AXA GENERAL INSURANCE HONG KONG LTD v. LAI HOO CHEUNG

HCMP 5644/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 5644 OF 2001

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J U D G M E N T

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1. The plaintiff's claim against the defendant ("the insured") in this action is for a declaration that the plaintiff is entitled to avoid Motor Insurance Policy No. 40113618(10)VVP-0001/01 ("the first Policy") and Policy No. 43204322(10)VVP-0001/01 ("the second Policy") issued by the plaintiff to the defendant on 18 April 1998 and 18 March 1999 respectively. The declaration is sought on the ground that, apart from any provision contained in the policies, they were obtained by the non-disclosure of a material fact or facts and/or by representations of fact which were false in some material particular.

2. The non-disclosure in connection with the insured's proposal of 20 March 1998 concerning Mercedes Benz E320 registration no. CN8918 is set out in the Originating Summons. The plaintiff relies on the non-disclosure of :

(i)	the fact that the insured had suffered a stroke and partial paralysis of his right side and suffered from physical infirmity.
(ii)	the fact that the vehicle in question had been or was required to be modified in accordance with the Transport Department requirements to suit the insured's disability or infirmity.
(iii)	the fact that the licence details or copy licence of the insured provided to the plaintiff with the insured's proposal was no longer current and had been cancelled by the Transport Department because of the insured's physical infirmity.
(iv)	the fact that the insured did not, at the material time of making the proposal, have a current licence, was precluded from obtaining a full licence and was required to first obtain a learner's licence for use with a modified car.

3. The plaintiff also relies on the failure of the insured to disclose the above facts or any of them to the plaintiff at any time during the period of insurance from March 1998 to May 2000 and in particular, at or about the time of renewal of the first policy on or about 20 March 1999.

Background

4. In mid-1997, the insured through an agent that he had previously relied on namely, the 1st Third Party, Michael Chan ("Chan") ordered 2 private cars, a Merceded Benz E320 and a BMW Roadster. Apart from being a car salesman, Chan was also working as the sub-agent of the 2nd Third Party, Sime Managing Agency Limited ("Sime").

5. Sime was the appointed insurance agent of, inter alia, the plaintiff.

6. In February 1996 the insured suffered a stroke and the right side of his body was at the material time and is still visibly paralysed.

7. In March 1998 both vehicles were available for delivery. Chan helped the insured arrange financing and motor insurance of the vehicles before the insured took delivery of the same.

8. On the insured's case, various documents were presented by Chan to the insured during a home visit in March 1998 for signature including the proposal forms for motor insurance. These were Sime's forms. The insured signed the same in blank, according to him. At that stage it was not known which insurers would insure the vehicles. It later transpired that the plaintiff insured the Mercedes Benz and another insurance company insured the BMW.

9. The plaintiff's policy was the first policy and this commenced from 20 March 1998 to 19 March 1999. This was for the insurance of the Mercedes Benz E320 with registration no. CN8918. This was renewed by the plaintiff for the period from 20 March 1999 to 19 March 2000. This is the second policy. It appears that the only documents given to the plaintiff by the insured before the renewal of the policy were the renewal slip, which was not signed by the insured, and a cheque for payment of the premium.

10. On 10 December 1999 the insured's vehicle CN8918 was involved in a serious traffic accident when driven by the insured. The vehicle collided with three pedestrians who were on a pavement.

11. After a lengthy period of investigation the plaintiff, through its then solicitors, formally disclaimed liability to indemnify the insured in respect of any claim under the renewed policy. This was done by letter from the insured's then solicitors Messrs Paul C.K. Tang & Co, dated 7 August 2000 addressed to the insured's then solicitors. The plaintiff sought to avoid the policy on the ground of material non-disclosure and misrepresentation and failure to provide information on the part of the insured.

12. It was alleged by the solicitors for the plaintiff that in support of the proposal for insurance under the first policy a copy of the insured's driving licence issued on 20 November 1995, which was valid until 19 November 1998, was submitted. On 24 October 1997 the Transport Department cancelled the then existing driving licence of the insured because he had suffered a stroke which affected the right side of his body. He was requested by the Transport Department to take another driving test because of his infirmity. A new learner's licence was issued.

13. On 20 March 1998 the insured acquired the vehicle registration no. CN8918 through Chan. A motor vehicle insurance proposal form was submitted to the plaintiff. The space opposite to the question as to whether the vehicle was modified in any way was left blank on the form. The answer to the question as to whether any driver suffered from defective vision or hearing or any physical infirmity was "nil". A copy of the insured's driving licence issued on 20 November 1995 valid until 19 November 1998 was submitted. The new driving licence obtained after his stroke was not submitted.

14. On 4 May 1998 the Transport Department issued a vehicle modification examination certificate to the insured for the modification of the vehicle registration no. CN8918. The plaintiff as insurer had no knowledge of this.

15. On 26 January 1999 the insured obtained a driving licence from the Transport Department and the licence is valid until 25 January 2009. It is indicated there that the insured suffers from infirmity. On 20 March 1999 the first policy was renewed.

16. The plaintiff's case is that the insured failed to disclose that the earlier driving licence was no longer valid, that he had suffered a stroke and had physical infirmity, that the vehicle had been modified, and that he had obtained a new driving licence on 26 January 1999 before the renewal of the policy. For the above reasons, the plaintiff disclaimed liability under the policy.

17. On 24 July 2001, one of the injured persons in the accident which took place on 10 December 1999 namely, Madam Liu Kwai Fong commenced High Court Personal Injuries Action No 611 of 2001 against the insured. Notice was given to the plaintiff under Section 10(2)(a) of the Motor Vehicles (Third Party Risks) Ordinance, Cap. 272 ("the Ordinance").

18. As the plaintiff had disclaimed liability to the insured under the policy, the insured by its then solicitors by letter dated 6 August 2001 addressed to the plaintiff gave notice to refer a dispute to arbitration under the policy in accordance with the provisions of the policy. Thus by the said notice the insured referred the dispute to arbitration.

19. On 22 October 2001 the plaintiff brought these proceedings by Originating Summons ("OS") for a declaration under Section 10(3) of the Ordinance. Section 10(3) provides that :

“ No sum shall be payable by an insurer under the foregoing provisions of this section, if, in an action commenced before, or within three months after, the commencement of the proceedings in which the judgment was given, he has obtained a declaration that, apart from any provision contained in the policy, he is entitled to avoid it on the ground that it was obtained by the non-disclosure of a material fact, or by a representation of fact which was false in some material particular, or, if he has avoided the policy on that ground, that he was entitled so to do apart from any provisions contained in it :

Provided that an insurer who has obtained such a declaration as aforesaid in an action shall not thereby become entitled to the benefit of this subsection as respects any judgment obtained in proceedings commenced before the commencement of that action, unless before or within 7 days after the commencement of that action he has given notice thereof to the person who is the plaintiff in the said proceedings specifying the non-disclosure or false representation on which he proposes to rely, and any person to whom notice of such an action is so given shall be entitled, if he thinks fit, to be made a party thereto."

20. Personal Injuries Action No. 611 of 2001 was settled upon entry of the consent order dated 16 July 2002. Under the consent order the insured had to pay damages to the plaintiff in that action in the sum of $1.05 million. He was later ordered to pay costs in the certified sum of $511,649.50. The insured has himself paid the damages in the sum of $1.05 million to the plaintiff in that action. The costs in the sum of $511,649.50 has been paid by the Motor Insurers' Bureau.

The application

21. The insured applies for leave to amend his defence and to add his counterclaim in the terms as annexed to his summons dated 20 May 2003. No objection is taken to the application for leave to amend but the plaintiff strenuously objects to the application for leave to add the counterclaim. Had the insured added a counterclaim at the time he filed and served his defence he would have been entitled to do so without leave (O.15; r.2(1) RHC). However, the insured did not do so. His defence was filed and served on 16 October 2002. It was only on 20 May 2003 by the issue of the summons that the insured sought leave to amend his defence and to add his counterclaim. There is no dispute that he requires the leave of the Court to do so.

22. By its counterclaim the insured claims a declaration that the first policy and the second policy are valid and subsisting.

23. Alternatively, he claims for an indemnity against loss and damage suffered by him as particularized in para. 46 of the counterclaim. He asserts that the plaintiff is liable to indemnify him against all losses and damage by reason of the acts, omissions and misrepresentations on the part of Sime and/or Chan as particularized in paras. 19A, 28 and 29A of the amended defence. Essentially, the insured's case is that when asking the insured to sign the proposal form for insurance of the vehicle all the insured needed to do, as advised by Chan, was to sign at the places on the documents as indicated by Chan leaving Chan to fill in the particulars later on for the insured. It is also asserted that implicit in Chan's advice was the representation that he would exercise due care in filling out, inter alia, the proposal form for insurance and that he would only fill out answers which were true to the best of his knowledge. In reliance on the representation, the insured allowed Chan to fill in the proposal form without checking the details.

24. It is asserted that Chan knew that the insured had suffered a stroke and that he would not be able to drive the new cars unless they were modified to suit his physical condition. As regards the second policy, the insured did not sign the renewal form but did pay the premium for renewal. It is asserted also that in the proposal form dated 20 March 1998 Chan failed to answer accurately or at all whether the vehicle had been modified and inaccurately stated that the insured did not suffer from any physical infirmity. Thus it is asserted that the representation made by Chan to the insured was false in a material particular as he did not exercise due care to complete the proposal form or fill out answers which were true to the best of his knowledge. If there were material non-disclosure and/or misrepresentation, the insured asserts that the same was caused by breach of duty owed to the plaintiff by Sime and/or Chan as insurance agents. Hence it is alleged that the plaintiff is vicariously responsible for the breaches of its agents. Additionally, it is asserted that the plaintiff was in breach of its duties to the insured by failing to ensure compliance by its appointed insurance agents with the Code of Practice for the Administration of Insurance Agents as particularized.

25. The counterclaim sought to be added against the plaintiff is in addition to the third party claim brought by the insured against Sime and Chan.

26. It was Mr. Yau's submission that by instituting the proceedings for a declaration under Section 10(3) there was a representation made by the plaintiff by conduct. The representation, Mr. Yau elaborated, was that by commencing these proceedings the plaintiff by conduct represented that it no longer intended to rely on arbitration as the means of resolving the dispute between it and the insured at all or at least, in relation to the grounds to which these proceedings relate and the arbitration agreement under the policy is to that extent inoperative.

27. Mr. Bartlett submitted that there was no question of their being any such representation as alleged or at all. The plaintiff was obliged to bring an action for a declaration under section 10(3). That being so, the institution of these proceedings was not an election or a waiver of the arbitration agreement.

28. It is clear that under section 10(3) the plaintiff must bring an action for the purposes of obtaining the declaration. The words "in an action commenced" in section 10(3) refer to an action in the Courts and not arbitration (para. 17 Vol. 37 Halsbury's Laws of England 4th Edn). Mr. Yau accepted that the statutory scheme in section 10(3) envisaged that an action in the Courts be brought for the obtaining of the declaration. I am satisfied that the declaration under section 10(3) can only be obtained in an action and not in an arbitration.

29. The plaintiff's case is that there could be no waiver of arbitration or representation by conduct as alleged. Mr. Bartlett made it plain that should the insured bring a separate action for the matters complained of as set out in the proposed counterclaim the plaintiff would apply for a stay of the proceedings under section 6 of the Arbitration Ordinance, Cap 341. Art 8 UNCITRAL Model Law states as follows:

“ A court before which an action is brought in a matter which is the subject of an arbitration agreement shall, if a party so requests not later than when submitting his first statement on the substance of the dispute, refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed."

30. It is neither desirable nor necessary for me to express a view as to whether an application for stay of the separate action or counterclaim would succeed. That is to be determined at the time the application for stay is to be heard. I am concerned with whether or not I ought to grant leave to the insured to serve his counterclaim at this late stage. There is no dispute that the insured requires leave to add his counterclaim to the amended defence.

31. Mr. Bartlett submitted that the insured should be left to bring a separate action for the matters complained of in the counterclaim rather than for the Court to give leave to him to add his counterclaim to the amended defence. He submitted that the application is made at a late stage in these proceedings. Despite directions given on 26 May 2003, the insured failed to file evidence or set the application down for hearing and only did so in mid-September 2003 after pressure from the plaintiff's solicitors. The plaintiff was pressing for the OS to be set down for trial. At the checklist hearing on 17 September 2003 the insured had still not filed witness statements in breach of prior orders. It was then that the insured indicated that the application would be revived resulting in a further delay of the trial of the OS.

32. I accept that there has been delay on the part of the insured first in bringing this application and secondly, in pursuing the application. Delay is a factor to be taken into account in the exercise of my discretion. No satisfactory evidence has been adduced to explain the reason for the delay first in taking out this application in May 2003 and then failing to file evidence in accordance with the master's directions given on 26 May 2003 and the delay in proceeding with the application until it was later revived when the plaintiff was pressing to get the OS set down for trial.

33. Mr. Bartlett submitted that the plaintiff would suffer prejudice by being delayed in the trial of the OS if the counterclaim were added at this late stage. There will be some delay by the amendment to the defence but I accept that there would inevitably be some further delay in the trial of the OS if the counterclaim were added. I am satisfied that there would be prejudice to the plaintiff if the counterclaim were added at this late stage.

34. Mr. Bartlett submitted, correctly in my view, that the only matters that the plaintiff could raise in these proceedings under section 10(3) are questions of material non-disclosure and misrepresentation. The plaintiff intends to rely on the arbitration agreement in respect of other grounds to disclaim liability under the policy. There are other grounds relied on, one of which is the insured's failure to co-operate under the policy. The arbitration proceedings, Mr. Bartlett submitted, were still on foot. It was, however, Mr. Yau's submission that the arbitration was no longer operative because of the alleged representation by conduct on the part of the plaintiff by the bringing of these proceedings. It is neither necessary nor desirable for me to express a view on this as this will be determined on any application for stay of proceedings under the Arbitration Ordinance.

35. As I have said, there would be prejudice to the plaintiff if I were to give leave to the insured to add the counterclaim. I see no prejudice to the insured if he were to institute a separate action for the matters complained of save for incurring more costs.

36. In the circumstances, it seems to me that leave to add the counterclaim should be refused and the insured should be left to bring a separate action. There is nothing to stop him from doing so and he does not require leave to so. Once the separate action is brought, the plaintiff would then, as I have been emphatically told, take out an application to stay the same under the Arbitration Ordinance. The insured has already referred the dispute to arbitration and the matter can be fully argued on the application for stay with the relevant evidence as to whether or not the separate action ought to be stayed or whether there has been waiver by the plaintiff to proceed to arbitration. If the plaintiff were to succeed in the application for stay, then the matters, other than the disputes in the OS, would be dealt with by arbitration. If the insured should succeed in resisting the stay application, pleadings will have to be served in the other action. The Court would then be in a better position, after pleadings have been served, to see if there should be a consolidation of the separate action with these proceedings.

37. In the exercise of my discretion, I give leave to the insured to amend his defence in the terms as annexed to the summons but refuse leave to the insured to add his counterclaim to the amended defence. Leave is given to the insured to file and serve the amended defence within 7 days from to-day. Leave is given to the plaintiff to file and serve its amended reply, if any, within 14 days thereafter.

38. I also make an order nisi that the insured should pay the plaintiff its costs of and occasioned by the amendment to the defence and the costs of the application in any event.