2012

DAH SING INSURANCE SERVICES LTD v. GILL GURBUX SINGH

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FACV18/2015GILL GURBUX SINGH v. DAH SING INSURANCE SERVICES LTD
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CACV 255/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 255 OF 2012

(ON APPEAL FROM DCCJ NO. 1467 OF 2008)

________________________

BETWEEN

	DAH SING INSURANCE SERVICES LIMITED	Plaintiff
	and
	GILL GURBUX SINGH	Defendant

________________________

Before: Hon Cheung, Yuen and Kwan JJA in Court

Date of Hearing: 21 April 2015

Date of Judgment: 27 April 2015

________________________

JUDGMENT
________________________

Hon Cheung JA:

1. I agree.

Hon Yuen JA:

2. I agree with the judgment of Kwan JA.

Hon Kwan JA:

LEAVE TO APPEAL

Introduction

3. On 23 December 2013, this court allowed the appeal of the plaintiff and set aside the award of damages being the subject of the counterclaim made by Deputy District Judge K H Hui. The counterclaim for damages arose out of (1) the plaintiff’s failure to report to the Insurance Agents Registration Board of the termination of the defendant’s appointment as its technical representative within seven days of termination, contrary to the Code of Practice for the Administration of Insurance Agents (“the Code”); and (2) the plaintiff’s failure to report the defendant’s Continuing Professional Development (“CPD”) credits to the Hong Kong Federation of Insurers (“HKFI”) within time, contrary to the Guidance Note (“the Note”) issued by HKFI.

4. In the judgment of this court (“the CA judgment”), it was held that (1) there is no cause of action for breach of statutory duty simpliciter founded on the breaches of the Code and the Note; (2) there is no cause of action based on a common law duty of care arising from the imposition of the statutory duty or from the performance of it, nor is there a viable claim in negligence; and (3) in respect of the claim for damages for loss of income for the plaintiff’s failure to report the termination of the defendant’s appointment, the defendant failed to establish that any loss of income was caused by the plaintiff’s breach.

5. The defendant seeks discretionary leave to appeal to the Court of Final Appeal on the basis there are questions of law arising in the intended appeal of great general or public importance. He also seeks leave to appeal on the “or otherwise” ground. Three questions are formulated for this purpose in the amended notice of motion.

Question (1)

6. This question reads:

“Whether the Court of Appeal should, on its own motion, make a finding (such finding being erroneously made) to overturn a fact which has been agreed by the parties, and which remained undisputed by the parties when the case was before the Court of Appeal”.

7. Apart from contending that this raises a question of law of great general or public importance, the defendant also relied on this for the “or otherwise” ground, there being exceptional circumstances for leave to appeal to be granted.

8. The relevant parts of the CA judgment are §§77 to 79. The point made there was that the concession made by the plaintiff’s witness was incorrect in the light of two pieces of evidence, being clause 19 of the Code and a document entitled “Insurance Agents Registration History” relating to the defendant.

9. Causation was an issue raised in the skeleton argument of the plaintiff’s counsel (at §§37 and 49.3) and was addressed in the skeleton argument filed by the defendant (at §4.15). But the two pieces of evidence were not mentioned by either party and was raised by the court in the course of the arguments.

10. The defendant’s complaint is that the court should not have relied on those two pieces of evidence to overturn the concession of the plaintiff’s witness without giving an opportunity to the defendant to explain (which explanation has now been provided by the defendant in two affirmations filed without leave, as well as in the body of the notice of motion), and the court should not have allowed a new point to be taken on appeal without giving the defendant an opportunity to rebut with additional evidence.

11. According to §5 of the defendant’s affirmation filed on 16 January 2014, he attended the hearing of the appeal on 12 November 2013. He heard the judges of the Court of Appeal refer to the document “Insurance Agents Registration History” and queried how he would have been restricted to register under one insurance company only. He said he did not stand up and explain to the judges as he felt it was improper to interfere with the court proceedings.

12. The defendant was represented in the appeal by junior counsel who was the trial counsel and by a Senior Counsel (not Ms Eu, SC who appeared for him in this application). The defendant’s counsel did not ask for time to take instructions from him to deal with the two pieces of evidence raised by the court. Nor did they place any reliance on the principle in Flywin Co Ltd v Strong & Associates Ltd (2002) 5 HKCFAR 356 to contend that the appeal court should not have allowed a point not taken at the trial to be raised, on the ground that not all of the relevant evidence was before the court. The defendant’s legal team was well aware of the principle in Flywin because this was relied on by the plaintiff’s counsel (at §§54 and 55 of the plaintiff’s skeleton argument) to resist the defendant’s application to file a respondent’s notice out of time. The hearing was concluded on the same day and judgment was handed down more than a month later on 23 December 2013. In the interim, the defendant’s legal representatives did not seek leave to make any further submission on any instructions of the defendant regarding the explanation he now seeks to provide.

13. I am not persuaded there are exceptional circumstances to warrant the granting of leave to appeal on the “or otherwise” ground.

14. Besides, that part of the CA judgment the defendant seeks to impugn must be viewed in context. It relates to causation of just one of the claims, i.e. arising out of the plaintiff’s failure to report the termination of the defendant’s appointment. The issue of causation will only arise if the plaintiff owed a duty of care to the defendant. If leave to appeal is not granted on question (2), causation is an academic issue.

15. Question (1) is plainly fact sensitive. It does not appear to raise any question of law of great general or public importance.

16. Ms Eu made submissions to us that we were in error in holding that the concession of the plaintiff’s witness was incorrectly made. She referred to the provisions in the Code (§§17 to 24, 26 to 35, 38 to 41) and the explanation given by the defendant in his affirmations filed without leave to contend that “essentially an agent or technical representative is tied to the insurer or the insurance agent with whom he is registered and he cannot work for another unless his registration was cancelled by his previous principal”. For my part, I am not persuaded that could properly be inferred from the provisions of the Code referred to. I do not think it appropriate to consider the explanation of the defendant regarding his employment history in his affirmations filed without leave.

17. I should mention that the distinction between an “agent” and “technical representative” was not dwelt upon by any party whether at the trial or in the appeal. As pointed out by Ms Eu, there is no difference in the qualification for an agent and technical representative irrespective of the line of business they do, see clause 67 of the Code. Throughout, the provision the plaintiff was said to be in breach of was clause 17 of the Code, when it should have been clause 31 as he was appointed a technical representative of the defendant. These provisions are identical in material respects and make no difference to the analysis and holdings in the CA judgment.

18. I would refuse leave to appeal on question (1).

Question (2)

19. This question as formulated by Ms Eu at the hearing now reads:

“Whether negligence or a breach of the statutory duty in failing to comply with a requirement in the Code of Practice to report the cessation of agency of the insurance agent or technical representative and a requirement in the Guidance Note to report continuing CPD requirement give rise to a claim for damages”.

20. Ms Eu clarified in her reply submission in writing that the defendant intends to challenge the holding there is no cause of action for breach of statutory duty simpliciter apart from the holding there is no cause of action based on a common law duty of care.

21. In respect of the first, she repeated essentially the submissions made by the defendant’s former counsel. For the latter, she made the point that we failed to find that the pre-existing contractual relationship between the parties should give rise to a duty of care at common law, citing among other cases Lord Hoffmann in Gorringe v Calderdale Metropolitan Borough Council [2004] 1 WLR 1057 at §38, and Lord Steyn in the same case at §§3 to 5, and Ribeiro PJ in Leung Tsang Hung v Incorporated Owners of Kwok Wing House (2007) 10 HKCFAR 480 at §54.

22. The arguments now advanced by Ms Eu in support of the contention that there was a common law duty of care to found a claim for damages in negligence and in breach of statutory duty were not raised by the defendant’s former counsel. His arguments are as summarised in §72 of the CA judgment, namely, that the duty of care was alleged to arise from the manner of performance of the statutory duty. Whereas Ms Eu contended that the pre-existing contractual relationship between the parties should give rise to a duty of care at common law unless the terms of the statute are sufficient to exclude it, it was argued on appeal on the defendant’s behalf that the common law duty of care should be superimposed on the statutory regime.

23. I am not persuaded it is appropriate to grant leave to appeal in this instance which pertains to the application of established principles of law to the specific fact situation, and in respect of legal arguments not raised before us. Nor is there any reason to grant leave on the “or otherwise” ground.

24. I would refuse leave to appeal on this question.

Question (3)

25. This question as re-formulated by Ms Eu reads:

“Whether compliance with the mandatory requirements in the Code of Practice and Guidance Note as aforesaid are implied terms of the contract of agency, breaches of which give rise to a contractual claim for damages”.

26. Ms Eu submitted this court was in error in failing to find there was an implied term of the contract between the plaintiff and the defendant that the plaintiff would comply with the mandatory requirements in the Code and the Note and that non-performance of these requirements was a breach of contract giving rise to damages. She said breach of contract was pleaded in the defendant’s defence and counterclaim at §§41 and 43 and at the trial his counsel had relied on a claim for breach of contract (see CA judgment at §25). This is also a reason for granting leave on the “or otherwise” ground.

27. Whether there was an implied term as contended was not properly argued by the defendant before the judge, who only found negligence and breach of statutory duty and awarded damages accordingly. So on appeal, the plaintiff challenged the judge’s holding on the basis he was wrong in law to find viable causes of action in negligence and breach of statutory duty. No respondent’s notice was put in by the defendant to seek to support the judgment below on the ground that the judge could and should have found a cause of action for breach of implied term. I do not agree with Ms Eu no respondent’s notice was required.

28. This court did not address the issue of breach of an implied term because it was not argued before us. I do not think it appropriate to grant leave on question (3). In any event, it is the practice of this court not to grant leave to appeal on a new point not argued before us, leaving it to the Appeal Committee to do so if it thinks fit (Kung Ming Tak Tong Co Ltd v Park Solid Enterprises Ltd & Anr, CACV 227/2005, 26 June 2007, at §4).

29. For the above reasons, I would dismiss the defendant’s application for leave to appeal. I will deal with the costs of this application together with the other two summonses we heard.

APPLICATION TO VARY COSTS ORDER NISI

Introduction

30. In the CA judgment, two costs orders nisi were made. For the costs of the appeal, we made an order that the defendant is to pay the plaintiff’s costs, with a certificate for two counsel. For the costs below, we have set aside the judge’s order and made a global order for the costs of the claim and the counterclaim, ordering the defendant to pay two-thirds of the plaintiff’s costs. There is a further order that the defendant’s own costs be taxed in accordance with the Legal Aid Regulations.

31. Ms Eu has brought it to our attention that our understanding of the judge’s costs order as stated in §82 of the CA judgment (that the defendant is to pay the plaintiff’s costs of the action up to and including the first day of the trial and the plaintiff is to pay the defendant’s costs of the counterclaim) is not quite correct. What the judge in fact ordered was that the defendant do pay the plaintiff 50% costs of the plaintiff’s claim up to 23 April 2012 and 50% of the counsel’s brief and the plaintiff do pay costs of the defendant’s counterclaim.

32. The plaintiff and the defendant each took out a summons to vary the costs orders nisi in the CA judgment.

33. The defendant’s summons, which was the later in time, is the simpler one. He asks for the trial judge’s costs order to be restored. He does not seek to vary the costs order nisi regarding the costs of the appeal. The reason for restoring the trial judge’s order is that the plaintiff succeeded on appeal on matters not argued before the judge.

34. The plaintiff seeks to vary both costs orders nisi in the manner as set out in §§1(a) to (g) of his summons. In essence, the reason for variation is a sanctioned offer made by the plaintiff in the court below.

The sanctioned offer

35. On 2 April 2012, the plaintiff’s solicitors made a Calderbank offer by letter to the defendant’s solicitors on the terms that the plaintiff should discontinue the action, that the defendant should discontinue his counterclaim and each should bear his own costs.

36. This was followed by a letter of the plaintiff’s solicitors to the defendant dated 5 April 2012 marked “without prejudice save as to costs” and “sanctioned offer”, offering the same terms as before. It was stated that as the trial of the action was to be heard on 24 April 2012, pursuant to Order 22 rule 16 of the Rules of the District Court, the defendant might only accept the sanctioned offer if the parties agreed on the liability for costs, or the court granted leave to accept it.

37. The sanctioned offer was made less than 28 days from the commencement of the trial. The action was tried on 24, 25 and 26 April 2012. Judgment was handed down on 18 May 2012.

38. For present purpose, I am prepared to proceed on the basis that the latest date on which the defendant could have accepted the sanctioned offer with leave was 17 May, the day before the judge handed down his judgment, without expressing a view on the correctness of Tsoi Hak Kong Herbert v Kok Wai Chun [2009] 4 HKLRD 215 at §§34 to 38. The defendant did not accept the sanctioned offer.

39. The only sanctioned offer that was made was in the District Court proceedings. Although the plaintiff did not make a sanctioned offer for the proceedings in the Court of Appeal, it seeks to rely on the sanctioned offer in the proceedings below as a matter that the Court of Appeal should take into account in the exercise of its discretion as to the costs of the appeal and below.

The position under the Civil Procedure Rules

40. We have been referred by both parties to relevant provisions in the Civil Procedure Rules in England (“CPR”). I think it is instructive to look at some of these provisions, in contrast to those in our own rules.

41. The relevant provisions are CPR 36.2(3) and 36.4(1).

42. The former provides:

“A Part 36 offer may be made in respect of the whole, or part of, or any issue that arises in –
(a) a claim, counterclaim or other additional claim; or
(b) an appeal or cross-appeal from a decision made at a trial.”

43. The latter provides:

“Except where a Part 36 offer is made in appeal proceedings, it shall have the consequences set out in this Section only in relation to the costs of the proceedings in respect of which it is made, and not in relation to the costs of any appeal from a decision in those proceedings.”

44. Provisions like the above would make it very clear to the parties where they stand on costs regarding a sanctioned offer made below but not on appeal. The idea is to achieve what was stated by Waller LJ in KR v Bryn Alyn Community (Holdings) Ltd (in liquidation) [2003] PIQR P30 at §13:

“… First, it makes clear that unless a fresh Pt 36 offer was made during the appeal proceedings the machinery of Pt 36 is not available to the appeal court. Second, it makes clear that the Court of Appeal will be disinclined to use its discretion to achieve a similar result by reference to a pre-trial Pt 36 offer.”

The position in Hong Kong

45. There is no provision in our rules equivalent to the CPR. Poon J in giving the judgment of the court (Lam VP, Barma JA and Poon J) in Ryder Industries Limited v Chan Shui Woo and Ryder Industries Limited v Timely Electronics Co Ltd, CACV 164/2013 and CACV 165/2013, 13 March 2015, reviewed the position under our rules and authorities as summarised below:

(1) The provisions as worded in Order 22 on their face suggest that the scheme for sanctioned offers would apply to trials only. This suggestion is bolstered by the absence from Order 22 of an express provision applying the statutory scheme to appeals before the Court of Appeal. Poon J declined to resolve the argument that the provisions of Order 22 might apply mutatis mutandis to a sanctioned offer made for the purpose of the appeal, as the party in that case made no sanctioned offer for the purpose of the appeal. This point might well be considered by the High Court Rules Committee and clarified by amendment if necessary (at §30).
(2) There is a line of cases of the Court of Appeal in which the court ordered the costs of the appeal to be on an indemnity basis on the basis that the losing party failed to accept a sanctioned offer in the proceedings below, and if that offer had been accepted, there would have been no trial and no appeals (MGA Entertainment Inc v Toys & Trends (Hong Kong) Ltd & Ors [2012] 5 HKC 372 at §73; Montrio Ltd & Anr v Tse Ping Shun David, CACV 291/2011, 31 January 2013, at §4; Sino Trifone Ltd v Fond Express Logistics Ltd & Anr andKai Min Fashion (HK) Ltd v Fond Express Logistics Ltd & Anr, HCMP 2366/2012 and HCMP 2367/2012, 22 May 2013, at §16) (at §§31 to 33).
(3) From the rules and the case law, the following general principles are derived:
(i) A sanctioned offer made below does not entitle the party making it to invoke the provisions in Order 22 for the purpose of the appeal.
(ii) In dealing with the costs below, by reason of the combined effect of Order 59 rule 10(1) and Order 22 rule 23, the Court of Appeal should take into account the sanctioned offer made below where appropriate, having regard to all the circumstances, including how the appeal is disposed of.
(iii) In dealing with the costs of the appeal, the Court may take into account the sanctioned offer made below where appropriate, having regard to all the circumstances, including the result of the appeal (at §34).

46. Even though the court has clarified the law to some extent, there are still areas of uncertainty. The party who makes a sanctioned offer in the court below does not know if he could make an improved sanctioned offer for the purpose of the appeal. The party to whom a sanctioned offer is made below does not know if that offer is still on the table if judgment is given and the offeror appeals and makes no fresh offer. Further, unlike the situation where the jurisdiction under Order 22 rule 24 is engaged and the court “shall” make orders on enhanced interest, indemnity costs, and interest on costs “unless it considers it unjust to do so”, a sanctioned offer made below does not entitle a party to invoke those powers of the court in dealing with the costs of the appeal and it is left to the discretion of the court to take into account the sanctioned offer below where it is appropriate to do so. Uncertain factors like these are not conducive to a regime to encourage the settlement of proceedings on appeal.

47. I echo the view of the court in Ryder Industries that the High Court Rules Committee should consider sanctioned offers for the purpose of appeal proceedings and introduce such amendment to the rules as may be necessary.

48. I turn to consider the variations sought in the summons of the plaintiff.

Paragraph (1)(a)

49. The variation sought in the summons is: “The Defendant do pay the Plaintiff’s costs of the appeal on an indemnity basis to be taxed if not agreed with a certificate for two counsel at an enhanced interest rate of 5% above judgment rate until full payment.”

50. Mr Ho, SC clarified in his written submission that the plaintiff is just seeking indemnity costs on account of the sanctioned offer made below, not enhanced interest on the costs of the appeal as sought in the summons. No order was made for enhanced interest on the costs of the appeal in the past instances where the court took into account the sanctioned offer made below. It is prudent not to ask for this as if the plaintiff were entitled to invoke the powers of the court under Order 22 rule 24.

51. Mr Ho submitted that the discretion to award indemnity costs should be exercised in favour of the plaintiff as the appeal was wholly successful, unlike Ryder Industries where the court declined to order indemnity costs as the defendants there succeeded partially in their appeals. In the present case, if the defendant had accepted the sanctioned offer or the earlier Calderbank offer, there would have been no appeal. So this case is similar to the past instances where indemnity costs for the appeal were awarded.

52. Ms Eu submitted this case is unlike the past instances cited by Mr Ho. Here, the defendant won his counterclaim for damages at the trial. The judge found in his favour on the facts (from which there was no appeal) and the appeal was won only on legal arguments not advanced below and the appeal court holding that the concession of the plaintiff’s witness was wrongly made. In the cases cited by Mr Ho, the parties to whom the sanctioned offer was made did worse than the offer at the trial, and, despite that, the offerees appealed and still did worse than the offer on appeal. So the Court of Appeal took into account the sanctioned offer below and awarded costs of the appeal on an indemnity basis. There is no decided case where the appeal was brought by the party making the sanctioned offer and the offeror then succeeded in reversing the judgment below.

53. Ms Eu also made the point there is no authority to say that the sanctioned offer may still be accepted after judgment was given. The trial and the appeal are separate proceedings. In any case, the defendant won on the counterclaim and was successful in resisting the plaintiff’s claim for the refund of monthly allowance and office allowance. There was no reason for him to accept the sanctioned offer and it is unjust to penalise him for not accepting the drop hands offer in the circumstances here.

54. I am inclined to agree with Ms Eu. It would not be appropriate to take into account the sanctioned offer below for the purpose of the appeal in view of the fact that the defendant succeeded before the judge on the facts and on the case as argued below and the appeal was only won on legal arguments not pursued before the judge.

55. I would refuse to grant §(1)(a) of the plaintiff’s summons.

Paragraph (1)(b)

56. This reads: “The Defendant do pay the Plaintiff’s costs of and occasioned by the Defendant’s summons filed herein on 11 October 2013 on an indemnity basis to be taxed if not agreed at an enhanced interest rate of 5% above judgment rate until full payment.”

57. The defendant’s summons filed on 11 October 2013 was to apply for leave to file and serve a respondent’s notice out of time and on 18 October it was adjourned to the hearing of the appeal on 12 November 2013 with costs reserved. The defendant later indicated in the skeleton argument served for the appeal that he would not proceed with that summons. So the plaintiff seeks costs incurred in dealing with that summons which turned out to be unnecessary. Mr Ho clarified he would not be seeking enhanced interest on indemnity costs for that summons.

58. I do not think indemnity costs should be awarded, for the same reasons given as regards §(1)(a) of the summons. I would order the defendant to pay the plaintiff the costs of and occasioned by the defendant’s summons of 11 October 2013 on a party and party basis.

Paragraphs (1)(c) and (1)(d)

59. These paragraphs read: “The Defendant do pay two-thirds of the Plaintiff’s costs below in DCCJ 1467/2008 regarding the claim and the counterclaim until and including 17 May 2012 on a party and party basis to be taxed if not agreed” and “The Defendant do pay the Plaintiff’s costs below in DCCJ 1467/2008 regarding the claim and the counterclaim from 18 May 2012 on an indemnity basis to be taxed if not agreed at an enhanced interest rate of 5% above judgment rate until full payment”.

60. The idea behind §(1)(c) is that the costs order nisi made by this court for the costs below should stand but only up to 17 May 2012 as that was the latest date on which the defendant could have accepted the sanctioned offer. So in §(1)(d), the plaintiff seeks indemnity costs on the costs order nisi made by this court as from 18 May with enhanced interest on costs from 18 May 2012 until the date of the CA judgment on 23 December 2013 (not up to the date of full payment as sought in the summons), if not at the rate of 5% above judgment rate as stated in the summons, at least at the rate of 4.5% per annum (equivalent to half of 4% above prime rate or 1% above judgment rate, see Golden Eagle International (Group) Ltd v GR Investment Holdings Ltd [2010] 3 HKLRD 273 at §§18 and 19).

61. These paragraphs in the plaintiff’s summons may be considered conveniently with the defendant’s summons to vary the costs order nisi by restoring the judge’s order on costs (that the defendant do pay the plaintiff 50% costs of the plaintiff’s claim up to 23 April 2012 and 50% of the counsel’s brief and the plaintiff do pay costs of the defendant’s counterclaim).

62. The plaintiff seeks indemnity costs by virtue of Order 22 rule 24(3)(a) (the relevant provisions of the Rules of the High Court and the Rules of the District Court are identical), contending that it is a matter of entitlement by virtue of the sanctioned offer unless “it considers it unjust to do so” pursuant to rule 24(4). As for enhanced interest on costs by virtue of rule 24(3)(b), Mr Ho submitted this is to redress the element of perceived unfairness which arises from the general rule that interest is not allowed on costs paid before judgment (McPhilemy v Times Newspapers Ltd (No 2) [2002] 1 WLR 934 at §23) and is intended to “compensate a litigant who is out of pocket having funded litigation which he should not have had to fund” (KR v Bryn Alyn Community (Holdings) Ltd at §21). Mr Ho emphasised that although the plaintiff did not succeed in respect of part of its claims, it is plainly the successful party as the entire counterclaim is rejected by the appeal court, and this is a relevant factor to consider in the exercise of the powers under Order 22 rule 24 (Factortame Ltd & Ors v Secretary of State for the Environment, Transport and the Regions [2002] 1 WLR 2438 at §27). The defendant’s summons seeking to restore the trial judge’s costs order does not reflect how the appeal has been disposed of by this court, which is a relevant factor to be taken into account in dealing with the costs below (Ryder Industries at §34(2)).

63. Ms Eu again emphasised the trial judge was right in his judgment on the case as argued before him, and the appeal was won on new arguments not made at trial, so there is no reason to set aside his costs order. She drew an analogy with costs in Order 14 proceedings; if an appeal is allowed on new material, the costs below are normally left disturbed (Hong Kong Civil Procedure 2015, vol 1, §14/7/18). It is unjust to order the defendant to pay two-thirds of the costs below. And there is no reason to penalise the defendant for resisting the appeal other than the usual order as to the costs of the appeal.

64. I am not persuaded by Mr Ho it is appropriate to award costs on an indemnity basis with enhanced interest on costs on account of the sanctioned offer. The court retains a discretion whether to exercise those powers under Order 22 rule 24(3)(a) and (b), even though it is provided in rule 24(4) that “the Court shall make the orders referred to in paragraphs (2) and (3) unless it considers it unjust to do so”. Rule 24(5) provides that in considering whether it would be unjust to make the orders referred to in paragraphs (2) and (3), the court shall take into account “all the circumstances of the case including - … (b) the stage in the proceedings at which any sanctioned offer was made”.

65. The plaintiff made a Calderbank offer on 2 April 2012, followed by a sanctioned offer on 5 April 2010. The sanctioned offer was made less than 28 days before trial. In view of Tsoi Hak KongHerbert v Kok Wai Chun (the latest date on which the defendant could have accepted the offer was 17 May 2010, the day before the judgment), and the provision in rule 24(3)(a) (costs may be awarded on indemnity basis after the latest date the defendant could have accepted the offer without leave of the court), Mr Ho accepted that costs could only have been awarded on indemnity basis as from 18 May.

66. The bulk of the costs below would have been incurred by the time the trial was concluded on 26 April 2012. Although there would be some costs attributable to the proceedings below after judgment was handed down, these costs (for which indemnity basis and enhanced interest are sought) could not have amounted to very much. Quite clearly, the sanctioned offer was made far too late for it to have any real impact on costs under the statutory regime.

67. I am mindful of the fact that in Tsoi Hak KongHerbert v Kok Wai Chun, Chung J nevertheless exercised his discretion to award indemnity costs and enhanced interest as from the date of judgment where the sanctioned offer was made 20 days before trial commenced, even though the practical benefit to the plaintiff was “minimal” (at §58). But that case was very different in that the plaintiff made the first offer two years before trial commenced on even more favourable terms and the sanctioned offer was made on the very day the new Order 22 came into operation and permitted the plaintiff to do so. Every case involving the exercise of the court’s discretion on costs would depend on the particular facts of the case. It seems to me more so in Tsoi Hak KongHerbert as the circumstances there were quite exceptional.

68. It would not be just to order indemnity costs or enhanced interest on such costs. And there is no basis to order interest on costs to run from the date of the judgment below up to the date of the CA judgment.

69. I am also not persuaded by Ms Eu that the trial judge’s order on costs should be restored. The fact that the plaintiff succeeded on new arguments on appeal does not mean the sanctioned offer made earlier should be disregarded. Having regard to how the appeal was disposed of, and that the plaintiff is the overall successful party albeit the appeal was allowed on new arguments not advanced at trial, it seems to me justice would best be achieved by awarding costs to the plaintiff as in the costs order nisi but declining to give any further relief to the plaintiff under the powers in Order 22.

70. For the above reasons, I would dismiss §§(1)(c) and (d) of the plaintiff’s summons and that part of the defendant’s summons seeking to restore the judge’s costs order.

Paragraph (1)(e)

71. This paragraph reads: “The costs order made by Deputy District Judge K H Hui in DCCJ 1467/2008 on 13 August 2012 be set aside and replaced by an order that the Defendant do pay the costs of the Plaintiff’s Summonses dated 15 June 2012 and 20 July 2012 on an indemnity basis to be taxed if not agreed with a certificate for counsel at an enhanced interest rate of 5% above judgment rate until full payment”.

72. The plaintiff’s summonses dated 15 June 2012 and 20 July 2012 were for leave to appeal to the Court of Appeal and stay of execution pending appeal. They were dismissed by the judge on 13 August 2012 with costs to the defendant with certificate for counsel.

73. Mr Ho submitted the judge’s order of 13 August 2012 should be set aside as he should have granted the plaintiff’s summonses.

74. Ms Eu pointed out that the plaintiff relied on a number of misconceived grounds in seeking leave to appeal before the judge. The draft notice of appeal before the judge was completely jettisoned and not used for the appeal. She submitted that the judge rightly dismissed the plaintiff’s application as it was made on misconceived grounds, so the costs order of 13 August should not be disturbed.

75. Although the draft notice of appeal placed before the judge contained some grounds of appeal that are misconceived, it did raise the contention that the judge ought to have held that no private right of action in tort could be inferred from the existence of the statutory duty on the plaintiff under section 67(4) of the Insurance Companies Ordinance, Cap 41 and as such no duty of care in negligence was owed by the plaintiff to the defendant (at §§8 and 10). It cannot be said the judge was right in refusing leave to appeal.

76. I would set aside the costs order on 13 August and replace it with an order that the costs of the plaintiff’s summonses dated 15 June 2012 and 20 July 2012 be in the cause of the appeal.

77. For the reasons given in respect of §§(1)(a) to (d) of the plaintiff’s summons, I would decline to order indemnity costs and enhanced interest on costs.

Paragraph (1)(f)

78. This paragraphs reads: “The Defendant do pay interest on the net judgment sum of HK$74,050 at an enhanced interest rate of 5% above judgment rate from 18 May 2012 until full payment”.

79. Under Order 22 rule 24(2), the court may order interest on the whole or part of any sum of money (excluding interest) awarded to the plaintiff at a rate not exceeding 10% above judgment rate for some or all of the period after the latest date on which the defendant could have accepted the offer without requiring the leave of the Court.

80. As mentioned earlier, the court shall make such an order unless it considers it unjust to do so, and in considering whether it would be unjust, the court shall take into account all the circumstances of the case including the stage in the proceedings at which the sanctioned offer was made.

81. For the reasons given in respect of §§(1)(c) and (d), I do not think it just to order enhanced interest on the judgment sum in the circumstances here. I would decline to make an order sought in §(1)(f).

Conclusion

82. Save for the different orders I propose to make in respect §§(1)(b) and (e), and an order in terms of §(1)(g) (that the defendant’s own costs be taxed in accordance with the Legal Aid Regulations), I would dismiss the rest of the plaintiff’s summons as well as that part of the defendant’s summons seeking to restore the judge’s costs order.

Costs of the present applications

83. Costs of the application for leave to appeal should follow the event. I would make an order nisi that the defendant should pay the plaintiff’s costs, with a certificate for two counsel. I would decline to grant a certificate for three counsel to the plaintiff. There would be an order that the defendant’s own costs be taxed in accordance with the Legal Aid Regulations.

84. For the applications of both sides to vary the costs order nisi, as neither party has been successful, I would make an order nisi there be no order as to costs on each of the summonses, save that the defendant’s own costs be taxed in accordance with the Legal Aid Regulations.

(Peter Cheung)
Justice of Appeal

(Maria Yuen)
Justice of Appeal

(Susan Kwan)
Justice of Appeal

Mr Ambrose Ho SC leading Mr Norman Nip and Ms Prisca Cheung, instructed by Keith Lam Lau & Chan, for the Plaintiff (Appellant)

Ms Audrey Eu SC leading Mr Kelvin Leung, instructed by T. C. Lau & Co., assigned by Director of Legal Aid, for the Defendant (Respondent)

90768-EN-2013-12-23

DAH SING INSURANCE SERVICES LTD v. GILL GURBUX SINGH

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CACV 255/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 255 OF 2012

(ON APPEAL FROM DCCJ NO. 1467 OF 2008)

________________________

BETWEEN

	DAH SING INSURANCE SERVICES LIMITED	Plaintiff
	and
	GILL GURBUX SINGH	Defendant

Before: Hon Cheung, Yuen and Kwan JJA in Court

Date of Hearing: 12 November 2013

Date of Judgment: 23 December 2013

________________________

J U D G M E N T

________________________

Hon Cheung JA:

1. I agree with the judgment of Kwan JA.

Hon Yuen JA:

2. I agree with the judgment of Kwan JA.

Hon Kwan JA:

3. This is an appeal of the plaintiff, Dah Sing Insurance Services Ltd, against the judgment of Deputy District Judge K H Hui on 18 May 2012. Leave to appeal was granted by Chu JA on 9 November 2012. This appeal is solely in respect of the award of damages made by the judge on the counterclaim for negligence and breach of statutory duty. The plaintiff does not challenge the findings of fact made by the judge. The plaintiff’s contention is that the judge was wrong in law to find that the plaintiff was in breach of a duty of care in that the negligence as found by the judge was not a case as pleaded or otherwise advanced by the defendant at the trial. In any event, there was no viable action in negligence and the alleged breach of statutory duty did not give rise to a civil right of action in damages.

The background

4. The relevant background matters may first be stated as follows.

5. The defendant, Gill Gurbux Singh, is an experienced insurance agent and has been working in the insurance industry for over thirty years since the mid 1970s. He was appointed as the plaintiff’s insurance agent and a senior district manager in early 2007. The parties signed four agreements for that purpose: an Agreement for Appointment of Technical Representative[1] dated 23 January 2007 (“Agent’s Contract”); Commissions and Conditions of Compensation – Remuneration Agreement for Senior District Manager dated 23 January 2007; an Offer Letter dated 14 February 2007; and a Letter of Understanding dated 14 February 2007 (collectively referred to as “the Agreement”). His responsibility was to recruit down-line agents and managers and to set up an agency team for selling the plaintiff’s policies.

6. Under the Code of Practice for the Administration of Insurance Agents (“the Code”)[2], a principal (i.e. an insurer) must obtain the confirmation of the Insurance Agents Registration Board (“IARB”)[3] in accordance with the Code before confirming the appointment of any person as its insurance agent[4]. IARB, on behalf of the relevant principal, shall register an insurance agent as soon as practicable after receiving the application for registration of such agent by that principal, and shall issue a registration number to the agent once he is registered[5].

7. According to the Insurance Agents Registration History of the defendant, he was registered as a “technical representative of insurance agency” of the plaintiff on 19 January 2007.

8. The defendant’s appointment with the plaintiff was terminated on 23 August 2007. The reason why his appointment was terminated is immaterial for this appeal.

9. Under clause 17 of the Code, the registration of an insurance agent shall be cancelled upon the insurance agent ceasing to be an agent of the relevant principal. The principal shall notify IARB within seven days of such cessation and provide such details as IARB may require. Upon such notification by the principal, IARB, on behalf of the principal, shall immediately remove the insurance agent from that part of the register relating to the principal.

10. On 5 September 2007, the plaintiff issued a letter to the defendant demanding $250,000, of which $150,000 was for repayment of the sign-on fee and $100,000 was for repayment of the monthly allowance upon the termination of his appointment on 23 August 2007. No repayment was made by the defendant.

11. According to the Insurance Agents Registration History of the defendant, his registration as an insurance agent of the plaintiff was cancelled only on 14 November 2007 and it came about in this way for a totally different reason.

12. On 8 November 2007, The Hong Kong Federation of Insurers (“HKFI”) issued a letter to the defendant to notify him that IARB examined his case on 3 November 2007 and found that he had not complied with the requirements for Continuing Professional Development (“CPD”) in that he had not obtained sufficient CPD credits for the assessment year ended 31 July 2007. Pursuant to paragraph 7 of the Guidance Note on Compliance with the Requirements of the Continuing Professional Development Programme issued on 30 November 2004 and revised on 13 June 2005 (“the Note”), his confirmation of registration as an insurance agent of the plaintiff was revoked for three months from 14 November 2007 to 13 February 2008, during which period IARB shall not consider his application for re-registration.

13. On 10 April 2008, the plaintiff issued the writ in the District Court against the defendant claiming $250,000 for repayment of the sign-on fee and the monthly allowance.

14. The defendant acted in person as he did not obtain legal aid until a week before the trial. He filed a homemade defence and counterclaim denying liability to make any repayment and counterclaimed for outstanding monthly allowance and office allowance, as well as damages in that “the plaintiff had breached the Agency Agreement”. The claim for damages was premised on these allegations:

(1) the plaintiff failed to report to IARB of the termination of the defendant’s appointment as an insurance agent within seven days of the termination, contrary to clause 17 of the Code[6]; and
(2) the plaintiff failed to report the defendant’s CPD credits to HKFI, contrary to paragraph 6(c) of the Note[7].

15. He contended that as a result of the plaintiff’s breaches, he was prevented from working as an insurance agent between 31 August 2007 and 13 February 2008 for five and a half months, and claimed loss of income for this period[8].

The judgment below

16. At the trial, the defendant accepted he had to repay the sign-on fee but contested the rest of the plaintiff’s claim.

17. The judge dismissed the plaintiff’s claim for repayment of the monthly allowance. He found in favour of the defendant that he was entitled to be paid the outstanding monthly allowance and office allowance ($50,000 and $25,950). There is no appeal in respect of the claim and these parts of the counterclaim.

18. In respect of the counterclaim for damages, it was not argued by the plaintiff’s former counsel that the plaintiff owed no duty of care to the defendant or that there was no statutory duty. The only dispute raised by the plaintiff was that as a matter of fact, there was no breach of the duties[9]. The judge made these findings of fact (from which there is also no appeal):

(1) Contrary to clause 17 of the Code, the plaintiff had failed to report the termination of the defendant’s appointment to IARB. No record of such notification to IARB by fax or by post can be found in the personal file of the defendant kept by the plaintiff[10].
(2) The plaintiff had failed to check the Movement Record issued by IARB to insurance companies from time to time setting out who were registered successfully as insurance agents and who had their registration cancelled. If the plaintiff had checked the Movement Record or checked it properly, it would have found out that the defendant’s registration had not been cancelled notwithstanding his appointment was terminated on 23 August 2007 and could have rectified its mistake or omission promptly[11].
(3) In July 2007, the defendant had submitted to his superior Thomas Li a certificate issued by the Hong Kong Federation of Trade Unions Occupational Retraining Centre as proof of having obtained the required CPD credits, but the plaintiff failed to submit the certificate to IARB[12].
(4) Mr Li did not provide the defendant with a declaration form for completion required to be submitted by the insurer in reporting the CPD credits of insurance agents under paragraph 6(c)(i) of the Note and the defendant had no knowledge at the time he had to fill in such a declaration form[13].
(5) The plaintiff had failed collect from the defendant the signed declaration form and to report the CPD credits of the defendant within time, contrary to paragraph 6(c)(vi)[14] of the Note.
(6) The defendant had failed to take all reasonable steps to mitigate his loss in that he had failed to complain to HKFI about the plaintiff’s failure to cancel his registration when he discovered in September 2007 he was still registered as the plaintiff’s insurance agent[15].

19. The judge accepted the defendant’s evidence regarding his average monthly income between 1 April 2005 and 23 August 2007, which was $73,616. He awarded damages to the defendant for the plaintiff’s failure to report the termination of his appointment to IARB in the amount equivalent to one month’s loss of income ($73,616), and damages for the plaintiff’s failure to report the CPD credits in the amount equivalent to three months’ loss of income ($220,848), being the period the defendant was suspended for registration. After giving credit for the sign-on fee which the defendant admitted he had to repay, the net sum awarded to the defendant in respect of all heads of his counterclaim was $220,414 ($370,414 - $150,000). The judge ordered the defendant to pay the plaintiff’s costs of the action up to and including the first day of the trial and the plaintiff to pay the defendant’s costs of the counterclaim.

The pleading points

20. I will first deal with the pleading points raised by Mr Ambrose Ho, SC, who appeared for the plaintiff in this appeal[16].

21. The judge accorded a certain amount of latitude to the defendant’s pleading as this was a homemade pleading[17]. Although his counsel Mr Kelvin Leung obtained leave to amend on the first day of the trial, the amendment was only in relation to pleading loss on an alternative basis being “loss of chance of earning income in a sum to be assessed”.

22. Mr Ho made two criticisms about the amended defence and counterclaim. Firstly, it failed to plead “specifically” a case based on common law negligence. The defendant’s counsel had pitched his case as one of breach of statutory duty when he opened at the trial[18] and the reference to “negligence” in a heading of the defendant’s written closing submission was merely incidental. Secondly, the contention that the plaintiff breached its tortious duty of care in negligence by failing to check the Movement Record was not pleaded, or otherwise advanced as the defendant’s case at the trial. The reference to the Movement Record came up at the trial because the defendant’s counsel put to the plaintiff’s witness Ms Kan Chuy Hant Lily that the plaintiff would have received a movement record from IARB on the registration of its insurance agents from time to time (to which the witness agreed)[19] and the defendant also gave evidence on such movement record[20].

23. Regarding the first criticism, I am inclined to agree with Mr C Y Li, SC, who appeared for the defendant in this appeal[21], that while there was room for improvement in the homemade pleading, there was compliance with Order 18 rule 7(1) of the Rules of the District Court, which provides that “every pleading must contain, and contain only, a statement in a summary form of the material facts on which the party pleading relies for his claim or defence …”. Even though a party may by his pleading raise any point of law (RDC, Order 18 rule 11), “it is sufficient for the pleader to state the material facts; it is not necessary to state the legal result” (Hong Kong Civil Procedure 2014, Vol 1, para 18/7/4).

24. I consider that the material facts relied on to advance a claim in negligence are contained in the defence and counterclaim, notwithstanding that the defendant had not used phrases such as “duty of care” and did not specifically plead he was claiming damages for “negligence” (he stated in paragraph 43 of the amended defence and counterclaim that the plaintiff’s failure to report was “as a result of breach of Agency Agreement”). The defendant had pleaded the relationship between the parties, which was alleged to give rise to a duty of care on the plaintiff’s part to avoid causing loss and damage to the defendant. As stated by Lord Goff in Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 at 193D to E, “a tortious duty of care may arise not only in cases where the relevant services are rendered gratuitously, but also where they are rendered under a contract.” There are sufficient averments of the plaintiff’s responsibility to report the termination of the defendant’s employment and to report the CPD credits. Whether a duty of care should be imposed and whether any negligence of the plaintiff was causative of any loss suffered by the defendant would be considered later.

25. There was nothing in the course of the trial to indicate that the plaintiff’s former counsel[22] did not understand the bases upon which the defendant had mounted his counterclaim for damages. In answer to the judge’s request for clarification in the defendant’s closing address, Mr Leung had said that the counterclaim for damages “can be breach of contract, can be breach of statutory duty, can be negligence …”[23]. As mentioned earlier, the judge noted that the plaintiff’s counsel did not argue that the plaintiff owed no duty of care or that there was no statutory duty on the part of the plaintiff.

26. As for the second criticism, it is correct that the defendant did not plead the failure to check the Movement Record as a ground for stating that the plaintiff had failed in its duty of care. It is also correct that particulars must be given in the pleading showing in what respects the other party was negligent (Hong Kong Civil Procedure 2014, Vol 1, para 18/12/27).

27. In answer to this, Mr Li submitted that the defendant does not need to rely on the failure to check the Movement Record, as there was sufficient finding to support the defendant’s claim in that the plaintiff had failed to report the termination of his appointment to IARB. In any event, evidence on the Movement Record was led without objection from the plaintiff’s counsel notwithstanding it was not a pleaded issue. In those circumstances, it would not be unfair or unjust for the judge to have regard to such evidence and take this into account in deciding whether the plaintiff was in breach of its duty of care, if established. As Ma CJHC (as he then was) said in Wing Hang Bank Ltd v Crystal Jet International Ltd & Ors [2005] 2 HKC 638 at para 7, objections to pleadings will not have much force where the parties have chosen to disregard the pleadings and conduct the hearing on some unpleaded basis, and this passage in Gould v Mount Oxide Mines Ltd (1916) 22 CLR 490 at 517 was quoted:

“But pleadings are only a means to an end, and if the parties in fighting their legal battles choose to restrict them, or to enlarge them, or to disregard them and meet each other on issues fairly fought out, it is impossible for either of them to hark back to the pleadings and treat them as governing the area of contest.”

28. Ma CJHC continued to say:

“Ultimately, a court is to be guided by what is fair and just in the circumstances, not just to the party seeking to rely on the unpleaded case but to all the parties before it.”

29. I am inclined to agree with Mr Li that on the pleading, it is open to the defendant to raise a claim in negligence and for the judge to take into account the failure to check the Movement Record in determining if the plaintiff was in breach of its duty of care. Whether the plaintiff did owe the defendant a duty of care at common law is another matter. I do not think there is substance in the pleading points.

30. I turn to consider the substantive matters whether there was a viable claim in negligence and whether the defendant would have a civil right of action in damages for the breach of statutory duty. On these matters, we do not have the benefit of the judge’s reasoning as they were not the subject of dispute before him. I propose to consider the claim based on breach of statutory duty first.

31. Mr Li submitted that the defendant’s case falls within two of the four categories identified by Lord Browne-Wilkinson in X (Minors) v Bedfordshire County Council [1995] 2 AC 633 at 730H to 731B as giving rise to private law claims for damages where there is breach of statutory duty, namely:

(1) actions for breach of statutory duty simpliciter (i.e. irrespective of carelessness); or
(2) actions based on a common law duty of care arising either from the imposition of statutory duty or from the performance of it.

32. Category (1) comprises those cases where the statement of claim alleges simply (a) the statutory duty, (b) a breach of that duty, causing (c) damage to the plaintiff. The cause of action depends neither on proof of any breach of the plaintiffs’ common law rights nor on any allegation of carelessness by the defendant (at 731C).

33. For the cases in category (2), the claim alleges either that a statutory duty gives rise to a common law duty of care owed to the plaintiff by the defendant to do or refrain from doing a particular act or (more often) that in the course of carrying out a statutory duty the defendant has brought about such a relationship between himself and the plaintiff as to give rise to a duty of care at common law (at 735B to C).

The statutory framework

34. The relevant statutory framework has been described to some extent by the judge in paragraphs 51 to 56 and 70 to 72 of his judgment. For the purpose of ascertaining whether, as a matter of statutory construction, it is the legislative intent to protect a limited class of the public and to confer a private right of action on members of that class for breach of the statutory duty, it is necessary to have regard to the statements made by government officials in relation to the bills in the Legislative Council debates and other materials placed before the legislature at the time (HKSAR v Cheung Kwun Yin (2009) 12 HKCFAR 568 at 575F to H, para 15).

35. The Insurance Companies Ordinance, Cap 41 (“the ICO”) was enacted in 1983 and the relevant amendment to the ICO was made in 1994, by adding Part X entitled “Insurance Intermediaries”.

36. The long title of the ICO, after the amendment in 1994, reads as follows:

“To regulate the carrying on of insurance business including regulating insurance intermediaries, to provide for the appointment of an Insurance Authority, to confer powers of authorization and intervention on the Insurance Authority in respect of insurers and insurance intermediaries and to require insurers and insurance intermediaries to furnish financial statements and other information to the Insurance Authority; and for matters incidental thereto or connected therewith.”

37. The reasons for regulating the carrying on of insurance business, as explained by the Secretary for Economic Services when he moved the second reading of the Insurance Companies Bill 1982, would appear to be as follows:

“The Government’s basis attitude towards consumer protection is that consumers must protect themselves. Only when circumstances are such that they clearly can not do so, does the Government intervene to assist them.
For some time now, the Government has accepted that holders of insurance policies fall into this latter category. … They need to be able to satisfy themselves that the companies with which they insure are likely to be in a position to deliver when the time comes. The only sensible way this end can be achieved is for the Government, to a certain extent, to regulate the industry. …
While the main argument for the Government regulating the insurance industry is to protect policyholders, there is a second reason for it. The Advisory Committee on Diversification noted as follows:
‘One area in which Hong Kong has been criticized and which would tend to limit its potential as an insurance and reinsurance centre is the relatively low level of regulation of the Hong Kong insurance market. Although a low level of government direction is considered desirable by potential participants, a certain level of prudential supervision is obviously necessary. Further, as prudential regulation in the field of banking, deposit-taking and the stock market has increased, it is feared that unscrupulous financial operators may be tempted to move into the insurance field.’
The Advisory Committee then recognized that the Government was working to the end that …:
‘the regulation of the insurance business should be improved to the benefit of those insured and of reputable insurance companies without stifling competition and initiative in the insurance market.’
Accordingly the Committee recommend
‘that the Government bring forward its proposed legislation as soon as practical’.
…
So we decided we should take a fresh look at our insurance laws. We concluded that there was a need for continuous prudential supervision aimed at protecting policyholders in all types of insurance by preventing serious problems from occurring and by ensuring that, if it became necessary to wind up a company, policyholders’ rights would be safeguarded. … there would have to be some burden on what are well established and reputable insurance companies in order that we could get ourselves into a position where we could recognize the more dubious companies that constitute the real danger for policyholders.
… The Bill now before Members reflect these consultations. …
Thus, although it is designed primarily to protect policyholders, the Bill now before this Council has a large measure of support from the insurance industry itself. …
The purpose of the Bill is:
(a) to restrict the carrying on of insurance business to
(i) authorized companies,
(ii) Lloyd’s, and
(iii) certain underwriters approved by the Governor in Council;
(b) to fix the minimum financial standards required of insurance companies before they can be considered for authorization;
(c) to improve the security of long term policyholders, and these are principally life policyholders;
(d) to require all insurance companies to submit financial statements and other relevant information to the Insurance Authority on an annual basis;
(e) to empower the Insurance Authority to intervene in the conduct of the business of insurance companies in certain circumstances; and
(f) to provide that any person who the Insurance Authority considers not to be a fit and proper person to be associated with an authorized insurance company, will not acquire a position of influence in relation to such a company.”

38. The Legislative Council Brief for the Insurance Companies (Amendment) (No 3) Bill 1993 set out the background and reasons for the amendments introduced to the ICO by the addition of Part X. The relevant circumstances may be summarised as follows.

39. In 1986, the Law Reform Commission of Hong Kong issued a report in which it highlighted an absence of professional standards among insurance agents (who are appointed by insurers) and brokers (who act for the insured) and confusion over the roles and therefore the liabilities of agents and brokers. As policyholders’ interests were at risk, the Commission recommended legislation to be introduced to define the roles of agents and brokers, to make insurers responsible for the actions of their agents, to enhance the transparency of representation by agents, and to require brokers to meet specified standards before being authorised.

40. In response to the report, the insurance industry established a working group and it recommended the adoption by insurers of voluntary codes of practice backed by statute. As a result, a Code of Practice for Administration of Agents, which was adopted by HKFI, was issued in 1993. At that time, about 80% of insurers in Hong Kong were members of HKFI and their agents would be struck off the register if they should fail to comply with the Code.

41. As for brokers, a confederation (“the Confederation”) was set up in 1993 and it too established a set of rules and regulations for the membership and professional conduct of brokers. But only about 20% of brokers in Hong Kong were members of the confederation at that time and were subject to its regulation.

42. Notwithstanding these self-regulation efforts by the industry, there continued to be complaints from members of the public about agents and brokers. Both HKFI and the Confederation expressed concern that self-regulation had not proved fully effective in the absence of statutory backing, as voluntary codes could not provide an effective sanction against non-compliance. It was in those circumstances that Part X was introduced into the ICO in 1994, in order that “self-regulation should be supplemented by statute”, “to ensure effective regulation of the intermediaries”.

43. As stated in para 6 of the Legislative Council Brief:

“The purpose of the Bill is to distinguish the roles of agent and broker and require their registration. Agents would have to possess minimum qualifications. Insurers would be responsible for their agents’ actions, training and compliance with the code of practice and would have to keep a register of agents for public inspection. The number of insurers represented by an agent would be limited. Brokers would have to be authorized by the Confederation or the [Insurance] Authority, the main criteria being minimum capital requirement, professional indemnity insurance, professional qualifications, experience and compliance with the industry’s rules and regulations.”

44. And as stated in the Explanatory Memorandum to the Insurance Companies (Amendment) (No 3) Bill 1993, the amendment was “to put into place a scheme for the supervision of self regulation by the insurance industry of insurance agents and brokers.”

45. The speech of the Secretary for Financial Services in moving the second reading of the Bill in 1994 is illuminating:

“The main objective of the Bill is to define the role of agents and brokers. … It is also an objective of the Bill to strengthen protection for policy holders by requiring agents and brokers to meet specified standards before being appointed or authorized. Insurers are required to comply with the Code of Practice drawn up by the Hong Kong Federation of Insurers and approved by the Insurance Authority for the appointment and administration of agents.
The Bill prohibits an insurer from excluding or limiting his liabilities towards policy holders or potential policy holders for the actions of his appointed insurance agent. However, I wish to make it clear that the Bill does not seek to extend the liabilities of an insurer beyond the Common Law position except in one respect[24]. That is, where an insurance agent, who has been appointed as agent for more than one insurer, enters into a transaction in which a particular principal cannot be identified, the liability should be spread among all the principal insurers. …
To ensure effective implementation offences and penalties are covered in section 76.[25] Concern has been raised by a Member[26] on whether the Code of Practice should be made subsidiary legislation since non-compliance could result in imprisonment for two years. The Administration considers that since the Code of Practice is drawn up by the industry for the purpose of self-regulation, it should not be appropriate for it to become subsidiary legislation. However, to address this Member’s concern, those important provisions of the Code of Practice, breach of which may be subject to imprisonment for two years, are now specified in section 76(8)[27].”

46. Part X sets out the major provisions for the regulation of insurance agents and brokers. By virtue of section 65, a person cannot hold himself out to be an agent or broker unless appointed or authorised in accordance with the ICO. Agents will be limited as to the number of insurers they can represent and insurers are restricted in dealing with unappointed or unauthorised intermediaries. An insured person will have the option to enforce or consider void a policy issued other than through an appointed or authorised intermediary.

47. Section 66 deals with the registration and de-registration of appointed insurance agents.

48. Section 67(1) provides that HKFI is required, with the approval of the Insurance Authority, to issue a code of practice for the administration of insurance agents. The Code is the code of practice approved by the Insurance Authority pursuant to section 67[28]. By section 67(4), an insurer is required to comply with the Code in its administration of insurance agents. Under section 67(5), the Insurance Authority has power to require an insurer and an insurance agent to supply information that verifies the insurer’s, or the insurance agent’s, compliance with the Code.

49. Section 68 spells out the liabilities of an insurer for its appointed agents.

50. Offences and penalties on insurers, agents, brokers and those who hold themselves out to be appointed agents and authorised brokers are covered in section 77. By section 77(10), an insurer who fails to comply with the Code in ways other than as provided specifically in section 77(9), commits an offence and is liable to a fine of $100,000.

51. Turning to the Code, Part B, which sets out the general principles, provides for the functions of IARB. It is required to keep and maintain a register of insurance agents whose appointments it has confirmed (clause 7(e)(i)), and to report to the Insurance Authority where an insurance agent has breached Part X of ICO or the Code (clause 7(f)(i)), and where an insurance agent is not or has ceased to be a fit and proper person to act as such (clause 7(f)(ii)). IARB may issue Guidance Notes from time to time as to how it intends to exercise its powers and fulfil its responsibilities under the Code, but such Guidance Notes shall not form part of the Code (clause 8).

52. Part C of the Code provides for, inter alia, the confirmation of the appointment of insurance agents with IARB (clause 12), the registration of insurance agents (clause 13 to 16), and the cancellation of the registration of insurance agents (clause 17). The terms of these provisions have all been mentioned in the earlier part of this judgment. Clause 19 states that a person shall not act as an insurance agent for more than four principals of whom no more than two shall be long term insurers. Clause 23 provides for the obligations of principals in respect of insurance agents. A principal is obliged to ensure that each of its agents does not, to its knowledge, act at any one time for more than the maximum number of principals allowed (clause 23(a)), meets the fit and proper criteria set out in Part E of the Code (clause 23(c)), and is confirmed by and registered with IARB in accordance with the Code (clause 23(d)).

53. The register of insurance agents maintained by IARB on behalf of a principal is available for inspection by the public at the registered office of HKFI (clause 37(a)).

54. Part E of the Code relates to fit and proper criteria of insurance agents. Clauses 52 to 65 come under the heading of “Minimum Qualifications for Persons Acting as Insurance Agents”. Clause 65 provides that “an insurance agent shall comply with the requirements of the Continuing Professional Development Programme in such manner and form as specified by the Insurance Authority”.

55. The Guidance Note on Compliance with the Requirements of the CPD Programme issued on 30 November 2004 and revised on 13 June 2005 (mentioned in the earlier part of this judgment and defined as “the Note”) aims to assist insurance agents to comply with the annual CPD requirements. As stated in clause 8 of the Code, the Note does not form part of the Code.

56. The Insurance Authority has specified that from 1 August 2005, insurance agents are required to earn 10 CPD hours every year (paragraph 2(b) of the Note). Under paragraph 2 of the Note, IARB shall deem an insurance agent having complied with the CPD requirements under the “Minimum Qualifications for Persons Acting as Insurance Agents” in the Code as qualified for maintaining his registration status for another 12 months if, among other things, “from 1 August 2005, the insurance agent completes all CPD hours for the assessment year within a 12-month period ending on 31 July every year thereafter”.

57. Paragraph 6 of the Note is headed “Maintaining CPD records and Monitoring of CPD Compliance”. Among the responsibilities imposed on an insurance agent is to complete and file a declaration form to the reporting insurer and to retain their proof of compliance with CPD requirements for three years after the assessment date (paragraphs 6(a)(iii) and (iv)). As for the responsibilities of all insurers, they include the dispatch of copies of the declaration form to all of their insurance agents, the monitor of compliance of their insurance agents with the CPD requirements, the collection of signed declaration forms from their insurance agents by 14 August, and the filing of the annual return to IARB by 15 September (paragraphs 6(c)(i), (v), (vi) and (vii)).

58. Paragraph 7 of the Note is headed “Consequence of Non-compliance” and provides as follows:

“In the circumstances that an insurance agent fails to meet the CPD requirements, his confirmation of registration shall be revoked by the IARB. Under such circumstances, the IARB shall not consider his application for re-registration for 3 months as a starting point from the date his confirmation of registration is revoked. Such insurance agent shall be required to complete all outstanding CPD hours at the time of re-registration.”

If there was breach of statutory duty simpliciter

59. The principles to be applied in determining whether a cause of action exists for breach of statutory duty simpliciter are as propounded by Lord Browne-Wilkinson in X (Minors) v Bedfordshire County Council at 731D to 732B:

“The basic proposition is that in the ordinary case a breach of statutory duty does not, by itself, give rise to any private law cause of action. However a private law cause of action will arise if it can be shown, as a matter of construction of the statute, that the statutory duty was imposed for the protection of a limited class of the public and that Parliament intended to confer on members of that class a private right of action for breach of the duty. There is no general rule by reference to which it can be decided whether a statute does create such a right of action but there are a number of indicators. If the statute provides no other remedy for its breach and the Parliamentary intention to protect a limited class is shown, that indicates that there may be a private right of action since otherwise there is no method of securing the protection the statute was intended to confer. If the statute does provide some other means of enforcing the duty that will normally indicate that the statutory right was intended to be enforceable by those means and not by private right of action: Cutler v. Wandsworth Stadium Ltd. [1949] A.C. 398; Lonrho Ltd. v. Shell Petroleum Co. Ltd. (No. 2) [1982] A.C. 173. However, the mere existence of some other statutory remedy is not necessarily decisive. It is still possible to show that on the true construction of the statute the protected class was intended by Parliament to have a private remedy. Thus the specific duties imposed on employers in relation to factory premises are enforceable by an action for damages, notwithstanding the imposition by the statutes of criminal penalties for any breach: see Groves v. Wimbome (Lord) [1898] 2 Q.B. 402.”

60. Mr Ho pointed out that the legislation here is silent on whether breach of its provision would give rise to a civil cause of action, contrasting this with the Securities and Futures Ordinance, Cap 571, section 108; the Sex Discrimination Ordinance, Cap 480, section 76(1); and the Banking Ordinance, Cap 155, section 94(1). As noted in Charlesworth & Percy on Negligence (12^th ed) para12-20, more often, the statute is silent on this. One must look to indicators such as whether there is legislative intent to protect the class in question and whether the statute provides any other adequate remedy for its breach.

61. Mr Ho referred us to the legislative framework, the proceedings in the Legislative Council at the second reading of the bills in 1982 and 1994 and other legislative materials, all of which I have set out above in some detail. He submitted it is clear that the enactment of the ICO in 1983 was designed to regulate the insurance industry for the purpose of protecting the consumer public. The purpose of the amendment legislation in 1994 was to provide statutory backing to the scheme of self-regulation by the insurance industry and that was also to strengthen protection for policyholders. He contended that the legislation and its amendment were not intended to protect the interests of insurance agents. He cast doubt if breach of an insurer of an obligation under the Note could be regarded as breach of a statutory duty, as the Note does not form part of the Code. He also pointed to section 77(10) which provides for criminal penalty of a fine of $100,000 for any failure of an insurer to comply with the Code as required by section 67(4). He submitted this prescribes a sufficient criminal sanction as a deterrent to breaches of the Code by insurers. In light of all this, he argued that the legislature did not intend to grant a private cause of action in damages to insurance agents on the basis of a mere breach by an insurer of statutory duty laid down in section 67(4).

62. Mr Li submitted that on a proper construction of the ICO, the intention of the legislature in enacting Part X (which gave statutory backing to the Code and the Note) was not merely for the protection of consumers, as when the ICO was introduced in 1983. Part X made detailed provisions governing the role of agents and brokers and their relationship with insurers, and stipulated compliance with a code of practice for the administration of agents. The Code and the Note imposed obligations on insurers to undertake acts which would affect the interest of insurance agents, such as the provision relating to the cancellation of registration of insurance agents and the provisions concerning the reporting of CPD credits to IARB as part of the minimum qualifications of insurance agents. He argued that as the interest and livelihood of insurance agents would be affected in a number of ways by these provisions, it must be implicit that the statutory obligations imposed on the insurer would have as one of their objectives the protection of insurance agents.

63. As to the criminal penalty imposed on the insurer by section 77(10), Mr Li submitted that although the general rule is that where a statute creates an obligation and enforces the obligation in a specified manner, that performance cannot be enforced in any other manner, there are two well established exceptions to this general rule. One of them is where upon the true construction of the statute, it is apparent that the obligation or prohibition was imposed for the benefit or protection of a particular class of individuals (Lonrho Ltd. v. Shell Petroleum Co. Ltd. (No. 2) [1982] A.C. 173 at 185C to D). As Lord Kinnear put it in Butler (or Black) v Fife Coal Co Ltd [1912] AC 149 at 165[29]:

“There is no reasonable ground for maintaining that a proceeding by way of penalty is the only remedy allowed by the statute … We are to consider the scope and purpose of the statute and in particular for whose benefit it is intended. … when a duty of this kind is imposed for the benefit of particular persons there arises at common law a correlative right in those persons who may be injured by its contravention.”

64. Thus, he submitted that a correlative remedy of a private law cause of action should be inferred in this situation where there is legislative intent to protect a particular class of persons.

65. This goes back to the crucial question whether there is legislative intent to protect a particular class of the public, namely, the insurance agents.

66. In attempting to answer this question, both sides referred us to a list of questions distilled by Morgan J in Digicel (St Lucia) Ltd v Cable and Wireless plc [2010] EWHC 774 at Annex H and referred to by Mann J in Leon Di Marco v Morshead Mansions Ltd [2013] EWHC 1068(Ch) at para 16.

67. Mr Ho submitted that most of the questions in the list would be answered in his favour: the legislation and the amendment were passed for the benefit of the consumer public; the primary object of the legislation and the amendment were passed to benefit public, not private, interests; the particular provision in Part X is section 67, which refers to the Code and requires an insurer to comply with its provisions, and this provision was to ensure effective regulation of insurance agents so as to strengthen protection for policyholders; the statute has imposed a sanction for the breach of duty in respect of less serious non-compliance by a fine in section 77(10) and has thus provided an adequate means of enforcement of the duty, as the maximum fine of $100,000 could not be said to be an illusory punishment.

68. For his part, Mr Li contended that these questions should be answered in his favour: the legislation imposed a duty to comply with the Code, but the Code was not for the protection of policyholders; the class of persons who might suffer harm as a result of a breach of duty of the insurers would be the insurance agents, and the expected harm would take the form of economic loss or damage to the agents; the criminal sanction imposed by the statute would not be adequate sanction as there is no redress to the insurance agents who would be affected by the breach.

69. I do not think the list of questions in Digicel (St Lucia) Ltd v Cable and Wireless plc would be answered all one way. It is a question of what weight should be given to various answers in different directions in order to arrive at the crucial answer to which all those questions are directed.

70. Ultimately, I am not persuaded by Mr Li’s submission that as a matter of statutory construction, it ought to be inferred that one of the legislative intent was to protect insurance agents and to make a breach of duty on the part of insurers actionable by the agents. Having considered in some detail the statutory framework, the legislative materials and the speeches of the government officials, I am unable to discern any such intention on the part of the legislature when the bills were scrutinized. I agree with Mr Ho’s arguments. Throughout, the clear intention of the legislature was to protect public consumers, and to that end, to supervise the self-regulation of agents by the insurance industry. During the debates, the question of liabilities of an insurer was considered, but only in respect of its liabilities to policyholders. The effectiveness of the implementation of the Code was considered, but only in respect of whether the Code should become subsidiary legislation as breach of it may result in a term of imprisonment.

71. For the above reasons, I rule against the defendant and decline to hold that a cause of action would exist in this instance for breach of statutory duty simpliciter.

If there was a common law duty of care

72. Mr Li put the defendant’s case on the alternative basis of a common law duty of care owed to the defendant by the plaintiff to do particular acts as required by the statute that in the course of carrying out its statutory duty, the plaintiff had brought about such a relationship between itself and the defendant as to give rise to a duty of care at common law. The duty of care was alleged to arise from the manner of performance of the statutory duty. In respect of this cause of action, the allegations to found this claim would overlap with the defendant’s claim in negligence. Hence, Mr Ho’s argument that there was no viable claim in negligence would be considered here as well.

73. Whether it is appropriate to superimpose on the statutory regime a common law duty of care giving rise to a claim in damages is to be determined by reference to the tests in Caparo Industries Plc v Dickman [1990] 2 AC 605 at 617G to 618D: “… in addition to the foreseeability of damage, necessary ingredients in any situation giving rise to a duty of care are that there should exist between the party owing the duty and the party to whom it is owed a relationship characterised by the law as one of “proximity” or “neighbourhood” and that situation should be one in which the court considers it fair, just and reasonable that the law should impose a duty of a given scope upon one party for the benefit of the other”.

74. Mr Li recognised he has to contend with the proposition that if, as a matter of statutory construction, the insurer’s failure to act does not constitute an actionable breach of statutory duty, why should the same omission provide a basis for establishing liability in negligence. This was considered by the Court of Final Appeal in Leung Tsang Hung v Incorporated Owners of Kwok Wing House (2007) 10 HKCFAR 480 at paras 49 to 53, in the course of which Ribeiro PJ quoted from these decisions as follows:

“As Lord Browne-Wilkinson said in X (Minors) v Bedfordshire County Council [1995] 2 AC 633, p.739C in relation to the duty of care owedby a public authority performing statutory functions: “… the questionwhether there is such a common law duty and if so its ambit, mustbe profoundly influenced by the statutory framework within whichthe acts complained of were done.”
The same is true of omission to perform a statutory duty. If such a duty does not give rise to a private right to sue for breach, it would be unusual if it nevertheless gave rise to a duty of care at common law which made the public authority liable to pay compensation for foreseeable loss caused by the duty not being performed.” (Stovin v Wise [1996] AC 923 at 952, per Lord Hoffmann)
“… a statute containing broad target duties owed to the public at large, and which does not itself confer on individuals a right of action for breach of statutory duty, is unlikely to give rise to a common law duty of care, breach of which will support a claim by an individual for damages.” (Rice & Anr v Secretary of State for Trade and Industry & Anr [2007] ICR 1469 at para 42, per May LJ)
“In the absence of a right to sue for breach of the statutory duty itself, it would in my opinion have been absurd to hold that the council was nevertheless under a common law duty to take reasonable care to provide accommodation for homeless persons whom it could reasonably foresee would otherwise be reduced to sleeping rough.” (Gorringe v Calderdale Metropolitan Borough Council [2004] 1 WLR 1057 at 1065, para 24, per Lord Hoffmann)
“In my opinion, if a statutory duty does not give rise to a private right to sue for breach, the duty cannot create a duty of care that would not have been owed at common law if the statute were not there. If the policy of the statute is not consistent with the creation of a statutory liability to pay compensation for damage caused by a breach of the statutory duty, the same policy would, in my opinion, exclude the use of the statutory duty in order to create a common law duty of care that would be broken by a failure to perform the statutory duty.” (Gorringe v Calderdale Metropolitan Borough Council, at 1078, para 71, per Lord Scott of Foscote)

75. In the light of the above authorities, I am unable to discern any unusual or exceptional circumstances in the present situation to give rise to a duty of care at common law notwithstanding that the failure to perform a duty under the statute would not give rise to a private law claim for damages. It would not be fair, just and reasonable that a duty of care should be imposed on the insurer at common law for the benefit of the insurance agent.

76. For the above reasons, I hold that a common law duty of care giving rise to a claim in damages should not be superimposed on the statutory regime in this instance and that there was no viable action in negligence.

Causation

77. In respect of the award of damages for loss of income of one month for the plaintiff’s failure to report the termination of the defendant’s employment, Mr Ho submitted that the judge was plainly in error as he had failed to consider if the breach of duty (even if the breach of duty simpliciter was actionable in damages, or even if there was a common law duty of care) was causative of any loss suffered by the defendant.

78. This was not a point taken by the plaintiff at the trial. Mr Li has referred us to the evidence of the plaintiff’s witness who agreed in cross-examination with the suggestion that if an agent was registered with one insurer, he could not be appointed as agent by another insurer[30]. But this concession of the witness was plainly incorrect. Under clause 19 of the Code, an agent could work for not more than four principals simultaneously, of whom no more than two shall be long term insurers. This was borne out by the Insurance Agents Registration History of the defendant, there were two periods (from July 1995 to December 1996, and from December 1996 to May 1998) when he was registered as an agent of two insurers at the same time. There were other instances when his appointment as agent was subsisting with more than one insurer.

79. On this evidence which cannot be refuted, the defendant had failed to establish that any loss of income was caused by the failure of the plaintiff to report his termination of employment. So for this reason as well, the award of damages of one month’s loss of income should also be set aside.

Conclusion and costs

80. I would allow the appeal of the plaintiff and set aside the award of damages to the defendant in the amount of $294,464 ($73,616 + $220,848). After setting off from $150,000 (the sign-on fee admitted by the defendant) the amount of $75,950 (the amount awarded to the defendant for monthly allowance and office allowance), the defendant is liable to the plaintiff for the net sum of $74,050. I would enter judgment for the plaintiff in the said sum.

81. Costs of the appeal should follow the event. I would make an order nisi that the defendant is to pay the plaintiff’s costs of the appeal, with a certificate for two counsel.

82. As for the costs below, I would make these orders nisi. The judge has ordered the defendant to pay the plaintiff’s costs of the action up to and including the first day of the trial and the plaintiff to pay the defendant’s costs of the counterclaim. I propose to set aside these orders. The plaintiff has succeeded in resisting the substantial part of the counterclaim being the claim for damages, but has failed in its claim for repayment of the monthly allowance, and has failed as regards the counterclaim for payment of the outstanding monthly allowance and office allowance. The plaintiff could be regarded as substantially successful. I propose to make a global order for the costs below regarding the claim and the counterclaim and order the defendant to pay two-thirds of the plaintiff’s costs.

83. I would further order the defendant’s own costs be taxed in accordance with the Legal Aid Regulations.

(Peter Cheung)
Justice of Appeal

(Maria Yuen)
Justice of Appeal

(Susan Kwan)
Justice of Appeal

Mr Ambrose Ho SC & Mr Norman Nip, instructed by Keith Lam Lau & Chan, for the Appellant / Plaintiff

Mr C.Y. Li SC & Mr Kelvin Leung, instructed by T.C. Lau & Co., assigned by Director of Legal Aid, for the Respondent /Defendant

[1] A technical representative is similar to an insurance agent but is not entitled to sell certain types of insurance products. See judgment below, para 3

[2] The relevant edition which applied to the present case was the 6^th edition issued in June 2004

[3] IARB was established by The Hong Kong Federation of Insurers (“HKFI”) to administer the Code pursuant to its Articles of Association, see the Code, Part A, clause 2

[4] Part C, clause 12

[5] Clauses 13 and 15

[6] Amended Defence and Counterclaim, paras 27, 28, 41 and 43

[7] Amended Defence and Counterclaim, paras 23 to 25, 41 and 43

[8] Defendant’s closing submission, para 33

[9] Judgment, para 50

[10] Judgment, paras 59, 60, 64, 65, 67, 68

[11] Judgment, paras 62, 66, 69

[12] Judgment, paras 24, 74 to 77, 80

[13] Judgment, paras 78 and 79

[14] Judgment, para 79. The reference to para 6(c)(iv) would appear to be an error, this should be para 6(c)(vi) instead.

[15] Judgment, para 88

[16] With Mr Norman Nip

[17] Transcript, [H538N to O]

[18] Transcript, [H/600D]

[19] Transcript, [H/593J to M]

[20] Transcript, [H/627U to 628J]

[21] With Mr Kelvin Leung

[22] Mr Timmy C H Yip

[23] Transcript, [H/673K to Q]

[24] This was in response to the request for clarification from a member of the Legislative Council, Mrs Miriam Lau, see Official Record of Proceedings, 6 July 1994, p 5182.

[25] This became section 77 in Part X of the ICO.

[26] This was also raised by Mrs Miriam Lau, see Official Record of Proceedings, 6 July 1994, p 5182 to 5183.

[27] This became section 77(9) in Part X of the ICO.

[28] The Code, Part A, clause 1

[29] Quoted by Lord Diplock in Lonrho Ltd v Shell Petroleum Co Ltd (No 2), supra at 185 D to F when he mentioned the first exception to the general rule.

[30] Transcript, [H/577D to G]