City University of Hong Kong v

[2001] 1 HKC Blue Cross (Asia-Pacific) Insurance Ltd (Deputy Judge Woolley) 463

A CITY UNIVERSITY OF HONG KONG v BLUE CROSS (ASIA-

PACIFIC) INSURANCE LTD
COURT OF FIRST INSTANCE
ACTION NO 10750 OF 1993
DEPUTY JUDGE WOOLLEY
B 19-22, 26, 28 FEBRUARY, 1, 8 MARCH 2001

Contract – Implied contract – Tenders – Implied obligation of party inviting

tenders to consider all conforming tenders – Tenderer obliged to keep open
tender for specified period – Mistake as to price quoted in tender – Whether
C party inviting the tender could make a binding contract by accepting it

Contract – Mistake – Error of one party known to the other – Mistake as to

price quoted in tender – Party inviting tender required to seek confirmation
from tenderer once it became aware of error which would cause serious loss
– Failure to seek confirmation despite knowledge of error – Party inviting
D tender not to take advantage of tenderer’s error

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F The plaintiff invited submissions by tender for a medical insurance scheme in

respect of its staff and their dependents. The plaintiff’s previous scheme expired
in 1993 and the plaintiff sought coverage for a three year period from 1 July
1993. An insurance broker prepared the tender documents on behalf of the
plaintiff inviting selected insurance companies to submit tenders for the contract.
The defendant was one of the three insurance companies short-listed for the
G
plaintiff’s consideration. The tender submitted by the defendant set out a
quotation of an annual premium which was markedly lower than that of the
quotation provided by the other tenderers. The defendant’s quotation was also
less than the claims paid during the previous year of 1992. The tender form
contained a provision that the tenderer was to abide by his tender for three
H months. However, the defendant sought to withdraw its tender one week after
submission of the tender form claiming that the premium quoted was a mistake.
The plaintiff refused the defendant’s purported withdrawal contending that the
defendant had promised to keep the offer open for three months. The plaintiff
then wrote to accept the defendant’s tender and requested the defendant to effect
insurance cover from 1 July 1993. The defendant declined to do so and the
I plaintiff proceeded to effect insurance with one of the other two valid tenderers at
the premium quoted in its tender. The plaintiff then commenced proceedings
against the defendant for the difference between the premium paid to the
464 Hong Kong Cases [2001] 1 HKC

successful tenderer and what the plaintiff maintained it would have paid to the A
defendant had the latter stood by its tender. The defendant relied on cl 8 of the
tender document which dealt with errors discovered in the tender that would
involve the tenderer in serious loss and the requirement to ask for confirmation
whether the tenderer wished to abide by its tender.

Held, giving judgment to the defendant and declaring the contract of B

insurance between the plaintiff and the defendant was null and void and of
no effect:
(1) Although it was not expressly stated in the tender documents, there was
an implied obligation on the party inviting the tender to consider all confirming
tenders, thereby providing consideration for a collateral contract brought into C
being upon the submission of a tender, and to this extent the invitation to tender
was an offer and the submission of a timely and conforming tender an
acceptance. In this case, the expectation that the plaintiff would consider all
conforming and timely tenders was sufficient consideration to hold the defendant
to its promise to keep the offer open for the period of time specified in the tender
documents by way of an implied contract. And in the absence of other factors D
peculiar to the present case, withdrawal of tender would be a breach of the
defendant’s obligations to the plaintiff. Ontario v Ron Engineering &
Construction (Eastern) Ltd (1981) 119 DLR (3d) 267 and Blackpool and Fylde
Aero Club v Blackpool Borough Council [1990] 1 WLR 1195 applied (at 473B-
H).
(2) Clause 8 of the tender documents clearly imposed an obligation on the E
plaintiff to draw the attention of the defendant to what it perceived to be an error
which would cause the latter serious loss. This clause was for the protection of
the plaintiff and not the defendant. On the evidence, the plaintiff was aware of the
mistake made by the defendant as to the terms of the tender, and in the absence of
the plaintiff seeking the protection of cl 8, the defendant was entitled to avoid the F
contract as they did (at 473I-476B).

Cases referred to
Blackpool and Fylde Aero Club v Blackpool Borough Council [1990] 3 All ER
25, [1990] 1 WLR 1195, 88 LGR 864 (CA)
Ontario v Ron Engineering & Construction (Eastern) Ltd (1981) 119 DLR G
(3d) 267 (Supreme Court of Canada)
Samsung Hong Kong Ltd v Keen Time Trading Ltd [1999] 2 HKC 447 (CA)

Action
This was the trial of an action brought by the plaintiff, the City University of H
Hong Kong, against the defendant, Blue Cross (Asia-Pacific) Insurance Ltd, in
respect of the defendant’s withdrawal of a tender in breach of the defendant’s
obligations to the plaintiff. The facts appear sufficiently in the following
judgment.

Geoffrey Ma SC and Peter Ng (Wilkinson & Grist) for the plaintiff. I

John Bleach SC and Godfrey Lam (Deacons Graham & James) for the
defendant.
 City University of Hong Kong v
[2001] 1 HKC Blue Cross (Asia-Pacific) Insurance Ltd (Deputy Judge Woolley) 465

A Deputy Judge Woolley: The plaintiff in this action is the City University
of Hong Kong, which in 1993, at the time the events occurred with which
we are concerned here, was the City Polytechnic of Hong Kong. The
plaintiff is a large organisation which had for some years operated a group
medical and life insurance scheme for its staff of some 1,800, and, in
B respect of the medical scheme alone, their dependents, numbering some
2,100. For the two years up to 1993, the insurance for this scheme had
been provided by the company now known as Manulife (International)
Ltd (Manulife), which, although under a three year contract from 1991,
was subject to renewal each year, when the premium was renegotiated.
C
This contract was not renewed in 1993 for the last of the three years
originally contracted for, and the plaintiff began to look for coverage for a
three year period from 1 July 1993.
In 1991, the plaintiff had appointed Gibbs Insurance Consultants Ltd
(Gibbs) as their broker to advise on insurance matters and to assist in
D procuring insurance cover on the best terms available. It was accordingly
Gibbs who, in May 1993 prepared an invitation by way of tender
documents for selected insurance companies to submit tenders for the
contract. This was sent to nine well-established companies with previous
experience in this field, including the defendant. The tender documents
included conditions of tendering, specific terms of which I shall return to
E
later, the form of tender, and information about the plaintiff, the current
and proposed medical benefits scheme, claims experience since 1 July
1990, and special conditions of the service to be provided. The tender
form included a statement that the tenderer agreed to abide by the tender
for a period of three months. The final date for receipt of tenders was
F 24 May 1993.
Three of the invitees declined to tender, one put in a late tender, which,
under the conditions of tendering, could not be considered, and five,
including the defendant, returned tenders for the contract, that of the
defendant being put in on the last day, 24 May. Two of the five were
G rejected as being unable to comply with certain of the tender
requirements, leaving three valid tenders for the consideration of the
plaintiff’s Main Tender Board, being from Manulife, the existing insurer,
AIA, and the defendant. In circumstances which I shall look at in more
detail shortly, the defendant, whose annual premium quoted was
H markedly lower than that of either of the other tenderers, they say as a
result of an error, sought to withdraw their tender a week later, but their
purported withdrawal was not accepted and the plaintiff sent a letter to the
defendant on 4 June 1993 accepting their tender and requesting them to
proceed to effect insurance cover from 1 July. The defendant declined to
I do so and the plaintiff therefore effected insurance with Manulife at the
premium which they had quoted in their tender. The plaintiff now claims
the difference between the premium paid to Manulife and that they
466 Hong Kong Cases [2001] 1 HKC

maintain they would have paid to the defendant had the latter stood by A
their tender.
The initial part of the facts is not in dispute. The tender form returned
by the defendant set out, as required by the tender documents, the annual
net premium per employee for each type of benefit, and under both the
existing scheme and the proposed increased benefits scheme, as the B
plaintiff had not at that stage decided whether to implement the improved
scheme which increased the benefits by at least 15%. They also quoted for
the group life insurance. These were separate quotes, although included
on one form, and the plaintiff was not bound to accept both, but was
entitled under the terms of the tender to accept one and reject the other. C
The total annual premium for the medical cover was calculated by Gibbs
to be $5,959,613, and that for the life insurance $1.7m.
The total annual premium for the medical cover for each of the other
tenderers was $10,777,135 in respect of Manulife, and $10,023,924 for
AIA. There is also evidence that the total premium of each of the two D
tenderers who were rejected for other reasons, was within a few
percentage points of these last two quotes.
It was immediately apparent to Gibbs, in the person Mr Benny Lee,
who was dealing with this tender for the plaintiff, that the premium
quoted by Manulife was not only some 80% higher than that of the E
defendant and that of AIA 68% higher, but the defendant’s quote was less
than the claims paid, or expected to be paid, for the last year from 1 July
1992, which was about $6m.
What happened next is in dispute. The defendant’s Mr Charles Kwun,
the assistant general manager, who signed the tender on behalf of the F
defendant, in the absence of the general manager, says that he received a
telephone call from Mr Lee on 31 May who pointed out that their quote
was so low that it would not even meet the previous year’s claims.
Mr Kwun says that he immediately asked Mr Terry Lo, their actuary, who
had carried out a ‘reasonableness test’ on the quote, to check the figures,
and he rapidly discovered that a basic error had occurred in that he, and G
presumably the staff who had prepared the quoted premium rates, had
taken the claims record for the last year to be $3m rather than the true
figure of nearly double that, which should have resulted in a premium of
$9,951,488.87. Mr Kwun says that he immediately informed Mr Lee by
telephone of the mistake and said that they wanted to withdraw, H
whereupon Mr Lee pointed out that they could not do so. Mr Kwun also
said that Mr Lee suggested a way out of the problem, by telling the
plaintiff that the rates quoted were quarterly rather than annual. Mr Lee
denies this, and it would certainly not have been in his client’s interest,
but I consider it likely that a discussion along those lines may well have I
taken place, between two insurance men seeking a way out of a problem.
It was, I am satisfied, reported to Mr David Skinner, their chief financial
 City University of Hong Kong v
[2001] 1 HKC Blue Cross (Asia-Pacific) Insurance Ltd (Deputy Judge Woolley) 467

A officer, who, very properly, rejected it. Mr Ma, for the plaintiff, has
emphasised the fact that such a suggestion by Mr Lee would not have
been in his own client’s interest, and was therefore unlikely to have
occurred. That may be so, but neither was it in his interest to have a
situation which he envisaged could lead to lengthy legal proceedings
B involving parties with whom he wished to continue having cordial
business relations.
Mr Kwun and Mr Lo then went to see Mr Skinner, told him of the
mistake and it was decided to send a fax withdrawing the tender. Upon
receipt of this, the plaintiff contacted Mr Lee and asked him to arrange a
C meeting with senior personnel of the defendant, which took place at 9 am
on 2 June. At that meeting it is not in dispute that the defendant admitted
a mistake and put forward a proposed replacement bid, and that, after Mr
James Ng for the plaintiff initially pointed out that they ought to abide by
the tender for three months, the discussion for the next hour or so
D
revolved solely around the defendant’s replacement bid and the terms of
it. In spite of this, Mr Ng the same day sent out a circular to the members
of the tender board with his recommendation that the plaintiff accept the
original tender of the defendant, supported by Gibbs’ Tender Assessment
Report, and, presumably, advising them of the fact that the defendant
claimed it was made in error and had sought to withdraw it. I say
E presumably, as this recommendation has not been disclosed in these
proceedings, but I cannot conceive that the Tender Board were allowed to
make a decision without being apprised of all the facts, including the
events which had recently taken place and the likely legal consequences,
and the possible cost of them. The board responded the next day and a
F letter was sent to the defendant on 4 June accepting their original tender.
The defendant declined to offer a policy on the basis of that tender.
It has been the plaintiff’s case from the outset that, notwithstanding
that they were informed that a mistake had been made, they have never
accepted that this is the case, Mr Ng going so far as to say that he did not
G believe Mr Skinner when he told him at the meeting that a serious error in
premium rating had been identified. I have to say immediately that in my
view the evidence here is clear and overwhelming that the defendant
made an error of calculation, and I am also satisfied that the plaintiff, at
the very latest at the meeting on 2 June 1993, and almost certainly before
H that through their agent Mr Lee, knew that the defendant had made that
error.
The evidence as to this begins with that of the defendant’s staff,
Mr Kwun, Mr Lo, Mr Skinner and Mr Chris Tam, a relatively junior
member of the company and an assistant marketing manager. That of
I Mr Kwun was that the tender, when received in the middle of May 1993,
was passed by him to Mr Tam for an initial assessment. Mr Tam says that
his duty was to see if all the necessary information had been supplied in
468 Hong Kong Cases [2001] 1 HKC

the documents, and he then used their computer programme to generate a A

premium summary sheet by inputting the benefit levels required in the
tender document. This produced a basic figure of $5.46m which took no
account of the plaintiff’s claims record or other conditions or special
requirements which might affect the premium level. He then passed this
with the tender documents to a Mr Albert Yuen of the underwriting B
department to consider other matters including claims experience,
contingencies, cost inflation and loading for administrative costs, and to
assess a gross premium. This he did, agreeing with the premium of
$5.46m, the final figure considered by the plaintiff and Gibbs being
slightly higher as a result of precise calculation of benefits and number of C
personnel to be covered. This was then passed to Mr Lo, the corporate
actuary, to conduct a ‘reasonableness test’ based on the claims history and
adding 10% for contingencies, 20% for inflation and increase in benefits
and a loading of 16.5% for administration costs, plus a further 5% as the
profit margin. Having done this, he arrived at a figure of $4.98m and
D
accordingly concluded that the gross premium suggested was well within
an acceptable range. However, it is clear from his evidence and his notes
of calculation that his starting point, namely the figure for the latest year’s
claims, was $3m, while the proper figure should have been $6m, which
would have produced a premium of $9,951,488, a sum very close to that
of all the other tenderers. He is unable to explain why the figure of $3m E
was used. The tender was then passed to Mr Kwun who appears to have
signed it without any further check, no doubt relying on others to have
done the necessary checks before it got to him.
This error in the claims history appears to have first occurred in the
F
underwriting department, and been repeated by Mr Lo, as it was not
Mr Tam’s duty to consider the amount of the previous claims, only to see
that a figure had been given. How the error was made is difficult to see, as
the figure clearly given in the tender documents for the year 1992/1993
was about $4m for claims paid for the eight months from 1 July 1992 to
28 February 1993, which, when annualised for a 12-month period, comes G
to $6m. Indeed, all the defendant’s witnesses themselves are at a loss to
explain it. There were at least four stages in the process of preparing the
tender when the mistake might have been noticed and rectified, and they
all failed. The error was not brought to their attention until Mr Benny Lee
telephoned Mr Kwun on 31 May and pointed out that the quote was very H
low. Mr Lee denies that this conversation took place at all. He admits that
he was immediately aware on receiving the defendant’s tender, not only
that the difference between their quoted premium and the others was
huge, but that it was less than the previous year’s claims. He also admits
that he had telephone conversations with Mr Kwun that day, of which I
says the first was about other business dealings, although Mr Kwun
cannot recall any other dealings at that time with Gibbs or Mr Lee. The
 City University of Hong Kong v
[2001] 1 HKC Blue Cross (Asia-Pacific) Insurance Ltd (Deputy Judge Woolley) 469

A second conversation he does admit was when Mr Kwun called him to say
that there had been a mistake and that they intended to withdraw. Not to
have mentioned the startling figure that they had quoted in the first call
would have been, to say the least, unusual, and I am satisfied that it is
more likely than not that he did. I would add that Mr Lee’s evidence was
B less than satisfactory on a number of matters. He either had very little
memory of the events he was asked to recall, or appeared to be selective
in those he did say he remembered, and where his evidence differs from
that of the defendant’s witnesses I prefer the latter.
On receipt of this information Mr Kwun says that he immediately
C asked Mr Lo to check the figures and the mistake was discovered. There
followed a flurry of activity on the part of the defendant’s staff. Mr Kwun
and Mr Lo went to see Mr Skinner, as chief financial officer, and told him
what had happened and he immediately appreciated the potential financial
loss which could result. They were understandably embarrassed and, as
D Mr Skinner put it, chagrined, that such a mistake could have occurred,
and Mr Skinner said that it was his decision that the tender should
immediately be withdrawn. This task was given to Mr Kwun who in turn
passed it to Mr Tam, who sent a fax that day to the plaintiff. The wording
of that fax Mr Ma says indicates that the reason for withdrawal was not a
mistake, as it refers to Question 2 sent to the defendant in respect of
E
proposed annual increases in premium. However, I accept the evidence of
Mr Tam as to this, that he was embarrassed to admit that the defendant
had made such a mistake, and in any event did not intend by the wording
to connect their refusal to answer Question 2 with the withdrawal. I can
well understand that, admitting such a mistake over the telephone to
F another insurance man is one thing, but to do the same in writing to
someone outside the industry, quite another. This appears to me to be
logical and to conform with the other facts as I find them. In any event,
there could be no reason to use Question 2, as if they wished to do so, all
they had to do was to reply with an answer they knew would be
G unacceptable to the plaintiff.
If further support of the contention that this was a mistake on the part
of the defendant were needed, it is available in the enormous discrepancy
between the tender figures themselves which were apparent to Mr Lee.
He had advised the plaintiff on the likely amount which they would have
H to pay for the insurance they required, and having seen the premium
quoted by Manulife, who were, as he appreciated, in the best position as
the existing insurer to assess the cost of providing this insurance, and
whose quote he took as a yardstick by which to compare the others, he
must have known that the defendant’s premium was so low that it was
I uneconomic, and he must have appreciated, probably before it was
confirmed by the defendant, that an error had occurred. He emphasises
this in his assessment report where he refers to the cost saving of taking
470 Hong Kong Cases [2001] 1 HKC

the defendant’s tender as being as high as four to five million dollars, and A
that it could generate huge short term financial gain. There can be no
doubt that it would have been short term, as the premium was for the first
year only. Had the defendant felt obliged to proceed to offer cover at this
level, there was no provision in their tender restricting an increase in
premium from the second year back to commercial rates, or even higher B
to try to recover losses in the first. This is also relevant when considering
the experts’ views of the economic feasibility of the quote, and any
liability for damages.
In support of their case that the defendant’s tender was not necessarily
the result of an error, the plaintiff has produced an expert report by C
Mr Stuart Leckie who has undoubted wide experience and expertise in
actuarial and insurance matters. The plaintiff relies on this report, firstly,
for reasons why an insurer would deliberately quote a low premium,
secondly, to examine ways in which the costs could be minimised to
justify a lower than usual premium, and thirdly, to show that, as things
D
have turned out, the defendant could have made a small profit over a three
year period. The main thrust of the first part of the report is that a low
premium would be quoted because the insurer was very keen to get the
business, as a way to capture other prestige business or to increase its
market share in a certain area. However, the efforts of the defendant here
to extricate themselves from the situation, even in the face of threats of E
legal action, do not support a contention that they would go to great
lengths to acquire the plaintiff as a client. This would only be an argument
for the low quote being intentional if they had pursued the matter
vigorously rather than trying to get out of it. The same would be true of an
intention to get the business and recover losses the first year by increased F
premium for the second and third years. In addition, there would be no
guarantee of this should the plaintiff not agree the increased premium and
put it out to tender again, as indeed happened to Manulife in 1993.
Cost minimization was not quantified in any way, and a policy of
stringent claim control would seem designed not only to alienate one’s G
client, but would, as Mr Leckie conceded, add to administrative costs.
As to the third part of the report, which of course has been prepared
with the advantage of hindsight, rather than what could reasonably have
been anticipated at the time, there are three matters which give rise to
queries over the accuracy of his figures. H
The first is that he has assumed that the defendant would have been
awarded the contract both for medical and life insurance. While the
plaintiff’s letter of 4 June 1993 purporting to accept the tender did accept
both, at the time the tender was submitted there was no obligation to do
so, and the defendant could not have assessed the premium on the I
assumption that they would also get the life insurance, when the plaintiff
had specifically reserved the right to accept one and not the other. The
 City University of Hong Kong v
[2001] 1 HKC Blue Cross (Asia-Pacific) Insurance Ltd (Deputy Judge Woolley) 471

A plaintiff of course knew this, and even if they intended to give both the
medical and life to one insurer, or to the defendant particularly, they must
have appreciated that the premium would be quoted for each separately to
allow for only one being accepted.
The second is that no allowance has been made for what is known as
B ‘experience refund’ on the life insurance in the event of nil or low claims
in any year, although this is relatively unimportant if one is considering
the first year alone which would not be affected.
The third is that he has assessed only the ‘underwriting profit’, being
the difference between premium and claims. No allowance is made for
C other matters, not least administrative costs.
In the report of Mr Saunders, the defendant’s expert, these matters are
taken into account, and show that, for medical insurance alone, a loss of
about $1.5m would have been made, and even if one were to add in the
life insurance profit, a loss of about $400,000.
D But all this is with the advantage of hindsight. In May 1993 the
insurers, and, indeed, the plaintiff and their adviser and agent, Gibbs,
were, or should have been, assessing what was a reasonable premium
based on the information then available. This was a most recent claims
history of $6m, an increase in benefits of at least 15% in addition to
E administrative costs. Just to break even it would require a premium of
about $8m, and they would expect to have to add a further loading for
contingencies, medical inflation and a profit margin. While the experts
admit that the actual claims made in the following year, a mere 6.66%
increase was within a reasonable range, albeit at the low end, I cannot
conceive of even the most optimistic insurer fixing his premium on the
F assumption that this is the likely exposure. It would be an unacceptable
risk, and assessment of risk is the basis of this industry.
One other matter mentioned in the reports is that of income from the
investment of an annual premium. While this could be between 5% and
10% on a premium paid annually at the beginning of the year, with usual
G conservative investments, in practice it would, of course, be far less, as it
would be on a reducing amount as the sum invested is used to pay claims,
particularly here, where the evidence is that the premium would be
insufficient to do so. Further, the evidence here is that the premium would
be paid quarterly, as the tender documents required the tender to be on
H this basis, although the plaintiff, in the questions sent later, asked for
confirmation of this. In that case, the return on investments would not
exceed 2%. I accordingly do not consider this a matter of significance to
be taken into account.
Mr Leckie admits that, while this industry is not always highly
I profitable, no company of this size wishes to make a loss. At the time the
tender was submitted, it is clear that they may well have done on the
evidence then available, and from what we know now about claims since,
472 Hong Kong Cases [2001] 1 HKC

I consider it likely that they would have done. I accordingly take the view A
that it was not the case that the premium quoted in their tender of 24 May
1993 was anything other than the result of an unfortunate error, which,
while unusual in a company such as this, did occur on this occasion, and
that the plaintiff was well aware that the low premium quoted was as a
result of a mistake, such knowledge being acquired either through their B
agent Mr Lee, or directly when informed by Mr Skinner at the meeting on
2 June. Mr Ng’s contention that he did not believe Mr Skinner does not
stand close examination. No doubt was expressed at the time about a
mistake having been made, and no explanation about it was requested.
Mr Ma has made much of the fact that no explanation was offered. In my C
view the obvious conclusion which can be drawn from the lack of enquiry
and offer of explanation was that the error, and the nature of it, was
clearly apparent to all concerned. How it had arisen was not important.
As I have already said, the meeting was concerned almost entirely with
discussion of the defendant’s revised quote and a promise by Mr Skinner
to answer the outstanding questions on the tender, but based only on the D
revised figures. It is therefore a little difficult to explain the fact that,
within two hours of the conclusion of that meeting, Mr Ng had sent out to
the Tender Board his recommendation that the defendant’s original tender
should be accepted. This seems to me to be acting in almost indecent
haste to take advantage of what he knew to be a mistake for a short term, E
but substantial, financial gain for the plaintiff. I must accordingly now
look at whether, as a matter of law, the plaintiff was entitled to do so.
I start with the tender document itself and the tender form submitted by
the defendant on 24 May 1993. There are two clauses in the tender
documents relating to errors: cll 7 and 8. Clause 7 only refers to errors F
discovered by the tenderer and amended before the closing date for
tenders, and is accordingly not relevant. However, cl 8 is the principal
basis of the defendant’s case here and reads as follows:
Should examination of a Tender reveal errors of such magnitude as in the
opinion of the Polytechnic would involve the Tendered (sic) in serious loss, G
then the nature and amount of such errors will be communicated to the
Tenderer and it will be asked to confirm in writing that it is prepared to abide
by its Tender.
The other relevant provision which I must also consider is in the tender
form and reads as follows: H

III. I/We agree to abide by this Tender for a period of three (3) months from
the date fixed for receiving the same and it shall remain binding upon me/
us and may be accepted at any time before the expiration of that period.
Although these clauses appear on the face of them to be inconsistent, the I
second requiring the tenderer to abide by his tender for three months, and
the first, in requiring the plaintiff to ask for confirmation of the tender,
 City University of Hong Kong v
[2001] 1 HKC Blue Cross (Asia-Pacific) Insurance Ltd (Deputy Judge Woolley) 473

A apparently conceding that there are circumstances in which the tenderer

need not do so, this was not a point taken by either party, but it is a matter
which is, I think, relevant here, and I shall look at it again shortly.
However, I shall start with the second, which I can deal with quite shortly.
It is contended by Mr Bleach for the defendant that this cannot be a
B binding promise by the defendant as it is unsupported by any
consideration, there being no contract until the tender is accepted by the
plaintiff, and it is therefore only an offer. Normally this would be the case,
and an offer to sell, or to provide services at a certain price, can be
withdrawn at any time before acceptance. However, the situation with
C regard to tenders has for long been considered by the courts to be
different, and that there can be circumstances where an implied contract
comes into existence binding the tenderer to abide by his tender for a
particular period. The earliest of these is the Canadian case of Ontario v
Ron Engineering & Construction (Eastern) Ltd (1981) 119 DLR (3d)
D
267, where the concept of a collateral contract, brought into being upon
the submission of a tender, was propounded to find that the tenderer was
bound to abide by it under the conditions of tendering. While this was
expressed to be in the nature of a unilateral contract, the principle was
taken further and clarified by the English Court of Appeal in Blackpool
and Fylde Aero Club v Blackpool Borough Council [1990] 1 WLR 1195
E where it was held that, although it was not expressly stated in the tender
documents, there was an implied obligation on the party inviting them to
consider all conforming tenders, thereby providing consideration for the
collateral contract, and to this extent the invitation to tender was an offer
and the submission of a timely and conforming tender an acceptance. In
F that case the failure of the council to consider a tender properly
complying with the conditions was held to be a breach of their obligations
under the collateral contract. Here it is submitted by the plaintiff that the
defendant’s failure to abide by its tender for the period stipulated in its
tender is similarly a breach.
G The point has already been considered in this action by Rhind J in an
earlier appeal against an order to strike out on the ground of no reasonable
cause of action being disclosed, where, after considering the authorities,
he came to the same conclusion, that the expectation that the plaintiff
would consider all conforming and timely tenders was sufficient
H consideration to hold the defendant to its promise to keep the offer open
for three months. I can see no reason to depart from that finding, and have
to agree with the plaintiff that, in the absence of other factors peculiar to
this case, withdrawal of the tender would be a breach of the defendant’s
obligations to the plaintiff.
I One of those other factors is cl 8. The first point about cl 8 is that it
clearly imposes an obligation on the plaintiff to draw the attention of the
defendant to what it perceives to be an error which would cause the latter
474 Hong Kong Cases [2001] 1 HKC

serious loss. I have already found above both that there was an error, and A
the plaintiff was aware of that error. The remaining questions therefore
are whether that error would cause the defendant serious loss and whether
that was the opinion of the plaintiff.
I have been referred by Mr Ma to a great deal of material showing what
would have happened had the defendant entered into the contract on its B
original terms, by which he has tried to show me that there would in fact
have been no loss, or only a small loss. Even if I accepted that totally, this
is only with the benefit of hindsight, and when considering these two
questions I must look at the situation in May 1993 and what a reasonable
person then, and in particular a reasonable person experienced in the C
insurance world, would have perceived as the risk to the defendant by
their tender. In so doing, it is as much the opinion of the plaintiff’s agent,
Mr Lee, as that of the plaintiff, which is relevant, as any knowledge of the
agent must be imputed to the principal, so where I speak here of the
plaintiff, I include Mr Lee. D
I have already found above that it was Mr Lee who drew the
defendant’s attention to the unusually low premium they quoted, and
which caused them to review their figures, discovering the error. At that
time he would have been aware that, not only was the difference between
their premium and the others very large, it was less than the previous E
years’ claims. As an experienced insurance man he would have done his
own calculations in order to advise the plaintiff as to a proper premium
they would be likely to have to pay, and no doubt used a similar method
of calculation to the defendant’s, which Mr Leckie agreed was a usual
one. He also had the tender from Manulife with which to compare it, and
which he agreed he used as a yardstick, as being from a company in the F
best position to assess what the insurance cover required. He was then
presented with a quote so low that, had it been for the previous year,
would have incurred a loss to the insurer. He also knew, not only that the
level of benefits was increasing by some 15%, but that, as he states in his
assessment report, the health care expenses of the plaintiff’s staff and G
dependents were higher than the medical inflation rate. He, and
accordingly the plaintiff, was therefore in a good position to evaluate the
defendant’s tender, and must have come to the conclusion that they would
have almost inevitably lost money, at least for that first year. It follows
that, for the purpose of cl 8, the plaintiff did know that the defendant H
would suffer a loss, in the absence of very unusual circumstances, which
a reasonable person, assessing the risk on the known information, could
not take into account.
Was that loss ‘serious’? Again, taking the figures as they were known
at the time, I find it inconceivable that anyone would have believed the I
risk to the defendant anything but substantial, and therefore serious. It
was reasonable to presume that the claims for the following year would
 City University of Hong Kong v
[2001] 1 HKC Blue Cross (Asia-Pacific) Insurance Ltd (Deputy Judge Woolley) 475

A be at least 15% and possibly 20% higher than the previous year, and that
other matters I have referred to above should be factored in just to break
even, and more to give the insurer a profit. On the defendant’s quote, any
reasonable and careful insurer, and in this I include Mr Lee, would expect
them to make a loss of up to $3m. Even if the life insurance premium is
B taken into account, which in my view, for the reasons above, it should not,
there would still be an anticipated loss in six figures. Mr Ma has sought to
say that, to a company as large as the defendant, with considerable assets,
such a loss is not serious. I cannot agree with that. Any insurer is in the
business to make money. To intentionally do otherwise would be in
C breach of its obligations to its shareholders, and rather defeat the object of
being in business at all. To make any loss is unlikely to be acceptable, but
to make a loss of up to possibly 50% on a large contract, and which the
plaintiff must have appreciated to have been at least 20%, cannot be
described as insignificant, and consequently well within what I consider
D to be the definition of ‘serious’.
This, I believe, was apparent to Mr Lee when he first saw the
defendant’s tender. And even if he thought then that there may have been
some explanation for it of which he may be unaware, he was left in no
doubt after speaking to Mr Kwun that an error had occurred, and he
E would have known that it was one which in all probability would cause
them a serious loss. This knowledge being imputed to the plaintiff, they
then had an obligation under cl 8 to ask the defendant to confirm in
writing that they were prepared to abide by their tender. This they failed
to do, and were accordingly in breach of that obligation, and cannot now
F seek to take advantage of the defendant’s error.
I would, however, go further and look at the position at common law. It
has long been held that a mistake as to the terms of a contract, if known to
the other party, may avoid the contract. Price is a term of a contract, and
where, as here, the plaintiff must have known that the price had been
G quoted in error, could not make a binding contract by accepting it. Mr Ma
says that where the terms of a contract deal with the question of error,
then that overrides these provisions. That may be so where they do so
clearly, with the stated intention of overriding the provisions. But that is
not the position here. The wording of cl 8 at first caused me some disquiet
H in the light of the inconsistency I referred to above, in appearing to seek
confirmation of a tender which the defendant was obliged to abide by.
However, if it is looked at in the light of a provision accepting the
common law position, namely that the contract can be avoided by errors
known to the plaintiff, but providing that they can protect their position by
I asking the defendant to confirm, then there is no inconsistency and the
clause makes good sense. That is what I accept cl 8 must mean, it is for
the protection of the plaintiff not the defendant, as the defendant’s
476 Hong Kong Cases [2001] 1 HKC

position, of making an offer containing a mistake as to its terms of which A

the other side is aware, is already protected under common law.
As will be clear from my findings above, the facts here show that there
was a mistake made by the defendant as to the terms of the tender, the
plaintiff was aware of it, and, in the absence of the plaintiff seeking the
protection of cl 8, the defendant was entitled to avoid the contract as they B
did.
That is sufficient to deal with this matter, but for the sake of
completeness, and in the event of any appeal, I will briefly look at the
question of the damages claimed by the plaintiff had they been successful.
C
In their statement of claim they set out their loss as being the difference
between what has been paid to Manulife, who provided insurance in place
of the defendant, from 1 July 1993 to 30 June 1996, less what they would
have paid to the defendant under their original tender. For the first year,
1993 to 1994, the figures have been calculated for me by those D
representing the plaintiff at $4,546,320.83, which I accept, only adding
that the size of that figure as now calculated reinforces what I have said
above about the obvious disparity between the quotes given. As to the
next two years, it is not in dispute that there was no provision limiting the
defendant in any way from increasing the premium to any level they
E
chose, subject to the right of the plaintiff not to accept renewal on the
terms offered, and to re-tender. Had they been required to provide cover
for the first year at the original rates, and knowing as we now do the
amount of claims made that year, it is not fanciful to assume that the
defendant would have sought, by a sufficient increase in premium, to
recoup what they had lost. On the authorities to which Mr Bleach has F
drawn my attention, not least the recent Hong Kong case of Samsung
Hong Kong Ltd v Keen Time Trading Ltd [1999] 2 HKC 447, I accept that
I am entitled to assume that the defendant would have performed the
contract in the way least onerous to himself and least beneficial to the
other party. I have no precise evidence of what they would have asked by G
way of premium, the best being that of Mr Peter Iu who says he would
have expected the renewal to have been not less than $9.19m for 1994 and
$11.09m for 1995. This, in my view, is insufficient to make an assessment
which would necessarily produce a figure less than that paid to Manulife,
and I would accordingly have awarded nothing for the second and third H
years.
For the reasons given above the plaintiff’s claim will be dismissed and
judgment given for the defendant by way of a declaration that the contract
of insurance between them and the plaintiff was null and void and of no
effect. The defendant has also claimed damages in the counterclaim. This I
has not been quantified, nor any specific loss pleaded, other than the
expenses of these proceedings, which can be compensated by an
 City University of Hong Kong v
[2001] 1 HKC Blue Cross (Asia-Pacific) Insurance Ltd (Deputy Judge Woolley) 477

A appropriate order for costs. There will therefore also be an order nisi that
the plaintiff pay the defendant the costs of this action to be taxed.

Reported by PY Lo