XCHRX CITY UNIVERSITY OF HONG KONG v. BLUE CROSS (ASIA-PACIFIC) INSURANCE LTD.

HCA 10750/1993

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 10750 OF 1993

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J U D G M E N T

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1. The plaintiff in this action is the City University of Hong Kong, which in 1993, at the time the events occurred with which we are concerned here, was the City Polytechnic of Hong Kong. The plaintiff is a large organisation which had for some years operated a group medical and life insurance scheme for its staff of some 1800, and, in respect of the medical scheme alone, their dependents, numbering some 2100. For the two years up to 1993, the insurance for this scheme had been provided by the company now known as Manulife (International) Ltd ("Manulife"), which, although under a three year contract from 1991, was subject to renewal each year, when the premium was renegotiated. This contract was not renewed in 1993 for the last of the three years originally contracted for, and the plaintiff began to look for coverage for a three year period from 1 July 1993.

2. In 1991, the plaintiff had appointed Gibbs Insurance Consultants Ltd ("Gibbs") as their broker to advise on insurance matters and to assist in procuring insurance cover on the best terms available. It was accordingly Gibbs who, in May 1993, prepared an invitation by way of tender documents for selected insurance companies to submit tenders for the contract. This was sent to nine well-established companies with previous experience in this field, including the defendant. The tender documents included conditions of tendering, specific terms of which I shall return to later, the form of tender, and information about the plaintiff, the current and proposed medical benefits scheme, claims experience since 1 July 1990, and special conditions of the service to be provided. The tender form included a statement that the tenderer agreed to abide by the tender for a period of three months. The final date for receipt of tenders was 24 May 1993.

3. Three of the invitees declined to tender, one put in a late tender, which, under the conditions of tendering, could not be considered, and five, including the defendant, returned tenders for the contract, that of the defendant being put in on the last day, 24 May. Two of the five were rejected as being unable to comply with certain of the tender requirements, leaving three valid tenders for the consideration of the plaintiff's Main Tender Board, being from Manulife, the existing insurer, A.I.A., and the defendant. In circumstances which I shall look at in more detail shortly, the defendant, whose annual premium quoted was markedly lower than that of either of the other tenderers, they say as a result of an error, sought to withdraw their tender a week later, but their purported withdrawal was not accepted and the plaintiff sent a letter to the defendant on 4 June 1993 accepting their tender and requesting them to proceed to effect insurance cover from 1 July. The defendant declined to do so and the plaintiff therefore effected insurance with Manulife at the premium which they had quoted in their tender. The plaintiff now claims the difference between the premium paid to Manulife and that they maintain they would have paid to the defendant had the latter stood by their tender.

4. The initial part of the facts is not in dispute. The tender form returned by the defendant set out, as required by the tender documents, the annual net premium per employee for each type of benefit, and under both the existing scheme and the proposed increased benefits scheme, as the plaintiff had not at that stage decided whether to implement the improved scheme which increased the benefits by at least 15%. They also quoted for the group life insurance. These were separate quotes, although included on one form, and the plaintiff was not bound to accept both, but was entitled under the terms of the tender to accept one and reject the other. The total annual premium for the medical cover was calculated by Gibbs to be $5,959,613.00, and that for the life insurance $1,700,000.00.

5. The total annual premium for the medical cover for each of the other tenderers was $10,777,135.00 in respect of Manulife, and $10,023,924.00 for A.I.A. There is also evidence that the total premium of each of the two tenderers who were rejected for other reasons, was within a few percentage points of these last two quotes.

6. It was immediately apparent to Gibbs, in the person Mr Benny Lee, who was dealing with this tender for the plaintiff, that the premium quoted by Manulife was not only some 80% higher than that of the defendant and that of A.I.A. 68% higher, but the defendant's quote was less than the claims paid, or expected to be paid, for the last year from 1 July 1992, which was about $6,000,000.00.

7. What happened next is in dispute. The defendant's Mr Charles Kwun, the assistant general manager, who signed the tender on behalf of the defendant, in the absence of the general manager, says that he received a telephone call from Mr Lee on 31 May who pointed out that their quote was so low that it would not even meet the previous year's claims. Mr Kwun says that he immediately asked Mr Terry Lo, their actuary, who had carried out a "reasonableness test" on the quote, to check the figures, and he rapidly discovered that a basic error had occurred in that he, and presumably the staff who had prepared the quoted premium rates, had taken the claims record for the last year to be $3,000,000.00 rather than the true figure of nearly double that, which should have resulted in a premium of $9,951,488.87.00. Mr Kwun says that he immediately informed Mr Lee by telephone of the mistake and said that they wanted to withdraw, whereupon Mr Lee pointed out that they could not do so. Mr Kwun also said that Mr Lee suggested a way out of the problem, by telling the plaintiff that the rates quoted were quarterly rather than annual. Mr Lee denies this, and it would certainly not have been in his client's interest, but I consider it likely that a discussion along those lines may well have taken place, between two insurance men seeking a way out of a problem. It was, I am satisfied, reported to Mr David Skinner, their chief financial officer, who, very properly, rejected it. Mr Ma, for the plaintiff, has emphasized the fact that such a suggestion by Mr Lee would not have been in his own client's interest, and was therefore unlikely to have occurred. That may be so, but neither was it in his interest to have a situation which he envisaged could lead to lengthy legal proceedings involving parties with whom he wished to continue having cordial business relations.

8. Mr Kwun and Mr Lo then went to see Mr Skinner, told him of the mistake and it was decided to send a fax withdrawing the tender. Upon receipt of this, the plaintiff contacted Mr Lee and asked him to arrange a meeting with senior personnel of the defendant, which took place at 9.00 a.m. on 2 June. At that meeting it is not in dispute that the defendant admitted a mistake and put forward a proposed replacement bid, and that, after Mr James Ng for the plaintiff initially pointed out that they ought to abide by the tender for three months, the discussion for the next hour or so revolved solely around the defendant's replacement bid and the terms of it. In spite of this, Mr Ng the same day sent out a circular to the members of the tender board with his recommendation that the plaintiff accept the original tender of the defendant, supported by Gibbs' Tender Assessment Report, and, presumably, advising them of the fact that the defendant claimed it was made in error and had sought to withdraw it. I say presumably, as this recommendation has not been disclosed in these proceedings, but I cannot conceive that the Tender Board were allowed to make a decision without being apprised of all the facts, including the events which had recently taken place and the likely legal consequences, and the possible cost of them. The board responded the next day and a letter was sent to the defendant on 4 June accepting their original tender. The defendant declined to offer a policy on the basis of that tender.

9. It has been the plaintiff's case from the outset that, notwithstanding that they were informed that a mistake had been made, they have never accepted that this is the case, Mr Ng going so far as to say that he did not believe Mr Skinner when he told him at the meeting that a serious error in premium rating had been identified. I have to say immediately that in my view the evidence here is clear and overwhelming that the defendant made an error of calculation, and I am also satisfied that the plaintiff, at the very latest at the meeting on 2 June 1993, and almost certainly before that through their agent Mr Lee, knew that the defendant had made that error.

10. The evidence as to this begins with that of the defendant's staff, Mr Kwun, Mr Lo, Mr Skinner and Mr Chris Tam, a relatively junior member of the company and an assistant marketing manager. That of Mr Kwun was that the tender, when received in the middle of May 1993, was passed by him to Mr Tam for an initial assessment. Mr Tam says that his duty was to see if all the necessary information had been supplied in the documents, and he then used their computer programme to generate a premium summary sheet by inputting the benefit levels required in the tender document. This produced a basic figure of $5,460,000.00 which took no account of the plaintiff's claims record or other conditions or special requirements which might affect the premium level. He then passed this with the tender documents to a Mr Albert Yuen of the underwriting department to consider other matters including claims experience, contingencies, cost inflation and loading for administrative costs, and to assess a gross premium. This he did, agreeing with the premium of $5,460,000.00, the final figure considered by the plaintiff and Gibbs being slightly higher as a result of precise calculation of benefits and number of personnel to be covered. This was then passed to Mr Lo, the corporate actuary, to conduct a "reasonableness test" based on the claims history and adding 10% for contingencies, 20% for inflation and increase in benefits and a loading of 16.5% for administration costs, plus a further 5% as the profit margin. Having done this, he arrived at a figure of $4,980,000.00 and accordingly concluded that the gross premium suggested was well within an acceptable range. However, it is clear from his evidence and his notes of calculation that his starting point, namely the figure for the latest year's claims, was $3,000,000.00, while the proper figure should have been $6,000,000.00, which would have produced a premium of $9,951,488.00, a sum very close to that of all the other tenderers. He is unable to explain why the figure of $3,000,000.00 was used. The tender was then passed to Mr Kwun who appears to have signed it without any further check, no doubt relying on others to have done the necessary checks before it got to him.

11. This error in the claims history appears to have first occurred in the underwriting department, and been repeated by Mr Lo, as it was not Mr Tam's duty to consider the amount of the previous claims, only to see that a figure had been given. How the error was made is difficult to see, as the figure clearly given in the tender documents for the year 1992/1993 was about $4,000,000.00 for claims paid for the 8 months from 1 July 1992 to 28 February 1993, which, when annualized for a 12 month period, comes to $6,000,000.00. Indeed, all the defendant's witnesses themselves are at a loss to explain it. There were at least four stages in the process of preparing the tender when the mistake might have been noticed and rectified, and they all failed. The error was not brought to their attention until Mr Benny Lee telephoned Mr Kwun on 31 May and pointed out that the quote was very low. Mr Lee denies that this conversation took place at all. He admits that he was immediately aware on receiving the defendant's tender, not only that the difference between their quoted premium and the others was huge, but that it was less than the previous year's claims. He also admits that he had telephone conversations with Mr Kwun that day, of which says the first was about other business dealings, although Mr Kwun cannot recall any other dealings at that time with Gibbs or Mr Lee. The second conversation he does admit was when Mr Kwun called him to say that there had been a mistake and that they intended to withdraw. Not to have mentioned the startling figure that they had quoted in the first call would have been, to say the least, unusual, and I am satisfied that it is more likely than not that he did. I would add that Mr Lee's evidence was less than satisfactory on a number of matters. He either had very little memory of the events he was asked to recall, or appeared to be selective in those he did say he remembered, and where his evidence differs from that of the defendant's witnesses I prefer the latter.

12. On receipt of this information Mr Kwun says that he immediately asked Mr Lo to check the figures and the mistake was discovered. There followed a flurry of activity on the part of the defendant's staff. Mr Kwun and Mr Lo went to see Mr Skinner, as chief financial officer, and told him what had happened and he immediately appreciated the potential financial loss which could result. They were understandably embarrassed and, as Mr Skinner put it, chagrined, that such a mistake could have occurred, and Mr Skinner said that it was his decision that the tender should immediately be withdrawn. This task was given to Mr Kwun who in turn passed it to Mr Tam, who sent a fax that day to the plaintiff. The wording of that fax Mr Ma says indicates that the reason for withdrawal was not a mistake, as it refers to Question 2 sent to the defendant in respect of proposed annual increases in premium. However, I accept the evidence of Mr Tam as to this, that he was embarrassed to admit that the defendant had made such a mistake, and in any event did not intend by the wording to connect their refusal to answer Question 2 with the withdrawal. I can well understand that, admitting such a mistake over the telephone to another insurance man is one thing, but to do the same in writing to someone outside the industry, quite another. This appears to me to be logical and to conform with the other facts as I find them. In any event, there could be no reason to use Question 2, as if they wished to do so, all they had to do was to reply with an answer they knew would be unacceptable to the plaintiff.

13. If further support of the contention that this was a mistake on the part of the defendant were needed, it is available in the enormous discrepancy between the tender figures themselves which were apparent to Mr Lee. He had advised the plaintiff on the likely amount which they would have to pay for the insurance they required, and having seen the premium quoted by Manulife, who were, as he appreciated, in the best position as the existing insurer to assess the cost of providing this insurance, and whose quote he took as a yardstick by which to compare the others, he must have known that the defendant's premium was so low that it was uneconomic, and he must have appreciated, probably before it was confirmed by the defendant, that an error had occurred. He emphasizes this in his assessment report where he refers to the cost saving of taking the defendant's tender as being as high as four to five million dollars, and that it could generate huge short term financial gain. There can be no doubt that it would have been short term, as the premium was for the first year only. Had the defendant felt obliged to proceed to offer cover at this level, there was no provision in their tender restricting an increase in premium from the second year back to commercial rates, or even higher to try to recover losses in the first. This is also relevant when considering the experts' views of the economic feasibility of the quote, and any liability for damages.

14. In support of their case that the defendant's tender was not necessarily the result of an error, the plaintiff has produced an expert report by Mr Stuart Leckie who has undoubted wide experience and expertise in actuarial and insurance matters. The plaintiff relies on this report, firstly, for reasons why an insurer would deliberately quote a low premium, secondly, to examine ways in which the costs could be minimized to justify a lower than usual premium, and thirdly, to show that, as things have turned out, the defendant could have made a small profit over a three year period. The main thrust of the first part of the report is that a low premium would be quoted because the insurer was very keen to get the business, as a way to capture other prestige business or to increase its market share in a certain area. However, the efforts of the defendant here to extricate themselves from the situation, even in the face of threats of legal action, do not support a contention that they would go to great lengths to acquire the plaintiff as a client. This would only be an argument for the low quote being intentional if they had pursued the matter vigorously rather than trying to get out of it. The same would be true of an intention to get the business and recover losses the first year by increased premium for the second and third years. In addition, there would be no guarantee of this should the plaintiff not agree the increased premium and put it out to tender again, as indeed happened to Manulife in 1993.

15. Cost minimization was not quantified in any way, and a policy of stringent claim control would seem designed not only to alienate one's client, but would, as Mr Leckie conceded, add to administrative costs.

16. As to the third part of the report, which of course has been prepared with the advantage of hindsight, rather than what could reasonably have been anticipated at the time, there are three matters which give rise to queries over the accuracy of his figures.

17. The first is that he has assumed that the defendant would have been awarded the contract both for medical and life insurance. While the plaintiff's letter of 4 June 1993 purporting to accept the tender did accept both, at the time the tender was submitted there was no obligation to do so, and the defendant could not have assessed the premium on the assumption that they would also get the life insurance, when the plaintiff had specifically reserved the right to accept one and not the other. The plaintiff of course knew this, and even if they intended to give both the medical and life to one insurer, or to the defendant particularly, they must have appreciated that the premium would be quoted for each separately to allow for only one being accepted.

18. The second is that no allowance has been made for what is known as "experience refund" on the life insurance in the event of nil or low claims in any year, although this is relatively unimportant if one is considering the first year alone which would not be affected.

19. The third is that he has assessed only the "underwriting profit", being the difference between premium and claims. No allowance is made for other matters, not least administrative costs.

20. In the report of Mr Saunders, the defendant's expert, these matters are taken into account, and show that, for medical insurance alone, a loss of about $1,500,000.00 would have been made, and even if one were to add in the life insurance profit, a loss of about $400,000.00.

21. But all this is with the advantage of hindsight. In May 1993 the insurers, and, indeed, the plaintiff and their adviser and agent, Gibbs, were, or should have been, assessing what was a reasonable premium based on the information then available. This was a most recent claims history of $6,000,000.00, an increase in benefits of at least 15% in addition to administrative costs. Just to break even it would require a premium of about $8,000,000.00, and they would expect to have to add a further loading for contingencies, medical inflation and a profit margin. While the experts admit that the actual claims made in the following year, a mere 6.66% increase was within a reasonable range, albeit at the low end, I cannot conceive of even the most optimistic insurer fixing his premium on the assumption that this is the likely exposure. It would be an unacceptable risk, and assessment of risk is the basis of this industry.

22. One other matter mentioned in the reports is that of income from the investment of an annual premium. While this could be between 5% and 10% on a premium paid annually at the beginning of the year, with usual conservative investments, in practice it would, of course, be far less, as it would be on a reducing amount as the sum invested is used to pay claims, particularly here, where the evidence is that the premium would be insufficient to do so. Further, the evidence here is that the premium would be paid quarterly, as the tender documents required the tender to be on this basis, although the plaintiff, in the questions sent later, asked for confirmation of this. In that case, the return on investments would not exceed 2%. I accordingly do not consider this a matter of significance to be taken into account.

23. Mr Leckie admits that, while this industry is not always highly profitable, no company of this size wishes to make a loss. At the time the tender was submitted, it is clear that they may well have done on the evidence then available, and from what we know now about claims since, I consider it likely that they would have done. I accordingly take the view that it was not the case that the premium quoted in their tender of 24 May 1993 was anything other than the result of an unfortunate error, which, while unusual in a company such as this, did occur on this occasion, and that the plaintiff was well aware that the low premium quoted was as a result of a mistake, such knowledge being acquired either through their agent Mr Lee, or directly when informed by Mr Skinner at the meeting on 2 June. Mr Ng's contention that he did not believe Mr Skinner does not stand close examination. No doubt was expressed at the time about a mistake having been made, and no explanation about it was requested. Mr Ma has made much of the fact that no explanation was offered. In my view the obvious conclusion which can be drawn from the lack of enquiry and offer of explanation was that the error, and the nature of it, was clearly apparent to all concerned. How it had arisen was not important.

24. As I have already said, the meeting was concerned almost entirely with discussion of the defendant's revised quote and a promise by Mr Skinner to answer the outstanding questions on the tender, but based only on the revised figures. It is therefore a little difficult to explain the fact that, within two hours of the conclusion of that meeting,

25. Mr Ng had sent out to the Tender Board his recommendation that the defendant's original tender should be accepted. This seems to me to be acting in almost indecent haste to take advantage of what he knew to be a mistake for a short term, but substantial, financial gain for the plaintiff. I must accordingly now look at whether, as a matter of law, the plaintiff was entitled to do so.

26. I start with the tender document itself and the tender form submitted by the defendant on 24 May 1993. There are two clauses in the tender documents relating to errors: clause 7 and 8. Clause 7 only refers to errors discovered by the tenderer and amended before the closing date for tenders, and is accordingly not relevant. However, clause 8 is the principal basis of the defendant's case here and reads as follows:

"Should examination of a Tender reveal errors of such magnitude as in the opinion of the Polytechnic would involve the Tendered (sic) in serious loss, then the nature and amount of such errors will be communicated to the Tenderer and it will be asked to confirm in writing that it is prepared to abide by its Tender."

27. The other relevant provision which I must also consider is in the tender form and reads as follows:

III. I/We agree to abide by this Tender for a period of three (3) months from the date fixed for receiving the same and it shall remain binding upon me/us and may be accepted at any time before the expiration of that period.

28. Although these clauses appear on the face of them to be inconsistent, the second requiring the tenderer to abide by his tender for three months, and the first, in requiring the plaintiff to ask for confirmation of the tender, apparently conceding that there are circumstances in which the tenderer need not do so, this was not a point taken by either party, but it is a matter which is, I think, relevant here, and I shall look at it again shortly. However, I shall start with the second, which I can deal with quite shortly.

29. It is contended by Mr Bleach for the defendant that this cannot be a binding promise by the defendant as it is unsupported by any consideration, there being no contract until the tender is accepted by the plaintiff, and it is therefore only an offer. Normally this would be the case, and an offer to sell, or to provide services at a certain price, can be withdrawn at any time before acceptance. However, the situation with regard to tenders has for long been considered by the courts to be different, and that there can be circumstances where an implied contract comes into existence binding the tenderer to abide by his tender for a particular period. The earliest of these is the Canadian case of The Queen in Right of Ontario v Ron Engineering & Construction Eastern Ltd (1981) 119 D.L.R. (3d) 267, where the concept of a collateral contract, brought into being upon the submission of a tender, was propounded to find that the tenderer was bound to abide by it under the conditions of tendering. While this was expressed to be in the nature of a unilateral contract, the principal was taken further and clarified by the English Court of Appeal in Blackpool and Fylde Aero Club v Blackpool Borough Council [1990] 1 WLR 1195 where it was held that, although it was not expressly stated in the tender documents, there was an implied obligation on the party inviting them to consider all conforming tenders, thereby providing consideration for the collateral contract, and to this extent the invitation to tender was an offer and the submission of a timely and conforming tender an acceptance. In that case the failure of the council to consider a tender properly complying with the conditions was held to be a breach of their obligations under the collateral contract. Here it is submitted by the plaintiff that the defendant's failure to abide by its tender for the period stipulated in its tender is similarly a breach.

30. The point has already been considered in this action by Rhind J in an earlier appeal against an order to strike out on the ground of no reasonable cause of action being disclosed, where, after considering the authorities, he came to the same conclusion, that the expectation that the plaintiff would consider all conforming and timely tenders was sufficient consideration to hold the defendant to its promise to keep the offer open for three months. I can see no reason to depart from that finding, and have to agree with the plaintiff that, in the absence of other factors peculiar to this case, withdrawal of the tender would be a breach of the defendant's obligations to the plaintiff.

31. One of those other factors is clause 8. The first point about clause 8 is that it clearly imposes an obligation on the plaintiff to draw the attention of the defendant to what it perceives to be an error which would cause the latter serious loss. I have already found above both that there was an error, and the plaintiff was aware of that error. The remaining questions therefore are whether that error would cause the defendant serious loss and whether that was the opinion of the plaintiff.

32. I have been referred by Mr Ma to a great deal of material showing what would have happened had the defendant entered into the contract on its original terms, by which he has tried to show me that there would in fact have been no loss, or only a small loss. Even if I accepted that totally, this is only with the benefit of hindsight, and when considering these two questions I must look at the situation in May 1993 and what a reasonable person then, and in particular a reasonable person experienced in the insurance world, would have perceived as the risk to the defendant by their tender. In so doing, it is as much the opinion of the plaintiff's agent, Mr Lee, as that of the plaintiff, which is relevant, as any knowledge of the agent must be imputed to the principal, so where I speak here of the plaintiff, I include Mr Lee.

33. I have already found above that it was Mr Lee who drew the defendant's attention to the unusually low premium they quoted, and which caused them to review their figures, discovering the error. At that time he would have been aware that, not only was the difference between their premium and the others very large, it was less than the previous years' claims. As an experienced insurance man he would have done his own calculations in order to advise the plaintiff as to a proper premium they would be likely to have to pay, and no doubt used a similar method of calculation to the defendant's, which Mr Leckie agreed was a usual one. He also had the tender from Manulife with which to compare it, and which he agreed he used as a yardstick, as being from a company in the best position to assess what the insurance cover required. He was then presented with a quote so low that, had it been for the previous year, would have incurred a loss to the insurer. He also knew, not only that the level of benefits was increasing by some 15%, but that, as he states in his assessment report, the health care expenses of the plaintiff's staff and dependents were higher than the medical inflation rate. He, and accordingly the plaintiff, was therefore in a good position to evaluate the defendant's tender, and must have come to the conclusion that they would have almost inevitably lost money, at least for that first year. It follows that, for the purpose of clause 8, the plaintiff did know that the defendant would suffer a loss, in the absence of very unusual circumstances, which a reasonable person, assessing the risk on the known information, could not take into account.

34. Was that loss "serious"? Again, taking the figures as they were known at the time, I find it inconceivable that anyone would have believed the risk to the defendant anything but substantial, and therefore serious. It was reasonable to presume that the claims for the following year would be at least 15% and possibly 20% higher than the previous year, and that other matters I have referred to above should be factored in just to break even, and more to give the insurer a profit. On the defendant's quote, any reasonable and careful insurer, and in this I include Mr Lee, would expect them to make a loss of up to $3,000,000. Even if the life insurance premium is taken into account, which in my view, for the reasons above, it should not, there would still be an anticipated loss in six figures. Mr Ma has sought to say that, to a company as large as to defendant, with considerable assets, such a loss is not serious. I cannot agree with that. Any insurer is in the business to make money. To intentionally do otherwise would be in breach of its obligations to its shareholders, and rather defeat the object of being in business at all. To make any loss is unlikely to be acceptable, but to make a loss of up to possibly 50% on a large contract, and which the plaintiff must have appreciated to have been at least 20%, cannot be described as insignificant, and consequently well within what I consider to be the definition of "serious".

35. This, I believe, was apparent to Mr Lee when he first saw the defendant's tender. And even if he thought then that there may have been some explanation for it of which he may be unaware, he was left in no doubt after speaking to Mr Kwun that an error had occurred, and he would have known that it was one which in all probability would cause them a serious loss. This knowledge being imputed to the plaintiff, they then had an obligation under clause 8 to ask the defendant to confirm on writing that they were prepared to abide by their tender. This they failed to do, and were accordingly in breach of that obligation, and cannot now seek to take advantage of the defendant's error.

36. I would, however, go further and look at the position at common law. It has long been held that a mistake as to the terms of a contract, if known to the other party, may avoid the contract. Price is a term of a contract, and where, as here, the plaintiff must have known that the price had been quoted in error, could not make a binding contract by accepting it. Mr Ma says that where the terms of a contract deal with the question of error, then that overrides these provisions. That may be so where they do so clearly, with the stated intention of overriding the provisions. But that is not the position here. The wording of clause 8 at first caused me some disquiet in the light of the inconsistency I referred to above, in appearing to seek confirmation of a tender which the defendant was obliged to abide by. However, if it is looked at in the light of a provision accepting the common law position, namely that the contract can be avoided by errors known to the plaintiff, but providing that they can protect their position by asking the defendant to confirm, then there is no inconsistency and the clause makes good sense. That is what I accept clause 8 must mean, it is for the protection of the plaintiff not the defendant, as the defendant's position, of making an offer containing a mistake as to its terms of which the other side is aware, is already protected under common law.

37. As will be clear from my findings above, the facts here show that there was a mistake made by the defendant as to the terms of the tender, the plaintiff was aware of it, and, in the absence of the plaintiff seeking the protection of clause 8, the defendant was entitled to avoid the contract as they did.

38. That is sufficient to deal with this matter, but for the sake of completeness, and in the event of any appeal, I will briefly look at the question of the damages claimed by the plaintiff had they been successful.

39. In their statement of claim they set out their loss as being the difference between what has been paid to Manulife, who provided insurance in place of the defendant, from 1 July 1993 to 30 June 1996, less what they would have paid to the defendant under their original tender. For the first year, 1993 to 1994, the figures have been calculated for me by those representing the plaintiff at $4,546,320.83, which I accept, only adding that the size of that figure as now calculated reinforces what I have said above about the obvious disparity between the quotes given. As to the next two years, it is not in dispute that there was no provision limiting the defendant in any way from increasing the premium to any level they chose, subject to the right of the plaintiff not to accept renewal on the terms offered, and to re-tender. Had they been required to provide cover for the first year at the original rates, and knowing as we now do the amount of claims made that year, it is not fanciful to assume that the defendant would have sought, by a sufficient increase in premium, to recoup what they had lost. On the authorities to which Mr Bleach has drawn my attention, not least the recent Hong Kong case of Samsung Hong Kong Ltd v Keen Time Trading [1999] 2 HKC 447, I accept that I am entitled to assume that the defendant would have performed the contract in the way least onerous to himself and least beneficial to the other party. I have no precise evidence of what they would have asked by way of premium, the best being that of Mr Peter Iu who says he would have expected the renewal to have been not less than $9.19 million for 1994 and $11.09 million for 1995. This, in my view, is insufficient to make an assessment which would necessarily produce a figure less than that paid to Manulife, and I would accordingly have awarded nothing for the second and third years.

40. For the reasons given above the plaintiff's claim will be dismissed and judgment given for the defendant by way of a declaration that the contract of insurance between them and the plaintiff was null and void and of no effect. The defendant has also claimed damages in the counterclaim. This has not been quantified, nor any specific loss pleaded, other than the expenses of these proceedings, which can be compensated by an appropriate order for costs. There will therefore also be an order nisi that the plaintiff pay the defendant the costs of this action to be taxed.