HCPI 450/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

PERSONAL INJURIES ACTION NO. 450 OF 2008

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BETWEEN

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RULING ON COSTS

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1.  Before me is a joint application by the 2^nd defendant and the 2^nd third party to discontinue the third party proceedings against the 2^nd third party, Wing Lung Insurance Co. Ltd (“Wing Lung”) by the 2^nd defendant, both of them having reached agreement that on a without admission of liability basis, Wing Lung do provide indemnity to the 2^nd defendant in respect of the plaintiff’s claim for damages and costs in the main action herein.

2.  What remains in dispute between the 2^nd defendant and Wing Lung which requires a ruling by this court is the question of costs, not only of the third party proceedings between them but also the costs incurred by the 2^nd defendant in defence of the main action. It goes without saying that the costs of this application and hearing will also have to be decided.

Background

3.  The main action arises out of an accident at work which occurred on 1 September 2006 to the plaintiff whereby he sustained personal injuries.  The plaintiff claims in the main action damages for personal injuries against the 1^st and 2^nd defendants.  The Writ was issued on 26 June 2008.

4.  A number of parties are involved in this matter and their relationships are as follows.

5.  China Harbour Engineering (“China Harbour”) was the main contractor of redevelopment works in Tung Ping Chau Public Pier.

6.  China Harbour sub-contracted the works to the 1^st defendant who in turn sub-contracted the work of transportation services to the 1^st third party.  The 1^st third party then sub-sub-contracted such transportation services to the 2^nd defendant, a sampan owner and operator, to transport workers in his sampan at sea in Tung Ping Chau waters.

7.  The plaintiff was the employee of the 1^st defendant. While travelling on the sampan owned and operated by the 2^nd defendant in Tung Ping Chau waters on 1 September 2006 in the course of his employment with the 1^st defendant, the plaintiff sustained personal injuries when the sampan ran aground.

8.  In the main action, the plaintiff claims against the 1^st and 2^nd defendants for negligence as well as for breach of employer’s duty.

9.  On 28 July 2008, the 1^st defendant issued third party proceedings against the 1^st third party seeking indemnity for the plaintiff’s claim.

10.  On 27 November 2008, the 2^nd defendant also issued third party proceedings against Wing Lung seeking indemnity under Employee’s Compensation Policy No. C41-077176 issued by Wing Lung to China Harbour (“the EC Policy”) and which covered the subject accident to the plaintiff.

11.  On the same day, the 1^st third party joined Wing Lung as the fourth party claiming also indemnity under the EC Policy.

12.  The Fourth Party proceedings were discontinued pursuant to a Consent Order dated 10 December 2008 whereby Wing Lung provided indemnity to the 1^st third party and Wing Lung’s solicitors, Messrs Winnie Mak, Chan & Yeung took over conduct of the defence of the 1^st third party on 11 December 2008.

13.  The trial of the main action and the outstanding third party proceedings is set to commence on 30 November 2010.

14.  On 11 November 2010 agreement was reached between Wing Lung and the 2^nd defendant to the extent only that Wing Lung would indemnify the 2^nd defendant against the plaintiff’s claim for damages and costs.  They were unable to come to any agreement as to the costs of the third party proceedings and the 2^nd defendant’s costs in the main action.

15.  They now seek a ruling on the disputed issues as regards costs.

Relevant facts

16.  The accident to the plaintiff occurred on 1^st September 2006.

17.  At the material time, China Harbour had taken out the EC Policy with Wing Lung which was effective from 23 March 2005 to 22 March 2008.

18.  The ‘Insured’ as defined in the EC Policy would extend to the main contractor and also cover any sub-contractor or sub-sub contractor as may be appointed from time to time.  There is no dispute that the 2^nd defendant would be covered as an Insured within the EC Policy, upon the terms of the EC Policy being complied with.

19.  In the EC Policy, it was a term stipulated under “Claims Notification Demands etc.” as follows:

“In the event of any occurrence which may give rise to a claim under this Policy the Insured shall immediately give notice thereof in writing to [Wing Lung] with full particulars.

The Insured shall also give [Wing Lung] notice in writing immediately the Insured becomes aware of any intention to prosecute the Insured any impending prosecution inquest or fatal inquiry in connection with any occurrence which may give rise to a claim under this Policy. Every letter claim writ summones and process shall be forwarded to Wing Lung immediately on receipt”.

20.  It was also provided in the EC Policy that the due observance and fulfillment of the terms of the EC Policy in so far as they relate to anything to be done or not to be done or to be complied with by the Insured shall be conditions precedent to any liability of Wing Lung to make payment or to provide indemnity under the EC Policy.

21.  After the accident to the plaintiff, China Harbour, through its insurance brokers, sent a written notice of the accident by letter dated 8 September 2006 to Wing Lung and which was received by Wing Lung on 19 September 2006.

22.  However, at that time, neither the 2^nd defendant nor the 1^st third party informed Wing Lung of the accident to the plaintiff.

23.  In October 2006, the 2^nd defendant was prosecuted by the Marine Department by three summonses in Fanling Magistrates’ Court arising out of the accident to the plaintiff.  The 2^nd defendant attended Fanling Magistrates’ Court in answer to the three summonses, pleaded guilty to all of them and was fined in respect of three summonses.

24.  Once again the 2^nd defendant Wing Lung was not notified of the summonses or of the 2^nd defendant’s convictions thereof upon his pleas of guilty to those summonses.

25.  It was not until the 2^nd defendant received a pre-action letter from the solicitors for the plaintiff dated 29 August 2007 that the 2^nd defendant sought assistance from the 1^st third party and only then, with the assistance of the 1^st third party who contacted China Harbour that the 2^nd defendant came to know of the EC Policy issued by Wing Lung to China Harbour.  Thereupon, the 2^nd defendant wrote a Chinese letter dated 4 September 2007 to Wing Lung asking Wing Lung to represent him in the defence to the main action.  As a result, Wing Lung made further enquiries from the 2^nd defendant and came to know of the convictions of the 2^nd defendant in respect of the three summonses to which he had pleaded guilty back in November 2006.

26.  When the Writ was issued in June 2008 and the 2^nd defendant was one of the party claimed against by the plaintiff, the 2^nd defendant had to engage solicitors on a private brief o defend the claim.  That was because Wing Lung declined to take over the defence of the 2^nd defendant but sought to repudiate liability to the 2^nd defendant under the EC Policy.

27.  Negotiations were carried on between the solicitors for the 2^nd defendant and the solicitors instructed by Wing Lung for Wing Lung to indemnify the 2^nd defendant against the claim by the plaintiff and to take over the defence of the action against the 2^nd defendant.

28.  On 24 November 2008, the solicitors for Wing Lung offered to take over the defence of the plaintiff’s action against the 2^nd defendant as well as the third party claim against the 1^st third party but on the condition (inter alia) that there would be no order as to costs of the third party and Fourth Party Proceedings against Wing Lung and that the 2^nd defendant and the 1^st third party are to bear their own costs in the main action prior to Wing Lung taking over the conduct of the defence on their behalves.

29.  This offer was accepted by the 1^st third party and a Consent Order was filed on 10 December 2008 discontinuing the Fourth Party proceedings with no order as to costs.

30.  However, where the 2^nd defendant was concerned, the offer made by Wing Lung on 24 November 2008 was not acceptable and the third party proceedings brought by the 2^nd defendant against Wing Lung continued.

31.  Wing Lung’s defence to the third party claim by the 2^nd defendant against it for indemnity under the EC Policy was that the 2^nd defendant was one year late in giving notice of the accident to Wing Lung and also failed to notify Wing Lung of the convictions of the 2^nd defendant thereby being in breach of the terms of the EC Policy which entitled Wing Lung to repudiate its obligations of indemnity thereunder where the 2^nd defendant was concerned.

32.  On 27 May 2010 the solicitors for the 2^nd defendant suggested to the solicitors for Wing Lung to provided indemnity to the 2^nd defendant and to take over the conduct of the defence on behalf of the 2^nd defendant, the third party proceedings against Wing Lung by the 2^nd defendant be discontinued and the costs issue in dispute between Wing Lung and the 2^nd defendant be argued and resolved by the court.

33.  No response however was forthcoming from the solicitors for Wing Lung on that suggestion until 11 November 2010 when that course was agreed upon by Wing Lung.

34.  This has resulted in the present summons being heard on the disputed issues of costs.

35.  In so far as the third party claim by the 2^nd defendant against Wing Lung is concerned, the 2^nd defendant did obtain legal aid but only limited to the third party claim against Wing Lung.

36.  Up to the time of the order made pursuant to the summons now before me for Wing Lung to take over the defence of the 2^nd defendant to the plaintiff’s claim against him, the 2^nd defendant had privately engaged solicitors to defend the main action herein.

2^nd defendant’s application for costs

37.  I turn now to deal with the main dispute between the 2^nd defendant and the Wing Lung as to issues of costs.

38.  Three sets of costs are in issue here.

39.  Firstly, the costs of the third party proceedings between them.

40.  Secondly, the costs of the 2^nd defendant in defending the main action prior to its being taken over by the solicitors for Wing Lung.

41.  Thirdly, the costs of this application.

42.  It was submitted by the 2^nd defendant that all the three sets of costs in dispute ought to be given to the 2^nd defendant and be borne by Wing Lung and the basis for that submission is as follows.

43.  The starting point was that China Harbour had given notice of the accident to Wing Lung by letter dated 8 September 2006 which was received by Wing Lung on 19 September 2006.

44.  The purpose of such notice, albeit that it came from China Harbour, was that Wing Lung was put on notice of the accident to the plaintiff and that it could make the necessary investigation into the accident.

45.  It was unnecessary for each of the Insured to have given independent notice of the accident to Wing Lung, and indeed, that was not a requirement laid down by the express terms of the EC Policy.

46.  Moreover, it is the case of the 2^nd defendant that at that time, not only was he not conversant with English, but also he had no knowledge of the existence of the EC Policy issued by Wing Lung to China Harbour and therefore did not notify Wing Lung of the accident or of his convictions to the three summonses.  His knowledge of Wing Lung and the EC Policy only came about at the end of August 2007 and only with the assistance of the 1^st third party and immediately thereafter, he had written a Chinese letter dated 4 September 2007 to Wing Lung to put them in the picture.

47.  It was also pointed out by counsel for the 2^nd defendant that if Wing Lung had carried out the proper and timely investigation into the matter after it had received the notification from China Harbour as to the accident to the plaintiff, it ought to have reasonably discovered the existence of the 2^nd defendant since the accident happened on his sampan, as well as the three summonses to the 2^nd defendant. In those circumstances, Wing Lung could have timeously instructed its own solicitors to deal with the matter in the way that they saw fit.

48.  In the circumstances it was unreasonable of Wing Lung not to have taken over the conduct of the defence of the main action by the 2^nd defendant.

49.  As for the offer made by Wing Lung on 24 November 2008, that offer did not extend far enough in that Wing Lung was only agreeable to indemnify the 2^nd defendant as to the damages and costs claimed by the plaintiff in the main action but had required the 2^nd defendant to bear the costs of the third party proceedings as well as for the 2^nd defendant to bear himself the costs of defending the main action against the 2^nd defendant. It was therefore not unreasonable for the 2^nd defendant not to have acceded to that offer by Wing Lung.

Stance taken by Wing Lung

50.  It was submitted by the solicitor appearing for Wing Lung that the 2^nd defendant, as an ‘Insured’ within the meaning given to that word under the EC Policy was under a duty to notify Wing Lung not only of the accident when it happened but also of the three summonses as well as his convictions thereunder upon his own pleas of guilty to them.

51.  This was not done by the 2^nd defendant and the 2^nd defendant was in breach of the terms the EC Policy.

52.  It was also submitted in this connection that the notice given by China Harbour should not be deemed to be notice from the 2^nd defendant since each insured is bound individually by the terms of the EC Policy and if the 2^nd defendant wished to avail himself of the protection given by the EC Policy, he should himself comply with those terms.

53.  Because of the failure by the 2^nd defendant (and the 1^st third party) to give the requisite notice, it was submitted by Wing Lung that Wing Lung had no knowledge of the involvement of either the 2^nd defendant or the 1^st third party in this accident.  From the notice given by China Harbour, Wing Lung only knew of the involvement of the 1^st defendant, but at the same time Wing Lung was aware that the matter was being handled by the 1^st defendant’s own insurers under the 1^st defendant’s own employee’s compensation policy.

54.  Notwithstanding the breach by the 2^nd defendant in failing to give notice to Wing Lung, Wing Lung was still prepared to offer indemnity to the 2^nd defendant by its offer made on 24 November 2008.

55.  That offer was accepted by the 1^st third party but not by the 2^nd defendant due to the 2^nd defendant’s unreasonable insistence on costs of the third party proceedings and costs of defending the main action.  Had it not been for such unreasonable conduct of the 2^nd defendant, the third party proceedings between them could have been discontinued in November 2008.

56.  Wing Lung submitted that it should be given the costs of the third party proceedings between the 2^nd defendant and Wing Lung, alternatively there should be no order as to costs of those proceedings.

57.  As for the costs of the 2^nd defendant defending the plaintiff’s claim in the main action before it was taken over by Wing Lung, it was submitted that there should be no order as to those costs since the 2^nd defendant had on more than one occasion represented to the PI Master at Checklist Review hearings that the Legal Aid certificate only covered the third party proceedings and not the main action.

58.  Reliance was also sought on the wording of the EC Policy where it is stated that “THE COMPANY WILL … also indemnify the Insured against costs and expenses incurred by or on behalf of the Insured with the Company’s written consent in connection therewith.”

59.  In this connection it was submitted that Wing Lung had never given any written consent to the costs and expenses incurred by the 2^nd defendant in defending the plaintiff’s claim in the main action.

Decision

60.  The dispute between the 2^nd defendant and Wing Lung treads upon a very narrow compass.

61.  Ever since 24 November 2008, Wing Lung has at all times been agreeable to indemnify the 2^nd defendant as to cost and damages claimed by the plaintiff in the main action.

62.  That much has been achieved by them by agreement now.

63.  Therefore, the narrow compass which is in dispute between them, (and which could not be resolved by them, but required a ruling from the court) concerns mainly the 2^nd defendant’s costs in defending the main action before that defence was taken over by Wing Lung.

64.  The costs of the third party proceedings will itself hinge upon the determination of that cost issue since that determination would show whether or not the 2^nd defendant ought to have taken advantage of the offer made on 24 November 2008 or whether the 2^nd defendant was reasonable to have issued the third party proceedings against Wing Lung, which third party Notice was issued just a matter of days after that offer made on 24 November 2008.

65.  The first point taken by Wing Lung, as to the failure of the 2^nd defendant to give it the requisite notice has to be viewed in its proper context.

66.  In this respect, two matters need to be looked at.

67.  Firstly, it has always been the case of the 2^nd defendant that he was not aware, at the time of the accident and of his conviction, of the existence of Wing Lung or the EC Policy.  That case put forward by the 2^nd defendant has never been challenged factually by Wing Lung, nor is there any evidence to suggest otherwise.

68.  In this respect, counsel for the 2^nd defendant referred me to the case of Verelst’s Adminstratrix v Motor Union Insurance Company Limited [1925] 2 KB 137 for the proposition that an obligation to give notice does not arise without knowledge of there being an insurance policy.

69.  In Verelst’s case, the insured was killed in a motor accident in India on 14 January 1923.  Knowledge of her death reached her personal representative in England within a month, but the personal representative did not know of the existence of the insurance policy until January 1924. Notice was given to the insurance company as soon as possible thereafter.  The insurance company repudiated liability on the ground that notice was not given “as soon as possible” within the meaning of the condition.

70.  It was held by Roche J that in considering whether notice was given “as soon as possible” within the meaning of the condition, all existing circumstances must be taken into account, including the available means of knowledge of the insured’s personal representative of the existence of the policy and the identity of the insurance company and that the arbitrator was entitled to find that notice had been given “as soon as possible”.

71.  In the present case, the wording used in the EC Policy is that “the Insured shall immediately give notice thereof in writing to the Company…”

72.  Given the facts in the present case, namely, that after the 2^nd defendant received a pre-action letter from the plaintiff’s solicitors dated 29 August 2007, he sought assistance from the 1^st defendant and only then came to know of the existence of Wing Lung, whereupon, the 2^nd defendant wrote a letter in Chinese to Wing Lung on 4 September 2007.

73.  On those facts, I find that the action of the 2^nd defendant was as immediate as could have been possible in all the circumstances of the case once he came to know of the existence of Wing Lung as being the insurer and of the existence of the EC Policy.

74.  In the circumstances, I am not persuaded that there can be any fault on the part of the 2^nd defendant for the late notice, both in relation to the accident as well as for the conviction of the 2^nd defendant.

75.  Secondly, I also need to take into consideration the following matter.

76.  It was admitted by Wing Lung that they were informed of the accident to the plaintiff by China Harbour by letter dated 8 September 2006 which they received on 19 September 2006.

77.  The purpose of a notice clause is to enable the insurers to test the genuiness of the claim within a reasonably short time of the occurrence of the loss and to ensure that immediate steps are taken to mitigate the consequences of the loss.  (See MacGillivray on Insurance Law (11^th ed.) paras. 19-034)

78.  That statement in MacGillivray suggests that once given notice of the accident, the insurers have a duty to take all reasonable and necessary steps in order to protect its own interests under the policy.  In short the insurers cannot just sit by idly and allow things to happen.  It may well be that in this case Wing Lung had believed that the matter was being handled by the insurers of the 1^st defendant and did not see fit to make further enquiries themselves.  However, that cannot be a good excuse for Wing Lung’s inaction.

79.  Once Wing Lung had knowledge of the accident, by the latest on 19 September 2006, it should not have been difficult for them to follow up and to discover the identity of the sampan involved as well as the fact that the 2^nd defendant was the operator and owner of that sampan since the accident must have been reported to the Marine Department in order for it to have issued the three summonses against the 2^nd defendant.

80.  There is nothing in the evidence to show what steps were taken by Wing Lung in their follow up enquiries as to this accident.  Indeed the letter which they received from China Harbour by way of notice was not even produced by them.  There is only a bland statement by Wing Lung that it did not know of the involvement of the 2^nd defendant until they received the Chinese letter of the 2^nd defendant dated 4 September 2007.

81.  What would be reasonable enquiries which could have been made by Wing Lung from the initial notice given by China Harbour would depend greatly on what information they were given initially.

82.  In the absence of such evidence from Wing Lung, I am unable to say that Wing Lung could not have, with reasonably diligence, discovered the identity or involvement of the 2^nd defendant as the sampan operator in the accident.

83.  The three summonses were only served on the 2^nd defendant in October 2006.  Therefore if Wing Lung had acted with reasonable and due diligence in the matter, they ought also to have come to know of the summonses served on the 2^nd defendant as his pleas thereto in good time.

84.  In any event, there is not the slightest suggestion made by Wing Lung that it has in any way been prejudiced by its lack of knowledge or its late knowledge of the three summonses served on the 2^nd defendant or his pleas of guilty thereto in defending the claim by the plaintiff.

85.  For the reasons given, if I had to decide on the substantive merits put forward by Wing Lung as the basis of its repudiating liability under the EC Policy in so far as the 2^nd defendant is concerned as being one of the Insured in respect of this accident to the plaintiff, I would have little hesitation in finding against Wing Lung on that issue.

86.  Accordingly it must follow that the substantive merits now put forward by Wing Lung in its argument in respect of the cost issue now in dispute cannot carry any weight and I find no merit in the argument submitted by Wing Lung.

87.  A further point was taken by the solicitor appearing for Wing Lung on the wording of the EC Policy which, it was argued, does not make Wing Lung to be liable for the costs of the 2^nd defendant in defending the main action before Wing Lung took over the defence of the main action for the 2^nd defendant.

88.  The full wording of the clause relied on by Wing Lung is as follows:

“THE COMPANY WILL subject to Policy Limit of Indemnity and to the terms exceptions and conditions contained in or endorsed on this Policy (all of which are hereinafter collectively referred to as “the Terms of this Policy”) indemnify the Insured against his legal liability in respect of such bodily injury or death under the Ordinance and independently of the Ordinance to pay compensation and damages and claimant’s costs and expenses and also indemnify the Insured against costs and expenses incurred by or on behalf of the Insured with the Company’s written consent in connection therewith.”

89.  Reference to “the Ordinance” in the clause cited refers to the Employees’ Compensation Ordinance.

90.  The point now taken by Wing Lung is that Wing Lung has never given its written consent to the costs incurred by the 2^nd defendant in defending the main claim brought by the plaintiff therefore it cannot be liable to the 2^nd defendant for such costs.

91.  That clause, and in particular the words “with the Company’s written consent in connection therewith” will have to be read in its proper context.

92.  If there had been no repudiation of liability under the EC Policy by Wing Lung, and if it should transpire that the Insured wanted to incur any costs or expenses himself in defending the claim brought, then it stands to reason that on the wording of the EC Policy, the written consent of Wing Lung will need to be obtained by the Insured if he is to be indemnified by Wing Lung for such costs or expenses incurred by or on behalf of the Insured.

93.  However, where as in the present case, Wing Lung did repudiate liability under the EC Policy vis-à-vis the 2^nd defendant, and before such repudiation by Wing Lung could be resolved, it is inconceivable that the 2^nd defendant could have obtained the written consent of Wing Lung for the costs and expenses he would have to incur in defending the plaintiff’s claim.  Therefore if Wing Lung was not prepared to take over the conduct of the defence of the 2^nd defendant when the main action was brought, the 2^nd defendant had no choice but to defend the claim himself at his own expense.

94.  Given the facts of this case, I am not persuaded that the 2^nd defendant can be barred from claiming to be indemnified against the costs incurred by him in defending the plaintiff’s claim before that defence was taken over by Wing Lung simply on the basis that Wing Lung has never given its written consent to such cost being incurred when Wing Lung did not see fit to take over the defence of the 2^nd defendant to the plaintiff’s claim until the order was made at the hearing of this matter pursuant to paragraphs 1 and 2 of the summons taken out jointly by them dated 11 November 2010.

95.  For the reasons given above, I reject all the submissions put forward by Wing Lung that the 2^nd defendant was not entitled to be indemnified for his costs in defending the main claim by the plaintiff.

96.  In the circumstances, it was not unreasonable for the 2^nd defendant to have rejected the offer made by Wing Lung on 24 November 2008.

97.  The fact that that offer of Wing Lung was accepted by the 1^st third party is neither here nor there and that acceptance by the 1^st third party cannot be a standard to ascertain what was or was not reasonable vis-à-vis the 2^nd defendant.

98.  It also follows therefrom that it was not unreasonable for the 2^nd defendant to have issued the Third Party Notice claiming against Wing Lung for the full entitlement of the 2^nd defendant as to its indemnity under the EC Policy.

The order relating to costs

99.  There will be the following order as to costs:

1.   Costs of the third party proceedings between the 2^nd defendant and Wing Lung be paid by Wing Lung to the 2^nd defendant to be taxed if not agreed.

2.   The 2^nd defendant’s own costs in defending the main action herein up to the time when the defence of the 2^nd defendant was taken over by Messrs Winnie Mak, Chan & Yeung, the solicitors acting for Wing Lung be paid by Wing Lung to the 2^nd defendant to be taxed if not agreed.

3.   The costs of this application and the hearing on 16 November 2010 be borne by Wing Lung to be taxed if not agreed.