Hua Tyan Development v Zurich Insurance Co
Hua Tyan Development Ltd v Zurich Insurance Co Ltd
Hong Kong Court of Final Appeal: Ma CJ, Ribeiro, Tang, Fok PJJ and Lord Neuberger of Abbotsbury NPJ: FACV No.18 of 2013: (2014) 17 HKCFAR 493: 10 September 2014
Mr Bernard Man, instructed by S.K. Lam, Alfred Chan & Co, for the appellant assured
Mr Russell Coleman SC, instructed by Reed Smith Richards Butler, for the respondent insurer
MARINE INSURANCE: DEADWEIGHT WARRANTY: BREACH OF WARRANTY DESPITE NAMED VESSEL WAS STATED TO BE “APPROVED VESSEL”: NO ACTUAL OR CONSTRUCTIVE KNOWLEDGE BY INSURER OF DEADWEIGHT CAPACITY OF VESSEL: NO WAIVER BY INSURER: RECTIFICATION OF CONTRACT REFUSED
The Court of Final Appeal unanimously held that on the true construction of the marine cargo insurance contract in question, the assured was in breach of the deadweight warranty therein. This was despite the fact that the vessel carrying the cargo was stated to be the approved vessel. There was no waiver or estoppel against the insurer as it had no actual or constructive knowledge of the deadweight capacity of the vessel.
This note has been contributed by Ken T.C. Lee, LLB(Hons), PCLL (University of Hong Kong), BCL(Oxon) and barrister-at-law in Hong Kong.
By a marine cargo insurance application dated 2 January 2008, Hua Tyan Development Ltd (the Assured) applied to Zurich Insurance Co Ltd (the Insurer) for marine insurance coverage in respect of a shipment of a cargo of Malaysian round logs from “Malaysian Port” to Zhangjiagang in the People’s Republic of China (PRC) on “MV Ho Feng No.7” (the Vessel) and the amount sought to be insured was US$1,500,000.
The Insurer accepted the application and issued a Marine Cover Note. Against the side heading “Ship” were the words “PER APPROVED VESSEL OR VESSELS TO BE DECLARED AND SUBJECT TO ANY ADDITIONAL SURCHARGE IF REQUIRED”. Against the side heading “Conditions” was the clause “WARRANTED YEAR BUILT OF THE VESSEL NOT OVER 30 YEARS. WARRANTED DWT NOT LESS THAN 10,000” (the Deadweight Warranty). The cover note also stated that the insurance cover would be subject to the terms, exceptions and conditions of the policy to be issued.
The cover note was replaced by a policy dated 11 January 2008. The insured interest was stated to be the logs valued at US$1,555,209 and the Deadweight Warranty was typed out in the policy.
In about mid-January 2008, the Vessel sank and the cargo of logs was totally lost in the course of the stipulated voyage from Malaysia to the PRC. The Assured made a claim under the insurance for the insured value of US$1,555,209. The Insurer rejected the claim on the basis that the Assured was in breach of the Deadweight Warranty. The Vessel’s deadweight capacity was in fact less than 10,000 tonnes.
The Assured commenced action against the Insured to recover US$1,555,209. The Assured contended that there was an inconsistency between the naming of the Vessel as the carrying ship and the Deadweight Warranty and the parties’ intention was clearly to provide insurance coverage for the carriage of logs on the Vessel. Further, the Assured contended that the Insurer had waived the breach of the Deadweight Warranty as it knew or ought to have known that the deadweight capacity of the Vessel was less than 10,000 tonnes. The Assured also sought rectification of the insurance contract to delete the Deadweight Warranty.
The Trial Judge allowed the Assured’s claim, holding that on the true construction of the insurance, the Deadweight Warranty had no effect, as the Vessel was stated to be an “APPROVED VESSEL”. The Assured did not breach the duty of disclosure as the deadweight capacity of the Vessel was information which was readily available on the Internet and available to the parties. In any event, the insurance contract should be rectified to reflect the true intention of the parties.
The Court of Appeal overturned the decision of the Trial Judge and dismissed the Assured’s claim. The Assured appealed to the Court of Final Appeal.
The leading judgment of the Court of Final Appeal was given by Ma CJ with whom all other judges agreed.
Ma CJ was of the view that the Deadweight Warranty was clearly a marine insurance warranty and that s.33(1) of the Marine Insurance Ordinance (Cap.329, Laws of Hong Kong) (the Ordinance) (cf. s.33 of the Marine Insurance Act 1906 of the UK) applied. The definition of a warranty therein included the affirmation of the existence of a particular state of facts.
Where a marine insurance warranty was breached, the insurer was automatically discharged from liability: see Bank of Nova Scotia v Hellenic Mutual War Risks Association (Bermuda) Limited (The Good Luck)  1 AC 233. It provided a complete defence to any claim made under the policy and there did not need to be any causal connection between the breach of a warranty and the loss in respect of which the claim was made: see HIH Casualty and General Insurance Limited v New Hemisphere Insurance Company  2 Lloyd’s Rep 161.
However, a warranty would be ineffective if it was waived: see s.34(3) of the Ordinance (cf. s.34 of the Marine Insurance Act 1906). In this context, waiver meant waiver by estoppel. Three elements had to be established by the party relying on it: (1) a clear and unequivocal representation by the person said to have waived rights, the representor (i.e. the Insurer in the present case), whether by words or conduct, that its legal rights would not be insisted upon; (2) reliance by the representee (i.e. the Assured) on the representation and (3) that it would be inequitable for the representor to go back on the representation (see Argo Systems FZE v Liberty Insurance (Pte) (The Copa Casion)  1 Lloyd’s Rep 129).
The Court held that the mere fact that a vessel was named in a contract of marine insurance did not mean in any way that an insurer was somehow prevented from insisting by way of warranty on that vessel possessing certain characteristics. Nothing in the Ordinance remotely suggested the contrary. There was no inconsistency in the insurance policy between the identification of the Vessel and the existence of the Deadweight Warranty. This analysis was not affected by the fact that the Vessel may have been an “APPROVED VESSEL” as stated in the Marine Cover Note.
With respect to the Assured’s contention of waiver by the Insurer, the Court was of the view that the Trial Judge made no finding that the Insurer had actual knowledge of the Vessel’s deadweight capacity. The Court also rejected the argument of constructive knowledge. Any information to which the Insurer may have had access did not affect the operation of the Deadweight Warranty.
Finally, the Court noted that the relief of rectification would only be granted on the ground of common mistake if the following conditions were satisfied: (1) there must be a common intention in regard to the particular provisions of the agreement in question, together with some outward expression of accord; (2) this common intention must continue up to the time of execution of the instrument; (3) there must be clear evidence that the instrument as executed did not accurately represent the true agreement of the parties at the time of execution and (4) it must be shown that the instrument, if rectified as claimed, would accurately represent the true agreement of the parties at that time: see Agip SpA v Navigazione Alta Italia SpA (The Nai Genova and Nai Superba)  1 Lloyd’s Rep 353.
The Court of Final Appeal held that the finding of the Trial Judge that the inclusion of the Deadweight Warranty must have been an error and did not represent the parties’ common intention, was not justified. It held that, although the Deadweight Warranty was only rarely contained in the marine insurance contracts previously entered into by the parties, the cover notes to these contracts all contained the warranty. Further, had they not contained it, this would nevertheless have not have rendered the Deadweight Warranty ineffective as a term of this insurance contract. The claim for rectification was accordingly rejected.