CHINA (HK) CHEMICAL & PLASTICS CO. LTD. v. CHINA INSURANCE CO. LTD.

1997, No.CL19

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL LIST

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J U D G M E N T

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1. By a summons dated 8th July 1997, the Plaintiff herein applied for interlocutory judgment in this action against the Defendant. An underestimate of the time required for argument, together with the exigencies of the Court diary, have meant that the resolution of this matter has taken longer than should have been the case, a situation which is particularly regrettable in an Order 14 application in which, in theory at least, the stuff of the dispute is susceptible to accurate and speedy resolution.

THE FACTS

2. The factual matrix is in short compass. The Plaintiff was the FOB buyer of a cargo of resin from a Taiwanese vendor, payment for which was to be made by Letter of Credit. By a contract dated 3rd February 1995, the Plaintiff agreed to onsell this cargo to a PRC buyer, with payment again to be made by Letter of Credit.

3. The Defendant is the Plaintiff's insurer. Pursuant to an Open Cover policy issued to the Plaintiff by the Defendant on 13th February 1995 (albeit dated 9th February 1995), the Defendant covered the shipment of the resin from Taiwan to Hong Kong on board the "Excelsior Luck", and from Hong Kong to China on board the vessel "Hang Chun". Transhipment in Hong Kong took place on the afternoon of 13th February 1995, but upon completion of the loading process the "Hang Shun" unfortunately capsized and sank, taking the cargo of resin with it to the bottom of the harbour.

4. The Defendant refused to pay the Plaintiff's claim under the policy, and this litigation is the result. The Plaintiff's summary judgment application was issued - in the circumstances it might be thought somewhat ambitiously - some three weeks after the pleadings were completed (the Plaintiff's Reply and Defence to Counterclaim having been filed on 18th June 1997), and Mr Hsieh, who argued the case persuasively and with clarity, now asks for summary judgment on liability, with damages and interest thereon to be assessed.

THE ARGUMENTS

5. On the basis of the pleadings and in light of the evidence filed in the application by both sides, Mr Hsieh identified four principal "purported" defences to the Plaintiff's claim, none of which, he confidently asserted, withstood detailed scrutiny; indeed, the only possible triable issues involved matters going to quantum only, which he asked to be separately assessed, and he submitted that the existence of such matters should not deter the Court from giving judgment on liability alone. For the purposes of this application only, Mr Hsieh recognised forensic realities and made it clear that the Plaintiff proceeded upon the basis that it was prepared to accept the primary facts averred in the Defendant's pleading and affidavits; accordingly, his submissions were made, where necessary, in the context of such assumed facts.

6. Mr Kat, appearing on behalf of the Defendant, disagreed that this was a suitable case for summary judgment, and in the course of a lengthy and helpful address he submitted that the present application should be dismissed with costs. Mr Kat maintained that each of the specific issues identified by Mr Hsieh - that of material non-disclosure (paragraph 2, Defence and Counterclaim), the Plaintiff's lack of insurable interest (paragraph 4), the prejudice to the Defendant's right of subrogation (paragraph 9) and breach of the Institute Classification Clause (paragraph 11) - represented clear and obvious triable issues.

7. Of all the arguments in this case, perhaps the central argument within this application revolved around the issue of material non-disclosure. The thrust of the Defendant's case under this head was that the Plaintiff was in breach of its duty of utmost good faith in failing to disclose the fact of the loss of 28 containers of the cargo, at about 0540 hrs on 13th February 1995, notwithstanding that at about 9.30 am on that morning the relevant Marine Insurance Application form had been faxed by the Plaintiff to the Defendant, and that later in the afternoon of that day a Policy Schedule (backdated to 9th February) for the cargo on board the "Excelsior Luck" and a Policy Endorsement for the "Hang Shun" had been issued to the Plaintiff by the Defendant. In these circumstances, maintained Mr Kat, such non-disclosure gave the Defendant the right to avoid the policy; an obligation to disclose the loss clearly arose upon the submission, on 13th February, of the Proposal for this cargo, and any argument to the contrary was at variance with both principle and commercial reality.

8. For his part Mr Hsieh accepted, for the purposes of the present argument, the factual premise that when the policy was issued in the afternoon of 13th February 1995 that the loss had already occurred, and that the Plaintiff did indeed know of the situation. However, he asserted that in an Open Cover situation wherein the insurer has bound itself to accept all declarations made by the assured, the assured is under no duty to disclose facts coming to his attention after the conclusion of the Open Cover; in such circumstances, the insurer has no discretion whether or not to accept such applications. Ergo, in the instant case, by virtue of Clauses 2 and 3 of the applicable Institute Standard Conditions for Cargo Contracts, the Plaintiff was bound to declare every shipment and the Defendant was bound to accept, so that the fact that the cargo had already been lost prior to the declaration was immaterial, and the conclusion that the Defendant was entitled to avoid the policy on this basis was wrong as a matter of law.

9. In the course of Counsel's submissions on the point a significant number of authorities were cited on behalf of both Plaintiff and Defendant. However, I have not been shown any authority directly on point, although in his Reply Mr Hsieh drew my attention to an article by an insurance adjuster (Goodacre, "Goodbye to the Memorandum") part of which appears to suggest that, since an underwriter is bound to accept all shipments coming within the scope of the Open Cover, the assured is in fact protected in the event that a declaration is not made until after a known loss has occurred.

10. In a nutshell, therefore, the short (and seductive) assertion is that the non-disclosure of the prior loss of the goods at the time of the declaration is, simply, immaterial; the issue can be determined solely as a matter of construction of the relevant policy, the issue having been rendered non-fact-sensitive by reason of the assumptions the Court was being asked to make. Despite Mr Hsieh's elegant and persuasive submissions, however, I find it difficult to accept his argument at face-value, in particular the primary assertion as to the lack of materiality, at the time of the declaration under the Open cover, of the prior loss of the cargo the very subject of the marine adventure which is being underwritten. Whether such resistance to Mr Hsieh's submission be a function of instinct or intellect is perhaps of little consequence; I am presently unpersuaded by the argument, at least from the standpoint of the entry of summary judgment. In my view, this is a fundamental issue which requires to go to trial; indeed, without wishing to anticipate events, before being in the position to decide this case in favour of the Plaintiff the Court could perhaps expect to receive expert evidence upon a number of matters arising. Insurance is essentially about the assumption of known risk, and when risk has crystallised into certainty, as here, I am not attracted, for present purposes, to the idea that the fact of such certainty is an irrelevant and immaterial matter not requiring disclosure at the time of the necessary declaration by the Plaintiff pursuant to the relevant policy provisions.

11. In light of my view as to the triable nature of this issue, I am disinclined to address the various other arguments at length, notwithstanding the considerable time which has been expended in argument thereon. I am particularly conscious of the observations of Litton JA in Man Earn Ltd. v. Wing Ting Fong [1996] 1 HKC 225 at 230, wherein the learned judge noted that, when the case is sent to trial,

" The defendant is, ... entitled to set up all the defences available to him legitimately to resist the plaintiff's claim : untrammelled by the judge's preliminary observations on the strength or weakness of his case."

12. For present purposes, therefore, suffice it to say that aspects of the remaining major areas of debate do, in my view, merit consideration at trial, and in my judgment such debate does not sit comfortably within an Order 14 framework. The issue of the Plaintiff's position in terms of its alleged lack of insurable interest in the cargo at the time of the casualty, the issue of knowledge in terms of the non-disclosure argument in the context of the Institute Classification Clause (the "Hang Shun" not being classed by the approved societies), and the alleged breaches of Clauses 16 and 18 of the Institute Cargo Clauses (involving, inter alia, the relationship between these clauses and the Plaintiff's alleged "failure" to present documents to, and obtain payment from, its Chinese buyer) seem to me eminently matters which it is desirable should also be fully ventilated in light of all the evidence. Nor, with respect, does it seem to me to be realistic simply to invite judgment on liability, as Mr Hsieh now does, with damages to be assessed, when that very assessment (which it is common ground remains to take place) involves consideration of some at least of these issues.

13. In reaching the conclusion that this matter is not suitable for summary judgment, I have, of course, been guided by the established principles, and in particular the trenchant observations of their Lordships in Man Earn Ltd. v. Wing Ting Fong, op.cit., regarding the invocation of summary procedures. In no sense could the Defence which has been put forward by the Defendant in this case be regarded as "frivolous and practically moonshine" (per Lord Lindley in Codd v. Delap (1905) LT 510 at 511, quoted with approval by Godfrey LJ in Man Earn, op.cit., at 228E), nor is it a sufficiently clear case within the meaning of Bingham LJ's observations in Crown House Engineering v. Amec Projects Ltd (1990) 6 Const LJ 141 at 154, cited with approval by Godfrey LJ in Man Earn, op.cit., at 228 :

"... Order 14 is for clear cases; that is, cases in which there is no serious material factual dispute and, if a legal issue, then no more than a crisp legal question as well decided summarily as otherwise. ... The procedure is entirely inappropriate where the plaintiff's entitlement to recover any sum is the subject of any serious dispute, whether of law or fact. ..."

14. For my part I also would wish to emphasise that it is essential that the principles relevant to Order 14 applications be rigorously applied, and notwithstanding Mr Hsieh's considerable efforts and the apparent logic of the arguments he has propounded in this application, the short point is that the issues raised in my view do not constitute the type of "crisp legal question" to which Bingham LJ there referred; indeed, the Lists and Supplemental Lists of Authorities put forward by both parties contain between the some 40 references to leading texts and cases, a significant number of which were cited upon various aspects during the argument.

15. At the end of the day, in the circumstances of this case I am particularly reminded of the words of Parker LJ in Home and Overseas Insurance Co Ltd v. Mentor Insurance Co (UK) Ltd (in liq) [1989] 3 All ER 74 at 77, with which, with respect, I am in complete agreement :-

" The purpose of Ord 14 is to enable a plaintiff to obtain a quick judgment where there is plainly no defence to the claim. If the defendant's only suggested defence is a point of law and the court can see at once that the point is misconceived the plaintiff is entitled to judgment. If at first sight the point appears to be arguable but with a relatively short argument can be shown to be plainly unsustainable the plaintiff is also entitled to judgment. But Ord 14 proceedings should not in my view be allowed to become a means for obtaining, in effect, an immediate trial of an action, which will be the case if the court lends itself to determining on Ord 14 applications points of law which may take hours or even days and the citation of many authorities before the court is in a position to arrive at a final decision." (emphasis added)

ORDER

16. After some reflection, I have come to the conclusion that the correct Order in this case is that the Plaintiff's application by summons dated 8th July 1997 be dismissed.

17. I make an Order nisi that the costs of and occasioned by this application be to the Defendant in any event, to be taxed if not agreed.

18. I thank Counsel for their considerable assistance.