CHINA TAIPING INSURANCE (HK) CO LTD v. TANG TZE WAI AND ANOTHER

HCMP 149/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 149 OF 2010

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J U D G M E N T

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1.  The plaintiff (“the Insurer”) issued to the 1st defendant a private motor car policy No. PMPS-06-13340-3 on 21 August 2006 covering a motor vehicle with registration No. MF8551 for the period from 1 August 2006 to 31 July 2007.

2.  The vehicle was involved in a traffic accident on 3 November 2006 in which a Madam Pang Kit Ying was killed.  Madam Lai Mei Yung, the administratrix of Madam Pang’s estate, issued HCPI685/2009 on 27 October 2009 against the 1st defendant for damages.  Notice to the Insurer of the action was also given to the Insurer on the same day. 

The relief prayed

3.  The Insurer then instituted these proceedings against the 1st defendant on 25 January 2010 to avoid liability under the Policy.  The Insurer prayed for the following substantial relief in the amended originating summons:

(1)   declaration that the vehicle displaying the registration mark MF8551 (“the vehicle”) was not the insured vehicle under Policy No. PMPS-06-13340-3 issued by the plaintiff (“the Insurer”) to the defendant (“the Policy”) at the time of the accident which occurred on or about 3 November 2006 at Tai Po Road - Shatin Heights Section near Luk Hop Village involving the vehicle driven by the defendant and a taxi bearing registration No. KG7904;

(2)    A declaration that the plaintiff (“the Insurer”) is and was at all material times entitled to avoid the Policy irrespective of any provisions contained therein on the ground that the Policy was obtained by non-disclosure and/or by misrepresentation of facts which were false in some material particular pursuant to section 10(3) of the Motor Vehicles Insurance (Third Party Risks) Ordinance, Cap. 272;

(3)    A declaration that the plaintiff (“the Insurer”) is not liable to indemnify the defendant under the Policy in respect of any liability which the Policy purports to cover or to satisfy any judgment which Lai Mei Yung, the administratrix of the estate of Pang Kit Ying, deceased, may have against the defendant in HCPI 685/2009; and

(4)    A declaration that the Policy was void ab initio by reason of the fact that the vehicle the use of which the Policy was intended to cover did not exist at the time the Policy was issued.

The legal provisions

4.  The following sections of the Motor Vehicles Insurance (Third Party Risks) Ordinance, Cap. 272, are relevant to these proceedings:

“4(1) Subject to the provisions of this Ordinance it shall not be lawful for any person to use, or to cause or permit any other person to use, a motor vehicle on a road unless there is in force in relation to the user of the vehicle by that person or that other person, as the case may be, such a policy of insurance or such a security in respect of third party risks as complies with the requirements of this Ordinance.

…

6(1) In order to comply with the requirements of this Ordinance, a policy of insurance must be a policy which:

(a) is issued by an authorized insurer; and

(b) insures such person, persons or classes of persons as may be specified in the policy in respect of any liability which may be incurred by him or them in respect of the death of or bodily injury to any person caused by or arising out of the use of the motor vehicle on a road and arising out of one event for an amount not less than that as may be prescribed:-

Provided that...

…

10(1) If, after a certificate of insurance has been issued under section 6(3) in favour of the person by whom a policy has been effected, judgment in respect of any such liability as is required to be covered by a policy under section 6(1)(b) (being a liability covered by the terms of the policy) is obtained against any person insured by the policy, then, notwithstanding that the insurer may be entitled to avoid or cancel, or may have avoided or cancelled, the policy, the insurer shall, subject to the provisions of this section, pay to the persons entitled to the benefit of the judgment any sum payable thereunder in respect of the liability, including any amount payable in respect of costs and any sum payable in respect of interest on that sum by virtue of any law relating to interest on judgments.

…

10(3) No sum shall be payable by an insurer under the foregoing provisions of this section, if, in an action commenced before, or within 3 months after, the commencement of the proceedings in which the judgment was given, he has obtained a declaration that, apart from any provision contained in the policy, he is entitled to avoid it on the ground that it was obtained by the non-disclosure of a material fact, or by a representation of fact which was false in some material particular, or, if he has avoided the policy on that ground, that he was entitled so to do apart from any provision contained in it:

Provided that an insurer who has obtained such a declaration as aforesaid in an action shall not thereby become entitled to the benefit of this subsection as respects any judgment obtained in proceedings commenced before the commencement of that action, unless before or within 7 days after the commencement of that action he has given notice thereof to the person who is the plaintiff in the said proceedings specifying the non-disclosure or false representation on which he proposes to rely, and any person to whom notice of such an action is so given shall be entitled, if he thinks fit, to be made a party thereto.”

5.  The Insurer’s solicitors also gave notice pursuant to section 10(3) of the Ordinance to Madam Lai’s solicitors saying that the Insurer would not be liable to Madam Lai’s personal injury claim.  The notice advised Madam Lai’s solicitors that the Insurer would rely on the difference between the engine number and cylinder capacity as stated in the vehicle registration document (“VRD”) and the engine installed in the vehicle involved in the accident and hence the falsity in the 1st defendant’s proposal for insurance. 

6.  Since these proceedings were issued within 3 months after the commencement of HCPI 685/2009 and notice of these proceedings was given to Madam Lai’s solicitors on the date of issue, the two time limits in section 10(3) of Cap. 272 have been complied with.  By an order of Au J made on 23 June 2010, the MIB was joined as the 2nd defendant, the original defendant became the 1st defendant.

The facts

7.  The 1st defendant gave the Insurer a proposal for private car insurance dated 1 August 2006.  The proposal was provided through an insurance broker and then the Insurer’s agent Hanson Insurance Services Limited (“Hanson”).  The proposal was for third party risks insurance.  The proposal stated the particulars of the vehicle to be insured as a Toyota Corolla of registration mark MF8551, chassis No. JT753AEB005236961, engine No. 5A-H057696, cylinder capacity 1,498 cc and year of manufacture 1998. 

8.  The proposal contains a declaration which reads:

“I declare that to the best of my knowledge and belief the information given on this form is true and complete in every respect. I agree that this proposal and declaration will be the basis of the contract between me and THE MING AN INSURANCE COMPANY (HK) LIMITED. I agree that the insurance will not be in force until the proposal has been accepted by the Company.”

9.  There is a Chinese declaration of the same meaning right above the English declaration.  The 1st defendant’s signature is within the box of and right underneath the declarations making it clear that he has, in making this proposal to the Insurer, adopted the declarations as his. I however note that the 1st defendant did not warrant the truthfulness of the information, he merely declared to the best of his knowledge and belief.

10.  The 1st defendant also provided the VRD of the vehicle MF8551 together with the proposal form.  The VRD stated that the vehicle is a Toyota private car of registration mark MF8551, chassis No. T753AEB005236961, engine No. 5A-H057696, cylinder capacity 1,498 cc and manufactured in 1998.  These particulars are the same as those contained in the proposal.

11.  On 3 November 2006, the 1st defendant drove the vehicle with registration mark MF8551 along Tai Po Road and involved in an accident with a taxi.  Madam Pang was killed in the accident.  The 1st defendant then gave the Insurer a motor vehicle accident report dated 13 November 2006 in which he stated that the insured vehicle involved in the accident was a Toyota Corolla of registration mark MF8551, cylinder capacity 1,498 cc and manufactured in 1998.

12.  The vehicle involved in the accident (“the Accident Vehicle”) was later caused to be examined by the police.  Dr Chim Lai Chu, Joyce, a forensic scientist, who examined the Accident Vehicle, found that the number of the engine as installed therein, which read “5A-H057696”, had the characters in poor alignment and some characters were of a different font style from that of genuine Toyota engine numbers.  She found that the number on this engine had been tampered with and the original engine number could not be restored. 

13.  Mr Chow Man-kit, a motor vehicle examiner, after examining the Accident Vehicle confirmed that the number of the engine installed in it had been tampered with.  He also found that the cylinder capacity of this engine was 1,587 cc.  He confirmed that this engine was not the engine numbered 5A-H057696 and registered in the VRD which should have a cylinder capacity of 1,498 cc. 

14.  All the findings by Dr Chim and Mr Chow are undisputed by the parties herein. 

15.  The police also took statements from the 1st defendant and the three previous owners of the vehicle of registration mark MF8551.  They all said that they had inspected the engine number of the vehicle upon purchase and sale and found that it was the same as the one stated in the VRD.  All of them also confirmed that they had not replaced the engine of the vehicle with another engine. 

The 1st defendant’s oral evidence

16.  The 1st defendant also gave oral evidence.  He said after he had purchased the vehicle MF8551, he was the only person who used it.  He was also the only person who had the key to it.  He kept the vehicle in a car park managed by Link REIT.  The car park was close to his residence which he had not changed from his purchase of the vehicle to the happening of the accident on 3 November 2006.  He drove the vehicle 3 or 4 times a week and nobody else drove it.  He had not caused the engine to be changed.  He had handed it to a garage only for change of engine oil.  He had looked into the bonnet and found that the engine was the same upon purchase and after the accident.  There was no possibility for the engine of the vehicle to have been replaced as the vehicle had never been out of his sight for a few days which period was necessary for changing the engine.  There was also no reason for anyone to change the engine without his knowledge. 

17.  When he drove the vehicle, he had not experienced any difference in the vehicle or its power.  If the engine of the vehicle had ever been changed, he surmised that it should have been done before his purchase of the vehicle. 

The plaintiff’s evidence

18.  A Madam Chu Siu Lan, an officer of the Insurer’s claims department, also made an affirmation and a supplemental affirmation on behalf of the Insurer.  She said the Insurer only became known of the discrepancy of engine number and cylinder capacity for the first time when it was supplied with the statements given to the police on about 26 July 2007. She also said that the 1st defendant’s declaration in the proposal form was false in that the number of the engine of the vehicle was an altered one and the Insurer would not have accepted this proposal of insurance had it known about the discrepancy.  The reason being that if the engine had been replaced, then the vehicle after the replacement of engine would not have an effective VRD. 

19.  She further explained in oral evidence that a vehicle without an effective VRD could not be driven on the roads.  That is indeed correct under section 22 of the Road Traffic Ordinance, Cap. 374.  She also said in cross-examination that the Insurer had never accepted a proposal of insurance if the engine number in the proposal form was different from that in the VRD.  She also understood the vehicle insured by the Policy was the vehicle registered in the VRD.

20.  The manager of Hanson, Madam So Man Ching, also made an affirmation and gave oral evidence for the Insurer.  She produced a set of guidance provided by the Insurer to Hanson for assessing proposals of insurance for motor vehicles.  Paragraph 1.1 of the guidance stipulated that the proposal had to be signed by the proposed insured and to be accompanied by a legible copy of the VRD of the vehicle. 

21.  Madam So also said that if she should be aware of the change of engine of a vehicle, she would have consulted the Insurer before accepting the proposal for insurance.  This was so regardless of whether the change of engine had been revealed in the VRD.  She also said in cross-examination that she had never issued an insurance cover note for any vehicle without seeing the VRD save for a new vehicle that had not been registered. 

Findings of fact

22.  On the basis of the undisputed findings of Dr Chim and Mr Chow, I find that the engine in the Accident Vehicle was not the engine of the vehicle as registered in the VRD of registration mark MF8551, the 1st defendant’s proposal for insurance, the provisional cover note issued by the Insurer’s agent Hanson on 1 August 2006 and the Policy.

23.  The engine is an essential part of a vehicle.  I find that the Accident Vehicle which had an engine different from the vehicle registered in the VRD was not the vehicle registered by the VRD but a different vehicle. 

24.  The Insurer’s proposal form as adopted and used by the 1st defendant in obtaining the Policy from the Insurer required the engine number and cylinder capacity to be filled in. These particulars were repeated in the cover note issued by Hanson for the Insurer and the Policy.  I accept the unchallenged evidence of Madam Chu and Madam So that the VRD is an important document that the Insurer required for considering a proposal of motor car insurance and that no proposal will be accepted if the engine in the vehicle is not the same as the one registered in the VRD.  I therefore find that the Insurer would not have issued the Policy if it had been advised that the engine in the vehicle proposed to be insured was not the same engine as registered in the VRD. 

25.  Regarding the evidence of the 1st defendant, both the Insurer and the 2nd defendant urged me to accept it.  There is no contrary evidence.  I also cannot find any basis to reject it.  I therefore hold that the 1st defendant has on a balance of probability established that after he had purchased the vehicle of registration mark MF8551, he had not tampered with the engine of the vehicle and had afforded no opportunity for others to do so.  I further hold that he has proved that the engine at the time of the accident was the same as the one when he purchased the vehicle.  I therefore find that there was a change of the engine before the 1st defendant had purchased the vehicle. 

26.  I further find that the vehicle that the 1st defendant purchased on 1 August 2006 was the same as the Accident Vehicle and was not the vehicle registered by the VRD or the vehicle referred to in the insurance cover note or the Policy.  The vehicle as registered in the VRD was not in existence when the 1st defendant purchased the vehicle of registration mark MF8551 as that vehicle had already been changed to a different one by the replacement of its engine. 

Analyses and decisions

27.  Liability of the Insurer under section 10(1) of the Motor Vehicles Insurance (Third Party Risks) Ordinance depends on the existence of a policy that covers the liability.  The coverage of the policy is governed by section 6(1)(b) of the Ordinance.  Section 6(1)(b) requires the policy to insure the insured in respect of any liability which he may incur in respect of therefore injury to any person caused by the use of the insured motor vehicle but not any other vehicle. 

28.  In this case the vehicle insured was the one registered in the VRD.  But unknown to the Insurer, its agent and the 1st defendant, that vehicle was no longer in existence when the 1st defendant made a proposal to the Insurer.  I accept the submissions of Miss Lau, counsel for the Insurer, that the Policy as issued on the basis of the proposal was therefore void ab initio because of common mistake.  The premium should therefore be refunded to the 1st defendant (see Chitty on Contracts, 30th edition, Volume 1, paras 5-017 and 5-038 to 5-046). 

29.  The vehicle bearing registration mark MF8551 and driven by the 1st defendant was therefore uninsured.  It is just like a case where the registration plates of a properly insured vehicle are removed from that vehicle and affixed onto an uninsured vehicle.  Such unauthorized and wrongful switching of registration plates cannot switch the coverage of the insurance policy or make the Insurer liable for the injury or death caused by the driving of the uninsured vehicle (see The Ming An Insurance Co. (HK) Ltd v Chan Man Dun & Anr v Motor Insurers’ Bureau of Hong Kong, CACV96/2005 per A Cheung J, as he then was, at paras 42 to 51).

30.  There is, therefore, no policy issued under section 6(1)(b) of the Ordinance in respect of the Accident Vehicle owned and driven by the 1st defendant.  Hence, the Insurer has no liability under section 10(1) of the Ordinance in respect of Madam Lai’s claim in HCPI 685/2009.  I therefore declare in favour of the Insurer in terms of declarations (1), (3) and (4) as sought by the Insurer in the amended originating summons. 

31.  Regarding the alternative declaration (2) saying that the Insurer was entitled to avoid the Policy under section 10(3) of the Ordinance on the ground of non-disclosure or misrepresentation by the 1st defendant, I do not think I can allow it having held that the Policy was void ab initio.  I therefore reject this prayer.

Costs order nisi

32.  Finally, I make a costs order nisi that the 1st and 2nd defendants do pay the Insurer the costs of these proceedings. I further direct the parties to fix a 9.30 am appointment before me for summary assessment of such costs unless an application should have been made within the next 14 days for variation of the order nisi.