XCHRX YUEN FUNG DEVELOPMENT LTD. v. QBE INSURANCE (HONG KONG) LTD.

HCA 7477/99

HEADNOTE

Arbitration Ordinance (Cap. 341) s. 6 - Enforceability of arbitration clause - Control of Exemption Clauses Ordinance (Cap. 71) s. 15 - Inapplicability of s. 15 to contracts of insurance.

HCA 7477/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 7477 OF 1999

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D E C I S I O N

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1. The Plaintiff issued its Writ on 7 May 1999 suing the Defendant, its motor insurers, for failing to indemnify it for the loss of the insured vehicle which is alleged to have been stolen on 17 June 1998.

2. The Defendant's application before me is for a stay of the proceedings pursuant to section 6 of the Arbitration Ordinance (Cap. 341).

3. In support there is the Affirmation of Chan Shuk Yee, an Assistant Claims Manager employed by the Defendant. She says that unsatisfactory statements had been obtained from the Plaintiff's staff in the course of initial investigations conducted on behalf of the Defendant and that further information and documents had been requested to deal with inconsistencies. However, without responding to such requests, and without even a letter before action, the Writ was issued.

4. On 11 May 1999, the Defendant's solicitors drew the Plaintiff's attention to the arbitration clause contained in Condition 10 of the Policy and requested arbitration and a stay of the proceedings.

5. By letter dated 15 May 1999, the Defendant's solicitors wrote to the Plaintiff's solicitors setting out the Defendant's position more fully. They indicated that the loss was regarded by the Defendant as suspicious and expressed the view that the Plaintiff had been guilty of various breaches of policy conditions. The letter re-iterates that arbitration is required. It also asserts that the insurable interest of the Plaintiff was limited to $50,000, the car having been owned by a bank under hire-purchase arrangements.

6. No evidence at all has been filed on behalf of the Plaintiff. Mrs. Susan Liang, appearing for the Defendant, submits that a stay to arbitration is compulsory in the present case because none of the conditions leading to a contrary conclusion applies.

7. Mr. Wilson Yeung, a solicitor appearing on behalf of the Plaintiff, relies on a single ground for resisting the application for a stay. He argues that section 15 of the Control of Exemption Clauses Ordinance (Cap. 71) ("the Ordinance") renders the arbitration clause in the contract of insurance unenforceable. I shall refer to that Ordinance as "the Ordinance".

8. Section 15, so far as material, provides as follows:-

9. Mr. Yeung argues that since the Plaintiff has neither given his consent nor had recourse arbitration, the arbitration clause is rendered unenforceable by section 15(1).

10. Mrs. Liang advances two arguments to the contrary. I shall deal with each in turn. First, she contends that on its true construction, s. 15(2) dis-applies s. 15(1) in the present case and therefore makes inapplicable its provisions rendering arbitration clauses unenforceable to the insurance contract in question. I agree.

11. Section 15(2)(b) provides that s. 15(1) "does not affect the resolution of differences arising under any contract so far as it is, by virtue of Schedule 1, excluded from the operation of section 7, 8, 9 or 12." In my view, the word "it" refers to the word "contract" (and not, as Mr. Yeung contended, to "resolution") in the same paragraph.

12. In other words, what s. 15(2)(b) provides is that if Schedule 1 makes sections 7, 8, 9 or 12 of the Ordinance inapplicable to any particular class of contract, then s. 15(1) is equally made inapplicable to contracts of that type.

13. In Schedule 1, paragraph 1(a) provides as follows:-

14. It follows that "any contract of insurance" is, "by virtue of Schedule 1, excluded from the operation of section 7, 8 and 9" within the meaning of s. 15(2)(b). Accordingly, s. 15(1) does not affect "the resolution of differences arising under" any contract of insurance. The unenforceability provisions therefore do not affect arbitration clauses contained in any contract of insurance and Mr. Yeung's objection fails.

15. With respect to him, I am unable to see how these provisions can coherently be construed if one treats the word "it" in s. 15(2)(b) as referring back to the word "resolution" rather than the word "contract". In contrast, the abovementioned construction is both straightforward and, to my mind, in accordance with the evident policy of the Ordinance. This is a conclusion reflected to some degree by s. 5(2) which makes it clear that arbitration clauses are not regarded as exemption clauses and so indicates that the Ordinance is not in principle hostile to arbitration.

16. In the light of the conclusion I have reached above, it is not necessary for me to deal in any detail with Mrs. Liang's second argument as to why, in the present case, section 15 is inapplicable. However, I mention her arguments briefly for the sake of completeness.

17. Mrs. Liang contended that on the evidence, the Plaintiff was not a person "dealing as a consumer" so that even if s. 15(1) is not dis-applied by s. 15(2)(b), that subsection would not avail the Plaintiff. This was so, she argued, on two grounds.

18. In the first place, this was because the car was being purchased on hire-purchase and in law was owned by the bank financing by hire-purchase, even though the Plaintiff was named as the Insured in the motor policy.

19. Secondly, she argued that the evidence, uncontradicted by the Plaintiff, shows that despite the insurance having been effected on the basis that the car was for private use only, it was in fact being used for the Plaintiff's business purposes, leading to the conclusion that the motor policy was contracted "in the course of a business" within the meaning of s. 4 of the Ordinance and so taking it out of the category of protected consumer contracts.

20. If necessary, I would have decided against Mrs. Liang's on the first limb of this argument. In my view, the Insured, being the primary party to the contract of insurance is plainly capable of being treated as "a person dealing as a consumer" within section 15 of the Ordinance, notwithstanding the interest of the hire-purchase owner in the proceeds of the insurance.

21. As to the second limb, while statements exhibited in the evidence certainly do indicate that the car may well have been used for the purposes of the Plaintiff's business the evidence is somewhat sketchy and inconclusive. If the matter had turned solely on this point, I would have felt hesitation in acceding to this argument.

22. In any event, for the reasons I have given, I have come to the conclusion that the Ordinance does not avail the Plaintiff. I am also satisfied that differences have arisen between the parties falling within the scope of Condition 10 of the contract and that, in accordance with section 6 of the Arbitration Ordinance, the matter should be referred to arbitration in accordance with the agreement.

23. I will therefore make an Order in terms of paragraphs 1 and 3 of the Defendant's Summons dated 20 May 1999 and I will hear the parties as to costs.