HONGKONG & SHANGHAI INSURANCE CO. LTD. v. HONG SUN CHUN JOSIAH

HCMP 1893/2000

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1893 OF 2000

____________

_______________

J U D G M E N T

_______________

1. This is an application for declaratory relief under section 10(3) of the Motor Vehicles Insurance (Third Party Risks) Ordinance, Cap.272 of the Laws of Hong Kong. Section 10(3) provides as follows:

"No sum shall be payable by an insurer under the forgoing 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 a 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 it thinks fit, to be made a party thereto."

2. In the present matter, Hongkong & Shanghai Insurance Co. Ltd was the Insurer under a Motor Trade insurance policy No.01-0383930-VCM. The following facts are relevant.

3. On 20 December 1996, the Defendant in the present proceedings Mr Hong signed a proposal to the Insurer through an agent known as Qunfa for third party insurance on a Motor Trade Policy. The proposal stated, amongst other things, the following:

"You [that is the proposer] are to disclose in this proposal fully and faithfully all the facts which you know or ought to know, otherwise the policy issued hereunder may be void."

The proposer was Mr Hong and he stated that his occupation or business was a Motor Service Centre Director. The proposed period of insurance was from 20 December 1996 to 19 December 1997. The vehicle to be insured was basically any motor vehicle, the property of the proposer or in his custody or control whilst bearing Trade Registration number plate No. T8866, commonly known as a "T-Plate".

4. The proposal further stated that Mr Hong had never made any claim under any motor vehicle insurance policy before, and it further stated that he was going to be the only driver. In relation to the questions relating to the proposer, named drivers and regular drivers, all the answers were given in the negative.

5. Towards the end of the proposal, there was a declaration signed by Mr Hong which stated, amongst other things, that he declared to the best of his knowledge and belief that the answers in the proposal were true and complete in every respect, and that all material particulars affecting the assessment of risk had been disclosed. He further undertook that the vehicle to be insured should not be driven by any person whom, to his knowledge, has been refused any motor insurance or continuance thereof.

6. Pursuant to the receipt of that proposal, Mr Patrick Ho Pak Yuen, who was an underwriter with the Insurer, considered the proposal and on the basis of the materials provided in the proposal, he approved the issue of a Cover Note. Subsequently, a Certificate of Insurance and Motor Trade Policy was issued. The effect of the insurance was that any motor vehicle, the property of Mr Hong or in his custody or control for the purpose of being towed, was covered between 20 December 1996 and 19 December 1997 whilst bearing T-Plate T8866 and provided the only drivers were the Defendant Mr Hong or his employees where the latter was driving on the Defendant's order or with his permission and provided also that the vehicle was being used for Motor Trade purposes only.

7. However, 3 days later on 19 January 1997, an accident occurred in which a Madam Tsui Yim Ling was injured by a vehicle bearing Licence Plate No. GW146 which was being driven by a Mr Li Tai Kwok and which was owned at the material time by Mr Chan Pang Chuen. The connection between that accident and the present policy of insurance was that the T-Plate T8866, the subject matter of the policy of insurance, was found in the boot of that vehicle (GW146) which was apparently being used for a wedding.

8. When Mr Hong was questioned by the police as to how it was that the T-Plate was in the boot of the vehicle involved in the accident, Mr Hong, in a statement made on 26 January 2000 to the Police, said that since 1994 (i.e. before the proposal in the present case and the Motor Trade Policy), he had started lending his T-Plate to a friend by the name of Lee Kam Shing who was a vehicle salesman and who carried on the business of the sale and purchase of second-hand vehicles. Mr Lee needed a Trade Licence to drive the second-hand vehicles for demonstration purposes, or for delivery of the vehicles to the customers, but Mr Lee had difficulty in applying for a Trade Licence. Consequently, Mr Hong lent the Trade Licence to Mr Lee Kam Shing, and Mr Hong had no control over the use of the T-Plate nor did he know for what purposes Mr Lee Kam Shing used that T-Plate. Mr Hong did so because Mr Lee paid the premium for the policy.

9. As far as the accident was concerned, Mr Hong did not know the driver Mr Li Tai Kwok. He knew nothing as to how Mr Li Tai Kwok came into possession of the Trade Licence on the day of the accident, nor did he know for what purpose he was driving the vehicle (GW146) which was involved in the accident.

10. On 14 January 2000, the injured person Madam Tsui Yim Ling issued proceedings and notified Hongkong & Shanghai Insurance as the Insurer. The present action for declaratory relief was commenced on 13 April 2000, that is to say within the 3 months' period with is provided for under section 10(3) of the Motor Vehicles Insurance (Third Party Risks) Ordinance.

11. Further, pursuant to that subsection, Hongkong & Shanghai Insurance has on 19 April, that is to say within the 7 days provided in the subsection, served notice on Madam Tsui Yim Ling of the present action. Consequently, if Madam Tsui wishes to do so, she could make herself a party to this action under section 10(3). Although Madam Tsui and her solicitor, the Director of Legal Aid, has been notified of the present action, she has chosen not to make herself a party to the present action.

12. I now come to the issue of whether there has been such material non-disclosure or false representation in a material particular as to entitle the Insurer to avoid the policy under section 10 of the Motor Vehicles Insurance (Third Party Risks) Ordinance.

13. It is clear from the case law starting from Zurich Insurance Co. v. Morrison [1942] 1 AER 529, that there is a heavy onus on an insurer who seeks to avoid a policy under the equivalent Act of Parliament. In Zurich Insurance 533, Atkinson J stated what insurers must show to succeed:

"It is not enough for an insurer to prove a material non-disclosure. To get the benefit of this subsection, he must prove that the policy in question was obtained by that non-disclosure, in other words, he must prove that, but for that non-disclosure, the contract which was obtained would not have been obtained. It is a material averment in an action for rescission based on misrepresentation to aver and to prove that the misrepresentation has been relied upon. So here, the insurer has to satisfy me that [the insured] got a contract which he would not have got but for his non-disclosure."

14. As to what is meant by "material" for present purposes, section 10(5) of the Motor Vehicles Insurance (Third Party Risks) Ordinance provides that in this section, the expression "material" means of such a nature as to influence the judgment of a prudent insurer in determining whether he will take the risk and if so, at what premium and on what conditions, and the expression liability covered by the terms and policy means a liability which is covered by the policy or which would be so covered but for the fact that the insurer is entitled to avoid or cancel, or has avoided or cancelled the policy.

15. Applying those principles to the facts of this case, I am satisfied that there has been such material non-disclosure or false representation of a material particular as to entitle the Insurer to avoid the policy here.

16. The facts show that for some 2 years before this proposal was made by Mr Hong, he had been lending his T-Plate to someone else who was not his employee nor under his control, and the T-Plate was being used for vehicles with which he, Mr Hong, had no connection and which he could not control at all.

17. Further there is evidence that he did so because Mr Lee Kam Shing, his friend, had had difficulty in getting a T-Plate for himself and consequently would not have been able to get a Motor Trade Policy for himself. These were matters which, I am satisfied, would have influenced the judgment of a prudent insurer in determining whether he would take the risk.

18. In the present case, Mr Ho, the Senior Manager of the Business Development Department of the Plaintiff who had approved the issue of the Cover Note, had said on affirmation that had Mr Hong disclosed the matters referred to above, those were clearly matters which would have affected his decision to accept the risk. There was "no way" that he would have approved the insurance if he had known that the Trade Plate would be lent to other persons independent of Mr Hong for their use, when the identities and the details of those other persons together with the use to which the T-Plate might be put were unknown to Mr Hong. Mr Ho further goes on to say that even had full disclosure been made, it would be difficult to conceive of circumstances in which the Insurer might have accepted the risk even at a higher premium or on different conditions.

19. The point of the matter was that the T-Plate, which was the basis of the insurance, would be out of the proposer's control and in the hands of persons and for purposes about whom neither the proposer nor the Insurer knew anything.

20. This is supported by the affirmation of Mr So Kam Chun who is a director and deputy underwriter of the Asian Region of another insurance group who has had 20 years experience in the insurance industry. He has deposed on affirmation to the materiality of the non-disclosure or false representation. He said that those were matters which would have affected a prudent insurer or a prudent underwriter's decision to accept the risk.

21. In particular, the fact that the Defendant Mr Hong was simply going to provide the Trade Plate to an unrelated third party for his use was a flagrant non-disclosure of the most serious kind. It followed in his view that, but for non-disclosure, the policy would never have been issued.

22. I am aware of the serious implications of granting declaratory relief such as that sought by the Insurer in the present case, and I am aware that the Defendant has appeared in person without the benefit of legal representation, although he has been following the proceedings and he has indicated that he understood the implications and was aware of the consequences.

23. However, I have taken into account the matters referred to above which, in my view, satisfy the requirements of section 10(3). I have also taken into account the fact that the injured person has been notified together with her legal advisers but they have chosen not to take the benefit of becoming a party to the present action.

24. Applying the principles which I have referred to above, I take the view that the Plaintiff is entitled to a declaration in terms sought.