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

HCA 480/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 480 OF 2009

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REASONS FOR RULING

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Introduction

1. This concerns the application of the plaintiff (“the Insured”) to expunge the following parts of the witness statements:

(a)  para 11 and 12, witness statement dated 24 January 2011;

(b)  para 6, 7 and 12, witness statement dated 16 May 2012 (insofar as para 12 repeats para 11 and 12 above).

(collectively “the offending parts”).  After hearing the parties, the offending parts were expunged.  Below are the reasons.

2. The Insured was the trader of round logs shipped from Southeast Asia to China.  The claim in this action (US$1.5 million, being the insured sum) arose out of an insurance policy issued by the 1^st defendant (“the Insurer”) through the 2^nd defendant (“the Broker”) in favour of the Insured.

3. The background leading to the above application has been set out in another “Reasons for Ruling” handed down today.  It is quoted below to assist the comprehension of this ruling:

“3. The main dispute between the Insured and the Insurer is whether the Insured has breached the terms of the policy, as a result of which the Insurer became entitled to avoid the policy. The relevant term being a condition that the vessel’s deadweight tonnage must be not less than 10,000. It has been called ‘the Purported Warranty’. For convenience, it will be so called below.

4. In the statement of claim, the Insured avers against the Insurer (among other things) that, as a matter of construction, the Purported Warranty was not part of the policy (para 8 and 9 thereof). Alternatively, it was mistakenly inserted by the Insurer and did not represent the true intention of the parties. Accordingly, the policy ought to be rectified by deleting the same (para 16 to 19 thereof). An estoppel is also pleaded (para 21 thereof).

5. As against the Broker, the Insured alleges a duty on the Broker’s part to ensure (among other things) that the shipped cargo was properly insured under a valid and enforceable policy (para 22 thereof), and that the Broker breached its contractual and/or tortuous duty in failing to discover the Purported Warranty (para 25 thereof).

6. The facts in support of the Broker’s alleged failure of duty include:

(a) the Insurer inserted the Purported Warranty without the Insured’s knowledge or consent (para 27(k) thereof);

(b) the Insurer and the Broker failed to alert the Insured to the insertion of the Purported Warranty (para 27(l) thereof).

7. In its defence, the Broker admits:

(1) Para 4 above (para 9, 16 and 18 thereof);

(2) Para 6(a) above (para 21(9) thereof);

(3) Para 6(b) above (para 21(10) thereof).

The Broker further avers that:

‘[the Insurer] was obliged, but failed, to alert [the Insured] to the fact that the Purported Warranty had been inserted into the Policy … ’ (para 21(10) thereof).

8. To understand the significance of the above averments, the following common grounds should be borne in mind:

(a) all the insurance dealings between the Insured and the Insurer were conducted through the Broker; the Insured and the Insurer never dealt directly with each other;

(b)  the terms of the policies including the Purported Warranty set out in subject cover note and policy were compiled by the Broker.”

4. Despite the above, the witness statements filed herein by the Broker contain the offending parts.  These are intended evidence to the effect that:

“… [the Insurer] stipulated that two warranty terms had to be added [including the Purported Warranty] … ” (para 11, witness statement dated 24 January 2011);

“… [the Broker] informed [the Insured] of the [Purported Warranty] and [the Insured] also accepted this insurance arrangement … ” (para 12, witness statement dated 24 January 2011);

“… [the Insurer] also said two warranties needed to be added [including the Purported Warranty] … ” (para 6, witness statement dated 16 May 2012);

“… I then telephoned [the Insured] … then told [the Insured] as follows: ‘But [the Insurer] needs to have two conditions [including the Purported Warranty]’ … ” (para 7, witness statement dated 16 May 2012);

“… I repeat [among other paragraphs, paragraphs 11 and 12] … ” (para 12, witness statement dated 16 May 2012).

5. The Insured objected to the Broker’s attempt to adduce evidence which is inconsistent with its own pleadings (an earlier application to amend the defence has been refused).

6. The Broker asserted that there is no inconsistency.  A comparison of the above averments and the offending parts shows that the assertion is wrong.

7. What the functions of a properly particuarlised pleading are is trite law:

“(1) to inform the other side of the nature of the case that they have to meet … ;

(2) to prevent the other side from being taken by surprise at the trial;

(3) to enable the other side to know with what evidence they ought to be prepared and to prepare for trial;

(4) to limit the generality of the pleadings, the claim and the evidence;

(5) to limit and define the issues to be tried, and as to which discovery is required;

(6) to tie the hands of the party so that he cannot without leave go into any matters not included … ” (emphasis supplied) (Hong Kong Civil Procedure 2012, Vol 1, para 18/12/1).

8. Thus, relevance of the evidence is not to be judged in a vacuum, but in the context of the issues raised by the pleadings. In the present context, matters admitted in the pleadings (and matters of common ground, being in the same nature) cannot be “relevant” in the sense referred to in para 7 above.

9. By virtue of the matters set out above, leaving aside the inconsistency, I also disagreed with the Broker’s argument that the offending parts are relevant evidence.  To avoid doubt, the conclusion reached in this application is limited to the dispute between the Insured and the Broker; it is not intended to also cover the dispute between the Insured and the Insurer.