LO AND LO (a firm) v. THE WORLD-WIDE MARINE AND FIRE INSURANCE CO. LTD. and Others

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J U D G M E N T

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Godfrey, J.A. :

1. These are two appeals against orders of Mr. Justice Liu, made on 26 January 1994 and 8 August 1994 respectively, in proceedings between (in effect) two sets of insurers to whom it will be convenient to refer as "the primary insurers" and "the excess insurers". The order made on 26 January 1994 operates in favour of the primary insurers; and the excess insurers appeal. The order made on 8 August 1994 operates in favour of the excess insurers; and the primary insurers appeal. The argument for the excess insurers was presented to us by Mr. Sydney Kentridge Q.C. (leading Mr. Michael Bunting). The argument for the primary insurers was presented to us by Mr. Ian Hunter Q.C. (leading Mr. Aarif Barma).

2. The liability of each set of insurers arises under "claims made" professional indemnity insurance policies effected by a firm of solicitors ("the insured"); a "claims made" policy is one in which the risk covered is the risk of claims being made during the specified period of insurance, as distinct from the risk of occurrences during that period which give or may give rise to such claims. The dispute between the primary insurers and the excess insurers is a dispute as to the incidence of their liability inter se. Each set of insurers seeks to throw a greater proportion of the liability upon the other and so pro tanto to exonerate itself.

3. Under the policy written by the primary insurers (with which alone we need be concerned) the primary insurers agree to indemnify the insured against "all loss to the insured whensoever occurring arising from any claim(s) first made against the insured during the [specified] period of insurance ....." : see clause 3(a). For the purposes of the policy "all claims against ..... the insured ..... arising from the same act or omission" are to be treated as one claim: see clause 3(e). The first $200,000 is deductible from any one claim under the policy: see clause 6. The insured is not (of course) covered in respect of any loss arising out of any claim brought about by the dishonest or fraudulent act of a principal; but it is covered in respect of liability arising out of any claim brought about by "the dishonesty ..... of any person employed in the practice of the insured" : see clause 7(c)(iii). The total sum insured in respect of "any one claim" is $5,000,000, less the $200,000 deductible; i.e. $4,800,000: see the policy schedule.

4. The material facts are as follows.

5. Between 1987 and 1989, an employee of the insured, Yim Chui Kui, employed in the insured's probate department, stole money and shares belonging to two clients of the insured; it will be convenient to refer to these clients respectively as "the Tang Estate" and the "Tso Estate". Yim's defalcations were committed on a number of separate occasions. (The interested will find the details in the judgment of Mr. Justice Liu.)

6. When the insured discovered what had happened, it notified its insurers accordingly. It did so by two letters dated 18 September 1989, one relating to the Tang Estate and one relating to the Tso Estate. Each letter was in the following terms:

"We write to report that we may be subject to a claim of negligence by the executors and beneficiaries of the above estate the probate and administration of which our firm has been handling. The extent of the claim is not yet ascertained but may be very substantial and will in any event exceed HK$5 million. The claim may arise out of possible fraud by one of our employees. A report of the possible fraud has already been made to the police.

As soon as we have more details, we shall make further report to you."

7. The references in these letters to "negligence" and "fraud" are, arguably, inaccurate; it did not matter whether Yim's defalcations included any element of negligence or fraud. Whether they did or did not, the liability of the insured to make restitution to the Tang Estate and to the Tso Estate was undisputed and indisputable. However, whether the "claim" to which each of these letters referred was or was not accurately described, the letters plainly gave the insurers proper and sufficient notice of each such "claim".

8. So far, so good. But, as I have already mentioned, the defalcations giving rise to each of these "claims" occurred on a number of occasions. That being so, say the excess insurers, the defalcations gave rise not to just two claims, the claims by the Tang Estate and the Tso Estate, but to many claims, one in respect of each separately identifiable defalcation. If the excess insurers are right, the primary insurers will be liable to pay out on each and every one of these many claims up to the extent of $4,800,000 for each such claim (there is no limit as to the aggregate of the claims). The primary insurers, however, say that there may indeed have been many different defalcations; but there are only two claims.

9. I agree with the primary insurers. Accordingly, I would affirm the order of the judge in their favour in relation to the Tang Estate (the order of 20 January 1984) and set aside the order of the judge against them in relation to the Tso Estate (the order of 8 August 1994).

10. So far as the Tang Estate is concerned, the matter is relatively uncomplicated. The only point in the primary insurers' favour is that the defalcations took place over a period of time and on different days, rather than on one occasion only. But there is nothing in this point. Under "claims made" policies such as those here, the peril insured against is simply the making of the claim. The substance of the matter (the form, whatever it was, would be irrelevant) was that the Tang Estate had one claim against the insured, a claim for restitution "brought about" by Yim's dishonesty. This was Mr. Justice Liu's view and I agree with him.

11. The case of the Tso Estate "claim" is not so simple. In the case of the Tso Estate, Yim, on at least 8 separate occasions, stole shares belonging to the estate, in each case using a forged power of attorney purporting to authorise Yim to execute transfers of the shares. But, in the case of the Tso Estate, the personal representative did not call on the insured to make restitution. Instead, the personal representative (at the suggestion of the insured's solicitors) sued the 14 companies which in reliance on the forged power of attorney had registered transfers of the shares, claiming rectification of the share registers, or alternatively replacement of the shares, on the ground that the transfers were unauthorised (the power of attorney having been forged). This led to a field day for the lawyers. The companies instituted third party proceedings against the first transferees for an indemnity, on the ground that the registration of the transfers were made at their request. The transferees instituted fourth party proceedings claiming an indemnity from the brokers who had acted for them. The brokers instituted fifth party proceedings claiming an indemnity from the insured. (In addition to the fifth party claims of the brokers against the insured, the companies, and the transferees, made claims against the insured by notices for indemnity or contribution under Order 16 of the Rules of the Supreme Court.)

12. When these proceedings came before the court, it ordered that, where there was only one transfer (i.e., where the shares were still registered in the name of the original transferee), the registers ought to be rectified in favour of the personal representative. Where there had been more than one transfer (i.e., where the shares were no longer registered in the name of the original transferee), the court awarded damages in lieu of rectification of the register. The remainder of the claims in the proceedings were compromised by an agreement the effect of which was that the claims of the companies, and the brokers, for indemnity were readily quantifiable; but the claims of the transferees were not, and the agreement, in relation to their claims, provided for adjudication of those claims under the aegis of the stock exchange.

13. In this way, the simple "claim" of the Tso Estate for restitution of the shares dishonestly abstracted from it became submerged in this welter of different "claims" and the judge below, taking his eye off the ball, came to view the claim made by the Tso Estate against the insured not as one claim but as multiple claims. In doing so, I have to say that, in my judgment, he went wrong; for he failed to appreciate that the only claim he had to consider was the claim made by the Tso Estate against the insured, that being the claim made against the insured and notified by the insured to its insurers under the policy. The subsequent events which gave rise to the legal proceedings to which I have referred are irrelevant; just as irrelevant as would have been a series of partial assignments of the Tso Estate "claim" to different assignees after the claim had arisen. Again, the substance of the matter is that there was, in relation to the Tso Estate, only one single claim made by the insured against its insurers, a claim for restitution "brought about" by Yim's dishonesty.

14. In my judgment, the question which has to be decided here is not really a question of construction at all, but a question of fact, or perhaps more accurately, a question of characterisation. Looking at the substance of the matter, was there here one claim against the insured by the Tang Estate, and one claim against the insured by the Tso Estate, or was there in each case a number of claims represented by each separately identifiable defalcation? The point does not admit of much elaboration, and the question in my judgment admits of only one answer. There was, in each case, one claim and one claim only "brought about" by Yim's dishonesty .

15. I have arrived at the conclusions expressed above without reference to authority. There were, however, a number of authorities cited to us; and, out of respect for the interesting and able arguments presented to us, I propose to conclude this judgment with a brief review of those authorities on which particular reliance was placed by one side or the other.

16. The first in point of time of the cases cited to us was the case of West Wake Price & Co. v. Ching [1956] 2 All ER 821. That was a case of a policy which covered negligence of the insured or its employees. The policy did not cover fraud. But the claim made against the insured was based on allegations of fraud as well as negligence. Devlin J. held that:

"to come within the policy the character of the claim must be unmixed. It must be negligence alone".

It was important in that case, as it is in this, accurately to identify the character of the claim; and the point for which the case was cited to us was Devlin J.'s definition of a "claim" in this connection as something different from a cause of action. Devlin J.'s view was that, if there was only one object claimed by one person, then there was only one claim, however many might be the grounds or the causes of action which could be raised in support of it. This is clearly correct.

17. In Thorman v. New Hampshire Insurance Co. (UK) Ltd and Home Insurance Co. [1988] 1 Lloyd's Rep. 7, Stocker L.J. (at pp. 15 to 16) approved Devlin J.'s definition, stating as follows:

"For my part, these appear to me to be definitions which can be accepted without further refinement. They do not, however, solve the question since the application of the definition may vary according to the circumstances in which it falls to be construed ..... [whether there is one claim or several claims] will depend upon the facts of each case and the circumstances in which the word 'claim' falls to be considered and construed ..... It seems to me, therefore, that the question whether there is one claim or a series of separate claims depends upon the facts of each case and the context in which the question falls to be decided."

18. Again, this is clearly correct; and it is supported by the previous decision of the Court of Appeal in Trollope & Colls Limited v. Haydon [1977] 1 Lloyd's Rep. 244, in which the court decided that it was a question of fact whether a series of defects gave rise to one claim or to more: (see per Cairns L.J. at p. 249).

19. I am of the opinion that in our case, too, where the question is whether the claim made by each of the Tang Estate and the Tso Estate is to be characterised as one claim, or as a number of separate claims bundled together, the question is one the answer to which (to adopt Stocker L.J.'s words):

"depends upon the facts [of the case] and the context in which the question falls to be decided".

Looking at the facts here, and the context in which the question of one claim or several claims falls to be decided, I have no doubt that the right conclusion is that the claim made in respect of each estate should be characterised as one claim, rather than as a number of separate claims.

20. In support of his argument to the contrary, Mr. Kentridge for the excess insurers cited to us the case of Australia & New Zealand Bank v. Colonial & Eagle Wharves Ltd. [1960] 2 Lloyd's Rep. 241. In that case, McNair J. had to consider an "all risks" insurance policy (not a "claims made" policy) which provided for a deductible of ￡100 in respect of "each and every claim". A negligent official of the insured wharfingers allowed a customer, on some 30 occasions over a lengthy period, to take delivery of his goods without the bank's consent, even though both knew that this was contrary to the bank's charge over the goods and to an express undertaking given by the wharfingers to the bank. This gave rise to a single action by the bank against the wharfingers. McNair J. had to decide, in applying the ￡100 deductible, how many claims arose against the insurers under the policy. McNair J. held (at p. 255) that, for the purposes of the provision of the policy which he had to consider, which was a provision giving the wharfingers liberty to pay any claim or claims up to ￡5,000 any one occurrence, the word "claim" meant:

"the occurrence of a state of facts which justifies a claim on underwriters and does not mean the assertion of a claim on underwriters".

He held (loc. cit.) that the operation of the clause in question was determined:

"by the facts which give rise to the claim and not by the form in which the claim is asserted".

Since the object of the clause was to exempt underwriters from the liability to pay small claims, which the wharfingers had to bear themselves in consideration of a reduced premium, there was (he concluded) a right in the bank to treat claims in respect of each misdelivery as separate claims.

21. But, like Mr. Justice Liu, I do not think this case assists us here. In our case, the relevant question is: is the claim made against the insured in each case in substance one claim, or a number of separate claims? As I have already said, my view is that in substance each estate has only one claim here, namely a claim to restitution of the property of which it was deprived by Yim's dishonesty.

22. There is nothing in any of the authorities I have reviewed above which militates against the conclusion at which I have arrived, as I have indicated already, without their assistance, i.e. that the claims in respect of the Tang Estate and of the Tso Estate are in each case properly characterised as one claim only.

23. For these reasons (and despite the delightful and distinguished advocacy of Mr. Kentridge in favour of the contrary result), I would dismiss the appeal of the excess insurers against the order of 26 January 1994 and allow the appeal of the primary insurers against the order of 8 August 1994.

Mortimer, J.A. :

24. Lo & Lo, a firm of solicitors (the firm) had two probate clients - the executors of the Estate of Tang Kwok-kwong (the Tang Estate) and the executrix of Tso Chak-chun (the Tso Estate). Between 1987 and 1989 Yim Chun-kui (Yim) who was employed by the firm latterly as chief clerk in the probate division helped himself to the assets of each Estate by various fraudulent means.

25. For the purposes of these appeals, it suffices to say that the firm had professional indemnity cover issued pursuant to the Solicitors (Professional Indemnity) Rules of the Law Society of Hong Kong by the 1st defendant (the insurers). This was cover up to $5m in two layers. The first up to $1m with a $200,000 deductible on any one claim. The second layer was an additional $4m on any one claim.

26. The firm also had excess insurance in two layers. The first, issued by the 2nd-13th defendants, of up to $25m on any one claim. The second, issued by the 2nd-14th defendants, of up to $45m on any one claim. The firm therefore had total cover of $50m on any one claim.

THE TANG ESTATE

27. Yim defrauded the Tang Estate by four different means. The first was by making bogus payments out of the account of the Estate into a friend's bank account and thereafter to himself. The first payment was on 25th February 1987 and on 23 occasions, over nearly two years, he stole over $4.6m.

28. The second was by the theft of the proceeds of unauthorised sales of shares belonging to the Estate. The firm held the share certificates for safekeeping. The proceeds were diverted to Yim through a bogus client ledger account in the same friend's name. A total of $90,000 was taken in two thefts.

29. The third was by the theft of shares, the certificates of which were held in the firm. Yim used share transfer forms which he persuaded the executors to sign in blank. The proceeds were diverted through the bogus client account. These thefts began on 19th January 1989. There were 16 of them over six months, totalling over $12m.

30. Finally, on two occasions he stole the proceeds of cashier orders amounting to nearly $4.5m. He persuaded the executors that there was a need for cash. Using the Estate's savings account, the executors purchased cashier orders which they handed to Yim. Yim diverted the proceeds to himself through bogus ledger accounts.

THE TSO ESTATE

31. Share certificates belonging to the Tso Estate were also held by the firm for safekeeping. Yim forged a power of attorney which purported to be in favour of Lo Kwok-chan (Lo), the wife of a friend. He registered the forgery with the relevant company registrars and copied it to Tai Fung, a broker. Yim then instructed Tai Fung on at least eight occasions to sell the shares on the strength of the forgery, the certificates and transfer forms signed by Lo, in purported exercise of the power. The proceeds were then diverted to Yim through bogus ledger accounts in Lo's name. In this way Yim took nearly $11m from the Estate.

NOTIFICATION OF CLAIMS

32. In September 1989 the losses were discovered. On 18th September the firm notified the insurers of a possible claim by each Estate arising out of Yim's fraud in separate letters.

LEGAL PROCEEDINGS BY THE ESTATES

33. The ways in which each Estate sought to recover its loss were markedly different. In action 4628 of 1990, the Tang Estate sought to recover from the firm and Tai Fung for breach of trust, restitution, conversion, breach of contract, breach of fiduciary duty, fraudulent misrepresentation and negligence. Of these claims, the firm admitted (alternatively or cumulatively) conversion, breach of contract, negligence and/or fraudulent misrepresentation. Because the shares rose substantially in value, a second action in detinue was brought in 1993.

34. For reasons which I do not seek to fathom the Tsao Estate did not proceed against the firm for restitution but the executrix claimed rectification of the share certificates or replacement of the shares against 14 companies which had registered transfers, on the ground that the transfers were unauthorised. Inevitably this led to a train of proceedings against other parties and finally against the firm. It suffices to say that because rectification was ordered in some cases and not others, the claims against the firm included claims for indemnity for the value of shares, by certain companies, by certain ultimate purchasers, and by the broker Tai Fung. Tai Fung's claim also included a claim for extra loss when it had been obliged to go into the market to replace shares under Rule 544 of the Stock Exchange.

35. A representation order was made in favour of a third party to represent all first and subsequent transferees. In March 1993 the executrix succeeded in the main action. Later in February and March 1994 the firm compromised the remaining proceedings in two agreements.

THE ISSUES

36. The total loss to each Estate exceeded $5m. Each identifiable defalcation by Yim making up the total loss was less than $5m. If each defalcation is a separate claim the primary insurer is liable to indemnify the firm subject to the "deductible" without aggregation. If the total loss of each Estate is only one claim, the excess insurers are liable for that loss which exceeds $5m.

37. In the case of each Estate therefore the issue is whether on a true construction of the policy for primary insurance, the firm's right of indemnity under it is "in respect of any one claim hereunder" or many claims represented by each defalcation.

THE POLICY

38. "Claim" appears in a number of clauses in the relevant certificate of insurance. Although it is necessary to consider the whole policy, it is the true construction of the words "any one claim hereunder" in clauses 2 and 3 which are determinative of these appeals. They read:

"2. MASTER POLICIES

(a) Subject to the terms and conditions of Master Policies No. NDP/00060/88 AND 730-43183 ("the Primary Master Policies") and of this Certificate, the Insurers agree to indemnity the Insured for that part of the Insured's loss that exceeds the Deductible up to a sum not exceeding the difference between the Deductible and HK$1,000,000 in respect of any one claim hereunder.

(b) Subject to the terms and conditions of Master Policy No. NDP/00059/88 ("the Excess Master Policy") and of this Certificate, the Insurer agrees to indemnity the Insured for that part of the Insured's loss that exceeds HK$1,000,000 up to but not exceeding a further sum of HK$4,000,000 in respect of any one claim hereunder.

3. INSURING CLAUSES

(a) On the terms and conditions herein contained the Insurers hall indemnify the insured against all loss to the Insured whensoever occurring arising from any claim(s) first made against the Insured during the Period of Insurance in respect of any description of civil liability whatsoever incurred in connection with the Practice or from any such claim(s) made during or subsequent to the Period of Insurance arising out of circumstances notified to the Insurers during the Period of Insurance as circumstances which may give rise to a claim against the Insured.

(b) For the purpose of calculating the Insured's loss any one claim hereunder, Related Costs shall be aggregated with the sum paid in respect of such claim and claimant's costs.

(c) All recoveries or payments recovered or received subsequent to a claim settlement hereunder shall be applied as if recovered or received prior to such settlement and all necessary adjustments shall then be made between the Insured and the Insurers.

(d) the liability of the Insurers under this Certificate and any other Certificates issued under the Master Policies shall not in respect of any one such claim inclusive of Related Costs exceed in the aggregate the Total Sum Insured.

(e) For the purposes hereof all claims against all or any of the Insured under this Certificate and/or under any other Certificate(s) issued under the Master Policies arising from the same act or omission shall be treated as one claim hereunder irrespective of the number of Insureds claiming indemnity under such Certificate(s) and/or Master Policy(ies)."

THE DECISIONS BELOW

39. Liu J (as he then was) decided that the firm's "claim" for indemnity in respect of the Tang Estate loss was "one claim" under the policy.

40. In a second decision he adjudged that the firm had multiple claims against the insurers in respect of the Tso Estate loss.

41. In the first appeal the 2nd-14th defendants (the excess insurers) appeal against the judge's decision concerning the Tang Estate and by a second appeal, the 1st defendant (the primary insurers) appeal against his decision in respect of the Tso Estate.

COUNSEL'S SUBMISSIONS SUMMARISED

42. Counsel rightly agreed that in issue is the interpretation of the primary policy and that this is to be approached without regard to the existence of the excess policies.

43. They were also agreed that this question is not to be decided upon the way in which any demand is formulated. This could result in manipulation by third parties, by the firm as insured or even by the insurers themselves. The point must be decided upon the underlying facts and upon the substance not the form.

44. For the excess insurers, Mr Kentridge Q.C. referred to the definitions of "claim" in the Shorter Oxford Dictionary and submitted that a claim within the meaning of clause 2 arose as soon as something had occurred which involved the insured in liability to a third party which was covered by the policy. He asserted therefore that each separate defalcation by Yim was a separate claim by each Estate against the firm. Therefore, that as the insurer's obligation under the policy was to indemnify the insured, the firm's demand under the policy on its true meaning was in truth a separate claim for each defalcation.

45. Consistent with this he contended that the word "claim" had different meaning in different clauses. Initially, Mr Ian Hunter Q.C., for the primary insurers, was inclined to contend that "claim" was wide enough to have the same meaning in each clause, but in reply he recognised the force of the contrary argument. He maintained, however, that the word "claim" meant any qualifying claim under the policy in the case of each Estate. He submitted on the natural and apposite meaning of the word "claim", each Estate suffered loss caused by the manner in which the firm had handled its affairs and by the dishonesty of Yim. Properly regarded, he says, each Estate had one claim for restitution of its loss. In respect of each Estate, therefore, the firm had one claim to indemnity on the true meaning of the words in clause 2. He further submitted that any other result would introduce an artificial division into a multiplicity of claims, of what in each case is in truth one claim under the policy.

CONCLUSIONS

The Tang Estate

46. A number of authorities have been cited in which "claim" has been defined in other polices. Of course, these are not determinative. They are useful illustrations of judicial approach. In clause 2 of the policy, the words "any one claim hereunder" necessarily refer to the claim by the insured against the insurers. But as this is an agreement to indemnify the insured firm against loss arising out of claims against the insured by third parties (clause 3(a)) in determining the meaning of those words on the underlying facts, the nature of claims by third parties against the firm is relevant.

47. In this respect both "a demand" by a third party and a demand in respect of which legal liability is established are both qualifying claims under different sections. For my part, however, I think "one claim hereunder" in s.2 clearly covers and was intended to cover indemnity for third party claims which are shown to be, or accepted to be, good in law. This is not a policy which covered demands satisfied by the insured with or without legal liability as in Australian and New Zealand Bank v Colonial Eagle Wharves Ltd [1960] 2 Ll.L. 241. In that case the words considered were "each and every claim" in an all-risks policy. Mr Kentridge relies on the words of McNair J at 255:

"On the whole, I have come to the conclusion that, in this clause, 'claim' means the occurrence of a state of facts which justifies a claim on underwriters ..."

48. In this case, however, I do not find those words persuasive. The nature of that policy and the "state of facts" are wholly different from those in the instant case.

49. I agree with the remarks of Cairns L.J. in the later case Trollope and Colls Ltd v Haydon [1977] LLR 244 at 249:

"If McNair J's definition of 'claims' is accepted ... then it means that the matter does not depend on how the claims are formulated ... It depends on whether the facts give rise to one claim or to more."

50. In the end it is a matter of impression. The focus must be on the claim by the firm under the policy, but as it is a claim for indemnity, the nature of the claim made by the Estate as third party falls to be considered. If Mr Kentridge is right, and there is a new and distinct claim on each occasion when facts can be identified which entitle the third party to establish a good claim in law, then there is no doubt that the Estate could have claimed separately for each defalcation. I would concede that this approach produces a reasonably certain standard by which to test most underlying facts that can be envisaged.

51. In Philadelphia National Bank v Price [1938] All ER 199, on different facts and under a different type of policy, it was decided that a bank employee who over six years defrauded the plaintiff bank, using a succession of different false invoices and promissory notes, caused a series of losses of less than the excess, rather than one large loss. The cover was for loss exceeding ￡25,000 on "each and every loss or occurrence" by making advances against invalid documents.

52. This is easily distinguished from the present case not only from the nature of the cover provided but on the words of the policy.

53. However, I am assisted by Devlin J's examination of the word "claim" in West Wake Price & Co v Ching [1957] 1 WLR 45. At p. 55, he said:

"I think that the primary meaning of the word 'claim' - whether used in a popular sense or in a strict legal sense - is such as to attach it to the object that is claimed; and is not the same thing as the cause of action by which the claim may be supported or as the grounds on which it may be based. In the Oxford Dictionary 'claim' is defined as: first, 'A demand for some-'thing as due; and assertion of a right to something'; secondly, 'Right of claiming; right or title (to something or to have, be, or do something; also on, upon the person, etc., that the thing is claimed from).' All the examples given under these heads are examples of claims made to an object or upon a person."

He continued at p. 57:

"If the word is to be used with any precision, it must be defined in relation to the object claimed. The grounds for the claim or the causes of action which support it can give it colour and character, but cannot give it its entity. If you say of a claim against a defendant that it is for ￡100, you have said all that is necessary to identify it as a claim; but if you say of it that it is for fraud or negligence, you have not distinguished it from a charge or allegation."

54. Light can also be shed on the meaning of the words "any one claim hereunder" by a consideration of the true nature of this policy. It is primarily a professional indemnity policy which covers the principals of the firm in the usual way. In order to make it effective, it has to cover employees and dishonesty by employees.

55. Here, the employee Yim committed a series of defalcations, each of which could have been the subject of a separate claim by the Estate against the firm. But is this the true nature of the claim under the policy for indemnity made by the firm against the insurer? In my judgment, the true nature of the claim by the Estate against the firm is not in respect of each defalcation but for restitution of the loss caused by a dishonest employee. The firm's professional obligation was to deal with the Estate with reasonable skill and care and to deal with it honestly so as to be able to account for the assets under its control. In this it failed. In turn, the claim by the firm against its insurers for indemnity is also in respect of that loss to the Estate. In the words of Mr Hunter, this is naturally and appositely characterised as one claim. I would add that this is correctly characterised as one claim under the policy within the true meaning of the words "one claim hereunder". In my judgment, to categorised these circumstances as a multiplicity of claims under the policy is artificial and wrong.

The Tso Estate

56. For present purposes, there is no factual distinction to be made between Yim's defalcations which caused loss to the Tang Estate and those which caused loss to the Tso Estate. The firm was covered by the same policy and its duties towards the Estate were the same. Liu J decided on the underlying facts that in principle more than one claim under the policy was involved. In form, however, the third party claims against the firm were quite different and no claim was brought by the Estate itself. The consequence is that the firm demanded and got indemnity against its insurers for claims by the companies, the ultimate purchasers, and the brokers for the value of shares and additionally, by the broker for their loss in having to go into the market to replace shares.

57. It must be conceded that the claims passed on in the multiplicity of proceedings were not the same as if the Estate itself had claimed for restitution. The question arises whether the multitude of third party claims covered by the policy for which the firm was entitled to indemnity were truly many claims under the policy or just one. The nature of these claims is a relevant consideration but again it is necessary to focus on the substance of the claim by the firm for indemnity under the policy. When the Estate chose to recover its losses against others, the inevitable consequence was that the firm would be joined in the proceedings - as in fact happened. Although these claims were made by more than one party and they differed in character not only between each other but also from any claim for restitution which could have been made by the Estate, in my judgment, the claim by the firm under the policy is properly characterised, as it was in the Tang Estate, as one claim for indemnity under the policy for loss caused by Yim's dishonesty in his handling of the Estate for the firm.

THE ORDERS

58. For these reasons, I would uphold Liu J's judgment in the first appeal (the Tang Estate) and dismiss the appeal. In the second appeal (the Tso Estate), however, I would allow the appeal and hold that there was only one claim under the policy.

Power, V-P :

59. I agree, for the reasons given, that the appeal of the appellants (the excess insurers) in Civil Appeal No. 53 of 1994 must be dismissed and the appeal of the appellants (the primary insurers) in Civil Appeal No. 185 of 1994 must be allowed. We so order. There will be an order nisi that that the respondents (the primary insurers) in Civil Appeal No. 53 of 1994 shall have their costs of that appeal and that the appellants (the primary insurers) in Civil Appeal No. 185 of 1994 shall have their costs of that appeal and their costs in the court below.