Sin Yuan Hong LP Gas Pte Ltd v NTUC Income Insurance Co-operative Ltd

• Jurisdiction: Singapore
• Judge: Kow Keng Siong
• Judgment Date: 25 July 2022
• Neutral Citation: [2022] SGDC 158
• Court: District Court (Singapore)
• Docket Number: District Court Suit No. 1887 of 2019, DC/RA 38/2022, HC/RAS 19/2022,
• Published date: 06 August 2022
• Year: 2022
• Hearing Date: 04 July 2022
• Plaintiff Counsel: Mr Paul Yap (Vision Law LLC)
• Defendant Counsel: Ms Aditi Ravi (LVM Law Chambers LLC)
• Subject Matter: Civil Procedure,Striking out,Whether an insurance claim can be struck out on the basis that the claimant, in breach of a Scott v Avery clause, had failed to refer a dispute under the insurance policy to arbitration within the stipulated deadline
• Citation: [2022] SGDC 158

District Judge Kow Keng Siong: Introduction

According to a condition in an insurance policy, a claim under the policy shall be deemed to have been abandoned and shall not be recoverable if the claim is not referred to arbitration within 12 months of the insurer having disputed the claim. An insured commenced a third-party action against the insurer more than 12 months after the latter had disputed the claim. Can the insurer apply for the action to be struck out under O 18 r 19 of the Rules of Court? Or is the insurer’s remedy limited to only applying for a stay of the action so that the claim can be referred to arbitration?

These issues were raised in Registrar’s Appeal No. 38 of 2022 (“RA 38”). RA 38 is an appeal by the 1st Defendant (“the Appellant”) in District Court Suit No. 1887 of 2019 (“DC 1887”) against a Deputy Registrar’s decision to allow their action in DC 1887 against their insurer, the Third Party in DC 1887 (“the Respondent”), to be struck out vide DC/SUM 4986/2021 (“SUM 4986”).

I dismissed RA 38 after hearing arguments. The Appellant has appealed against my decision. I now give the full grounds for my decision.

Background The Incident

In 2016, a fire and an explosion occurred at a food stall in a food centre located at 60 Gul Lane (“the Incident”). The operators of the food stall (“the Plaintiffs”) suffered injuries as a result of the Incident.

The Appellant was the contractor for the gas system and maintenance works at the food stall. At the material time, the Appellant had a public liability insurance policy – policy no. XXX (“the Policy”) – with the Respondent. Soon after the Incident, the Appellant made an insurance claim against the Respondent, and the latter instructed their loss adjusters, Crawford & Company, (“Crawford”) to investigate into the claim.

The dispute

Crawford found that the Incident arose because of a corroded pipe which belonged to, and was serviced by, the Appellant. As a result of this finding, Crawford informed the Appellant on 22 October 2018 that the Policy did not cover the Incident. The Appellant was referred to Exclusion 7(d) of the Policy (“the Exclusion Clause”) which stipulated the following:

The indemnity expressed in this policy shall not apply to: […] liability in respect of injury, illness, loss or damage caused by or in connection with or arising from […] any commodity, article or thing supplied, repaired, altered or treated by or to the order of the Insured.

The Appellant disagreed with the position taken by Crawford/the Respondent. On 30 June 2019, their solicitors requested the Respondent to “restore/resume” the Appellant’s coverage (“the Appellant’s Request”). On 11 March 2020, Crawford informed the Appellant that the Respondent maintained their position.

DC 1887

In the meantime, the Plaintiffs had commenced DC 1887 in 2019 and had sued their landlord and occupier of the food centre (“2nd Defendant”) as well as the Appellant over the Incident. The Appellant entered appearance in DC 1887 only in November 2020.

Third party proceedings

In November 2020, the Appellant initiated third-party proceedings against the Respondent. The Appellant claimed, among others, that they were entitled to be indemnified by the Respondent in respect of their liabilities, if any, to the Plaintiffs under the Policy.

Condition 11 and SUM 4986

The Respondent disputed the Appellant’s claim. Apart from the Exclusion Clause, the Respondent had also relied on Condition 11 of the Policy (“Condition 11”) as to why they were not liable. Condition 11 – which is in the form of what is sometimes known as a Scott v Avery clause – stipulates the following (Note. The “Society” refers to the Respondent):

All differences arising out of this Policy shall be referred to the decision of an Arbitrator to be appointed in writing by the parties in difference or if they cannot agree upon a single Arbitrator to the decision of two Arbitrators one to be appointed in writing by each of the parties within one calendar month after having been required so to do by either of the parties or in case the Arbitrators do not agree of an Umpire appointed in writing by the Arbitrators before entering upon the reference. The Umpire shall sit with the Arbitrators and preside at their meetings and the making of an award shall be condition precedent to any right of action against the Society. If the Society shall disclaim liability to the Insured for any claim hereunder and such claim shall not within twelve calendar months from the date of such disclaimer have been referred to arbitration under the provisions herein contained then the claim shall for all purposes be deemed to have been abandoned and shall not thereafter be recoverable hereunder. [emphasis added]

According to the Respondent, the final sentence in Condition 11 (in bold above) made it clear that all differences or disputes arising out of the Policy were to be referred to arbitration within 12 months of their disclaimer of liability under the Policy. This meant that the Appellant ought to have referred the dispute regarding whether the Respondent was liable under the Policy to arbitration by 11 March 2021 – i.e., 12 months after the Respondent declined to change their position despite the Appellant’s Request. The Appellant had failed to do so.

The Respondent further contended that the Appellant could have a right of action against them in DC 1887 only if two conditions were met. First, the Appellant must show that they had submitted the dispute (as to whether the Respondent was liable under the Policy) to arbitration. Second, the Appellant must also show that they had obtained a favourable arbitral award. Neither condition was met in this case.

Accordingly, the Respondent applied (vide SUM 4986) to strike out the Appellant’s claims against them on the grounds that these claims – disclosed no reasonable cause of action: O 18 r 19(1)(a) of the Rules of Court, were scandalous, frivolous or vexatious: O 18, r 19(1)(b), and/or were otherwise an abuse of the process of the Court: O 18 r 19(1)(d).

The Deputy Registrar allowed SUM 4986.

The Appellant’s submissions

A critical hurdle to the Appellant’s claim against the Respondent is Condition 11. To overcome this hurdle, the Appellant made the following submissions before the Deputy Registrar and me: Commencement of Adjudication Argument. First, Condition 11 was not applicable because the Respondent had given notice of their dispute to the Appellant’s claim only on 26 November 2020. By this time, DC 1887 had already commenced. In the circumstances, the dispute ought to be resolved via adjudication rather than arbitration to ensure consistency of findings and to avoid multiplicity of proceedings.¹ Proper Recourse Argument. Second, despite the Appellant’s breach of Condition 11, striking out was not an available remedy. Instead, the proper recourse for the Respondent was (i) to apply for the Appellant’s claim in DC 1887 to be stayed under s 6(1) of the Arbitration Act 2001 (“the Arbitration Act”), and (ii) to apply for an extension of time under s 10(2)(b) of the Act to begin arbitration (given that the deadline for referral to arbitration had lapsed). This approach, according to the Appellant, is consistent with Trinity Construction Development Pte Ltd v Sinohydro Corp Ltd (Singapore Branch) [2021] 3 SLR 1039 (“Trinity Construction”). In that case, the High Court had stayed the respondent’s action instead of striking it out.² Substantive Merit Argument. Finally, O 18 r 19 imposed a “high standard” for striking out a claim. A claim could only be struck out under if it lacked substantive merit, and not because of a procedural lapse – such as the Appellant’s failure to comply with Condition 11 as in the present case. There is no precedent of a claim having been struck out because of a party did not comply with a Scott v Avery clause such as Condition 11.³

My Decision

In dismissing the appeal, I had delivered brief remarks explaining why I did not agree with the Appellant’s submissions (“Brief Remarks”). These remarks are in Annex A.

In these grounds of decision, I wish to emphasise and elaborate further on the following points.

Proper Recourse Argument

I will begin with the Appellant’s Proper Recourse Argument – i.e., submission that if the Deputy Registrar’s decision was upheld, it would be “a truly remarkable and unprecedented outcome”. This submission was based on the Appellant’s inability to locate a case where a claim had been struck out at an interlocutory stage because court proceedings had been commenced in breach of an arbitration clause.⁴

I had explained why the argument was untenable in my Brief Remarks at [10]. To expand further, the fact that the Appellant could not locate a precedent where a striking out application had been allowed in circumstances similar to the present is neither here nor there. The absence of such a precedent can be due to various reasons – including the possibility that no insured party had felt that it was tenable to sue his insurer when the deadline for referring a claim to arbitration had already expired and the claim was thus deemed abandoned under the policy.

What is more important is whether Condition 11 is clear and certain in its intent and application. In this regard, I find that the last sentence in Condition 11 (see [10] above) is crystal clear – it states unequivocally that if the Respondent disclaims liability to the Appellant’s claim, and the claim is not referred to arbitration within 12 months from the date of such a disclaimer, then the Appellant’s claim “shall for all purposes be deemed to have been abandoned and shall not thereafter be recoverable” under the Policy.

It bears noting Condition 12 of the Policy immediately goes on to stipulate that –

The due observance and fulfilment of the terms, provisions, conditions and endorsement of this Policy by...