archive-sg.com » SG » S » SINGAPORELAW.SG

Total: 820

Choose link from "Titles, links and description words view":

Or switch to "Titles and links view".
  • Ch.23 The Law of Guarantees
    the surety s promise Thus if at the time of giving the guarantee the creditor had already given the consideration such as by the advance of money under a loan the danger is that the contract is unenforceable since the consideration appears to be past An alternative is to execute the document under seal another alternative is to show forbearance either through a promise to forbear or actual forbearance at the request of the surety Return to the top SECTION 4 FORMALITIES A Oral guarantees are unenforceable under s 6 b of the Civil Law Act 23 4 1 Section 6 b of the Civil Law Act provides that in order for a legal proceeding to be brought against a defendant for any promise to answer for the debt default or miscarriage of another person there must be a written note or memorandum signed by the surety an oral guarantee is unenforceable under Singapore law B For S 6 b of the Civil Law Act to apply four requirements must be met 23 4 2 The main purpose of such a legal requirement is to protect honest people from being liable for guarantees they never gave The ambit of the statutory provision however is potentially wider Over time the courts have established that in order for a promise to be within the statute four requirements need to be satisfied the promise is made to the creditor the promise is collateral to the primary obligation of another there must be an absence of liability on the part of the defendant or his property apart from his promise and the main object of the promise must be to guarantee 23 4 3 If any of these requirements is not satisfied the statute does not apply and an oral promise may be sued upon The presence of these four hurdles helps to curtail the potential harshness of the writing requirement C Additional Formalities 1 Moneylending and hire purchase contracts are subject to separate formalities 23 4 4 Where guarantees are given in respect of loans by moneylenders or in connection with hire purchase there are additional formalities required under the Moneylenders Act cap 188 and Hire Purchase Act cap 125 respectively Return to the top SECTION 5 LIABILITY OF SURETY A Construction of Guarantee 1 Guarantees to be construed in favour of surety 23 5 1 The liability of a surety under a guarantee is a matter of construction or interpretation of the guarantee in question However there is some controversy as to whether guarantees should be construed somewhat differently from other contracts It has been said that the liability of the surety arises strictissimi juris the contract of guarantee is to be strictly construed in favour of the surety There are two main reasons for such an approach Firstly the surety is entering into liability not for himself but for a third person it is therefore the duty of the creditor to see that the obligation is couched in clear terms so that the surety understands the liability he is undertaking Secondly the surety often receives no benefit for his onerous obligation An opposing view is that a guarantee should be construed no differently from other contracts The balance of judicial opinion suggests that the strictissimi juris rule still exists 2 The other general rules of construction also apply 23 5 2 In addition to this rule the general rules relating to the construction of contracts apply such as the intention of the parties is to be gathered from the document and from such extrinsic evidence as is admissible the plain meaning of the words used subject to exceptions is to be given effect to and the parol evidence rule and its exceptions According to the parol evidence rule no extrinsic evidence is admissible for the purpose of contradicting varying adding to or subtracting from the terms of a written contract The exceptions to the rule include adducing extrinsic evidence to show that the contract is invalid such as because it lacked consideration or was induced by vitiating conduct eg undue influence giving extrinsic evidence of a separate oral agreement as to a matter on which the written contract is silent B Extent of liability depends on construction of contract 23 5 3 The extent of liability of a particular surety depends on what was undertaken by the contract The guarantee has to be construed to determine whether for example the guarantee covers a past or future debt the guarantee is specific or continuing the guarantee is for the whole or part of the principal debt if the guarantee is for only part of the debt upon payment of that part of the debt the surety has recovery rights against certain parties the guarantee is limited or unlimited in amount note that leaving the amount blank in a limitation clause gives rise to complications and should be avoided the guarantee is limited or unlimited in duration the principal debtor s guarantee liability i e the principal debtor s liability as surety is also covered and interest and costs are covered C Estoppel by convention may be relevant to liability 23 5 4 The principle of estoppel by convention may be relevant to the liability of a surety According to this principle when parties have acted in their transaction upon the agreed assumption that a given state of facts is to be accepted between them as true then they will be estopped from questioning the truth of the state of facts so assumed For instance on this basis a surety has been held liable for loans made to a number of companies within a group although the guarantee referred to one of them only D Liability arises upon debtor defaulting unless guarantee is conditional 23 5 5 A surety s liability being collateral to that of the principal debtor arises when there has been a default by the principal debtor The liability arises immediately upon the default and unless the guarantee provides otherwise is not conditional upon the creditor doing any of the following notifying the surety of the principal debtor s default making a demand upon the surety suing the principal debtor or realizing any security held by the creditor 23 5 6 A surety who wishes to make his liability so conditional must make specific provision in the guarantee Return to the top SECTION 6 DISCHARGE OF SURETY 23 6 1 There is a wide variety of grounds upon which a surety may be discharged from liability some of these grounds are an application of general law while others are particular to the law of guarantees A Discharge of Principal Debtor 23 6 2 As we have seen collateral liability is an essential aspect of a guarantee and if the principal debtor is discharged so is the surety Thus if the principal debtor performs his primary obligation and makes payment the surety is also discharged There is no general principle that a payment by the principal debtor to the creditor must be made towards the payment of the guaranteed debt Another situation where the principal debtor is discharged is where the creditor s breach of contract entitles the principal debtor to terminate the principal contract B Discharge by Creditor s Conduct 23 6 3 There are many scenarios in which the conduct of the creditor may result in the discharge of the surety 1 Variations of principal contract not beneficial to or not consented to by surety 23 6 4 Any variation to the principal contract other than variations which are beneficial or which cannot be prejudicial to the surety will discharge the surety The reason for this strict rule is that since the surety is understandably concerned about transactions involving the principal debtor the creditor must inform and consult him The surety is not discharged if the principal contract allowed for variations or if the surety had consented such as through a clause in the guarantee to the variation Note however that a clause in the guarantee may not justify a radical change 2 Alteration of terms of guarantee without surety s consent 23 6 5 If the creditor deliberately alters the instrument of guarantee in any material particular without the consent of the surety the instrument will become void and the surety will be discharged 3 Departure from terms of guarantee 23 6 6 If the creditor departs from or breaches a term in the guarantee whether the surety is discharged depends on the seriousness of the breach If it is a serious breach the surety is fully discharged whereas if it is not serious then the surety is discharged only to the extent that he suffered prejudice 4 Agreement to give time to principal debtor without surety s consent 23 6 7 It is a strict principle of suretyship law that an agreement to give time to the principal debtor discharges the surety if it was made without the surety s consent whether or not the surety is prejudiced by it The technical reason is that this agreement interferes with the surety s right to pay the creditor and sue the principal debtor 5 Agreement with Principal Debtor to Give Time to Surety 23 6 8 Where the creditor agrees with the principal debtor to give time to the surety the surety is discharged The reason is that such an agreement ties the hands of the creditor from receiving payment from the surety and therefore interferes with the surety s right to pay the debt and sue the principal debtor 6 Release of principal debtor 23 6 9 A release of the principal debtor discharges the surety for the same technical reason that his right to pay the debt and sue the principal debtor is interfered with The surety is not discharged if the contract of guarantee provides otherwise 7 Release of Surety 23 6 10 Obviously if the creditor chooses to release the surety the latter is discharged from liability 8 Release of Co Surety 23 6 11 A release of a co surety discharges the surety the reason being that such release may prejudice his right of contribution from the co surety 9 Release or Loss of Securities 23 6 12 Where the existence of the security is a condition of the guarantee the release or loss of the security by the creditor fully discharges the surety Where there is no such condition the release or loss discharges the surety only to the extent that he has been prejudiced The creditor however is probably not under a duty to the surety to realize a security before it became worthless the creditor is free to decide whether or not to realize security and if so when 10 Negligent realization of enforced securities 23 6 13 While a creditor is not under a duty to enforce securities held by him if he does enforce any such securities he owes a duty to the surety to take reasonable care in enforcing them He is under a duty to realize the securities at the best possible price or the true market value at the time he realizes them 11 General Duty not to Prejudice the Surety 23 6 14 There is some authority for a general proposition that if the creditor does any act which is injurious to the surety or inconsistent with the surety s rights the surety is discharged 12 Clauses Taking Away Surety s Defences 23 6 15 Most standard form guarantees contain clauses that seek to preserve the surety s liability in every scenario where the surety would have been discharged on account of the creditor s conduct While such clauses are generally effective it is possible that in some situations they may amount to unreasonable exclusion clauses under the Unfair Contract Terms Act cap 396 13 Guarantee may be avoided because of vitiating factors or illegality 23 6 16 Like any contract a guarantee can be avoided because of vitiating factors such as misrepresentation undue influence unconscionability and so forth or illegality Misrepresentation involves the false statement of a material fact to induce the other party Undue influence refers to the improper use of pressure or influence Unconscionability involves the exploitation of a person s disadvantage or disability to achieve an oppressive result If the creditor uses any of these forms of improper conduct to induce the guarantee to be given the guarantee may be avoided 14 Non disclosure of unusual facts 23 6 17 It is well established that unlike contracts of insurance a contract of guarantee is not a contract uberrimae fidei there is no obligation on the part of the creditor to disclose to an intending surety all material facts of which the creditor is aware Instead the creditor has a duty to disclose unusual facts or put in another way anything that might not naturally be expected to take place between the parties It has been said that a creditor is obliged to disclose to a guarantor any unusual feature of the contract between the creditor and the debtor which makes it materially different in a potentially disadvantageous respect from what the guarantor might naturally expect C Principal Debtor s Vitiating Conduct 23 6 18 In the context of guarantees the vitiating conduct that is likely to occur is not so much that of the creditor but rather that of the principal debtor towards the surety The typical scenario is where a debtor husband through some vitiating conduct induces his wife to stand as surety or mortgagor for him The difficulty here is in deciding which of the two apparently innocent parties is deserving of the law s protection the surety or the creditor The recent decades have seen significant developments in this area of law 23 6 19 The current position after two landmark House of Lords decisions appears to be as that the creditor is affected by the principal debtor s misconduct towards the surety if the principal debtor was the creditor s agent in securing the surety s consent to giving the guarantee or the creditor had actual or constructive notice of the principal debtor s impropriety 1 Creditors are affixed with constructive notice if they are put on inquiry and do not take reasonable steps to ensure the surety understands the nature of the guarantee 23 6 20 The constructive notice concept used here needs elaboration A creditor who is put on inquiry as to the impropriety is required to take reasonable steps to ensure that the surety understands the nature and effect of the transaction otherwise he is affixed with constructive notice A creditor is said to be put on inquiry by a combination of two factors the transaction not being to the financial advantage of the surety and substantial risk of the debtor committing wrong in procuring the guarantee 2 Reasonable steps the creditor must take 23 6 21 The creditor has to take reasonable steps either through a private meeting with the surety or through obtaining confirmation from a solicitor acting for the surety There are elaborate requirements and qualifications with regard to the steps that should be taken 3 Wider propositions for when a creditor is put on inquiry 23 6 22 In addition to these principles there is weighty dicta for two wider propositions of law that the creditor is put on inquiry whenever a wife stands surety for her husband s debts and that a creditor is put on inquiry in respect of all non commercial sureties D Avoidance of Corporate Guarantees 23 6 23 A corporate guarantee may be avoided on account of it being ultra vires the company i e beyond the company s capacity In addition the Companies Act cap 50 prohibits a company from giving a guarantee for the purpose of the purchase by any person of shares in the company or in its holding company for the benefit of a director of the company or a related company or for the benefit of a company that is connected to the directors of the company giving the guarantee However the respective contraventions have differing effects on the enforceability of the guarantee Return to the top SECTION 7 RIGHTS OF SURETY 23 7 1 The main rights of a surety are the right of indemnity as against the principal debtor the right of subrogation as against the creditor and the right of contribution as against co sureties A Claims in indemnity and restitution against the principal debtor 23 7 2 There are two main bases upon which a surety may claim against the principal debtor indemnity and restitution The indemnity basis applies whenever there is as between the principal debtor and the surety an express or implied agreement that the former will indemnify the latter from all losses incurred as a result of giving the guarantee Upon paying the principal debt the surety is entitled at law to exercise his right of indemnity When the creditor makes a demand on the surety it would be prudent for the surety to inform or consult the principal debtor as it helps the surety to confirm that there has been default it helps the surety to ascertain whether the principal debtor has any defences and the principal debtor may in response give specific instructions to the surety or even assume responsibility of defending the action 1 Indemnity rights in equity via a quia timet action 23 7 3 In equity even before payment the surety has indemnity rights As soon as the surety s liability to pay under the guarantee has become absolute in that the creditor has acquired a right to immediate payment by the surety the surety is entitled to call upon the principal debtor to pay the debt in order to relieve the surety of such liability The surety proceeds by way of a quia timet action literally because he fears 2 Restitutionary rights for non officious sureties 23 7 4 The second basis is restitution The restitutionary

    Original URL path: http://www.singaporelaw.sg/sglaw/laws-of-singapore/commercial-law/chapter-23?font-size=smaller (2016-01-30)
    Open archived version from archive

  • Ch.23 The Law of Guarantees
    surety usually it is given to the principal debtor for the surety s promise Thus if at the time of giving the guarantee the creditor had already given the consideration such as by the advance of money under a loan the danger is that the contract is unenforceable since the consideration appears to be past An alternative is to execute the document under seal another alternative is to show forbearance either through a promise to forbear or actual forbearance at the request of the surety Return to the top SECTION 4 FORMALITIES A Oral guarantees are unenforceable under s 6 b of the Civil Law Act 23 4 1 Section 6 b of the Civil Law Act provides that in order for a legal proceeding to be brought against a defendant for any promise to answer for the debt default or miscarriage of another person there must be a written note or memorandum signed by the surety an oral guarantee is unenforceable under Singapore law B For S 6 b of the Civil Law Act to apply four requirements must be met 23 4 2 The main purpose of such a legal requirement is to protect honest people from being liable for guarantees they never gave The ambit of the statutory provision however is potentially wider Over time the courts have established that in order for a promise to be within the statute four requirements need to be satisfied the promise is made to the creditor the promise is collateral to the primary obligation of another there must be an absence of liability on the part of the defendant or his property apart from his promise and the main object of the promise must be to guarantee 23 4 3 If any of these requirements is not satisfied the statute does not apply and an oral promise may be sued upon The presence of these four hurdles helps to curtail the potential harshness of the writing requirement C Additional Formalities 1 Moneylending and hire purchase contracts are subject to separate formalities 23 4 4 Where guarantees are given in respect of loans by moneylenders or in connection with hire purchase there are additional formalities required under the Moneylenders Act cap 188 and Hire Purchase Act cap 125 respectively Return to the top SECTION 5 LIABILITY OF SURETY A Construction of Guarantee 1 Guarantees to be construed in favour of surety 23 5 1 The liability of a surety under a guarantee is a matter of construction or interpretation of the guarantee in question However there is some controversy as to whether guarantees should be construed somewhat differently from other contracts It has been said that the liability of the surety arises strictissimi juris the contract of guarantee is to be strictly construed in favour of the surety There are two main reasons for such an approach Firstly the surety is entering into liability not for himself but for a third person it is therefore the duty of the creditor to see that the obligation is couched in clear terms so that the surety understands the liability he is undertaking Secondly the surety often receives no benefit for his onerous obligation An opposing view is that a guarantee should be construed no differently from other contracts The balance of judicial opinion suggests that the strictissimi juris rule still exists 2 The other general rules of construction also apply 23 5 2 In addition to this rule the general rules relating to the construction of contracts apply such as the intention of the parties is to be gathered from the document and from such extrinsic evidence as is admissible the plain meaning of the words used subject to exceptions is to be given effect to and the parol evidence rule and its exceptions According to the parol evidence rule no extrinsic evidence is admissible for the purpose of contradicting varying adding to or subtracting from the terms of a written contract The exceptions to the rule include adducing extrinsic evidence to show that the contract is invalid such as because it lacked consideration or was induced by vitiating conduct eg undue influence giving extrinsic evidence of a separate oral agreement as to a matter on which the written contract is silent B Extent of liability depends on construction of contract 23 5 3 The extent of liability of a particular surety depends on what was undertaken by the contract The guarantee has to be construed to determine whether for example the guarantee covers a past or future debt the guarantee is specific or continuing the guarantee is for the whole or part of the principal debt if the guarantee is for only part of the debt upon payment of that part of the debt the surety has recovery rights against certain parties the guarantee is limited or unlimited in amount note that leaving the amount blank in a limitation clause gives rise to complications and should be avoided the guarantee is limited or unlimited in duration the principal debtor s guarantee liability i e the principal debtor s liability as surety is also covered and interest and costs are covered C Estoppel by convention may be relevant to liability 23 5 4 The principle of estoppel by convention may be relevant to the liability of a surety According to this principle when parties have acted in their transaction upon the agreed assumption that a given state of facts is to be accepted between them as true then they will be estopped from questioning the truth of the state of facts so assumed For instance on this basis a surety has been held liable for loans made to a number of companies within a group although the guarantee referred to one of them only D Liability arises upon debtor defaulting unless guarantee is conditional 23 5 5 A surety s liability being collateral to that of the principal debtor arises when there has been a default by the principal debtor The liability arises immediately upon the default and unless the guarantee provides otherwise is not conditional upon the creditor doing any of the following notifying the surety of the principal debtor s default making a demand upon the surety suing the principal debtor or realizing any security held by the creditor 23 5 6 A surety who wishes to make his liability so conditional must make specific provision in the guarantee Return to the top SECTION 6 DISCHARGE OF SURETY 23 6 1 There is a wide variety of grounds upon which a surety may be discharged from liability some of these grounds are an application of general law while others are particular to the law of guarantees A Discharge of Principal Debtor 23 6 2 As we have seen collateral liability is an essential aspect of a guarantee and if the principal debtor is discharged so is the surety Thus if the principal debtor performs his primary obligation and makes payment the surety is also discharged There is no general principle that a payment by the principal debtor to the creditor must be made towards the payment of the guaranteed debt Another situation where the principal debtor is discharged is where the creditor s breach of contract entitles the principal debtor to terminate the principal contract B Discharge by Creditor s Conduct 23 6 3 There are many scenarios in which the conduct of the creditor may result in the discharge of the surety 1 Variations of principal contract not beneficial to or not consented to by surety 23 6 4 Any variation to the principal contract other than variations which are beneficial or which cannot be prejudicial to the surety will discharge the surety The reason for this strict rule is that since the surety is understandably concerned about transactions involving the principal debtor the creditor must inform and consult him The surety is not discharged if the principal contract allowed for variations or if the surety had consented such as through a clause in the guarantee to the variation Note however that a clause in the guarantee may not justify a radical change 2 Alteration of terms of guarantee without surety s consent 23 6 5 If the creditor deliberately alters the instrument of guarantee in any material particular without the consent of the surety the instrument will become void and the surety will be discharged 3 Departure from terms of guarantee 23 6 6 If the creditor departs from or breaches a term in the guarantee whether the surety is discharged depends on the seriousness of the breach If it is a serious breach the surety is fully discharged whereas if it is not serious then the surety is discharged only to the extent that he suffered prejudice 4 Agreement to give time to principal debtor without surety s consent 23 6 7 It is a strict principle of suretyship law that an agreement to give time to the principal debtor discharges the surety if it was made without the surety s consent whether or not the surety is prejudiced by it The technical reason is that this agreement interferes with the surety s right to pay the creditor and sue the principal debtor 5 Agreement with Principal Debtor to Give Time to Surety 23 6 8 Where the creditor agrees with the principal debtor to give time to the surety the surety is discharged The reason is that such an agreement ties the hands of the creditor from receiving payment from the surety and therefore interferes with the surety s right to pay the debt and sue the principal debtor 6 Release of principal debtor 23 6 9 A release of the principal debtor discharges the surety for the same technical reason that his right to pay the debt and sue the principal debtor is interfered with The surety is not discharged if the contract of guarantee provides otherwise 7 Release of Surety 23 6 10 Obviously if the creditor chooses to release the surety the latter is discharged from liability 8 Release of Co Surety 23 6 11 A release of a co surety discharges the surety the reason being that such release may prejudice his right of contribution from the co surety 9 Release or Loss of Securities 23 6 12 Where the existence of the security is a condition of the guarantee the release or loss of the security by the creditor fully discharges the surety Where there is no such condition the release or loss discharges the surety only to the extent that he has been prejudiced The creditor however is probably not under a duty to the surety to realize a security before it became worthless the creditor is free to decide whether or not to realize security and if so when 10 Negligent realization of enforced securities 23 6 13 While a creditor is not under a duty to enforce securities held by him if he does enforce any such securities he owes a duty to the surety to take reasonable care in enforcing them He is under a duty to realize the securities at the best possible price or the true market value at the time he realizes them 11 General Duty not to Prejudice the Surety 23 6 14 There is some authority for a general proposition that if the creditor does any act which is injurious to the surety or inconsistent with the surety s rights the surety is discharged 12 Clauses Taking Away Surety s Defences 23 6 15 Most standard form guarantees contain clauses that seek to preserve the surety s liability in every scenario where the surety would have been discharged on account of the creditor s conduct While such clauses are generally effective it is possible that in some situations they may amount to unreasonable exclusion clauses under the Unfair Contract Terms Act cap 396 13 Guarantee may be avoided because of vitiating factors or illegality 23 6 16 Like any contract a guarantee can be avoided because of vitiating factors such as misrepresentation undue influence unconscionability and so forth or illegality Misrepresentation involves the false statement of a material fact to induce the other party Undue influence refers to the improper use of pressure or influence Unconscionability involves the exploitation of a person s disadvantage or disability to achieve an oppressive result If the creditor uses any of these forms of improper conduct to induce the guarantee to be given the guarantee may be avoided 14 Non disclosure of unusual facts 23 6 17 It is well established that unlike contracts of insurance a contract of guarantee is not a contract uberrimae fidei there is no obligation on the part of the creditor to disclose to an intending surety all material facts of which the creditor is aware Instead the creditor has a duty to disclose unusual facts or put in another way anything that might not naturally be expected to take place between the parties It has been said that a creditor is obliged to disclose to a guarantor any unusual feature of the contract between the creditor and the debtor which makes it materially different in a potentially disadvantageous respect from what the guarantor might naturally expect C Principal Debtor s Vitiating Conduct 23 6 18 In the context of guarantees the vitiating conduct that is likely to occur is not so much that of the creditor but rather that of the principal debtor towards the surety The typical scenario is where a debtor husband through some vitiating conduct induces his wife to stand as surety or mortgagor for him The difficulty here is in deciding which of the two apparently innocent parties is deserving of the law s protection the surety or the creditor The recent decades have seen significant developments in this area of law 23 6 19 The current position after two landmark House of Lords decisions appears to be as that the creditor is affected by the principal debtor s misconduct towards the surety if the principal debtor was the creditor s agent in securing the surety s consent to giving the guarantee or the creditor had actual or constructive notice of the principal debtor s impropriety 1 Creditors are affixed with constructive notice if they are put on inquiry and do not take reasonable steps to ensure the surety understands the nature of the guarantee 23 6 20 The constructive notice concept used here needs elaboration A creditor who is put on inquiry as to the impropriety is required to take reasonable steps to ensure that the surety understands the nature and effect of the transaction otherwise he is affixed with constructive notice A creditor is said to be put on inquiry by a combination of two factors the transaction not being to the financial advantage of the surety and substantial risk of the debtor committing wrong in procuring the guarantee 2 Reasonable steps the creditor must take 23 6 21 The creditor has to take reasonable steps either through a private meeting with the surety or through obtaining confirmation from a solicitor acting for the surety There are elaborate requirements and qualifications with regard to the steps that should be taken 3 Wider propositions for when a creditor is put on inquiry 23 6 22 In addition to these principles there is weighty dicta for two wider propositions of law that the creditor is put on inquiry whenever a wife stands surety for her husband s debts and that a creditor is put on inquiry in respect of all non commercial sureties D Avoidance of Corporate Guarantees 23 6 23 A corporate guarantee may be avoided on account of it being ultra vires the company i e beyond the company s capacity In addition the Companies Act cap 50 prohibits a company from giving a guarantee for the purpose of the purchase by any person of shares in the company or in its holding company for the benefit of a director of the company or a related company or for the benefit of a company that is connected to the directors of the company giving the guarantee However the respective contraventions have differing effects on the enforceability of the guarantee Return to the top SECTION 7 RIGHTS OF SURETY 23 7 1 The main rights of a surety are the right of indemnity as against the principal debtor the right of subrogation as against the creditor and the right of contribution as against co sureties A Claims in indemnity and restitution against the principal debtor 23 7 2 There are two main bases upon which a surety may claim against the principal debtor indemnity and restitution The indemnity basis applies whenever there is as between the principal debtor and the surety an express or implied agreement that the former will indemnify the latter from all losses incurred as a result of giving the guarantee Upon paying the principal debt the surety is entitled at law to exercise his right of indemnity When the creditor makes a demand on the surety it would be prudent for the surety to inform or consult the principal debtor as it helps the surety to confirm that there has been default it helps the surety to ascertain whether the principal debtor has any defences and the principal debtor may in response give specific instructions to the surety or even assume responsibility of defending the action 1 Indemnity rights in equity via a quia timet action 23 7 3 In equity even before payment the surety has indemnity rights As soon as the surety s liability to pay under the guarantee has become absolute in that the creditor has acquired a right to immediate payment by the surety the surety is entitled to call upon the principal debtor to pay the debt in order to relieve the surety of such liability The surety proceeds by way of a quia timet action literally because he fears 2 Restitutionary rights for non officious sureties

    Original URL path: http://www.singaporelaw.sg/sglaw/laws-of-singapore/commercial-law/chapter-23?tmpl=component&print=1&page= (2016-01-30)
    Open archived version from archive

  • Ch.24 Insurance Law
    must be noted that the mere usage of labels is not necessarily conclusive The inclusion of the term warranty will not automatically entitle an insurer to an automatic discharge in the event of non compliance L Union des Assurances de Paris IARD v HBZ International Exchange Co Singapore Pte Ltd 1993 3 SLR 161 Instead the courts will give effect to parties intentions on the true construction of the policy 24 5 4 To circumvent such uncertainty insurers have instead opted to incorporate basis of the contract clauses at the foot of the proposal form The effect of which is to make all of the insured s responses on the proposal form the basis of the contract and thus entitle the insurer to repudiate liability should any untruths be discovered subsequently This conveniently allows insurers to sidestep the various hurdles to making a successful non disclosure or misrepresentation claim Evidently the fairness of such a practice can be questioned and it has since been expressly invalidated in England s consumer insurance regime by virtue of section 6 of the Consumer Insurance Disclosure and Representation Act 2012 24 5 5 Another issue that arises on the true construction of a term is whether a warranty is to past or present fact or is a continuing promissory warranty as to the future This determination requires the court to undertake a contextual analysis including considerations such as references to the future and the usage of tenses Hair v Prudential Assurance Co Ltd 1983 2 Lloyd s Rep 667 Notably such an issue is particularly prevalent where responses to questions in a proposal form are made the basis of the contract and are ambiguous as to the scope warranted 24 5 6 Nonetheless despite the all or nothing nature of breaches of warranty one exception is where there is a waiver of the breach of warranty see section 34 3 of the Marine Insurance Act For the sake of clarity it must further be noted that the automatic discharge of an insurer on the insured s breach of warranty precludes the option of waiver by election and only waivers by estoppel will apply in respect of breaches of warranty 24 5 7 Accordingly to establish waiver by estoppel there must be an unequivocal representation that the insurer is content not to rely on his right whether expressly made or implied by conduct and proof of the policyholder s consequent reliance on such a representation Notably an unequivocal representation is an objective legal concept and silence or inaction of the insurer simpliciter would fall short of such a standard Liberty Insurance Pte Ltd and Another v Argo Systems Fze 2011 EWCA Civ 161 Clauses delimiting the risk 24 5 8 Alternatively a clause that may appear to be a warranty on its face may be reinterpreted as a mere clause delimiting or describing the risk on its true construction Provincial Insurance Co v Morgan 1933 AC 240 Delimiting clauses merely stipulate that coverage will be suspended for the duration of the non compliance and will resume when remedied unlike breaches of warranties which lead to an automatic discharge regardless of whether the non compliance is remedied Judicial interpretation of such clauses therefore mitigates the harshness of a warranty in favour of the insured Condition Precedent 24 5 9 While warranties entitle an insurer to be discharged from liability on non compliance condition precedents operate similarly to the extent that compliance with certain requirements may be stipulated as a pre condition to an insurer s liability Return to the top Section 6 Intermediaries 24 6 1 As insurance providers are companies which have to act through designated persons intermediaries play a particularly pertinent role in the arrangement of insurance policies Regulation of Insurance Intermediaries 24 6 2 Insurance intermediaries are regulated under the auspices of both the Insurance Act as well as the Financial Advisers Act Cap 110 24 6 3 The terms insurance agent insurance broker as well as insurance intermediary are defined in section 1A of the Insurance Act with an insurance agent identified as a person who carries on insurance business as an agent for the insurer an insurance broker as a person who carries on insurance business as an agent for the insured and an insurance intermediary as a broad umbrella term for both insurance agents and insurance brokers alike 24 6 4 The Insurance Act governs general insurance which is often consumption based and not considered investment products Under which insurance intermediaries are subject to various regulations which include the duty on pre contractual disclosure section 35P the duty not to misrepresent section 35R as well as the requirement of registration for insurance brokers see sections 35W to 35Z 24 6 5 On the other hand the Financial Advisers Act governs the entire range of financial advisory services and specifically includes the arranging of any contract of insurance in respect of life policies alongside the dispensation of advice regarding any investment linked life insurance plans Section 2 read with Schedule 2 of the Financial Advisers Act Life insurance agents are therefore subject to additional licensing requirements Part II Financial Advisers Act and checks on the conduct of business Part III Financial Advisers Act Issues of Agency 24 6 6 The role of intermediaries in the procurement of insurance business from prospective policyholders can often become contentious In the advisory and application process the knowledge and acts of an insurance intermediary becomes relevant when an agent may fail to or erroneously record certain details in the proposal form The question then becomes whether a policy applicant should be penalized for the acts of the insurance intermediary 24 6 7 The general rule that has emerged from the prevailing judicial authorities is that a person vested with the authority by the policy applicant to fill in a proposal form will be deemed the insured s agent for the purposes of filling in the proposal form Globe Trawlers Pte Ltd v National Employers Mutual General Insurance Association Ltd 1989 SLR 192 This is based on the notion that a man cannot contract with himself and a person who fills up the proposal form thus cannot logically be the person accepting the proposal as well The courts have thus held it impermissible to impute the knowledge of a scribe or amanuensis for the policy applicant to the insurer 24 6 8 Moreover the principle of the sanctity of one s signature has also been consistently upheld by the court on the basis of commercial certainties It is therefore no defence for an applicant to sign on a proposal form and later allege that he was not aware of the contents Biggar v Rock Life Assurance Co 1902 1 KB 516 Duties of an Intermediary 24 6 9 On the finding of a principal agent relationship it must be noted that the agent will be subject to fiduciary duties as well as duties of care and skill 24 6 10 On the former it is trite that a fiduciary is subject to the strict duty to avoid conflicts of interests unless he does so with full disclosure and his principal s consent Boardman v Phipps 1966 UKHL 2 24 6 11 On the latter an insurance intermediary is held out to the standard reasonably expected of him Zurich Insurance v B Gold Interior Design and Construction 2008 3 SLR R 1029 and there is no requirement of dishonesty before a breach will be made out 24 6 12 However the duties owed to the principal will vary depending on the circumstances of each case and relevant considerations can include the particular instructions received Nevertheless the agent for the insured is duty bound to ensure that he attains adequate coverage for the insured McNealy v Pennine Insurance Co Ltd 1978 2 Lloyd s Rep 18 and should point out any special circumstances such as the shaky financial position of the insurer Osman v J Ralph Moss Ltd 1970 1 Lloyd s Rep 313 or any terms in the policy that might leave the policyholder underinsured J W Bollom Co Ltd v Byas Mosley Co Ltd 2000 Lloyd s Rep IR 136 Return to the top Section 7 Construction of the Insurance Contract 24 7 1 To determine the true construction of a word or a phrase the courts endeavor to give effect to the intention of parties objectively ascertained As construction is a question of law previous judicial interpretations of a certain word or phrase are necessarily binding or at the very least persuasive authority on subsequent claims 24 7 2 Words used will be given their plain and ordinary meaning unless they are a legal terms of art Lake v Simmons 1927 AC 487 b have acquired special meaning by long usage in a trade Robertson v French 1803 102 ER 779 or c their given context requires otherwise Kearney v General Accident Fire and Life Assurance Corporation Ltd 1968 2 Lloyd s Rep 240 Terms thus will not typically be construed in vacuo and will be understood in the context of the entire contract Hamlyn v Crown Accidental Insurance Co Ltd 1893 1 QB 750 24 7 3 In event of ambiguity a term will be construed in favour of the party who did not draft the term by virtue of the contra proferentem rule Additionally the parol evidence rule stipulates that once a contract is reduced into writing extrinsic materials such as negotiations are not typically admissible However it must be noted that this rule only kicks in on the finding that the contract in question was intended by parties to contain all terms of the contract Extrinsic evidence and the surrounding circumstances of the contract are thus permissible and necessary considerations for the court to first make this preliminary finding before the parol evidence rule would come into effect Zurich Insurance v B Gold Interior Design and Construction 2008 3 SLR R 1029 Return to the top Section 8 Illegality and public policy 24 8 1 The general rule against contractual illegality applies with equal force to insurance contracts To this end as per the oft cited latin maxim ex turpi causa non oritur actio no action can arise from a wrongful cause no person can rely on his own illegal act or an illegal contract to make a claim on his insurance policy Tinsley v Milligan 1994 1 AC 340 nor can a person benefit from his own criminal conduct Cleaver v Mutual Reserve Fund Life Association 1892 1 QB 147 From a policy standpoint it is evident that indemnifying such risks would be to encourage the commission of crimes or civil wrongs and would be wholly against public policy Gray v Barr 1971 2 QB 554 24 8 2 Illegality can manifest in several forms For instance a contract will be deemed illegal from its inception where an insurer agrees to indemnify a policyholder in respect of crimes or civil wrongs which they knew the policyholder intended to commit Hardy v Motor Insurers Bureau 1964 2 QB 745 at 760 24 8 3 Alternatively a claim will be tainted by illegality when a policyholder seeks recovery under a policy based on his own criminal or tortious act In such a scenario the policyholder s claim is barred not just by the general rule against illegality but the rule specific to insurance law that an assured would not typically be allowed to recover on an intentional act This rule should be understood as a rule of construction of the insurance policy On the policy argument the English courts have gone so far as to suggest that the overwhelming weight of policy considerations in ensuring one does not benefit from his illegal act can override any express provisions in the policy Beresford v Royal Insurance Co 1938 AC 586 24 8 4 The finding of illegality forms an exception to the rule that all premiums already paid would be disgorged for total failure of consideration see section 84 1 of the Marine Insurance Act Return to the top Section 9 Loss Causation 24 9 1 Although a loss may prima facie fall within the terms of an insurance policy on its true construction a policyholder is still required to prove the element of causation between the loss incurred and the insured risk before the insurer will make the relevant pay out 24 9 2 The element of causation becomes particularly complex where a sequence of events precedes the loss and there are multiple causes and some of which are expressly excluded from policy coverage 24 9 3 When a sequence of events precedes a loss it will be necessary to first determine the proximate cause This is a question of fact in all cases and judicial precedents thus serve as mere guidelines and are not binding However the principles that have emerged are instructive chief of which is that a proximate cause is not necessarily the most recent cause At all times the proximate cause must be understood as the effective and actual cause Thus as long as a loss or damage is the necessary consequence of the insured peril causation is prima facie proven 24 9 4 Where there are multiple causes that are both necessary but individually insufficient for the occurrence of the loss it is suggested that the insured will not be able to recover in respect of the entire claim even if only one of the causes is excluded under the policy Lloyd JJ Instruments Ltd v Northern Star Insurance Co The Miss Jay Jay 1987 1 Lloyd s Rep 32 24 9 5 However it must be noted that the common law principles on causation can be expressly modified by policy wording where insurers may only cover losses caused by the insured peril independently and exclusively of all other causes See e g Jason v Batten 1969 1 Lloyd s Rep 281 Valued and unvalued policies 24 9 6 The loss recoverable by an insured is determined by the type of policy coverage taken out On an unvalued policy the indemnity recoverable will be calculated based on the value at the time and place of loss On the other hand on a valued policy an insured will simply recover the agreed value Parties thus contract out of indemnity and by doing so are thus insulated from any possible incidences of over or under insurance regardless of whether the actual loss is greater or lesser than the agreed valuation the insurer will still be liable for the agreed amount 24 9 7 However it must be noted that whether a policy is a valued or unvalued policy turns on the construction of the policy and the mere fact that the policy states the sum insured does not automatically mean that the policy is a valued policy Quorum A S v Schramm 2002 1 Lloyd s Rep 249 Allianz General Insurance Malaysia Bhd v Navis Shim Lee Hiong 2004 1 MLJ 437 Over and Under Insurance 24 9 8 Most insurance policies are subject to a limit on recovery However since the market value of the insured subject matter may fluctuate in goods and property insurance the subject matter may accordingly become over or under insured 24 9 9 Looking specifically at under insurance i e where the market value is beyond the maximum sum recoverable under the policy a policyholder becomes his own insurer for the sum not covered assuming there is no preliminary issue of non disclosure or breach of warranty While such a scenario only seems fair what bears noting is that an insured will nevertheless be able to recover fully in respect of partial losses as long as the partial loss incurred remains within the stated limits on recovery Accordingly insurers have thus sought to protect themselves from such a scenario by incorporating average clauses into the policy which ensure that a policyholder bears a rateable proportion of any loss should underinsurance arise 24 9 10 On the other hand no such issue arises under a valued policy In respect of partial losses under a valued policy it is settled law that the insurer will be liable for a portion of the agreed sum with the agreed sum reduced in proportion to the depreciation in the actual value i e market value of the property Elcock v Thomas 1949 2 KB 755 Value of loss 24 9 11 Another issue that arises is the method of assessing the value of the loss It must be noted that the value of a loss can be calculated in more than one way and can be calculated in terms of 1 the market value of the loss damage 2 the replacement value or 3 reinstatement costs Reynolds v Phoenix Assurance Co 1978 2 Lloyd s Rep 440 The most appropriate method of indemnification will depend on the specific circumstances of the case and the actual loss suffered must be determined as a question of fact Return to the top Section 10 Claims Claims Procedure 24 10 1 The claims procedure is typically governed by express terms and conditions in the policy This includes clauses requiring notification of the loss clauses requiring the provision of documentary evidence as well as arbitration clauses see e g Tay Eng Chuan v Ace Insurance Ltd 2008 4 SLR R 95 However whether such clauses are condition precedents to the insurer s liability must be determined on the true construction of the contract Fraudulent claims 24 10 2 A fraudulent statement if made knowingly is made without belief in its truth or if made recklessly is made carelessly whether it is true or not However a fraudulent claim must be properly distinguished from an exaggerated claim used as a bargaining device Mere exaggeration is not immediately fraud without more Orakpo v Barclay Insurance Services Co Ltd 1994 CLC 373 as commercial reality dictates that policyholders will often put forward a claim higher than they

    Original URL path: http://www.singaporelaw.sg/sglaw/laws-of-singapore/commercial-law/chapter-24?font-size=smaller (2016-01-30)
    Open archived version from archive

  • Ch.24 Insurance Law
    regardless of materiality causality or whether it has been remedied see section 33 of the Marine Insurance Act 24 5 3 In creating a warranty it must be noted that the mere usage of labels is not necessarily conclusive The inclusion of the term warranty will not automatically entitle an insurer to an automatic discharge in the event of non compliance L Union des Assurances de Paris IARD v HBZ International Exchange Co Singapore Pte Ltd 1993 3 SLR 161 Instead the courts will give effect to parties intentions on the true construction of the policy 24 5 4 To circumvent such uncertainty insurers have instead opted to incorporate basis of the contract clauses at the foot of the proposal form The effect of which is to make all of the insured s responses on the proposal form the basis of the contract and thus entitle the insurer to repudiate liability should any untruths be discovered subsequently This conveniently allows insurers to sidestep the various hurdles to making a successful non disclosure or misrepresentation claim Evidently the fairness of such a practice can be questioned and it has since been expressly invalidated in England s consumer insurance regime by virtue of section 6 of the Consumer Insurance Disclosure and Representation Act 2012 24 5 5 Another issue that arises on the true construction of a term is whether a warranty is to past or present fact or is a continuing promissory warranty as to the future This determination requires the court to undertake a contextual analysis including considerations such as references to the future and the usage of tenses Hair v Prudential Assurance Co Ltd 1983 2 Lloyd s Rep 667 Notably such an issue is particularly prevalent where responses to questions in a proposal form are made the basis of the contract and are ambiguous as to the scope warranted 24 5 6 Nonetheless despite the all or nothing nature of breaches of warranty one exception is where there is a waiver of the breach of warranty see section 34 3 of the Marine Insurance Act For the sake of clarity it must further be noted that the automatic discharge of an insurer on the insured s breach of warranty precludes the option of waiver by election and only waivers by estoppel will apply in respect of breaches of warranty 24 5 7 Accordingly to establish waiver by estoppel there must be an unequivocal representation that the insurer is content not to rely on his right whether expressly made or implied by conduct and proof of the policyholder s consequent reliance on such a representation Notably an unequivocal representation is an objective legal concept and silence or inaction of the insurer simpliciter would fall short of such a standard Liberty Insurance Pte Ltd and Another v Argo Systems Fze 2011 EWCA Civ 161 Clauses delimiting the risk 24 5 8 Alternatively a clause that may appear to be a warranty on its face may be reinterpreted as a mere clause delimiting or describing the risk on its true construction Provincial Insurance Co v Morgan 1933 AC 240 Delimiting clauses merely stipulate that coverage will be suspended for the duration of the non compliance and will resume when remedied unlike breaches of warranties which lead to an automatic discharge regardless of whether the non compliance is remedied Judicial interpretation of such clauses therefore mitigates the harshness of a warranty in favour of the insured Condition Precedent 24 5 9 While warranties entitle an insurer to be discharged from liability on non compliance condition precedents operate similarly to the extent that compliance with certain requirements may be stipulated as a pre condition to an insurer s liability Return to the top Section 6 Intermediaries 24 6 1 As insurance providers are companies which have to act through designated persons intermediaries play a particularly pertinent role in the arrangement of insurance policies Regulation of Insurance Intermediaries 24 6 2 Insurance intermediaries are regulated under the auspices of both the Insurance Act as well as the Financial Advisers Act Cap 110 24 6 3 The terms insurance agent insurance broker as well as insurance intermediary are defined in section 1A of the Insurance Act with an insurance agent identified as a person who carries on insurance business as an agent for the insurer an insurance broker as a person who carries on insurance business as an agent for the insured and an insurance intermediary as a broad umbrella term for both insurance agents and insurance brokers alike 24 6 4 The Insurance Act governs general insurance which is often consumption based and not considered investment products Under which insurance intermediaries are subject to various regulations which include the duty on pre contractual disclosure section 35P the duty not to misrepresent section 35R as well as the requirement of registration for insurance brokers see sections 35W to 35Z 24 6 5 On the other hand the Financial Advisers Act governs the entire range of financial advisory services and specifically includes the arranging of any contract of insurance in respect of life policies alongside the dispensation of advice regarding any investment linked life insurance plans Section 2 read with Schedule 2 of the Financial Advisers Act Life insurance agents are therefore subject to additional licensing requirements Part II Financial Advisers Act and checks on the conduct of business Part III Financial Advisers Act Issues of Agency 24 6 6 The role of intermediaries in the procurement of insurance business from prospective policyholders can often become contentious In the advisory and application process the knowledge and acts of an insurance intermediary becomes relevant when an agent may fail to or erroneously record certain details in the proposal form The question then becomes whether a policy applicant should be penalized for the acts of the insurance intermediary 24 6 7 The general rule that has emerged from the prevailing judicial authorities is that a person vested with the authority by the policy applicant to fill in a proposal form will be deemed the insured s agent for the purposes of filling in the proposal form Globe Trawlers Pte Ltd v National Employers Mutual General Insurance Association Ltd 1989 SLR 192 This is based on the notion that a man cannot contract with himself and a person who fills up the proposal form thus cannot logically be the person accepting the proposal as well The courts have thus held it impermissible to impute the knowledge of a scribe or amanuensis for the policy applicant to the insurer 24 6 8 Moreover the principle of the sanctity of one s signature has also been consistently upheld by the court on the basis of commercial certainties It is therefore no defence for an applicant to sign on a proposal form and later allege that he was not aware of the contents Biggar v Rock Life Assurance Co 1902 1 KB 516 Duties of an Intermediary 24 6 9 On the finding of a principal agent relationship it must be noted that the agent will be subject to fiduciary duties as well as duties of care and skill 24 6 10 On the former it is trite that a fiduciary is subject to the strict duty to avoid conflicts of interests unless he does so with full disclosure and his principal s consent Boardman v Phipps 1966 UKHL 2 24 6 11 On the latter an insurance intermediary is held out to the standard reasonably expected of him Zurich Insurance v B Gold Interior Design and Construction 2008 3 SLR R 1029 and there is no requirement of dishonesty before a breach will be made out 24 6 12 However the duties owed to the principal will vary depending on the circumstances of each case and relevant considerations can include the particular instructions received Nevertheless the agent for the insured is duty bound to ensure that he attains adequate coverage for the insured McNealy v Pennine Insurance Co Ltd 1978 2 Lloyd s Rep 18 and should point out any special circumstances such as the shaky financial position of the insurer Osman v J Ralph Moss Ltd 1970 1 Lloyd s Rep 313 or any terms in the policy that might leave the policyholder underinsured J W Bollom Co Ltd v Byas Mosley Co Ltd 2000 Lloyd s Rep IR 136 Return to the top Section 7 Construction of the Insurance Contract 24 7 1 To determine the true construction of a word or a phrase the courts endeavor to give effect to the intention of parties objectively ascertained As construction is a question of law previous judicial interpretations of a certain word or phrase are necessarily binding or at the very least persuasive authority on subsequent claims 24 7 2 Words used will be given their plain and ordinary meaning unless they are a legal terms of art Lake v Simmons 1927 AC 487 b have acquired special meaning by long usage in a trade Robertson v French 1803 102 ER 779 or c their given context requires otherwise Kearney v General Accident Fire and Life Assurance Corporation Ltd 1968 2 Lloyd s Rep 240 Terms thus will not typically be construed in vacuo and will be understood in the context of the entire contract Hamlyn v Crown Accidental Insurance Co Ltd 1893 1 QB 750 24 7 3 In event of ambiguity a term will be construed in favour of the party who did not draft the term by virtue of the contra proferentem rule Additionally the parol evidence rule stipulates that once a contract is reduced into writing extrinsic materials such as negotiations are not typically admissible However it must be noted that this rule only kicks in on the finding that the contract in question was intended by parties to contain all terms of the contract Extrinsic evidence and the surrounding circumstances of the contract are thus permissible and necessary considerations for the court to first make this preliminary finding before the parol evidence rule would come into effect Zurich Insurance v B Gold Interior Design and Construction 2008 3 SLR R 1029 Return to the top Section 8 Illegality and public policy 24 8 1 The general rule against contractual illegality applies with equal force to insurance contracts To this end as per the oft cited latin maxim ex turpi causa non oritur actio no action can arise from a wrongful cause no person can rely on his own illegal act or an illegal contract to make a claim on his insurance policy Tinsley v Milligan 1994 1 AC 340 nor can a person benefit from his own criminal conduct Cleaver v Mutual Reserve Fund Life Association 1892 1 QB 147 From a policy standpoint it is evident that indemnifying such risks would be to encourage the commission of crimes or civil wrongs and would be wholly against public policy Gray v Barr 1971 2 QB 554 24 8 2 Illegality can manifest in several forms For instance a contract will be deemed illegal from its inception where an insurer agrees to indemnify a policyholder in respect of crimes or civil wrongs which they knew the policyholder intended to commit Hardy v Motor Insurers Bureau 1964 2 QB 745 at 760 24 8 3 Alternatively a claim will be tainted by illegality when a policyholder seeks recovery under a policy based on his own criminal or tortious act In such a scenario the policyholder s claim is barred not just by the general rule against illegality but the rule specific to insurance law that an assured would not typically be allowed to recover on an intentional act This rule should be understood as a rule of construction of the insurance policy On the policy argument the English courts have gone so far as to suggest that the overwhelming weight of policy considerations in ensuring one does not benefit from his illegal act can override any express provisions in the policy Beresford v Royal Insurance Co 1938 AC 586 24 8 4 The finding of illegality forms an exception to the rule that all premiums already paid would be disgorged for total failure of consideration see section 84 1 of the Marine Insurance Act Return to the top Section 9 Loss Causation 24 9 1 Although a loss may prima facie fall within the terms of an insurance policy on its true construction a policyholder is still required to prove the element of causation between the loss incurred and the insured risk before the insurer will make the relevant pay out 24 9 2 The element of causation becomes particularly complex where a sequence of events precedes the loss and there are multiple causes and some of which are expressly excluded from policy coverage 24 9 3 When a sequence of events precedes a loss it will be necessary to first determine the proximate cause This is a question of fact in all cases and judicial precedents thus serve as mere guidelines and are not binding However the principles that have emerged are instructive chief of which is that a proximate cause is not necessarily the most recent cause At all times the proximate cause must be understood as the effective and actual cause Thus as long as a loss or damage is the necessary consequence of the insured peril causation is prima facie proven 24 9 4 Where there are multiple causes that are both necessary but individually insufficient for the occurrence of the loss it is suggested that the insured will not be able to recover in respect of the entire claim even if only one of the causes is excluded under the policy Lloyd JJ Instruments Ltd v Northern Star Insurance Co The Miss Jay Jay 1987 1 Lloyd s Rep 32 24 9 5 However it must be noted that the common law principles on causation can be expressly modified by policy wording where insurers may only cover losses caused by the insured peril independently and exclusively of all other causes See e g Jason v Batten 1969 1 Lloyd s Rep 281 Valued and unvalued policies 24 9 6 The loss recoverable by an insured is determined by the type of policy coverage taken out On an unvalued policy the indemnity recoverable will be calculated based on the value at the time and place of loss On the other hand on a valued policy an insured will simply recover the agreed value Parties thus contract out of indemnity and by doing so are thus insulated from any possible incidences of over or under insurance regardless of whether the actual loss is greater or lesser than the agreed valuation the insurer will still be liable for the agreed amount 24 9 7 However it must be noted that whether a policy is a valued or unvalued policy turns on the construction of the policy and the mere fact that the policy states the sum insured does not automatically mean that the policy is a valued policy Quorum A S v Schramm 2002 1 Lloyd s Rep 249 Allianz General Insurance Malaysia Bhd v Navis Shim Lee Hiong 2004 1 MLJ 437 Over and Under Insurance 24 9 8 Most insurance policies are subject to a limit on recovery However since the market value of the insured subject matter may fluctuate in goods and property insurance the subject matter may accordingly become over or under insured 24 9 9 Looking specifically at under insurance i e where the market value is beyond the maximum sum recoverable under the policy a policyholder becomes his own insurer for the sum not covered assuming there is no preliminary issue of non disclosure or breach of warranty While such a scenario only seems fair what bears noting is that an insured will nevertheless be able to recover fully in respect of partial losses as long as the partial loss incurred remains within the stated limits on recovery Accordingly insurers have thus sought to protect themselves from such a scenario by incorporating average clauses into the policy which ensure that a policyholder bears a rateable proportion of any loss should underinsurance arise 24 9 10 On the other hand no such issue arises under a valued policy In respect of partial losses under a valued policy it is settled law that the insurer will be liable for a portion of the agreed sum with the agreed sum reduced in proportion to the depreciation in the actual value i e market value of the property Elcock v Thomas 1949 2 KB 755 Value of loss 24 9 11 Another issue that arises is the method of assessing the value of the loss It must be noted that the value of a loss can be calculated in more than one way and can be calculated in terms of 1 the market value of the loss damage 2 the replacement value or 3 reinstatement costs Reynolds v Phoenix Assurance Co 1978 2 Lloyd s Rep 440 The most appropriate method of indemnification will depend on the specific circumstances of the case and the actual loss suffered must be determined as a question of fact Return to the top Section 10 Claims Claims Procedure 24 10 1 The claims procedure is typically governed by express terms and conditions in the policy This includes clauses requiring notification of the loss clauses requiring the provision of documentary evidence as well as arbitration clauses see e g Tay Eng Chuan v Ace Insurance Ltd 2008 4 SLR R 95 However whether such clauses are condition precedents to the insurer s liability must be determined on the true construction of the contract Fraudulent claims 24 10 2 A fraudulent statement if made knowingly is made without belief in its truth or if made recklessly is made carelessly whether it is true or not However a fraudulent claim must be properly distinguished from an exaggerated claim used as a bargaining device Mere exaggeration is not immediately fraud without

    Original URL path: http://www.singaporelaw.sg/sglaw/laws-of-singapore/commercial-law/chapter-24?tmpl=component&print=1&page= (2016-01-30)
    Open archived version from archive

  • Tay Eng Chuan v Ace Insurance Ltd[2008] 4 SLR 95; [2008] SGCA 26
    such inconsistency as The L egal A ction C lause is expressly s ubject to the A rbitration C lause It is subservient to the A rbitration C lause Therefore if a dispute or difference arises between the parties and they are unable to settle the difference amongst themselves no party may commence legal action unless the A rbitration C lause has been complied with emphasis added Our analysis of the respondent s contention 18 The apparent logic of the respondent s argument in relation to the Arbitration Clause read with the Condition Precedent Clause is not difficult to appreciate The Judge accepted the argument and concluded succinctly at 22 of the GD No arbitration no liability see 10 above However there are counter arguments against the respondent s contention The first is that its force is derived solely from a selective reading of the Arbitration Clause and the Condition Precedent Clause in isolation without reference to the purpose of the Legal Action Clause and its effect on these two clauses In our view the Arbitration Clause and the Condition Precedent Clause cannot be construed as if they were stand alone clauses isolated from the overall context of the Policy The second counter argument is that the respondent s contention fails to take into account case authorities relating to the form and nature of what are commonly known as Scott v Avery clauses this area of the law was in fact not raised before the Judge at all This omission is significant as the effect of the respondent s argument based on the Condition Precedent Clause and the Arbitration Clause although it was not expressed in these terms was that the two clauses collectively amounted to a Scott v Avery clause The third counter argument is that the respondent s contention fails to take into account the contra proferentem rule of contractual interpretation a point which was likewise not brought up before the Judge We will now address each of these counter arguments in turn The Legal Action Clause 19 The Legal Action Clause which is reproduced at 9 above provides that the appellant may bring an action based on the Policy upon the expiration of 60 days after he has submitted to the respondent written proof of his claim Its meaning is perfectly clear in the context of the general principle of insurance law that an insured has a right to be indemnified by his insurer under a policy of insurance and may enforce that right by way of legal action In the present case the appellant s right under the Legal Action Clause is not affected in any way by the Condition Precedent Clause since the latter concerns only the respondent s liability to make payment under the Policy Under the general law the appellant may sue on the Policy in respect of the alleged total loss of sight in his left eye at any time within 6 years from the date on which the cause of action accrued see s 6 1 of the Limitation Act Cap 163 1996 Rev Ed According to the Legal Action Clause a cause of action would accrue in favour of an insured only upon the expiration of sixty 60 days after written proof of claim has been filed in accordance with the provisions of the Policy In the present case the appellant s written proof of claim although dated 20 November 2002 was received by the respondent on 26 December 2002 see para 19 of Lim Lay Yan s affidavit filed on 2 July 2007 as well as Exh LLY 3 thereof Therefore the appellant s right to bring an action in respect of his alleged total loss of sight in the left eye would expire only on 26 December 2008 taking the date on which the respondent received the appellant s written proof of claim as the date on which that claim was filed for the purposes of the Legal Action Clause 20 The Legal Action Clause is however affected by the Arbitration Clause as the former is expressed to be s ubject to the latter The respondent had argued before the Judge that no action could be brought under the Legal Action Clause until the appellant had first proceeded with arbitration as required by the Arbitration Clause The Judge did not expressly state whether he agreed or disagreed with this argument but his subsequent analysis at 25 of the GD reproduced earlier at 11 above suggested that he agreed with the respondent In other words the Judge construed the opening words Subject to Clause 7 of this Part in the Legal Action Clause the Qualifying Words as entailing that a dispute or difference had to be referred to arbitration first before any court action in respect of such dispute or difference could be commenced It would follow on this interpretation of the Qualifying Words that since the appellant had not complied with the Arbitration Clause in the present case he had no right of action under the Legal Action Clause 21 In our view the Judge s interpretation of the Qualifying Words viz that the appellant could not rely on the Legal Action Clause to commence OS 859 2007 until the Dispute had been referred to arbitration is not the only possible meaning of those words There is an alternative meaning namely that since the appellant failed to refer the Dispute to arbitration within the period stipulated in the Arbitration Clause he lost his right to arbitration but nothing more ie he could still rely on the Legal Action Clause to bring a legal action notwithstanding his breach of the Arbitration Clause This alternative interpretation of the Qualifying Words is supported by the following passage from Halsbury s Laws of Singapore vol 2 LexisNexis 2003 Reissue at para 20 049 Contractual time bars may apply to bar either the claim or the arbitration Where a contractual time limit bars only the right to proceed to arbitration the parties may nevertheless proceed to litigate the dispute in the forum where the jurisdiction could be established over the parties emphasis added On this interpretation of the Qualifying Words breach of the Arbitration Clause would not negate the right of action conferred by the Legal Action Clause 22 We should add that regardless of whether the Judge s interpretation of the Qualifying Words or the alternative interpretation thereof as set out at 21 above is adopted the respondent could in any case still have referred the Dispute to arbitration despite the appellant s breach of the Arbitration Clause The appellant had lost his right to arbitration as he had not complied with that clause but the respondent had not lost that right Indeed there was nothing to prevent the respondent from applying to the court to stay OS 859 2007 in favour of arbitration However the respondent chose instead to apply via SUM 2829 2007 to strike out the originating summons on the grounds referred to at 4 above In doing so the respondent took a step in the proceedings and thereby waived its right to arbitration 23 The difficulty which we have with the respondent s interpretation of the Condition Precedent Clause read with the Arbitration Clause which interpretation the Judge accepted lies in the fact that there is nothing in either of these clauses which states that the appellant has no right of legal action unless the Arbitration Clause has been complied with If these two clauses are seen as having such an effect because of the wording of the Condition Precedent Clause it would lead to an inconsistency with the Legal Action Clause and it is this very inconsistency which forms the crux of the first counter argument against the respondent s contention on issue a 24 In the interest of completeness we should also mention that although the appellant had earlier applied unsuccessfully in OS 2254 2006 for an extension of time to commence arbitration against the respondent the decision in that action did not necessarily imply that the reference of the Dispute to arbitration was indeed a condition precedent to the appellant s right to sue on the Policy or that the appellant accepted that the Policy contained such a provision On this specific issue the appellant s application in OS 2254 2006 did not constitute and was not capable of giving rise to an estoppel against him Indeed Rajah J recognised this in commenting in the Note that his decision did not mean that the appellant had no right of action under the general law in respect of the alleged total loss of sight in his left eye see 2 above Scott v Avery clauses 25 The second counter argument against the respondent s contention on issue a is related to the point highlighted earlier at 23 above namely there is nothing in either the Condition Precedent Clause or the Arbitration Clause which states that the appellant has no right of legal action unless he has first complied with the Arbitration Clause This omission is significant for as we noted earlier at 18 above the respondent effectively relied on these two clauses as constituting a Scott v Avery clause The effect of a clause of this nature is described in David St John Sutton Judith Gill Matthew Gearing Russell on Arbitration Sweet Maxwell 23rd Ed 2007 as follows at para 2 022 The parties to a contract may agree that no action shall be brought upon it until an arbitration award has been made or what amounts to the same thing may agree that the only obligation arising out of a particular term of the contract shall be to pay whatever sum a tribunal may award This is known as a Scott v Avery clause It does not prevent litigation being initiated on a contract containing a clause of this type but the condition precedent is a defence to the action 26 The leading case on such clauses is Alexander Scott v George Avery 1856 5 HL Cas 811 10 ER 1121 commonly cited as Scott v Avery itself In that case the clause in question which was contained in a marine insurance policy read as follows see 813 814 1122 1123 T he sum to be paid by this association to any suffering member for any loss or damage shall in the first instance be ascertained and settled by the committee and the suffering member if he agrees to accept such sum in full satisfaction of his claim shall be entitled to demand and sue for the same as soon as the amount to be paid has been so ascertained and settled but not before And if a difference shall arise between the committee and any suffering member relative to the settling of any loss or damage or to a claim for average or any other matter relating to the insurance in such case the member dissatisfied shall select one arbitrator on his or her behalf and the committee shall select another And if the committee refuse for 14 days to make such selection the suffering member shall select two and in either case the two selected shall forthwith select a third which three arbitrators or any two of them shall decide upon the claims and matters in dispute And in all cases where arbitration is resorted to the settlement of the committee is to be wholly rescinded and the statement begun de novo Provided always and it is hereby expressly declared to be a part of the contract of insurance between the members of this association that no member who refuses to accept the amount of any loss as settled by the committee hereinbefore specified in full satisfaction of such loss shall be entitled to maintain any action at law or suit in equity on his policy until the matters in dispute have been referred to and decided by arbitrators appointed as hereinbefore specified and then only for such sum as the said arbitrators shall award And the obtaining of the decision of such arbitrators on the matters and claims in dispute is hereby declared to be a condition precedent to the right of any member to maintain any such action or suit emphasis added The House of Lords held that the effect of the clause was to make arbitration a condition precedent to the bringing of any action founded on the insurance policy As Lord Campbell explained at 851 854 1137 1138 T he contract is as clear as the English language could make it that no action should be brought against the insurers until the arbitrators had disposed of any dispute that might arise between the insurers and the insured It is declared to be a condition precedent to the bringing of any action I t is stipulated in the most express terms that until the arbitrators have determined no action shall lie in any court whatsoever 27 Another example of a valid and effective Scott v Avery clause is that considered by the English High Court in Viney v Bignold 1888 20 QBD 172 There the relevant provision stipulated that in the event of any dispute arising between the insurer and the insured as to the adjustment of a loss a the amount to be paid by the insurer was to be submitted to arbitration b the award of the arbitrator would be conclusive evidence of the amount of the loss c the insured would not be entitled to commence any legal action based on the insurance policy until the amount of the loss had been referred to and determined by arbitration and d any action commenced by the insured thereafter could only be for the amount awarded by the arbitrator It was held that these provisions were good and entailed that the determination by arbitration of the amount payable by the insurer was a condition precedent to the insurer s liability to make payment under the policy Wills J explained at 174 The principle on which cases such as the present ought to be decided is very clear and it is this The Court must look and see what the covenant is If there is a covenant to pay the amount of the loss accompanied by a collateral provision that the amount shall be ascertained by arbitration such arbitration is not a condition precedent to the maintenance of an action on the covenant but if the parties have covenanted that the liability is only to arise after the amount has been adjusted by arbitration then such adjustment is a condition precedent to the right to recover The real question comes to this what have the parties covenanted to do In the present case the meaning of the provision is that in case of difference the amount to be paid shall be determined by arbitration and until this is done no liability shall arise in short the condition means what it says the only contract on the part of the insurer which is applicable where as in the present case a difference has arisen is that it will pay such amount as shall be awarded by arbitrators or their umpire emphasis added 28 In the Singapore context an example of a Scott v Avery clause can be found in the High Court case of Lim Kitt Ping Lynnette v People s Insurance Co Ltd 1997 3 SLR 1018 People s Insurance Co Ltd The material clause in that case condition 8 read as follows id at 17 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 in writing 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 a condition precedent to any right of action against the company emphasis added The defendant insurer pleaded in its defence that a decision by the arbitrator was a condition precedent to its liability to make payment under the policy and since no arbitral decision had been obtained by the insured before the action was commenced it the insurer was under no liability to the insured at all Kan Ting Chiu J accepted that such a defence could be pleaded id at 19 ie he affirmed the insurer s stance that condition 8 constituted a Scott v Avery clause but ultimately rejected this defence on the facts of the case the judge found that the dispute between the insurer and the insured was not a dispute arising out of the policy and thus condition 8 did not apply to begin with id at 24 29 It is evident from the above precedents that in the normal Scott v Avery clause all the provisions that state that the obtaining of an arbitral award is a condition precedent to the insured s right to bring an action based on the insurance policy are set out in the same clause so that the insured is left in no doubt as to their legal effect see the wording of the clauses considered in Scott v Avery 26 supra Viney v Bignold and People s Insurance Co Ltd respectively In contrast in the present case the respondent s position is effectively that the Arbitration Clause is part of a Scott v Avery clause with the other part to be found in the Condition Precedent Clause In our view this contention is unacceptable given the way in which Scott v Avery clauses are usually and have been for so many years worded 30 More importantly the above precedents on

    Original URL path: http://www.singaporelaw.sg/sglaw/laws-of-singapore/case-law/free-law/court-of-appeal-judgments/13505-tay-eng-chuan-v-ace-insurance-ltd-2008-4-slr-95-2008-sgca-26 (2016-01-30)
    Open archived version from archive

  • Yong Sheng Goldsmith Pte Ltd v Liberty Insurance Pte Ltd
    The name Tan Johnny with the title Insurance Agent below the name iii Johnny s contact details and iv The registered contact details of the defendant 13 In addition Johnny had filed an affidavit stating that he was indeed a registered agent of the defendant since 2003 or earlier and that he was the defendant s agent in respect of the procurement of the Policy Johnny had also dealt with all subsequent renewals of the policy 14 The plaintiff s counsel relied on the authority of Michael Martin Anor v Britannia Life Limited 2000 Lloyd s Rep PN 412 and in particular at 5 3 4 5 3 6 the business card which the defendant s representative proffered at the outset of the meting was the clearest representation that he was authorised by Life Association of Scotland LAS to give such financial advice I plainly did represent in my judgment that the defendant s representative was authorised to give advice in relation to the sale of insurance the inference is overwhelming that the representation in the business card was intended by LAS to be acted on by clients to whom it was presented in the sense that the clients would be reassured that the salesman who presented the card was backed by a responsible insurance company that presumably was the primary if not the whole purpose of the card the representation was in fact acted upon by the plaintiffs in that each of them proceeded throughout on the footing that in giving advice the defendant s representative was acting in every respect as the agent of LAS with authority from LAS so to act I found this to be helpful and relevant to the present matter It is clear that the plaintiff had since 2003 considered Johnny to be an agent of the defendant and had authority from the defendant to act in the matters of its Policy The plaintiff had only dealt with Johnny in relation to the Policy by contacting him on the mobile number reflected on the exhibited name card Additionally Johnny had handled the yearly renewals of the Policy from 2003 to 2009 Further the plaintiff had also contacted Johnny multiple times after the first loan shark harassment on 23 October 2009 including on 23 October 2009 itself to inform Johnny of the same Evidently the plaintiff had felt it necessary to inform the defendant of this and had therefore contacted the defendant s agent Johnny as they usually had in matters relating to the Policy 15 It is also vital to note that the defendant admits that Johnny was a registered agent with them As such it was only logical for the plaintiff to rely on the representation of the name card that Johnny was authorised to act on behalf of the defendant in respect of the Policy 16 However the defendant alleges that Johnny was never the agent on behalf of the defendant in respect of this Policy and that it was actually Aon who was the agent This was however only raised in the show cause affidavit and not in the defence The defendant further claims that it had no knowledge that Johnny was involved in this Policy 17 It should be noted at this juncture that at the top of the proposal form for the Policy the words Liberty Insurance Pte Ltd are printed with Jewellers Block Insurance arranged by Aon Insurance Agencies Pte Ltd beneath On the insurance policy schedule itself the defendant s logo and contact details are listed on top while the Policy s Account was listed as Aon 18 However in Johnny s affidavit he explained that he had been informed by the defendant s manager in 2003 that all Jewellers Block Policies had to go through Aon as part of the defendant s company policy 19 In my view it does not appear to be overtly sinister that Aon was listed on the proposal form and on the policy schedule itself It was submitted by plaintiff s counsel that Aon were insurance brokers who were at liberty to sell products from different insurance companies to clients Aon was thus the broker for the defendant in respect of Jewellery Block Policies as the defendant was unable to deal with these policies directly However to my mind this has no bearing as to whether Johnny was indeed the defendant s agent in this particular Policy From the affidavits filed by both the plaintiff and the defendant it is clear that the plaintiff contacted only Johnny when it came to matters relating to the Policy The plaintiff did not contact any representative from Aon and neither has the defendant submitted any names of representatives from Aon who would be the proper agent of the defendant for this Policy instead In fact as earlier mentioned the allegation that Aon was the agent of the defendants and not Johnny was not pleaded in the defence at all 20 The defendant s counsel also submitted that Johnny was in fact the agent for the plaintiff as Johnny had placed policies for the plaintiff with other insurance companies other than the defendant The defendant s counsel relied on National Employers Mutual General Insurance Association Ltd v Globe Trawlers Pte Ltd 1991 1 SLR R 550 National Employers in putting forth the submission that as the agent in that case was also an agent of other insurance companies they were therefore the respondent s agent and not the insurer s agent 21 I found this case to be unhelpful in the present circumstances Firstly the agent in National Employers was in fact also the brokers Secondly the case did not stand for the proposition that an agent who was also a commission agent of other insurance companies was in fact the insured s agent In that case the brokers were considered to be the insured s agent and not the insurer s agent because the brokers had in fact filled in the proposal form on

    Original URL path: http://www.singaporelaw.sg/sglaw/laws-of-singapore/case-law/free-law/high-court-judgments/14601-yong-sheng-goldsmith-pte-ltd-v-liberty-insurance-pte-ltd-2011-sghc-156 (2016-01-30)
    Open archived version from archive

  • Zurich Insurance (Singapore) Pte Ltd v B-Gold Interior Design & Construction Pte Ltd[2008] 3 SLR 1029; [2008] SGCA 27
    them to attribute to the author an intention contrary to the plain meanings of the words used in the document 78 We turn next to ss 97 99 of the Evidence Act which are best addressed together as they deal with different species of the genus of latent ambiguity The provisions are as follows Evidence as to document meaningless in reference to existing facts 97 When language used in a document is plain in itself but is meaningless in reference to existing facts evidence may be given to show that it was used in a peculiar sense Illustration A conveys to B by deed my plantation in Penang A had no plantation in Penang but it appears that he had a plantation in Province Wellesley of which B had been in possession since the execution of the deed These facts may be proved to show that the deed related to the plantation in Province Wellesley Evidence as to application of language which can apply to one only of several persons 98 When the facts are such that the language used might have been meant to apply to any one and could not have been meant to apply to more than one of several persons or things evidence may be given of facts which show to which of those persons or things it was intended to apply Illustrations a A agrees to sell to B for 500 my white horse A has 2 white horses Evidence may be given of facts which show which of them was meant b A agrees to accompany B to Halifax Evidence may be given of facts showing whether Halifax in Yorkshire or Halifax in Nova Scotia was meant Evidence as to application of language to one of two sets of facts to neither of which the whole correctly applies 99 When the language used applies partly to one set of existing facts and partly to another set of existing facts but the whole of it does not apply correctly to either evidence may be given to show to which of the 2 it was meant to apply Illustration A agrees to sell to B my land at X in the occupation of Y A has land at X but not in the occupation of Y and he has land in the occupation of Y but it is not at X Evidence may be given of facts showing which he meant to sell 79 Strictly speaking s 97 does not pertain to latent ambiguity since after the context is considered multiple meanings of the words in question do not exist rather the original language becomes meaningless in the light of the surrounding circumstances so as to convince the court that such language could not have been used in what s 97 calls its plain sense However we are aware that certain leading commentators have been content to describe the scenario posited in s 97 as a kind of latent ambiguity see for instance Sarkar 71 supra at p 1561 and Butterworths Annotated Statutes 71 supra at p 276 Section 98 is concerned with a type of latent ambiguity known at common law as equivocation see Sarkar at p 1562 In such cases even direct declarations of the contracting parties intent may be admitted to resolve the ambiguity id at p 1568 Finally s 99 is concerned with latent ambiguities which arise because of an inaccurate description or name so that the description or name is partly correct and partly incorrect For instance in the illustration in s 99 because neither set of given facts fully corresponds with the contractual provision viz A s agreement to sell to B his land at X in the occupation of Y emphasis in original omitted the provision itself becomes capable of alternative meanings ie it may refer to the sale of A s land at X or of A s land in the occupation of Y Thus extrinsic evidence is admissible to resolve the ambiguity Again it may be noted that ss 97 99 all pertain to ambiguity about facts usually the identity of persons or the subject matter of an agreement the reason being that these sections likewise originated as rules of interpretation applying to wills see 73 above 80 As s 100 of the Evidence Act is a straightforward provision it is not necessary for us to discuss it but we will set it out for the sake of completeness Evidence as to meaning of illegible characters etc 100 Evidence may be given to show the meaning of illegible or not commonly intelligible characters of foreign obsolete technical local and provincial expressions of abbreviations and of words used in a peculiar sense Illustration A a sculptor agrees to sell to B all my mods A has both models and modelling tools Evidence may be given to show which he meant to sell The case law 81 We turn now to the case law in Singapore with a particular focus on the movement towards the contextual approach to contractual interpretation and its ramifications for the parol evidence rule as encapsulated in s 94 of the Evidence Act 82 In Citicorp Investment Bank Singapore Ltd v Wee Ah Kee 1997 2 SLR 759 Citicorp Investment Bank Singapore the Court of Appeal examined the operation of the parol evidence rule and the admissibility of extrinsic evidence in the interpretation of contracts in Singapore In that case the defendant bank Citicorp had under a loan agreement the original loan agreement advanced to the plaintiff borrower Wee a principal sum of US 4 25m for the purchase of shares in a company the Shares Pursuant to the original loan agreement Wee had granted to Citicorp a a charge over the Shares and b an option to purchase during the option period 30 of the Shares Wee subsequently sought an extension of time to repay the principal sum plus interest The parties thus entered into a fresh agreement the fresh loan agreement the pertinent portion of which read as follows at 45 The call option granted pursuant to the original loan agreement shall be terminated subject to 1 your payment to Citicorp of a sum of US 800 000 on or before 15 December 1995 and 2 your fulfilment of your obligation to repay the loan under the original loan agreement emphasis in original Wee eventually repaid Citicorp the loan plus accrued interest but not the sum of US 800 000 As a result Citicorp delivered only part of the Shares to Wee and held on to the rest alleging that it was entitled to retain them as security for the call option fee of US 800 000 In determining whether Citicorp was entitled to retain part of the Shares the Court of Appeal had to rule on two issues first whether the option was invalid as a clog on the equity of redemption second and more relevantly for our purposes if the option was found to be valid whether by the terms of the fresh loan agreement Wee still owed Citicorp a further 800 000 for the termination of the option As the Court of Appeal put it at 47 If the terms were such that the option was to be terminated forthwith in consideration of a promise to pay US 800 000 then this would arguably constitute an indebtedness caught by the charge If so Citicorp was entitled to retain the S hares On the other hand if the terms were contingent so that the option was to be terminated only upon 1 payment of US 800 000 and 2 repayment of the loan then no debt had accrued the US 800 000 was never paid the option was never terminated the option had lapsed In other words Citicorp could not retain the S hares because Wee would owe no further debt after fully discharging his debt under the original loan agreement emphasis in original 83 As Wee s application was for summary judgment for the return of the Shares counsel for Citicorp argued that the interpretation of the terms of the fresh loan agreement would warrant a trial The thrust of counsel s argument was that extrinsic evidence must be adduced under proviso f to s 94 of the Evidence Act Cap 97 1990 Rev Ed the 1990 Act and the witnesses cross examined in order to ascertain the true sense of the words as used by the parties see Citicorp Investment Bank Singapore at 48 The Court of Appeal robustly rejected this argument Its reasoning is worth setting out at some length as follows at 62 68 62 We recognise that there may be instances where extrinsic evidence of surrounding circumstances may be necessary to aid the interpretation of a document In such cases the matrix of facts within which the contract is set is relevant see Mt Elizabeth Hospital Ltd v Allan Ng Clinic for Women 1994 3 SLR 639 at p 652 Reardon Smith Line 55 supra 63 But while extrinsic evidence may be adduced in appropriate cases there is an important qualification which has been stated in Phipson on Evidence 14th Ed 1990 at p 1050 in the following manner With regard to the limits of interpretation it is to be remembered that the function of the court is merely declaratory of what is in the document not speculative as to what was probably intended to be there Moreover the meaning imputed must be one which the words are reasonably adequate to convey All latitude of construction shall submit to this restriction that the words may bear the sense which by construction is put upon them If we step beyond this line we no longer construe men s deeds but make deeds for them See Gibson v Minet 1791 1 H Bl 569 126 ER 326 Re Lewis s Will Trusts 1985 1 WLR 102 Ultimately the latitude which a court is prepared to give is a question of degree 64 It is in the same vein that Tindal CJ had stated in Shore v Wilson 1842 9 Cl Fin 354 at pp 565 566 8 ER 450 at 532 more than a hundred years ago as follows The general rule I take to be that where the words of any written instrument are free from ambiguity in themselves and where external circumstances do not create any doubt or difficulty as to the proper application of those words to claimants under the instrument or the subject matter to which the instrument relates such instrument is always to be construed according to the strict plain common meaning of the words themselves and that in such case evidence dehors the instrument for the purpose of explaining it according to the surmised or alleged intention of the parties to the instrument is utterly inadmissible 65 The Earl of Halsbury LC also expressed a similar view in North Eastern Railway Co v Lord Hastings 1900 AC 260 at p 263 The words of a written instrument must be construed according to their natural meaning and it appears to me that no amount of acting by the parties can alter or qualify words which are plain and unambiguous So far as I am aware no principle has ever been more universally or rigorously insisted upon than that written instruments if they are plain and unambiguous must be construed according to the plain and unambiguous language of the instrument itself 66 Accordingly s 94 f ie proviso f to s 94 of the 1990 Act must be relied upon scrupulously its application limited to situations whereby the proposed alternative meaning is one which the words of the document can properly bear No evidence of any intention inconsistent with the plain meaning of the words should be admitted for the object of any extrinsic evidence is not to vary the language but merely to explain the sense of the words as used by the parties see also Sarkar on Evidence at p 1282 Hence in Wong Kai Chung v Automobile Association of Singapore 1993 2 SLR 577 this court stated that s 94 f does not permit the admission of subjective evidence to interpret the written word and proceeded to find that there was no ambiguity in the relevant document Any evidence of negotiations leading up to the contract is also inadmissible since it is the final agreement which records a consensus see Prenn v Simmonds 54 supra 67 We therefore took the position that where words of a written agreement have a clear and fixed meaning not susceptible of explanation extrinsic evidence is inadmissible to show that the parties meant something different from what they have written see Bank of New Zealand v Simpson 1900 AC 182 Otherwise no contract will be worth the paper it is written on if clear and unambiguous words can be easily displaced by extrinsic evidence in an attempt to explain a contrary meaning 68 In our view the language of the letter agreement ie the fresh loan agreement was plain and unambiguous There was no need to resort to the surrounding circumstances or extrinsic evidence to ascertain its meaning It clearly stated that the termination of the option was subject to conditions If those conditions were not fulfilled there was no termination Nowhere in the letter agreement did it say that a debt of US 800 000 was due from the respondent ie Wee If the option was indeed to be terminated immediately and the respondent had promised to pay US 800 000 then the letter agreement should have stated that the option was to be terminated forthwith and that the respondent owed US 800 000 with immediate effect It had to be borne in mind that it was after all the bank ie Citicorp that had drafted the letter not some ordinary lay person We did not think it was open to a vast institution like the bank to claim that it did not know the meaning of the words which it used emphasis added in bold italics Thus the judgment in Citicorp Investment Bank Singapore was a staunch affirmation of the parol evidence rule The Court of Appeal alluded to the common law contextual approach to contractual interpretation id at 62 but firmly restricted its potential application by taking a restrictive view of proviso f to s 94 of the 1990 Act which is identical to the present proviso f to s 94 for ease of discussion the term proviso f to s 94 shall be used hereafter to refer to proviso f to s 94 of both the 1990 Act and the present Evidence Act It appeared to be saying that extrinsic evidence was only admissible under that proviso where the words of a written agreement did not have a clear and fixed meaning ie where the language of the document was not plain and unambiguous see Citicorp Investment Bank Singapore at 68 It should be noted that the Court of Appeal appeared to accept that latent ambiguity could also render the language of a contract susceptible of alternative explanation see the emphasised portion of Tindal CJ s reasoning in Samuel Shore v The Attorney General on the Relation of Thomas Wilson 1842 9 Cl Fin 355 at 565 578 8 ER 450 at 532 537 which was relied on by the court at 64 of Citicorp Investment Bank Singapore This seems to contradict the court s rigid insistence that extrinsic evidence was inadmissible unless the language was ambiguous see also 52 above 84 The Court of Appeal s view of the impact of proviso f to s 94 was roundly criticised in Daniel Seng Kiat Boon Another Clog on the Construction of Contracts The Parol Evidence Rule and the Use of Extrinsic Evidence 1997 SJLS 457 Seng s article at 463 as introducing an unjustified qualification to the proviso Seng s view at 481 was that T he parol evidence provisions in the 1990 Act have never barred the admission of extrinsic evidence as part of the factual matrix of the case nor confined its use to only instances where the language of a written document is unclear or ambiguous The principal section confirming this section 94 f permits the proof of any fact which shows in what manner the language of a document is related to existing facts It is conspicuously free of qualifications unlike the other exceptions in section 94 emphasis added Under this view proviso f to s 94 is the statutory analogue of the common law contextual approach to contractual interpretation 85 However the Court of Appeal s view remained unchanged in Tan Hock Keng v L M Group Investments Ltd 2002 2 SLR 213 Tan Hock Keng see especially 11 and 13 although in that case the court did not make any explicit reference to Citicorp Investment Bank Singapore 82 supra On the facts of Tan Hock Keng the court found that the relevant provision was unclear on its face and thus extrinsic evidence was admissible under proviso f to s 94 86 The next significant case is MAE Engineering Ltd v Fire Stop Marketing Services Pte Ltd 2005 1 SLR 379 MAE Engineering The appellant in that case MAE had selected the respondent Fire Stop to supply and install fire rated board cladding to the air conditioning mechanical and ventilation ACMV duct of a project Based on MAE s estimate that 5 000m 2 of duct required cladding the parties agreed that Fire Stop would perform the work at the rate quoted by Fire Stop of 80 m 2 A document T 007 was signed whereby Fire Stop would keep its offer open until its appointment was approved by the owners and consultant of the project The first paragraph of T 007 stated see MAE Engineering at 4 During our recent evaluation exercise re the above Project M s Fire Stop Marketing Services Pte Ltd represented by Mr S H Tan the final lump sum offer price to MAE Engineering Pte Ltd MAE is S 400 000 Singapore Dollars Four Hundred Thousand Only 5 000m x 80 m In consideration of S 1 the receipt of which you acknowledged this offer price to MAE remains valid and irrevocable throughout MAE s negotiations in seeking the approval and final decision from the customer and consultant If final approval is given you have agreed to enter into a contract with MAE The arrangement was subsequently formalised in a subcontract dated 17 April 2000 the subcontract The preamble of the subcontract stated id at 18 Further to your confirmation of the agreed Lump Sum price of S 400 000 00 we hereby confirm the award for the provision of Supply Delivery Installation Warranty Endorsement of 2 Hours Fire Rated Board Cladding to 5000M 2 of ACMV Ductwork emphasis in original Clause 1 1 of the subcontract reiterated This Sub Contract Agreement is for the provision of Supply Delivery Installation Warranty Endorsement of 2 Hours Fire Rated Board Cladding to 5000M of ACMV Ductwork emphasis added in bold italics 87 It was common ground that the total area of ACMV duct actually cladded exceeded 5 000m 2 and MAE did not attempt to hold Fire Stop to the ostensible lump sum price of 400 000 The issue was whether on a true and proper construction of the subcontract payment to Fire Stop should have been based on the area of cladded or uncladded ACMV duct MAE would have to pay more in the former case The trial judge ruled in Fire Stop s favour and held that payment should be based on the external surface area of cladded ACMV duct 88 The Court of Appeal allowed MAE s appeal for several reasons First the court noted that on a plain and ordinary reading of the subcontract the figure of 5 000m must have referred to the area of uncladded duct since the cladding was to be installed to 5 000m of ACMV duct see 86 above Counsel for MAE took issue with Fire Stop s contention that the term was ambiguous and could also refer to the area of cladded duct It was submitted that if Fire Stop s argument were accepted it would mean that MAE would in effect be asking Fire Stop to install cladding to an area of ductwork that was already cladded 89 In response to Fire Stop s contention that even if the figure of 5 000m were held to refer to the area of uncladded duct it did not necessarily indicate that payment should also be based on the area of uncladded duct the Court of Appeal reasoned as follows 23 If one were to read the subcontract in isolation from the surrounding circumstances this may be an arguable proposition However it is trite law that when construing a contract the court must also look at the factual matrix in which the agreement was made as the surrounding circumstances including the genesis and aim of the transaction are relevant Prenn v Simmonds 54 supra at 1385 As Lord Wilberforce explained in Reardon Smith Line 55 supra at 995 996 approved by the Court of Appeal in Mt Elizabeth Hospital Ltd v Allan Ng Clinic for Women 1994 3 SLR 639 at 652 35 No contracts are made in a vacuum there is always a setting in which they have to be placed The nature of what is legitimate to have regard to is usually described as the surrounding circumstances but this phrase is imprecise it can be illustrated but hardly defined In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction the background the context the market in which the parties are operating and at 997 W hat the court must do must be to place itself in thought in the same factual matrix as that in which the parties were 24 Although evidence of prior negotiations is inadmissible as it does not represent any consensus between the parties evidence of an antecedent agreement is an objective fact that the court should take into account as part of the factual matrix in which the parties made their contract Kim Lewison The Interpretation of Contracts 3rd Ed 2004 at para 3 05 In the present case the parties did sign a pre award document which incorporated forms T 007 and T 008 The document clearly provided that Fire Stop would be paid S 400 000 Singapore Dollars Four Hundred Thousand Only 5 000m x 80 m for the cladding work The underlined formula demonstrates that the area of 5 000m did more than simply specify the amount of work Fire Stop was required to perform it was obviously a vital component of the basis of payment as well The fact that the figure S 400 000 corresponded exactly to the revised rate based on the area of the uncladded duct could hardly be a coincidence underlining and emphasis in original On the particular facts of MAE Engineering 86 supra the reception of extrinsic evidence via the common law contextual approach did not contravene s 94 of the Evidence Act because the evidence in fact bolstered the natural and ordinary meaning of the subcontract Perhaps for this reason the Court of Appeal did not discuss proviso f to s 94 Furthermore the court referred to Citicorp Investment Bank Singapore 82 supra only for the proposition that every contract should be construed as a whole and no words should be ignored see MAE Engineering at 20 Thus although the decision in MAE Engineering is significant for its endorsement of the common law contextual approach it is unclear how the obstacle in the form of a restrictively interpreted proviso f to s 94 as advocated in Citicorp Investment Bank Singapore was overcome 90 In contrast two High Court decisions which coincidentally were released on the same date viz 28 February 2005 Standard Chartered Bank v Neocorp International Ltd 2005 2 SLR 345 Standard Chartered Bank and China Insurance Co Singapore Pte Ltd v Liberty Insurance Pte Ltd 2005 2 SLR 509 China Insurance Co did address this issue 91 In Standard Chartered Bank the plaintiff bank had granted banking facilities comprising a term loan and overdraft facilities to the defendant s subsidiary the borrower The facility letter stated that the purpose of the overdraft facility was to meet the borrower s working capital requirements The defendant executed a guarantee for the sum of 1 5m for all monies obligations and liabilities emphasis in original omitted id at 7 which might become due any time thereafter A board resolution was also passed stipulating that the defendant was to provide the guarantee in the form and content required by the plaintiff Subsequently the borrower defaulted on the loan Pursuant to the guarantee the plaintiff demanded from the defendant payment of the principal sum of 1 5m and interest thereon 92 The defendant contended inter alia that the extent of its liability under the guarantee was limited to overdraft facilities employed by the borrower strictly for the purposes of the latter s working capital It sought to rely on the facility letter and the board resolution to prove this The plaintiff vigorously disputed this on the basis that the material terms of the guarantee viz all moneys obligations and liabilities were unambiguous and thus the defendant s liability was to be determined solely by reference to the guarantee In rejecting the plaintiff s submission the court stated 35 The plaintiff s contention was that the sum total of the defendant s liability was to be determined merely by reference to the terms of the guarantee That is not entirely correct It is settled law that where words of a written agreement have a clear and fixed meaning not susceptible of explanation extrinsic evidence is inadmissible to show that the parties meant something different from what they have written Citicorp Investment Bank Singapore 82 supra at 67 Broadly speaking if the purport of a guarantee is plain from the terms of the document extrinsic evidence will not be admissible to alter vary or contradict its terms see also s 96 of the Evidence Act However the immediate events surrounding the giving of a guarantee may be relevant and admissible in evidence to determine the existence and the application of the terms of the guarantee having regard to the provisions of ss 93 94 of the Evidence Act Citibank NA v Ooi Boon Leong 1981 1 MLJ 283 at 282 Such evidence could be relevant in determining the context in which the guarantee was given and to be interpreted it must not be applied for the purposes of contradicting unambiguous language but rather to see if there are circumstances addressing the alleged inchoate attachment of a purported contractual obligation 36 The matrix approach to contractual interpretation so succinctly summarised by Lord Hoffmann in Investors Compensation Scheme is in accordance with proviso f to s 94 It advocates a commercially sensible approach in divining the objective intentions of the parties to a document This approach has the requisite suppleness to permit a departure from the literal terms of a document where necessary to allow the court to objectively find a rational meaning contingent upon the proper commercial context It cannot be gainsaid that when parties draft contracts they do not usually expect the court to indulge in excessive formalism In the ultimate analysis the task of the court is to arrive at the reasonable meaning of the documents without artificial rules that fetter its sole objective of ascertaining the true intention of the parties Substance takes precedence over form This approach also recognises the chameleon like character of words phrases and sentences They take their true meaning from their contextual usage and not invariably from the dictionary This commonsense approach is not however to be interpreted as an unbridled license to import subjective expressions of intent or to cast away established rules of interpretation which eschew reliance on prior negotiations and subjective expressions of intent emphasis added 93 Thus the court recognised that under the contextual approach to contractual interpretation extrinsic evidence could be admitted even if the terms of the contract were unambiguous so long as it was not applied for the purpose of contradicting the written terms in contravention of the parol evidence rule Significantly the court articulated the view that the common law contextual approach was in accordance with see Standard Chartered Bank at 36 proviso f to s 94 thus implicitly adopting Seng s thesis at 84 above It should be noted however that the court ultimately held that on the facts the extrinsic evidence which the defendant sought to rely on to limit the scope of the guarantee was inadmissible and thus the plaintiff s claim did fall within the ambit of the guarantee see Standard Chartered Bank at 41 44 and 48 94 In China Insurance Co 90 supra BT Engineering Pte Ltd BT had obtained a workmen s compensation industrial risks policy from the defendant insurance company for the period 1 April 2002 21 March 2003 This policy was later extended to include Keppel Shipyard as well BT also obtained a workmen s compensation policy from the plaintiff insurance company for the period 19 April 2002 19 July 2002 This particular policy was intended to cover work to be done on board two vessels situated at Keppel Shipyard It likewise embraced both BT and Keppel Shipyard as the insured parties collectively referred to as the Insured Parties Subsequently one of BT s employees the Employee was involved in an accident whilst working on board one of the two vessels covered under the policy with the plaintiff The Employee in turn commenced proceedings against the Insured Parties for damages arising from his personal injury 95 The plaintiff did not dispute that it was liable under its policy to indemnify the Insured Parties in the personal injury claim should the Employee succeed in his action Not content with awaiting the outcome of the personal injury claim the plaintiff initiated proceedings to obtain a declaration that the defendant was legally liable to indemnify the plaintiff to the extent of 50 of any amount which the plaintiff was liable to pay the Insured Parties as a result of the latter s potential liability to the Employee in the personal injury claim The plaintiff based its claim for such contribution on the doctrine of double insurance Andrew Phang Boon Leong JC thus had to determine if the subject matter and the risk covered by the plaintiff s and the defendant s respective policies were the same in which case there would be a situation of double insurance resulting in the defendant s obligation to contribute The defendant denied that the insurance cover under the two policies was similar on the basis of inter alia three affidavits which showed that the defendant had communicated to BT that the defendant s policy excluded risk relating to work on vessels and that BT had duly sought additional cover for the specific project by way of another insurance policy 96 Phang JC was able to decide on a plain and reasonable construction of the documents themselves that the risks covered in the two policies were different see China Insurance Co 90 supra at 30 Thus his remarks on the sections of the Evidence Act pertaining to the parol evidence rule and the common law contextual approach to contractual interpretation were obiter Be that as it may they do shed further light on the position in Singapore vis à vis the use of extrinsic evidence to interpret a written contract 97 Phang JC appeared to accept the continued force of the parol evidence rule as set out in s 94 of the Evidence Act although he held id at 31 that on the facts the rule did not apply as the plaintiff and the defendant were essentially strangers to each other s contracts or policies the judge pointed out that s 94 applied only as between the parties ibid to the contract On the facts Phang JC applied s 93 of the Evidence Act instead However he was of the view that see China Insurance Co at 45 46 T here is no reason in principle why one or more common law exceptions to the rule against extrinsic evidence should be excluded if they do in fact otherwise apply to the present facts and are not inconsistent with ss 93 and 94 of the Evidence Act I have in mind in particular the well established common law principle to the effect that extrinsic evidence is admissible to aid the court in establishing the factual matrix which in turn would help the court in construing the contract s concerned emphasis in original The judge then referred approvingly to inter alia the cases of Reardon Smith Line 55 supra Investors Compensation Scheme 56 supra and MAE Engineering 86 supra He continued at 51 of China Insurance Co Returning to the present case it is clear that the extrinsic evidence in the present case does in fact aid in establishing what the factual matrix is It might be argued by counsel for the plaintiff that the principle presently considered is only applicable in situations where the relevant contract s are ambiguous I do not think that this is necessarily the case for any aid to construction which does not add to vary or contradict the relevant documents ought to be permitted emphasis added Thus China Insurance Co added to the growing body of local case law adopting the contextual approach to contractual interpretation while affirming at the same time the continued existence of the parol evidence rule as statutorily embodied in the Evidence Act 98 Phang JC further suggested that proviso f to s 94 might arguably at least be a possible analogue of the common law contextual approach id at 53 However noting that as a result of Citicorp Investment Bank Singapore 82 supra and Tan Hock Keng 85 supra i t was clear that proviso f to s 94 would only come into play when there was some latent ambiguity in the contractual document itself see China Insurance Co at 53 he opined that there were possible problems in correlating the provision with the existing common law principles ibid The judge then referred to Seng s article 84 supra at inter alia 473 in which the writer had concluded that the restrictive view taken by the Court of Appeal in Citicorp Investment Bank Singapore to proviso f to s 94 was not easily reconcilable with cases in which the Singapore courts had accepted the common law contextual approach citing as examples of the latter Diversey Far East Pte Ltd v Chai Chung Ching Chester 1993 1 SLR 535 and Mt Elizabeth Hospital Ltd v Allan Ng Clinic for Women 1994 3 SLR 639 It is apparent therefore that the judge while favouring the more liberal approach to proviso f to s 94 felt constrained by the views of the Court of Appeal on this subject The judge concluded with an impassioned appeal for reform see China Insurance Co at 66 T he various issues and difficulties raised with respect to the parol evidence rule in general and the interpretation as well as application of ss 93 and 94 of the Evidence Act in particular have in turn raised the more general question as to whether or not the time is now appropriate for a re examination of these provisions with a view to possible reform I have indicated a sample of the specific difficulties as well as the possible need for legislative reform I can do no more than this As I have already mentioned reform of these provisions is outside the purview of the courts However it is legitimate in my view to raise these various issues

    Original URL path: http://www.singaporelaw.sg/sglaw/laws-of-singapore/case-law/free-law/court-of-appeal-judgments/13494-zurich-insurance-singapore-pte-ltd-v-b-gold-interior-design-amp-construction-pte-ltd-2008-3-slr-1029-2008-sgca-27 (2016-01-30)
    Open archived version from archive

  • China Insurance Co (Singapore) Pte Ltd v Liberty Insurance Pte Ltd (formerly known as Liberty Citystate Insurance Pte Ltd)[2005] 2 SLR 509; [2005] SGHC 40
    entailed within the specific project in which the employee was injured 31 Although a plain construction of the documentary evidence alone adequately supports the defendant s case the affidavit evidence referred to at 20 27 and 28 above conclusively determined in my view the case in the defendant s favour as it was relevant admissible and persuasive Further even assuming that a comparison of the policies alone was insufficient to determine the case in the defendant s favour the admission of the affidavit evidence would have clearly done so This is why as already noted counsel for the plaintiff was at pains to argue that such evidence ought to be excluded as extrinsic evidence under the parol evidence rule in general and s 94 of the Evidence Act in particular Section 94 of the Evidence Act however did not apply to the fact situation here The phrase as between the parties in s 94 clearly precluded its application to the present fact situation That this is so is acknowledged in all the leading textbooks see for example Sarkar s Law of Evidence Wadhwa and Company 15th Ed 1999 vol 1 at pp 1273 1309 1312 as well as 1319 and Sir John Woodroffe Syed Amir Ali s Law of Evidence LexisNexis Butterworths 17th Ed 2002 vol 3 at pp 3230 3247 3248 3333 3334 3339 3340 and 3381 3382 Indeed a literal albeit reasonable reading of s 94 itself will demonstrate amply that the provision does not apply to fact situations such as the present where both parties are essentially strangers to each other s contracts policies 32 However it did not follow that counsel for the defendant could then admit the abovementioned affidavits without further let or hindrance Indeed in my view although s 94 of the Evidence Act was inapplicable to the instant facts s 93 was relevant The material part of s 93 itself reads as follows When the terms of a contract or of a grant or of any other disposition of property have been reduced by or by consent of the parties to the form of a document and in all cases in which any matter is required by law to be reduced to the form of a document no evidence shall be given in proof of the terms of such contract grant or other disposition of property or of such matter except the document itself or secondary evidence of its contents in cases in which secondary evidence is admissible under the provisions of this Act 33 Unlike s 94 s 93 is of more general application or coverage Indeed before s 94 can be invoked the fact situation must necessarily fall within the more general ambit of s 93 in the first instance 34 As the leading textbooks point out s 93 deals with the exclusiveness of documentary evidence whilst s 94 deals with the conclusiveness of documentary evidence see for example Sarkar s Law of Evidence 31 supra at pp 1267 and 1309 In the Malaysian High Court decision of Datuk Tan Leng Teck v Sarjana Sdn Bhd 1997 4 MLJ 329 Augustine Paul JC as he then was elaborated at 344 thus Section 93 means what it says It applies to any matter which is required by law to be reduced to the form of a document Consequently there can be absolutely no dispute that it applies to both bilateral and unilateral and dispositive and non dispositive documents On the other hand section 94 having described the documents to which it applies including the documents encapsulated by the phrase in question viz when the terms have been proved according to section 93 goes on to say in its operative part that no evidence of any oral agreement or statement shall be admitted as between the parties to any such instrument or their representatives in interest Emphasis added Thus the phrase as it appears in s 94 is explicitly qualified by the words emphasized The words as between the parties to any such instrument or their representatives in interest clearly and crisply connote in crystalline terms that the documents contemplated by s 94 are bilateral and dispositive in nature 35 This view is in fact not only consistent with the language of ss 93 and 94 but is also embodied within the leading textbooks which the learned judge indeed also refers to in some detail and see in so far as the latest editions are concerned Sarkar s Law of Evidence 31 supra at pp 1309 1315 and Sir John Woodroffe Syed Amir Ali s Law of Evidence 31 supra at pp 3333 3334 and 3338 3340 36 The insurance policies in the present case are clearly non dispositive documents and do not as I have already held come within the purview of s 94 of the Evidence Act However having regard to the principles briefly set out above they do come within the ambit of s 93 of the same Act which as we have already seen is much broader in scope 37 If however s 93 applies in the present fact situation does it then preclude the admission of the evidence from the above mentioned affidavits As I have already held above a construction of the documentary evidence alone would lead me to rule in favour of the defendant although admission of the affidavit evidence would seal the case as it were for the defendant The issue which arises here is one that raises simultaneously a much broader issue what is the precise relationship between ss 93 and 94 of the Evidence Act on the one hand and the common law on the other This issue put in relation to the more specific perspective of the facts in the instant case raises the question Are there one or more common law exceptions which apply in order to permit admission of the affidavit evidence in spite of the presence of s 93 of the Evidence Act 38 It is necessary to deal with the general issue first If on construction and principle ss 93 and 94 of the Evidence Act are exhaustive inasmuch as they preclude any introduction of the common law whatsoever that is an end to the matter in so far as the facts of the present case are concerned This would indeed be a fortiori the situation here simply because s 93 itself does not unlike s 94 which is inapplicable on the present facts contain the more significant exceptions as such 39 That many exceptions to the parol evidence rule exist at common law is undoubtedly the case As we have already seen it is equally clear that the parol evidence rule in the Singapore context is embodied in the main at least within ss 93 and 94 of the Evidence Act and compare Tan Hock Keng v L M Group Investments Ltd 2001 4 SLR 428 especially at 11 per Rajendran J reversed in part in 2002 2 SLR 213 but not on this particular point This being the case one has to bear in mind that the general starting point is that established principles pertaining to codes of which the Evidence Act is an illustration generally prohibit the introduction of common law rules see the oft cited decisions of The Governor and Company of The Bank of England v Vagliano Brothers 1891 AC 107 and Jayasena v R 1970 AC 618 However it appears to be the case that where the code concerned is itself silent with regard to the specific issue s or point s in question the common law rules do continue to be relevant and even applicable see PP v Yuvaraj 1969 2 MLJ 89 and Shaaban v Chong Fook Kam 1969 2 MLJ 219 40 More importantly in the specific context of the Evidence Act itself s 2 2 should be noted which reads as follows All rules of evidence not contained in any written law so far as such rules are inconsistent with any of the provisions of this Act are repealed 41 It would appear therefore that the common law exceptions to the parol evidence rule in so far as they are consistent with the provisions of the Evidence Act continue to be applicable This leads however to a second and related difficulty 42 The exceptions particularly the provisos to s 94 of the Evidence Act are on closer analysis in fact inconsistent with a few of the common law exceptions 43 To take but one example the common law exception relating to collateral contracts allows terms in the collateral contract which are inconsistent with those contained in the main agreement to override terms contained in the main agreement itself While there are divergences within the English case law itself the fact remains that cases which embody this principle do exist and are widely cited and applied see for example the oft cited English High Court decision of City and Westminster Properties 1934 Ltd v Mudd 1959 Ch 129 though compare the Australian position see J W Carter and D J Harland Contract Law in Australia LexisNexis Butterworths 4th Ed 2002 at para 613 where reference is made inter alia to the leading Australian High Court decision of Hoyt s Proprietary Limited v Spencer 1919 27 CLR 133 44 However s 94 b is clearly at variance with the common law rule stated in the preceding paragraph and would therefore appear to prevail over it though compare that with s 94 d Nevertheless this proposition does not appear to be clearly established within the local case law compare for example the Malaysian decisions of Tan Swee Hoe Co Ltd v Ali Hussain Bros 1980 2 MLJ 16 especially at 19 and Tindok Besar Estate Sdn Bhd v Tinjar Co 1979 2 MLJ 229 especially at 233 Yet another possible approach was adopted in the also Malaysian decision of Tan Chong Sons Motor Company Sdn Berhad v Alan McKnight 1983 1 MLJ 220 especially at 229 It would appear that the situation is still not settled although in this regard the Singapore Court of Appeal decision of Latham v Credit Suisse First Boston 2000 2 SLR 693 at 21 acknowledged the basic controversy and whilst not expressly stating that the position adopted in Tan Swee Hoe Co Ltd v Ali Hussain Bros which endorsed the more liberal common law position was wrong tended in the final analysis to endorse the literal language in s 94 b to the contrary see also the Singapore Court of Appeal decision of Ng Lay Choo Marion v Lok Lai Oi 1995 3 SLR 221 especially at 226 and per Belinda Ang Saw Ean JC as she then was in the Singapore High Court decision of Lemon Grass Pte Ltd v Peranakan Place Complex Pte Ltd 2002 4 SLR 439 especially at 126 to 131 However as we shall see in a moment this particular issue arising from inconsistency between the common law position and s 93 and or s 94 of the Evidence Act does not arise on the facts of the present case I therefore refrain from expressing any concluded opinion This is in my view all the more advisable as the expression of a view is best effected and more easily understood where the explication is done in relation to an actual fact situation rather than in an abstract vacuum However as I shall point out below this may be but one symptom suggesting overall legislative reform Be it as it may what is clear is that any legislative reform will not only have to take into account the general relationship between ss 93 and 94 of the Evidence Act and the common law but also set out the precise details of any such reform where there is a difference between these two spheres in particular situations such as that just considered 45 Returning to the facts of the present case I am of the view that having regard to the reasoning set out in 39 to 41 above there is no reason in principle why one or more common law exceptions should be excluded if they do in fact otherwise apply to the present facts and are not inconsistent with ss 93 and 94 of the Evidence Act 46 I have in mind in particular the well established common law principle to the effect that extrinsic evidence is admissible to aid the court in establishing the factual matrix which in turn would help the court in construing the contract s concerned This is embodied inter alia in the following oft cited statement of Lord Wilberforce in the House of Lords decision of Reardon Smith Line Ltd v Yngvar Hansen Tangen 1976 1 WLR 989 at 997 I think that all of their Lordships are saying in different words the same thing what the court must do must be to place itself in thought in the same factual matrix as that in which the parties were All of these opinions seem to me implicitly to recognise that in the search for the relevant background there may be facts which form part of the circumstances in which the parties contract in which one or both may take no particular interest their minds being addressed to or concentrated on other facts so that if asked they would assert that they did not have these facts in the forefront of their mind but that will not prevent those facts from forming part of an objective setting in which the contract is to be construed 47 The following observations by Staughton LJ in the English Court of Appeal decision of Youell v Bland Welch Co Ltd 1992 2 Lloyd s Rep 127 at 133 are also apposite It is now in my view somewhat old fashioned to approach such a problem here as to whether or not it was permissible to refer to a slip as an aid to interpretation of the reinsurance contract armed with the parol evidence rule that evidence is not admissible to vary or contradict the words of a written contract The modern approach of the House of Lords is that on the positive side evidence should be admitted of the background to the contract the surrounding circumstances the matrix the genesis and aim Almost every day in these Courts there is a contest as to what comes within that description As Lord Wilberforce said in Reardon Smith Line Ltd v Hansen Tangen the expression surrounding circumstances is imprecise But so to some extent is matrix if I may say so although it is a picturesque metaphor It may well be that no greater precision is possible The notion is what the parties had in mind and the Court is entitled to know what was going on around them at the time when they were making the contract This applies to circumstances which were known to both parties and to what each might reasonably have expected the other to know 48 Finally reference ought to be made briefly to the views of Lord Hoffmann in the leading House of Lords decision of Investors Compensation Scheme Ltd v West Bromwich Building Society somewhat curiously perhaps reported in the first volume of the Weekly Law Reports at 1998 1 WLR 896 where the learned law lord observed inter alia at 912 913 as follows 1 Interpretation is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of the contract 2 The background was famously referred to by Lord Wilberforce as the matrix of fact but this phrase is if anything an understated description of what the background may include Subject to the requirement that it should have been reasonably available to the parties and to the exception to be mentioned next it includes absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man 3 The law excludes from the admissible background the previous negotiations of the parties and their declarations of subjective intent They are admissible only in an action for rectification The law makes this distinction for reasons of practical policy and in this respect only legal interpretation differs from the way we would interpret utterances in ordinary life The boundaries of this exception are in some respects unclear But this is not the occasion on which to explore them 49 Indeed both the last mentioned decisions were cited by Cresswell J in the relatively recent English High Court decision of BP Plc v GE Frankona Reinsurance Ltd 2003 1 Lloyd s Rep 537 at 548 549 The position is also well summarised in secondary literature by for example MacGillivray on Insurance Law Sweet Maxwell 10th Ed 2003 at para 11 27 where it is observed thus In gathering the intention of the parties from the words in the policy and incorporated documents the wording is not to be construed in isolation Evidence may be adduced of the background to the contract so that the court can appreciate its genesis and purpose and the facts of which the parties were both aware when making it 50 Reference may also be made generally in the local context to the Singapore Court of Appeal decisions of Pacific Century Regional Development Ltd v Canadian Imperial Investment Pte Ltd 2001 2 SLR 443 and MAE Engineering Ltd v Fire Stop Marketing Services Pte Ltd 2005 1 SLR 379 51 Returning to the present case it is clear that the affidavit evidence in the present case does in fact aid in establishing what the factual matrix is It might be argued by counsel for the plaintiff that the principle presently considered is only applicable in situations where the relevant contract s are ambiguous I do not think that this is necessarily the case for any aid to

    Original URL path: http://www.singaporelaw.sg/sglaw/laws-of-singapore/case-law/free-law/high-court-judgments/12572-china-insurance-co-singapore-pte-ltd-v-liberty-insurance-pte-ltd-formerly-known-as-liberty-citystate-insurance-pte-ltd-2005-2-slr-509-2005-sghc-40 (2016-01-30)
    Open archived version from archive



  •