HUA TYAN DEVELOPMENT LTD v. ZURICH INSURANCE CO LTD AND ANOTHER

CACV 190/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 190 OF 2012

(ON APPEAL FROM HCA NO. 480 of 2009)

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J U D G M E N T

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Hon Cheung JA :

Background

1.  The plaintiff (‘Insured’) is a trader in timber.  It shipped round logs from South East Asia to China.  The shipments were covered by marine cargo insurance obtained by the Insured through a broker.  In 2004 the previous broker engaged by the Insured ceased business and the 2^nd defendant (‘Broker’) was engaged by the Insured as its new broker.  The Broker obtained insurance coverage from the 1^st defendant (‘Insurer’) in respect of shipments of the timber. 

2.  Between 2004 and 2008 the Insurer issued 72 polices to the Insured.  In respect of the last policy (No. ZMM3134651 ZC (‘AGT’)) dated 11 January 2008, the amount insured was US$1,555,209.  The vessel which carried the timber was MV Ho Feng No. 7 (‘Ho Feng 7’) V. 712 S.  ‘V. 712 S’ stands for the voyage number.  Ho Feng 7 sank on this voyage and the timber was totally lost.  The Insured claimed under the policy.  The Insurer refused to pay, claiming that the policy was discharged because the Insurer had breached a condition of the policy, namely, ‘WARRANTED DWT NOT LESS THAN 10,000.00’ (‘the DWT warranty’).  DWT stands for Dead Weight Tonnage.  Ho Feng 7’s DWT was 8,960.13 which was less than 10,000 DWT. 

3.  The Insured sued the Insurer under the policy, and alternatively, against the Broker for negligence, breach of duty and breach of contract. Chung J found for the Insured against the Insurer and gave judgment for the Insured against the Insurer for the insured amount.  The Judge also found alternatively for the Insured against the Broker.  He held that ‘the Broker ought to be held liable to indemnify the Insured, had the Insurer been able to avoid the Policy’.  Since the claim against the Broker was in the alternative, judgment was not entered against the Broker.

4.  The Insurer appeals against the judgment.  Although the Broker was not named as a respondent, the Insurer served the Notice of Appeal on the Broker.  The Insured also served its Respondent’s Notice on the Broker. The Broker informed the Court that it would not attend the appeal because it is not a party to the appeal.

Finding of fact

5.  Ms Wong, a representative of the Insured, gave evidence for the Insured.  The Insurer did not call any evidence despite having provided a statement of its witness.  The Broker called Ms Ip, a staff who handled the placing of the insurance coverage.

6.  The Judge made the following finding of facts as summarised by Mr. Chan Chi Hung SC and Mr. Jeremy Chan, counsel for the Insured :

1) To apply for the policy, the Insured filled in an application form bearing the Insurer’s logo, and submitted it to the Broker.  The form has a box for the carriage/vessel’s name (filled in by the Insured as Ho Feng 7), but does not have a box for the vessel’s DWT;

2) The Broker did not ask for further information from the Insured other than that appearing on the application form;

3) The Broker faxed the application form to the Insurer, as was the usual procedure, before issuance of the cover note;

4) The cover note and the policy, before they were issued, required approval of the Insurer (insured value being in excess of HK$3 million), and had been approved by the Insurer, as were the case for most (about 80%) of the policies previously issued by the Insurer to the Insured;

5) The Insurer knew the name of the vessel by the time of the issuance of the cover note;

6) The DWT of a named vessel is relatively easily available through the internet;

7) 90% of the 72 policies previously issued by the Insurer to the Insured (about 65) do not have a DWT clause inserted, and all of such policies are against risks of carriage of round logs by a vessel;

8) None of the previous five policies (also all in relation to round logs) in relation to Ho Feng 7 issued by the Insurer to the Insured has a DWT clause;

9) The Insurer did not request the Broker to insert a DWT clause in all policies to the Insured, and the Broker did not inform the Insured of the inclusion of the DWT warranty in any of the policies issued to the Insured, in 2004 when relationship first started, or in 2008 in relation to the policy;

10) The Insured, before dealing with the Insurer, had been able to obtain insurance cover from other insurers and there was no evidence of any similar DWT clause in such coverage. 

7.   It is of note that although the majority of the policies did not contain the DWT warranty, the cover notes for all the policies contained such a warranty.

8.   The parties are in serious dispute over whether the Judge had made a finding that the Insurer knew about Ho Feng 7’s DWT.

Basis of the Judge’s decision

1) Construction of contract

9.1   The Judge upheld the Insured’s claim against the Insurer, first, as a matter of construction of the policy.  He identified the purpose of the policy by reference to the following term of the policy :

‘ In consideration of the payment to [the Insurer] named in the Policy by or on behalf of the Insured of the premium as arranged, [the Insurer] hereby agree to insure against loss damage liability or expenses as herein provided.’

9.2   He then held that there was inconsistency between the terms of the policy, namely, on the one hand, the policy was to effect coverage of the timber carried on a named vessel, i.e. Ho Feng 7 (with the common ground that it was less than the required DWT) and, on the other hand, a warranty by the Insured that the vessel’s DWT must be not less than 10,000.

9.3   To resolve this inconsistency, the Judge relied on the principle in construction that where there is inconsistency in different parts of a contract, effect must be given to the part that represents the real intention of the parties (Chitty on Contracts, 31^st Ed, Vol 1, para 12-078).  On that basis, the Judge held that since the nature of the policy is a marine cargo insurance policy,

‘ 47. …. To give effect to the named vessel, and not to do so for the DWT condition, would enable such an insurance contract to be carried into effect, namely, to provide insurance coverage for the Cargo. ....

48. To put the same point in another way, it cannot be the contractual intention for the policy to mean that, despite the payment of premium by the Insured, it could never take effect purely because the vessel named therein never fulfilled the DWT condition.’

2)   No material non-disclosure

10.   The Judge rejected the Insurer’s defence to the claim that the Insured had breached its duty of disclosure.  The Insurer argued that the Insured’s disclosure of merely the vessel’s name but not its DWT was insufficient to discharge that duty.  The Judge held that the actual tonnage of Ho Feng 7 ‘cannot properly be regarded as information within the knowledge of the Insured, but not within that of the Insurer.’  He held that the information should be available to both parties.

3)   Rectification

11.  The Judge, alternatively, upheld the Insured’s contention that there should be rectification of the policy by deleting the DWT warranty.  He did so on the basis that the insertion of this warranty must have been an error and did not represent the contracting parties’ intention.

4)   Estoppel

12.  The Judge further held that :

‘(d) Estoppel

71. Save as to the limited estoppel referred to in para 72 to 74 below, nothing need to be said about this aspect.

72. Chitty, Vol 2, para 41-039 observes that:

“Whether the knowledge of the [insurer’s local agent] is imputed to the insurer depends upon whether the agent is one to whom the principal looks for information of the kind in question, and often insurers are estopped from denying that an agent has passed on information to them” (emphasis supplied).

73. First, because the Broker has fax transmitted the application form to the Insurer before the issuance of the Policy (and the cover note), by the time of issuance of the cover note and/or the Policy, the Insurer knew (or ought to have known) of the name of the vessel.

74. Secondly, in any event, by the time when the Broker issued and sent over the Policy (who, as has been found to be a fact above, did so as the Insurer’s agent), the Broker’s knowledge of the named vessel (Ho Feng 7) was imputed to the Insurer. Such knowledge should date back to when the Broker received the application form (and fax transmitted it to the Insurer), or, at the latest, by the time of issuance of the Policy.’

Nature of a warranty in marine insurance

13.  The nature of a warranty in a marine insurance policy is explained by section 33 of the Marine Insurance Ordinance (‘MIO’) (Cap 329) which is a codification of the law relating to marine insurance.  ‘By the warranty the assured undertakes that some particular thing shall or shall not be done, or that some condition shall be fulfilled, or whereby he affirms or negatives the existence of a particular state of facts’ [section 33(1)].

14.  ‘It is a condition which must be exactly complied with, whether it be material to the risk or not.  If it be not so complied with, then, subject to any express provision in the policy, the Insurer is discharged from liability as from the date of the breach of warranty, but without prejudice to any liability incurred by him before that date’ [section 33(3)].

My view

1)  Challenge on finding of fact

15.1   Mr. Coleman SC, counsel for the Insurer expressly challenged Item 9 of the Judge’s finding.  He argued that Ms Ip of the Broker gave evidence that she had carried out the Insurer’s instruction, namely, all marine cargo cover notes and policies to be issued to the Insured should include warranties - the importance of which she understood and which she was unlikely to have failed to tell Ms Wong - that the carrying vessel be not older than 30 years (‘the Age Warranty’) and that the DWT be not less than 10,000 (‘the DWT Warranty’). There was no evidence that the Insured could call to suggest that the Insurer did not give those specific instructions to the Broker when Ms Ip accepted unequivocally that it did.

15.2   I would say at the outset that I am not prepared to interfere with this finding of fact by the Judge.  The Insurer had chosen not to give evidence and the Judge had the benefit of seeing Ms Ip and Ms Wong giving evidence and it cannot be said that the Judge had been plainly wrong in making such a finding.

2)  Construction of the policy

16.1   I would say respectfully that the Judge was wrong on the construction of the policy.  On the face of it, the coverage of the cargo on board Ho Feng 7 and the DWT warranty are not inconsistent at all, because, by the policy, the Insurer was to provide the coverage subject to the Insured giving the warranty that Ho Feng 7’s DWT was not less than 10,000.  There is no question of the Court giving effect to the real intention of the parties only in respect of the coverage but not of the DWT warranty because on the face of the policy, both represent the real intention of the parties.  This point does not require elaboration.  The Judge’s finding that it was common ground that Ho Feng 7’s DWT was less than 10,000 does not advance the Insured’s case because this fact alone is irrelevant to the issue of the real, or (to be precise), the common intention of the parties.

16.2  In order to sustain the Insured’s case on inconsistency of the terms of the policy, it has to be established that at the time of the issuance of the policy, both parties knew Ho Feng 7’s actual DWT was less than 10,000.  The knowledge of the parties is part of the factual matrix or background which the Court is required to consider in construing the policy : Investors Compensation Scheme Ltd v West Bromwich Building Society [1998] 1 WLR 896. 

16.3   Mr. Chan SC seeks to argue that the Judge had in fact made such a finding which the Insured has not appealed against.  First, he relied on a Fixture Note entered into on 20 December 2007 by the Shanghai Office of the Insured (as Charterer) and the owner of Ho Feng 7 which showed that the vessel’s DWT was 8960.13.  Reliance was then placed on a part of the judgment where the Judge was addressing the issue of rectification.  As this part of the judgment is relatively short, I will set it out for the ease of discussion :

‘ (c) Rectification

65. Having so concluded, it is strictly unnecessary to consider this aspect.  I shall do so for completeness.

66. In short, by reason of the matters set out in para 20 and 41 to 56 above, I agree with the Insured that the insertion of the DWT condition must have been an error, and did not represent the contracting parties’ common intention.

67. I disagree with the Insurer that:

(1) there is insufficient evidence of common intention (para 120, Insurer’s closing submissions);

(2) there is no evidence the Insurer was aware of Ho Feng 7’s DWT (para 125, Insurer’s closing submissions; para 27, Insurer’s reply submissions). 

Sub-para (2) above is irrelevant.  What is relevant is it has been found as a fact that the Insurer either directly knew Ho Feng 7 was the vessel for shipping the Cargo (para 54(1) above); alternatively, it knew of the same constructively through the Broker (para 54(2) and (3) above). 

68. I have taken into account Ms Wong’s testimony to the effect she has read the cover note and the insurance policies and she saw the DWT condition.  I consider she was not sufficiently sophisticated or experienced in marine insurance matters to enable her to appreciate its significance.  For that reason, that part of Ms Wong’s testimony does not adversely affect the Insured’s case (and cannot assist the Broker’s case).

69. Thus, if it had been necessary to do so, I would have rectified the Policy by deleting the DWT condition.

70. In relation to para 67(2) above, it is noted that mistake of fact is not part of the Insurer’s case.  If the Insurer had relied on the same, as has been pointed out by the Insured (para 5 to 10c and 10d to 10h, Insured’s closing submissions), the failure to call evidence would have resulted in an adverse inference being drawn against the Insurer regarding whether it was aware of Ho Feng 7’s DWT.  Para 38 and 63 above are repeated.’

16.4   It is difficult to ascertain from these paragraphs the finding relied upon by the Insured.  In respect of the Insured, the Judge’s finding was that Ms Wong of the Insured who was instrumental in instructing the Broker did not notice the DWT warranty was inserted into the policy or the cover note (though she has read them) and the Broker never enquired with her about Ho Feng 7’s DWT.  Ms Wong’s evidence was that she was only aware of the Fixture Note after the vessel had sunk.  The Judge did not make any finding that the Insured had knowledge of the vessel’s DWT by reference to the Fixture Note or because of the nature of its corporate structure, the Insured was fixed with this knowledge when it applied for and obtained the insurance policy.  However, all this may be irrelevant because the Insured in its Reply actually admitted the plea of the Insurer that the Insured knew or ought to have known the vessel’s DWT.

16.5   But even proceeding on the basis that there was knowledge on the part of the Insured, the more difficult aspect of the Insured’s case is in respect of the Insurer’s knowledge.  Paragraph 66 of the judgment referred back to paragraphs 20 and 41 to 56 of the judgment. Paragraph 20 was the Judge’s finding on the number of coverage and the presence of the DWT warranty (referred to above as Items 7 and 8 of the Judge’s finding of fact).  Paragraphs 41 to 56 were in respect of the Judge’s analysis on the inconsistencies in the terms of the policy.  The Judge had not in these paragraphs made any express finding that both parties had the common knowledge of Ho Feng 7’s actual DWT.

16.6   Paragraph 67 also does not assist. While the Judge disagreed with the Insurer’s contention that there was, first, insufficient evidence of common intention and, second, no evidence that the Insurer was aware of Ho Feng 7’s DWT, he did not expressly make a finding contrary to the Insurer’s contention.  All that the Judge held there was that the Insurer knew Ho Feng 7 was the vessel shipping the timber (by reference to the application form which specified Ho Feng 7).  Again this fact alone will not equate knowledge on the part of the Insurer.  On the contrary, the Judge actually held that this knowledge is irrelevant.

16.7   The Insured then placed great emphasis on paragraph 70.  One can see immediately there the Judge was addressing arguments relating to the issue of mistake in the context of rectification.  The Insurer did not rely on mistake of fact as a basis for rectification.  The Judge was merely saying that if there was such a reliance, because of the Insurer’s failure to call evidence, it ‘would have resulted in an adverse inference being drawn against the Insurer regarding whether it was aware of Ho Feng 7’s DWT’.  Even there the Judge had not held that the Insurer was so aware.

16.8   Paragraph 70 then referred to paragraphs 38 and 63 of the judgment.  Paragraph 38 stated that :

‘ 38. Finally, I accept the undisputed evidence (adduced by the Insured) that the particulars (including the DWT) of a named vessel are relatively easily available through the internet.’

16.9   Paragraph 63 is in the context of a discussion on non-disclosure.  At paragraph 64, the Judge held that the Insured was not in breach.  Paragraph 63 stated that :

‘ 63. Such being the case, the particulars pertaining to Ho Feng 7 cannot properly be regarded as information within the knowledge of the Insured, but not within that of the Insurer. It is not crucial to determine precisely which of them should be better placed to obtain such information (it seems the Insurer (being in the marine insurance business) should have ready and easy access to the same), suffice it to say the information should be available to both parties.’

16.10   I would have thought that the part of the judgment which may support the Insured’s argument is found in paragraphs 63 and 64.  Mr. Coleman challenged the Judge’s finding on non-disclosure.

16.11   For the purpose of discussion, it seems that the Judge’s conclusion on non-disclosure may point towards knowledge on the part of Insurer on Ho Feng 7’s DWT.  But the Judge never held that there was actual knowledge on the part of the Insurer.  The discussion turns to whether the Insurer had the presumed knowledge.  Section 18 of MIO provides that :

‘ 18. Disclosure by assured

(1) Subject to the provisions of this section, the assured must disclose to the insurer, before the contract is concluded, every material circumstance which is known to the assured, and the assured is deemed to know every circumstance which, in the ordinary course of business, ought to be known by him.  If the assured fails to make such disclosure, the insurer may avoid the contract.

(2) Every circumstance is material which would influence the judgment of a prudent insurer in fixing the premium, or determining whether he will take the risk.

(3) In the absence of inquiry the following circumstances need not be disclosed, namely—

(a) any circumstance which diminishes the risk;

(b) any circumstance which is known or presumed to be known to the insurer.  The insurer is presumed to know matters of common notoriety or knowledge, and matters which an insurer in the ordinary course of his business, as such, ought to know;

(c) any circumstance as to which information is waived by the insurer;

(d) any circumstance which it is superfluous to disclose by reason of any express or implied warranty.

(4) Whether any particular circumstance, which is not disclosed, be material or not is, in each case, a question of fact.

(5) The term “circumstance” (情況) includes any communication made to, or information received by, the assured.’

16.12   The Insurer is presumed to know matters of common notoriety or knowledge, and matters which an insurer in the ordinary course of his business, as such, ought to know.  The extent of presumed knowledge in the context of non-disclosure has not been fully argued before us.  Arnould : Law of Marine Insurance and Average 18^th Ed, paras 16-178 to 16-181 (under the heading of Presumed knowledge and inquiries) contained a useful summary :

‘ 16-178 On the question of whether an insurer should take steps to inform itself, such that the insurer is presumed to know what those steps would have revealed, in Greenhill v Federal Insurance Co Ltd Scrutton L.J. said :

“ I have always understood the proper line that an underwriter should take, except in matters that he is bound to know, is absolutely to abstain from asking any questions, and leave the assured to fulfil his duty of good faith, and to make full disclosure of all material facts, without being asked.”

16-179 That passage was cited with approval by Leggatt L.J. in Marc Rich v Portman.  However, the proviso in Greenhill as regards matters that an insurer is ‘bound to know’ should be noted.

16-180 The case of London General Insurance Co Ltd v General Marine Underwriters’ Association Ltd has already been considered above in the context of what an insured ought to know.  In Glencore International AG v Alpina Insurance Co Ltd Moore-Bick J. considered that case in the context of what an insurer ought to know and said :

“ The decision in this case is of relevance for two reasons: first, because it demonstrates that actual knowledge on the part of the insurer is not required in circumstances where a reasonable insurer would have taken the steps necessary to obtain the information from materials in hispossession; secondly, because it demonstrates that the steps that a reasonable insurer will be expected to take in obtaining information from materials already available to him will depend on the circumstances of the case.”

However, the insurer is not deemed to know matters simply because it had the means of ascertaining them by appropriate enquiry.  Thus, the line between what an insurer may be deemed to know and what it could discover by enquiry is often a fine one.  The distinction is as between matters into which an insurer should inquire and those into which it could inquire.  The question ultimately reduces to whether there has been a fair presentation of the risk in all the circumstances.’

16.13   In the present case the plaintiff relied on an affirmation made by Mr. Lam Sek Kong, the plaintiff’s handling solicitor in which he said he had searched two websites one of which showed the gross tonnage of Ho Feng 7 and the other, its gross tonnage and dead weight.  Mr. Lam further said he had also located on the internet the Lloyd’s List Intelligence which is based on the Lloyd’s List (i.e. the leading daily newspaper for the maritime industry).  He then said :

‘ the accident notice communicated to the plaintiff, ….. an extract from “Lloyd’s Marine Intelligence Unit Casualty Reporting Service” and that the extracted news announcement regarding the sinking included the information that Ho Feng No. 7 is “8960 Dwt”.’

16.14   While it may be said that the Insurer could have inquired into the matter, it is a different issue whether it should have so inquired.  In order to establish the latter, I would have thought that the Insured should at least adduce evidence from the marine insurance trade about its practice on inquiry instead of merely relying on evidence which shows the availability of the information of Ho Feng 7’s DWT on the internet websites.  The Insured relied on cases such as Tullett & Tokyo International Securities Ltd v APC Securities Co Ltd [2001] 2 HKC 713 and Hongkong and Shanghai Banking Corp v Chan Yiu Wah [1988] 1 HKLR 457 and argued the Court can draw inference against the Insurer because of its failure to call any witness to testify at the trial despite filing witness statements.  The inference is that the Insurer feared that if witnesses are called, they would have exposed facts unfavourable to it.  In my view, the authorities have to be considered in the context of each case.  In the present case there must at least be some foundation to say that the Insurer should have avail itself of the information when the evidence adduced by the Insured merely showed that the information is available on the internet.

16.15   In any event, Arnould at paragraph 16-193 referred to its previous editions on the issue of the insurer’s knowledge of the content of Lloyd’s List which stated, among other things, that :

‘ It may be gathered from this last case and the case of Bates v Hewitt (1867) L.R. 2 Q.B. 595 that there is no presumption of knowledge or particular facts concerning particular ships on the part of the underwriter merely on the ground that such facts have appeared in Lloyd’s List or any other newspaper.’

16.16   Then at paragraph 16-194, Arnould stated that :

‘ It submitted that the proposition that there is no presumption of knowledge of facts concerning particular ships merely on the ground that they have been published in Lloyd’s List or any other newspaper remains valid. It is doubtful whether any presumptions can be said to arise. The courts are likely to approach any question of whether an insurer should be treated as having knowledge of published information, if the point were to arise, as one to be judged on its particular facts and in the context of modern methods of business.’

16.17   The Judge at paragraph 61 stated that :

‘ 61. “The duty of disclosure extends only to facts which are within the knowledge of one party but not within the knowledge of the other”: Chitty, Vol 2, para 41-028. One of the authorities relied on by the Insurer is Bates v Hewitt (1866-67) LR 2 QB 595. The court there said:

“... if matters are common to the knowledge of both parties, such matters need not be communicated. It is also true that when a fact ... is one which is matter of inference, and the materials for informing the judgment of the underwriter are common to both, the party proposing the insurance is not bound to communicate what he is fully warranted in assuming the underwriter already knows.” ’

16.18   In my view, this passage does not advance the Insured’s case because as Moore-Bick J made it clear in Kingscroft Insurance Company Limited v. Nissan Fire & Marine Insurance Company Limited (No 2) [1999] Lloyd’s Rep IR 603, at 629 that :

‘ …. Bates v Hewitt also makes it clear that the insurer is not to be presumed to have knowledge of matters simply because he had the means of ascertaining them by appropriate enquiry. The line may sometimes be a fine one, but ultimately the test must always be whether the insurer has been provided with sufficient information to ensure that there has been a fair presentation of the risk.’

16.19   Although the news announcement on the sinking of Ho Feng 7 also revealed its DWT, this information came after the event and it does not advance the Insured’s case further.

16.20   The Insured relied on the following passage in The Law of Marine Insurance (2^nd Ed) by Professor Howard Bennett :

‘ 4.96 …. A fortiori, insurers are not presumed to know something about insured property merely because it has been published in the media, even when they are marine insurers and the information is published in a specialist media forum targeted at the maritime community.

4.97 However, specialist information is increasingly made available through dedicated electronic products.  Insurers can subscribe to databases that contain extensive information on, for example, vessels and their owners.  Is a hull insurer presumed to know all the information on such a database if the insurer subscribes to it, or even if the insurer does not but a prudent hull insurer would?  The ability to search for and retrieve information with ease distinguishes electronic repositories of information from paper files, strengthens the case for developing the scope of presumed knowledge, and may serve to distinguish Bates v Hewitt were a case with similar facts to arise in the modern era.’

16.21   The opinion expressed in paragraph 4.97 is aimed at developing the scope of presumed knowledge but the existing law is as stated in paragraph 4.96.  It does not advance the Insured’s case.

16.22   In any event, so far the discussion on the question of presumed knowledge is in the context of the requirement of disclosure.  But it seems that presumed or imputed knowledge is not enough to constitute waiver by election (i.e. affirmation).  Arnould at paragraph 15-184 has this to say :

‘ There have been several cases in recent years in which questions arose as to the knowledge required before affirmation can be inferred. The judgment of Kerr L.J. in CTI v Oceanus [1984] 1 Lloyd’s Rep. 476 at 498 states the principle in clear terms, and provides a useful factual illustration. Kerr L.J. states :

“Affirmation in the present context means that the underwriter elects to affirm the policy after he has acquired full knowledge of the material facts which would entitle him to avoid it. Having the means of knowledge, or having been put on enquiry, is not enough.” ’

16.23   In my view, the Judge was wrong on his finding on non-disclosure.  This being the case, the Insured’s reliance on the Judge’s finding on disclosure to support its case on the knowledge of the Insurer as part of the factual matrix cannot be sustained.

16.24   Further I do not see how the fact that 65 out of the 72 policies issued by the Insurer did not have the DWT warranty would assist the Insured when all the cover notes in fact contained such a clause.

16.25   There is also dispute between the parties as to the term of the ‘vessel clause’ in the policy :

‘ Ship: PER APPROVED VESSEL OR VESSELS TO BE DECLARED AND SUBJECT TO ANY ADDITIONAL SURCHARGE IF REQUIRED’

16.26   The Judge held that Ho Feng 7 was the approved vessel.  The Insurer contended otherwise.  I do not regard this to be relevant to the issue under discussion.  In any event, even if Ho Feng 7 was the approved vessel, the approval must be subject to its compliance with the DWT warranty.

16.27   To conclude on this topic, the subject matter of the policy and the DWT warranty cannot be said to be in conflict.  If they are not inconsistent with each other, then the Insurer can rely on the warranty and its breach to avoid liability.

3)  Non-disclosure

17.  Although the defence of non-disclosure was relied upon by the Insurer, the relevant principle to be considered is really the breach of warranty. 

18.  In any event, as discussed earlier, the finding that there was no non-disclosure cannot be sustained.

4)  Rectification

19.  It is not necessary to address this topic further except to say that rectification will only become relevant if it is showed that the common intention on the parties had not been accurately represented in the policy itself : Agip SpA v. Navigazione Alta Italia SpA [1984] 1 Lloyd’s Rep 353 at 359.

5)  Estoppel/Waiver

20.  The Insured argued that the defence of estoppel and waiver is based on the same material.  It relied on paragraph 20.25 of The Law of Waiver, Variation, and Estoppel, by Wilken & Ghaly (3^rd Ed) to show that the Insurer had waived or is estopped from relying on the DWT warranty when it issued the policy with knowledge of Ho Feng 7’s actual DWT :

‘ 20.25 The prudent insurer will, therefore, on discovery of a breach of duty by the insured, put a halt to any further action on the slip or policy. Further, if, for example, the insurer wishes to ensure that cover will not commence until the premium is paid, as well as inserting the standard term that cover will not incept until the premium is paid, the insurer should not issue any policy by deed nor contain in its policy wording any recital that the premium has been paid. Finally, the prudent insurer must take care that there are no terms in the issued policy which it knows the insured cannot comply with. If it does issue the policy with that knowledge it may be taken to have waived compliance with those terms.’

21.  Again this point will only arise if knowledge, either actual or presumed, is established.  I have already addressed this point.

Disposition of appeal between the Insured and Insurer

22.  This being the case the appeal by the Insurer must be allowed and the judgment entered against the Insurer must be set aside.

23.  The parties are required to lodge within 14 days written submissions on the Insurer’s costs of the appeal and below.  The submissions are to be served on the Broker as well.

The Insured’s claim against the Broker

24.1 The Insured in its Respondent’s Notice which had been served on the Broker, expressly asked for the following orders :

‘ (1) If and insofar as the 1^st Defendant is not liable to the Plaintiff and/or the Plaintiff is not fully compensated by the 1^st Defendant (both of which are denied), the Plaintiff will contend that the 2^nd Defendant is liable to the Plaintiff, in respect of liability as well as costs;

……

  …. Orders that the 1^st Defendant and the 2^nd Defendant, either both together, or either of them, do pay the Respondent’s / Plaintiff’s Costs of and occasioned by this appeal, including this Respondent’s Notice and the Notice of Appeal, and Costs below, to be taxed if not agreed.’

24.2 The Insurer’s Notice of Appeal which was also served on the Broker asked for, among other things,

‘ 3. Such order as between [the Insured] and [the Broker] be made as the Court thinks fit.’

24.3 The Broker is a party directly affected by the contention of the Insured and the Insurer’s appeal and had been properly served pursuant to Order 59 Rule 6(3) and Rule 3(5) respectively.  It has chosen not to attend the appeal.  I will make orders against the Broker in its absence

24.4 As the Judge had already found against the Broker in the alternative, I would enter judgment against the Broker for the sum of US$1,555,209.

24.5 The Insured is to lodge within 14 days written submissions on the issue of costs between it and the Broker in respect of the appeal and below.  The Broker is to reply within 14 days after the Insured and Insurer’s submissions.

Hon Chu JA :

25.  I agree.

Hon Barma JA :

26.  I agree.