HSBC Institutional Trust Services (Singapore) Ltd (as trustee of AIMS AMP Capital Industrial REIT) v DNKH Logistics Pte Ltd

• Jurisdiction: Singapore
• Judge: Kannan Ramesh JAD
• Judgment Date: 14 April 2023
• Neutral Citation: [2023] SGHC(A) 13
• Court: High Court Appellate Division (Singapore)
• Docket Number: Civil Appeal No 94 of 2022
• Hearing Date: 14 April 2023
• Citation: [2023] SGHC(A) 13
• Year: 2023
• Plaintiff Counsel: S Selvam Satanam and Julia Emma DCruz (Ramdas & Wong)
• Defendant Counsel: Aqbal Singh s/o Kuldip Singh and Tan Yee Pin Jeff (Pinnacle Law LLC)
• Subject Matter: Contract,Contractual terms,Interpretation,Indemnity clause
• Published date: 12 May 2023

Valerie Thean J (delivering the judgment of the court ex tempore): Introduction

As a result of a fire believed to have been caused by the spontaneous combustion of black peppercorns stored by a customer of a tenant at a warehouse, the landlord of the premises suffered losses that were made good by its insurer. The insurer now exercises its right of subrogation to bring a claim against the tenant, in circumstances where no negligence is alleged on the part of the tenant. The insurer relies on an indemnity clause in the lease agreement that allows the landlord to claim an indemnity against the tenant for losses suffered on the premises in certain circumstances. The construction of that clause is the sole issue in the present appeal.

Background

The appellant, HSBC Institutional Trust Services (Singapore) Ltd, is trustee of AIMS AMP Capital Industrial REIT (the “Landlord”), in respect of premises at No. 8 Tuas Avenue 20, Singapore 638821 and No. 10 Tuas Avenue 20, Singapore 638822 (the “Premises”). By an agreement dated 31 July 2012 (the “Lease”), it leased the Premises to the respondent, DNKH Logistics Pte. Ltd. (the “Tenant”) for a term of four years from 16 July 2012 to 15 July 2016.

The Premises comprised warehouse and ancillary office space. On 9 August 2015, a fire broke out on the Premises. The fire originated from an area where McCormick Ingredients Southeast Asia Pte Ltd had engaged the Tenant’s warehouse storage services to store large quantities of dried black peppercorns.

As a result of the fire, the Premises required repair and reinstatement. Including loss of rental from a rent reduction granted to the Tenant, loss adjuster’s fees and consultancy fees, the Landlord suffered losses of $3,441,541.24 in total. Having paid the Landlord, the Landlord’s insurer, Great Eastern General Insurance Limited (“GEGI”), exercised its right of subrogation and brought an action for an indemnity pursuant to cl 3.18.1 of the Lease.

In the General Division of the High Court, the trial was bifurcated and the issue was limited to liability. In an Agreed Statement of Facts (“ASOF”), the parties agreed that the fire arose without any negligence on the part of either party. In respect of the sole issue of the true construction of cl 3.18.1, the parties agreed to rely only on the terms and conditions of the Lease, without reference to any other evidence.

The Judge’s decision below

In his judgment dated 3 October 2022, reported as HSBC Institutional Trust Services (Singapore) Ltd (as trustee of AIMS AMP Capital Industrial REIT) v DNKH Logistics Pte Ltd [2022] SGHC 248 (the “Judgment”), the Judge below (“the Judge”) held that the indemnity clause, cl 3.18.1, applied only to losses arising from third party claims against the Landlord: Judgment at [115]. Clause 3.18.1 was held to be similar in nature and substance to the indemnity clauses considered in Sunny Metal & Engineering Pte Ltd v Ng Khim Ming Eric [2007] 3 SLR(R) 782 and Marina Centre Holdings Pte Ltd v Pars Carpet Gallery Pte Ltd [1997] 2 SLR(R) 897 (“Marina Centre Holdings”), where the Court of Appeal held that the particular indemnity clauses in question applied to third party claims only: Judgment at [116]. The Judge further held that cl 3.18.1 only applied where the losses suffered were attributable to the fault of the Tenant. Clause 3.18.1 was to be understood in the context of the other sub-clauses, cll 3.18.2 and 3.18.3, which concerned losses that were attributable to the fault of the Tenant: Judgment at [118]. The contra proferentem rule also operated against the Landlord: Judgment at [119].

Legal context

The central question in the present appeal is whether the Landlord may rely on cl 3.18.1 to seek an indemnity from the Tenant. As the insurer’s right of subrogation is circumscribed by the rights of the Landlord, the issue properly framed is: whether, on a construction of the Lease, the Landlord is entitled to seek an indemnity from the Tenant under cl 3.18.1 for loss caused by fire, after being fully indemnified by its insurer.

The approach to the construction of contracts was summarised by the Court of Appeal in CIFG Special Assets Capital I Ltd (formerly known as Diamond Kendall Ltd) v Ong Puay Koon and others and another appeal [2018] 1 SLR 170 (“CIFG (SGCA)”) at [19] (affirmed in PT Bayan Resources TBK and another v BCBC Singapore Pte Ltd and another [2019] 1 SLR 30 at [120]): (a) The starting point is that one looks to the text that the parties have used (see Lucky Realty Co Pte Ltd v HSBC Trustee (Singapore) Ltd [2016] 1 SLR 1069 at [2]). (b) At the same time, it is permissible to have regard to the relevant context as long as the relevant contextual points are clear, obvious and known to both parties (see Zurich Insurance (Singapore) Pte Ltd v B Gold Interior Design & Construction Pte Ltd [2008] 3 SLR (R) 1029 at [125], [128] and [129]). (c) The reason the court has regard to the relevant context is that it places the court in “the best possible position to ascertain the parties’ objective intentions by interpreting the expressions used by [them] in their proper context” (see Sembcorp Marine Ltd v PPL Holdings Pte Ltd [2013] 4 SLR 193 at [72]). (d) In general, the meaning ascribed to the terms of the contract must be one which the expressions used by the parties can reasonably bear (see, eg, Yap Son On v Ding Pei Zhen [2017] 1 SLR 219 at [31]).

[emphasis added in bold]

As the clause is an indemnity clause, Kay Lim Construction & Trading Pte Ltd v Soon Douglas (Pte) Ltd and another [2013] 1 SLR 1 (“Kay Lim Construction”) is also relevant. Quentin Loh J (as he then was) held that the principles of construction relevant to exemption clauses are equally relevant to the construction of indemnity clauses. Such clauses are to be construed strictly, and if a party seeks to exclude or limit its liability (or seeks to have its liability indemnified), it must do so in clear words (Kay Lim Construction at [40]–[41], citing Singapore Telecommunications Ltd v Starhub Cable Vision Ltd [2006] 2 SLR(R) 195 at [52]). A court cannot, however, reject an exemption (or indemnity) clause if the words are clear and unambiguous and susceptible to one meaning only.

The Judge’s starting point in the present case was to compare the scope of cl 3.18.1 with that of precedent cases. As explained in CIFG (SGCA) (at [8] above), that is not the appropriate starting point. The correct starting point should be the text of the contractual provision and the relevant context. We turn, therefore, first to the text of the clause, and then its context.

Contractual analysis Text of cl 3.18.1

Clause 3.18 reads as follows: 3.18 Indemnity by Tenant

To indemnify the Landlord against (i) all claims, demands, actions, proceedings, judgments, damages, losses, costs and expenses of any nature which the Landlord may suffer or incur as a result of or in connection with or caused by, and (ii) all penalties or fines imposed by any relevant authority resulting from: 3.18.1 any occurrences in, upon or at the Premises or the use or occupation of the Premises and/or any part of the Property by the Tenant or by any of the Tenant's employees, independent contractors, agents or any permitted occupier; 3.18.2 the Tenant or its employees, independent contractors, agents or any permitted occupier to the Premises, the Property or any property in them (including those caused directly or indirectly by the use or misuse, waste or abuse of Utilities or faulty fittings or fixtures); or 3.18.3 any default by the Tenant, its employees, independent contractors, agents or any permitted occupier in connection with the provisions of this Lease. [emphasis added in bold]

The width of cl 3.18.1 is extremely broad. On a plain reading of the words in bold and the use of the disjunctive “or” thereafter, all losses, costs and expenses caused by any occurrence at the Premises are covered under the clause. It is necessary, then, to look to the relevant context to ascertain if the parties objectively intended that damage to the Premises by fire caused by no fault of either party would fall within cl 3.18.1. In the present case, only the contractual context is relevant as agreed by the parties in the ASOF.

Contractual context

In considering the context of the contract, it is important to understand how the Lease allocates risk for damage to the Premises by a fire. In this regard, it is pertinent that there is a clear allocation of risk specified in the Lease, through the segregation of obligations between the Landlord and Tenant to insure various risks.

Allocation of risk and the obligations to insure

We start with the Tenant’s obligations to insure. They are extensive. Clause 3.6 mandates the Tenant to take out various insurance policies. Clause 3.6.1(i) relates to the Tenant’s goods and stock-in-trade and cl 3.6.1(iii)...