KAM HING TRADING (HONG KONG) LTD v. THE PEOPLE'S INSURANCE CO OF CHINA (HONG KONG) LTD AND ANOTHER

HCA 1062/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1062 OF 2008

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REASONS FOR DECISION

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1.  This is an application for expert directions on liability.  It is a type of application which has created delays and unnecessary demand on court time since the Civil Justice Reform came into effect on 2 April 2009, principally because of the failure of parties to observe PD 5.2 to draft a proper set of directions.  It will thus be helpful to remember some of the basic concepts.

General Principles When Seeking Expert Directions

2.  To adduce expert evidence, a two-stage test has to be satisfied.  First, the evidence must be admissible as “expert evidence” for the purpose of section 58 of the Evidence Ordinance.  Second, the evidence must be relevant in the sense that it is helpful to the court in arriving at its decision on one or more of the issues to be resolved: Wong Hoi Fung v. American International Assurance Co. (Bermuda) Ltd [2002] 4 HKC 225.

3.  Where the proposed expert evidence is plainly inadmissible or irrelevant, the court ought to exercise its discretion to refuse the admission of such evidence.  But where the Court cannot form a clear view on the relevance of the proposed expert evidence or where it considered that the proposed evidence was clearly relevant, then it should grant leave for the evidence to be adduced at the trial: Wong Hoi Fung v. American International Assurance Co. (Bermuda) Ltd. above.

4.  Expert directions should be sought as early as possible, usually after the pleadings are closed, or as soon as possible after amendments to pleadings make it necessary to do so.  Such directions can thus be sought in the case management summons taken out under Order 25, rule 1(1B)(b) or in a summons specially taken out for that purpose (hereafter collectively called “the Summons”).  The purpose is to ensure that parties review their cases early, reveal the true nature of their evidence, reduce the scope of unnecessary evidence, and to ensure that experts are giving opinions on the same subject matter to assist the court.

5.  Accordingly, before taking out the Summons, the questions set out in section E of the timetabling questionnaire (and see paragraph 20 of Practice Direction 5.2) must be considered.  The parties should then set out the proposed expert directions in the Summons covering 4 main aspects:

(i) The field of expertise required;

(ii)  The name of the expert;

(iii)  The subjects or issues which the expert should give his opinion on; and

(iv)  Whether a single joint expert should be appointed.

6.  With regard to (i), it is necessary to state the profession or discipline of the expert (e.g. architect, investment advisor) for reasons of certainty.  There have been unfortunate instances in the past where, e.g. in a case with construction issues, the solicitors did not know whether the expert needed should be a building surveyor, quantity surveyor, architect or authorized person and the hearing has to be adjourned for them to clarify.

7.  With regard to (ii), this is to ensure that the applicant has sought out his intended expert(s).  As will be shown later in the analyses, some expertise is not easy to find.  It may also be necessary to clear issues of conflict of interest with the expert.  Realistic estimates of time for the expert to prepare his report should be obtained as an expert is expected to commit himself to the time frame allowed by the Court.  It is not, however, necessary to provide the curriculum vitae of the experts to the court or explain the process of approaching the experts except for good reasons.

8.  With regard to (iii), defining the issues which the expert should give his opinion on will prevent lengthy reports addressing different issues.  The Summons should not just state that the expert should give evidence on e.g. the loss suffered by the plaintiff as pleaded in the statement of claim.  Pleadings can be lengthy and the expert should not be left to define for himself the questions he needs to answer.  Rather, the parties should endeavour to agree on a list of issues for the expert.  Such issues should preferably be framed as “yes or no” or “multiple choice” questions.  The issues should be included in the Summons (and ultimately the Order).  The expert can then provide his opinion around the framed issues.

9.  With regard to (iv), the Court will have regard to the principles laid down in Order 38, rule 4A and appoint a single joint expert (“SJE”) if doing so will reduce cost and delay and ensure that the parties litigate on equal footing.

10.  Affidavit evidence is usually not required to explain why expert evidence is needed or which expert to call, unless directed by the court or there are special reasons for doing.  Likewise, witness statements are generally irrelevant to the court’s consideration.  The pleadings will disclose the scope of evidence on which expert evidence is required.

11.  I now turn to the pleaded facts of this case.

12.  The Plaintiff is a trading company with considerable experience in timber.  D1 is an insurance company.  D2 is a company of insurance brokers.  In 2006, D2 arranged for issue by D1 to the Plaintiff of a marine cargo open cover policy which contained the 1/1/01 version of an Institute Classification Clause (“ICC/01”).  In 2007, the Plaintiff insured its cargo under a cargo policy containing the 1/8/97 version of the Institute Classification Clause (“ICC/97”) issued under the open cover policy.  The vessel sank in severe weather conditions and the entire cargo was reported lost.

13.  The Plaintiff claims for payment under the open cover policy/cargo policy.  D1 rejects the Plaintiff’s claim on the ground that the vessel was not “approved” as required under the ICC/01 or ICC/97s.  D1 also counterclaims for rectification of the ICC/97 as ICC/01 on the ground of typographical error, which is denied by the Plaintiff.

14.  The Plaintiff sues D2 in negligence, alleging that D2 failed to exercise reasonable care and skill in explaining to the Plaintiff the terms under the open cover and the cargo policy, in particular the ICCs.

15.  D2 denies liability, claiming that any duty owed to the Plaintiff must be limited to what it had been requested to do, namely, to seek quotations from other insurers on identical terms as the policy then subsisting between the Plaintiff and another insurance company.  D2 was not obliged to explain all terms of insurance cover including the ICC although it has started to do so and was interrupted by the Plaintiff.  The Plaintiff did not rely on D2’s explanation in the light of its own experience in trading and related shipping and insurance matters.  D2 also denies that it owed any duties, whether arising by market practice, contract or otherwise, to obtain or verify information as to the class or age of the vessel or to obtain approval by D1 other than perhaps to relay accurately to D1 information provided by the Plaintiff.

16. Neither D1 nor D2 regard it their duty to “approve” the vessel under the ICCs.

The Summons for Expert Directions

17.  The summons taken out by D2 sought leave to adduce expert evidence on “industrial practice and standards observed by insurance brokers” and that the expert report shall be served on the other parties within 60 days from the date of the order.  That Summons did not meet the requirements in paragraph 5 above.

18.  At the first adjourned hearing, D2 submitted a set of draft expert directions which was more in the nature of a set of brief submission with a list of issues set out below:

Issue (a)  Background, meaning and prevalence of the ICCs;

Issue (b)  Whether an insurance broker has the following duties to the principal in marine cargo cover in the ordinary course of event-

(i) to explain the ICC  to the principal?

(ii)  to ask the principal to obtain and/or provide to him information in relation to the class or age of the carrying vessel that was relevant by virtue of the ICC?

(iii)  to obtain such information as in (ii) above independently of the principal?

(iv)  to ensure that the insurer was provided with information in relation to the class or age of the carrying vessel that was relevant by virtue of the ICC?

(v)  to obtain the approval from the insurer for the carrying vessel?

Issue (c)  According to the market practice, when an insurance broker is asked by its principal only to source marine cargo insurance quotation/policy on terms currently used by its principal at the best rate, whether the broker has any duty to explain the ICC to the principal?

Issue (d)  According to the market practice, whether an insurance broker has the duty to explain the ICC  to the principal if the principal has considerable knowledge and experience in the trade as the Plaintiff in the present case (experience in timber trading as admitted by the Plaintiff in paragraph 9 of their Reply to the 2^nd Defendant’s Defence)?

Issue (e)  Whether the 2^nd Defendant has breached any duties as found to exist pursuant to market practice?

Issue (f) Any particular matters/issues that the expert finds relevant and essential to the issues of the case.

19.  D2 filed an affirmation in support subsequently which effectively contained the issues similar to those listed above.  In it were submission on why expert evidence is needed, the difficulties faced in sourcing a suitable expert and D2’s view on appointing an SJE.

The Plaintiff’s Stance

20.  The Plaintiff opposes the adducing of expert evidence on the following broad grounds: Questions of construction are for the Court and not the expert.  There is no issue on interpretation of the terms of the ICCs but on whether D2 has discharged its duties.  On a disputed point of professional duty, expert evidence is not admissible.  D2 has amended its defence to cross out references to its capacity as an insurance broker.  Their retainer was only “in the circumstances of the present case, to source from potential insurers quotations for cargo insurance policies”.  There is no specialist field involved in a company asked to source information.  In addition, there have been too many interlocutory applications by D2; it will inflate the costs and prolong the way to trial (“the procedural grounds”).

Should Expert Evidence Be Adduced?

21.  I agree that questions of construction are generally for the Court.  However, the present case goes beyond this.  Two versions of ICC have been pleaded and D1 counterclaimsfor rectification of one of them.  It may be useful if an expert can explain to the Court the difference in technical meaning of these 2 versions.

22.  On a disputed point of professional duty,

“ The opinions of experts are not receivable upon disputed points of professional duty, morality or etiquette; except so far as they may be necessary to elucidate the rules and practices of a particular profession.” (emphasis added)  See Phipson on Evidence, 16^th edition, paragraph 33-65.

“ Evidence as to the general practice of insurance brokers carries great weight in the determination whether, in any given case, the defendant brokers exercised reasonable skill and care.”  See Jackson & Powell on Professional Negligence, 5^th edition, paragraph 14-034.

23.  In the present case, the Plaintiff alleges that D2 was an insurance broker with attendant duties of care.  Although D2 has amended its defence to cross out references to its capacity as an insurance broker, the role of D2 and the extent of its duties remain live issues.  Expert evidence on the scope of duties, in case the Court finds D2 to be an insurance broker, will be useful.

24.  Finally, it is true that D2 has already taken out other interlocutory applications for specific discovery and further and better particulars.  Such applications were not excessive.  The present summons, however, ought to have been taken out earlier at the summons for directions stage as expert evidence should be defined by pleadings.  The amendments to pleadings in this case have no impact on the timing for seeking expert directions.  D2 need not wait for discovery as alleged in the affirmation.  This case has come up for a case management conference already but since there is an appeal against dismissal of the application for specific discovery and further and better particular to be heard in late August, the  case cannot yet be set down.  Overall, the obtaining of expert reports will not delay the trial of this case.  The benefit of having expert evidence outweighs any delay.  I will not therefore reject D2’s application solely on the procedural grounds advanced by the Plaintiff.

25.  In principle, expert evidence is admissible in the present case.  I now analyze each of the issues alleged to be suitable for expert’s assistance.

Issues for the Expert

26.  With regard to Issue (a), there are 2 versions of ICC pleaded and there is a counterclaim for rectification by D1.  Evidence on why the versions are different and how they affect each party’s rights and duties, in particular, the duty to “approve” the vessel will be useful.

27.  With regard to Issues (b) to (e), D2 has pleaded market practice in their favour in paragraphs 15 and 28 of the Amended Defence.  In Fanhaven Pty Ltd v. Bain Dawes Northern Pty Ltd [1982] 2 NSWLR 57, 62-3, it is said,

“Thus I would conclude that the respondent was employed as an insurance broker in the ordinary way…

‘Insurance brokers are agents who make it their business to procure contracts of insurance for those who employ them.  Having undertaken to obtain insurance an insurance broker must exercise proper care and skill in carrying out the assured’s instructions.’

I have no difficulty in seeing that this involved it in procuring suitable policies of insurance to protect its client against relevant risks of loss, advising of options and pointing out reasons for differential premiums.  In these senses it became an insurance adviser.  It certainly was not employed to tender legal advice but in the course of procuring suitable contracts of insurance it was submitted that the exercise of due care and skill requires some exposition of legal principle and in particular the requirement of the common law, not of a contractual term, of disclosure of material facts.

It seems to me that a trier of the facts as to whether there was a breach of this undoubted duty must be told something as to the practice in the industry to determine whether there was a breach – not as a conclusive answer but as a useful guide as to what is and should be done.”

The role of D2 (original defence: insurance broker; amended defence: role of sourcing insurance policies) and extent of its duties are live issues.  Likewise for the issue of who had the duty to “approve the vessel”.  Expert evidence will be useful.

28. Issue (e) is a conclusion to be drawn by the Court rather than for the expert’s opinion.

29.  Issue (f) reflects a broadbrush, open-ended question which a party should avoid giving to an expert.

30.  It is noteworthy that whilst D2 denies the existence of the pleaded duties, D2 had intended to explain the terms to the Plaintiff and had actually started to do so when the Plaintiff interrupted D2.  It was also pleaded that the Plaintiff did provide the name and age of the vessel to D2 which D2 duly passed on to D1.  D1 had “approved” the vessel by issuing the cargo policy.  Hence, even if the expert were to say that D2 had no duty alleged by the Plaintiff, D2 had actually assumed those duties.  It therefore remains doubtful if any value may be added by the expert giving evidence on Issues (b) to (d).  The benefit of the doubt ought, however, be given to D2.

31.  In summary, I am of the view that expert evidence should be allowed on Issues (a) to (d), subject to rewording them  into “yes” or “no” questions if possible.

32.  The expertise required is marine insurance broking.

33.  D2 has provided the names of 3 potential experts.

Should a Single Joint Expert Be Appointed?

34.  In the event the Court allows expert evidence to be adduced, the Plaintiff wants an SJE to be appointed but D2 opposes.

35.  Under Order 38, rule 4A(4), notwithstanding that a party disagrees with the appointment of an SJE, the Court may still make such an order if it is in the interests of justice to do so after taking into account all the circumstances of the case.  Under rule 4A(5), the circumstances that the Court may take into account include but are not limited to –

“ (a)  whether the issues requiring expert evidence can readily be identified in advance;

(b) the nature of those issues and the likely degree of controversy attaching to the expert evidence in question;

(c)  the value of the claim and the importance of the issue on which expert evidence is sought, as compared with the cost of employing separate expert witnesses to give evidence;

(d) whether any party has already incurred expenses for instructing an expert who may be asked to give evidence as an expert witness in the case; and

(e) whether any significant difficulties are likely to arise in relation to –

(i) the choosing of the joint expert witness;

(ii) the drawing up of his instructions; or

(iii) the provision to him of the information and other facilities needed to perform his duties.”

36.  The cost of employing an expert for each party would be minimal compared to the size of this claim which is US$1.3 million.

37.  Where the issues are contested and arise under a negligence claim, it would usually be preferable to let the court have a range of opinion rather than from just one expert.

38.  What is peculiar to the present case is, as D2 deposed to, the difficulty in finding an appropriate expert.  The previous firm of solicitors for D2 found an expert whom the present firm considers to be unsuitable given the different area in which he practised and the nature of the subject policy.  The present firm of solicitors then contacted one of the 2 regulatory bodies for insurance brokers in Hong Kong for assistance in sourcing an experienced broker as expert on market practice.  The feedback was said to be “underwhelming”.  Given the small and competitive market in Hong Kong for insurance brokers, the solicitors were told that it would be extremely difficult to find one willing to testify in court.  Lack of forensic experience among brokers would not help either.  The solicitors were encouraged to find experts in different yet comparable jurisdictions.  They met with the same difficulty in Singapore.  By the third month since they took over the case, the present firm of solicitors turned to UK and found 2 potential experts.  They were both lifetime insurance brokers in the relevant lines of products.  Two months later, the solicitors found yet another expert in a company with a sizable brokerage practice in Hong Kong specializing in marine policies.  After taking a while to clear potential conflict, this expert confirmed freedom to act in late April.  It is the intention of D2 to engage one of the 3 experts.

39.  The Plaintiff relies on the affidavit evidence from D2 to support their application for an SJE.

40.  I note that it has taken D2 five months to find only one suitable local expert.  How much prejudice would there be to the Plaintiff who may not have sufficient time to source for experts and the choice of experts is clearly limited?  Given that it was D2 who sourced for the experts, that it is the Plaintiff who suggests having an SJE, and that potentially there is only one local expert found despite the endeavours made by D2, I cannot see any prejudice to D2 if I were to make an order appointing an SJE.  The code for experts will be given to the SJE who ought to recognize that his duty is to the court and not to any of the parties.

41.  Mr. Wright submits that with an SJE, the court is bound to accept the views of the expert and cannot substitute its own view.  Parties will also engage shadow experts which will increase costs.  Parties may also need to go back to the court to formulate the issues.

42.  I respectfully differ from Mr. Wright’s views.  Whilst the court cannot substitute its own view with that of an expert, the court is not bound to accept the views of an expert if those views are not properly backed up by reasons or authorities.  (In that case, the party having burden of proof on an issue in which expert evidence is adduced will lose on that issue.)  If parties consider it necessary to engage shadow experts, they do so at their own risk as to costs.  I was not told that any party has already instructed his own expert.

43.  Furthermore, the issues in this case can be identified in advance and there should be no difficulty in drawing up instructions or providing information to an expert.  I fail to see why parties need to go back to the court to formulate the issues when the scope of expert evidence will be defined in the expert directions.

44.  In summary, I am of the view that an SJE on liability should be appointed in this case.

Which Expert?

45.  The Plaintiff asserts that it is not appropriate to appoint a foreign expert.  The market conditions in Hong Kong may not be the same as in another jurisdiction because regulations may be different.  Mr. Wright submits that the insurance business in this case was international in nature.

46.  In my view, unless pleaded otherwise, market practice must mean the one in Hong Kong.  I fail to see how a foreign expert can help.

Time for Exchange of Expert Reports

47.  D2 sought 60 days from the date of the order for the expert to produce the report.  I see no problem with this.

48.  The Plaintiff effectively lost on this application and prima facie costs should follow the event.

49.  However, the Plaintiff has not opposed the expert directions unreasonably.  I have also expressed doubt as to how much value the expert evidence can add to most of the Issues.

50.  It has taken 3 hearings to complete the application when 2  (including the call-over) should have been enough.  The adjournments were necessitated by the need for expert directions to be properly framed,  late submission of the list of issues and authorities and the need to amend D2’s defence.  Costs have been awarded to the Plaintiff for the 2^nd hearing to be assessed.  It turned out that there were more lengthy submissions and authorities relied on by both parties at the third hearing.

51.  Further, whilst recognizing that in the ordinary case, no affidavit is necessary on the hearing of an application for expert directions, an affirmation was filed “solely at the specific request of Master Lung made at checklist review on 6 May 2009 when directing the summons be taken out.”  There might have been a misunderstanding here as the sealed copy of Master Lung’s order did not contain a direction to this effect.  Nevertheless, the affirmation was most helpful in explaining the difficulties in finding an appropriate expert and the stance of D2 over the appointment of an SJE.  The submission and the framed issues (which ought in future be included in the Summons) can be kept out of the affirmation.  Likewise, the witness statements need not be included.

52.  Considering all circumstances, I am of the tentative view that costs should be in the cause with certificate for counsel.

Summary

53.  With regard to D2’s Summons, I order as follows:

(1)  A single joint expert on marine insurance broking from Hong Kong, namely, Mr. Philip Bilney, be appointed by the parties.

(2)  The expert shall give his opinion on the following issues of liability:

Issue (a)  Background, meaning and prevalence of the ICCs;

Issue (b)  Does an insurance broker have the following duties to the principal in marine cargo cover in the ordinary course of event-

(i)  to explain the ICC  to the principal?

(ii)  to ask the principal to obtain and/or provide to him information in relation to the class or age of the carrying vessel that was relevant by virtue of the ICC?

(iii)  to obtain such information as in (ii) above independently of the principal?

(iv)  to ensure that the insurer was provided with information in relation to the class or age of the carrying vessel that was relevant by virtue of the ICC?

(v)  to obtain the approval from the insurer for the carrying vessel?

Issue (c)  According to the market practice, when an insurance broker is asked by its principal only to source marine cargo insurance quotation/policy on terms currently used by its principal at the best rate, does the broker have any duty to explain the ICC to the principal?

Issue (d)  According to the market practice, does an insurance broker have the duty to explain the ICC  to the principal if the principal has considerable knowledge and experience in the trade as the Plaintiff in the present case (experience in timber trading as admitted by the Plaintiff in paragraph 9 of their Reply to the 2^nd Defendant’s Defence)?

(3) The report shall be produced to the parties by the expert within 60 days of this Order.

(4) Costs of production of the SJE Report be borne by the parties in equal shares in the first instance.  The ultimate costs shall be in the cause.

(5) Liberty to apply.

(6) There be an order nisi that costs reserved for the hearing on 9/9/2009 and this hearing should be in the cause with certificate for counsel. 

(7)  If any party wants to vary the costs order, it should lodge written submission within 14 days of this decision, with a costs statement if it asks for costs to be summarily assessed.  The other party may provide written submission in opposition within 7 days after.  The application will then be disposed of on paper without the need for attendance.

(8)  Failing agreement on costs of the Plaintiff for the 2^nd hearing parties shall attend before me on 13/8/2009 at 9:30 am for assessment.

54. Finally, I would like to thank counsel for their assistance.