Palmex Industries Sdn Bhd & 1 Lagi v Oversea Assurance Corporation (M) Bhd (PA-12ANCVC-51-09/2017)

LIM CHUAN HOCK & SONS SDN BHD APPELLANTS AND OVERSEA ASSURANCE CORPORATION (M) BHD RESPONDENT IN THE GEORGETOWN SESSIONS COURT STATE OF PENANG

LIM CHUAN HOCK & SONS SDN BHD PLAINTIFFS AND OVERSEA ASSURANCE CORPORATION (M) BHD DEFENDANT 2

This is an appeal against the striking out decision of the Sessions Court arising from a claim under a Contractors’ All Risks insurance policy.

The Appellants are private limited companies involved in the property and construction business. The First Appellant is the developer whilst the Second Appellant is the contractor for the development project known as the Stramax Residences built on Lots 11214, 14338 and 14339, Jalan Kenari, Mukim 12, South West District, Penang (“Project”). The Appellants are the Plaintiffs in Georgetown Sessions Court Suit no. PA-A52NCVC-309-12/2016 (“Suit”).

The Respondent is a public limited company involved in the insurance business. 3

The First Appellant appointed the Second Appellant to undertake earthworks and ancillary works in the Project. In so doing, the Appellants on 13 July 2011 procured from the Respondent the Contractors’ All Risks insurance policy where the Appellants are jointly insured (“Policy”).

The relevant provisions in the Policy read as follows: ―General Conditions

In the event of any occurrence which might give rise to a claim under this Policy, the Insured shall a) immediately notify the Insurers by telephone or telegram as well as in writing, giving an indication as to the nature and extent of the loss or damage; … 4 The Insurers shall not in any case be liable for loss, damage or liability of which no notice has been received by the Insurers within 14 days of its occurrence. Section II – Third Party Liability The Insurers will indemnify the Insured up to but not exceeding the amounts specified in the Schedule against such sums which the Insured shall become legally liable to pay as damages consequent upon a) accidental bodily injury or illness of third parties (whether fatal or not); b) accidental loss or damage to property belonging to third parties occurring in direct connection with the construction or erection of the items insured under Section I and happening on or in the immediate vicinity of the site during the Period of Cover. 5 In respect of a claim for compensation to which the indemnity provided herein applies, the insurers will in addition indemnify the Insured against a) all costs and expenses of litigation recovered by any claimant from the insured, and b) all costs and expenses incurred with the written consent of the Insurers, provided always that the liability of the Insurers under this section shall not exceed the limits of indemnity stated in the Schedule. Special Exclusions to Section II The Insurer will not indemnify the insured in respect of …

damage to any property or land or building caused by vibration or by the removal of weakening of support or injury or 6 damage to any person or property occasioned by or resulting from any such damage (unless especially agreed upon by endorsement); … M 120: VIBRATION, REMOVAL OR WEAKENING OF SUPPORT It is agreed and understood that otherwise subject to the terms, exclusions, provisions and conditions contained in the Policy or endorsed thereon and subject to the Insured having paid the agreed extra premium, Section II of this insurance shall be extended to cover liability consequent upon loss or damage caused by vibration or by removal or weakening of support. Provided always that - the Insurers will indemnify the Insured in respect of liability for loss or damage to any property or land or building only if such loss or damage results in the total or partial collapse; 7 - the Insurers will indemnify the Insured in respect of the liability for loss or damage to any property or land or building only if prior to the commencement of the construction its condition is sound and the necessary loss prevention measures have been taken; - the insured if required shall before commencement of construction shall at his own expense prepare a report on the condition of any endangered property or land or building. The Insurers will not indemnify the Insured in respect of liability for loss or damage which is foreseeable having regard to the nature of the construction work or the manner of its execution, - superficial damage which neither impairs the stability of the property, land or buildings nor endangers their users, - the costs of prevention or minimization measures which become necessary during the period of insurance. 8 Limit of indemnity (any one occurrence) : ) Total limit of indemnity : ) As mentioned in the Policy Schedule‖ Deductible : )

During of the course of execution of the project works, the First Appellant on 7 April 2012 received a letter from the house owner of no. 8 Pintasan Kenari, 11900 Sungai Ara, Bayan Lepas, Penang on damage to his property. Consequently, the Appellants on 16 July 2012 duly notified the Respondent of the house owner’s claim. Subsequently, it was found that house no. 10 Pintasan Kenari, 11900 Sungai Ara, Bayan Lepas, Penang was similarly damaged.

As the result, the Respondent appointed Crawford & Company Adjusters (Malaysia) Sdn Bhd as loss adjustors to investigate the claim. The Appellants also independently appointed PLT Consultancy to prepare an engineer’s report on the cause of the damage. 9

By reason that the claim was rejected by the Respondent, the Appellants through their solicitors on 12 November 2015 sent a letter of demand to the Respondent. The Respondent through its solicitors replied on 19 January 2016 maintaining its stance taken.

Consequently, the Appellants initiated the Suit on 9 December 2016.

The Respondent on 7 April 2017 filed a notice of application to strike out the Suit (“Application”) and the Sessions Court on 5 September 2017 allowed the Application with costs of RM2,000.00.

The Appellants were dissatisfied with the decision and has on 13 September 2017 filed their notice of appeal to the High Court.

The appeal came before me and I heard counsel on 29 January 2018 and 8 March 2018 after having read their written submissions that were prior filed in Court. I thereafter adjourned my decision to deliberate on the legal arguments as advanced by counsel. 10

Now having done so, I furnish below my decision and the supporting grounds thereto.

Since this is an interlocutory appeal from the Sessions Court, the appeal is by way of re-hearing afresh following Order 55 Rule 2 of the Rules of Court 2012, see also Malaysian Civil Procedure 2015 at paragraph 55/2/1.

In the Application, the Respondent has premised it pursuant to Order 18 Rule 19 as well as Order 92 Rule 4 of the Rules of Court 2012 which read as follows respectively: “19. Striking out pleadings and endorsements (O. 18 r. 19)

The Court may at any stage of the proceedings order to be struck out or amended any pleading or the endorsement, of any writ in the action, or anything in any pleading or in the endorsement, on the ground that- 11

it discloses no reasonable cause of action or defence, as the case may be;

it is scandalous, frivolous or vexatious;

it may prejudice, embarrass or delay the fair trial of the action; or

it is otherwise an abuse of the process of the Court, and may order the action to be stayed or dismissed or judgment to be entered accordingly, as the case may be.

No evidence shall be admissible on an application under subparagraph (1)(a).

Inherent powers of the Court (O. 92 r. 4) For the removal of doubt it is hereby declared that nothing in these Rules shall be deemed to limit or affect the inherent powers of the Court to make any order as may be necessary to 12 prevent injustice or to prevent an abuse of the process of the

The law on striking out is trite and sufficiently set out in the following cases that I often refer in similar applications or appeals that came before me.

In this respect, Mohamed Dzaiddin SCJ (later CJ) said as follows in the Supreme Court case of Bandar Builders Sdn Bhd v. United Malayan Banking Corporation Bhd [1993] 3 MLJ 36 with emphasis added by me: "The principles upon which the court acts in exercising its power under any of the four limbs of O. 18 r. 19(1) of the RHC are well settled. It is only in plain and obvious cases that recourse should be had to the summary process under this rule (per Lindley MR in Hubbuck & Sons Ltd v. Wilkinson, Heywood & Clark Ltd 7), and this summary procedure can only be adopted when it can be clearly seen that a claim or answer is on the face of it 'obviously unsustainable' (see 13 AG of Duchy of Lancaster v. L & NW Rly Co 8). It cannot be exercised by a minute examination of the documents and facts of the case, in order to see whether the party has a cause of action or a defence (see Wenlock v. Moloney & Ors 9). The authorities further show that if there is a point of law which requires serious discussion, an objection should be taken on the pleadings and the point set down for argument under O. r. 3 (which is in pari materia with our O. 33 r. 2 of the RHC) (see Hubbuck & Sons Ltd v. Wilkinson, Heywood & Clark Ltd 7). The court must be satisfied that there is no reasonable cause of action or that the claims are frivolous or vexatious or that the defences raised are not arguable."

Moreover in the Court of Appeal case of Khairy Jamaluddin v. Dato' Seri Anwar bin Ibrahim [2013] 4 MLJ 172 Anantham Kasinather JCA held as follows with emphasis also added by me: "The Court of Appeal in England in the case of European Asian Bank AG v. Punjab and Sind Bank (No 2) [1983] 2 All ER 508 opined that, in an appropriate case, a court of law should 14 decide a point of law in O. 14 proceedings even: 'if the question of law is at first blush of some complexity and therefore takes 'a little longer to understand'. Our Supreme Court in the case of Bank Negara Malaysia v. Mohd Ismail & Ors [1992] 1 CLJ Rep 14; [1992] 1 CLJ 627; [1992] 1 MLJ 400 accepted this proposition of law as good law through the judgment of Mohamed Azmi FCJ (as he then was) when His Lordship said: Where the issue raised is solely a question of law without reference to any facts or where the facts are clear and undisputed, the court should exercise its duty under O. 14. If the legal point is understood and the court is satisfied that it is unarguable, the court is not prevented from granting a summary judgment merely because 'the question of law is at first blush of some complexity and therefore takes a little longer to understand (see Cow v. Casey and European Asian Bank AG v. Punjab & Sind Bank at p 516). 15 In our judgment, the aforesaid principle of law pronounced by our Supreme Court in Bank Negara Malaysia v. Mohd Ismail & Ors is not limited in its application to O. 14 proceedings but extends to applications under O. 18 r.

We opine to this effect because both applications are summary in nature…”

Finally in the Court of Appeal case of See Thong & Anor v Saw Beng Chong [2013] 3 MLJ 235, Ramly Ali JCA (now FCJ) held as follows with emphasis added by me: “[23] Judges dealing with striking out application under O 18 r 19 of the RHC must always bear in mind that the power to strike a case under the order without having to go for trial should be exercised sparingly and only in a plain and obvious case. The procedure is of a summary nature. The party affected should not be deprived of his right to have his case proceeded by a proper trial unless the claim is obviously unsustainable. The Federal Court in the case of CC Ng & Brothers Sdn Bhd v Government of State of 16 Pahang [1985] 1 MLJ 347, had said that 'the inherent power to dismiss an action summarily without permitting the plaintiff to proceed to trial is a drastic power. It should be exercised with utmost caution' — Per Seah FJ. It is a power which ought to be very sparingly exercised and only in very exceptional cases, (per Lord Herschell inLawrence v Norrey — as cited in CC Ng &

It is plain from paragraph 9 of the Appellant’s statement of claim in the Suit that the Appellants’ claim followed their appointed engineer’s report findings that the damage to the affected house owners’ property included as follows:

The soil movement caused by the vibration of the construction and earthworks;

(ii) The damage to existing structural elements resulting from the soil movement and the resulting ground settlement can range from cosmetic cracks in the walls to serious cracks that may compromise the structural integrity of the building; 17

(iii) The unforeseeable damage was caused by a combination of factors including the earthwork, global stability and vibration which weakened the foundation of the building.

From the evidence adduced by the parties as set out in the affidavits, it is common ground that the affected house owners’ property suffered cracks but there wasn’t any collapse whatsoever.

Accordingly the Respondent submitted that the applicable coverage provision in the Policy is Endorsement M120 which reads: ―It is agreed and understood that otherwise subject to the terms, exclusions, provisions and conditions contained in the Policy or endorsed thereon and subject to the Insured having paid the agreed extra premium, Section II of this insurance shall be extended to cover liability consequent upon loss or damage caused by vibration or by removal or weakening of support.‖ 18 This is because it was additionally purchased by the Appellants to cover otherwise Special Exclusion 3 to Section II of the Policy which reads: ―The Insurer will not indemnify the insured in respect of damage to any property or land or building caused by vibration or by the removal of weakening of support or injury or damage to any person or property occasioned by or resulting from any such damage (unless especially agreed upon by endorsement)‖.

The coverage in Endorsement M120 is however subject to the first proviso which reads: ―Provided always that the Insurers will indemnify the Insured in respect of liability for loss or damage to any property or land or building only if such loss or damage results in the total or partial collapse.‖

The Respondent referred to the Court of Appeal case of MBF Insurans Sdn Bhd v Penang Garden Sdn Bhd [2004] 4 MLJ 345 19 on the meaning of total or partial collapse. In that case, Raus Sharif J (now CJ) held as follows: ―34 Thus, taking the policy as whole, we are of the view that the appellant can only be liable for the loss or damage resulting from piling works if the building of phase I either collapsed wholly or partially. The word 'collapse' has been defined to mean 'to undergo or experience a falling-in, shrink suddenly together, break down, give way, cave-in' (see Vol I, p 438 of the New Shorter Oxford Dictionary). In other words, the building in phase I must fall down either totally or partially, for the appellant to be liable. But in our case, it is undisputed that, although phase I building suffered serious cracks and settlement, it remained standing. 35 The learned counsel for the respondent has invited the court to adopt a more liberal interpretation of the word 'collapse' in line with the American cases which have defined the word collapse to mean, 'the settling, falling, cracking, bulging or breaking of the insured building or any part thereof in such 20 manner as to materially impair the basic structure or substantial integrity of the building' (see Anderson v Indiana Lumbermen's Mutual Insurance Co of Indianapolis, Indiana 127 Southern Reporter (2nd Series) 304 ( CA)).Thus, according to learned counsel for the respondent, to interpret the words 'total or partial collapse' appearing in endorsement 105 to mean standing aside until the crashing down of glass and mortar to validity a claim would mean to give an interpretation which will produce an absurd result. We were urged to construe the policy document based on its practicality and not strictly, so as to give effect to the presumed commercial purpose. The case of Pans Food Importers & Distributors Pty Ltd v Australia and New Zealand Banking Group Ltd [2000] 74 ALJR 79 (HC) was cited as the authority to support the said proposition. 36 With respect, we are unable to agree. To us the word 'collapsed' has only one ordinary meaning, ie falling or shrinking together or breaking down or giving way through external pressure or loss of rigidity or support which means that the 21 building must cave in or fall down. Thus, when the words of the policy are crystal clear, those words must be given effect to.‖

Likewise and since there was no physical collapse whatsoever in the house owners’ affected property, the Respondent submitted that the claim is plainly and obviously unsustainable purely on interpretation of the Policy.

That notwithstanding, the Respondent further contended that the Appellants’ notification of damage to the home owners’ property to the Respondent was made late in breach of the proviso to clause 5 of the General Conditions of the Policy. According to the Respondent, the Appellants were aware of the damage as early as on 30 December 2011 but the notification was only made on 16 July 2012, to wit, delay of about 7.5 months.

Consequently as provided in the proviso to the aforesaid clause 5, it is plain that the Respondent is not liable for the claim by reason of the late notification. 22

The Appellants in opposing the Application to strike out submitted that the damage to the house owners’ property occurred in direct connection with the construction of the Project and therefore attracted the coverage of Section II of the Policy which reads: ―The Insurers will indemnify the Insured up to but not exceeding the amounts specified in the Schedule against such sums which the Insured 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 of the items insured under Section I and happening on or in the immediate vicinity of the site during the Period of Cover.‖ Thus the Endorsement M 120 relied upon by the Respondent is inapplicable.

That notwithstanding, the Appellants further submitted that even if Endorsement M 120 applied, it is ambiguous and must be interpreted contra proferentum following Juarakon Sdn Bhd v Amgeneral 23 Insurance Bhd [2015] 1 LNS 384. In that case, Hiew Siew Kheng J held as follows on the interpretation of the insurance policy: ―27. Given that "total" or "partial" collapse is not defined in the Policy, I see no reason why the plaintiff should not seek recourse to the contra preferentum rule (see Malaysia National Insurance Sdn Bhd v. Abdul Aziz bin Mohamad Daud [1978] 1 LNS 117; [1979] 2 MLJ 29 wherein the Federal Court held, ultra vires,:-

as between the assured and the insurers, the exception clause in the proviso has on the ordinary principles of construction to be read against the insurance company, that is to say, if there were any doubt as to its extent and the question were to arise as to the liability of the insurers, the construction most favourable to the assured must be given to it;)‖ In this respect, the Appellants similarly submitted that partial or total collapse has not been defined in the Policy and further that the proviso relied upon by the Respondent which required proof of partial 24 or total collapse contradicted the subsequent provision in the same endorsement which reads: ―The Insurers will not indemnify the Insured in respect of liability for superficial damage which neither impairs the stability of the property, land or buildings nor endangers their users.‖ Accordingly the Appellants argued that the damage suffered by the house owners’ property is claimable being damage that is not superficial in nature as envisaged by this provision in the endorsement.

As to the late notification of the claim, the Appellants contended that the Respondent had by its conduct waived their rights pursuant to the proviso in clause 5 of the General Conditions of the Policy by the Respondent’s appointment of loss adjustors Crawford & Company Adjusters (Malaysia) Sdn Bhd to investigate into the damage claim. According to the Appellants, the Respondent did not lodge its protest in the earliest available opportunity and is thus estopped by its conduct. The Appellants relied on the Court of Appeal case of Pinsia 25 Development Sdn Bhd & Ors v Hj Abdul Hadi Ahmad & Ors [2005] 1 CLJ 46 where the Court found that parties may by their subsequent conduct give a term in the agreement a particular meaning.

As held by the Court of Appeal in Khairy Jamaluddin v. Dato' Seri Anwar bin Ibrahim (supra), the striking out application may summarily be disposed if it involves unarguable issues of law notwithstanding that it is of some complexity at first blush. The issue of interpretation or construction of a contract is a question of law: see Woodhouse AC Isreal Cocoa Ltd SA v Nigerian Marketing Produce Co Ltd [1972] Lloyds Rep 439. See also the recent Federal Court case of Far East Holdings Bhd & Anor v Majlis Ugama Islam Adat Resam Melayu Pahang & Other Appeals [2018] 1 CLJ 693.

I have carefully analyzed the arguments put forth by the parties on the construction of the Policy particularly the M 120 Endorsement. First and foremost, I find and hold that the coverage ordinarily afforded in Section II of the Policy is displaced contrary to that as 26 argued by the Appellants. This is simply because the damage claimed is caused by vibration or by the removal or weakening of support of the house owners’ property as pleaded by the Appellants in paragraph 9 of their statement of claim in the Suit. In consequence this is caught by the third special exclusion to Section II of the Policy as contended by the Respondent.

Secondly, I find and hold that the coverage is respect of the aforesaid damage claimed is covered by the M 120 Endorsement to overcome the aforesaid exclusion. This being the case, the coverage must be subject to the specific provisions of the M 120 Endorsement.

Thirdly and upon my careful reading of the M 120 Endorsement, I find and hold that the coverage thereunder is as expressed in the opening paragraph but subject to the proviso in the middle paragraph and subject further to the exclusion in the final paragraph of the Endorsement. In my opinion, the final paragraph isn’t a stand-alone independent coverage in addition to the coverage in the opening paragraph as so contended by the Appellants. 27 In my opinion when juxtaposed with the pleaded facts of the Suit, it meant that the damage claim caused by vibration or by the removal or weakening of support of the house owners’ property is sustainable if the damage is either the partial or total collapse of the house owners’ property. Furthermore if there is partial collapse of the property, the claim is unsustainable in respect of superficial damage to the other un-collapsed portion of the property which didn’t impair the stability of the property or endangered their users. However and contrary to that as contended by the Appellants, it doesn’t conversely mean that the claim for damage that impaired the stability of the property or endangered their users is sustainable in the absence of partial or total collapse of the property. I have in this regard interpreted or construed the M 120 Endorsement according to the ordinary canons of construction of contracts, to wit, the literal interpretation coupled with presumed commercial intention of the parties.

Fourthly, I find and hold that it isn’t fatal that the term “partial” and “total” collapse weren’t defined in the Policy. In such circumstance, it 28 is appropriate to refer to such terms that have been judicially defined in analogous insurance cases such as that in MBF Insurans Sdn Bhd v Penang Garden Sdn Bhd (supra).

Fifthly and finally, I do not find that the provisions in the Policy and M 120 Endorsement are ambiguous in the circumstances and hence attracted the application of the contra proferentum principle contrary to that as advanced by the Appellants.

In the premises, I find and hold that the Appellants’ claim is plainly and obviously unsustainable based purely on the true interpretation of the Policy. The learned Sessions Court Judge must have found likewise in allowing the Application. The Suit is in other words frivolous and/or an abuse of Court process.

By reason of the aforesaid finding on the unsustainability of the Appellants’ claim, it is unnecessary to deal with the other allegation of late notification advanced by the Respondent. In other words, it is redundant because the unsustainability of the claim is in itself sufficient to dismiss the appeal. However in view of the nature of the 29 defence of estoppel thereto as raised by the Appellants, it seems to me prima facie a triable issue of fact in itself.

For the foregoing reasons particularly on the true construction of the M 120 Endorsement to the Policy, the appeal is hereby dismissed with costs of RM 8,000.00. Dated this 26 April 2018 t.t LIM CHONG FONG JUDGE HIGH COURT GEORGETOWN PENANG 30 COUNSEL FOR THE APPELLANTS: HAN CHIN LING SOLICITORS FOR THE APPELLANTS: ONG & MANECKSHA COUNSEL FOR THE RESPONDENT: TAN SIXIN