NEW WORLD HARBOURVIEW HOTEL CO LTD AND OTHERS v. ACE INSURANCE LTD AND OTHERS

CACV 97/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 97 OF 2010

(ON APPEAL FROM HCA NO. 46 OF 2007)

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BETWEEN

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J U D G M E N T

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Hon Rogers VP:

1.  This was an appeal from a judgment of Reyes J given on 8 April 2010. The matter before the judge was the hearing of 5 preliminary issues. The 5 issues concerned the construction of 2 Composite Mercantile Policies issued by the defendants as insurers. The plaintiffs claimed under the policies in respect of losses resulting from interruption of their businesses caused by the outbreak of Severe Acute Respiratory Syndrome (SARS) in 2003. At the commencement of his judgment, the judge indicated that there was an expectation that the answers to the preliminary issues would enable the parties to assess the extent of the defendants’ liability and, consequently, facilitate the settlement of the plaintiffs’ claims without further recourse to the court. That expectation would now seem to be somewhat forlorn.

2.  The history in respect of the outbreak of the disease has been agreed between the parties and the material dates are important for the resolution of the issues.  Put shortly, it was not until 10 February 2003 that the Hong Kong media reported the outbreak of the disease in Guangdong.  On the following day the Hospital Authority set up a Working Group to consider how to deal with Severe Community Acquired Pneumonia (“CAP”).  Two days later, on 13 February 2003, the Working Group set out procedures whereby the Hospital Authority could notify the Department of Health of CAP cases.  The Department of Health requested private hospitals to notify it of all cases of severe CAP, but, as the judge observed, at that date, the reporting of CAP cases remained voluntary.

3.  On 21 February 2003 a visitor from the Mainland checked into the Kowloon Metropole Hotel.  This was the first SARS case in Hong Kong and the subsequent enquiries concluded that, in all likelihood, that patient was the source of the SARS outbreak in Hong Kong.

4.  On 12 March 2003 the World Health Organisation (“WHO”) issued a high alert notice about cases of acute respiratory syndrome in Hong Kong, Guangdong and Vietnam.  That was soon followed by an emergency travel advisory statement.  That identified the disease as “SARS” for the first time.  The WHO declared SARS to be a worldwide health threat.

5.  On 26 March 2003 the Department of Health was notified of the admission into hospital of 15 persons with suspected SARS.  All 15 resided in the Amoy Gardens housing estate.

6.  On 27 March 2003 SARS was added to the list of infectious diseases in the First Schedule to the Quarantine and Prevention of Diseases Ordinance, Cap. 141 (“the Ordinance”).  As a result, it became mandatory for SARS cases to be notified to the Government.

The issues

The first issue

7.  The first issue was framed:

“On the proper interpretation of the Insurance Policies, and on the facts as set out in the Report entitled “SARS in Hong Kong: From Experience to Action” released by the SARS Expert Committee on 2 October 2003, on what date did SARS become a “notifiable human infectious or contagious disease occurring within 25 miles of [Hong Kong]” within the meaning of clause 14.5 of the Insurance Policies.”

8.  Clause 14.5 in each of the policies was in similar form and provided:-

“This Policy is extended to insure actual loss sustained by the Insured, resulting from a Reduction in Revenue and increase in Cost of Working as a result of murder, suicide, infectious or contagious disease, food or drink poisoning or Contamination, and closure by a competent authority due to vermin or pests all occurring on the Premises of the Insured or of notifiable human infectious or contagious disease occurring within 25 miles of the Premises.”

9.  The judge’s answer on this issue was “27 March 2003”.  On this appeal Mr Chua SC, who appeared on behalf of the plaintiffs, sought to argue that in answering the question the judge had added to the requirement that the disease should have been notifiable that it should be statutorily notifiable.

10.  The construction of clause 14.5 put forward by Mr Chua was that the word notifiable in its plain and ordinary meaning should be construed to cover the interim reporting mechanism setup on 13 February 2003.  However, as already noted by the judge, the arrangements set up in February were voluntary.  In my view the judge was clearly correct.  The incidence of the disease only became notifiable when it was required to be notified.  For that purpose it did not matter whether the mandatory requirement stemmed from statutory authority or any other authority which could be exercised.  What was important was that the word notifiable imported a mandatory requirement to notify.

The second issue

11.  The second issue was:-

“In the premises, what is the commencement date of coverage under clause 14.5 of the Insurance Policies in respect of any claim made as a result of SARS”

12.  The answer given by the judge in respect of the second issue was the same as the answer in respect of the first issue.  Again, in my view the judge was correct.  On this appeal it was sought to be argued that the loss could have occurred because of the presence of the disease in Hong Kong even though it had not become notifiable.  Counsel tried to draw distinctions between a “cause” and an “event”.

13.  I consider that the matter is beyond argument. As clause 14.5 states what is insured is the actual loss sustained resulting from a reduction in revenue as a result of a notifiable human infectious or contagious disease occurring within 25 miles of the assured’s premises.  Prior to 27 March 2003 SARS was not a notifiable infectious or contagious disease, hence any loss sustained prior to that date did not come within the insured perils.

The third issue

14.  The third issue before the judge was:-

“On the basis that none of the Plaintiffs’ businesses ceased operation as a result of SARS, on the proper construction of the Insurance Policies, what is, or how does one determine, the “Loss Period” in respect of each Plaintiff, as defined in clause 13.2 of the Insurance Policies. In particular:-

3.1 Can the “date of loss” referred to in that clause be prior to 27 March 2003, being the date (on the Defendants’ case) when SARS became a “notifiable human infectious or contagious disease occurring within 25 miles of [Hong Kong]”

3.2 Is the Loss Period limited to 180 days from the date of loss;

3..3 What is the relevance of the reference to the “resumption of business” in clause 13.2, in circumstances where the business was not ceased as a result of the insured peril.”

15.  The judge answered the third issue as follows:-

“3(1): No.

3(2): Yes.

3(3): The reference to “resumption of the business” in clause 13.2 is inapplicable in the circumstances where a business did not cease.”

16.  For the purpose of considering the matter raised by this issue if it is necessary to consider the definitions in Section 3 of the policy which is headed “Consequential Loss of Revenue”. Clause 13 of the policies read as follows:-

“DEFINITIONS:

With respect to Section 3 of this Policy, the following definitions apply;

13.1 REVENUE means the financial earnings, paid or payable to the Insured for goods sold and delivered and/or services rendered relative to the Insured Business.

13.2 LOSS PERIOD means the period during which the Revenue of the Insured Business has been affected in consequence of Damage from the date of loss to the resumption of the business and thence 180 days.

13.3 REDUCTION IN REVENUE means the amount by which the Revenue during the Loss Period shall, in consequence of Damage, fall short of the Standard Revenue during that period.

13.4 STANDARD REVENUE means the Revenue realized during the twelve months immediately preceding the date of the Damage appropriately adjusted where the loss period exceeds twelve months.

Adjustments shall be made to the Standard Revenue as necessary to determine the trend of the Insured Business, in consideration of variations of the relative economy or other circumstances affecting the Insured Business either prior to, or after the date of Damage, or which would have affected the Insured Business had Damage not occurred, so that the figures as adjusted shall represent as nearly as may be reasonably practicable the results which, but for such Damage, would have been realized during the relative period after the occurrence of Damage.

13.5 PREMISES means the Insured Location including land and buildings thereon owned by, used by, leased to or in the care, custody or control of the Insured.”

17.  As regards the first sub-issue that matter has already been decided under Issues 1 and 2.  The argument on this appeal turned on the meaning of the word resumption.  It was argued strongly by Mr Chua that resumption could refer to the time when the level of business reached the same level as it had done before the SARS outbreak.  As was pointed out in argument, it would be necessary to analyse what that level had been in a comparable period.

18.  However, the short point appears to me to be that, as was pointed out by Mr Manzoni, who appeared on behalf of the defendants, the words “and thence 180 days” would, on the plaintiffs’ construction, be redundant.  If the loss period were construed to mean the whole of the period when there was a reduction in revenue then it would extend until there was no longer any loss in revenue.  There would be no purpose in extending it for a further 180 days because there would be no loss in that period.  The judge referred to this point in paragraph 68 of his judgment.  Although the skeleton argument on behalf of the plaintiffs sought to challenge that, I cannot see that paragraph 30 of skeleton argument assists the plaintiffs.

19.  Clause 13.3 clearly caters for the fact that the loss period can be some thing other than the period in which revenue was reduced.

20.  There might have been an argument on the part of the defendants that might have restricted the loss period far more drastically than the defendants have chosen to argue.  No doubt for sound reasons the defendants are prepared to accept that the loss period extends for 180 days from the time when the actual loss can be said to have been sustained under the provisions of clause 14.5.  Whether one regards the word resumption as being inapplicable when there has been no cessation, as opposed to diminution, of business, or as the defendants’ appear to be prepared to accept, as being simultataneous with commencement of the period of loss when there has been no cessation does not in the circumstances matter.

The fourth issue

21.  The fourth issue was:-

“Should the calculation of Standard Revenue under the Insurance Policies:-

(1) include; or,

(2) exclude,

the effect which SARS had on the revenue of each Plaintiff before 27 March 2003 when, on the Defendants’ case, it became a ‘notifiable human infectious or contagious disease occurring within 25 miles of [Hong Kong]’ ”

22.  The judge decided this issue on the basis that (1) was correct.  He did so because he considered that the period of 12 months immediately preceding the date of Damage was the 12 months prior to 27 March 2003.  That was the date when the loss that was recoverable under the policies commenced.

23.  The judge appreciated that on such reckoning Standard Revenue would include a period when there may have been a downturn in income despite the fact that the notifiable period had not commenced.  Nevertheless, I can see no other way of applying what the judge referred to as the clear terms of the definition in clause 13.4.  In my view, the judge was right.

24.  There was no issue between the parties in respect of the fifth issue.  In the circumstances I would dismiss this appeal and make an order nisi of costs in favour of the defendants.

Hon Stone J:

25.  I agree with the judgment of the Vice President and with the orders he proposes.

Hon Lam J:

26.  I agree.