The Judicial Committee of the Privy Council Decisions

Privy Council Appeal No. 57 of 1995

 

Nicholas Charles Haydon and Others Appellants

v.

(1) Lo & Lo (a firm) and

(2) The World-Wide Marine and Fire Insurance

Company Respondents

 

FROM

 

THE COURT OF APPEAL OF HONG KONG

 

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JUDGMENT OF THE LORDS OF THE JUDICIAL

COMMITTEE OF THE PRIVY COUNCIL,

Delivered the 16th January 1997

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Present at the hearing:-

Lord Goff of Chieveley

Lord Griffiths

Lord Lloyd of Berwick

Lord Hope of Craighead

Sir Christopher Slade

  ·[Delivered by Lord Lloyd of Berwick]

 

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1. These appeals both raise the same question as to the meaning of the words "any one claim" in a policy of professional indemnity insurance.  Both appeals arise out of the fraudulent activities of Yim Chun Kui, a senior clerk employed in the Probate Department of Messrs. Lo & Lo, a firm of solicitors practising in Hong Kong.  Between 1987 and 1989 Yim defrauded the estate of Tang Kwok Kwong ("the Tang estate") of some HK$50m.  Between July and September 1989 he stole shares belonging to the estate of another client, Tso Chak Chun ("the Tso estate") by using a forged power of attorney.  The shares have been valued at just under HK$11m.  On 18th September 1989 Messrs. Lo & Lo wrote identical letters to their insurance brokers, reporting that they might be subject to a claim in respect of each of the two estates.

 

2. The Tang estate brought proceedings against Messrs. Lo & Lo in  1990.   The case came before Liu J. on an agreed statement of facts in January 1994.  The question for determination was whether the events which had happened gave rise to multiple claims against Messrs. Lo & Lo, or one claim only.  The significance of the question lay in the fact that the primary insurance was subject to a limit of HK$5m on any one claim.  Other insurers covered the excess of liability over HK$5m on any one claim up to a maximum of HK$75m.  Liu J. held that the events gave rise to one claim only, thus leaving the excess insurers potentially liable for the difference between HK$5m and HK$50m.

The Tso estate did not bring proceedings against Messrs. Lo & Lo direct.  They were advised to bring proceedings for rectification against the 14 companies whose shares had been stolen by Yim, and transferred to other owners.  The 14 companies joined other parties in the proceedings, who in turn brought in other parties and ultimately Messrs. Lo & Lo as fifth party.  These proceedings also came before the same judge in August 1994 for determination of the same question.  He held that the events which had happened gave rise to multiple claims against Messrs. Lo & Lo, thus leaving the primary insurers potentially liable for the whole of the HK$11m loss.  The judge was not required to determine, nor did he determine, the precise number of claims.

 

3. The excess insurers appealed against Liu J.'s decision in the Tang proceedings.  The primary insurers appealed against his decision in the Tso proceedings.  The Court of Appeal, Power V.-P., Mortimer and Godfrey JJ.A., reversed the judge's decision in the Tso proceedings, thus deciding both cases in favour of the primary insurers, by holding that there were only two claims in all.  The excess insurers now appeal to Her Majesty in Council.  Messrs. Lo & Lo were represented before their Lordships, but took no part.  Their purpose was only to protect their position as to costs.

It is convenient at this stage to refer to the Certificate of Insurance, issued under three Master Policies entered into between the primary insurers and the Law Society of Hong Kong pursuant to the Solicitors (Professional Indemnity) Rules 1987.  The excess policies are in the same terms as the Master Policies.  The main provisions of the Certificate of Insurance are as follows:-

"2.MASTER POLICIES

(a)Subject to the terms and conditions of Master Policies No. ... (`the Primary Master Policies') and of this Certificate, the Insurers agree to indemnify the Insured for that part of the Insured's loss that exceeds the Deductible up to a sum not exceeding the difference between the Deductible and HK$1,000,000 in respect of any one claim hereunder.

 

(b)Subject to the terms and conditions of Master Policy No. ... (`the Excess Master Policy') and of this Certificate, the Insurer agrees to indemnify the Insured for that part of the Insured's loss that exceeds HK$1,000,000 up to but not exceeding a further sum of HK$4,000,000 in respect of any one claim hereunder.

 

3.INSURING CLAUSES

(a)On the terms and conditions herein contained the Insurers shall indemnify the Insured against all loss to the Insured whensoever occurring arising from any claim(s) first made against the Insured during the Period of Insurance in respect of any description of civil liability whatsoever incurred in connection with the Practice or from any such claim(s) made during or subsequent to the Period of Insurance arising out of circumstances notified to the Insurers during the Period of Insurance as circumstances which may give rise to a claim against the Insured.

(b)For the purposes of calculating the Insured's loss any one claim hereunder, Related Costs shall be aggregated with the sum paid in respect of such claim and claimant's costs.

...

(e)For the purposes hereof all claims against all or any of the Insured under this Certificate and/or under any other Certificate(s) issued under the Master Policies arising from the same act or omission shall be treated as one claim hereunder irrespective of the number of Insureds claiming indemnity under such Certificate(s) and/or Master Policy(ies).

...

 

5.GENERAL CONDITIONS

 

(a)(i)The Insured shall not admit liability for, or settle, any claim falling within clause 3 or incur any costs or expenses in connection therewith without the prior consent of the Insurers (such consent not to be unreasonably withheld), and subject to sub-clause (iii) below the Insured shall procure that the Insurers shall be entitled at any time to take over the conduct in the name of the Insured of the defence or settlement of any such claim.

...

 

(b)The Insured shall procure that notice to the Insurers shall be given in writing as soon as practicable of any  claim the subject of the Insuring Clauses hereof received during the Period of Insurance against the Insured.  The Insured shall also give notice in writing to the Insurers of any circumstances which shall come to the notice of the Insured during the Period of Insurance which may give rise to such a claim.  If notice is given to the Insurers under this clause 5(b) any claim subsequently made (whether before or after the expiration of the Period of Insurance) pursuant to such an intention to claim or arising from circumstances so notified shall be deemed to have been made at the date when such notice was given.

...

(e)If the Insured shall prefer any claim hereunder knowing the same to be false or fraudulent as regards amount or otherwise this insurance shall become void only in respect of such fraudulent claim or that fraudulent part of an otherwise valid claim.

 

6.DEDUCTIBLE

This insurance shall not indemnify the Insured:

(a)where the Insured is a sole practitioner at the Relevant Date, in respect of the first HK$30,000 any one claim hereunder;

(b)where the Insured is a partnership, in respect of any one claim hereunder the first HK$20,000 multiplied by the number of Principals in the Firm at the Relevant Date; and

(c)in addition to sub-clauses (a) and (b) above, in respect of HK$15,000 any one claim multiplied by the number of assistant solicitors and consultants in the Firm at the Relevant Date,

PROVIDED that in respect of any Firm the aggregate of the amounts set out in sub-clauses (a) or (b) and (c) above shall not exceed the first HK$200,000 any one claim hereunder."

 

4. The following definitions in the Interpretation Clause (Clause 1) are also relevant:-

"(a)`Deductible' means the amount of any one claim hereunder for which the Insured is not indemnified by the Insurers and which is to be established pursuant to clause 6.

...

 

(i)`Related Costs' means all costs and expenses incurred with the Insurers' consent (such consent not to be unreasonably withheld) in the defence or settlement of any claim against the Insured.

 

(j)`Relevant Date' means the date when a claim the subject of the Insuring Clauses hereof is first made against the Insured or the date, if earlier, when circumstances which may give rise thereto first came to the notice of the Insured."

 

Tang Estate.

The underlying facts in relation to the Tang estate are well set out in the agreed statement of facts, and need not be repeated.  There were 43 separate thefts falling within four broad groups.

(1)  There were 23 thefts of money booked as genuine payments in Messrs. Lo & Lo's ledger account for the estate, but in fact made to a friend of Yim's.  The first of these thefts was on 25th February 1987 and the last on 13th January 1989.

(2)  There were two occasions in July 1987 when Yim stole the proceeds of sales of shares authorised by the estate.

(3)  There were sixteen occasions between 19th January 1989 and 12th July 1989 when Yim sold shares belonging to the estate without authority, and stole the proceeds.

(4)  Finally there were two occasions in March and May 1989 when Yim stole the proceeds of cashier orders drawn on the estates' account in favour of another of Yim' friends.

 

5. Mr. Kentridge Q.C.'s primary argument on behalf of the excess insurers was that each of the 43 separate thefts constituted a separate claim within the meaning of the policy.  Since none of the individual thefts reached the limit of the primary insurers' liability of HK$5m, the excess insurers would, if Mr. Kentridge's argument be correct, escape liability altogether.  As an alternative, Mr. Kentridge submitted that each of the four broad groups constituted separate claims.

 

6. In support of his primary argument, Mr. Kentridge pointed out that the word "claim" in the Certificate is used in two different senses.  It is sometimes used to mean a claim by the insured, Messrs. Lo & Lo, against their insurers under the policy of insurance.  It is in this sense that it is used in clause 5(e).  But in general the word "claim" is used in the sense of a claim against the insured by a third party.  This is clearly the meaning of the word in clause 3(a), where it refers to a "claim first made against the Insured during the Period of Insurance", and again at the end of  clause 3(a)  where  it  refers to "circumstances which may give  rise to a claim against the Insured".  Thus the policy is of a kind which is sometimes known as a "claims made" policy.

If "claim" in clause 3(a) means claims against the insured, as it clearly does, then the next question is whether it bears the same meaning in clause 2(a) and (b), despite the more ambiguous expression "any one claim hereunder".  One would expect the word to bear the same meaning in the two clauses, since they are dealing with closely related subject matter, namely, the sum insured (clause 2) and the risks insured (clause 3).  This is borne out by a close analysis of other provisions in the Certificate.  "Claim hereunder" is often used in the sense of "claim against the Insured giving rise to loss hereunder".  Thus in clause 3(b) "the Insured's loss [in respect of] any one claim hereunder" must refer to a claim against the insured, since Related Costs which are to be aggregated with the sum to be paid in respect of such a claim are defined as "costs and expenses incurred with the Insurers' consent ... in the defence or settlement of any claim against the Insured".  A similar point can be made by reference to clause 6 which provides for different deductibles according to whether the insured is a sole practitioner or a partnership at the "Relevant Date".  "Relevant Date" is defined as the date when a claim is "first made against the Insured".  It follows that "any one claim hereunder" in clause 6 can only mean any one claim against the insured.

 

7. Mr. Hunter Q.C. was tempted to argue at one stage that "any one claim hereunder" in clause 2 might mean any one claim by the insured against the insurers.  It would certainly make his submission easier when one comes to consider the Tso proceedings.  But their Lordships are not persuaded.  The policy as a whole would be unworkable if "any one claim hereunder" in clause 2 meant anything other than any one claim by a third party against the insured giving rise to a loss recoverable under clause 3.

 

8. That leaves open the question whether the Tang estate made one claim under clause 3, or 43 separate claims.  Just as the word "claim" is used in two separate senses in the Certificate, so it can bear two different meanings in ordinary usage.  It can mean a claim for something or a right to something.  Mr. Kentridge submits that it is used in the latter sense in clause 3.  According to this view a claim arises whenever something happens which creates a liability on the part of the insured towards a third party.  Thus in the present case the first claim "arose" when Yim stole the first sum of money on 25th February 1987, even though the theft did not come to light until much later.  A second claim arose when the second theft occurred on 12th March 1987.  When two or more thefts occurred on the same day Mr. Kentridge was prepared to accept that this might constitute only one claim, but he said that it was not necessary to resolve that particular problem.

 

9. Putting it shortly, the effect of Mr. Kentridge's argument is to equate claim with cause of action.  The strength of the argument is that it focuses on the subject matter of the claim rather than the form in which the claim is put forward.  If in every case claim is to be equated with demand for payment by the third party the results could be capricious.  The liability of insurers would depend on the way the third party chooses to formulate his claims.  It is the underlying facts which, he says, should determine the extent of insurer's liability, not the chosen form of claim.  The parties must have intended that the test should be objective and easy to apply.

 

10. In this connection Mr. Kentridge relies heavily on the decision on McNair J. in Australia & New Zealand Bank Limited v. Colonial & Eagle Wharves Limited [1960] 2 Lloyds Rep. 241.  The policy in that case was an All-Risks policy on goods taken out by a firm of wharfingers.  There was an excess of ,100 each and every claim.  During the currency of the policy the wharfingers misdelivered a total of 246 bales on 30 separate occasions.  McNair J. held at page 255 that the word "claim" in the excess clause meant "the occurrence of a state of facts which justifies a claim on underwriters, and does not mean the assertion of a claim on underwriters".  He went on to say (ibid):-

"It seems to me quite absurd that the wharfingers' right of recovery should be determined either by the form of the Bank's letter of claim against the wharfingers or the form of the wharfingers' claim against the underwriters.  In other words, in my judgment, the operation of the Excess Clause is determined by the facts which give rise to the claim and not by the form in which the claim is asserted."

 

11. Accordingly McNair J. held that there were 30 separate claims covering 30 separate misdeliveries, and that the deductible of ,100 applied to each claim.

 

12. Their Lordships agree with Mr. Kentridge that it is the underlying facts which are determinative, and that the formulation of the claim by the third party cannot be decisive of an insurer's liability, whether for the purpose of calculating the deductible, or for any other purpose.  Mr. Hunter on behalf of the primary insurers concedes as much.

 

13. But it does not follow that there was a separate claim whenever a separate cause of action arose, nor that there were, as a consequence, 43 claims.

 

14. In the first place there is a linguistic difficulty.  Just as you cannot "pay" a cause of action (see West Wake Price & Co. v. Ching [1957] 1 W.L.R. 45 per Devlin J. at page 57), so you cannot

15. "make" a cause of action within the meaning of clause 3(a) of the policy.

 

16. Secondly, and more important, it seems unnatural to say, on the facts of the Tang case, that there were 43 separate claims.  The reality is that there was only one demand, namely, the demand made by the Tang estate on Messrs. Lo & Lo.  Although the nature of the demand cannot be decisive, it at least provides a useful starting point in a claims made policy, such as this was.  There is nothing here to displace that first impression.  On the contrary, as soon as the thefts came to light, Messrs. Lo & Lo wrote to their brokers as follows:-

"We write to report that we may be subject to a claim of negligence by the executors and beneficiaries of the above estate the probate and administration of which our firm has been handling.  The extent of the claim is not yet ascertained but may be very substantial and will in any event exceed HK$5 million.  The claim may arise out of possible fraud by one of our employees.  A report of the possible fraud has already been made to the police."

 

17. The subsequent conduct of the parties cannot, of course, throw light on the meaning of the policy.  But the use of the singular is interesting.  It certainly does not bear the stamp of artificiality.  The point was put forcibly by Liu J., when he said:-

"It would be ludicrous for the Estate to even think in terms, such as: `We have over 43 claims of money', or `We are claiming against Lo & Lo 43 times over' instead of: `We have a claim against them to the extent of HK$50 million'."

 

As for Australia & New Zealand Bank Limited v. Colonial & Eagle Wharves Limited it has already been noted that the policy in that case was an All-Risks policy.  Their Lordships do not find the decision of any assistance in the very different context of a claims made policy.  Moreover McNair J. was careful to point out that he was concerned only with the meaning of the word "claim" in its particular setting.  He was far too careful a judge to lay down any general rule, or to suggest that the word would always bear that meaning.

 

18. For similar reasons, their Lordships need not refer to any of the other cases cited in argument, save for West Wake Price & Co. v. Ching, relied on by Mr. Hunter.  The facts of that case were that a clerk employed by a firm of accountants defrauded two of the firm's clients of ,20,000 over a period of about three years.  At page 55 Devlin J. said:-

"I think that the primary meaning of the word `claim' - whether used in a popular sense or in a strict legal sense - is

such as to attach it to the object that is claimed; and is not the same thing as the cause of action by which the claim may be supported or as the grounds on which it may be based."

 

19. A little later he said at page 57:-

"If you say of a claim against a defendant that it is for ,100, you have said all that is necessary to identify it as a claim; but if you say of it that it is for fraud or negligence, you have not distinguished it from a charge or allegation.  In particular, if you identify a claim as something that has to be paid ... it must be something that is capable of separate payment: you cannot pay a cause of action.  It follows, I think, that if there is only one object claimed by one person, then there is only one claim, however many may be the grounds or the causes of action which can be raised in support of it ..."

 

20. It is true that Devlin J. was concerned with causes of action in a somewhat different sense.  Nevertheless he held that there was only one claim within the meaning of the policy, even though there were two distinct causes of action namely a cause of action in fraud and a cause of action in negligence.  Although the point did not arise directly for decision, nobody even hinted that there might be separate claims on each occasion when the fraudulent clerk stole the clients' money.

 

21. Their Lordships have little difficulty in agreeing with the unanimous view of Liu J. and the Court of Appeal that there was only one claim by the Tang estate against Messrs. Lo & Lo -namely a claim for restitution of the loss caused by a dishonest employee of the firm.

 

22. Mr. Kentridge's alternative argument was that even if there were not 43 separate claims, then there were at any rate four separate claims corresponding to the four different ways in which Yim carried through his depredations.  Their Lordships do not find this alternative submission any more persuasive than the main submission.  No doubt dishonesty can take many forms.  But on the facts of this case, the different acts of dishonesty, whether of the same or different kinds, gave rise to only one claim.

 

Tso Estate

As already briefly mentioned, the subsequent history of the claim by the Tso estate differed in one important respect from the claim by the Tang estate.  Instead of bringing proceedings against  Messrs.  Lo  &  Lo, the Tso estate were advised to bring proceedings against the 14 companies for rectification of their share registers.  The 14 companies brought in third parties, some of whom brought in Tai Fung & Co., the brokers, as fourth party, who in turn brought in Messrs. Lo & Lo as fifth party.  The resulting litigation became a procedural nightmare, which was only resolved by an order of Hooper J. in August 1990 for the trial of a representative action.  Thus the important difference between the claim by the Tso estate and the claim by the Tang estate is that the Tso estate did not bring any proceedings against Messrs. Lo & Lo direct.  Does this make a difference?

 

23. Mr. Kentridge's main submission in relation to the Tso estate is the same as his submission in relation to the Tang estate, namely, that there were 31 separate claims corresponding to the 31 parcels of shares stolen by Yim on 8 occasions between 17th July and 4th September 1989 in reliance on the forged power of attorney.  Alternatively, (and still as part of his main submission) he argues that there were at any rate 8 claims, if different parcels of shares all stolen on the same occasion are to be regarded as the same claim.

 

24. But in addition to his main submission, Mr. Kentridge has a further argument on the assumption (which he does not accept) that "claim" in clause 2 means demand.  There was never any claim in that sense by the Tso estate against Messrs. Lo & Lo.  The only direct claims against Messrs. Lo & Lo were the 14 claims made by the brokers, Tai Fung & Co., the 14 claims made by the companies who served notice under Order 16, Rule 8, and numerous claims by third parties who also served notices under Order 16, Rule 8.  On that basis there were very many claims.  The precise number has not yet been determined.

 

25. Liu J. accepted this alternative argument as correct.  He distinguished his earlier decision in the Tang case.  But his decision was reversed in the Court of Appeal.

 

26. As to Mr. Kentridge's main submission, the underlying facts are, in their Lordships' view, in all significant respects the same as in the Tang case.  There was only one plaintiff in all the multifarious proceedings, namely, the Tso estate.  There was only one underlying cause of the plaintiff's loss, namely, Yim's dishonest course of conduct in forging the power of attorney and using it to procure the share transfers.  It was obvious from the start that the loss suffered by the Tso estate would ultimately fall on Messrs. Lo & Lo.  On 18th September 1989 Messrs. Lo & Lo wrote to their insurance brokers in the same terms as in the Tang case.  By 28th September Messrs. Foo & Li had been appointed to act on behalf of the estate in place of Messrs. Lo & Lo.  By 3rd October  Messrs.  Deacons had been appointed to act on behalf of Messrs. Lo & Lo.  The same day they wrote a without prejudice letter to Messrs. Foo & Li denying (or at least not admitting) that Messrs. Lo & Lo were in any way liable to the estate, and suggesting that proceedings be brought against the 14 companies for rectification, a course for which there was "ample authority".  The letter concluded:-

"Our clients will obviously give whatever assistance is necessary in order to achieve a successful outcome to those proceedings."

 

27. Messrs. Foo & Li seem to have fallen for the bait.  On 12th December they issued a writ against the 14 companies, instead of Messrs. Lo & Lo.  In the event, of course, this round about manner of proceeding has only added to the amounts for which Messrs. Lo & Lo are ultimately liable.

 

28. If, as their Lordships have said, the underlying facts are the same in all significant respects, then Mr. Kentridge's main argument that there were 31, or alternatively 8, separate claims must fail for the same reasons as those already given in the Tang case.

 

29. But what about the alternative argument that there were as many claims as there were proceedings brought against Messrs. Lo & Lo by the defendant companies, the third parties and the brokers?  The answer lies in the proposition which Mr. Hunter conceded, that although the formulation of the claim by the third party is a good starting point for determining whether there is one claim or more than one claim, it cannot in all circumstances be decisive.  The Tso claim is an excellent illustration of that proposition.  The estate commenced 14 separate sets of proceedings.  But in reality they all rested on the single claim by the estate to recover the loss resulting from Yim's dishonesty.  The "claims" by the defendant companies and others all stemmed from that one claim.  So far from being decisive of the question in issue on this appeal, the intermediate "claims" were, in truth, irrelevant.  This view of the matter accords with the reasoning of the Court of Appeal.  It also accords with common sense.

 

Conclusions.

It follows that their Lordships will humbly advise Her Majesty that both appeals ought to be dismissed.  The appellants must pay the respondents' costs before their Lordships' Board, together with the costs incurred by Messrs. Lo & Lo.

 

© CROWN COPYRIGHT as at the date of judgment.