Kay Lim Construction & Trading Pte Ltd v Soon Douglas (Pte) Ltd

• Judgment Date: 10 September 2012
• Date: 10 September 2012
• Docket Number: Suit No58 of 2011
• Court: High Court (Singapore)

Kay Lim Construction & Trading Pte Ltd

Plaintiff

and

Soon Douglas (Pte) Ltd and another

Defendant

[2012] SGHC 186

Quentin LohJ

Suit No58 of 2011

High Court

Contract — Contractual terms — Clause imposing obligation on hirer to procure insurance in joint names of hirer and hiree — Whether insurance clause precluded claims against hiree for breach of contract — Whether hirer had breached insurance clause

Contract — Contractual terms — Exclusion clauses — Exemption clause excluding liability for direct and consequential loss suffered by hirer arising from downtime, stoppage of work or compliance with order from judicial or governmental authority or by reason of any loss suffered by any person — Whether exemption clause covered any loss suffered by hirer — Whether exemption clause covered losses attributable to ‘delay’

Contract — Contractual terms — Exclusion clauses — Indemnity clause imposing obligation on hirer to indemnify hiree from losses suffered by ‘any person’— Whether indemnity clause should be construed as applying to losses suffered by hirer

Contract — Contractual terms — Implied terms — Rental agreement for tower cranes containing obligation on hiree to provide labour to dismantle cranes — Whether terms that hiree was obliged to provide trained and skilled labour and ensure that dismantling was done in proper and skilled manner should be implied — Whether implied terms were breached

Contract — Contractual terms — Unfair Contract Terms Act (Cap 396, 1994 Rev Ed) (‘UCTA’) — Whether s 3 UCTA applied to exemption clause — Whether exemption clause was reasonable — Section 3 Unfair Contract Terms Act (Cap 396, 1994 Rev Ed)

Contract — Illegality and public policy — Indemnity clause imposing obligation on hirer to indemnify hiree from all ‘loss actions claims demands proceedings (whether criminal or civil)’— Whether this was void for illegality — Whether it was possible to sever illegal portion of clause

The plaintiff (‘Kay Lim’) hired seven tower cranes from the first defendant (‘Soon Douglas’) for use at the worksite of a Housing & Development Board (‘HDB’) construction project. Under the rental agreement (‘the Rental Agreement’), the tower cranes were to be delivered, erected and dismantled by Soon Douglas. Soon Douglas subcontracted the erection and dismantling of the tower cranes to the second defendant (‘Chit Guan’).

A tower crane collapsed when it was being dismantled by a team of workers from Chit Guan, causing the death of one worker and injuring three others. An investigation conducted by the Ministry of Manpower established that the collapse was caused by the failure of Chit Guan's team of workers to adhere to the safe and proper method of jacking down a tower crane.

Kay Lim brought a claim against Soon Douglas for breach of implied terms of the Rental Agreement that Soon Douglas would provide properly skilled and qualified labour and ensure that the tower cranes would be dismantled in a skilful and proper manner in accordance with proper operating instructions. Soon Douglas denied the existence of the implied terms; alternatively, it was entitled to rely on the insurance, exemption and indemnity clauses in the Rental Agreement to exclude its liability to Kay Lim.

Held, allowing the claim:

(1) The Rental Agreement expressly provided that Soon Douglas was responsible for providing labour to dismantle the tower cranes. The parties knew that they carried on their businesses within the statutory and regulatory regimes in Singapore in relation to work sites and safety and the express contractual provisions indicated that the parties had contracted on the implicit assumption that compliance with the relevant regulatory regimes was an underlying basis of their contract. Applying the ‘business efficacy’ and ‘officious bystander’ tests within the context of the nature of the contract and the factual circumstances, it was self-evident that the terms contended for by Kay Lim should be implied: at [18] and [22] to [24].

(2) The implied terms did not impose an onerous obligation on Soon Douglas to guarantee the performance of their subcontractors. Kay Lim was not aware at all material times that Soon Douglas had subcontracted the dismantling works to Chit Guan and Soon Douglas could not evade its contractual obligations by subcontracting out its work. The obligation to dismantle the tower crane was an obligation of performance undertaken by Soon Douglas as the immediate contracting party: at [26] to [28].

(3) On the facts, Soon Douglas had breached the implied terms: at [30] and [31].

(4) The indemnity clause in the Rental Agreement provided that Kay Lim would indemnify Soon Douglas against ‘all loss actions claims demands proceedings (whether criminal and civil)’. It was against public policy for a party to indemnify another against the consequences of a crime. However, the entire clause was not void for illegality as the offending portion of the clause could be severed. The overarching question for the court in deciding whether the doctrine of severance might apply was whether the nature and degree of illegality tainted the entire clause or contract such that it rendered it contrary to public policy to enforce even the unobjectionable portion. The potential illegality contemplated in the indemnity clause was not of such extreme or virulent form so as to preclude the operation of the doctrine of severance, and the ‘blue pencil’ test might be readily applied to strike out the offending phrase: at [33], [34], [37] and [38].

(5) Indemnity and exclusion clauses were to be construed strictly and the contra proferentum rule applied to such clauses. The indemnity clause obliged Kay Lim to indemnify Soon Douglas against ‘any loss injury or damage suffered by any person from the ... dismantling’ of the tower cranes. On a proper construction of the indemnity clause, the phrase ‘any person’ presupposed that the loss was suffered by a third party, and the indemnity clause did not cover claims arising out of losses suffered by Kay Lim as a result of Soon Douglas's breach of contract: at [40], [41], [44] and [45].

(6) The insurance clause in the Rental Agreement obliged Kay Lim to insure both parties as joint assureds against ‘all liability ... arising directly or indirectly out of the use, possession or operation’ of the tower cranes. It was a matter of construction in each case whether the presence of an obligation to insure in a contract evinced the intention to relieve the other party from liability as the loss was to be covered solely by the insurance. The obligation to insure in the present case was for Kay Lim to take out the usual Contractor's All Risk and Public Liability (‘CAR/PL’) policy available for construction contracts of this nature. It could not be construed as precluding Kay Lim from bringing claims against Soon Douglas for breach of the Rental Agreement: at [48] and [51].

(7) The obligation to insure also did not extend to the coverage of Soon Douglas's risks during the dismantling or removal of the Tower Cranes. Kay Lim had not breached the insurance clause as it had obtained a standard CAR/PL policy that covered Soon Douglas as its subcontractor for the HDB project: at [52] and [55].

(8) The exemption clause provided that Soon Douglas would not be liable for ‘any direct or consequential loss suffered by Kay Lim in consequence of any downtime, stoppage of work, compliance with an order or directive from any judicial or government authority or by reason of any loss injury or damage suffered by any person from the ... dismantling’ of the tower cranes. The phrase ‘any person’ in the second limb of the exemption clause could not be construed to include Kay Lim and did not afford Soon Douglas a defence to a claim against it for any loss suffered by Kay Lim itself: at [61].

(9) The language of the first limb of the exemption clause was clear and unambiguous and no further qualification could be read into it. The phrase ‘direct loss’ in the exemption clause referred to losses that flow naturally from the breach and the words ‘consequential loss’ should also be given a narrow meaning to cover only losses falling within the second rule in Hadley v Baxendale(1854) 9 Exch 341, viz, losses that might reasonably be supposed to have been in the contemplation of both parties, at the time they made the contract, as the probable result of the breach: at [69], [70] and [84].

(10) In relation to Kay Lim's claim for liquidated damages and expenses incurred as a result of ‘delay’, losses attributable to ‘delay’ were not per se excluded by the exemption clause. ‘Delay’ referred to a consequence relating to time, while ‘downtime’ and ‘stoppage of work’ described a disruption to progress or productivity. The exemption clause would, however, exclude any claims that arose as a result of the period of the Stop Work order imposed by the Building and Construction Authority, but not claims falling outside the period and not attributable to the order: at [72] to [74], [76] and [77].

(11) Section 3 of the Unfair Contract Terms Act (Cap 396, 1994 Rev Ed) (‘UCTA’) was applicable as the Rental Agreement was on Soon Douglas's standard terms and conditions. The exemption clause clearly fell within the scope of s 3 (2) (a): at [86] and [87].

(12) A contracting party was entitled to invoke s 3 of the UCTA even if he had freely entered into the contract or simply did not turn his attention to the term. However, the court should not be too quick to intervene when dealing with two commercial entities. The exemption clause was reasonable under s 3 as it was consistent with the allocation of contractual risk between two commercial parties of equal bargaining power: at [93] and [95] to [97].

[Observation: Section 3 (2) (a) of the UCTA would also apply to an indemnity clause if the effect of the clause was to exclude the liability of the person indemnified: at [88] to [90].]

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