Final Appeal No 18/2013 (civil)

IpsofactoJ.com: International Cases [2014] Part 8 Case 8 [CFA]


COURT OF FINAL APPEAL, HKSAR

Coram

Hua Tyan Development Ltd

- vs -

Zurich Insurance Co Ltd

CHIEF JUSTICE GEOFFREY MA

JUSTICE R.A.V. RIBEIRO PJ

JUSTICE ROBERT TANG PJ

JUSTICE JOSEPH FOK PJ

LORD NEUBERGER OF ABBOTSBURY NPJ

10 SEPTEMBER 2014


Judgment

Chief Justice Ma

A. INTRODUCTION

  1. In this appeal, the appellant plaintiff (“the Assured")[1] sought to overturn the decision of the Court of Appeal[2] and restore the judgment given in their favour by the Court of First Instance[3] enabling it to recover the sum of US$1,555,209.00 (together with interest and costs) under a contract of marine insurance (“the Contract”) as against the respondent defendant (“the Insurer”).[4] Liability had been disputed by the Insurer primarily on the basis of an insurance warranty in relation to the deadweight capacity of the relevant vessel under the Contract. The essential question before this Court was whether the Insurer could successfully do so. After hearing submissions from Mr Man, we dismissed the appeal with costs, with reasons to be handed down.

  2. The appeal was brought as of right under s 22(1)(a) of the Hong Kong Court of Final Appeal Ordinance.[5]

  3. At trial, the Assured had also claimed against the broker (Courtesy Insurance Consultants Limited) (“the Broker”) who had arranged cover under the Contract for the Assured. In his judgment, Chung J found the Insurer (as first defendant) liable to indemnify under the Contract, but in the alternative, in the event that the Insurer had been able to deny liability, the Judge would have found the Broker (who was the second defendant) liable to the Assured. In view of this alternative finding, following the appeal of the Insurer being allowed, the Court of Appeal accordingly ordered judgment to be entered against the Broker.[6] The Broker had no involvement in the present appeal either.

    A.1  Facts

  4. Although some of the findings of the trial Judge (and the treatment of them by the Court of Appeal) were contested before this Court, as I shall presently identify, many of the essential underlying facts were uncontroversial.

  5. By a Marine Cargo Insurance Application dated 2 January 2008 (“the Application”), the Assured applied to the Insurer for marine insurance coverage in respect of the shipment of a cargo of Malaysian round logs from “Malaysian Port” to Zhangjiagang in the PRC. The relevant carrying vessel was named as the “MV Ho Feng No. 7” (“the Vessel”) and the amount sought to be insured was US$1,500,000.00.

  6. The application was accepted and a Marine Cover Note (“the Cover Note”) was issued, confirming the insured interest as the logs valued at US$1,500,000.00. Three points are of note in relation to the Cover Note:-

    1. Against the side heading “Ship”, there appeared the words “PER APPROVED VESSEL OR VESSELS TO BE DECLARED AND SUBJECT TO ANY ADDITIONAL SURCHARGE IF REQUIRED”.

    2. Against the side heading “Conditions” was the clause “WARRANTED YEAR BUILT OF THE VESSEL NOT OVER 30 YEARS. WARRANTED DWT[7] NOT LESS THAN 10,000”. I shall refer to that part of this clause relating to deadweight as “the Deadweight Warranty”. This is the critical warranty to be considered in the present case.

    The Cover Note also stated that the insurance cover would be subject to the terms, exceptions and conditions of the policy to be issued.

  7. The policy replacing the Cover Note was dated 11 January 2008 (“the Policy”). The insured interest were the logs, but the value was stated to be US$1,555,209.00. Of note for present purposes were the following on the face of the Policy:-

    1. In the box marked “Vessel” was typed “M.V. HO FENG No. 7 V.712S”, in other words the Vessel and the identification of the relevant voyage.

    2. In the box to identify relevant clauses and conditions, there was typed out the Deadweight Warranty.

  8. The Contract in the present case was contained in the Policy. As we shall see, the true construction of the Policy and the effectiveness of the Deadweight Warranty were critical matters in resolving this appeal.

  9. I should mention at this point that there had been previous dealings between the Assured and the Insurer. As the trial judge found,[8] from 2004 to 2008, over 70 policies of marine insurance had been issued by the Insurer to the Assured. Only in 10% of such policies was there a deadweight warranty and in five policies issued by the Insurer for cargoes carried on board the vessel, there was no deadweight warranty at all. That said, it would appear that although the policies did not contain a deadweight warranty, the cover notes for all such policies did.[9] I shall refer to these facts again later in this judgment.

  10. In or about mid-January 2008, in the course of the stipulated voyage from Kuala Baram Malaysia to Zhangjiagang in the PRC, the Vessel sank and the cargo of logs was totally lost. There is no doubt that, for the purposes of marine insurance, the cargo had been lost incidental to a marine adventure (in other words, a maritime loss).

  11. A claim under the Contract was duly made by the Assured to the Insurer for the insured value of US$1,555,209.00. This claim was rejected by the Insurer on the basis that the Assured was in breach of the Deadweight Warranty: the vessel’s deadweight capacity was less than 10,000 tonnes.[10]

    A.2  The parties’ respective cases

  12. It is convenient to begin with the Insurer’s case in denying liability under the Contract. It was put in simple terms: the Assured could not claim under the Contract owing to the breach of the Deadweight Warranty. The Vessel had a deadweight capacity of less than 10,000 tonnes. As an alternative argument, the Insurer also relied on the failure on the part of the Assured to make proper disclosure of a material fact, namely, the actual deadweight capacity of the Vessel. However, as we shall see, non-disclosure was not relevant in these proceedings.

  13. The Assured’s case was more elaborate; in brief:-

    1. Whatever otherwise might be the effect of the Deadweight Warranty, in the present case it was of no effect since at all material times, the Insurer actually knew or ought to have known that the deadweight capacity of the vessel was less than 10,000 tonnes.

    2. In any event, on a true construction of the Contract, there was an obvious inconsistency between the actual naming of the Vessel as the relevant carrying ship of the insured cargo for the voyage and the Deadweight Warranty. The argument ran essentially along the following lines: the intention of the parties clearly being to have effective insurance cover for the carriage of the cargo of logs on board the Vessel from Malaysia to the PRC, it was simply inconsistent then to be able to deny liability on the basis that the very vessel that was identified under the Contract was somehow
      not covered by reason of the Deadweight Warranty. The intention of the parties that there should be cover should therefore prevail.

    3. Insofar as maybe necessary, by reason of the above matters, the Assured also sought rectification of the Contract to delete the Deadweight Warranty, and also relied on waiver and estoppel.

    I shall deal with these arguments in Sections D to H below.

    B. THE MARINE INSURANCE ORDINANCE CAP 329

  14. It is convenient first to refer to the Marine Insurance Ordinance Cap 329 (“the MIO”). The Ordinance uses the terms “assured” and “insurer”; and I have likewise done so in this judgment in describing the parties. The MIO was enacted in Hong Kong in 1961. Prior to that, although there was undoubtedly much marine insurance cover underwritten in Hong Kong, the insurance industry was content to follow the law and practice of marine insurance in the United Kingdom to govern the position here. In the United Kingdom, the law of marine insurance was codified by the Marine Insurance Act 1906. Underwriters and others in the marine industry in Hong Kong followed the Act but only as a matter of custom. Following Government initiatives in the 1950’s to enact laws relating to the insurance industry,[11] consideration was given as to whether there was a need to enact legislation regarding marine insurance. One of the perceived problems had been over the definition of constructive total loss in a marine adventure. Although the Marine Insurance Act 1906 largely codified the existing law in England, there was an apparent change in the definition of constructive total loss compared with what was arguably the position under common law[12]. In Hong Kong, it was considered by the Government that this potential discrepancy between the Marine Insurance Act 1906 (which was followed by the industry in Hong Kong as a matter of custom) and the common law might cause local insurers to be “embarrassed” and therefore it would be of advantage to the mercantile community to enact an ordinance dealing with marine insurance.[13]

  15. Both parties referred to the MIO in their written Cases and rightly so, for it is the starting point (and often end point) in the consideration of any problem involving marine insurance.[14] The MIO follows almost word for word the provisions in the Marine Insurance Act 1906.[15] The MIO (and the Marine Insurance Act) state they are codifications of the existing law. It is perhaps a tribute to the skill of the draftsman of the Marine Insurance Act – Sir Mackenzie Chalmers (also the draftsman of the Bills of Exchange Act 1882 and the Sale of Goods Act 1893) – that the Act and our Ordinance have remained almost wholly unamended since enactment.

  16. The MIO contains a part specifically addressing the nature of marine insurance warranties: ss 33 to 41. Only s 33 is relevant for present purposes:-

    33.

    Nature of warranty

    (1)

    A warranty, in the following sections relating to warranties, means a promissory warranty, that is to say, a warranty by which the assured undertakes that some particular thing shall or shall not be done, or that some condition shall be fulfilled, or wherebyhe affirms or negatives the existenceofa particular state of facts.

    (2)

    A warranty may be express or implied.

    (3)

    A warranty, as above defined, is a condition which must be exactly complied with, whether it be material to the risk or not. If it be not so complied with, then, subject to any express provision in the policy, the insurer is discharged from liability as from the date of the breach of warranty, but without prejudice to any liability incurred by him before that date.

  17. A number of points ought to be made in relation to this provision:-

    1. The provision defines warranties as promissory in nature and the definition of this term includes the affirmation of the existence of a particular state of facts: s 33(l).

    2. Although no particular form of words is required before a marine insurance warranty is created[16] and the use of the word “warranted” does not conclusively mean that such a warranty exists,[17] nevertheless the use of the word does raise a presumption that a warranty is intended.[18]

    3. Where a marine insurance warranty is breached, the insurer is without more discharged from liability; in other words there is an automatic discharge from liability: see Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Limited (The Good Luck).[19]. It provides a complete defence to any claim made under the policy.[20] There need not be any causal connection between the breach of warranty and any loss suffered by an assured for which a claim is made: see HIH Casualty and General Insurance Limited v New Hampshire Insurance Company.[21]

  18. In the present appeal, reliance was placed by the Assured on waiver. A warranty will be ineffective if it is waived: see s 34(3) of the MIO. Waiver of course takes many forms and it may have different legal meanings depending on the context.[22] In the context of a waiver under s 34(3) of the MIO, in the light of the principle that the breach of a marine insurance warranty results in the automatic discharge of an insurer’s liability[23] , the doctrine of waiver by election is inapplicable and the meaning of waiver is what has been termed waiver by estoppel: see Argo Systems FZE v Liberty Insurance (Pte) (The Copa Casino).[24] This type of waiver, the same as an equitable estoppel,[25] requires three elements to be established by the party relying on it: first, a clear and unequivocal representation by the person said to have waived rights (ie the Insurer in the present case), whether by words or conduct, that the representor’s legal rights will not be insisted upon;secondly, reliance by the representee (ie the Assured in the present case) on the representation; and thirdly, that it would be inequitable for the representor to go back on the representation. See: The Copa Casino at para 39 referring to the analysis of waiver in the shipping context by Lord Goff of Chieveleyin Motor Oil Hellas (Corinth) Refineries SA v Shipping Corporation of India (The Kanchenjunga)[26]; see also Kosmar Villa Holidays Plc v Trustees of Syndicate 1243.[27]

  19. I have dealt with the aspect of warranties in some detail because it was key in the present case. Reference was made by the courts below and by theparties in thisappeal to the duty of disclosure on an assured in a contract of marine insurance, this duty being contained in s 18 of the Ordinance, in that part headed “DISCLOSURE AND REPRESENTATIONS”.[28] For the reasons which appear below, I do not believe that any issue regarding the aspect of an assured’s duty of disclosure under this provision arises at all in the present case. Reference can conveniently be made to s 18(3)(d) of the MIO: it is the consideration of the Deadweight Warranty in this appeal that was crucial.

  20. Finally in the context of the MIO, I would just make reference to s 91.[29] Although the Ordinance is a codification of the law of marine insurance, common law principles continue to apply and this is understood to include principles of equity as well.[30] Relevant here are the rules regarding the rectification of contracts of marine insurance, a topic which will have to be considered later.

    C. THE DECISIONS BELOW

    C.1  Court of First Instance

  21. It is somewhat curious that in the judgment of Chung J, no mention is made of the warranty provisions of the MIO (neither s 33 nor s 34).[31] The Judge dealt with the case as between the Assured and the Insurer under four main headings:- contractual construction, non-disclosure, rectification and estoppel.[32] Subsumed in these topics is the important aspect of the Judge’s findings of fact regarding the state of the Insurer’s knowledge of the deadweight capacity of the Vessel.

  22. On the issue of construction of the Contract, the Judge was of the view that there was a “clear inconsistency” between the naming of the Vessel in the Contract and the stipulation regarding her deadweight capacity.[33] Relying on the passage in para 12-078 of Chitty on Contracts[34] to the effect where a contract contained inconsistent clauses, effect must be given to that part which was calculated to give effect to the parties’ intentions, the Judge took no account of the Deadweight Warranty. He was reinforced in this approach by the fact that in the Cover Note, reference was made to an “APPROVED VESSEL” which, according to the Assured, could only be a reference to the Vessel (she having been named in the Application).

  23. No doubt because this formed a part of the Insurer’s defence to the claim, the Judge then dealt with the question of non-disclosure under s 18 of the MIO. The Insurer’s case was that the Assured had breached the duty of disclosure by failing to disclose the true deadweight capacity of the Vessel prior to entering into the Contract. In rejecting this defence, the Judge held that since the Insurer had as much, if not greater, access to information regarding the deadweight capacity of the-Vessel, this was at least information which was available to both parties. The Judge’s thinking appeared to be that as the Insurer was in the marine insurance business, it would have easy access to information regarding the Vessel’s deadweight.[35] Accordingly, the Judge held that the duty of disclosure was not breached by the Applicant.  The Judge was influenced by the fact that the particulars of a vessel’s deadweight were readily available on the internet.[36]

  24. In view of the Judge’s conclusions on the construction of the Contract and on non-disclosure, he was of the view that it was strictly speaking unnecessary to deal with the question of rectification. The Judge dealt with this issue nonetheless.

  25. Here, the Judge was of the view that since the Deadweight Warranty rarely featured in the previous contracts of marine insurance between the parties[37] and by reason also of the view he had taken on the true construction of the Contract,[38] the insertion of the Deadweight Warranty in the Contract did not represent the common intention of the parties.[39] The Judge also took into account the fact that the person within the Assured’s employment who had been responsible for taking out the relevant marine insurance cover in the present case (a Ms Wong), was not “sufficiently sophisticated or experienced in marine insurance” to appreciate the significance of the Deadweight Warranty, even though she had read it.[40] For these reasons, the Judge would have been prepared to order rectification of the Contract by deleting the Deadweight Warranty. Important for the purposes of this appeal, in dealing with the issue of rectification, the Judge made certain remarks in paras 67 and 70 of the judgment. These remarks formed the basis of the Assured’s submissions before us regarding the issue of the Insurer’s relevant knowledge:-

    1. In para 67(2) of the judgment, the Judge stated his disagreement with the Insurer’s submission “there is no evidence the Insurer was aware of [the Vessel’s deadweight capacity].”

    2. In para 70, the Judge stated that if the Insurer had alleged mistake in the case (it does not matter for present purposes how such a claim could have been made in the first place), by reason of its failure to call evidence, the Judge would have drawn an adverse inference against the Insurer “regarding whether it was aware of [the Vessel’s deadweight capacity].”

    It was contended by the Assured that these two paragraphs in the judgment showed that findings of primary fact were made by the Judge to the effect that at all material times, the Insurer was actually aware of the Vessel’s deadweight capacity.

  26. I shall deal with this aspect in greater detail below.[41] For the time being, it suffices to say that in arriving at these supposed findings of fact, the Judge does not identify any evidence to suggest that the Insurer had actual knowledge, nor is there any. Para 67(2) of the judgment merely makes references to the Insurer’s written submissions at trial setting out its case. In para 70 of the judgment, reference is made to two earlier passages in the judgment,[42] but these passages do no more than to make the point that the particulars of the vessel’s deadweight capacity are available on the internet and that such information would be available to a marine underwriter such as the Insurer. With respect, this went nowhere near supporting a finding of actual knowledge.

  27. The fourth issue dealt with by the Judge was estoppel. I confess it is obscure just what the Judge intended to say on this aspect of the case. It seems to be suggested that since the Broker in the present case must be taken to have passed on to the Insurer the Application, the Insurer was somehow estopped from denying that it did not know that the Vessel was the relevant vessel for the purposes of the Contract. This was not an issue before the Judge: clearly the Contract recognized that the relevant vessel carrying the cargo of logs was the Vessel.

  28. In view of the above, the Judge found against the Insurer and gave judgment in favour of the Assured. The Insurer appealed to the Court of Appeal.

    C.2   The Court of Appeal

  29. The Court of Appeal allowed the Insurer’s appeal and set aside the judgment against the Insurer. Cheung JA, with whose judgment the other members of the Court agreed, dealt with the same four matters determined by the trial Judge.

  30. On the issue of the construction of the Contract, Cheung JA did not see any inconsistency at all per se between the naming of the Vessel in the Contract and the Deadweight Warranty.

  31. However, he saw it may be possible for the Assured to raise some sort of inconsistency argument if it could be established that at the time the Contract was made, the Insurer actually knew of the Vessel’s deadweightcapacity. It is not clear at all from Cheung JA’s judgment just what the legal analysis would be in such a situation and this was not really explained in the judgment. Reference was made to those paragraphs in the judgment of Chung J in which findings of knowledge were said (by the Assured) to have been made,[43] as well as to para 66 of the judgment.[44] Cheung JA could not discern from these paragraphs any proper findings by the Judge of actual knowledge. He concluded “But the Judge never held there was actual knowledge on the part of the Insurer.”[45]

  32. The analysis in relation to knowledge did not end there. Cheung JA then considered the question of presumed knowledge on the part of the Insurer, as to whether the Insurer could be presumed to have knowledge of the Vessel’s deadweight capacity in the present case. Reference was made to s 18 of the Ordinance[46] and consideration was given to what matters could be presumed to be known to a marine insurer. It is not entirely clear from Cheung JA’s judgment precisely what issue he was addressing, but I can only assume that the argument went something like this: if a certain fact can be presumed to be within the knowledge of an insurer, then it might ill behove an insurer to be able to rely on an express warranty in the contract of marine insurance which indicated the contrary fact. No authority was cited to the Court of Appeal to support this proposition except that reference was made to s 18 of the Ordinance. Reliance was placed on an extract from Bennett: The Law of Marine Insurance,[47] where, at paras 4.96 to 4.97 (in dealing with the aspect of presumed knowledge under s 18), it is stated:-

    4.96

    .... A fortiori, insurers are not presumed to know something about insured property merely because it has been published in the media, even when they are marine insurers and the information is published in a specialist media forum targeted at the maritime community.

    4.97

    However, specialist information is increasingly made available through dedicated electronic products. Insurers can subscribe to databases that contain extensive information on, for example, vessels and their owners. Is a hull insurer presumed to know all the information on such a database if the insurer subscribes to it, or even if the insurer does not but a prudent hull insurer would?  The ability to search for and retrieve information with ease distinguishes electronic repositories of information from paper files, strengthens the case for developing the scope of presumed knowledge, and may serve to distinguish Bates v Hewitt were a case with similar facts to arise in the modern era.

    The Assured relies on the same passage in this appeal, but only in the context of non-disclosure under s 18 of the Ordinance. Mr Man placed no reliance on the argument that presumed knowledge may somehow be sufficient to offset the effect of an insurance warranty. This point has not been fully addressed by the parties in the present case but I am sceptical that presumed knowledge in the sense referred to in this case can ever be sufficient to negate the effect of an insurance warranty.

  33. Cheung JA was not persuaded that the Insurer could be said to have acquired actual knowledge or presumed knowledge. The fact that information about the Vessel’s deadweight capacity could be obtained on the internet did not mean that the Insurer was to be fixed with knowledge, whether actual or presumed.  The fact that such information could be obtained did not mean that as a matter of law, it should have been obtained.[48]

  34. On non-disclosure, Cheung JA reversed the Judge’s conclusion on this, although he regarded the relevant question to be considered was the breach of the Deadweight Warranty.[49]

  35. In view of his earlier analysis regarding, the construction of the Contract and the Insurer’s knowledge, Cheung JA said there was no need to deal with the rectification claim. In effect, he was of the view that the Contract, including the Deadweight Warranty, did reflect the parties’ intentions.

  36. On waiver and estoppel, in view of the conclusion on knowledge, Cheung JA did not see any support for the view that the Insurer had waived reliance on the Deadweight Warranty, or was somehow estopped from raising it.

    C.3   This Appeal

  37. As stated above, the Assured appealed to this Court as of right. It sought to challenge both the conclusions and reasoning of the Court of Appeal. In providing the reasons for dismissing the appeal, I shall deal with the following matters in turn:-

    1. The legal effect of the Deadweight Warranty.

    2. The construction of the Contract.

    3. The state of knowledge of the Insured.

    4. Rectification.

    5. Waiver and estoppel.

    6. Non-disclosure.

    D. THE LEGAL EFFECT OF THE DEADWEIGHT WARRANTY

  38. I have already touched upon the law regarding marine insurance warranties.[50] Mr Man accepted that the Deadweight Warranty was a marine insurance warranty and that s 33 of the Ordinance was therefore engaged. There is no doubt that the Deadweight Warranty is a marine insurance warranty. By this warranty, the Assured affirmed a particular state of facts, namely, that the carrying vessel of the cargo (the relevant interest insured under the Contract) would have a deadweight capacity of over 10,000 tonnes.

  39. The legal consequence of the Deadweight Warranty being a marine insurance warranty, as we have seen, is that in the event of breach, an insurer will generally be discharged from liability under the relevant contract of marine insurance.[51] I use the word “generally” because an insurer may be prevented as a matter of law from asserting its rights following a breach of warranty.

  40. In the present case, the Assured contends that the Insurer was prevented from relying on the Deadweight Warranty by reason of any one or more of the following: on a true construction of the Contract, rectification and waiver/estoppel. The Assured maintained more or less the same arguments as it raised in the lower courts.

    E. THE CONSTRUCTION OF THE CONTRACT

  41. It was apparent from Mr Man’s submissions at the hearing that reliance was still placed on the Judge’s reasoning that there was somehow an inherent inconsistency between naming a vessel in a contract of marine insurance and a warranty requirement regarding the deadweight capacity of that vessel (such as the Deadweight Warranty in the present case). Mr Man was right not to seek to advance this point with much enthusiasm; in my view, it is unarguable. The mere fact that a vessel is named in a contract of marine insurance does not mean in any way that an insurer is somehow prevented from insisting by way of warranty on that vessel possessing certain characteristics. Nothing in the Ordinance remotely suggests otherwise. Indeed, the references to express warranties[52] and the various other warranties in the MIO[53] all suggest that they would exist even where the relevant carrying vessel is known to an insurer. Just to give one illustration: it cannot seriously be contended that just because an insurer is aware of the name and voyage of a relevant vessel that the insurer is somehow prevented from insisting on compliance with the warranty of seaworthiness contained in s 39 of the Ordinance.

  42. I see no inconsistency in the Contract between the identification of the Vessel and the existence of the Deadweight Warranty. Nor is the analysis any different by reason of the fact that the Vessel may have been an “APPROVED VESSEL”.[54]

  43. Rather, the Assured’s position was that by reason of the Insurer’s knowledge in the present case of the Vessel’s deadweight capacity, it was prevented from relying on the Deadweight Warranty. The Assured submitted that the Judge made an express finding that at all material times the Insurer knew of the Vessel’s deadweight, that this finding should not be disturbed by this Court and it should not have been disturbed by the Court of Appeal. As the Assured’s Written Case stated, this finding of knowledge “should form the basis of the adjudication of this appeal”.[55]

  44. What is clear from the Written Case and Mr Man’s submissions was that the question of knowledge was central to the success of this appeal. I was content in dealing with the issue of knowledge to assume that if the Assured had succeeded on this aspect, it would then likely succeed in the appeal. The Insurer was prepared to make this assumption as well. But it is right to point out that we have not been extensively addressed on the proper legal analysis to be adopted where an insurer is aware of facts indicating the contrary of what forms the subject matter of an insurance warranty. The legal analysis is not in my view at all straightforward and I daresay that much would depend on the particular facts in any given case. For my part though, contrary to the view taken by the trial judge, the Court of Appeal and Mr Man before us, I find it difficult to accept that the special knowledge of a party to a contract might affect what otherwise would be the true construction (as opposed to the effectiveness) of the terms of that contract. Much less, in the exercise of construing a contract, could a party’s knowledge result in a term of contract being ‘red pencilled’ into oblivion by its total deletion, as Mr Man submitted at the hearing (as far as the Deadweight Warranty was concerned). A party’s knowledge may, however, in some circumstances, result in some form of waiver on estoppel being applicable. Nevertheless, as indicated earlier, we did not hear full submissions on this and I was content to treat as the most important threshold question in the present appeal whether the Assured could succeed in establishing the requisite degree of knowledge on the Insurer’s part. It is to this aspect I now turn.

    F  THE STATE OF KNOWLEDGE OF THE INSURER

  45. The Assured contended first that the trial Judge made positive findings of primary fact to the effect that the Insurer did at all material times have knowledge of the Vessel’s deadweight capacity. Reliance was placed on those parts of Chung J’s judgment to which reference has already been made above,[56] but, as I have attempted to demonstrate, the Judge did not identify any evidence to support such a finding at all, if indeed he did make such a finding in the first place.[57] The Court of Appeal was of the view that no such finding of actual knowledge had been made by the Judge.[58] Nor was Mr Man really able to identify any evidence to justify what he submitted were the Judge’s findings of primary fact.

  46. It was submitted, however, that the Assured having raised a prima facie case on the facts of actual knowledge, this prima facie position should be taken factually to be the established position in the absence of any contradictory evidence adduced by the Insured. In other words, a prima facie case on the facts having been raised, adverse inferences could be drawn from the failure to adduce contradictory evidence, particularly where a party could be expected to provide such evidence;[59] in such situations silence would be fatal.

  47. However, before a prima facie factual situation can be said to exist, there must be evidence adduced of “sufficient cogency” to raise a prima facie case in the first place.[60] The Assured did not reach this threshold. In its Written Case, reliance was placed on the Statement of Claim in which there wasadmittedly a reference (without any particulars) to actual knowledge; reliance was also placed on the fact that information on the Vessel’s deadweight capacity could be found on the internet. These were insufficient by a long way to make out a prima facie case on knowledge.

  48. There being no evidence of actual knowledge, the Assured then tried to make out a case to suggest that some form of constructive knowledge was sufficient. The trial Judge dealt with presumed knowledge on the part of the Insurer in the context on non-disclosure.[61] I have already referred to the way the Court of Appeal dealt with the issue of presumed knowledge in the context of the true construction of the Contract.[62] The Assured’s submissions before us took a rather different turn. As I understood Mr Man’s submissions, put simply, they amounted to this: since the exercise in contractual construction involves the Court taking into account the factual matrix of the relevant contract[63] and the factual matrix includes all facts which may be “reasonably available” to the parties,[64] the Vessel's deadweight capacity in the present case being “reasonably available” to the parties[65] meant that the Insurer was to be taken to have knowledge of the Vessel’s deadweight capacity; the result then is that the Deadweight Warranty should be given no effect.

  49. I cannot agree with this somewhat elaborate argument. The account that one takes of the factual matrix of a contract is to assist in arriving at the true construction of the contract and its terms. It does not have some separate life of its own to undermine or nullify the effect of a clear term of the contract. The meaning and effect of the Deadweight Warranty in the present case is clear and no assistance can be derived by reference to the factual matrix of the Contract.

  50. The Assured’s submissions on factual knowledge must fail, and insofar as some form of constructive or presumed knowledge is relied on, this did not advance the Assured’s case at all. Any information to which the Insurer may have had access did not affect the operation of the Deadweight Warranty.

    G. RECTIFICATION

  51. Mr Man submitted (and I agree) that the correct approach to rectification of a contract where it does not accurately reflect the parties’ true agreement, is that set out in Agip SpA v Navigazione Alta Italia SpA (The Nai Genova and Nai Superba)[66]:-

    As the law stands, the conditions which must be satisfied if rectification is to be granted on the grounds of common mistake may, in my opinion, be summarized as follows:

    First, there must be a common intention in regard to the particular provisions of the agreement in question, together with some outward expression of accord. Secondly, this common intention must continue up to the time of execution of the instrument. Thirdly, there must be clear evidence that the instrument as executed does not accurately represent the true agreement of the parties at the time of its execution. Fourthly, it must be shown that the instrument, if rectified as claimed, would accurately represent the true agreement of the parties at that time: (see generally Snell's Equity, 28th ed. (1982) at pp. 612-614).

  52. In support of its case here, the Assured referred to that part of Chung J’s judgment in which he concluded that the insertion of the Deadweight Warranty must have been an error and did not represent the parties’ common intention.[67] As mentioned above, the Judge arrived at this conclusion by reference to two matters: the fact that the Deadweight Warranty had featured only rarely in the contracts of marine insurance previously entered into by the parties, and the view that the Judge took regarding what he saw as an inconsistency in the Contract between the naming of the Vessel and the Deadweight Warranty.[68] The first reason, however, provides no basis at all for saying that the Deadweight Warranty was therefore somehow ineffective as a term of the Contract. This is notwithstanding even the fact that although previous policies may not have contained a deadweight warranty, the cover notes in relation to such policies did.[69] The second reason is based on the Judge’s construction of the Contract, and that construction, for the reasons set out above,[70] was in error. Further, as indicated earlier, the Judge also seemed to place reliance on the fact that the Assured’s employee (Ms Wong) was not sufficiently sophisticated to appreciate the significance of the Deadweight Warranty.[71] This only has to be stated to be rejected as a ground for rectification and in fairness, Mr Man did not advance any submissions based on this point.

  53. The claim for rectification accordingly failed.

    H. WAIVER AND ESTOPPEL

  54. If the Deadweight Warranty was valid, the Assured contended that there had been waiver on the part of the Insurer. Reference was made to s 34(3) of the Ordinance. Under that provision, as discussed earlier, the meaning of waiver is waiver by estoppel or equitable estoppel.[72] On the facts of the present case, the Assured could not satisfy the requisite conditions for this form of waiver to apply:-

    1. It was the Assured’s case that the Insurer made a representation to it that notwithstanding the Deadweight Warranty and notwithstanding the fact that the Vessel’s deadweight capacity did not comply with that warranty, the Insurer would nevertheless accept the Vessel for the purposes of marine insurance cover under the Contract. According to the Assured, the representation arose by reason of the following matters: the Insurer’s knowledge that the relevant vessel for the voyage was in fact the Vessel, the ease by which the Insurer could have found out about the Vessel’s deadweight capacity (through the internet), the issuance of the Policy and the acceptance of the premium. The Assured is said to have relied on this representation by not taking out any other policy of marine insurance. It was submitted that, accordingly, it would be inequitable to allow the Insurer to rely on the Deadweight Warranty.

    2. This argument fell at the first hurdle. None of the matters relied on, whether singly or cumulatively, could possibly amount to the requisite clear and unequivocal representation contended for. Further, the underlying weakness of the argument, which has pervaded most of the Assured’s contentions in this case, was the insistence there was some fundamental inconsistency between the naming of a vessel in a contract of marine insurance and a warranty going to the existence of a state of facts regarding that vessel (such as deadweight capacity).

    I. NON-DISCLOSURE

  55. Both courts below dealt with the defence advanced by the Insurer that the Assured had breached the duty of disclosure under s 18 of the MIO.[73] In its written Case, the Insurer maintained this defence before us. However, as the Court of Appeal remarked[74] and as Mr Man accepted before us, the present case is really about breach of warranty.

  56. I agree. I do not see the relevance of non-disclosure in the present case, given the existence of the Deadweight Warranty. There is a certain illogicality in defending a marine insurance claim on the basis that a material fact should have been, but was not, disclosed by the assured to an insurer,[75] when that very fact is the subject matter of a marine insurance warranty.[76] Indeed, s 18(3)(d) of the Ordinance states that in the absence of inquiry, any circumstance which is superfluous to disclose by reason of an express warranty, need not be disclosed. To be fair, Mr Coleman accepted at the hearing that non-disclosure was not a relevant issue in the present appeal.

  57. The aspect of non-disclosure not being relevant to consider, it was unnecessary in this appeal to go into the intricacies of s 18 of the MIO. I would like, however, just to comment on one aspect here. There was some discussion in the lower courts and before us regarding the extent of knowledge which can be presumed on the part of an insurer for the purposes of  s  18(3)(b) of the MIO. Reliance was placed by the Assured on passages contained in Prof Bennett’s textbook, The Law of Marine Insurance.[77] By not dealing with this aspect, I should not be taken to accept what is said in these passages. The question of what an insurer is presumed to know in the course of underwriting marine insurance is not altogether a straightforward one and there is a long history of case law.[78]  For a quick reference to this area of marine insurance, one needs only to refer to leading textbooks on this subject matter.[79]

    J. CONCLUSION

  58. For the above reasons, this appeal was dismissed. Quite simply, the Deadweight Warranty was breached and there was no answer to that.

    Justice Ribeiro PJ

  59. I agree with the judgment of the Chief Justice.

    Justice Tang PJ

  60. I agree with the judgment of the Chief Justice.

    Justice Fok PJ

  61. I agree with the judgment of the Chief Justice.

    Lord Neuberger of Abbotsbury NPJ

  62. I agree with the judgment of the Chief Justice.


[1] The Assured was represented by Mr Bernard Man.

[2] Judgment dated 12 August 2013 (Cheung, Chu and Barma JJA).

[3] Judgment dated 6 August 2012 (Chung J).

[4] The insurer was represented in this appeal by Mr Russell Coleman SC.

[5] Cap. 484.

[6] The broker chose not to attend the appeal.

[7] DWT is a reference to the deadweight capacity of a vessel. Generally speaking, the deadweight capacity of a vessel (measured usually in metric tonnes) represents the weight of cargo, fuel, stores and crew which a vessel may carry. It reflects the size and earning capacity or potential of a vessel. Deadweight is often used to calculate premiums due under a marine insurance policy or in the calculation of harbour dues and taxes. Technically, it is calculated by the displacement of water when a vessel is fully loaded compared with when she is unloaded.

[8] Judgment of Chung J at para 20.

[9] See Judgment Court of Appeal at para 7.

[10] She only had a deadweight capacity of about 8,960 tonnes.

[11] Such as the Motor Vehicles Insurance (Third Party Risks) Ordinance Cap 272 and the Third Parties (Rights against Insurers) Ordinance Cap 273 (both enacted in 1951 one immediately after the other).

[12] The main change was contained in s 60(2)(iii) of the Act – our s 60(2)(c) – relating to constructive total loss in the case of damage to goods. This was said to have amended the law represented by Farnworth v Hyde (1866) LR 2 CP 204: see Arnould: Law of Marine Insurance and Average (18th ed) at paras 29-54 fn 288, 29-59.

[13] See Hong Kong Legislative Council: Official Report of Proceedings for 10 May 1961.

[14] The Ordinance only applies to contracts of marine insurance, being contracts whereby an insurer undertakes to indemnify an assured against marine losses, that is to say, losses incident to marine adventure: s 1. There is no dispute the Contract was a contract of marine insurance.

[15] The only differences are minor and cosmetic, mainly the use of different headings or the use of terminology to make the statute a Hong Kong one. Section 92 of the Ordinance is the Hong Kong equivalent of s 1 of the Marine Insurance (Gambling Policies Act 1909), complementing s 4 of the Ordinance (in relation to wagering and gambling).

[16] See s 35(1) of the MIO.  And of course a warranty may be express or implied: s 33(2).

[17] See Arnould at para 19-04.

[18] Arnould at para 19-06.

[19] [1992]1AC 233.

[20] Moussi H. Issa NV v Grand Union Insurance Company Limited [1984] HKLR 137, at 142 A-B (per Sir Alan Huggins VP).

[21] [2001] 2 Lloyd's Rep 161 at para 124 (per Rix LJ).

[22] Kammins Ballrooms Company Limited v Zenith Investments (Torquay) Limited [1971] AC 850, at 882H (per Lord Diplock); Mardorf Peach and Company Limited v Attica Sea Carriers Corporation of Liberia (The Laconia) [1977] AC 850, at 871C (per Lord Wilberforce).

[23] See para 17(3) above; The Good Luck.

[24] [2012] 1 Lloyd's Rep 129, at para 38 (per Aikens LJ).

[25] Whereby contractual rights are effectively renounced: see Equity: Sarah Worthington (2nd ed) at Pg 245 fn 56.

[26] [1990] 1 Lloyd's Rep 391, at 397(1) to 399(2).

[27] [2008] 1 CLC 307, at paras 36 to 38 (per Rix LJ).

[28] Section 18 states:-

18.

Disclosure by assured

(1)

Subject to the provisions of this section, the assured must disclose to the insurer, before the contract is concluded, every material circumstance which is known to the assured, and the assured is deemed to know every circumstance which, in the ordinary course of business, ought to be known by him. If the assured fails to make such disclosure, the insurer may avoid the contract.

(2)

Every circumstance is material which would influence the judgment of a prudent insurer in fixing the premium, or determining whether he will take the risk.

(3)

In the absence of inquiry the following circumstances need not be disclosed, namely-

(a)

any circumstance which diminishes the risk;

(b)

any circumstance which is known or presumed to be known to the insurer. The insurer is presumed to know matters of common notoriety or knowledge, and matters which an insurer in the ordinary course of his business, as such, ought to know;

(c)

any circumstance as to which information is waived by the insurer;

(d)

any circumstance which it is superfluous to disclose by reason of any express or implied warranty.

(4)

Whether any particular circumstance, which is not disclosed, be material or not is, in each case, a question of fact.

(5)

The term “circumstance” (情況) includes any communication made to, or information received by, the assured.

[29] Section 91 states:-

91.

Saving

The rules of the common law including the law merchant, save in so far as they are inconsistent with the express provisions of this Ordinance, shall continue to apply to contracts of marine insurance.

[30] See Howard Bennett: The Law of Marine Insurance (2nd ed) at para 1.47.

[31] Although mention is made in passing of s 17 of the Ordinance: Judgment of Chung J para 59.

[32] Judgment of Chung J at para 40.

[33] Judgment of Chung J at Para 45.

[34] 31sted, 2012.

[35] Judgment of Chung J at para 63.

[36] Judgment of Chung J at para 38.

[37] See para 9 above.

[38] See para 22 above.

[39] Judgment of Chung J at para 66.

[40] Judgment of Chung J at paras 34(c), 68.

[41] Section F below.

[42] Paras 38 and 63 of the Judgment.

[43] Paras 67(2) and 70 of the judgment of Chung J. See para 26 above.

[44] See para 25 fn 39 above.

[45] Judgment of the Court of Appeal para 16.11.

[46] Set out in para 19 fn 28 above.

[47] Earlier referred to in para 20 fn 30 above.

[48] Judgment of the Court of Appeal at paras 16.14 to 16.24.

[49] Judgment of the Court of Appeal at paras 17 and 18.

[50] Paras 16 to 18 above.

[51] See: s 33(3) of the Ordinance; para 17(3) above.

[52] Section 35 of the MIO.

[53] Contained in ss 36 to 41.

[54] See para 6(1) above.

[55] Para 54 of the Appellant’s Case.

[56] Para 67(2) and 70 of Chung J’s judgment; para 25 above.

[57] Para 26 above.

[58] Para 31 above.

[59] See Nina Kung v Wang Din Shin (2005) 8 HKCFAR 387, at paras 367 to 369 (per Ribeiro PJ); R v Inland Revenue Commissioners ex parte TC Coombs & Company [1991] 2 AC 283, at 300 F-G (per Lord Lowry).

[60] See Nina Kung at para 369 (per Ribeiro PJ).

[61] See Para 23 above.

[62] See para 32 above.

[63] See Prenn v Simmonds [1971] 1 WLR 1381, at 1385H (per Lord Wilberforce); Reardon Smith Line Limited v Yngvar Hansen-Tangen [1976] 1WLR 989, at 995G to 997D (per Lord Wilberforce); Investors Compensation Scheme Limited v West Bromwich Building Society [1998] 1 WLR 896, at 912F to 913F (per Lord Hoffmann). These well-established principles of construction apply equally to marine insurance contracts: see Pratt v Aigaion Insurance Company SA (The Resolute) [2009] 1 Lloyd’s Rep 225, at paras 9 to 14 (per Sir Anthony Clarke MR).

[64] The words “reasonably available” appear in the speech of Lord Hoffmann in Investors Compensation Scheme Limited, at 912(H).

[65] By reason of the availability of such information on the internet.

[66] [1984] 1 Lloyd’s Rep 353, at 359 (per Slade LJ). This is an authority dealing with common mistake.

[67] Judgment of Chung J at para 66.

[68] Para 25 above.

[69] Para 9 above.

[70] Para 41 above.

[71] See para 25 above.

[72] See para 18 above.

[73] See Paras 19, 23 and 34 above.

[74] See para 34 above.

[75] Section 18 of the MIO.

[76] Under s 33 of the MIO.

[77] See para 32 above.

[78] Beginning with Carter v Boehm (1766) 3 Burr. 1905 (per Lord Mansfield).

[79] See, for example, Arnould at Ch. 16; Marine Insurance: Law and Practice (2nd ed) by Prof FD Rose at paras 5.23 to 5.87.


Representations

Bernard Man, instructed by S.K. Lam, Alfred Chan & Co., for the Appellant.

Russell Coleman SC, instructed by Reed Smith Richards Butler, for the Respondent.


all rights reserved