HARBOURFIELD ENGINEERING CO LTD v. FALCON INSURANCE CO (HONG KONG) LTD

HCMP245/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.245 of 2003

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J U D G M E N T

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1. The plaintiff, Harbourfield Engineering Company Limited ("Harbourfield") brings this claim against Falcon Insurance Company (Hong Kong) Limited ("Falcon") by way of Originating Summons claiming for declarations that Falcon has wrongfully repudiated the contract of insurance between them, and in particular Falcon is liable to indemnify Harbourfield against all costs, expenses and damages caused by and incidental to the claim or claims against Harbourfield arising from the proceedings in HCPI No. 71 of 2002 and other related reliefs.

Background and chronology of events

2. Harbourfield operates a business of Decoration/Building Engineering Works. It obtained a Public Liability Insurance Policy, being Policy No. 01270432 from Winterthur Swiss Insurance (Asia) Ltd, ("the Policy"). Winterthur Swiss Insurance (Asia) Ltd is the name by which Falcon was known prior to 9 January 2002, before it changed its name to Falcon. The Policy covers the period from 15 April 1998 to 14 April 1999. I shall come back to the terms of the Policy in due course.

3. Harbourfield has a maintenance agreement entered into with the Incorporated Owners of Cosmopolitan Centre to maintain and service the pumps for the drinking and flushing water at Cosmopolitan Centre situated at No. 760 Nathan Road, Mongkok, for the period 1 April 1998 to 31 March 1999. The remarks at the end of that maintenance agreement specifically states that "the above maintenance service areas do not include the fire services systems, fire services pumps and back up dynamo of the building" ("the Maintenance Agreement").

4. On 28 January 1999 an arson case occurred at the ground floor shopping area of the Cosmopolitan Centre known as Allied Plaza when several persons were alleged to have thrown flammable material at a shop in the Allied Plaza causing a fire to break out. As a result of that arson attack, a person was fatally wounded ("the deceased").

5. On 27 April 1999, the Fire Services Department caused to be issued and served on Harbourfield, prosecuting it for breach of regulations under the Fire Services Ordinance, a departmental summons bearing Case No. NKS 8203/99. The relevant wording of that summons was as follows :

"Information has been laid THAT YOU on 8 January 1999 at Allied Plaza, 760 Nathan Road, Kowloon being a person other than a registered contractor did maintain, the fire service installation or equipment Fire Service rising main between 2/F and 3/F which was installed in the premises.

Contrary to: Regulations 7 and 12 Fire Service (Installations and Equipment) Regs. Made under Fire Services Ordinance, Cap. 95"

6. On 26 May 1999, Harbourfield pleaded guilty to the above departmental summons against it at the Magistrates' Court.

7. On 26 September 2002, Harbourfield was served with a Writ of Summons in HCPI No. 71 of 2002 in which the estate of the deceased brought a fatal accidents claim against six defendants as a result of the death of the deceased from the arson attack which took place on 28 January 1999 at the Allied Plaza. Harbourfield was named as the 6th defendant in the Writ. The Writ of Summons had only an Endorsement of Claim which stated that the claim against the 6th defendant (Harbourfield) was "for breach of statutory duties and negligence causing injuries on 28 January 1999 and eventual death of the Deceased, and causing damage to the Deceased, his estate and his dependents". The Writ was issued on 24 January 2002, but only served on Harbourfield on 26 September 2002.

8. On the day following service of the Writ on Harbourfield, namely, 27 September 2002, a meeting took place between the representative of Harbourfield and the representative of Apex Insurance Services Company ("Apex"), the agent of Falcon in relation to the Policy issued to Harbourfield. During that meeting, the representative of Harbourfield handed to the representative of Apex (inter alia) the following documents :

(a) The Writ of Summons in HCPI No. 71 of 2002;

(b) The Maintenance Agreement; and

(c) A certificate of trial in Case No. NKS 8203/99 dated 8 June 2001.

9. It is also now accepted by Falcon that at this meeting, a copy of the Summons in Case No. NKS 8203/99 was also handed over to the representative of Apex by Harbourfield's representative and that the representative of Apex was told that Harbourfield had pleaded guilty to that Summons on 26 May 1999.

10. It is also accepted by Harbourfield that prior to the 27 September, it had never informed Falcon (or Apex) of the arson incident in Allied Plaza or that it had been summoned in Case No. NKS 8203/99 and its plea of guilty thereto.

11. On 30 September 2002, Falcon wrote to its agent Apex expressing concern regarding Harbourfield's late notification of the arson case and asked for more information from Harbourfield at the same time reserving its position on a "without prejudice" basis.

12. On 3 October 2002, Harbourfield responded directly to Falcon informing Falcon of the following matters :

(1) Harbourfield was only responsible for maintaining the pumps for the fresh water and flush water of the residential part of Cosmopolitan Centre;

(2) Such maintenance service does not cover any facility in the mall;

(3) Harbourfield only came to know of the arson incident of 28 January 1999 from newspaper reports and that incident has no connection with the maintenance service provided by it;

(4) Harbourfield was not contacted by any party in relation to the arson case or to the claim in HCPI No. 71 of 2002 until it was served with the Writ; and

(5) Harbourfield's stance is that it is not connected with the arson incident in Allied Plaza and therefore has never considered any need to report the matter to Falcon.

13. On 15 October 2002, Falcon wrote to its solicitors, Messrs Deacons enclosing the documents supplied to it by Harbourfield for Messrs Deacons to handle the matter on a without prejudice basis.

14. On 25 October 2002, Messrs Deacons wrote to Messrs Yip, Tse & Tang being the solicitors acting for the plaintiff in HCPI No. 71 of 2002 to ascertain the basis of the claim against Harbourfield and asking them to reconsider such claim against Harbourfield.

15. On 30 October 2002, Messrs Yip, Tse & Tang replied to Messrs Deacons to the effect that Harbourfield was charged and convicted of being in breach of Regulations 7 and 12 of the Fire Service (Installation and Equipment) Regulations of the Fire Services Ordinance in Case No. NKS 8203/99.

16. On 9 November 2002, Messrs Deacons wrote to Harbourfield repudiating the Policy in terms of HCPI No. 71 of 2002 due to Harbourfield's non compliance with the terms of the Policy (clauses 2, 3, 5 and 9) by failing to report the arson incident to Falcon until 27 September 2002 and also failing to take reasonable care to comply with statutory requirements and failing to give accurate information when required to do so.

17. On 13 December 2002, Harbourfield's solicitors wrote to Messrs Deacons alleging wrongful repudiation of the Policy by Falcon.

18. There is no factual dispute between the parties in so far as the above background and chronology of events are concerned.

Relevant terms of the Policy

19. The relevant terms of the Policy which Falcon says Harbourfield was in breach of and in reliance upon which it repudiated the Policy are as follows :

"2. On the happening of any event which may give rise to a claim under this Policy the Insured shall give immediate notice to the Company and shall retain anything connected with such event for such time as the Company may reasonably require. Every letter claim writ summons or process shall be forwarded to the Company immediately it is received.

3. No admission offer promise payment or indemnity shall be made or given by or on behalf of the Insured without the written consent of the Company which shall be entitled if it so desires to take over and conduct in the name of the Insured the defence or settlement of any claim or to prosecute in the name of the Insured for its own benefit any claim for indemnity or damages or otherwise and shall have full discretion in the conduct of any proceedings and in the settlement of any claim and the Insured shall give all such information and assistance as the Company may require.

5. The Insured shall take all reasonable care in the selection and employment of competent employees and shall take reasonable precaution to prevent accidents and to comply with statutory requirements. The Insured shall give immediate notice of any alterations which materially affects the risk covered by this Policy

9. The due observance and fulfillment of the Terms Limitations and Conditions of this Policy so far as they relate to anything to be done or complied with by the Insured and the truth of the statements and answers in the said Proposal shall be conditions precedent to any liability of the Company to make any payment under this Policy."

Basis of repudiation by Falcon

20. By Messrs Deacons' letter dated 19 November 2002 to Harbourfield repudiating liability under the Policy, the basis of such repudiation was stated therein as follows :

(a) that Harbourfield, being the contractor responsible for the maintenance of the fire service installation or equipment at Allied Plaza at the time of the arson attack on 28 January 1999 were in breach of the conditions of the Policy by failing to report the arson attack to Falcon until 27 September 2002; and

(b) by reason of the conviction of Harbourfield under the Fire Services Ordinance being a non-registered contractor, Harbourfield has failed to take reasonable care to comply with statutory requirements and failed to give accurate information to Falcon when required to do so.

Stance taken by Harbourfield

21. Firstly, Harbourfield submits that the arson attack per se has nothing to do with Harbourfield and Harbourfield has no involvement. Therefore, even though Harbourfield came to know of such an arson attack from newspaper reports (probably within one or two days of its occurrence) Harbourfield was under no duty to report this matter to Falcon.

22. Secondly, Harbourfield maintains that its duty and obligations in so far as Cosmopolitan Centre was concerned was to maintain the fresh and flushing water pumps as per the Maintenance Agreement between it and the Incorporated Owners. It was under no duty and did not take upon itself the task of maintaining any part of the fire services installations or equipment in that building. That it pleaded guilty to the Summons in NSK 8203/99 only out of convenience.

23. Thirdly, Harbourfield says that Falcon is estopped from repudiating liability under the Policy because it has instructed Messrs Deacons to handle the matter and one of the things done by Messrs Deacons is to write to the plaintiff's solicitors in HCPI No. 71 of 2002 by letter dated 25 October 2002 asking the plaintiff to withdraw its case against Harbourfield.

Decision

24. There can be no dispute but that Harbourfield was not directly involved in the arson attack. As such there could not have been any duty on Harbourfield, even if they knew of the arson attack, to report that matter to Falcon under the terms and conditions of the Policy.

25. When Harbourfield was summoned and pleaded guilty under NKS 8203/99, the particulars of the charge relate firstly to 8 January 1999 and it charges Harbourfield for maintaining the fire services installation or equipment Fire Service rising main between the 2nd and 3rd floor of Allied Plaza.

26. Putting aside for the moment that Harbourfield denies that factually but says that it pleaded guilty for convenience, and assuming the underlying factual basis for that plea is correct, I am unable to see how Harbourfield could have related that guilty plea to anything arising from the arson attack which took place on a different date (namely 28 January 1999) and at the Shop G13 B on the ground floor of Allied Plaza. How could it have been objectively foreseeable to Harbourfield that its plea of guilty to that summons could be related to the death of the deceased arising from that arson attack.

27. Surely that link comes from the allegation of the plaintiff in HCPI No. 71 of 2002 when it was alleged by the plaintiff that one of the causes of death to the deceased in the arson attack was due to the defective fire services installation and/or equipment and for which blame was put on Harbourfield as the 6th defendant in that action.

28. I am of the view therefore that until that allegation was made by the plaintiff in HCPI No. 71 of 2002 and communicated to Harbourfield, nothing triggered off Condition 2 of the Policy such that Harbourfield was under a duty to report to Falcon either the arson attack or its plea to the Summons in NKS 8203/99.

29. The Writ with Endorsement of Claim was served on Harbourfield on 26 September 2002 and on the following day notice was given by Harbourfield to Apex, the agent of Falcon, not only of the claim in HCPI No. 71 of 2002 but also of the Summons in NKS 8203/99 as well as the plea and conviction Harbourfield thereto. As such there is no breach of Condition 2 of the Policy.

30. At one stage, there was some dispute that Harbourfield did not disclose its plea and conviction to Falcon who only came to know of it when Messrs Deacons received a reply from Messrs Yip, Tse and Tang, (the plaintiff's solicitors in HCPI No. 71 of 2002) in answer to its letter to them dated 25 October 2002. However, it is now accepted by Falcon that Harbourfield did disclose the plea and conviction in Summons NKS 8203/99 to its agent Apex on or about 27 September 2002 along with the Writ in HCPI No. 71 of 2002. Whether there was miscommunication between Falcon and its agent Apex is neither here nor there but that certainly cannot found a basis for the repudiation by Falcon of liability under the Policy.

31. As for Condition 3 of the Policy, if Falcon sought to rely on Condition 3 as being breach by reason of the guilty plea by Harbourfield to the Summons in NKS 8203/99, then the short answer to that would be as per the decision of Woo J (as he then was) in the case of Euro-America Insurance Ltd v. Speedbird Tours Ltd [1993] 2 HKC 552 where he held that condition 6 in the policy under consideration in that case (the wording of which is closely similar to Condition 3 in our present case) when properly construed, the word "admission" in its context could only relate to civil claims and proceedings but excluded criminal charges. Moreover, if that condition did apply to criminal charges it was void for being against public policy.

32. The same can be said of the present Condition 3 such that there can be no valid complaint by Falcon that Harbourfield had pleaded guilty to the Summons NKS 8203/99.

33. As for the estoppel relied on by Harbourfield, I am of the view that estoppel does not arise in the present case.

34. For estoppel to arise, it is incumbent upon Harbourfield to show an unequivocal act on the part of Falcon (or its legal representative) affirming the validity of the Policy. Moreover such an unequivocal act must also be communicated to Harbourfield.

35. In this connection, Harbourfield can only seek to rely on two possible acts giving rise to estoppel. Firstly, the letter of 15 October 2002 when Falcon wrote to Messrs Deacons asking Messrs Deacons to handle the matter for them on a without prejudice basis and secondly, Messrs Deacons' letter of 25 October 2002 to Messrs Yip, Tse & Tang ascertaining the basis of the plaintiff's claim in HCPI No. 71 of 2002 against Harbourfield and asking Messrs Yip, Tse & Tang to reconsider such claim.

36. In so far as Falcon's letter of 15 October to Messrs Deacons is concerned, that is certainly not an act affirming the validity of the Policy. Nor was it communicated to Harbourfield. Falcon was entitled to place the matter in the hands of its solicitors for them to handle.

37. As for Messrs Deacons' letter of 25 October, it does not in any way affirm the validity of the Policy. Indeed that letter does not even indicate the Messrs Deacons was acting for or representing Harbourfield. Messrs Deacons chose their words carefully by saying they have been "consulted" by Harbourfield. Moreover, the law is clear that Falcon (or Messrs Deacons on its behalf) is entitled to investigate a claim. That was all that letter was doing.

38. At no time had Messrs Deacons stepped in to take over the conduct of HCPI No. 71 of 2002 on behalf of Harbourfield nor in any way indicate that it was representing Harbourfield in defending that action. Moreover nothing to that effect was communicated to Harbourfield to lead it to believe that was the case.

39. For these reasons, I find that no estoppel arises.

40. There was one further point raised by Ms Molloy who appeared for Falcon in this matter. It is strictly speaking not a ground put forward for repudiation of the Policy when it was repudiated by letter from Messrs Deacons dated 19 November 2002. Since the point has been raised, I shall nevertheless deal with it as well.

41. It was contended by Ms Molloy that the Policy does not cover this incident on the grounds that the business of the insured (i.e. Harbourfield) stated in the first page of the Policy (at page 23 of the Bundle) being "Decoration/Building Engineering Works" does not cover maintenance works which Harbourfield was engaged in at the Cosmopolitan Centre.

42. In my view that is not a contention which can be raised in this matter since even if Ms Molloy is correct in her contention on this point, it is not a ground for repudiation of the Policy by Falcon. That point may be raised by way of defence by Falcon when and if Harbourfield makes a claim against it to be indemnified under the Policy arising from the arson incident. It is therefore not a point which I need to determine in this case to decide the question whether there was or was not any wrongful repudiation of the Policy by Falcon.

43. For the reasons given above, I have come to the conclusion that the repudiation of the Policy by Falcon was wrongful upon the grounds on which that repudiation was made. Accordingly I shall grant a declaration in terms of paragraph 1 of the Originating Summons.

44. I am unable to grant the declarations sought under paragraphs 2 and 3 of the Originating Summons for that would be to preempt other defences which Falcon may have to a claim for indemnity under the Policy short of repudiation of it.

45. As for paragraph 3 of the Originating Summons, there will be an order for damages for such wrongful repudiation to be assessed.

46. Finally there will be a costs order nisi that the costs of the Originating Summons be paid by Falcon to Harbourfield, to be taxed if not agreed.