MOHAMMAD SHAHID v. FAME RICH CO LTD AND ANOTHER

HCPI 990/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

PERSONAL INJURIES ACTION NO. 990 OF 2007

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D E C I S I O N

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1.  Mr Shahid was employed by Fame Rich as a casual labourer on a construction site owned by The Hongkong Electric Company Ltd.  Wo Hing was the principal contractor with Hongkong Electric.  Mr Shahid says that he has suffered a back injury as a result of all in the course of his work on 29 December 2004.  He says that his injury was as a result of the negligence and/or breach of statutory duty on the part of Fame Rich and/or Wo Hing.

2.  Fame Rich has Employees’ Compensation insurance with Wing Lung.  The policy contains a non-contribution clause in the following terms:

“This Policy does not indemnify the Insured in respect of any claim arising in connection with the performance or execution of any contract or sub-contract by the Insured for any employer/principal, main contractor/principal contractor, direct contractor, specialist contractor, nominated sub-contractor or any other parties by whom an employees’ compensation insurance (either annual or specific to that contract or sub-contract) has been effected and has included the employees of the Insured therein.”

3.  Fame Rich is a subcontractor to Pui Hing Construction Co Ltd which is in turn a subcontractor to Wo Hing.  In terms of its sub contract with Wo Hing, Pui Hing was obliged to take out appropriate insurance.  Fame Rich is a wholly-owned subsidiary of Pui Hing, which in turn is owned by the Pui Hing Group Ltd Corporation, Key Ltd (Samoa) Corporation, and Mr Ricky So.  Mr So is a director of all three companies.

4.  By reason of the non-contribution clause the policy held by Fame Rich with Wing Lung is not at risk, and Wing Lung has denied liability under the policy.

5.  The solicitors for Wing Lung asked Fame Rich whether or not they intended to file an Acknowledgement of Service of the Writ.  In response, Fame Rich merely sent the pleadings they had received to Wing Lung. Wing Lung’s solicitors then asked Fame Rich to file the Acknowledgement, with a denial of liability, in order to preserve the position, while they took instructions from Wing Lung.

6.  Apparently all of these letters have been passed on to the solicitors for Fame Rich.  It transpires that Pui Hing holds insurance with Bank of China Insurance Company Limited.  The solicitors for Fame Rich have not replied to any of the correspondence from the solicitors for Wing  Lung.  Mr Lam who was present at that hearing for Fame Rich said that he had “no instructions to respond to the letters”. 

7.  Having regard to the relationship between the various companies I am completely unable to understand why Mr. Lam should take such an obstructive, uncooperative, and unhelpful a position.  He did not even have, he said, “instructions to be able to explain” the situation to me.  It is entirely unsatisfactory that a solicitor should come to court holding such instructions.  It seems clear from the whole of the circumstances that a little discussion in cooperation with the relevant insurers will ensure that his client is properly protected in respect of this claim.  Instead for some unknown reason he apparently prefers to allow his client to be exposed to the risk of indemnity to Wing Lung.

8.  That arises of course, because by virtue of ss 43 & 44 Employees Compensation Ordinance, (EOC), Wing Lung will be liable to Mr Shahid on any judgment.  Fame Rich will, by virtue of the non-contribution clause, the obliged to indemnify Wing Lung on any judgment.

9.  The solicitors for Mr Shahid are aware of the situation.  By letter to Wing Lung’s solicitors they have stated categorically that Wing Lung, as insurer, will be required to meet any judgment.

10.  Wing Lung sought to protect their interests by seeking agreement from Fame Rich that they should take over the defence on a non-waiver basis, subject to appropriate conditions.  Once again, neither Fame Rich nor their solicitors have responded to that correspondence.  Once again, Mr Lam is quite unable to offer me any satisfactory explanation as to why he should not have responded, other than to say that he has no instructions to respond to the letter.

11.  Mr Clement, for Mr Shahid, opposes the joinder of Wing Lung on two grounds.  First, relying upon Oriental Fire & General Insurance Co Ltd v Cheuk Ma Yee [1980] HKC 32, he says that Mr Shahid’s proceedings are not proper venue for Wing Lung to deal with its dispute with Fame Rich.  He says that decision is authority for the proposition that Wing Lung could take over the defence, that being an act which is not inconsistent with an assertion that Wing Lung is not in any event liable.  Second, he says that the proposed joinder will delay progress on Mr Shahid’s claim, and that is unfair to Mr Shahid.

12.  Mr Sakhrani argued that while it is right that the taking over of the defence is not inconsistent with the assertion that an insurer is not liable on its policy, it is clear from Chu Yuen Wah v Lee Kwok Kee & Anor [1995] 2 HKLR 280 at 285, that if the contract is rescinded by the insurer, and the facts later found justify that rescission, then the contract is rescinded ab initio.  Thus to take over the defence would approbate the policy.  It was for that reason, that Wing Lung sought to conduct the defence on a non-waiver basis.

13.  But the circumstances of this case are not that of Chu Yuen Wah, where the insurer argues that his contract is void ab initio.  In the present case Wing Lung relies upon the terms of the contract to say that it is not liable to Fame Rich on the policy.  Instead this is a case which falls within the category of the Oriental Fire type of case, where the insurer relies upon the contract to argue that he is not liable to the insured.

14.  However, I accept the proposition of Judge Carlson in Sami’an Sutinah v Leung Wai Kuen Katrina, [2002] 2 HKC 706 (DC), that where there was clearly a potential liability under s 43 EOC an insurer had a right to be heard in respect of its potential liability.  That must follow from the plain provisions of s 43(3) ECO:

“If sufficient notice of the institution of proceedings for the recovery of compensation or damages is given to an insurer to enable such insurer to apply to be added at a party to the proceedings, the court or tribunal, as the case may be, shall, on such application being made, add the insurer as a party and the insurer shall have the same right to defend the proceedings as if such insurer a were the employer.” (emphasis added).

It is to be noted that by use of the expression “shall”, the insurer is given a right to be joined and defend.  It is entirely right that an insurer, whose funds are at risk whether or not the policy will require payment to the insured should, in the interests of natural justice, be able to protect its interest: see Gurtner v Circuit & Anor [1968] 2 QB 587 and Chu Yuen Wah at 286.

15.  In simple terms, Mr Clement cannot have it both ways.  He wants the insurer to be aware of the proceedings so that it will meet any judgment, but in circumstances where the insurer is unable to come to terms acceptable to it to take over the defence, he says they should not be able to have any say in the conduct of the action.

16.  In the whole of the circumstances of this case it is just that Wing Lung should be joined as a party in order that it may protect its interests.  Nothing substantive has been shown to me to indicate that there will be any delay in resolving Mr Shahid’s claim by this joinder. Wing Lung are entitled to joinder and to conduct the defence.  That action does not amount to an approbation of the contract, because in this case Wing Lung do not say the contract has been rescinded, instead relying upon the contract to deny liability to Fame Rich.

17.  There will accordingly be an order in terms of the summons of 18 April 2008, save and except that costs on the summons are reserved.  By reserving costs it is open to either Mr Shahid or Wing Lung, at the end of the day, to seek costs against Fame Rich whose entirely uncooperative attitude to these proceedings has brought about the unnecessary expenditure involved in this application and the consequences of the application.