CHUNG NAM MEDICINE CO. LTD. v. THE TAI PING INSURANCE COMPANY LIMITED

1986, No. A707

IN THE SUPREME COURT OF HONG KONG

HIGH COURT

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JUDGMENT

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1. This claim gives rise to an interesting point of construction upon what is described as a policy of Burglary Insurance issued by the defendant, the Tai Ping Insurance Company Limited. The plaintiff, Chung Nam Medicine Co. Ltd. owns two other businesses which are conducted from adjoining premises in Lai Chi Kok Road. The first business trades under the name Chung Po Medicinal Company from shop premises at the ground floor of No. 54 Lai Chi Kok Road, and there sells various forms of medicine. These premises I shall call the shop. Next door Chung Ho Supermarket trades from the ground floor of Nos. 50-52 Lai Chi Kok Road. There is also a cock-loft at those premises. This business I shall call the supermarket. 'A plan in the bundle of papers before me at page 16 shows the layout of the two premises. It shows a dividing wall between shop and supermarket with a gap in it. The gap is rather like a doorway. It is in no way enclosed. It is "controlled" only by a turnstile. This permits persons to walk freely from the shop into the supermarket, but not the reverse. There is no way into the turnstile from the supermarket. This is done because customers in the supermarket do not want to be encouraged to avoid the check-out.

2. These two businesses both started in January 1984. I have before me two insurance policies, both dated 7th January 1985, which are said to be renewals of policies with 84 reference numbers. The inference is that the insurance was first taken out in identical terms in January 1984. But I am, for the purposes of this case, concerned with the insurance cover in 1985. Two things particularly emerged for this.

3. First, the parties chose to write two separate policies in identical terms. One policy covered the goods in the shop and was taken out in the name of the medicinal company, the other policy covered the goods in the supermarket and was taken out in the name of that company. Secondly, there was one alarm system fitted for both premises. There was no requirement in the policy nor attempt to protect the premises from each other. Insofar as the parties seem to have adopted perimeter defence against thieves, the perimeter was drawn on the outside of both premises.

4. In order to understand the issue in this case, it is necessary to refer to substantial parts of the shop policy. As I say, it was described as a "Burglary Policy". There is mention in the recital of a proposal but neither party has put that document before me. It goes on, to provide cover in these terms : "the company agrees that if at any time during the period of insurance stated in the schedule ..... the property or any part thereof described in the schedule shall be LOST BY THEFT OR DAMAGED BY THIEVES FOLLOWING UPON AN ACTUAL FORCIBLE AND VIOLENT ENTRY into and upon the premises stated in the schedule containing the property of the insured ....... whilst the same are in the occupation of the insured as described in the schedule, and not left unoccupied, then subject to the terms, conditions and exceptions stipulated therein or endorsed thereon, the company shall pay to the insured the actual value at the time of loss thereof of the property so lost".

5. The schedule describes the insured as Chung Po Medicinal Company. The address is "Ground Floor, 54 Laichikok Road"; occupation "retail sale of patented medicine". The premises are described as a shop, situation as above. The property is "insured medicinal materials". There are two endorsements. One is described as a first loss endorsement to which I need not refer. The second is an alarm and protection clause to which I will turn in a moment. At the bottom of the schedule there is a special endorsement in Chinese characters, the official translation. of which is : "This policy does not cover loss due to secret theft with no force in gaining entry or violent behaviour".

6. The material parts of the alarm and protection clause are as follows :

"It is a condition precedent to the liability of the Company under this insurance that

 

7. As I have said there had to be a burglar alarm system approved by the Company and maintained in that state. The system in existence in January 1985, and I infer installed in 1984, was a single system covering the two shops together. There was a maintenance contract with the installers who checked whenever any problems arose with that system. The control panel for the system was situated in the supermarket. The key to the system was also kept in a particular hiding place in the supermarket.

8. That was the state of affairs on the night of 7th/8th August 1985 when the burglary occurred. The thieves attacked the premises at a point in the wall of the supermarket indicated with an arrow on the plan before me. Photographs show that they succeeded in making a hole in the wall at that point of the order of 3' square. A quantity of cement had to be removed to effect that opening, and the reinforcing bars within the concrete were revealed and bent open. Once inside the premises, the thieves had ready access to both supermarket and shop. The control panel was torn apart and the wires torn open. Whether it was that, or the entry through the wall which set off the alarm system, I know not. All I know is that it did in fact operate. The thieves then went to the turnstile. There was no evidence of any violence used here, as it in fact only stands rather less than 4 feet high. I infer they simply stepped or jumped over it. Once in the shop, from its shelves and showcases they stole a quantity of medicines, Ginseng and so forth. The total value of this has agreed at $392,000. The plaintiffs now claim that sum from the defendant under the shop policy.

9. Four defences to that are raised in the pleadings which I will deal with in ascending order of importance. The first is that the goods stolen were not kept in the shop. I think this is merely an alternative way of trying to raise the fourth point and it was never really pursued at all.

10. Secondly it was said that there had been a breach of paragraph (c) of the alarm and protection clause upon the basis that the burglar alarm system had not been maintained in good order. It was not in issue that there was a maintenance contract with the installing company, and that the installing company came to the premises whenever there was any malfunction or suspected false alarm. But it was said that because there were certain malfunctions and false alarms that in itself showed that the system was not maintained in good order. This postulated reading this convenant in the quite extraordinary sense of demanding that no burglar alarm, although properly maintained, should ever hic-cup or malfunction at all. With respect, there is simply no merit in that suggestion at all. I am a little surprised that an attempt has been made to read a condition precedent to liability in that way.

11. Thirdly, it said that there has been a breach of paragraph (e) of the alarm and protection clause. This is a more formidable point, because the key was kept in the supermarket at the time of the theft. It was not found, and its presence there in no way contributed to the theft or the break in at all. In other words its presence had no causative effect. Generations of Judges have deplored the present state of the law which permits insurers to rely upon a breach of a condition precedent which had has no impact whatever upon the loss. But that is the state of the law, and an insured can only look at the market and make their own choice.

12. Whether this breach is made out in this case depends upon the meaning of the word "premises", because the requirement is that all keys are "removed from the premises when the premises are closed for business". The premises referred to in the alarm and protection clause are : (a) "the premises containing the insured property" and (b) "when the insured premises are closed for business". That can only mean the shop at 54 Laichikok Road. The same conclusion results from the terms of the cover itself : "in and upon the premises stated in the schedule containing the property of the assured whilst the same are in the occupation of the insured". Upon that construction on the policy, the premises here, in my judgment, can only mean No. 54. Therefore there was no breach of this condition because the key was not in 54, it was in the supermarket next door. In fairness to Mr Fan for the insurers, this was his alternative submission advanced, I think, to discourage the Court from putting an extended meaning upon the word "premises" in relation to his principal point of objection to this claim to which I will now turn.

13. This is that there was on the facts here, "no forcible and violent entry into and upon the premises". There was certainly actual entry; but no force or violence, he pointed out, was used at the turnstile at all. He submitted that to bring the claim within the cover, the insured must point to force and violence at that point, the point of entry into the insured's premises. Mr Yau for the plaintiff seeks to meet that by saying that there was ample, if not massive, force and violence used to gain entry to the premises in a sense that considerable force and violence was needed to penetrate the wall of the supermarket. He invites the Court to construe the policy in such a way that such force and violence suffices. This is the crucial question of construction in this case, and I have been reminded of a number of authorities indicating the proper approach to this question.

14. The first, there is the decision of the Court of Appeal in Hong Kong in Grand Union Insurance Co. Ltd. v. Far East Mfty. Hairgoods Co. Ltd.⁽¹⁾ where at p. 978 the Court said this :

"In construing a document such as the insurance policy in the present appeal the golden rule is that the words used are to be given their natural and ordinary meaning in the absence of any evidence as to their secondary meaning. And it is proper when construing an insurance policy, to pay regard to the object of such a policy. (See Leo. Rapp Ltd. v. McClure). "

Secondly, my attention has been directed to the simple and compelling phraseology of Collins L.J. in In re George and Goldsmiths and General Burglary Insurance Association⁽²⁾ at p. 610 when he says, again in the context of a burglary policy:

"All I have to do is to look at the words which they have used, and try to give them their plain and common-sense meaning. "

And thirdly, when one looks at the decision of Lao. Rapp Ltd. v. McClure⁽³⁾, again in the context of a burglary policy, Devlin J. as he then was, said that "one is entitled to have regard to what is the object of the policy and the object of the policy is concerned with the question of security"

15. When one comes to the terms of the policy in this case, there are regrettably nothing like so clear as one would have wished. The cause is not difficult to detect. The defendants have chosen to use a print which was 19th century in origin in England, strikingly similar to that which was before the Court in Collins case in 1899. They have left in the description "Burglary Policy" without qualification notwithstanding that there has been a radical alteration in the law of burglary in recent years. Thirdly they have added to the policy the specific endorsement or chop in Chinese, the translation of which I have already read.

16. These pieces of the puzzle have in some way to be reconciled. Take first the description Burglary Policy. It is now sufficient to constitute burglary in the context of theft, if a person enters a property unlawfully, i.e. as a trespasser, either (1) with the intention of stealing or (2) proceeds to steal. That is the effect of section 11 of the Theft Ordinance, Cap. 210. So there is no longer any need for there to be force or violence of any sort associated with that entry. That has been the law of Hong Kong since 1970.

17. There is no doubt that a Court when construing a burglary policy, is construing a private bargain between the parties. But the extent to which it should have regard to the technical criminal meaning of words used drawn from the criminal law has given rise to some judicial differences of approach in the past. First in the case of George to which I have already referred, the particular terms of the policy there, and particularly, the use of phrase "as hereinafter defined" justified the Court of Appeal in its view in substantially disregarding the criminal law and the technicality of the criminal law. In the Court below, Kennedy, J. (as he then was) forcibly expressed his opinion in these terms:

"This is a policy expressed to be against loss by burglary and house breaking, and from my part, seeing that those words are fairly well understood, I think the policy cannot be read so as to deprive the assured of protection in the way contended for by the respondents. " P. 603.

Not so, said the Court of Appeal, and at least one number, flatly refused to consider the criminal law as expressed in Hale.

18. Then in the slightly less precise language of the policy in Re Calf and the Sun Insurance Office⁽⁴⁾, this view certainly did not deter Atkin L.J. from referring to Hale and to the criminal law and founding his construction of the policy upon it, and thus as he said "giving effect to the business needs or the business intentions of the policy". p.383. Thirdly, Lord Sumner, as he had then become, stuck to his original view. In Lake v. Simmons⁽⁵⁾, where questions of construction arose on another theft policy, he said this:

"I dissent from the view that criminal law should be treated as irrelevant merely because a document is commercial. ''

I am therefore minded to approach the problem upon the basis that the meaning of the word in the criminal law is at least very relevant to its construction, particularly when you find a technical criminal word like "burglary" used. But when you look at this policy, it is obvious that if any effect is given to the words "forcible and violent entry" that to describe this as a burglary policy is exceedingly misleading, because neither of those requirements is presently a part of the law of burglary at all. In George's case Mr A.T. Lawrence, Q.C. argued that very similar words in the policy there meant no more than "unlawful entry". The Court of Appeal in that case said that it was impossible to accept that having regard to the specific terms of the policy, and in particular the use of the phrase I have just referred to. It seems to me that there is much greater force in that argument here, having regard to the present law of burglary. But I do not think that it is necessary for me to go as far as that to determine this case. I am content to follow the lead of Atkin L.J. in Calf where he said: "It is to be remembered in construing this policy that it is intended to meet the case of burglary and house breaking though in the limited sense stated in this policy". I am prepared to treat these references to forcible and violent entry as emasculating or imposing a very severe limitation upon the use of the word "burglary" in this policy. But it is not a very satisfactory feature of this case to find such a misdescription appearing in a policy of this nature, and I sincerely hope that the defendant company will reconsider the form of their policy.

19. Next in the policy comes the terms of the cover itself; "following upon an actual forcible and violent entry into and upon the premises". These are the words upon which Mr Fan for the defendants founds. The premises, he says here, must mean no. 54, and I agree. The entry point into no. 54 was the turnstile. No force was used here at all. Therefore he submits on the true construction of those words, there was no actual and forcible violent entry at this point that night.

20. Conversely Mr Yau relies substantially upon the chop at the foot of the schedule to the policy which he submits, I think, rightly, must be regarded as an endorsement upon it. This, he submits, is a particularly important endorsement. It is what the parties themselves have added to the print. They have added it in Chinese, and bearing in mind that both parties are Chinese, that is of particular significance. A very small issue arose in argument about the translation of these Chinese characters. Mr Fan suggested an alternative translation which includes the words "no sign of forcing in or violent behaviour". But the effect seems to me to be substantially the same as that of the certified translation before me.

21. Mr Yau takes two points on this. First of all, he emphasises the negative : "No force, no violent behaviour at all" proceeding the theft. Here he says, that there was plainly both violence and force which proceeded the theft; the violence and force which broke through the wall of the supermarket. Secondly he submits that unlike the earlier words in the policy, there is no precise requirement here of "force" or "violence" at any particular point of entry into the shop. He took the case of a watchman. Supposing, he says, that a watchman had been employed, and had been incapacitated and overpowered in the supermarket. Could there be said to have been no violence, or force sufficient to fulfil the policy although when once he had been overpowered, the thieves were able to walk in over the turnstile?

22. There is a fourth material consideration to my mind. That is the subject matter itself. The subject matter was a shop interconnected with a supermarket, insured by two separate policies but with one approved alarm system; where no protection was suggested or required by the policy of one of the premises from the other. It is therefore plain to my mind that the object of each policy was to secure the goods in the particular premises against intruders to both premises, it being accepted as transparently obvious that entry into one gave simple means of access into the other. Putting the matter another way, there was adopted perimeter defence around them both. To construe the policy as the defendants here suggest, in effect, would deprive both policies of a major part of their content.

23. I believe that the correct approach to a problem like this was that suggested by Lord Ellen borough as long ago as 1803 in the case of Robertson v. French⁽⁶⁾ which is set out in full in the speech of Lord Halsbury, L.C. in Glynn v. Margetson⁽⁷⁾. Lord Ellen borough there points out that Insurance Policies are governed by the same rules of construction as any other document, that the Court has first to read them in their plain, ordinary, and popular sense unless the words require a particular sense or ....

"unless the context evidently points out that they must in the particular instance and to effectuate the immediate intention of the parties to that contract, be understood, in some other special and peculiar sense. The only difference between policies of assurance and other instruments in this respect is that the greater part of the printed language in them being invariable and uniform has acquired from use and practice a known and definite meaning, and the words superadded in writing ...... are entitled nevertheless, if there should be any reasonable doubt upon the sense and meaning of the whole, to have a greater effect attributed to them than the printed words, in as much as the written words are the immediate language and terms selected by the parties themselves for the expression of their meaning, and the printed words are a general formality adapted equally to their case and that of all other contracting parties upon similar occasions and the subject. "

24. In my judgment both aspects of that principle apply here. In the first place, the "context" here is the subject matter to which I have already referred; namely, the existence of interconnected premises covered by two separate policies with one alarm system. I am satisfied that the intention of the parties and the object to the policy, namely security, can only be met in this case if entry into and upon the insured premises, i.e. the shop, includes entry into premises, i.e. the supermarket, to which the insured premises are connected both physically and by a common alarm system. Secondly, in my judgment the general words and content of the Chinese endorsement here which constituted the immediate language and terms selected by the parties themselves confirm this, and can, if necessary, be given greater effect than the printed words. On both those grounds, which I find equally persuasive, I come to the conclusion that the loss here falls within the terms of this policy properly so construed; that the claim succeeds; and there must be judgment for the plaintiff for the agreed sum which is $392,000.

(1)    [1976] H.K.L.R. 974

(2)    [1899] 1 Q.B. 595

(3)    [1955] 1 Lloyd's Law Rep. 292

(4)    [1920] 2 K.B. 366

(5)    [1927] App. 487 at 509

(6)    [1803] 4 East 135

(7)    [1893] A.C. 351, 357