Ipsofactoj.com: International Cases [2001] Part 7 Case 8 [CFA]


COURT OF FINAL APPEAL, HKSAR

Coram

B+B Construction Co Ltd[a]

- vs -

Sun Alliance and

London Insurance Plc

CHIEF JUSTICE LI

MR JUSTICE BOKHARY PJ
MR JUSTICE CHAN PJ

MR JUSTICE NAZARETH NPJ

SIR ANTHONY MASON NPJ

18 JUNE 2001


Judgment

Sir Anthony Mason NPJ

INTRODUCTION

  1. This appeal, pursuant to leave granted by the Appeal Committee, concerns the scope of the indemnity provided for in an insurance policy dated 3 January 1994 effected by Pak Kee Transportation Company Limited ("Pak Kee") with the respondent insurer ("the insurer"). The claim for an indemnity by the appellant is unusual in that the claim is not made under an insurance policy effected by the appellant itself; the claim is made under an insurance effected by the appellant's sub-contractor, Pak Kee.

  2. The appellant claims indemnity in respect of sums which the appellant has had to pay

    1. to Cheung Ping, an employee of Pak Kee, who had been injured by the negligence of an employee of the appellant, the contractor;

    2. to Pak Kee, in reimbursement of the amount which Pak Kee had to pay to its injured employee by way of employees' compensation; and

    3. in settlement of costs.

    THE FACTS

  3. On 5 October 1994, nine months after Pak Kee had taken out the policy which is the subject of these proceedings, the appellant engaged Pak Kee to provide labour for the carrying out of H-piles driven works under a sub-contract which obliged Pak Kee to provide employees' compensation insurance "for his labour and for those of his own sub-contractors". Although the sub-contract provided that

    The workmen's compensation insurance policy shall be taken out in joint name of the sub-contractor (i.e. Pak Kee) and [the appellant]

    this was not done.

  4. On 8 October 1994, Cheung Ping was injured at the site of the appellant's works in an accident which was wholly the fault of an employee of the appellant. In Cheung Ping's action for employees' compensation in the District Court against Pak Kee, Pak Kee was ordered to pay employees' compensation in the sum of $198,846.13, interest in the sum of $9,002.82 and costs which were agreed at $12,000.00, all of which were indemnified under the policy.

  5. In September 1997, Cheung Ping brought an action in the High Court against Pak Kee and the appellant for damages for personal injuries. Pak Kee instituted third party proceedings against the appellant to recover the employees' compensation paid under the District Court judgment. In that action, apart from the judgment given by Suffiad J in favour of Cheung Ping against the appellant for $759,797.05, judgment was given in favour of Pak Kee against the appellant in the third party action for the three amounts awarded against Pak Kee in the District Court action. Suffiad J ordered the appellant to pay Cheung Ping his costs of the High Court action and to pay Pak Kee's costs in defending that action and in bringing the third party proceedings, including its costs of defending the appellant's counterclaim in those proceedings.

  6. Suffiad J found that

    (i)

    the works carried out by Cheung Ping at the time of the accident was part of the H-pile driven works which fell within the definition of "Sub-Contract Works" in the sub-contract; and

    (ii)

    Cheung Ping was injured in the course of his employment as a result of the negligence of the appellant's employee.

    THE PRESENT PROCEEDINGS

  7. It was in these circumstances that the appellant commenced the present proceedings by issuing a summons under O.14 and O.14A of the Rules of the High Court for final judgment against the insurer. The insurer then issued a summons seeking an order that the statement of claim be struck out and seeking answers to certain questions of law and for judgment against the appellant if the questions of law were answered in the affirmative.

  8. Yam J answered the questions favourably to the appellant and made an order in terms of its summons and dismissed the insurer's summons. An order for costs in favour of the appellant was made on each summons.

  9. The Court of Appeal (Godfrey VP, Woo JA and Ribeiro JA) allowed the insurer's appeal with costs in the Court of First Instance and the Court of Appeal. It is from that decision that the present appeal is brought.

    THE POLICY

  10. By the policy dated 3 January 1994, which was described as an "Employee's Compensation Insurance" policy, the insurer agreed, for the period of one year from 15 December 1993 to indemnify the insured (which were stated in the Schedule to be "Pak Kee transportation company limited and his contractors") against liability to pay compensation to injured employees in "the Insured's immediate service". The description of the insured which has just been quoted was typewritten as were other details of the particular insurance. The policy was, apart from the particular details, a printed form.

  11. The printed part of the policy recited:

    Whereas the Insured carrying on the Business described in the Schedule and no other for the purpose of this insurance by a proposal and declaration which shall be the basis of this contract and is deemed to be incorporated herein has applied to the Company for the insurance hereinafter contained and has paid or agreed to pay the Premium as consideration for such insurance

  12. The printed part of the policy went on to express the indemnity in these terms:

    Now this Policy Witnesseth that if any employee in the Insured's immediate service shall sustain bodily injury by accident or disease caused during the Period of Insurance and arising out of and in the course of his employment by the Insured in the Business

    The Company will subject to the Jurisdiction Clause and the other terms exceptions and conditions contained herein or endorsed hereon (all of which are hereinafter collectively referred to as the Terms of this Policy) indemnify the Insured against liability at law (including liability under the Legislation set out in the Schedule) to pay compensation and claimant's costs and expenses in respect of such injury and will in addition pay all costs and expenses incurred with its written consent.

    The reference to legislation in the Schedule was "Employee's Compensation Ordinance".

  13. The policy contained a number of Exceptions. The relevant part of the policy was in these terms:

    Exceptions

    The Company shall not be liable in respect of the Insured's liability to employees of contractors to the Insured.

  14. The policy also contained condition 1 which is as follows:

    Conditions

    This Policy and the Schedule shall be read together as one contract and any word or expression to which a specific meaning has been attached in any part of this Policy or of the Schedule shall bear such specific meaning wherever it may appear.

  15. In the Schedule "the Company" was described as "the insurer" and the "class of insurance" was described as "employees compensation", while the business was described as "Transp. / Forwarding Agent / Site Contractor" and the geographical area was described as "HK". The Schedule listed the staff as follows :

    S/NO

    CATEGORY OF STAFF

    NO OF

    EMPLOYEES

    ESTIMATED

    ANNUAL

    WAGE HK$

    1

    CLERICAL STAFF

    4

    418000.00

    2

    DRIVER / DELIVERY / MOTORCRANE OPR

    5

    700000.00

    3

    DELIVERY / TALLYMAN / FOREMAN / SITE WORKER W51

    2

    300000.00

    4

    DELIVERY / STEVEDORE / SITE WORKER W51

    6

    499200.00

    5

    CASUAL DELIVERY / WELDER / SITE WORKER W51

    6

    624000.00

     

     

    TOTAL:

    2541200.00

    The staff so listed were Pak Kee's staff. This does not affect the scope of the indemnity given by the policy.

    THE APPELLANT'S CASE

  16. The appellant's first proposition, which was accepted by Yam J, is that the typewritten words "Pak Kee Transportation Company Limited and his contractors" provide an indemnity to Pak Kee's contractors as well as to Pak Kee. The appellant's second proposition is that the words "the Insured's" and the words "the Insured" where first appearing in the indemnity clause, but not where secondly appearing, should be read as referring to Pak Kee only. A similar construction is to be applied to the first Exception. There is, therefore, on the appellant's case, a difference in the scope of the indemnity given to the appellant as Pak Kee on the one hand and to Pak Kee's contractors on the other hand. Although the indemnity to Pak Kee is limited to liability to its immediate employees, the indemnity to the appellant extends to, and is confined to, liability to the employees of Pak Kee.

    THE INSURER'S CASE

  17. The focus of the insurer's case, accepted by the Court of Appeal, is on the limited terms of the actual indemnity and on the first Exception. The Exception, so the insurer's argument runs, expressly excepts from the insurer's liability "the Insured's liability to employees of contractors to the Insured". So, it is submitted, the appellant's liability to Cheung Ping, an employee of Pak Kee, a contractor to the appellant, falls outside the terms of the indemnity and within the Exception.

    INTERPRETATION OF THE POLICY

  18. The sole issue in this appeal is as to the interpretation of the policy. Godfrey VP in the Court of Appeal made reference to the unenforceability of the policy at the suit of the appellant which was not a party to the policy and gave no consideration for the indemnity. As his Lordship pointed out, the point has not been taken by the insured and, accordingly, the Court must deal with the issue which has been presented by the parties.

  19. The description of the "Insured" in the Schedule includes both Pak Kee and the appellant. So much is now common ground between the parties, although it seems that the insurer argued in the courts below that the indemnity was limited to Pak Kee and its sub-contractors. Once it is accepted that the indemnity extends to the appellant as well as Pak Kee, the critical question is whether the scope of the indemnity extends to the liability in question. The liability in question is the appellant's liability in negligence to Cheung Ping, Pak Kee's employee and to Pak Kee for reimbursement of the employee's compensation it paid to Cheung Ping. A general indemnity against the legal liability of an insured person would under a general liability insurance policy embrace the liability in question here.

  20. Here, however, the policy is not a general indemnity against legal liability. The policy specifically provides otherwise. The express indemnity is against "liability at law (including liabilities under the Legislation set out in the Schedule) to pay compensation" and costs and expenses in respect of an injury sustained by "any employee in the Insured's immediate service". The scope of the indemnity, as so defined, is entirely consistent with the character of the policy as an "Employees' Compensation Insurance" policy.

  21. Giving effect to the instruction in Condition 1 that a word to which a specific meaning has been attached in the Schedule "shall bear such specific meaning wherever it may appear" has the consequence that the expression "the Insured's immediate service" comprehends the immediate service of Pak Kee and the appellant. It is not suggested that the insurance operates as an insurance of Pak Kee and the appellant as a joint employer. Rather it operates as an insurance of their several interests as employers. To read the policy in this way accords with the principle stated by MacGillivray on Insurance Law, 9th ed., First Supplement, 1999, para. 1-187A in these terms :

    Where, therefore, the interests of different people in the same insured property are diverse interests, a policy expressed to insure all the persons interested must be construed as a composite policy insuring each one severally in respect of his own interest. Not only does the language in the policy show that it is intended to cover the different co-assureds separately for their respective interests, but the elements of joint risk, joint interest and joint loss will be absent.

  22. Reading the policy as constituting an insurance of the several interests of Pak Kee and its contractors has the consequence that the indemnity does not extend beyond Pak Kee's liability to employees in its immediate service and the appellant's liability to employees in its immediate service.

  23. In the Court of Appeal, Godfrey VP (with whom Ribeiro JA agreed) considered that the policy should be read so as to provide an indemnity to the appellant as principal contractor against its potential liability to employees of its sub-contractor Pak Kee arising under s. 24(1) and (2) of the Employees' Compensation Ordinance, Cap. 282. These provisions impose liability to an injured employee not only upon the sub-contractor employing him but also upon the contractor who has sub-contracted the relevant work to the sub-contractor, in the event that the sub-contractor does not meet its liability. The terms of the indemnity afforded by the policy do not extend to this liability. This is not surprising. The Ordinance, though imposing an obligation on an employer to insure against liability to his own employees under the Ordinance (s. 40(1)), imposes no obligation upon a principal contractor to insure against the statutory liability imposed by s. 24.

  24. As already noted, the appellant's interpretation of the policy results in Pak Kee's contractor obtaining an indemnity only against its liability to Pak Kee's employees, not against liability to the contractor's own employees, whereas Pak Kee's indemnity extends to its liability to its own employees but not to its liability to employees of its contractors. Viewed in the light of the terms of the policy, this result can only be described as bizarre. Further, it is an interpretation which involves giving different meanings to the word "Insured" in different parts of the policy, particularly in the indemnity provision and the first Exception, contrary to Condition 1.

  25. With a view to displacing the natural interpretation of the language of the policy, the appellant submits that a purposive construction should be adopted so that it extends to indemnify the appellant against liability to Pak Kee's employees. The submission calls in aid the observations of Lord Diplock in Antaios Compania Naviera S.A. v. Salen Rederierna A.B. [1985] AC 191 at 201 and of Lord Hoffmann in Investors Compensation Scheme Ltd v. West Bromwich Building Society [1998] 1 WLR 896 at 913 to the effect that the court should not attribute to the parties an intention that they do not have or that flouts commonsense. The next step in the submission is that, because any contractor of Pak Kee would be expected to insure against its liability to its own employees, pursuant to its statutory obligation under s. 40(1), the policy, on the respondent's interpretation, only protects Pak Kee's contractors against liabilities against which they would be insured in any event. The consequence, so the argument runs, is that, if the policy is to have an effective operation, its purpose must be to protect the appellant (or any other contractor) against liability to Pak Kee's employees.

  26. There are several answers to this submission. The submission not only does violence to the plain language of the policy but also generates an extraordinary difference in the scope of the indemnity given to Pak Kee on the one hand and, on the other, to Pak Kee's contractors. The submission, if adopted, would have a detrimental effect on the scope of the indemnity afforded by the policy to Pak Kee's sub-contractors. The policy was issued well before the sub-contract was entered into between the appellant and Pak Kee. The policy was not entered into in order to protect the appellant specifically. It is common ground that the policy covered Pak Kee's sub-contractors as well as its principal contractors. Indeed, it was probably intended to cover the liability of sub-contractors to their employees rather than the liability of principal contractors though the indemnity is not so confined.

  27. So providing insurance cover for the general class consisting of its contractors (including its sub-contractors) served a real commercial purpose so far as Pak Kee was concerned. By insuring its sub-contractors, Pak Kee protected itself against its potential liability to their employees under s. 24. In this respect, the respondent points out, correctly in my view, that the Court should not assume that all contractors in the construction industry, particularly small contractors, obtain their own policies to comply with the s. 40 requirement. As some sub-contractors are uninsured, it was to the advantage of Pak Kee to ensure that its sub-contractors at least were covered in respect of that liability.

  28. In any event, as the respondent suggests, double insurance is a common event which results in contribution between the relevant insurers. Moreover, had the appellant taken out a Contractors' All Risks policy, which it was obliged to do under its sub-contract with Pak Kee, it would have had double insurance under such a policy and the Employees' Compensation policy which it had taken out with Ming An Insurance Co. Ltd.

  29. So the "commercial reality" is in truth significantly different from the commercial reality upon which the appellant relies and offers no basis for departing from the ordinary and natural interpretation of the terms of the actual indemnity which, quite apart from Exception 1, does not cover the liability in question.

  30. Having reached this conclusion, it is unnecessary for me to deal with the argument raised in the respondent's supplemental case that the appellant's claim has been satisfied under its policy with Ming An Insurance Co. Ltd.

    ORDER

  31. The appeal should be dismissed with costs.

    Mr Justice Bokhary PJ

  32. I too would dismiss this appeal with costs for the reasons given by Sir Anthony Mason NPJ with whose judgment I agree.

    Mr Justice Chan PJ

  33. I agree with the judgment of Sir Anthony Mason NPJ.

    Mr Justice Nazareth NPJ

  34. I also agree with the judgment of Sir Anthony Mason NPJ.

    Chief Justice Li

  35. I agree with the judgment of Sir Anthony Mason NPJ.

  36. The Court unanimously dismisses this appeal with costs.


Cases

Antaios Compania Naviera S.A. v. Salen Rederierna A.B. [1985] AC 191; Investors Compensation Scheme Ltd v. West Bromwich Building Society [1998] 1 WLR 896

Legislations

Employees' Compensation Ordinance, Cap. 282, s.24(1) & (2), s.40(1)

Authors and orther references

MacGillivray on Insurance Law, 9th ed., First Supplement, 1999

Representations

Miss Gladys Li, SC and Mr Anthony Ismail (instructed by Messrs Ip Kwan & Co.) for the appellant

Miss Audrey Eu, SC and Mr Mohan Bharwaney (instructed by Messrs Deacons) for the respondent

Notes

[a] formerly known as Franki Contractors Ltd


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