A recent marine insurance dispute has made its way to Hong Kong’s Court of Final Appeal for determination1. Because the statutory regime in Hong Kong is materially identical to that in England, the decision has attracted significant international legal interest. The case concerns a claim arising out of the assured’s alleged breach of warranty.
In January 2008, Zurich entered into a contract of marine insurance with Hua Tyan Development in respect of a shipment of logs from Malaysia to China. The contract identified the carrying vessel as M.V. HO FENG NO. 7 (the vessel). The cover note incorporated a clause warranting that the deadweight capacity of the carrying vessel was not less than 10,000 tonnes.
The vessel sank during the voyage, and the cargo was a total loss. When Hua Tyan Development made a claim under the policy for the insured value of it loss, Zurich rejected the claim on the basis that Hua Tyan Development was in breach of the deadweight warranty because the vessel only had a deadweight capacity of about 8,960 tonnes.
The assured brought proceedings against Zurich, arguing as follows:
- Whatever the legal construction of the deadweight warranty, in this case it was of no effect because Zurich knew or ought to have known that the deadweight capacity of the vessel was less than 10,000 tonnes, as the contract of insurance identified her by name.
- As the parties clearly intended to effect insurance cover for the carriage of the cargo of logs on board the vessel, the intention of the parties that there be cover should prevail, and it was inconsistent for Zurich to then deny liability on the basis of the deadweight warranty.
- Insofar as necessary, the assured sought rectification of the contract to delete the deadweight warranty, also relying on arguments of waiver and estoppel.
The Court of First Instance held that there was a “clear inconsistency” between the naming of the vessel in the contract and the stipulation regarding her deadweight capacity. Further, in rejecting a submission by Zurich that the assured had breached its duty of disclosure by failing to disclose the true deadweight of the vessel, the Court of First Instance gave weight to the fact that the insurer itself had easy access to information about the vessel from the internet. Judgment was given in favour of the assured.
Zurich appealed to the Court of Appeal, which reversed the decision at first instance, finding that there was no inconsistency at all between the naming of the vessel in the contract and the deadweight warranty. The cargo was covered, subject to the deadweight warranty. The Court of Appeal held that although an insurer is presumed to know matters of common notoriety and matters which it ought to know in the ordinary course of its business,2 the fact that information about the vessel’s deadweight capacity could be obtained from the internet did not mean that the insurer was to be fixed with such knowledge, either actual or presumed. The fact that information could be obtained did not mean that it should be obtained, as a matter of law.
The assured then appealed to the Court of Final Appeal, which agreed with the Court of Appeal that Zurich was entitled to rely on the deadweight warranty. Pursuant to section 33 of the Marine Insurance Ordinance (Cap 329), a warranty is a condition which must be exactly complied with, whether it be material to the risk or not. If it is not complied with, then subject to any express provision in the policy, there will be an automatic discharge from liability which will provide a complete defence to any claim made. There need not be any causal connection between the breach of warranty and any loss suffered.
The Court of Final Appeal saw no inconsistency in the contract between the identification of the vessel and the existence of the deadweight warranty. It held that the mere fact that a vessel is named in a contract of marine insurance does not mean that an insurer is somehow prevented from insisting by way of warranty on that vessel possessing certain characteristics. Moreover, though a party’s knowledge may, in appropriate circumstances, result in some form of waiver or estoppel being applicable, the court held that there was no evidence to support a finding that Zurich had actual knowledge of the Vessel’s deadweight capacity. Accordingly, the assured’s appeal was dismissed.
This decision confirms the willingness of the Hong Kong Courts to interpret strictly warranties in contracts of marine insurance, promoting certainty for insurers contracting in Hong Kong.