director.  WKT served the 2^nd TPN under cover of their letter dated 24 July 2009 which made no reference to the 1^st TPN.

31.  On 28 July 2009, WKT filed the Defence in the main action on behalf of D3. 

32.  On 13 August 2009, WKT wrote to remind TP to file the acknowledgment of service on/before 17 August 2009 if they intended to contest the third party claim, failing which appropriate application would be made to the court with costs against them without further notice.

33.  On 30 November 2009, WKT on Ds’ behalf applied by summons to set aside the AS or alternatively to seek an order that the AS be deemed to be a valid acknowledgment of service to the 2^nd TPN (“AS Summons”).

34.  The affirmation of D3’s solicitor, Ms Lum Siu Chi Crystal (“Ms Lum”), was filed in support of the AS Summons on the same day. In her affirmation, Ms Lum claimed that “…… in fact the [1^st TPN] has not been issued, not to say served. Therefore, the [AS] before [the third party notice] was issued (and not just not served) is clearly invalid and a nullity”.  Ms Lum further claims that without any third party notice issued out of the court registry and when there were in fact no third party proceedings at the time, the AS filed by WL on behalf of AXA as the purported Third Party before any third party notice was properly issued “was irregular, invalid and a nullity”.  Ms Lum went on to say that “[in] fact, the Third Party proceedings were issued on behalf of the 1^st, 2^nd and 3^rd Defendants only on 23 July 2009” (my emphasis), but since TP/WL failed to acknowledge service of the 2^nd TPN or respond to WKT’s letter to TP dated 13 August 2009 (see paragraph 32 above), it was then unclear whether WL still acted for TP.

35.  On 2 December 2009, WL filed Mr Kwong’s 1^st affirmation in opposition.  Subject to (i) D3 clarifying which of the 1^st and 2^nd TPNs it intended to rely and (ii) D1 and D2 not having any locus standi to take out the AS Summons, TP had no objection to the alternative relief sought, ie the AS be deemed to be a valid acknowledgment of service to the 2^nd TPN.  Mr Kwong’s 1^st affirmation asserts inter alia that:

(a)   with no reply to WL’s letter dated 23 May 2009 (see paragraph 28 above) from the High Court, D3 and/or WKT, WL filed the AS so as to protect AXA from any default judgment being entered in the absence of notice of intention to defend;

(b)   the third party proceedings could not have been issued on behalf of Ds since the 1^st and 2^nd TPNs were respectively signed by D3 (without legal representation) and by WKT on behalf of D3, consequently D1 and D2 had no locus standi to take out the AS Summons;

(c)    having already filed the AS, TP could not file any further acknowledgment of service to the 2^nd TPN, but it was evident from the AS that TP intended to contest the third party claim;

(d)   the confusion (if any) was caused by D3 who served two sets of third party notices on TP, and also by WKT in failing to respond to WL’s letter dated 23 May 2009 (see paragraph 28 above).

36.  At the hearing of the AS Summons on 8 December 2009, I granted leave to D3 to amend such summons by removing all references to D1 and D2 having issued the application.  I then granted the 8/12/09 Order which provides inter alia as follows:

“ 5. For the avoidance of doubt, the [2^nd TPN] do stand as the Third Party Notice issued by [D3] against [TP];

   6.  The [AS] filed by [WL] on behalf of [TP] on 25 May 2009 do stand as the Acknowledgment of Service filed by [TP] to the [2^nd TPN] filed on 23 July 2009; ……”

37.  On 19 December 2009, D3 issued a third party summons for directions.  At the hearing on 5 January 2010, I granted case management directions in respect of the third party proceedings, including directions for filing/serving pleadings, lists of documents and witness statements, and for TP’s participation at the trial of the main action.

38.  On 11 January 2010, WL filed Notice to Act on behalf of TP.

39.  At the CLR hearing on 18 January 2010, D1 and D2 were directed to apply for leave to amend their Defence to remove adverse allegations therein against D3.  On 23 January 2010, P, D1 and D2 filed a Consent Summons for such purpose.  On 11 February 2010, WL on behalf of D1 and D2 filed the Amended Defence that removed all pleas to the effect that (a) D3 was an occupier of the Site and (b) the Accident was caused by or contributed to by negligence on the part of D3.

40.  On 5 February 2010, WL on behalf of TP filed a Defence in the third party proceedings.  At the CLR hearing on 8 February 2010, I granted directions for inter alia discovery of medical notes/records and updated medical reports.  On 12 March 2010, WKT on behalf of D3 filed a Reply to TP’s Defence. At the CLR hearing on 10 May 2010, I granted directions in respect of inter alia discovery in the main action and witness statements in the third party proceedings.  Pursuant to such directions, D3 and TP respectively served their witness statements for the third party proceedings.  At the CLR hearing on 26 July 2010, I granted further case management directions for progressing the case towards setting down for trial. Pursuant to such directions, P and Ds respectively filed/served their Revised Statement of Damages and Answers thereto.  The CLR hearing was adjourned to 1 November 2010, which I vacated during the hearing before me pending the final disposal of the Summons.

VII.  LEGAL PRINCIPLES ON STRIKING OUT

41.  The principles governing striking out applications are well established. Para.18/19/4 of Hong Kong Civil Procedure 2011 Vol.1 at pp.394-396 provides inter alia as follows:

“…... It is only in plain and obvious cases that the court should exercise its summary powers to strike out the indorsement of any writ or any pleading under this rule. There should be no trial upon affidavit. Disputed facts were to be taken in favour of the party sought to be struck out. Nor should the court decide difficult points of law in striking out proceedings. The claim must be obviously unsustainable, the pleadings unarguably bad and it must be impossible, not just improbable, for the claim to succeed before the court will strike it out. …… Where the legal viability of a cause of action is sensitive to the facts, an order to strike out should not be made …… The mere fact that the case is weak and not likely to succeed is no ground for striking it out ……

It is for the party seeking to strike out an indorsement on a writ or pleading to demonstrate that the case is a plain and obvious one in which the other party’s claim is bound to fail. ……”

42.  It is fair to say that TP essentially relies on the contractual limitation defence in Condition 10(e) in its application to strike out D3’s third party claim.

43.  Kanson Crane Service Company Limited v Bank of China Group Insurance Company Limited HCA 4246/2002, Deputy High Court Judge Lam (as he then was) (unreported, 1 August 2003) is concerned with a similar limitation clause in a contractors’ plant and machinery insurance policy which provides as follows:

“In the event of the Insurers disclaiming liability in respect of any claim and if an action or suit is not commenced within three months after such disclaimer …… all benefit under this Policy in respect of such claim shall be forfeited.”

The learned judge held that where it was clear that a defendant relied on a limitation defence and the plaintiff could not overcome such plea, the court could strike out the claim on the basis that it was frivolous, vexatious and an abuse of the process of the court. He went on to say that:

“13. …… The question is whether the present case is such a clear case.

14. [Counsel] took me through a number of authorities showing that it has been a long standing commercial practice for contractual provision imposing a time limit for the commencement of action to be included and such time limit could be shorter than the time allowed under the Limitation Ordinance. The cases also showed that the court always gave effect to such a clause and did not regard the same as against public policy, I do not doubt this principle applied to insurance contracts although a lot of these cases cited by [counsel] concern claims under charterparties, sale of goods contracts instead of insurance policies.

   15.     An insurance contract is a contract for indemnity.  It is a commercial transaction and an insurer is entitled to offer such indemnity solely on the basis of the terms and conditions set out in the policy.  Hence, in the present case, under Condition 1, it is stipulated that the due observance and fulfillment of the terms of the Policy by the Plaintiff is a condition precedent to the liability of the insurer.  The Limitation Clause is one of the terms of the Policy.  Before the Plaintiff could establish the liability of the Defendant to indemnify it, it is necessary to show that it has complied with the terms of the Policy, including the Limitation Clause.”

44.  Likewise, Deputy Judge Downey in Chiu Ming Sun v Ma Wing Michael [1986] HKC 217 also held that although the discretion of the court to strike out pleadings and to dismiss the action was one which should be exercised, if at all, only in the clearest of cases, and in a manner which did not usurp functions which were normally reserved to the judge at trial, where it was manifest that there could be no answer to a claim that the period of limitation had expired and that such defence would be relied on, it would be an abuse of process of the court to allow the action to continue.

VIII.  CONDITION 10(e)

45.  First of all, it is permissible in insurance, as in other forms of contract, for the parties to agree to a shorter limitation period, and such limitation clause is effective to defeat a claim by the assured outside the agreed limitation period [2].  Secondly, Condition 10(e) as a limitation clause should be construed strictly and contra proferentum against TP, but “if the court reaches a conclusion on the proper construction of an exemption clause which have sweeping effects, it has no power to rewrite the contract for the parties” [3].

46.  In order to raise a successful contractual limitation defence under Condition 10(e) and to strike out D3’s claim, TP has to clearly satisfy the following elements: (a) “the claim be made and rejected” and (b) “an action or suit be not commenced within three months after such rejection”.  Has TP satisfied the above criteria?

IX.  CLAIM BE MADE AND REJECTED

(a)  Claim made

47.  It is common ground that D3 has made a claim to TP for indemnity under the Policy in respect of D3’s Liability.  But D2 and TP disagree over whether TP has rejected such claim.

(b)  D3’s case

48.  Mr Sakhrani submits that TP “has actually never repudiated liability to indemnify [D3] on the claim.  Put in another way, [D3’s] claim was for apples but [TP] was denying an obligation to provide oranges. [D3] never accepted this position”.  To understand such submissions, it is necessary to revisit the contractual provisions in the Policy, the solicitors’ correspondence, and the affirmation evidence filed herein.

(c)  Policy coverage and exclusion

49.  Prima facie, D3’s Liability falls within the Coverage Clause in the Policy, ie “all sums which the Insured [ie D3] shall become legally liable to pay consequent upon …… Personal Injury suffered by any person …… occurring during the Period of Insurance …… in connection with the performance of the Project”.  But such policy coverage is subject to exclusions [4]. The Exclusion Clause states that TP will not be liable for personal injury suffered by any person employed by “an insured Contractor ……”, but the Proviso prevents the application of such exclusion to any liability that may attach to “any subcontractor insured” under the Policy in respect of personal injuries suffered by a person employed by “any subcontractor”.

50.  TP contends that because P was an employee of D1 (being an insured sub-contractor), the Exclusion Clause excludes D3’s Liability from the policy coverage, and the Proviso is insufficient to restore such liability back within the indemnity provision.  TP claims that the distinction between “any subcontractor insured” and “any subcontractor” in the Proviso means that the latter necessarily refers to an uninsured sub-contractor, so that the Proviso only captures and brings back within the policy coverage any liability caused by insured sub-contractors in respect of personal injuries suffered by employees of uninsured sub-contractors.  Since D3’s Liability relates to an employee (ie P) of an insured sub-contractor (ie D1), the Proviso is not applicable and consequently the Exclusion Clause excludes such liability from the policy coverage.

51.  On the other hand, D3 contends that the reference to “an insured Contractor” in the Exclusion Clause means that the exclusion is limited to liability that an insured sub-contractor may owe towards his own employee.  Since P was employed by D1 and not D3 (both of whom are insured sub-contractors), the Exclusion Clause (and hence the Proviso) does not apply.

52.  Mr Cheung, counsel for TP, has not cited any authority in support of TP’s proposition, but Mr Sakhrani refers to Dragages et Travaux Publics (HK) Limited and Penta-Ocean Construction Company Limited t/a “Dragages – Penta Joint Venture” v RJ Wallace & ors HCMP 6577/2001, A Cheung J (unreported, 27 February 2004). In that case, the contractors’ all risk and third party liability insurance policy for the benefit of the principal contractor, the government and all contractors engaged to provide goods and services in connection with the contract project, including the plaintiffs, contained indemnity and exclusion provisions similar to those in the Policy in the present case:

“The Insurers will indemnify the Insured …… in respect of all sums which the Insured shall become legally liable to pay arising out of the performance of the Insureds projects described in the Schedule for:-

i) death, bodily injury, personal injury (excluding illness) to or disease contracted by any person

……

occurring during the Period of Insurance and arising out of or in connection with the Insured Project as shown in the Schedule.

Provided always that the indemnity granted by this Policy shall not apply to nor include:-

1.  Liability in respect of death of or bodily injury (including illness) to any person under a contract of employment or apprenticeship with the Insured Party and arising out of and in the course of such person’s employment or service with such Insured party.”

The learned judge held that although “the Insured” covers a number of parties, when the exclusion and indemnity provisions were read together, “the Insured” and “Insured party” referred to the particular insured who was making a claim for indemnity under the policy:

“It is this particular insured entity who has incurred a liability, in respect of which it is seeking indemnity under the policy. It makes its claim under the indemnity provisions in the policy. The exclusion provisions in the policy are then looked at to see whether the claim is excluded. Viewed in that way, as a matter of construction, it would seem to me that the insured party in exclusion 1 must be a reference to the insured entity who has incurred a liability and who is seeking indemnity under the policy.” (see para.25)

Such construction was made stronger by the cross-liability and waiver provisions in the policy (which provisions were similar to the Cross Liability Clause in the Policy in the present case) and accorded much better with the commercial reality or factual matrix of the policy in question.

53.  I accept that whilst case law is helpful and the above authority lends weight to D3’s contention, ultimately the Policy must be construed as a whole according to its own wording and factual matrix.  But for the present purpose, it is not necessary to determine whether D3’s construction of the Exclusion Clause and the Proviso is correct or not. In a strike out application, I am prepared to take D3’s case to its highest, and assume its contention that D3’s Liability falls within the Coverage Clause and outside the Exclusion Clause is the correct one (“Assumption”).  Under such construction, any liability that may attach to D3 in respect of personal injuries suffered by employees in its direct employ is excluded from the policy coverage and no doubt falls within the coverage of the relevant EC insurance policy.  This means there will be double insurance under both policies in respect of any liability that may attach to D3 for personal injuries suffered by employees of D2 and/or its other sub-contractors (eg D1).  However, “[double] insurance is not a vice, undesirable result or absurdity that a court in construing a policy should strive to avoid” [5].

(d)  Repudiation of liability and/or rejection of claim?

54.  On the above analysis, Mr Sakhrani submits that in rejecting “this present claim” on the basis that it is not liable to indemnify and it will not take over the conduct of the defence of any of Ds on the grounds set out in paragraph 50 above (which D3 has never accepted), TP is not addressing D3’s claim as set out in paragraphs 51-53 above, which on the basis of the Assumption falls within the Coverage Clause but outside the Exclusion Clause.  This, in essence, is the apples and oranges analogy adopted by Mr Sakhrani in paragraph 48 above.

55.  On the other hand, Mr Cheung submits that whether D3’s or TP’s construction of the Exclusion Clause is correct or not is neither here nor here because in expressly declining to indemnify D3 under the Policy and in refusing to take over the conduct of D3’s defence in the present proceedings TP has repudiated liability under the Policy.  D3’s simple proposition is that any repudiation of liability under the Policy comes within the meaning of “claim …… rejected” in Condition 10(e) irrespective of whether such repudiation is justified or wrongful.

(e)  Legal principles on repudiation

56.  In light of the above difference between counsel, it is necessary to revisit the principles of contractual repudiation.  Neither Mr Cheung nor Mr Sakhrani has cited any authority on this subject.

57.  It is trite that repudiation refers to conduct that shows an intention not to fulfil the contract or to fulfil the contract only in a way that is substantially inconsistent with the party’s obligations.  In my view, the test is an objective one, ie whether the conduct of the party in breach is such as to convey to a reasonable person in the shoes of the innocent party repudiation either of the contract as a whole or of a fundamental obligation under it.  Indeed, in the well-known case of Federal Commerce & Navigation Co Ltd v Molena Alpha Inc (The Nanfri) [1979] AC 757, 780, Lord Wilberforce said as follows:

“If a party’s conduct is such as to amount to a threatened repudiatory breach, his subjective desire to maintain the contract cannot prevent the other party from drawing the consequences of his action. The two cases relied on by the [buyers] …… would only be relevant here if the owners’ action had been confined to asserting their own view – possibly erroneous – as to the effect of the contract. They went, in fact, far beyond this when they threatened a breach of the contract with serious consequences.”

58.  What matters is conduct and not state of mind of the party in breach.  It is irrelevant whether such party held an honest belief that his action was justified by the contract provisions or whether he acted in accordance with legal advice.  In Haneet Chandru Vaswani v Italian Motor (Sales and Service) Ltd [1996] 1 WLR 270, 277, the Privy Council approved the following observations by Lord Denning MR in the Court of Appeal in The Nanfri [1978] QB 927, 979:

“I have yet to learn that a party who breaks a contract can excuse himself by saying that he did it on the advice of his lawyers; or that he was under an honest misapprehension …… I would go by the principle …… that if the party’s [conduct] – objectively considered in its impact on the other party – is such as to evince an intention no longer to be bound by its contractual obligations, then it is open to the other party to accept his repudiation and treat the contract as discharged from that time onwards.”

59.  Case law in this area draws a distinction between a party asserting an erroneous interpretation of the contract and a breach of contract with serious consequences [6].  It was held in Sweet & Maxwell Ltd v Universal News Services Ltd [1964] 2 QB 699 that it was not repudiation for a party merely to assert an erroneous interpretation of the contract.  Pearson LJ in that case noted that the defendants’ solicitors were stating their view as to the effect of the agreement “and said they were willing to perform it, and they were not refusing to perform it according to its true construction, whatever that might be” (p.734).  In Woodar Investment Development Ltd v Wimpey Construction UK Ltd [1980] 1 WLR 277, there was also no repudiation where on one side of the contract there was express reliance on a particular term and on the other side there was an intention to seek judicial determination of the validity of a notice purportedly given under the contract.  It was assumed that both sides would abide by the decision of the court. Lord Wilberforce said at pp.282-283 that this was quite insufficient to support a case for repudiation.

60.  Cheung JA summarised the distinction in Creatiles Building Materials Co Ltd v To’s Universe Construction Co Ltd [2003] 2 HKLRD 309, 319, as follows:

“The authors of Chitty on Contracts (28th ed., 1999) Vol. 1, para. 25-018 commented that the cases in this area are not easy to reconcile. The position would appear to be that it may not be a repudiation for one party to put forward his genuine but bona fide, interpretation of what the contract requires of him but that where that party performs in a manner which is not consistent with the terms of the contract, it is no defence for that party to show that he acted in good faith.” (my emphasis)

61.  More recently in Australia, the Court of Appeal of the Supreme Court of Victoria, gave a more detailed summary of the distinction as follows [7]:

“1. For party A merely to assert, or argue for, a wrong interpretation of the contract will usually not be enough to justify party B drawing an inference of repudiation. The reason for this is that party A may be willing to perform the contract according to its tenor. He may be willing to recognise his heresy once the true doctrine is enunciated or he may be willing to accept an authoritative exposition of the correct interpretation. In either event an intention to repudiate the contract could not be attributed to him. Thus the inference of repudiation should not readily be drawn where, for example –

(a) party A makes “contentious observations in the course of discussions or arguments”; or

(b) party A’s conduct amounts to engaging in “a bona fide dispute as to the true construction of a contract expressed in terms which are by no means clear”.

2. The inference of repudiation can more readily be drawn when the interpretation relied on by party A is clearly or obviously untenable and party A –

(a) acts (or threatens to act) unilaterally on the basis of the interpretation; or

(b)     persists in the interpretation in the face of communications from party B pointing out the error.”

(f)  Repudiation (assumed to be wrongful)

62.  Here, the true question is what was conveyed to D3 by the position adopted by TP at the time.  WL’s letters dated 5 March and 14 April 2009 to WKT insisted on TP’s construction of the Exclusion Clause (which for the present purpose is assumed to be erroneous), and made it plain that TP refused to provide indemnity to D3 under the Policy and/or to take over D3’s defence in the present proceedings (see paragraphs 19 and 23 above).  Thus, on the basis of the Assumption, TP has plainly performed in a manner not consistent with the contractual terms of the Policy and has clearly persisted in an untenable or unjustifiable interpretation concerning its obligations under the Policy in face of WKT’s letters dated 5 and 12 March and 2 April 2009 that explain D3’s construction of the indemnity and exclusion provisions of the Policy and point out TP’s error (see paragraphs 19 and 21-22 above).  In my view, by adopting such position, TP has undoubtedly conveyed to D3 its determination to proceed in a manner that plainly amounts to a disclaimer of liability in respect of D3’s claim for indemnity under the Policy as well as a rejection of claim within the meaning of Condition 10(e).

63.  Although each case must turn on the particular conduct of the party in breach, it is useful to draw analogy from Walker v Pennine Insurance Co Ltd [1980] 2 Lloyd’s Rep 156 [8], which concerned a motor insurance policy.  The agency through which the policy had been effected wrote to the insured stating that the insurers considered the overcrowding of the car would have rendered the vehicle unroadworthy, so the insured was in breach of his policy conditions and the insurers decided not to proceed to meet the claim.  The insured disputed this.  Whilst noting the insured’s comments, the insurers were not prepared to reconsider their decision concerning indemnity, and such conduct was held to amount to a disclaimer of liability under the policy (at p.159).  There was a further letter from the insurers returning the writ of summons served on the insured and stating they were unable to give attention to the claim on the insured’s behalf as they were not granting indemnity to him.  It was held that this was as much a disclaimer as the earlier letter.  “Accordingly, in [Roskill J’s] judgment, there was here a plain disclaimer of liability for the claim” (p.159).

64.  I am not persuaded that Mr Sakhrani’s reliance on the general principles concerning the form of notice of claim under an insurance policy is of assistance.  I accept that the notice must be in the form required by contract and the “contents required depends on the context” [9].  But even if I further accept Mr Sakhrani’s submissions that such principles apply a fortiori to the form and contents of any notice of rejection of claim, I do not see how they detract from the principles on repduiatory conduct discussed above.

65.  Upon reaching the above conclusion that TP has repudiated liability to indemnify D3 under the Policy, I am further comforted by the subsequent understanding and acknowledgement by D3 and TP that WL’s letter of 14 April 2009 (see paragraph 23 above) amounts to a disclaimer of liability as well as a rejection of D3’s claim for indemnity under the Policy.

66.  First, WKT wrote to WL on the following day (ie 15 April 2009) stating that they had D3’s instructions to commence arbitration proceedings against TP “for indemnity under the policy in question”, and WL replied on 17 April 2009 to confirm instructions to accept service (see paragraph 24 above).  Plainly both parties have acknowledged TP’s disclaimer of liability by virtue of WL’s letter of 14 April 2009.

67.  Secondly, it is pleaded in both the 1^st TPN (by D3) and 2^nd TPN (by WKT on behalf of D3) that TP has committed a breach of contract constituted by the Policy “[in] refusing to indemnify [D3] in accordance with the Policy”.

68.  Thirdly, Leung in his witness statement states that “及後，[Leung]從代表律師得知，[AXA]透過其代表律師表示堅決不願意就是次意外向[D3]提供保障，所以[D3]迫於無奈，於此案中向[AXA]發出第三方通知書，要求它根據該保單為[D3]提供保障，及支付[D3]的律師費及所有損失”.  Paragraph 24 of Ip Tao Ning’s witness statement served on behalf of TP also confirms that on 14 April 2009 TP “rejected the request of [D3] for indemnity”.

69.  Fourthly, paragraph 14 of Mr Kwong’s 2^nd affirmation in support of the Summons confirms that TP has rejected D3’s request for indemnity and has repudiated liability on 14 April 2009.  Likewise, Leung’s affirmation also claims that TP relies on its “misconceived and absurd interpretation” of the Exclusion Clause “with a view to avoiding policy liability”.

70.  In light of the above, I agree with Mr Cheung that even taking D3’s case to the highest on the basis of the Assumption, TP has rejected D3’s claim for indemnity under the Policy at the latest by 14 April 2009.

(g)  Justification for repudiation on other grounds?

71.  The above discussion is premised on the assumption that the grounds for TP’s repudiation of liability are erroneous.  As a fallback, TP has pleaded that such rejection of claim can be justified on other grounds (eg breach of Condition 5(c) of the Policy) not been mentioned in WL’s letters dated 5 March and 14 April 2009.

72.  It is trite that “if a party refuses to perform a contract, giving therefore a wrong or inadequate reason or no reason at all, he may yet justify his refusal if there were at the time facts in existence which would have provided a good reason, even if he did not know of them at the time of his refusal” [10].  In Clarke, The Law of Insurance Contracts 5^th ed (2006) para.26-4D(c) at p.833, it is said as follows:

“If the insurer rejects the claim altogether on another ground, such as lack of cover, the insurer does not thereby waive the possibility of pleading a breach of condition at a later stage, if that breach occurred prior to the rejection of the claim; the rejection did not prompt the breach. ……” [11]

73.  I have referred counsel to Bolton Metropolitan Borough Council v Municipal Mutual Insurance Ltd & anor [2006] 1 WLR 1492.  In that case, the relevant insurers could have denied liability on coverage grounds, for late notification or on both grounds, but they rejected the claim on coverage grounds without any reference to late notification.  When they later relied on late notification, it was challenged on the basis that their conduct in relying only on coverage issues amounted to an election not to rely on late notification and a waiver of their entitlement to do so. Longmore LJ (with whom Hallett and Auld LJJ agreed) held that there must be a choice between alternative and inconsistent courses of action open to a contracting party before he was required to elect.  “[It] is not sufficient for a party to a contract to have alternative courses of action; for the doctrine of election to apply (which must be remembered requires no acting on it by, or detriment to, the other party) the courses of action must be inconsistent or, as it is sometimes said, mutually exclusive” [12].  In that case, the three courses then open to the insurers were “all consistent with each other because they each led to a denial of liability.  The inconsistent course would have been for [the relevant insurers] to accept liability rather than to deny liability.  If that happened they might well then be held to have elected not to deny liability; but that, of course, is something which did not happen” [12].  So the insurers were entitled to rely on late notification as an additional defence.

74.  I have further referred counsel to Super Chem Products v American Life and General Insurance Co Ltd & ors [2004] 2 All ER 358.  In that case, Lord Steyn said at p.365 inter alia as follows:

“…… Contract law cannot and does not prevent an insurer from resisting a claim on alternative bases, one involving an allegation of fraud and the other breaches of policy conditions. It would be contrary to principle and business common sense, which underpin our commercial law, to require an insurer to choose between alleging fraud, thereby abandoning the right to invoke other conditions of the policy, or to rely on those provisions, thereby giving up the right to allege fraud. ……”

Such passage has been quoted with approval by the Privy Council in Nasser Diab v Regent Insurance Co Ltd [2006] UKPC 29.

(h)  Waiver of Condition 5(c)?

75.  Super Chem Products Ltd recognises that the circumstances in which the repudiation has taken place and the act of repudiation in question may justify an inference of waiver by the insurer of his right to insist that the insured comply with the contractual provision or procedural obligation in question. Nasser Diab explains that “[waiver] means the abandonment or relinquishment of a right of defence which may occur either as the result of an election by the insurer or of the creation of an estoppel precluding him from relying on his contractual rights against the assured” [13].  In that case, the Lords could see no basis for arguing that the insurer had elected to relieve the insured of the procedural obligations as to notification of claim, and the insurer had not said anything that could be categorised as a “representation”, let alone an unequivocal one, that it would not hold the insured to the conditions of the policy so as to amount to an estoppel.

76.  In the present case, as in Bolton Metropolitan Borough Council, there is no assertion that D3 has acted to its detriment as a result of TP’s failure to mention late notification in WL’s letter of rejection such that TP cannot rely on any estoppel.  Rather, any possible argument that D3 may raise is that TP has elected not to rely on Condition 5(c) and cannot now go back on its election.  However, I am of the view that there are no inconsistent courses of action that will debar TP from relying on breach of Condition 5(c) (if any) in TP denying liability by WL’s letter dated 14 April 2009 on policy coverage grounds and by its Defence in the third party proceedings that additionally asserts breach of the notification requirements

77.  As Mr Cheung submits, waiver requires clear and unambiguous conduct and/or representation, and there is none in this case.  But this, of course, still begs the question whether TP is able to show a clear case of breach of Condition 5(c).

(i)  Breach of Condition 5(c)?

78.  As a starting point, Condition 5(c) (which provides that “no claim under this Policy shall be payable unless the terms of this condition have been complied with”) is a condition precedent that imposes an absolute obligation. In the absence of waiver, TP is entitled to rely upon any breach thereof unaccompanied by any resulting prejudice to escape liability [14].

79.  Secondly, has D3 forwarded any “writ summons or other proceedings which may be commenced against [D3]” “as soon as possible”?  According to TP (as verified by Mr Kwong’s 2^nd affirmation), D3 was prosecuted and convicted of various offences under the ESS Summonses, and P issued the Writ of Summons in the present proceedings against inter alia D3 on 20 August 2008, but D3 has not notified or forwarded to TP the ESS Summonses and/or the Writ of Summons as required under Condition 5(c).  TP claims it was only on 17 February 2009 that D2 forwarded the Writ of Summons to AXA through its loss adjuster, and on 28 February 2009 that WKT acting for Wing Lung wrote to urge D3 (with copy to AXA) to seek indemnity from AXA under the Policy and to acknowledge service of the Writ of Summons pending notification to AXA (see paragraph 17 above).

80.  On the other hand, D3 in its Reply in the third party proceedings avers that through D2 and in turn the Employer it has notified TP about the Accident and the intention to claim under the Policy, and that TP has waived operation and compliance of the requirements under Condition 5(c) on the part of D3.  However, Leung’s affirmation does not condescend to any sufficient conduct and/or representation by D3 of any waiver of the requirements for forwarding to TP the ESS Summonses and/or the Writ of Summons herein (as distinct from giving notice of the Accident to TP).  I am not persuaded by Mr Sakhrani’s suggestion that this issue raises a factual dispute that should be resolved at trial.

81.  Nevertheless, there is no information before me on the offences for which D3 was prosecuted and/or convicted under the ESS Summonses and/or on their connection (if any) with D3’s Liability that would have required notification to TP [15].  In my view, it must be arguable that there may not have been any breach of Condition 5(c) as a result of failure to forward the ESS Summonses to TP.

82.  As regards the Writ of Summons herein, D2 has forwarded it to TP via the loss adjuster on 17 February 2009 (see paragraph 79 above).  In my view, there would have been sufficient compliance if it had been forwarded to TP “as soon as possible” even by a party other than D3 [16].  But has TP satisfied the criterion of “as soon as possible”?  Although there is no clear evidence before me as to when the Writ of Summons was actually served on D3, the letter from P’s solicitors to the court dated 2 January 2009 confirms that it has not been served up to that time.  There is an endorsement on the backsheet of the filed copy of the Statement of Claim that such pleading has been served on Ds on 5 February 2009.  The Writ of Summons must have been served on D3 some time between 2 January and 5 February 2009. In the circumstances, I am unable to say at a strike out application that notification and forwarding of the Writ of Summons herein to TP on 17 February 2009 necessarily falls foul of the requirement of “as soon as possible”.

83.  In summary, I am not satisfied that any breach of Condition 5(c) is plain and obvious.  But this does not alter my view that (on the basis of the Assumption) TP has clearly but wrongfully rejected D3’s claim for indemnity in respect of D3’s Liability under the Policy to satisfy the first element under Condition 10(e).

X.  LIMITATION DEFENCE UPON REJECTION OF CLAIM

84.  The next question is that whether Condition 10(e) survives TP’s repudiation of liability or rejection of D3’s claim.  Mr Sakhrani submits that the limitation provision no longer applies, but Mr Cheung submits otherwise.  In this respect, I have referred the parties to Port Jackson Stevedoring Pty Ltd v Salmond & Spraggon (Australia) Pty Ltd (The New York Star) [1980] 3 All ER 257 and Super Chem Products Ltd.

85.  In Port Jackson Stevedoring Pty Ltd, Lord Wilberforce at pp.261-262 said as follows:

“…… A breach of a repudiatory character, …… entitles the innocent party, unless he waives the breach, to claim to be released from further performance of his obligations under the contract. So far their Lordships of course agree. One of these obligations, counsel proceeded to argue, was to bring any action on the breach within a period of one year, and the innocent party was released from his obligations. An alternative way of putting it was that the bringing of suit within a year was a condition with which the innocent party was obliged to comply; the repudiatory breach discharged this condition. ……

Their Lordships’ opinion on these arguments is clear. However adroitly presented, they are unsound, and indeed unreal. ……

Moreover it is quite unreal to equate this [limitation clause] with those provisions in the contract which relate to performance.  It is a clause which comes into operation when contractual performance has become impossible, or has been given up; then, it regulates the manner in which liability for breach of contract is to be established. In this respect their Lordships found it relevantly indistinguishable from an arbitration clause, or a forum clause, which, on clear authority, survive a repudiatory breach. ……  Counsel for the consignee appealed for support to some observations by Lord Diplock in Photo Production Ltd v Securicor Transport Ltd [1980] 1 All ER 556 at 566-567, [1980] 2 WLR 283, 294-295, where reference is made to putting an end ‘to all primary obligations … remaining unperformed’.  But these words were never intended to cover such ‘obligations’ …… as arise when primary obligations have been put an end to.  There then arise, on his Lordship’s analysis, secondary obligations which include an obligation to pay monetary compensation.  Whether these have been modified by agreement is a matter of construction of the contract.  The analysis, indeed, so far from supporting the consignee’s argument, is directly opposed to it.  Their Lordships are of the opinion that, on construction and analysis, [the limitation provision] plainly operates to exclude.”

86.  In Super Chem Products Ltd, the Privy Council cited the above passage from Port Jackson Stevedoring Pty Ltd with approval.  In my view, it is ultimately a matter of construction whether or not D3 and TP have intended Condition 10(e) to survive the repudiation of liability.  But applying the rationale in the above authorities, it must be plain that Condition 10(e) survives TP’s repudiation of liability and rejection of claim.

87.  I now turn to the question of whether D3’s third party “action or suit” against TP has “commenced” on or before 13 July 2009 (ie within 3 months of TP’s rejection of D3’s claim for indemnity under the Policy latest by 14 April 2009).

XI.  ACTION OR SUIT COMMENCED

(a)  Action or suit

88.  It is common ground that (a) the description of “action or suit” in Condition 10(e) refers to legal proceedings including third party proceedings, and (b) the originating process for commencing third party proceedings is the third party notice.

(b)  Dispute

89.  It is important to ascertain the date of “commencement” of D3’s third party claim against TP because the 1^st TPN is before and the 2^nd TPN is after the deadline of 13 July 2009 under Condition 10(e) (see paragraph 87 above).

90.  There is no dispute the 1^st TPN was not issued but merely served on AXA under cover of D3’s letter dated 6 May 2009 (see paragraph 25 above). D3 argues the 1^st TPN amounts to sufficient “commencement” of “action or suit” within the meaning of Clause 10(e). In maintaining such stance, Mr Sakhrani does not suggest that D3’s third party “action or suit” against TP was actually instituted by the 1^st TPN. Rather, he contends that D3 has purported to begin third party proceedings by the 1^st TPN, which has not been sealed and/or issued out of the High Court registry, and it is open to the court to hold that the 2^nd TPN has cured such procedural irregularity (which does not nullify the third party proceedings purportedly commenced by D3) as a thing “left undone” “in any other respect” that falls within the curative power of Order 2 rule 1 (“O2r1”) of the RHC (“RHC”), so that as from 4 May 2009 the 1^st TPN is to be treated as the properly constituted third party notice for the purpose of proceeding with D3’s “action or suit” against TP.

91.  On the other hand, TP argues that D3 has not commenced any third party proceedings by the 1^st TPN, which has not been sealed or issued out of the High Court registry. Since the court is not seized of the matter and/or O2r1 cannot cure such fundamental failure, the earliest date for the commencement of D3’s third party proceedings against TP is 23 July 2009 (ie when the 2^nd TPN was issued out of the High Court registry – see paragraph 30 above), but by that time D3’s third party claim against TP is already time-barred under Condition 10(e).

(c)  “Commencement” of third party proceedings

92.  Mr Sakhrani argues that under Order 16 rule 3(4) (“O16r3(4)”) of the RHC it is only in certain circumstances that third party proceedings are looked at as if the third party notice were a writ of summons, and it is poignant that TP’s argument is based on contractual and not statutory limitation defence.

93.  O16r3(4) provides inter alia as follows :

“Subject to the foregoing provisions of this rule, the following provisions of these rules, namely, Order 6, rule 7(3) and (5) …… shall apply in relation to a third party notice and to the proceedings began thereby as if –

(a) the third party notice were a writ and the proceedings began thereby an action; and

(b) the defendant issuing the third party notice were a plaintiff and the person against whom it is issued a defendant in that action.” (my emphasis)

Order 6 rule 7(3) (“O6r7(3)”) of the RHC provides that the “[issue] of a writ takes place upon its being sealed by an officer of the Registry” (my emphasis). In my view, by reading O16r3(4) and O6r7(3) together, it is clear that third party proceedings “begin” upon the third party notice being duly “sealed” by the court officer and “issued” out of the court registry. This is borne out by the following observations in Hong Kong Civil Procedure 2011 Vol.1 as follows :

“Commencement of third party proceedings – …… As in the case of a writ, third party proceedings are commenced when, but not before, the third party notice is sealed by an officer of the court (College Street Market Gardens v. Stuart, unreported, October 5, 1989, Saville J., (Eng.) and see O.6 r.7(3) and (4) ……” (para.16/1/5 at p.338)

“Issue of third party notice – The issue of a third party notice taking effect upon its being sealed by an officer of the court (O.6, r.7(3) is applied to a third party notice by paragraph (4)); (and see College Street Market Gardens v. Stuart, unreported, October 5, 1989, Saville J.) and a third party notice will not be issued unless at the time of the tender for sealing a copy thereof signed by the plaintiff or if he is not acting in person, by his solicitor is left at the proper office (O.6, r.7(5) applies to a third party notice by para.(4)).” (para.16/3/2 at p.340)

“Limitation period in third party proceedings – …… Since, as in the case of a writ, the issue of the third party notice takes effect from its being sealed by an officer of the court (see para.(4) and O.6, r.7(3)), it is imperative to remember that third party proceedings are not commenced by lodging an ex parte affidavit for leave to issue a third party notice, or by issuing a summons for such leave or by an order granting such leave. Third party proceedings are instituted when the third party notice is issued, which is when it is sealed by an officer of the court (College Market Gardens v. Stuart, unreported, October 5, 1989, Saville J., (Eng.) approving earlier sentence of this sub-paragraph). ……” (para.16/3/6 at p.341)

(d)  Authorities

94.  O2r1 provides inter alia as follows:

“Where, in beginning or purporting to begin any proceedings or at any stage in the course of or in connection with any proceedings, there has, by reason of any thing done or left undone, been a failure to comply with the requirements of these rules, whether in respect of time, place, manner, form or content or in any other respect, the failure shall be treated as an irregularity and shall not nullify the proceedings, any step taken in the proceedings, or any document, judgment or order therein.” (my emphasis)

95.  It has been said that under O2r1 in its present form the distinction between nullity and mere irregularity disappears. But are all defects curable under such provision? In this respect, I have referred counsel to Harkness v Bell’s Asbestos and Engineering, Ltd [1966] 3 All ER 843 and Harrison & anor v Touche Ross (a Firm), The Times, February 14, 1995, CA.

96.  In Harkness, the plaintiff made an application by affidavit to a district registrar who having no jurisdiction to do so made an order. Lord Denning MR said at p.845 that “[any] application to the court, however informal, is a “proceeding”. There were “proceedings” in being at the very moment that the plaintiff made his affidavit and his solicitor lodged it with the registrar”. It was held that failure to comply with the rules of the court on jurisdiction did not render the application a nullity but amounted only to an irregularity, so the defect on the form of the district registrar’s order could be amended under the rules of court, and the court granted leave for such purpose.

97.  In Harrison & anor, the plaintiffs’ writ claiming damages in contract and tort was issued on 8 July 1992. Irregular service of the writ on 6 November 1992 failed to bring the proceedings to the notice of the defendant. It came to the attention of one of the defendant’s partners on 9 November 1992, but by that time the claim in contract had become statute-barred. If time were to stop running on the claim in tort but not so as to defeat the limitation defence in respect of the claim in contract which had accrued, the writ had to be treated as having been issued on 9 November 1992 and not earlier. The first instance judge having refused extension of the validity of the writ and refused to treat the irregular service of the writ as good service directed that the writ be treated as issued and served on 9 November 1992. The Court of Appeal held otherwise as follows:

“…… it was not open to it to treat a writ as issued months before or after the date it was in fact issued. The time of issue not only affected the substantive rights of the parties to the action but might also affect the rights of third parties.

Order 6, rule 7(3) provided that a writ was issued on its sealing. It might be that the court might treat as issued a writ delivered into its custody at a time when the relevant registry was not open.

That practice, approved in In re N (Infants) ([1967] Ch 513) was now expressly provided in Order 6, rule 7A in the case of the Admiralty and Commercial Registry.

But neither that principle nor that rule was applicable here and no other rule authorized the court to do what the judge had done.

     The judge had accordingly made his order without jurisdiction. …….”

98.  Harrison & anor has been referred to in Hong Kong Civil Procedure 2011 Vol.1 para.6/7/15 at p.79 as follows:

“Date of issue – Generally, a writ is issued on the date it is sealed and the court has no power to deem it to have been issued on some other date: Harkness v. Touche Ross, [1995] C.L.C. 3775, considered by Rinikev v. University College London, The Times, April 17, 1999, and see para.6/8/9. However see also Re Cinerent Ltd [2010] 1 H.K.L.R.D. 378 where it was held that in an appropriate case, the Court can exercise its inherent jurisdiction in ordering the backdating of a writ of summons.”

99.  In Re Cinerent Ltd [2010] 1 HKLRD 378, a case cited by Mr Sakhrani, the plaintiff applied ex parte to backdate a protective writ by one day. The plaintiff presented a draft writ to the High Court registry just after 4:30pm on 2 March 2009, but the registry mistakenly required that the plaintiff provide a letter stating that the claim was over HK$1,000,000.00. By the time the plaintiff had decided to fax such letter to the registry, it had closed and it was too late. It was held that the registry had no power to refuse to issue a writ unless it required leave of the court or it was illegible, meaningless or abusive. The registry should have allowed and arranged for the writ to be issued on 2 March 2009, and hence it was appropriate to exercise the court’s inherent discretion by backdating the writ to 2 March 2009.

100.  Recorder P Fung SC in Re Cinerent Ltd considered the case of Riniker v University of London [1999] EWCA Civ 1156; [1999] All ER (D) 371. In that case, the plaintiff sought to issue a protective writ with a long general endorsement by posting the draft writ with the appropriate fee to the court. The court received the draft writ on 28 July 1998, but a court clerk rejected and returned it to the plaintiff with a note saying that the indorsement should be headed up statement of claim. The plaintiff did not receive it until 9 August 1998, and when she re-submitted the draft writ it was too late. The Court of Appeal accepted the draft writ was in the custody of the proper officer of the court on the earlier date, so the writ could and should have been issued on the earlier occasion, and the failure to do so was entirely the responsibility of the court official. As in Harrison & anor, it was stressed that there was a need to distinguish between cases where the plaintiff was responsible for a failure to comply with the rules, and others where it was not. Thus, pursuant to the inherent jurisdiction of the court rather than the specific authority given by the English equivalent of O2r1, the English Court of Appeal exercised its discretion to backdate the writ.

101.  The learned editor reporting Re Cinerent Ltd also referred to Barnes v St Helens Metropolitan Borough Council [2007] 1 WLR 879, a post-CPR case where the sealing of the claim form was delayed due to industrial action at the registry. The English Court of Appeal emphasised that courts could and would take steps to ensure that a plaintiff would not be prejudiced by events outside his control. “Provided the claimant takes any necessary step required to enable the proceedings to be started he does not take the risk that, for example, the court may be closed or will not process his claim properly” [17]. It was held that although by CPR rule 7.2 (see paragraph below) proceedings were “started” when the court issued a claim form at the request of the claimant, where the claim form as issued was received in the court office on a date earlier than the date on which it was issued by the court, the claim was “brought” for the purposes of the Limitation Act 1980 on that earlier date.

102.  Barnes at p.882 refers to another post-CPR case of Salford City Council v Garner The Times, 10 March 2004, [2004] EWCA Civ 264, which is of more relevance to the present case. In that case, the court had to consider when proceedings for possession were “begun” for the purpose of Part V of the Housing Act 1996 dealing with introductory tenancies. The court held that proceedings were “begun” when they were “started” as provided by CPR rule 7.2 which provides inter alia as follows:

“(1) Proceeding are started when the court issues a claim form at the request of the Claimant.

(2) A claim form is issued on the date entered on the form by the court.”

It was held that the proceedings were not begun on the day when the claim form was delivered to the court because difficulties would ensue if the date of receipt by the court office was taken as the date on which proceedings were begun. The tenant should not have to enquire with the court office whether the claim form had been received on some earlier date (see para.26 per Chadwick LJ). Maurice Kay LJ opined that it was axiomatic that the beginning of proceedings under section 130 of the Housing Act 1996 must bear the same meaning as the starting of proceedings as described in CPR rule 7.2; that point being defined as the point of issue of a claim form at the request of the claimant. He rejected any analogy between the “starting” of proceedings under CPR rule 7.2 and the “bringing” of proceedings for the purpose of the Limitation Act 1980 :

“…… Here the language in issue is not the ‘bringing of proceedings’ but the ‘beginning of proceedings’. Where there is a general provision aimed at a point of time at which proceedings are started, it follows that the assimilation of when proceedings are begun and when they are started is conclusive. The extended meaning, given specifically in the context of the bringing of proceedings for the purposes of the Limitation Act, has no bearing on the present circumstances. I too would allow this appeal.” (para.35)

(e)  Issue of third party proceedings being “commencement” of third party “action or suit”

103.  Here, the second element under Condition 10(e) refers to an “action or suit” being “commenced” within 3 months after the rejection of claim. In my view, the concept of legal proceedings having begun, started or commenced must all refer to the same event, and the assimilation of the time when proceedings are begun with the time when they are started or when they are commenced is plain and obvious. Thus, the “action or suit” (ie the third party proceedings which are legal proceedings analogous to the proceedings for possession in Salford City Council) is “commenced” under Condition 10(e) when it is “started” or “begun” under Order 16 and Order 6 of the RHC by the issuance of a third party notice (analogous to the claim form under the CPR) upon its being issued out of the court registry (analogous to CPR rule 7.2). In the circumstances, quite irrespective of whether D3 approached the High Court registry for issuance of the 1^st TPN on 4 May 2009 or not (see paragraph 109 below), it is plain and obvious that the only third party notice that has been issued (ie sealed by the court official) in the present proceedings is the 2^nd TPN. Hence, the third party “action or suit” was “commenced” on 23 July 2009 and not earlier, and it is therefore time-barred under the contractual limitation provision in Condition 10(e).

104.  Even if I am wrong, the above authorities are clear that O2r1 does not apply to fundamental defects. This is also borne out by Hong Kong Civil Procedure 2011 Vol.1 paras.2/1/1-2/1/2 at pp.47-49 which give examples of fundamental defects that cannot be cured under O2r1, eg failure to renew a writ for service so that service after the expiry of a writ is bad and liable to be set aside, entry of judgment in default of defence before expiry of the statutory period allowed for service of a defence, non-existence of the corporate plaintiff at the date of commencement of the proceedings, etc.

105.  It is also clear from Harkness and Harrison & anor that the defects pertaining to the originating process or application that are curable under O2r1 are those errors or omissions due to non-compliance with the rules upon such originating process or application having been made to or having been tendered unto the custody of the court. In my view, the very failure of delivering an originating process (no matter how badly it fails to comply with the rules) to the custody of the court is a fundamental defect outside the scope of O2r1.

106.  This principle rests on the underlying premise that the court registry has no power to reject any originating process submitted unless it requires leave of the court or is illegible, meaningless or abusive (see paragraph 99 above). It also underlines the significance of the date of issuance of the originating process, which is the point in time at which the court is seized of the matter, and which ensures certainty and obviates enquiry as to what earlier date legal proceedings should be regarded as having started, commenced or begun.

107.  However, Mr Sakhrani argues that a properly constituted action is already in place by the 1^st TPN, so the court is already seized of the matter and can exercise its powers under O2r1. But even assuming for the present purpose the 1^st TPN sets out all the information TP needs in order to be able to understand what is being claimed, I cannot see how it can be said that the court has already seized of the matter on either 4 or 6 May 2009. Quite simply, the 1^st TPN was not in the custody of the court.

108.  The next consideration is whether, in light of the above authorities (eg Re Cinerent Ltd, Rinniker and Barnes), D3 is blameless for the 1^st TPN not being sealed by the court officer or issued out of the High Court registry in May 2009, so that the court can exercise its inherent jurisdiction to ensure that D3 is not prejudiced.

109.  Leung’s affirmation states that on 4 May 2009 he was refused issuance of the 1^st TPN at the High Court registry “on the basis that [D3] was then acting in person”. The relevant statutory provision is Order 5 rule 6(2) of the RHC which provides inter alia as follows:

“A body corporate may not begin or carry on such proceedings in the Court otherwise than by a solicitor except –

(a) as expressly provided by or under any enactment; or

(b) where leave is given under paragraph (3) for it to be represented by one of its directors.” (my emphasis)

In my view, save for exceptional circumstances, the prohibition against a body corporate (eg D3) from commencing or beginning legal proceedings is absolute unless the court has granted leave for it to be represented by one of its directors.

110.  In Crescent Oil and Shipping Services Ltd v Importang UEE & ors [1997] 3 All ER 428, a case cited by Mr Sahkrani, the plaintiffs issued proceedings against the defendants for breach of contract. The writ carried the indorsement that it was issued by the plaintiffs’ in-house solicitor when in fact she was on holiday at the time. Her solicitors wrote to say that the writ was not issued by her or with her authority or privity, and she subsequently left the plaintiffs’ employ. The writ was then served by registered post and thereafter default judgment was entered. When the plaintiffs attempted to enforce the judgment, some of the defendants applied to set aside the issue and service of the writ. Thomas J said at p.438 as follows:

“…… However, the absolute nature of the prohibition set out in Ord 5, r 6(2) is underlined by the provision of Ord 12, r.1(2); this rule permits a body corporate to acknowledge service and give notice of intention to defend, but prohibits any further step in the action otherwise than by a solicitor. The court does, however, have discretion to permit in exceptional circumstances representation of a body corporate by a person other than a solicitor …… In [Radford v Freeway Classics Ltd [1994] 1 BCLC 445], the discretion to allow such representation was described as a limited gloss on very clear legislative provisions in Ord 5, r 6(2) requiring a limited company to pursue its litigation by legal advisers. It may possibly be the case that a court does in exceptional circumstances (such as the imminent expiry of a time bar) have power to permit a body corporate to issue a writ, but in general the prohibition in the rules is absolute. In the circumstances of this case, the writ should have been either issued or served as Crescent were not acting by the solicitor. Ratification cannot assist Crescent as the rules prohibit what was done and it cannot be cured retrospectively.” (my emphasis)

111.  Are there exceptional circumstances in the present case? Mr Sakhrani agrees that an application to the Registrar should have been made, but suggested that “the defect was in relation to a legal step which in all probability could have been taken with legal advice without difficulty”, and there is no reason to suppose that leave to proceed without a solicitor would not have been granted, particularly in light of the impending expiry of the contractual limitation period. 

112.  I disagree.  With the expiry of the contractual limitation period more than 2 months away (ie on 13 July 2009), there was no risk of imminent time bar as at 4 May 2009. I am also not persuaded that the rest of Mr Sakhrani’s submissions amount to any exceptional circumstances that may justify any notional permission by the court for D3 to issue the 1^st TPN without solicitors.  In any event, no such application has been made by D3.  Indeed, D3 has not applied for leave to be represented by one of its directors notwithstanding the reminder by Master B Kwan to its representative present at the CLR hearing only 4 days after the date of the 1^st TPN (ie on 8 May 2009) to instruct solicitors to act for D3 or apply for a director to represent D3 as soon as possible (see paragraph 27 above), and the subsequent reminder by P’s solicitors to D3 dated 1 June 2009 (see paragraph 29 above).

113.  Clearly it cannot be said that D3 has been blameless for the 1^st TPN never having been in the custody of the court. In fact, I will go so far as to say the court registry has properly rejected the 1^st TPN on the basis that D3 is prohibited from issuing the 1^st TPN without the leave of the court.  Indeed, Crescent Oil and Shipping Services Ltd shows that ratification cannot assist as therules prohibit what Mr Sakhrani proposes this court to do, and in my view the defect in question cannot be cured retrospectively. Whilst I agree that O2r1 should be construed liberally, I am not persuaded its scope is wide enough to cover so-called “proceedings” (which in truth are not proceedings as such) that have not been made to the court at all due to matters within the applicant’s control.

114.  Mr Sakhrani prays in aid the court’s wide powers of case management.  He reminds that in giving effect to the underlying objectives which include the promotion of procedural economy in the conduct of proceedings and ensuring fairness between the parties, the court must remember that the primary aim is to secure the just resolution of disputes in accordance with the substantive rights of the parties (see Order 1A rule 2(2) of the RHC).  Mr Sakhrani argues that it is open to the court “to order that the 2^nd TPN cured the irregularity in the 1^st TPN and as such was the properly constituted TPN for the purpose of proceeding with the claim”, which accords with the 8/12/09 Order that the 2^nd TPN do stand as the third party notice issued by D3 “because it cured the irregularity in the 1^st TPN”.  It is further suggested that there is no prejudice to TP in its substantive rights.

115.  In my view, the underlying objectives in Order 1A of the RHC cannot be a panacea for all procedural ills and, more importantly, fundamental defects.  I accept that O2r1 must be construed liberally with the underlying objectives in mind in order, so far as is reasonable and proper, to prevent injustice being caused to one party by mindless adherence to technicalities in the rules of procedure, but it must be remembered that the “power given to the court by O.2, r.1 is a power to cure irregularities consisting of failures to comply with the rules.  There is no power to remedy failures of a more fundamental kind” [18].

116.  I also disagree with Mr Sakhrani’s reading of the 8/12/09 Order.  In fact, such proposition flies in the face of D3’s own previous stance and the true purport of such order.  In fact, until its present opposition to the Summons, it has all along been D3’s stance under legal advice that (a) the 1^st TPN not being issued out of court is invalid and a nullity, and there were in fact no third party proceedings at the time, so that the third party proceedings by D3 against TP only began by the 2^nd TPN issued by WKT on behalf of D3 [19].  Since D3 claims there were no third party proceedings on foot by virtue of the 1^st TPN, D3 (through WKT) by the amended AS Summons has sought an order to set aside the AS or alternatively to have the AS deemed as a valid acknowledgment of service to the 2^nd TPN that was sealed and issued out of the High Court registry (see paragraphs 33 and 36 above).  WL on behalf of TP had no objection to the alternative relief sought so long as D3 made clear which third party notice it intended to rely. As there is no doubt from Ms Lum’s affirmation that D3 intended to rely on the 2^nd TPN and not the 1^st TPN which was considered to be invalid and a nullity, I granted the 8/12/09 Order set out in paragraph 36 above.  The 1^st TPN was not sealed or issued out of the High Court registry and consequently not in the custody of the court at all, so there was no need to give any further directions to deal with such document.  Rather, the court has given clear directions that the 2^nd TPN do stand as the third party notice “issued” by D3 against TP in these proceedings.  On such basis and for the sake of procedural economy under the underlying objectives, I also directed that the AS do stand as the acknowledgment of service to the 2^nd TPN. 

117.  In my view, it is abundantly clear that the court has held that the third party proceedings were constituted and commenced by the 2^nd TPN, which is consistent with the position adopted by D3 at that time and to which TP had no objection.  Since the AS has been treated and deemed to be the acknowledgment of service to the 2^nd TPN under the 8/12/09 Order, quite understandably no further acknowledgment of service has been filed in response to the 2^nd TPN. Until Mr Sakhrani’s submissions, there has been, quite simply, no suggestion by D3 or TP and/or in the 8/12/09 Order that the 2^nd TPN has cured any irregularity in the 1^st TPN to enable it to be properly constituted as the relevant third party notice.  Further, I am unable to see any need to recognise the 1^st TPN “for the purpose of proceeding with the claim”.  D3 has chosen to proceed with the claim by the 2^nd TPN. It has asked that the AS to be deemed to be a valid acknowledgment of service for the 2^nd TPN, and the court has so ordered.  The fact that TP has raised a limitation defence in the course of defending such third party proceedings so commenced by the 2^nd TPN has no bearing on the constitution of and proceeding with the third party claim.

118.  In my view, the stance now adopted by D3 contradicts the position it has taken at the time of the AS Summons and fails to sit together with the 8/12/09 Order which has plainly recognised the 2^nd TPN and not the 1^st TPN as the originating process by which D3’s third party action or suit against TP has been commenced.  Mr Sakhrani reminds that TP has acted on the 1^st TPN by serving the AS, but at the hearing before me he concedes that such service cannot amount to any waiver of the contractual limitation defence.  In my view, it also cannot amount to any waiver on the part of TP of the consequences of D3 not having issued the 1^st TPN or, as Leung puts it in paragraph 9(d) of his affirmation, any election by TP to defend D3’s claim by virtue of the 1^st TPN notwithstanding their awareness that the 1^st TPN was not formally issued.  After all, this very issue has been raised and is the subject of the 8/12/09 Order from which there has been no appeal and is therefore binding on D3 and TP. Further, Order 12 rule 7 of the RHC (made applicable to third party proceedings by O16r3(4)) provides that the acknowledgment by a defendant of service of a writ shall not be treated as a waiver by him of any irregularity in the writ or service thereof or in any order giving leave to serve the writ or extending the validity of the writ for the purpose of service thereof.

119.  I also note that D3 in asking the court to treat the “action or suit” in the third party proceedings as having been “commenced” on 4 or 6 May 2009 does not say how the courts should deal with the 2^nd TPN, which by the 8/12/09 Order is ordered to stand as the third party notice “issued” by D3 against TP and on which D3, TP and the court have acted.  Indeed, on the basis of the 2^nd TPN and the 8/12/09 Order, the court has granted third party directions, and D3 and TP have already acted on these directions by filing/serving pleadings, making discovery and serving witness statements.  There is no difficulty in proceeding with the claim on the basis of the 2^nd TPN.  To accede to D3’s aforesaid contention now only serves the purpose of allowing D3 to enter through the backdoor of O2r1 what it cannot do by the front door in face of O6r7(3), O16r3(4), the 2^nd TPN, the amended AS Summons, Ms Lum’s affirmation and the 8/12/09 Order so as to defeat TP’s contractual limitation defence [20].  I am unable to say there will be no prejudice to TP in its substantive rights.

120.  By reason of the aforesaid analysis, I am satisfied it is plain and obvious that the third party “action or suit” herein “commenced” upon the issue of the 2^nd TPN, and there is no basis for the court to treat the date of the 1^st TPN (ie 4 May 2009) or the date of its service on AXA (ie 6 May 2009) as the date when the third party proceedings by D3 against TP has commenced or begun.

XII.  CONCLUSION

121.  In such circumstances, D3’s contractual limitation defence must be upheld, and I therefore strike out the 2^nd TPN and dismiss D3’s claim against TP.

122.  I also direct that the action be restored for CLR hearing before me on 23 December 2010 at 2:30pm to be attended by solicitors for P and Ds, and that D3 shall forthwith notify the other parties to the main action in writing of the results of this decision and give notice of the adjourned CLR hearing.

123.  On a separate note, the court notes that WKT has become solicitors on the record for D3 on 30 June 2009. Since TP concedes that the contractual limitation period did not expire until 13 July 2009, but given the stance adopted in Ms Lum’s affirmation as regards the 1^st and 2^nd TPNs, and the decision herein, WKT is required to assure the PI Master at the adjourned CLR that they have duly advised D3 and are satisfied they are in a position to continue to act for D3 in the present proceedings notwithstanding any potential conflict of interest.

124.  There is no reason why costs should not follow event.  I therefore grant a costs order nisi that save and except for costs referred to in the paragraph below, D3 do pay TP costs of the third party proceedings and of the Summons (including all costs reserved if any) with certificate for counsel to be taxed if not agreed.  At the hearing before me, I have raised with counsel the possibility of summary assessment of costs.  But upon more mature reflection in light of my conclusions on the Summons, ordinary taxation is more appropriate as the costs order nisi covers not only the costs of the application but also costs of the whole third party proceedings.

125.  In respect of the aforesaid caveat on costs, I note that there is duplication of materials in the hearing bundle placed before me. For example, there are several copies of the Policy in the hearing bundle and there are duplicated copies of inter partes correspondence. Such duplication adds nothing to the efficient and effective resolution of the application but burdens the parties with unnecessary effort and costs. Unless good cause is shown to the contrary on taxation, D3 and TP shall bear their own respective costs for including and considering such duplicated documents in the hearing bundle.

Representation:

____________________

[1] see paragraph 6 of the witness statement of D3’s director Leung Wai Po dated 13 May 2010 and paragraph 12 of the witness statement of Ip Tao Ning, TP’s Senior Manager – Claims, dated 26 May 2010

[2] Kanson Crane Service Company Limited at paras.14-15 – see paragraph 43 above – and Colinvaux’s Law of Insurance 8^th ed (2006) para.9-35 at pp.322-323

[3] Kanson Crane Service Company Limited at para.20

[4] see the proviso of “except as hereinafter provided” in the Coverage Clause

[5] Dragages et Travaux Publics (HK) Limited and Penta-Ocean Construction Company Limited t/a “Dragages – Penta Joint Venture” at para.30

[6] Keung Shiu Tang v. DH Shuttlecocks Ltd [1994] 1 HKC 286, 291

[7] Sopov & anor v Kane Constructions Pty Ltd [2007] VSCA 257, per Maxwell P and Kellam JA at para.17

[8] cited in Kanson Crane Service Company Limited at para.14

[9] Clarke, The Law of Insurance Contracts 5^th ed (2006) para.26-2B at p.808 and Wilkinson v Car and General Insurance Corpn Ltd (1914) 110 LT 468

[10] Chitty on Contracts 13^th ed Vol.1 para.24-014 at p.1551

[11] this passage from an earlier edition was quoted with approval by A Cheung J in Dragages et Travaux Publics (HK) Limited and Penta-Ocean Construction Company Limited t/a “Dragages – Penta Joint Venture” at para.40 and by Longmore LJ in Bolton Metropolitan Borough Council v Municipal Mutual Insurance Ltd & anor [2006] 1 WLR 1492, 1507

[12] at p.1506

[13] see para.25 and also MacGillivray on Insurance Law (11^th ed, 2008) para.10-104 at p.280

[14] Hassett v Legal & General Assurance Society, Ltd (1939) 63 Lloyd’s Rep 278,  Chan Yiu Sun v Yip Kim Cheung & ors HCA2306/1986, Ryan J (unreported, 12 October 1980), The Oriental Fire & General Insurance Co Ltd v Cheuk Ma-yee (administrator of the estate of Cheuk Kan-yan, deceased) [1981] HKLR 41, Pioneer Concrete (UK)Ltd v National Employers Mutual General Insurance Association Ltd [1985] 1 Lloyd’s Rep 274, Dragages et Travaux Publics (HK) Limited and Penta-Ocean Construction Company Limited t/a “Dragages – Penta Joint Venture” at paras.37 and 44-47, and Azhar Hussain v Gan Assurances Iard Compagnie Francaise D’Assurances et de Reassurances & ors DCCJ3087/2005, H H Judge CB Chan (unreported, 23 January 2007)

[15] Harbourfield Engineering Co Ltd v Falcon Insurance Co (Hong Kong) Ltd CACV275/2003 (unreported, 3 June 2004)

[16] Anglo Starlite Insurance Co Ltd (formerly known as Starlight Insurance Co Ltd) v Wong Ping Fai CACV162/1983 (unreported, 14 February 1984)

[17] at p.883, per Tuckey LJ

[18] Hong Kong Civil Procedure 2011 Vol.1 para.2/1/2 at pp.48-49

[19] see Ms Lum’s affirmation set out in paragraph 34 above

[20] Harrison & anor and Hong Kong Civil Procedure 2011 Vol.1 at paras.6/8/9 and 16/3/6 at pp.85 and 341