PANG WAI CHUNG v. HOI TAT RUBBER FACTORY (A FIRM)

1990, No. A7634

------------------------

HEADNOTE

-------------------------

If in any given case the circumstances are such that their policy right to conduct the defence in the name of their insured would not be sufficient to give them their due under the rules of natural justice, then it would in general be right to allow insurers who would be liable to satisfy any judgment given against the insured to be added as a defendant in their own name.

1990, No.A7634

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

-----------------------

J U D G M E N T

-----------------------

1. On the face of it, this is simply an action in which a factory worker, whose hand was crushed in a machine which he was operating, has obtained, in default of notice of intention to defend, interlocutory judgment for damages to be assessed against his employers, he having sued them in negligence and breach of statutory duty.

2. Looking a little bit deeper into it, one detects at once some unusual features in the case. To begin with, the employers are a partnership consisting of the injured man's parents. And the employers' insurers, who were compelled by statute to pay the employees' compensation awarded to the injured man, are suing the employers for reimbursement of the payment which they, the insurers, were compelled to make. They do so on the basis that the employers were in breach of policy conditions by entering into an unauthorised agreement to pay compensation and also by failing to keep certain records which they were bound to keep.

3. Now, the insurers took the stance from the outset that they needed to be joined as a defendant in order to protect their rights in the present action. They would, after all, be liable to pay the injured man under any judgment which he obtained, even though they may then be able to recover against the employers whom they say are in breach of policy conditions. Their application so to be joined was dismissed by a Master. That was followed by the default judgment to which I have alluded. Then came the insurers' application to the Registrar to set aside the default judgment. That application was dismissed by the Registrar on the basis that the insurers had no locus standi to seek a setting-aside in their own name and would not have any such locus standi unless and until the dismissal of their application to be made a party was reversed on appeal.

4. The important thing here is the question of joinder. If the appeal against the Master's refusal of joinder is allowed, then there is - subject to certain arguments - no strenuous opposition to the setting-aside being entertained here and now. The employers do not wish to take the point, in the appeal against the Registrar's decision, that even if the Master was wrong, the Registrar would be right since the Master's decision stood when the matter was before him, the Registrar. If, on the other hand, the appeal against the Master's refusal to permit the insurers to be joined as a party is dismissed, then, it seems to me, the position must be this. The insurers would be perfectly at liberty under their policy rights to take over the conduct of the case so as to contest the claim in so far as it pertains to quantum. And, if so advised, they could also make an application in the employers' name to set aside the default judgment with a view to contesting liability.

5. So there being a right to conduct the defence in the employers' name, why do the insurers wish to be made a party in their own name? That the question which I have just posed arises emerges from, quite apart from anything else, this statement in Diplock, L. J. 's judgment in Gurtner v_. Circuit [1968] 2 QB 587 at pp. 602G to 603C:-

"Clearly the rules of natural justice require that a person who is to be bound by a judgment in an action brought against another party and directly liable to the plaintiff upon the judgment should be entitled to be heard in the proceedings in which the judgment is sought to be obtained. A matter in dispute is not, in my view, effectually and completely "adjudicated upon" unless the rules of natural justice are observed and all those who will be liable to satisfy the judgment are given an opportunity to be heard. In the case of an ordinary insurer, this does not arise in practice, since the standard terms of a third-party liability policy give to the insurer a contractual right to conduct the defence of the running-down action in the name of the assured. But as I read his judgment in the Fire Auto & Marine case, John Stephenson J. would have allowed an ordinary insurer to be added as a party to a running-down action if the policy of insurance did not contain such a term. And this, I think, would be right."

6. That statement is of course predicated in the premise that the right to conduct the defence commonly conferred in policies of insurance of this kind would afford the insurers a full and fair opportunity to test the other side's case and present their own: in other words, that the rules of natural justice would be satisfied by leaving the insurers to their policy right to conduct the defence in the name of the insured.

7. If in any given case the circumstances are such that their policy right to conduct the defence in the name of their insured would not be sufficient to give them their due under the rules of natural justice, then it would in general be right to allow insurers who would be liable to satisfy any judgment given against the insured to be added as a defendant in their own name. Is this case such a case? For the insurers, it is contended that it is. The reasons given are these. First of all, it is said that there are difficulties in obtaining proofs of evidence from the employers, they being opposite parties in another case, namely, the one in which the insurers are suing them for reimbursement of the employees' compensation paid under statutory compulsion. I do not consider this reason to be a good one. The difficulty would not be any the less if the insurers were to become a party in their own name. Indeed, it is suggested on behalf of the injured man that the insurers may well be positively better off in this regard if they were to exercise their policy right to conduct the defence. That may be so. But it does not really matter whether it is so or not. The point is disposed of quite simply on the basis that the insurers would not be better off in regard to proofs by coming into the action in their own name, whether or not they would be worse off by doing so.

8. Secondly, it is said on behalf of the insurers that they may wish to allege a breach of policy condition arising out of the very breach of statutory duty complained of by the injured man, amending the Statement of Claim in the reimbursement action to rely on that breach of statutory duty as constituting a breach of policy condition. And it is said that the insurers would be in an awkward position if they had to say in one action - namely, the one brought by the injured man - that there was no breach of statutory duty, while saying in the other action - namely, the one which they bring - that there was such a breach. That may or may not be so. But I do not see why it would become less awkward if they were forced to say those conflicting things in their own name as opposed to saying one thing wearing their own hat and another standing in the employers' shoes. Indeed, if there would be any such awkwardness, it seems to me that the awkwardness would be, if anything, greater if the conflicting things were said in the same guise as opposed to different guises. And in any event, I do not see it as desirable for, let alone incumbent upon, the Court to assist in creating a situation in which conflicting findings may be made. But whether that is or is not so, the short point here is that this argument fails because the awkwardness - even if not increased by allowing the insurers to do what they want to do - would certainly not be diminished thereby.

9. Thirdly, it is said that it would be an injustice to be the employers to force them to be defended by someone who is suing them. There seems to be two answers to this one. To begin with, it is not an injustice of which the employers themselves have sought to complain. Next, there is nothing in the point, in any event, whoever tries to raise it. The reason is quite simple. There is not the slightest doubt that the insurers would, one way or the other, defend the employers as vigorously as they possibly can in the injured man's action having regard to who would be responsible to pay the injured man if and to the extent that his action succeeds.

10. Fourthly, it is suggested that even if the correct course for the insurers was to have taken over the conduct of the defence, they should nevertheless be allowed to join in the action in their own name in the events which have happened. And that is said on this footing. Some time has passed now since the default judgment was entered, and if the insurers were to be forced back to square one, so to speak, by being left to apply in the name of the employers for the setting-aside of the judgment, then they may be met by the argument that they are somewhat too late, when one looks at the matter as one of discretion, to seek a setting-aside. But it seems to me that if one is to say that the Court should not allow a party to suffer from a genuine - and perhaps understandable - error in the choice of the road down which it ought to travel, then that can be urged as well upon the judge hearing a later application to set aside as upon me this afternoon. I do not think that I ought to say that although the insurers have gone down the wrong road they should be allowed to continue down it because they have gone down it so far already.

11. In these circumstances, it seems to me that the appeal against the Master's refusal of joinder must be dismissed and that the appeal against the Registrar's refusal of setting-aside must likewise be dismissed. I have endeavoured to give my reasons with sufficient detail to explain the basis of it while at the same time avoiding saying anything which could prejudice either of the two actions to which I have been making reference, namely, this one and the reimbursement action - whether at trial or at any earlier stage. In particular, I wish to make it perfectly plain that nothing which I have said is intended either to encourage or to inhibit any setting-aside application which the insurers may make in the name of the employers.

12. All that remain are the acknowledgement which I should make of the assistance which I have received from counsel on both sides and the invitation which I should extend to them to address me on the question of costs.

[Submissions on Costs]

13. The injured man asks for costs. That is not opposed. He asks that he be permitted to proceed to taxation and payment forthwith. That is not opposed either. Finally, he asks for taxation on a common fund basis. That is opposed. I do not think that it is appropriate in all the circumstances to order taxation on any basis other than the ordinary party and party basis; and I leave costs to be taxed on that basis. Therefore, the appeal is dismissed with costs to be taxed on a party and party basis; and the injured man is at liberty to proceed forthwith to taxation and to recover his costs as soon as they have been taxed. Naturally, there will be an order that his own costs be taxed under the Legal Aid Regulations.