SIU YIN KWAN AND ANOTHER v. EASTERN INSURANCE CO. LTD.

Civil Appeal No 90 1992

Headnote

    Policy of Insurance for the purposes of Part IV of the Employees' Compensation Ordinance (Cap 282) - retroactive effect - insurable interest - application of the doctrine of the unnamed and undisclosed principal - effect of the Life Assurance Act 1774 - avoidance of policy for breach of condition - rights of employees to sue insurers direct. Mark Rowlands v Berni Inns Ltd [1986] 1 QB 211 not followed.

    The Court of Appeal, by a majority, upheld the judgment of Keith J dismissing claims against insurers, held to have issued a policy covering the liability of employers' agents, by the personal representatives of the members of the crew of barquentine "Osprey" who, during the height of typhoon "Ellen", had perished at sea.

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J U D G M E N T

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Kempster, JA:

Factual and Legislative Background

1. On or about 9 September 1983 typhoon "Ellen" struck Hong Kong and one of the casualties was the barquentine "Osprey" which sank at sea. Among the members of the crew who lost their lives were Chan Ying Lung and Sae Heng Hai (alias Wang Poa Tsing). In due course their dependents and personal representatives were awarded both compensation pursuant to the Employees' Compensation ordinace (Cap 282) and damages for negligence at common law against Axelson Co Ltd ("Axelson"); the owners of the vessel and the employers of the two deceased. On 21 July 1986 an order was made for Axelson to be wound up.

2. By writ issued on 19 January 1988 the personal representatives, relying on s 2(1)(b) of the Third Parties (Rights against Insurers) Ordinance (Cap 273) and ss 43(1) and 44 of Part IV of the Employees' Compensation Ordinance, sought to recover from Eastern Insurance Co Ltd ("Eastern") under a policy to which I shall shortly refer the several sums for which awards and judgment had been made and entered_. in their favour. Eastern had disclaimed liability under the policy on 6 November 1984. On 8 April 1992 Keith J dismissed the claim. Against his judgment and order the personal representatives appeal to this court. Eastern, by Respondent's Notice, contend that the judgment should be upheld on further or alternative grounds not relied upon by the judge. Having regard to the terms of the Notices and of concessions made before us fewer matters are presently in issue than fell for determination at trial.

3. Sections 40(1) - which defines "a policy of insurance for the purposes of this- Part" - 40(2), 42, 43(1) ; and (4) and 44 of the Employees' Compensation Ordinance read as follows:

    "40(1) No employer shall employ any employee in any employment unless there is in force in relation to such employee a policy of insurance issued by an insurer for the full amount of the liability of the employer under this Ordinance and independently of this Ordinance for any injury to such employee by accident arising out of and in the course of his employment.

        (2)      An employer who contravene subsection (1) commits an offence and is liable -

        (a)      on conviction upon indictment of a fine of $50,000 and to imprisonment for 2 years; and

        (b)      on summary conviction to a fine of $20,000 and to imprisonment for 1 year.

42     Any condition in a policy of insurance issued for the purposes of this Part providing that no liability shall arise under the policy, or that any liability so arising shall cease, in the event of some specified thing being done or omitted to be done after the happening of the accident giving rise to a claim under the policy, shall be of no effect upon the claim made by an employee under section 44 ... "

43(1)     Subject to this section, where in relation to an employee there is in force a policy of insurance for the purposes of this Part and the employer of the employee becomes liable to pay any sum under this Ordinance or independently of this Ordinance in respect of an injury to the employee arising out of and in the course of his employment, such sum shall forthwith become due and payable by the insurer, including any sum payable in respect of interest and costs, notwithstanding anything to the contrary in the policy of insurance.

....

    (4)      Where any sum is paid by the insurer which would, were it not for the provisions of this section, not be payable under the policy of insurance, such sum shall be recoverable by the insurer from the employer.

44     Every policy of insurance issued for the purposes of this Part shall be deemed to provide that any employee or other person having a claim against the person insured in respect of the liability in regard to which such policy was issued shall be entitled to recover in his own name, as though he were a party to the policy, directly from the insurer any amount which he would have been entitled to recover from the person insured."

Application of the Undisclosed and Unnamed Principal Doctrine

4. Policy of insurance No ME-83/10204 dated 27 June 1983 and issued by Eastern covered "the insured" against statutory and other claims arising from injury by accident or disease sustained by members of the crew of the "Osprey" and, by endorsement, from prospective liability under the as yet inoperative Part IV. "The insured" was expressed to be Richstone Industries Co Ltd ("Richstone") carrying on the business of "shipping" and a proposal signed by them without qualification and dated 21 June was to be the basis of the contract. Although Keith J found that Axelson were Richstone's unnamed and undisclosed principals he went on to hold that this conclusion was not sustainable as against Eastern having regard to the express and implied terms of the policy.

5. As was stated by Lord Denning MR in Teheran-Europe Co Ltd v S.T. Belton (Tractors) Ltd [1968] 2 QB 545 at p 552:

"It is a well-established rule of English law that an undisclosed principal can sue and be sued upon a contract, even though his name and even his existence is undisclosed, save in those cases when the terms of the contract expressly or impliedly confine it to the parties to it. This rule is an anomaly, but is justified by business convenience. It has been held so for many years."

In that case a contract for the supply of machinery had been "signed by agents" in their own name without qualification.

"They did not add the words 'as agents for' or 'for and on behalf of' or any of the phrases which exclude personal liability."

The doctrine was expressed in somewhat different language by

Diplock LJ at p 555:

"In determining who is entitled to sue or liable to be sued on a contract, a useful starting point, where the contract is in writing, is to look at the contract. In doing so a number of elementary principles should be borne in mind. The first is that a person may enter into a contract through an agent whom he has actually authorised to enter into the contract on his behalf or whom he has led the other party to believe he has so authorised. But we are concerned here only with actual authority. Where an agent has such actual authority and enters into a contract with another party intending to do so on behalf of his principal, it matters not whether he discloses to the other party the identity of his principal, or even that he is contracting on behalf of the principal at all, if the other party is willing or leads the agent to believe that he is willing to treat as a party to the contract anyone on whose behalf the agent may have been authorised the contract. In the case of an ordinary commercial contract such willingness of the other party may be assumed by the agent unless either the other party manifests his unwillingness or there are other circumstances which should lead the agent to realise that the other party was not so willing."

Unwillingness may be made manifest by the terms of the contract as a matter of construction.

6. In the instant case Richstone were authorised by Axelson to enter into a contract of insurance as principals or as agents and the judge held that, although Eastern did not know that Richstone were not the employers of the crew, the actual identity of the employers was not material to the risk. He went on to say "Eastern would have been content to insure the employer of the crew of the 'Osprey' whoever it was provided it was satisfied with the answers given in boxes 6 and 7 of the proposal form." Richstone had hot condescended to answer the questions posed in either box but Eastern issued the policy nonetheless.

7. The certificate issued by Eastern on 27 June 1983 described Richstone as "the employers" under the policy. But this document, while evidence of Eastern's understanding of the proposal and of the risk which they had undertaken in consideration of the premium paid, had no contractual significance.

8. The judge found, in effect, that it was an implied term and the basis of the contract of insurance that Richstone were the employers. The proposal form which, save as just described, they completed was supplied by Eastern and is therefore to be construed contra proferentem. On the other hand Richstone were bound to show uberrima fides in their answers. Box 7 posed the question "Has'any proposal for an insurance in respect of your liability to your employees or renewal thereof ever been declined or withdrawn or cancelled?". Box 8 read "State the total wages paid to and particulars of accident to your employees incidental to their occupation during the last three years." In Schedule A Richstone was asked to state "the total amount of wages, salaries and other earnings paid by me/us to the above-mentioned employees ("Ship's crew") during the past 12 months ... ". It was followed by the question "Do you wish insure (sic) your liability under the Workmen's Compensation Ordinance to the employees of sub-contractors?". Schedule B asked for details of "All employees not within the scope of the Ordinance for whom the employer desires to secure benefits as though they were 'workmen' as defined in the Ordinance" and "The total amount of wages, salaries and other earnings paid by me/us to the above-mentioned employees during the past 12 months ...". Later on particulars of "The total amount of wages, salaries and other earnings paid by me/us to employees " not within the scope of the Ordinance were sought. Under "Payment of Medical Expenses" the question "Do you require insure (sic) your liability to cover the payment of medical expenses as provided under the Workmen's Compensation (Amendment) (No 2) Ordinance 1977" was posed. The form concluded, over Richstone's signature, as follows:

"I/we the undersigned this 21st day of June 1983 desire to effect an insurance in terms of the Policy to be issued by Eastern ... against my/our Statutory and Common Law Liability ... . I/we hereby declare that all statements and particulars herein where (sic) I/we have read over and checked are true and that I/we have not suppressed, misrepresented or misstated any material fact, that I/we have fairly estimated my/our total wages, salaries or other earnings and that I/we agree that this declaration shall be the basis of the contract between me/us and Eastern ... "  

9. Turning to the policy itself, it read:

"Whereas the Insured carrying on the Business described in the Schedule and no other for the purpose of this insurance by a proposal and declaration which shall be the basis of this contract and is deemed to be incorporated herein has applied to the Company for the insurance hereinafter contained and has paid or agreed to pay the Premium as consideration for such insurance Now This Policy Witnesseth that if any employee in the Insured's immediate service shall sustain bodily injury by accident or disease caused during the Period of Insurance and arising out of and in the course of his employment by the Insured in the Business The Company will subject to the Jurisdiction Clause and the Others (sic) Terms, Exceptions and Conditions contained herein or endorsed hereon (all of which and hereinafter collectively referred to as the Terms of this policy) indemnify the Insured against liability at law (including liability under the Legislation set out in the Schedule) to pay compensation and claimant's costs and expenses in respect of such injury and will in addition pay all costs and expenses incurred with its written consent ... Provided Always that in the event of any change in the Legislation or the substitution of other legislation therefor this Policy shall remain in force but the liability of the Company in respect of the Insured's liability under such Legislation shall be limited to such sums as the Company would have been liable to pay if the Legislation had remained unaltered ... "

The latter words were not relied upon by Eastern. In the Schedule Richstone were specifically named as "the insured" carrying on the business of "shipping" and the legislation in respect of which cover was provided defined as "Employees' Compensation Ordinance, Workmen's Compensation (Amendment) Ordinance 1980". By endorsement EME O271, made and taking effect on 1 July 1983, "Employees' Compensation Ordinance, Employees' Compensation (Amendment) Ordinance 1982" were substituted in consideration of the payment of an additional premium. The latter ordinance included what is now Part IV.

The conditions of the policy included:

"l. This Policy and the Schedule shall be read together as one contract and any word or expression to which a specific meaning has been attached in any part of this Policy or of the Schedule shall bear such specific meaning whenever it may appear.

2. The due observance and fulfilment of the terms of this Policy insofar as they relate to anything to be done or not to be done by the insured and the truth of the statements and answers in the proposal shall be conditions precedent to any liability of the Company to make any payment under this Policy...

6. No admission offer promise of payment shall be made by or on behalf of the Insured without the written consent of the Company which shall be entitled if it so desires to take over and conduct in his name the defence or settlement of any claim or to prosecute in his name for his own benefit any claim for indemnity or damages or otherwise and shall have full discretion in the conduct of any proceedings and in the settlement of any claim and the Insured shall give all such information and assistance as the company may require.

...

8. The first premium and all renewal premiums that may be accepted are to be regulated by the amount of salaries and wages and other earnings paid by the Insured to employees during each Period of Insurance. The name of every employee together with the amount of salary wages and other earnings shall be properly recorded and the Insured shall at all times allow the Company to inspect such records and shall supply the Company with a correct account of all such salaries wages and other earnings paid during any Period of Insurance within one month from the expiry date of such Period of Insurance. If the amount so paid shall differ from the amount on which premium has been paid the difference in premium shall be met by a further proportionate payment to the Company or by a refund by the Company as the case may be." "The Company" is Eastern.

10. The endorsement of 1 July 1983 was prompted by a circular letter sent by Eastern to Richstone, among others, which stated the effect of s 40:

"As from 1 January 1984 all employers will be required to insure the liabilities imposed upon them. Failure to do so could result in a fine of up to $15,000 and imprisonment for up to two years."

I am satisfied that the endorsement was intended to and did cover "the insured" against any liability that might arise under the Employees' Compensation ordinance including Part IV. By Legal Notice 107 of 1983 the Employees' Compensation (Amendment) Ordinance 1982 had commenced on 1 July 1983 but s 37 provided that the operation of Part IV should be suspended until publication of a further notice. That Notice (285 of 1983) was dated 23 August 1983 and brought Part IV into effect on 1 January 1984.

11. Mr Thomas; QC, for the plaintiffs, cited a number of authorities in support of his contention that Axelson were entitled to claim, as against Eastern, that they were Richstone's principals despite the terms and specified words of the policy of insurance. One was Fred Drughorn Ltd v Rederiaktiebolaget Transatlantic [1919] AC 203 in which it was held by the House of Lords that the description in a charter-party of one of the contracting parties as "charterer" did not of itself designate him as the only person who could claim to answer that description. At pp 206 and 207 Viscount Haldane said:

"... evidence of authority of an outside principal is not admissible, if to give such evidence would be to contradict some term in the contract itself. ... I see no reason to question that where you have the description of a person as the owner of a property, and it is a term of the contract that he should contract as owner of that property, you cannot show that another person is the real owner. That is not a question of agency - that is a question of property. ... A charterer may be and in prima facie is merely entering into a contract. A charter-party is not a lease - it  is a chattel that is being dealt with, a chattel that is essentially a mere subject of contract; and although rights of ownership or rights akin to ownership may be given under it prima^-facie it is a contract for the hiring or use of the vessel. Under these circumstances it is in accordance with ordinary business common-sense and custom that charterers should be able to contract as agents for undisclosed principals who may come in and take the benefit of the charter-party"

At p 209 Lord Sumner expressed the principle thus

"Unless this contract is read as stipulating that Lundgren charters for himself only, the appellants fail. I think it cannot be so read. It states that Lundgren charters, and so he does; but it does not say that he is not chartering for others, and if that is what he has done in fact the law allows them to prove it."

In Murnhv v Rae [1967] NZLR 103 at p 109 Moller J, referring to the judgment of Lord Haldane in Fred Drughorn Ltd v Rederiaktiebolaget Transatlantic held that the intervention of an unnamed and undisclosed principal was precluded:

"... where a person is described in a written contract as the 'owner' or 'proprietor' of property, and where it is a term of the contract that he should contract as 'owner' or 'proprietor' of that property."

Whether or not Axelson may come in as principals to the contract of insurance concluded between Richstone and Eastern despite any specific description attached to Richstone such as "the insured" or, implicitly, "the employers", I accept that had Richstone been described as "the owners" of "Osprey" that would have been decisive in excluding evidence of the existence of any undisclosed and unnamed principal.

12. The judgment of Luxmoore J in Collins v Associated Greyhound Race-courses Ltd [1930] 1 Ch 1 at pp 18 and 19, upheld in the Court of Appeal, is in point:

"Now, what are the rights of an undisclosed principal in respect of a contract where the agency is unknown to the other party? The rights, I think, are accurately stated in Sir F. Pollock's Principles of Contract, 9th ed., p 108. He says:

'When a party contracts with an agent whom he does not know to be an agent, the undisclosed principal is generally bound by the contract and entitled to enforce it as well as the agent with whom the contract is made in the first instance.'

But there are important limitations to this rule. The learned author points out a little lower down on the same page that the rule does not apply where the agent for an undisclosed principal contracts in such terms as import that he is the real and only principal. In such a case the principal cannot afterwards sue on the contract; ... In the present case the contract results from the acceptance of the application for shares signed by Mr H.C. Mason and Captain Spencer Ovington, and it is an application for shares on the terms of the prospectus and of the memorandum and articles of association of the company. The articles of association of the company contain the usual provisions that the company shall be entitled to treat the registered holder of any shares as the absolute owner thereof ... In addition to this, in accepting a particular application, the company is from the very nature of the transaction entitled to consider the personality of the applicant before deciding to accept the application, and on both these grounds I think the application itself imports that it is made by Mr Mason and Captain Spencer Ovington as the real and only principals. I am, therefore, of the opinion that the plaintiff would be unable to sue on the contract between the company and Mr H.C. Mason and Captain Spencer Ovington ... "

The personality of the proposer apart these observations may well be thought to apply mutatis mutandis to Richstone's proposal for a policy of insurance.

13. The judgment of McNair J in Finzel, Berry & Co v Eastcheap Dried Fruit Co [1962] 1 Lloyd's Rep 370 at p 375 is on all fours with that of Luxmoore J:

"It is clear law today that a person who has concluded a contract in his own name may prove by parol evidence that he was acting for an undisclosed principal unless he has contracted in such terms as to show that he was the real and only principal ... "

14. In Dawsons Ltd v Bonnin [1922] 2 AC 413 at pp 431 and 432 Viscount Cave considered the meaning of the expression:

    "which proposal shall be the basis of this contract and be held as incorporated therein".

He found that:

"The basis of a thing is that upon which it stands, and on the failure of which it falls; and when a document consisting partly of statements of fact and partly of undertakings for the future is made the basis of a contract of insurance, this must (I think) mean that the document is to be the very foundation of the contract, so that if the statements of fact are untrue or the promissory statements are not carried out, the risk does not attach."

The speech of Viscount Haldane at p 425 was to like effect:

"... it appears to me that when answers, ... are declared to be the basis of the contract this can only mean that their truth is made a condition exact fulfilment of which is rendered by stipulation foundational to its enforceability."

15. In my opinion the terms of the proposal as completed are consistent only with Richstone and no other being the insured. It would be inconsistent with the basis and, a fortiori, the terms of the policy comprising that proposal for Axelsoh to be allowed to intervene. I would uphold the finding of Keith J in this regard.

The Application of the Life Assurance Act 1774

16. Section 2 of the Life Assurance Act 1774, applicable to Hong Kong by s 4 of the Application of English Law Ordinance (Cap 88), reads:

"And ... it shall not be lawful to make any policy or policies on the life or lives of any person or persons or any other event or events without inserting in such policy or policies the person's name or names interested therein or for whose use benefit or on whose account such policy is so made or underwrote."

It is helpful to relate this provision to the terms of ss 1 and 4:

"1. From and after the passing of this Act no insurance shall be made by any person or persons, bodies politick or corporate, on the life or lives of any person or persons, or on any other event or events whatsoever, wherein the person or persons for whose use, benefit, or on whose account such policy or policies shall be made, shall have no interest, or by way of gaming or wagering; and that every assurance made contrary to the true and intent meaning hereof shall be null and void to all intents and purposes whatsoever.

4. Provided always that nothing herein contained shall extend or be construed to extend to insurances bona fide made by any person or persons on ships, goods, or merchandises, but every such insurance shall be as valid and effective in the law as if this Act had not been made".

17. The preamble to this Act "for regulating insurances upon Lives and for prohibiting all such insurances except in cases where the Persons insuring shall have an interest in the Life or Death of the Persons insured" reads:

"... it hath been found by experience that the making insurances on lives or other events wherein the assured shall hath no interest hath introduced a mischievous kind of gaming."

18. The learned judge felt able to dismiss the terms of s 2 from further consideration on the authority of the judgment of Kerr LJ in Mark Rowlands Ltd v Berni Inns Ltd [1986] 1 QB 211 at p 227:

"... this ancient statute was not intended to apply and does not apply, to indemnity insurance, but only to insurances which provide for the payment of a specified sum upon the happening of an insured event."

Nonetheless, at p 226, he emphasised the necessity for an insurable interest and s 1 of the 1774 Act also applies to insurance "... on the life or lives of any person or persons, or on any other event or events whatsoever ... ". Further, the finding of Kerr LJ could have been "obiter" as he made plain on p 228:

"... this does not decide the real issue between the parties. This is whether the terms of the lease, and the full indemnification of the plaintiff by its receipt of the insurance moneys, preclude it from recovering damages in negligence from the defendant, or whether the plaintiff's right to recover such damages remains unaffected."

Also obiter, in In re King, decd [1963] 1 Ch 459 at p 485, Lord Denning MR had said:

"You must remember that when you take out a policy of fire insurance of a building (as distinct from goods), you must insert in the policy the names of all the persons interested therein, or for whose benefit it is made. No person can recover thereon unless he is named therein, and then only to the extent of his interest. That is clear from the Life Assurance Act 1774, ... ss 2, 3 and 4, which by its very terms applies to 'any other event' as well: as life."

The terms of s 4 have always allowed ample scope for the application of the general law on undisclosed principals.

19. Of the authorities relied upon by Kerr LJ Dalby v India and London Life-Assurance Co (1854) 15 CB 365 shows that insurances on lives and other events in which the insured have no interest are null and void; as s 1 of the of Park B giving guidance on the construction of s 2. In Tattersall v Drysdale [1935] 2 KB 174 at p 181, Goddard J found no more than that s 36(4) of the Road traffic Act 1930 was effective to override s 2 of the 1774 Act. Section 36(4) provides:

"Notwithstanding anything in any enactment, a person issuing a policy of insurance under this section shall be liable to indemnify the persons or classes of persons specified in the policy in respect of any liability which the policy purports to cover in the case of those persons or classes of persons".

Section 148(7) of the Road Traffic Act 1988 and s 6(2) of the Motor Vehicles Insurance (Third Party Risks) Ordinance (Cap 272) are in similar terms. Such provisions suggest that legislators in England and Hong Kong have regarded s 2 of the 1774 Act as applicable to indemnity assurance. In my view that section provides another ground precluding the admission of Axelson as undisclosed principals under the policy. The Act, as presently in force, requires that all persons interested and having an insurable interest in a policy made on the outcome of events which do not relate to "ships, goods or merchandises" are to be identified in that policy.

20. If I am right so far Axelson had no rights as against Eastern and the plaintiffs can be in no better position under the Third Parties (Rights against Insurers) Ordinance or, subject to Mr Thomas's alternative argument, the Employees' Compensation Ordinance. Further, no policy of insurance for the purposes of Part IV was at any material time in force within the meaning of s 43(1) of the latter

Ordinance while Axelson were not persons insured within the meaning of s 44.

Insurer's Liability to Employees other than Those of Their Insured

21. The alternative argument, advanced on the hypothesis that Richstone are found sole principals to the policy of insurance, is that under Part IV employees injured in the course of their employment are entitled to proceed against any insurer of their employer's liabilities to them albeit that person is not himself their employer. The first problem arising is whether anyone but the employer or, by reason of s 24(1), the "principal contractor", would have an insurable interest. Section 24(1) reads:

"Where any person (in this section referred to as the principal contractor), in the course of or for the purposes of his trade or business, contracts with a sub-contractor for the execution of by or under sub-contractor of the whole or any part of any work undertaken by the principal contractor, the principal contractor shall be liable to pay to any employee employed by that sub-contractor or by any other sub-contractor in the execution of the work any compensation under this Ordinance which the principal contractor would have been liable to pay if that employee had been immediately employed by him; and where compensation is claimed from or proceedings are taken against the principal contractor, then, in the application of this Ordinance, references to the principal contractor shall be substituted for references to the employer, except that the amount of any compensation calculated by reference to earnings shall be calculated by reference to the earnings of the employee under the employer by whom he is immediately employed."

The second difficulty is that, presuming the monies payable by the insurer pursuant to s 43 to be directly recoverable by the employee, his remedy would seem to arise only against the insurer of his employer or of his employer's principal contractor. Any other construction is incompatible with the terms of s 43(4) which, if Eastern had paid the plaintiffs, would entitle them to recover the sum in question not from Richstone but from Axelson with whom, ex hypothesi, they had no contractual relationship. Section 40, it seems to me, positively requires only an employer to insure against liabilities to employees. Thus only a policy covering his liability is in force "for the purpose of this Part" and in s 43 "insurer" can only mean "the employer's insurer". Sections 43 and 44 must, I think, be read together. Again it would be strange if s 44 gave an employee a right against an insurer other than the insurer of his employer. The employee would not have been entitled to recover anything from a person insured who was neither his employer nor a principal contractor and, again, only the employer's policy would have been issued "for the purposes of this Part". Even assuming insurable interest I am unable to accept the alternative argument.

Insurer's Claims to avoid the Policy

22. In paragraph 15of the Re-Reamended Defence Eastern plead that Richstone's proposal and declaration contained an untrue statement in that a figure of HK$200,000 was estimated for annual wages, salaries and other earnings of the crew whereas, in fact, those outgoings amounted to HK$315,720. The judge found Richstone's estimate inaccurate and reckless so as to entitle Eastern to avoid liability under the policy.

23. Not only is it difficult to regard an estimate as inaccurate but there was uncontradicted evidence that Mr Pak of Richstone had asked Mr Wu of Eastern if it was acceptable for him to put down the estimate given by the shipowner, being HK$200,000, and that Mr Chu had answered that the premium payable under the policy would be adjusted from the records which Richstone were required to keep pursuant to clause 8 of the conditions of the policy. What is more the figure of $315,720, said by Eastern to be the total for annual wages, salaries and other earnings of the crew properly to be estimated as at 9 September 1983, fails to take into account the fact that when the proposal was signed on 21 June only a proportion of the crew involved in the casualty had been engaged and, while it was anticipated that the number to be employed would be ten, it was uncertain whether that total could be maintained over a period of a year. I respectfully differ from the judge's conclusion that Eastern would be entitled to avoid the policy on this score as against Richstone, Axelson or the plaintiffs whether they relied on the Third Parties (Rights against Insurers) Ordinance or on the Employees' Compensation Ordinance. No more, I believe, could Eastern rely upon condition 6 of the policy and the accepted fact that solicitors acting both for Richstone and Axelson admitted liability to the plaintiffs in the District Court. As the judge rightly held this point would only be relevant were Axelson entitled to step in as undisclosed and unnamed principals and the admission would then in any event have been made with the authority of the insurers In claims under the Employees' Compensation Ordinance the breach of neither condition could have prevailed against the plaintiffs having regard to the terms of ss 43(1) and 42. Pacific Insurance Co Ltd v Wong Po-wah [1989] 2 HKLR 266 at p 267 per Lord Bridge. Further, the admission was made after Eastern's disclaimer of liability under the policy and, in consequence, they cannot complain of a subsequent breach by the insured. The words of Condition 6 are to be read as one. General Omnibus Co v London General Assurance Co (1932) LXVI IR LT Rep 96.

The Application of Part IV of the Employees' Compensation Ordinance

24. Finally comes a question with which the judge did not find it necessary to deal but is fundamental to the plaintiffs' cause of action under Part IV of the Employees' Compensation Ordinance namely whether they are entitled retroactively to rely, in relation to the tragic events of 9 September 1983, on legislation which came into effect only on 1 January 1984. That part, which provides employees with a new cause of action and markedly cuts down the defences available to an insurer as compared, for example, with those available when plaintiffs rely upon s 28(1) of the Employees' Compensation Ordinance or s 2(1)(b) of the Third Parties (Rights against Insurers) Ordinance, cannot be regarded as procedural. Accordingly the general principle that legislation is not to be construed as having effect prior to its commencement prima facie applies. A-G v Lee Kwong-kut Mag App No 90 of 1992 (unreported). Referring again to the wording of ss 24 and 43(1) the material times were those when the employer and the principal contractor became liable to pay to the employee any sum under the ordinance or the employer became so liable independently of it. They antedated 1 January 1984. That both may be sued was decided in Hip Hung Construction Co Ltd v Wong Leung-tak [1991] 2 HKLR 345.

25. As explained by this court in King Tak-on v Lau Chun-yip [1987] HKLR 126 at p 132 and Chan Kam v Standard Chartered Bank Hong Kong Trustee Ltd [1991] 2 HKLR 455 at p.459 the liability of the insurer arises at the same time as that of the employer and the principal contractor; being, under s 5 of the Ordinance, the date of the accident. The employer's and his insurer's common law liability in negligence arises when damage is sustained. While employer and insurer become liable to an employee simultaneously the insurer may have certain defences as against the employer which are not available against the employee. For this reason he is afforded relief by s 43(4). It matters not that awards under the Ordinance were not made until 29 November 1985 and judgment for common law damages not given until 20 November 1987; by which dates Part IV was in force. '

26. I would purposefully construe s 55(2) in accordance with s 19 of the Interpretation and General Clauses Ordinance (Cap 1), as if it read:

"Nothing in the Employee's Compensation (Amendment) Ordinance 1982 (76 of 1982) shall apply with respect to claims for compensation ... in respect of accidents happening before the commencement of that ordinance or of any Part thereof and the provisions of the ordinance in force immediately before the commencement of the ordinance or of any Part thereof shall continue to apply to such claims ... as if such provisions had not been repealed or amended by that Ordinance."

In the premises I am satisfied, even on the hypothesis that Axelson were "the insured" under the policy, that the plaintiffs are not entitled to invoke Part IV so as to make Eastern liable to them under its provisions.

Conclusion

27. I would dismiss this appeal and make an order nisi that the defendants do have the costs save for those related to the multiplication of the documents found in bundles 1 and 2 prepared for this appeal which should not be taxable, inter parties or between solicitor and client, by any party.

Sir Derek Cons, V-P:

28. I agree with the judgment of my Lord and the orders he proposes.

29. I would like only to add that in my view the lack of an insurable interest would prove equally fatal to the "alternative argument".

30. The learned editors of MacGillivray and Parkington on Insurance Law, 8th ed., at para. 45, suggest as a working definition of that interest:

"Where the assured is so situated that the happening of the event on which the insurance money is to become payable would, as a proximate cause, involve the assured ... in any legal liability there is an insurable interest in the happening of that event ...

Injury to or the death of one of the crew of the Osprey would not have involved Richstone in any legal liability, so that the policy would have been "null and void to all interests and purposes" by reason of s. 1 of the Life Assurance Act 1774 and would not have been "in force" for the purpose of s. 43(1) of the Employees' Compensation Ordinance.

31. Indeed the difficulty of envisaging circumstances in which any third party, other than a principal   contractor, could have an apprppriate interest, further militates against the construction that Mr. Thomas seeks to put upon the section.

Litton, J.A.:

Introduction

32. The plaintiffs (appellants) are the personal representatives of the estates of crew members of the sailing vessel "Osprey" which sank in a typhoon in September 1983. The crew members were employed by Axelson Co. Ltd. ("Axelson") who were adjudged liable to pay compensation and damages to the estates of the crew members as a result of the casualty. However, Axelson went into liquidation in July 1986 and none of the sums were paid.

33. The plaintiffs' primary cause of action in the court below against Eastern Insurance Co. Ltd. ("Eastern") was under s.2(1) of the Third Parties (Rights Against Insurers) Ordinance Cap. 273, or alternatively, though not pleaded, under section 28(1) of the Employees' Compensation Ordinance Cap. 282, on the basis that the employer's liability was indemnified by the insurers and the rights of the employer against the insurers have been transferred to and vested in the employees' estates pursuant to those two statutes. In such proceedings, the insurers were entitled to raise all the defences against the plaintiffs as they could have done if they had been sued by the insured himself.

34. The plaintiffs have also an alternative cause of action. They say that under the provisions of Part IV of the Employees' Compensation Ordinance they are entitled to be paid the sums claimed regardless of (i) who took out the insurance (ii) whether the insurers were entitled to avoid the policy or not and (iii) whether there were breaches of conditions of the policy subsequent to the casualty.

35. I turn first of all to the plaintiffs' first cause of action, where they step into the shoes of the employers in their action against the insurers.

The Policy

36. We are concerned with the proper construction of the insurance policy dated 27 June 1983 issued by Eastern. The contract comprises three sets of papers:

(i)     The proposal form, a printed form in English and Chinese provided  by Eastern;

(ii)     The policy itself; and

(iii)     The endorsements.

37. By the policy Eastern undertook to "indemnify the Insured against liability at law (including liability under the Legislation set out in the Schedule)" and to pay compensation in respect of injury to the employees in the Insured's immediate service arising out of and in the course of employment. The "Legislation set out in the Schedule" is the Employees' Compensation (Amendment) Ordinance 1982 referred to in Endorsement No. EME-0271. This endorsement stated that, in consideration of the payment of an additional premium, the reference in the policy to the old Workmen's Compensation (Amendment) Ordinance 1980 was deleted and replaced by a reference to the new Ordinance as from 1 July 1983.

38. What the parties had clearly bargained for was liability insurance. The risk which Eastern assumed was the risk of the employer of the crew on board the "Osprey" incurring liability to the crew : liability which, to the knowledge of the parties, was required to be insured during the currency of the policy under the new legislation.

39. So much is common ground. What Eastern says, in effect, is that the ostensible purpose of the insurance was not achieved. Although the reason for the insurance and the consideration for the premium was to indemnify the employer of the crew, no such indemnity was in fact given by the policy. Richstone Industries Co. Ltd. ("Richstone"), the Insured, was not, they say, the employer; Axelson the actual employer was not the Insured. Hence, says Eastern, the plaintiffs fall between two stools. Their only liability was to return the premium to Richstone. Is this the legal effect of the bargain which the parties have made?

40. What has to be ascertained, at the end of the day, is the intention of the parties. This is to be gathered from the language of the documents itself, the subject-matter of the contract and the circumstances in existence at the time it was made.

Surrounding Circumstances

41. The proposer in the proposal form was Richstone whose managing director was Mr. Pak Chung King ("Mr. Pak"). The trial judge Keith J. found as a fact that from the beginning both the managing director of Eastern Mr. K.W. Tung and its manager Mr. Chu Yu Tung ("Mr. Chu") knew that Richstone were not ship-owners and that Richstone's business was that of shipping agency. Moreover, Mr. Chu had met a Mr. Kitagawa, the owners' representative. This was in Richstone's office, and Mr. Pak had asked Mr. Chu to explain to Mr. Kitagawa the requirement of insurance in Hong Kong. The judge did not find that Eastern knew the precise identity of the owner of the Osprey but he found as a fact that Mr. Chu knew that Richstone were only acting as agents for whoever were the owners of the Osprey.

42. In about May 1983 Mr. Chu sent to Richstone a printed circular which told Eastern's clients that:

    (a) the 1982 Ordinance had passed into law and would become effective on 1 July 1983, and

    (b) from 1 January 1984 all employers would be required to insure themselves against claims from their employees.

43. It was following this that the proposal form came to be signed. At that time, Eastern knew as a fact that Richstone were not the owners of the "Osprey". This finding of Keith J., well supported by the evidence, is not challenged on appeal. The judge also found as a fact that in making the proposal Richstone intended to do so as agent for Axelson, the owners of the vessel and employers of the crew.

44. At trial no witnesses were called on behalf of Eastern, so it is not clear whether Eastern had different forms for agents and principals or whether the form actually used was intended to serve all such purposes. On the first page of the proposal form there are 8 boxes to be filled in. Box 3 states :

    "3(a) Have you any circular saws or other machinery driven by steam gas, water, electricity or other mechanical power? If so, give full particulars.

    (b) Are your machinery plant and ways (sic) properly fenced and guarded and otherwise in good order and condition?"

The answer given by Richstone in answer to 3(a) was:

"One 320 bhp diesel engine

Two 40 bhp diesel generator"

In the light of the knowledge of both parties at the time, this answer could only have made sense if Richstone was putting the proposal forward on behalf of the owner of the Osprey. The "you" in box 3 could not possibly have referred to Richstone personally. By their answer Richstone could not possibly have meant, nor been understood by Eastern to mean, that they had a 320 bhp diesel engine etc.

45. At trial, and again before us on appeal, counsel for the parties have subjected the proposal form to a microscopic examination. It is highly improbable that the parties themselves (that is, Mr. Pak on behalf of Richstone and Mr. Chu on behalf of Eastern) approached the matter in the same way. As the judge found, the policy was taken out following the owners' express instructions to do so, to cover their liability under the new law, and Mr. Pak intended "despite the formal language of the proposal form" (as the judge found) to complete it for Richstone in Richstone's capacity as Axelson's agent.

46. In the light of these findings, the vital question as it appears to me is this : Must Eastern have necessarily concluded, by looking at the proposal form submitted, that Richstone were by the proposal form seeking an indemnity for their own liability as "employers" rather than an indemnity to cover the owners' liability as employers?

47. No evidence was called at the trial that shipping agents, as a matter of practice, employed the crew of a vessel as principals, nor, for that matter, was there evidence to the contrary. But, as a matter of common-sense, it would seen odd for shipping agents to put themselves forward as employers thereby making themselves personally liable for the wages of the crew and for severance pay and other incidents of employment. What conceivable benefit could agents obtain by acting in this way?

The Trial Judge's Conclusion

48. The judge having examined closely the circumstances surrounding the making of the contract, concluded thus:

"I do not think that the actual identity of the employer was material to the risk. Eastern would have been content to insure the employer of the crew of the "Osprey", whoever it was, provided that it was satisfied with the answers given in boxes 6 and 7 of the proposal form".

Boxes 6 and 7 of the proposal form, referred to in the passage of the judgment quoted above, are in these terms:

"6. Are you at present insured or have you ever proposed for an insurance in respect of your liability to your employees? If so, please give the name of the company or companies.

7(a) Has any proposal for an insurance in respect of your liability to your employees, or renewal thereof, ever been declined or withdrawn or cancelled?

(b)    Has any increase in premium been required? If so, in what years and how much?"

49. These two boxes were left blank, unanswered.

50. Given these facts, it is difficult to see how it can be concluded that Richstone had positively warranted that, though not the owners of the Osprey, they were nevertheless the employers of the crew. The proposal form did not, in terms, asked the proposer : Are you the employer of the employees? The judge however reached his conclusion because he found that it was "plainly assumed" that the proposer was the employer. He made this finding because, in various sections of the proposal form, the proposer was required to give particulars of "your" employee and there were details of wages "paid by me/us"; the insurance was to insure the proposer against "my/our statutory and common law liability". But, in my judgment, this assumption can only be correct if, at the time when the parties entered into the contract, the possibility that Richstone might have been putting the proposal forward as agents for the owners of the Osprey and the employers of the crew was necessarily excluded. Upon the whole of the judge's findings, it is difficult to see how such a conclusion can be correct. The form itself was equivocal: an instance of this is provided in relation to box 3(a) above. If, as regards Richstone's reply concerning machinery, it could never have been properly understood by Eastern that Richstone represented that the machinery belonged to them, why must Richstone be taken as having answered for themselves, and not for the owners, when they gave the particulars of the wages of the employees in the proposal form?

Undisclosed Principal

51. On the findings made by the judge, the position is as follows:

(a) When Eastern contracted with Richstone, Eastern did not know that Richstone was entering into the transaction on behalf of Axelson, seeking an indemnity for Axelson's liability as employers of the crew. But, in my judgment, that possibility clearly existed.

(b) Richstone in fact intended to contract on behalf of Axelson and had Axelson's express instructions to do so. The judge's findings in this regard are not challenged.

(c) Eastern intended to insure the employer of the crew of the Osprey, whoever that was. The actual identity of the employer, as the judge found, was not material to the risk.

52. Under these circumstances would Axelson have been entitled to step in as the undisclosed principal and claim the benefit of the contract?

53. The judge, citing Bowstead on Agency 15 ed. Art. 79, stated the law correctly thus:

"An undisclosed principal may sue .... on any contract made on his behalf .... by his agent acting within the scope of his authority .... But [that right] ..... may be excluded if inconsistent with the terms of the contract, express or implied".

54. The question then boils down to this : Did the proposal form and the policy (with the endorsements), looked at as a whole, indicate that Richstone had warranted that they were the real and only principal? For only in this way could Axelson's right to sue Eastern be excluded as being inconsistent with the contract. This question cannot be answered by looking at the written words alone, isolated from the matrix of facts surrounding the transactions. Given the whole of the circumstances as I have summarized above, the conclusion seems to me compelling that there was nothing inconsistent with the contract, either express or implied, for Axelson to be the real and only principa1, the party intended to be indemnified by the policy.

55. The judge, in his full and pains-taking judgment, thought that the proposal form "plainly assumed that the proposer was the employer". This "assumption" is based on the answers in the proposal form, but the judge, as it seems to me, gave the references to "your" employees etc. in the form far too much weight, and failed to consider the possible ambiguities in the form. Once it is accepted that the parties anticipated that the form might be filled in by an agent, the answers given in the form must then be construed in that light.

56. In my judgment, the judge was in error in this regard.

Life Assurance Act 1774 : Section 2

57. This statute, enacted in the reign of the Emperor Qianlong, is difficult to construe in the context of modern-day Hong Kong. Section 2 states:

"2. And.... it shall not be lawful to make any policy .... on the life.... of any person.... or other event or events without inserting in such policy.... the person's name interested therein or for whose use benefit or on whose account such policy is so made or underwrote."

58. Eastern relies upon this section to avoid liability on the policy. The argument runs thus : In so far as it is alleged on behalf of the plaintiffs that the policy was for the benefit of Axelson, based upon the event of injury to the employees, the policy is void because Axelson's name is not inserted in such policy; section 2 refers to policies on lives or other events, without any limitation as to the particular events in question. The death of an employee is an event. So why should section 2 not apply in the circumstance of this case?

59. No historical research has been conducted by counsel into the question whether, in England in 1774,"there were liability insurance policies offered by insurers in the market. Perhaps the material is not available in Hong Kong to undertake such a research. In the leading textbook on insurance law, MacGillivray and Parkington 8th edition p.11 there is a footnote to the effect that the Act is sometimes known as the Gambling Act. This is probably because of s.1 of the Act which aims to prohibit "gaming and wagering" by persons having no interest in the life or lives, or event or events, insured. As the authors of MacGillivray and Parkington commented:

"The Life Assurance Act 1774 was .... intended ... to prohibit wagering under the cloak of a mercantile document which purported to be a contract of insurance".

Thus, valued policies based upon the happening of particular events in which the insured has no interest would clearly come within the scope of the Act. But, in my judgment, indemnity insurance, which seeks to hold an insured harmless in the event of his incurring liability to third parties, would not. There is no element of "windfall profit" in the latter. This was clearly the view formed by Kerr Li in Mark Rowlands Ltd. v. Berni Inns Ltd. & Others (1986) Q.B. 211 at 277 E-F where he said:

"In my view..... this ancient statute was not intended to apply, and does not apply, to indemnity insurance but only to insurances which provide for the payment of a specified sum upon the happening of an insured event. I think that this is supported by the long title of the Act and in Halsbury's Statutes of England, 3rd edn., Vol. 17 p.827, it is pointed out that this Act is also known as the Gambling Act 1774".

60. It was submitted by counsel on behalf of Eastern that in enacting the Motor Vehicles Insurance (Third Party Risks) Ordinance, Cap. 272, Section 6(2), where the words "notwithstanding anything in any law" appear, the legislature must have had in mind the application of the 1774 Act to indemnity insurance : Section 6(2) of Cap. 272 dealt of course specifically with indemnity insurance. In my view, this is not by any means an express adoption by the legislature of this ancient statute. It is as consistent with the situation of a careful draftsman using wide language to cover all eventualities, as law draftsmen are prone to do. When it has not even been shown that indemnity insurance existed in the market in 1774, it seems a bold thing to say that those words "other event or events" in section 2 of this ancient statute must necessarily apply to indemnity insurance : particularly when, in concept, a valued policy on the life of a stranger or the happening of an event unconnected with the proposer is a very different thing from an indemnity policy.

61. In any case, it seems to me that section 58(a) of the Insurance Company Ordinance is a complete and separate answer to the point. It says:

"58(a)(i)     Section 2 of the Life Assurance Act 1774 (policy on life or lives or other event or events not valid unless the name or names of assured etc. inserted when policy is made) shall not invalidate a policy for the benefit of a named person from time to time falling within a specified class or description if the class or description is stated in the policy with sufficient particularity to make it possible to establish the identity of all persons who at any given time are entitled to benefit under the policy.

(ii)     This section applies to policies effected before the commencement of the Insurance Companies (Amendment) Ordinance 1985 as well as to policies effected thereafter."

62. Here, by the endorsement to the policy, the person intended to be benefited was clearly the employer of the crew of the Osprey : no one else could have incurred liability to compensate the crew under the Ordinance. The "class or description" of the beneficiary is stated with utmost clarity. The judge, in my view, was plainly correct when he said:

"Although Axelson was not named in the policy, it fell within a clearly identifiable description, namely, the employer of the crew of the Osprey."

Section 28(1) Employees Compensation Ordinance

63. It follows from the above that Axelson, through the agency of Richstone, had entered into a contract with Eastern in respect of their liability to the employees. Under section 28(1) of the Ordinance, in the event of Axelson being wound up, Axelson's rights against Eastern as respect that liability is transferred to and become vested in the employees.

64. The provisions of section 2(1) of the Third Party's (Right Against Insurers) Ordinance Cap. 273 are to the same effect.

65. Subject to Eastern's rights to avoid the policy or repudiate liability, upon grounds which they could have invoked against the insured, the plaintiffs must succeed in their claims. It is to these "defences" which I now turn.

Misrepresentation of Identity of Employer

66. The judge found that Richstone misrepresented that it was the employer of the crew. The foundation of this finding was "the assumption" on which the proposal form was based, namely, that the proposer was the employer of the employees to be covered. For the reasons which I have set out above, in my view this "assumption" is unsound. Moreover, given the finding of the judge that the "actual identity of the employer" was not material to the risk and that Eastern would have been content to insure the employer of the crew whoever it was, it is difficult to see how it could then be concluded that there was material misrepresentation. A representation that does not affect the mind of the representee cannot be a misrepresentation.

67. The judge thought that the case of Dawsons Ltd. v. Bonnin (1922) 2 AC 413 compelled the conclusion that Richstone's statement in the proposal form, that it was the employer of the crew, was "a condition of the liability of Eastern" - whether that assertion was material or not. In my view, Dawsons Ltd. v. Bonnin is distinguishable from the circumstances of this case. In Dawsons Ltd. v. Bonnin there was a specific question put to the proposer as to where the vehicle in question would be garaged and the answer was plainly misleading. Here, there was no specific question put to Richstone as to whether it was the employer of the crew of the Osprey : as the judge found, there was an - "assumption" that Richstone was the employer : an assumption which, if Eastern had cared to reflect upon the matter, might have been right or wrong. I have stated above, nothing in the evidence indicated that shipping agents would normally put themselves in the position of being the employers of the crew; common-sense would indicate that the reverse might be the case. I would add here in parenthesis that in Gilbert Browning v. The Provincial Insurance Co. of Canada (1873) 5 PC at 272, there is a statement to the effect that in England policies are usually made in the name of the insurance broker.

68. In my judgment the judge's conclusion that Dawsons Ltd. v. Bonnin compelled the conclusion that Eastern was entitled to avoid the policy, whether the assertion was material to the risk or not is unsound.

Misrepresentation of Wages Bill

69. The unchallenged evidence before the trial judge was to this effect : the Osprey, being a tall-masted sailing vessel, was not much favoured by seamen seeking employment. There was a rapid turnover of crew. The employment of the vessel was irregular. Moreover, the owner had it in mind to sell the vessel. In these circumstances, it could not have been an easy matter to estimate what the prospective annual wages bill of the crew might have been, at the time when the proposal form-was submitted in June 1983.

70. In box 8 of the proposal form, Richstone had put a figure of $200,000 as wages paid to the employees for the 12 months ending 31 December 1982. It is not alleged by Eastern that this was in any way a misrepresentation. For the two years before that, the form gave the figures of $180,000 and $150,000. It is not alleged that these figures misrepresented the position either. What the judge found was that when Richstone went on to give an estimate of the annual wages of $200,000 for the period of the insurance commencing 26 June 1983, this was a reckless statement. In my judgment, this finding is not sustainable on the evidence.

71. The policy, by condition 8, clearly envisaged an adjustment of the premium with reference to the actual wages and other earnings paid by the insured to the employees during the period of insurance. Condition 8 gave Eastern the right to inspect the records of the insured. Further, the judge found as a fact that Mr. Chu had told Mr. Pak that the premium would be adjusted at the end of the year to reflect the actual wages paid. This, objectively viewed, must have conveyed to the mind of a reasonable and prudent proposer the impression that the parties envisaged a considerable amount of tolerance in the estimate of the wages bill.

72. The fact which led the judge to find that the estimate was reckless is this : For the five months prior to June 1983 (the month in which Mr. Pak completed the proposal form) Richstone had sought reimbursement for the crews' wages from the owner amounting to $154,080 and for food amounting to $94,398 (though some of the food was not for the crew but for guests). This led the judge to conclude that the estimate of $200,000 for the whole year was reckless. What the judge failed to take into account was this : On the evidence, the employment of Osprey was irregular; there was no guarantee that the employment of the vessel for the five months preceding June 1983 was a true reflection of how the vessel would be employed for the twelve months to come. There was even a possibility that, during the period of insurance, the Osprey might be sold.

73. At the time when the proposal form was completed, many of the crew members subsequently lost had not signed on. The estimate of $200,000 was supplied by Mr. Kitagawa, who might reasonably have been relied upon to know the intentions of the owners regarding the employment of the Osprey. Mr. Kitagawa told Mr. Pak that the owners' budget was $200,000.

74. The judge criticised Mr. Pak for having made no "investigation" into the matter. Mr. Pak admitted as much. However, since the vessel sank in early September, and no evidence was adduced as to how the vessel might have been employed for the remainder of the insurance period, no one could in fact say that Mr. Pak's estimate was wrong. In my judgment the finding that Mr. Chu had recklessly misrepresented the identity of the employment, and thus entitled Eastern to repudiate liability, cannot be sustained.

Admission of Liability

75. In their cross-appeal Eastern argued that the judge was wrong in failing to give effect to condition 6 of the policy which enabled them to avoid liability because the solicitor acting for the insured, on 22 May 1985, admitted liability on behalf of Richstone. The admission itself came about in this way. In September 1984, about a year after the casualty, the present plaintiffs started proceedings in the District Court for employees' compensation and Richstone was named as the respondent to the claim. However, Richstone was described as the authorised agent of Axelson. It was at a hearing before Judge Li in those proceedings that the admission was made. Nothing in fact resulted from the admission because Eastern objected to Judge Li entering judgment against Richstone on the basis of the admission and, instead, gave leave to Eastern to take part in the trial on the issue as to who was the true employer at the date of the accident, ordering that Richstone be the first respondent in those proceedings, Axelson the second respondent and Eastern the third respondent. Ultimately, those proceedings reached a final conclusion by the Court of Appeal holding that the crew had been employed by Axelson alone.

76. The judge, in the court below, dealt with the point in this way. (i) He held, rightly, that the point would only be relevant if the insured were in fact Axelson (and not Richstone), since in that event Eastern would, prima facie, be obliged to indemnified the employer, and (ii) since the admission was made on behalf of Richstone, who was not the employer, the admission could not have been a breach of condition 6.

77. I doubt whether, on the facts found by the judge, this was the right approach. He found that, at the material time, the solicitor was in fact acting for both Richstone and Axelson and, arguably, the admission might be said to have been made on behalf of both. However, the point is academic because, in my judgment, there is another answer to it. The "no admission" provision in condition 6 does not exist in a vacuum : the prohibition bites in the context of something that prejudices the position of the insurer before he elects whether or not to take over the conduct of the assured's defence. Clause 6 says:

"No admission..... shall be made by or on behalf of the Insured without the written consent of the company which shall be entitled of it is so desires to take over and conduct in his name the defence or settlement of any claim .... and shall have full discretion in the conduct of any proceedings and in the settlement of any claim and the Insured shall give all such information and assistance as the company may require."

78. The purpose of the prohibition is to preserve the position of Eastern, to enable Eastern to elect whether to take over the conduct of the defence in the name of the insured. However, once Eastern repudiates liability and asserts that they have no interest to be protected, then, as a matter of proper construction of condition 6, the insured must be free to conduct the defence in any way they wish. They obviously cannot expect Eastern to blow hot and cold, to be interested in any settlement which they might wish to make with the claimants when Eastern has already said they repudiated liability.

79. Here, on 6 November 1984, Eastern by their solicitors' letter of that date disclaimed liability under the policy. In my judgment, having taken this course it was not open to Eastern to complain that the insured had made admissions or sought to compromise their liability with the claimants.

80. Similar circumstances arose in a case in the United States Court of Appeal, 5th Circuit, Stevens v. State Farm Mutual Automobile Insurance Co. (1975) 508 F2nd. 1363 where the judge held that there had been_-a waiver of the prohibition. At 1366 the judge said:

"the rationale behind holding to this particular waiver theory is that a claimant should not be required to approach his insurer, hat in hand, and request consent to settle with another when he has already been told, in essence, that the insurer is not concerned, and he is to go his way. It is difficult to see why an insurer should be allowed, on the one hand, to deny liability and thus, in the eyes of the insured, breach his contract, and at the same time, on the other hand, be allowed to insist that the insured honour all his contractual commitments. When the denied liability does not, in fact, exist, no harm can be done the insurer by the insured's settlement with a third party."

81. I think that this construction of Condition 6 is correct and I would therefore uphold the judge in this regard, albeit for different reasons.

Part IV of Cap. 282

82. At the hearing before us, Mr. Thomas argued as his first point that the plaintiffs are entitled under Part IV. of the ordinance to be paid the sums claimed regardless of who took out the insurance. The argument, as I understand, runs thus:

(a) Part IV of the Ordinance does not oblige the employer to take out an insurance to cover his employees' liability; it merely prohibits, by section 40, an employer from employing an employee unless there is in force in relation to such employee a policy of insurance issued for the purposes of Part IV.

(b) Section 43 provides that the insurer shall pay the compensation and damages to the employees , if his employer (not necessarily the person who took out the insurance) becomes liable.

(c) Thus, even if Richstone were in law the insured and not Axelson, the plaintiffs can still recover against Eastern.

83. I now turn to consider this argument. Under the Ordinance, the way by which the direct right of suit is given to the claimant is by "deeming" him an immediate party to the policy. Section 44 says:

"Every policy of insurance issued for the purposes of this Part shall be deemed to provide that any employee or other person having a claim against the person insured in respect of the liability in regard to which such policy was issued shall be entitled to recover in his own name, as though he were a party to the policy, directly from the insurer any amount he would have been entitled to recover from the person insured."

84. As can be seen, the entitlement is to recover from the insurers the amount that the claimant would have been entitled to recover from the person insured.

85. So I ask rhetorically this : if "the person insured" were not the employer of the claimant, how could the claimant's entitlement to recover anything from the insured possibly arise? In my view, there is no answer to this, and it demonstrates the unsoundness of the argument.

86. Further, where an insurer has paid out sums to the claimant which, but for the provisions of Part IV would not have been payable under the policy of the insurance, such sums are recoverable from the employer : section 43(4). This could only work if the insured and the employer were the same person. Given this statutory scheme I do not think it is possible to construe Part IV in the broad terms suggested by Mr. Thomas.

Conclusion

87. For the reasons given above, I would allow the appeal and order that the sums which Axelson was adjudged liable to pay to the claimants be paid by Eastern, together with interest and costs.