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

HCA 46/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 46 OF 2007

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J U D G M E N T

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I.   INTRODUCTION

1.  The Plaintiffs (all belonging to the New World Group) own or operate convention centres, hotels, car parks and related businesses.  Each of the Plaintiffs was insured under one of 2 “Composite Mercantile Policies” issued by the Defendants as insurers.  Exceptionally, the 5^th Plaintiff was insured under both policies.  The policies are practically identical.  The period of insurance under the policies was from 1 July 2002 to 1 July 2003.

2.  The Plaintiffs claim under the policies in respect of business interruption loss suffered as a result of the outbreak of Severe Acute Respiratory Syndrome (SARS) in Hong Kong in 2003.  The Defendants accept in principle that the Plaintiffs are entitled to be indemnified under the policies.  But there is a dispute among the parties as to the scope of the Plaintiffs’ coverage under the policies.

3.  On the Defendants’ application, the Court directed a trial of 5 preliminary issues.  While not consenting to the Defendants’ application, the Plaintiffs did not resist proceeding by way of a preliminary hearing on the 5 issues identified by the Defendants. 

4.  The 5 issues concern the construction of the policies in light of undisputed facts relating to the SARS outbreak in Hong Kong.  The expectation is that the Court’s answers to the preliminary issues will enable the parties to assess the extent of the Defendants’ liability under the policies and so facilitate the settlement of the Plaintiffs’ claims without further recourse to the Court.

II.  BACKGROUND

5.  The chronology below has been taken from a Summary Report entitled “SARS in Hong Kong: From Experience to Action” (the Report) released by a Government-appointed SARS Expert Committee on 2 October 2003.

6.  In late 2002 and early 2003 there was an outbreak of a pneumonia-like disease in Guangdong.

7.  On 10 February 2003 the Hong Kong media reported the outbreak in Guangdong.

8.  On 11 February 2003 the Guangzhou Bureau of Health confirmed that Guangzhou had been affected by an outbreak of an infectious and atypical form of pneumonia.  On the same day, WHO announced that it had received reports from Mainland authorities of an epidemic of acute respiratory syndrome with 300 cases and 5 deaths in Guangdong.  In Hong Kong, on the same day, the Hospital Authority set up a Working Group to consider how to deal with Severe Community-Acquired Pneumonia (CAP).

9.  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 at this date, the reporting of CAP cases remained voluntary.

10.  On 21 February 2003 a Mainland visitor (since known as Patient AA) checked into the Kowloon Metropole Hotel.  AA became the “index patient” for SARS in Hong Kong.  This was because in all likelihood AA was the source of the SARS outbreak here.  WHO suggests that nearly half of the 8,000 or so persons affected by SARS worldwide may be traced to AA or persons who came into contact with him.

11.  On 22 February 2003 AA was admitted to Kwong Wah Hospital.  He died on 4 March 2003.  He was confirmed as having had SARS in mid-April 2003.

12.  On 10 March 2003 some 11 health workers in Ward 8A of Princess of Wales Hospital went on sick leave simultaneously.

13.  On 12 March 2003 WHO placed the international community on high alert about cases of acute respiratory syndrome in Hong Kong, Guangdong and Vietnam.

14.  On 15 March 2003 WHO issued an emergency travel advisory statement.  This identified the disease as “SARS” for the first time.  WHO declared SARS to be a worldwide health threat.

15.  On 22 March 2003 scientists identified a previously unknown corona virus as the cause of SARS.

16.  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.

17.  On 27 March 2003 the Hong Kong Government announced new measures to control the spread of SARS.  Among other things, SARS was added to the list of infectious diseases in the 1^st 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.

18.  On 2 April 2003 WHO advised persons against travelling to Hong Kong.

19.  The number of SARS cases began to abate from mid-April 2003.

20.  On 23 June 2003 the SARS epidemic was officially declared as over.  WHO removed Hong Kong from its list of places with recent local SARS transmissions.  This was because no new SARS cases had been identified in Hong Kong within the preceding 20 days.

21.  Section 3 of the policies provides insurance cover to the Plaintiffs for the “Consequential Loss of Revenue”.  The Plaintiffs’ claims for lost revenue due to the SARS outbreak here fall within Section 3 of the policies.  The parties agree that the policies are governed by Hong Kong law.

III. DISCUSSION

A.  Issue 1

22.  The 1^st question is:-

“On the proper interpretation of the Insurance Policies, and on the facts as set out in the Report, 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?”

23.  Clause 14.5 in Section 3 of the policies provides:-

“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.”

24.  Mr. Charles Manzoni (appearing for the Defendants) contends that SARS became a “notifiable human infectious or contagious disease” on 27 March 2003 when it became mandatory to report SARS pursuant to the Ordinance.  Mr. Chua Guan Hock SC (appearing for the Plaintiffs) suggests that SARS became a “notifiable” disease within the terms of clause 14.5 on 13 February 2003 when the Hospital Authority requested hospitals to report CAP cases or at the latest on 21 February 2003 when AA checked into the Metropole.

25.  As far as “human infectious or contagious diseases” are concerned, there are 2 limbs to clause 14.5.

26.  The first limb concerns the situation in which an infectious disease occurs within the Premises of the Insured.  In such situation, insurance cover under the policies is triggered immediately.  There is no requirement in such situation for the infectious or contagious disease to have become “notifiable”.

27.  In contrast, the second limb imposes more stringent requirements.  Where an infectious or contagious disease occurs outside the Premises of the Insured, cover is only triggered if the relevant disease is “notifiable” and if the disease occurs within 25 miles of the Premises of the Insured.  For the latter criterion of proximity, the parties have proceeded on the basis that, Hong Kong being a small territory, the 25-mile condition is met once SARS occurs anywhere within Hong Kong.

28.  SARS did not in fact occur within the Plaintiffs’ Premises.  The disease only occurred elsewhere in Hong Kong, at the least by 21 February 2003 when AA checked into the Metropole.  So the present case involves liability under the second limb of clause 14.5.

29.  Mr. Manzoni stresses that something more than the occurrence of SARS in Hong Kong (for example, as a result of AA’s presence here) was needed to trigger a liability to indemnify under the second limb of the policies.  That something extra was that SARS must have become a “notifiable” disease.  Mr. Manzoni’s point is that the second limb did not insure the Plaintiffs against the simple occurrence of any human infectious or contagious disease (such as SARS) in Hong Kong.

30.  Mr. Manzoni submits that an informed observer would understand the word  “notifiable” in clause 14.5 to denote diseases which are required to be notified by reason of a mandatory public health regime.  This construction of clause 14.5 (Mr. Manzoni argues) makes sense for at least 2 reasons.

31.  First, the reading is consonant with what can be assumed to be common knowledge.  That is that governments invariably establish mandatory regimes for notification and control of diseases deemed to pose serious public health risks.

32.  Second, the reading posits a precise test as to when insurance cover begins.  One only has to ascertain the date when it became a legal requirement that a disease be notified to the proper health authorities.  Mr. Manzoni contends that commercial parties (such as the parties here) are more likely to have preferred and agreed a clear (as opposed to vague) test for ascertaining the start of insurance coverage.

33.  In oral submission, Mr. Chua accepted that implicit in the word “notifiable” was a sense of obligation.  Thus, Mr. Chua acknowledged that something was “notifiable” because it “should be notified”.

34.  But Mr. Chua argued that “the obligation to notify” inherent in the word “notifiable” may be something which falls short of a legal obligation.  He suggested that SARS became “notifiable” within the terms of clause 14.5 on 13 February 2003.  This is because (Mr. Chua contended)  on that date the occurrence of SARS (or CAP as it was then known) in a patient was something which “should have been notified as a matter of prudence” by hospitals to the Hospital Authority.

35.  I am not persuaded by Mr. Chua’s reading of “notifiable”.  I think that Mr. Manzoni’s construction of the word is the right one.

36.  I do not believe that something which ought only to be notified on a voluntary basis, even if only as a matter of prudence, can be described as “notifiable”.  In my view, the word “notifiable” here imports a legal or mandatory requirement to notify.  The word does not merely connote a course of conduct which everyone is urged (perhaps strongly urged), but not obliged, to follow.

37.  I appreciate that it is in the interest of the Defendant insurers to argue that their liability to indemnify only came into play at a late date.  On the other hand, it is in the Plaintiffs’ interest to argue an early date as triggering the Defendants’ obligation to indemnify under the policies.

38.  There was inevitably a lapse of time before SARS became “notifiable” (whether in the sense advocated by Mr. Manzoni or by Mr. Chua).  Rumours and reports of the disease’s potential virulence were already circulating in Hong Kong, Guangdong and elsewhere in the interim before the disease became “notifiable” (however that word may be understood).  Consequently, even before SARS became “notifiable” (in whatever sense), the Plaintiffs may have suffered disruption to their business as a result of travellers putting off plans to visit Hong Kong or residents staying at home on the strength of the rumours and reports already circulating around.  The Plaintiffs would naturally wish to recoup as much as possible of their lost revenue during this interim, while the Defendants would like to limit any corresponding liability as much as possible.

39.  But it is impermissible to use subsequent events (for instance, what actually happened to the Plaintiffs’ business in the run-up to SARS becoming “notifiable”) to construe a contract such as that evidenced by the policies.  Instead, one has to restrict one’s purview to the factual matrix known to the parties at the time when the policies were respectively executed in October and December 2002.  Bearing that in mind and considering the policies objectively, I doubt that the parties would have understood “notifiable” in the vague sense proposed by Mr. Chua.

40.  When does a disease became “notifiable” as a “matter of prudence”?  The difficulty with Mr. Chua’s submission is that different people may reasonably disagree over what constitutes “prudent” practice.  Person A may deem it “prudent” to notify the authorities once a disease has reached an early stage x.  But person B may on equally compelling grounds think that A is being too alarmist.  B might deem it more “prudent” to wait until the disease has reached a later stage y before feeling any need to notify the authorities.  A and B may properly take their respective views and act upon them, regardless of any urging by the Hospital Authority to report cases of the relevant disease on a voluntary basis.

41.  Given the importance of certainty to commercial persons, I think that it is more plausible that the parties entered into the policies on the basis that they were agreeing a clear-cut test for ascertaining whether a disease was “notifiable”.  In my opinion, more likely than not, the parties entered into the policies on the basis of Mr. Manzoni’s test for “notifiable”.  Mr. Chua’s test would require an examination of the facts in just about every case of an infectious disease, if only to ascertain when (presumably in the view of relevant experts) the same became “notifiable” as a matter of prudence.  I doubt that the parties entered into the policies in the expectation that, almost every time when there was alleged disruption due to an infectious disease occurring in Hong Kong, such a potentially protracted and expensive examination would have to be carried out.

42.  Mr. Chua says that, where there is an ambiguity in an insurance policy, the same should be construed against the insurer.  This is because typically a policy is in the insurer’s standard form and it is the insurer who is relying on the ambiguity to limit or avoid liability under the policy.  While I accept that the contra proferentem rule applies in situations of ambiguity, the meaning of “notifiable” in clause 14.5 is plain.  There is here no ambiguity.

43.  Consequently, my answer to the 1^st question is “27 March 2003”.

B.  Issue 2

44.  The 2^nd question is:-

“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?”

45.  Given my answer to the 1^st question, Mr. Manzoni submits that the answer to the 2^nd question is self-evidently “27 March 2003”.

46.  Mr. Chua, however, argues that, even if SARS did not become “notifiable” until 27 March 2003, the policies still covered loss occurring before 27 March 2003.

47.  In support of his argument, Mr. Chua drew my attention to clause 1.9 of the policies.  That provides:-

“LIMIT OF LIABILITY is the maximum amount payable by the Insurer of any one loss or series of losses suffered by the Insured arising out of any one original source or cause at any one Insured Location, subject to any Sub-Limits of Liability and the application of any Deductible.  The Limits and Sub-Limits of Liability are as set out in the Particulars. 

Each Sub-Limit shall not increase the liability of the Insurer beyond the Limit of Liability.”

48.  Mr. Chua notes that the “original source” of the Plaintiffs’ loss pre-dates SARS becoming “notifiable”.  The original source (Mr. Chua says) was AA who came to Hong Kong on 21 February 2003.  Given clause 1.9, Mr. Chua reasons that, once SARS became a notifiable disease, the Defendants must be liable for all the Plaintiffs’ loss arising from that original source (that is, including loss arising before SARS having become “notifiable” on 27 March 2003).

49.  Any other conclusion (Mr. Chua urges) would be absurd.  This is because the date of SARS becoming a “notifiable” disease would be fortuitous, depending to a greater or lesser extent on how quickly the executive and legislative arms of the Government might act to list SARS in Schedule 1 to the Ordinance.  The date of notifiability would have no bearing (Mr. Chua urges) on the source of loss and on the loss suffered as a result of that source.

50.  I am unable to accept Mr. Chua’s contention.  I do not believe that there is the retrospectivity in coverage for which he advocates.

51.  Clause 1.9 does not define the relevant insured peril under the policies.  Clause 14.5 does this.  All clause 1.9 does is to define the maximum amount for which the Defendants will be liable in the event that an insured peril (such as that defined in clause 14.5) occurs.

52.  Consequently, I do not see how liability under the policies can arise prior to the occurrence of the insured peril defined in clause 14.5.  There is nothing in clause 1.9 stating that, once the insured peril arises, all loss traceable to some original source occurring before the insured peril will be indemnified by the Defendants.

53.  The logical implication of my answer to the 1^st question is that, before the trigger date of 27 March 2003, loss incurred as a result of the presence of SARS in Hong Kong could not have been covered under the policies.  It could only have been once SARS became notifiable on 27 March 2003 and once SARS had occurred in Hong Kong on or after that date that insurance cover under the policies crystallised.

54.  The answer to the 2^nd question is accordingly “27 March 2003”.

55.  Mr. Manzoni points out that the policies include a Time Excess provision in the following terms: “5 days waiting period in respect of consequential loss”.  He notes (and Mr. Chua does not dispute) that the commencement of coverage under the policies would in any event be subject to this Time Excess.  My answer to the 2^nd question should thus be read subject to the Time Excess.

C.  Issue 3

56.  The 3^rd question is:-

“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:-

(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]’?

(2) Is the Loss Period limited to 180 days from the date of loss?

(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?”

57.  Clause 13 of Section 3 defines a number of terms, including in clause 13.2 the expression “Loss Period”.  Clause 13 provides:-

“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.”

58.  Clause 1.15 defines “Damage” as “physical loss, loss of use, damage or destruction”.

59.  It is worth noting Clause 15 on the “Basis of Settlement”.  That stipulates:-

“The Insured is indemnified with respect to actual loss of Revenue and increase in Cost of Working calculated in the following manner:

15.1    In respect of Reduction in Revenue, the amount by which the Revenue shall, in consequence of Damage, fall short of the Standard Revenue less all sums saved during the Period of loss in respect of the charges and expenses of the Insured Business payable out of Revenue as may cease or be reduced as a consequence of the Damage;

15.2    In respect of Increase in Cost of Working, the additional expenditure necessarily and reasonably incurred for the sole purpose of avoiding or diminishing the Reduction in Revenue which, but for that expenditure, would have taken place in consequence of Damage, but not exceeding the amount of the Reduction in Revenue thereby avoided.”

60.  I have effectively already answered question 3(1) in the course of my discussion of question 2.  The loss period cannot pre-date 27 March 2003, the date when SARS became notifiable disease pursuant to the Ordinance.

61.  The outstanding issue in question 3 is the duration of the loss period.  This is what underlies questions 3(2) and (3).

62.  Although their businesses were reduced and suffered loss as a result of SARS, none of the Plaintiffs’ businesses closed or stopped during the currency of SARS.  How then is the reference to “resumption of the business” in clause 13.2 to be applied in determining the duration of the loss period in relation to each of the Plaintiffs’ businesses?  More particularly, what is the end date of the loss period for which the Defendants are liable under the policies.

63.  There are 2 competing constructions of clause 13.2.

64.  Mr. Manzoni submits that the expression “resumption of the business” presupposes that a business was interrupted (in the sense of being temporarily stopped) on or after the date when an infectious disease became notifiable and then re-opened (“resumed”) at some point thereafter.  Since that did not happen in the present case, Mr. Manzoni argues that one must ignore the reference to “resumption of the business” as irrelevant.  The loss period would merely be (Mr. Manzoni concludes) 180 days from 27 March 2003.

65.  Mr. Chua contends that “resumption of the business” does not only refer to the re-opening of a business after a temporary closure.  The phrase (Mr. Chua suggests) may equally refer to a business being interrupted and then “returning to normal”.  By “returning to normal,” Mr. Chua means something like “resuming the level of earnings which a business had previously been realising and which it would have continued to realise but for the happening of the insured peril”.

66.  I am not persuaded by Mr. Chua’s submission.

67.  It is linguistically conceivable that “resumption of the business” relates to the resumption by a business of its previous levels of revenue.  But the problem is such a reading would render meaningless the reference in clause 13.2 to an additional 180 day loss period following “resumption of the business”.

68.  If the initial part of the Loss Period covers the time from the date of loss to the time when a business’ earnings return to normal, what point would there be to extending the Loss Period by another 180 days?  Since, by hypothesis, the initial part continues until one resumes previous earning levels, what further loss could be sustained by a business as a result of the insured peril during the extra 180 days following resumption of normal earning levels?  If Mr. Chua is right, there would be no point to the words “and thence 180 days” in clause 13.2.  But those words must have been inserted in clause 13.2 for a reason.

69.  Mr. Chua suggests that some loss may not become manifest until after a business has resumed its previous earnings following the onslaught of an infectious disease.  But I do not see how that suggestion assists.  If on date x following the occurrence of the insured peril a business’ revenues have returned to normal, how can a subsequent loss or drop in revenue after date x be attributable to the insured peril?  Mr. Chua’s approach appears to me to be contradictory.

70.  For this reason, Mr. Manzoni’s reading of clause 13.2 seems to me the more likely to have been what the parties had in mind.  Where a business ceases, the Loss Period initially runs from the date of loss to the time when the business resumes.  Upon resumption, the business is covered for any additional loss of revenue arising in the ensuing 180 days.  Where a business does not close but continues through the currency of an insured peril, the business is only covered for a period of 180 days.  The initial period from date of loss to date of “resumption of the business” is irrelevant and inapplicable.

71.  I would answer question 3 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.

D.  Issue 4

72.  The 4^th question is:-

“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]’?”

73.  In the course of oral submission, the differences between the parties on this question narrowed.  At the end of the day, Mr. Manzoni and Mr. Chua were both of the view that the answer to question 4 would logically follow from my answers to questions 1 to 3.

74.  Both counsel accepted that clause 13.4 (which defines “Standard Revenue”) envisages 2 different adjustments.

75.  The first paragraph of clause 13.4 requires that one consider a business’ financial earnings “during the twelve months immediately preceding the date of the Damage”.  This 12 month period is to serve as a comparable against which the revenue lost by the business during the coverage of the insured peril can be measured.  But where loss or damage occurs over a period of more than a year, then the 12 months comparable must be “appropriately adjusted” to reflect the longer actual loss period.

76.  The second paragraph of clause 13.4 requires another sort of adjustment.  An adjustment has to be made to Standard Revenue so that it will “represent as nearly as may be reasonably practicable the results which, but for such Damage [that is, the damage arising from the insured peril], would have been realized during the relative period after the occurrence of the Damage”.  In other words, one assumes that everything but the insured peril occurred.  Given that hypothesis, one has to calculate what revenue a relevant business would have earned.

77.  I have held that SARS did not become “notifiable” until 27 March 2003. By that date SARS was unquestionably present in Hong Kong.  Assume (as is likely) that as at 27 March 2003 the Plaintiffs were already losing revenue as a result of the occurrence of SARS here in February 2003.  In that case, the calculation of “Standard Revenue” under clause 13.4 would encompass the twelve months immediately preceding 27 March 2003.

78.  Mr. Chua complains that, on such reckoning, “Standard Revenue” would include the negative effects of SARS on the Plaintiffs’ revenues prior to 27 March 2003 when people were already either avoiding travel to Hong Kong or just staying at home.  “Standard Revenue” would not reflect the Plaintiffs’ revenue in the normal course of events before SARS came on the scene.  “Standard Revenue” would be something less.

79.  While I understand Mr. Chua’s concern, it seems to me that the consequence which he notes is simply the result of applying the clear terms of the definition in clause 13.4.  The result is not absurd or unreasonable.  It is what the parties bargained for and agreed.  The parties had to draw the line somewhere for the purposes of comparing what a business earned before and after the advent of an infectious disease and of measuring the business’ consequent loss due to the disease’s occurrence.  They chose to draw the line at the date when actual damage covered by the insurance is incurred.  As we have seen, cover was not triggered until 27 March 2003.  Standard Revenue must accordingly be assessed by reference to a business’ prior revenue up to at least that date.

80.  The answer to question 4 is thus “include”.

E.  Issue 5

81.  The 5^th question is:-

“Under the Insurance Policies, and on the basis of the claim made in respect of SARS:-

(1) Is each Plaintiff entitled to be indemnified for the costs of claim preparation up to a limit of $100,000 for each Plaintiff; or,

(2) Does each of the two Insurance Policies, on its true construction, limit the total amount recoverable in respect of claim preparation to $100,000?”

82.  Clause 18.8 of the policies deals with “Claims Preparation Cost”.  It provides:-

“The Insured is indemnified with respect to reasonable professional fees and such other expenses necessarily incurred by the Insured for the preparation of claims under this Policy for up to HK$100,000.”

83.  The answer to question 5 depends on whether the policies constitute joint or composite insurance.

84.  The policies expressly describe themselves as “Composite”.  Colinvaux’ Law of Insurance in Hong Kong (2009 ed.) para.13.003 (p.522) explains the significance of a policy being “composite” as follows:-

“Where two or more persons are insured under a single policy, it is important to determine whether the policy is joint or composite, in that the former is regarded as a single contract whereas the latter is a bundle of contracts.  The distinction is based on the nature of the interests of the assureds.  If the assureds share a common interest in the insured subject matter, for example where they are joint owners of property or partners, the policy is joint.  By contrast, if the parties have different interests, as in the case of a landlord and tenant or a mortgagor and mortgagee, the policy is composite...”

85.  Mr. Chua submits that the policies are expressly stated to be “composite” because each of the Insured under the policies has a different insurable interest.  For example, the 1^st Plaintiff owns a hotel, the 2^nd Plaintiff operates a private club, the 3^rd Plaintiff operates a gym and sauna, and the 6^th Plaintiff is responsible for a car park.  All 4 entities may run their businesses out of the same Insured Location (as defined in the policies).  But, their businesses being different, the insurable loss that each might suffer from interruption by an insured peril could not be of the same nature.  As a result, Mr. Chua concludes that the $100,000 limit in clause 18.8 applies to each of the claims by the individual Plaintiffs in this action.

86.  Mr. Manzoni, on the other hand, argues that the policies constitute a joint insurance.  This is because (according to Mr. Manzoni) the Plaintiffs are listed in the Particulars of the policies in a section entitled “Named Insured” and, in respect of each policy, there is only one “Insured Location”.  Mr. Manzoni also notes clause 1.9 on “Limit of Liability” which refers to “the maximum amount payable ... for any one loss or series of losses suffered by the Insured ... at any one Insured Location”.

87.  I am not persuaded by Mr. Manzoni’s submission.

88.  I agree with Mr. Chua that the policies are “composite” in recognition of the fact that different interests are insured under them in respect of each of the “Named Insured” businesses.

89.  The fact that the Plaintiffs operate out of the same premises would not alter the fact that they have different interests. For instance, a mortgagor and mortgagee may both take out insurance in relation to the same premises, but that does not mean that they have the same interest within the property insured.

90.  As for clause 1.9, read in context, the provision must be using the singular “Insured” as shorthand for each of the “Named Insured” under a policy.

91.  Mr. Manzoni prays in aid the word “claims” in clause 18.8 to argue that the $100,000 limit applies to all claims (however many) made by any Named Insured (however many and however different their interests).  But I am unable to see how the use of the plural “claims” is indicative of anything.  A particular Plaintiff may bring one or more claims during the effective period of a policy.  I do not think the use of the plural by itself implies that different claims by different Plaintiffs are all subject to a single limit of $100,000.

92.  I would answer the 5^th question as follows:-

5(1):   Yes.

5(2):   No.

IV. CONCLUSION

93.  SARS became a “notifiable” human infectious or contagious disease within the terms of the policies on 27 March 2003.  Loss incurred prior to that date is not covered by the policies.  Since the Plaintiffs did not cease business due to SARS in Hong Kong, the applicable loss period is 180 days. The policies are composite, so that each Plaintiff may claim up to $100,000 of its cost of claims preparation.

94.  The Defendants have largely (but not entirely) prevailed.  There will be an Order Nisi that the Defendants are to have 80% of their costs as against the Plaintiffs.  Costs are to be taxed, if not agreed.  As this trial of preliminary issues may be regarded as an event in itself, costs are not to be “in any event”.

95.  Within 28 days of this Judgment, the parties are to agree and submit directions for the determination of all outstanding issues in this action.  There will also be a general liberty to apply.