The Hartford Insurance Company (Singapore) Ltd v Chiu Teng Construction Pte Ltd

• Jurisdiction: Singapore
• Judge: Chao Hick Tin JA
• Judgment Date: 24 January 2002
• Neutral Citation: [2002] SGCA 5
• Date: 24 January 2002
• Subject Matter: Liability insurance,Insured causing damage to property resulting in loss to third party,Insurer aware of third party's claim against insured but not getting involved,Action by third party against insurers for judgment sum,Indemnity,s 1(1) Third Parties (Rights against Insurers) Act (Cap 395, 1994 Ed),Insured subsequently wound up,'All risk' policy,Whether insurer may reopen issue of amount of third party's loss or liability,Insurance,Third party claims,Whether judgment between insured and third party binding on insurer,Judgment obtained by third party against insured,Third's party right of subrogation
• Docket Number: Civil Appeal No 600079 of
• Published date: 19 September 2003
• Defendant Counsel: Michael Eu (Comlaw LLC)
• Court: Court of Appeal (Singapore)
• Plaintiff Counsel: Teo Weng Kie (Khattar Wong & Partners)

395) – Construction of s 1(1) – Whether earlier judgment binding on insurer – Whether s 1(1) requires third party to prove the extent of the insured’s liability once again

The respondents, Chiu Teng, were the main contractors of a housing development know as "The Countryside" (the "estate"). Sometime in early January 1996, Brentford Construction, which was carrying out construction work at an adjacent lot to the estate, caused damage to some of the houses in the estate. As a result of the damage, Chiu Teng had to carry out rectification works and sought to recover the loss it suffered on account of the rectification works from Brentford. On 24 April 1998, Brentford was wound up by an order of court and the Official Receiver was appointed as liquidator. In view of Brentford’s winding up, Chiu Teng had to obtain leave of court to commence proceedings against it. On 11 May 1999, an interlocutory judgment was obtained with the consent of the Official Receiver. On 30 May, judgment for the sum of $ 466,600.08 was granted to Chui Teng. Hartford who was informed of this action chose not to get involved as it felt that it was not liable to Brentford under the policy.

Chiu Teng, in reliance of s 1(1) of the Third party (Rights against Insurers) Act commenced the present action against Hartford seeking payment of the judgment sum. In the court below, Harford raised two main lines of defence. The first line related to policy defences which the court ruled was without any merits. The second line of defence was that the judgment sum obtained by Chiu Teng against Brentford was not binding on Hartford and that Chiu Teng should prove all over again the quantum of the loss. In this defence, Hartford did not dispute Brentford’s liability to Chiu Teng, but only the reasonableness of the latter’s claim. The trial judge held that Hartford was, by virtue of the earlier judgment, estopped from challenging the extent of liability or the quantum which the court had held Brentford to be liable to Chiu Teng. This was because under the insurance policy, Brentford was entitled to be indemnified by Hartford as to the judgment sum. Since under s1(1) of the Act, following the winding up of Brentford, Chiu Teng stepped into the shoes of Brentford, Chiu Teng should similarly be entitled to be indemnified by Hartford. Hartford appealed against the trial judge’s ruling that the earlier judgment obtained by Chiu Teng against Brentford was binding and conclusive as against Hartford. It contended that estoppel does not apply in the present case and that it is entitled to question the quantum of the loss suffered by Chiu Teng.

Held, dismissing the appeal :

(1) A judgment is generally only binding as between the parties to the action, except in the case of an express indemnity given by a third party to a party to the action: see Mercantile Investment & General Trust. At common law, Chiu Teng would have no claim against Hartford, the insurer: Re Harrington Motor Co [1928] 1 Ch 105. However, because of the winding up of Brentford, s 1(1) enables Chiu Teng to step into the shoes of Brentford. Brentford’s right to be indemnified in respect of the liability is, under s 1(1), transferred to Chiu Teng. ( 25 – 26)

(2) It is not open to Hartford, who was notified of the previous action, to reopen the question of quantum of loss. Judgment had already been obtained on that. To permit such a challenge as to the extent of liability of Brentford to Chiu Teng, and consequently the quantum thereof, would risk there being an inconsistent judgment and the insured being indemnified less (or none at all) than what the policy provides. And as by virtue of s 1(1), Chiu Teng stepped into the shoes of Brentford, Chiu Teng should be indemnified by Hartford. There is no question of Chiu Teng being given any additional advantage which would not be available to Brentford in any action instituted by Brentford against Hartford. ( 24)

(3) Where an insurer forms the view that he is not liable to indemnify his insured, then he has at least two options. The first is to refuse or withdraw cover in respect of any defence to the pursuer’s action. In that event, if the third party proceeds with his action and secures decree against the person thought to be insured, the amount of the decree will be determinative of the liability of the insured to the third party unless and until that decree is reduced on the grounds of, for example, fraud or collusion. The insurer cannot normally re-open the question of the amount of the liability in circumstances where he has declined to enter the process and fund the defence to the action or has withdrawn his instructions and funding in the course of the action. The question of liability between the third party and the insured has to be litigated in an action between those two parties and a decree in that action has to be seen as a final determination of that liability so long as the decree stands unreduced. The second option is for the insurer to offer to instruct the defence to the action but make it clear ab ante, or at least as soon as possible, both to the third party and the insured, that his position is to remain that he is not liable under the policy. The choice is entirely for the insurer. If it chooses not to intervene, then, if a judgment is obtained against the insured, it would have to indemnify the insured if the policy defences pleaded by it should fail. ( 28 – 29)

Cases Referred to

Ben Shipping Co (Pte) Ltd v Ah Bord Bainne The C Joycei [1986] 2 All ER 177 (distd)
Cheltenham & Gloucester plc v Royal Sun Alliance Insurance Co (unreported, delivered on 30 May 2001) (not folld)
Mercantile Investment & General Trust Co v River Plate Trust, Loan and Agency Co [1894] 1 Ch 578 (distd)
Parker v Lewis [1873] 8 Chancery App 1035 (folld)
Post Office v Norwich Union Fire Insurance Society Ltd [1967] 1 All ER (refd)
Re Harrington Motor Co [1982] 1 Ch 105 (refd)
Tee Liam Toh v National Employer’s Mutual General Insurance Association Ltd (unreported, OM No 50 of 1963) (refd)
West Wake Price & Co v Ching [1957] 1 WLR 45 (refd)

Legislation Referred to

Application of English Law Act (Cap 7A)
Third Parties (Rights Against Insurers) Act (Cap 395) s 1(1)

Judgment

GROUNDS OF DECISION

1. This is an appeal by an insurer, Hartford Insurance Co (Singapore) Ltd, against a decision of the High Court which held that Hartford is liable to indemnify an injured third party, the respondents, under an "all risk" policy (the policy). The issue which arose for consideration concerns the construction of s 1(1) of the English Third Parties (Rights against Insurers) Act 1930 (the 1930 Act), which statute was made applicable in Singapore by virtue of the Application of English Law Act (Cap 7A)

The background

2. The facts of the case are quite straightforward. The respondents, Chiu Teng Construction Co Pte Ltd ("Chiu Teng"), were the main contractors of a housing development located at the junction of Yio Chu Kang Road and Lentor Avenue known as "The Countryside" (the "estate"). Sometime in early January 1996, the insured under the policy, Brentford Construction (S) Pte Ltd ("Brentford"), was carrying out sheet-pile extraction works at an adjacent lot to the estate. These works caused soil movement which resulted in damage to some of the houses in the estate. Because of that, rectification works had to be carried out by Chiu Teng, which included the installation of some 30 micropiles as foundation supports for the boundary walls and retaining walls of the affected houses. Chiu Teng’s engineer had doubts whether the frictional resistance of the existing foundation would be adequate to secure the structures and thus advised that the micropiles be installed. The costs of this item alone amounted to slightly more than 50% of the total expenses incurred by Chiu Teng in relation to the rectification works.

3. Under the terms of the policy, Hartford agreed to indemnify Brentford against "such sums which Brentford shall become legally liable to pay as damages" consequent upon accidental loss or damage to property belonging to third parties occurring in direct connection with the construction or erection works carried out by Brentford. Hartford also agreed, in respect of a claim for compensation to which the indemnity applied, that it would, in addition, indemnify Brentford against all costs and expenses of litigation which Brentford had to pay to the third party claimant.

4. On 24 April 1998, Brentford was wound up by an order of court, with the Official Receiver being appointed liquidator. Chiu Teng sought to recover the loss it suffered on account of the rectification works from Brentford. In view of Brentford’s winding up, on 12 February 1999, leave of court was obtained by Chiu Teng to commence proceedings against it. A writ was duly issued on 16 March 1999. On 11 May 1999, an interlocutory judgment was obtained with the consent of the Official Receiver. On 30 May 2000, an assessment of damages was conducted. Witnesses were called on behalf of Chiu Teng. The Official Receiver chose not to participate in the assessment. Judgment for the sum of $466,600.08 was granted to Chiu Teng, with interest at 6% p.a. from the date on which the writ was served on Brentford (collectively referred to as "the judgment sum"). We should add that Hartford was informed of this action but chose not to get involved as it felt it was not liable to Brentford under the policy. For convenience, this judgment shall hereinafter be referred to as "the earlier judgment".

5. On 11 August 2000, in reliance on s 1(1) of the 1930 Act, Chiu Teng commenced the present action against Hartford seeking payment of the judgment sum.

6. In the court below, Hartford raised two main lines of defence. The first line related to policy defences (i.e., that the damage caused did not fall within the scope of the policy), which the court below ruled were without any merits. Of course, if the court had...