OTIS ELEVATOR CO (HK) LTD v. WIDE PROJECT ENGINEERING & CONSTRUCTION CO LTD

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JUDGMENT

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1. By a Sub-Contract dated the 13th August 1981 and made with the defendant as Main Contractor, the plaintiff agreed as Sub-Contractor to supply and install 18 lifts in an industrial building to be erected on K.C.T.L. 336, Kwai Chung, New Territories. For ease of reference, I will call the plaintiff the Sub-Contractor and the defendant the Main Contractor.

2. On the 17th December 1981, various mechanical parts were delivered by the Sub-Contractor to the site in some 56 wooden boxes. Two days later, on the 19th December, a fire broke out and, according to the Loss Adjuster's Report at page 161 of the Agreed Bundle, destroyed four lift motors, four selectors and seven control boxes. In his said report, the Loss Adjuster accepted a claim of $284,607.49 subject to a deductible first $10,000 and a $1,500 salvage value. Despite the criticisms levelled against the report, I can find no justification for doubting its accuracy. Particulars of loss were also supplied to the Main Contractor and the architects. See pages 119-120 of the Agreed Bundle. All were linked to the invoices at pages 97 and 98 and the charges at page 128 of the same Bundle. I accept the fire loss report and the quantum of $284,607.49. The Sub-Contractor now claims $274,607.49, being a sum well within such accepted value of the subject materials damaged and destroyed by the said fire. The Sub-Contractor further claims interest and costs.

3. The Main Contractor denies liability, and the controversy which revolves round the Sub-Contract is a question of construction.

4. The Sub-Contractor had insured the subject materials against all risks, and the Main Contractor counterclaims for a declaration that the Sub-Contractor holds its all risks policy and/or the insurance money thereunder "FOR THE BENEFIT OF" the Main Contractor. In addition to costs, the Main Contractor further counterclaims for damages and interest, which are both not particularized.

5. The Sub-Contract is Exhibit "P1", and a copy of it is included in the Agreed Bundle. All the pagination references here are in respect to this Agreed Bundle.

6. The Sub-Contract was expressly made supplemental to the Main Contract between one Fook Luen Co., Ltd. as employer and the Main Contractor. The Sub-Contract was divided into the following (1) to (10) parts (See "Content" at p.5) :

7. The relevant provisions in the Sub-Contract are set out below: Clause 4 (p.7):

8. Clause 5 (p.p. 7 & 8):

9. The additions to the General Specification

10. Page 32:

                    "G2-C3 Insurance - refers; and

11. The architects' issued standard General Specifications

12. The standard General Specification G2-C3 was subject to the above modifications and additions:-

13. Pages 70 and 71:

                     "G2-C3     INSURANCE

14. The standard Genera  Specifications G2-C16 and M5-17 were both included without modifications or additions:-

15. Pages 78 and 79:

                    "G2-C16   RISK OF FIRE AND TEMPEST

16. Page 85:

"M5-17 INSURANCE

17. In the Sub-Contract, distinct references were constantly made to the expressions "main contractor" and "sub-contractor". There is no obscurity in those usages. Even in G2-C16 and M5-17, where only "Contractor" appeared, that expression could admit of no ambiguity in their respective context. Obviously "Contractor" meant the Plain Contractor in G2-C16 and the same expression meant the Sub-Contractor in M5-17.

18. I have completed the narrative. I should now endeavour to ascertain what the Sub-Contract provided. I ought to begin with Clause 5(c) at p.8 which required the Main Contractor to insure for the benefit of himself and the Sub-Contractor, at all material times, against "loss or damage by fire, lightning, typhoon, flood, earthquake, aircraft or aerial devices or articles dropped therefrom and riot". Then, under "(B) Scope of Work" at p.24, the second paragraph in effect expressly stipulated that the General Specifications were to override Clause 5 in case of conflict. I cannot accept that the impact of this stipulation was necessarily impaired by its inclusion in the "Scope of work". It would seem that this second paragraph in (B) at p.24 had a general application. M5-17 is a General Specification for the Sub-Contractor to insure against "loss or damage by fire, lightning, typhoon, flood, earthquake, theft, soil, war risk, nationalization and during transportation on board or on land" up to two weeks after delivery to site. M5-17 embraced "theft, soil, war risk, nationalization" and "transportation" but was silent on "aircraft or aerial devices or articles dropped therefrom and riot". Concentrating on fire risk, what must not be lost sight of is that the respective obligations on the part of the Main Contractor and the Sub-Contractor to insure were not mutually exclusive. Clause 5(c) cast the responsibility to insure at all material times against loss or damage by fire on the Main Contractor, and M5-17 on the Sub-Contractor but only for two weeks. These provisions were not inconsistent and could both be implemented without contradiction. Moreover, Clause 5(c) enjoined the Main Contractor to insure against fire risk for the benefit of HIMSELF and the Sub-Contract. Whether the Sub-Contractor was also required to insure against fire risk for a period would not interfere with or derogate from the Main Contractor's obligation to insure, at least, for himself, particularly when risk and property had passed to the Main Contractor upon delivery to site under Clause 5(a). It would be fallacious to assert that only one party could insure against fire risk or that the Main Contractor or Sub-Contractor had no spearate insurable interests. Thus, standard General Specification M5-17 at p.85 could not be and was not in conflict with the Main Contractor's duty to insure imposed by Clause 5(c) at p.8 and another standard General Specification. G2-C16 (a) at p.78.

19. Even if there existed some inexorable contradictions, the Sub-Contract offered no guidance as to which of two wholly inconsistent General Specifications was to prevail. G2-C16 appeared earlier in the sequence, but that by itself would create no priority, vice versa. They both formed part of the architects' issued standard General Specifications in alphabetical order of "G" and "M".

20. Much was sought to be made by the Main Contractor from an even earlier General Specification in the modified G2-C3 which, by its paragraph (c) at p.32, called upon the Sub-Contractor to "include in his tender the insurance against theft, damages, third party risks, etc. commencing from the signing of the contract up to two weeks after the goods and articles delivery to site".

21. There was no evidence that goods had been ordered, ascertained, appropriated, put in a deliverable state, dispatched or shipped at the time of the tender. The invoices at p.p. 97 and 98 bear a date in November 1981. To the Sub-Contractor it was unpredictable as to whether its tender would be favourably received and, if it was accepted, when the Sub-Contract would be signed. Any demand for including an insurance policy with the Sub-Contractor's tender would have run Counter to business efficacy. The parties to the Sub-Contract could only have intended to include in the tender the estimated premium for the two weeks' requisite insurance.

22. A subsidiary question propounded was: What insurance risks were envisaged by paragraph (c) of this modified G2-C3 at p.32. "Theft" is reasonably clear; so is "third party risks". What is "damages"? It is not "loss or damage" in respect of the Sub-Contractor's plant, tools, equipment or other property as in G2-C15 or "loss or damage" by fire, tempest or other fortuitous occurrences as in G2-C16 both at p.78. At p.76, G2-C6 referred to protection of work from damage, G2-C7 to damage to adjoining property and G2-C8 to damage to any work, unfixed materials or plant of others. Under Clause 19 of the Sub-Contract at p.13, the Sub-Contractor was to be held responsible for, inter alia, damage caused by its plant, tools, equipment or other property. It would seem that it was the premium of insurance against this category of damages, which needed to be included in the Sub-Contractor's tender. In other words, the Sub-Contractor would not be expected to insure against fire or any other risks than damages of this class. Whatever meaning is to be ascribed to "damages", in my view, by no stretch of imagination can the word "damages" in paragraph (c) of the modified G2-C3 at-p.32 or the second paragraph in G2-C3 at p.70 be interpreted as fire damage or damage to or loss of property caused by fire.

23. Therefore, paragraph (c) of the modified G2-C3 or the second paragraph of its standard version did not inferentially impose a two weeks' obligation to insure against fire damage on the Sub-Contractor. Even if it had, the obligation each envisaged could not have had the effect of displacing the Main Contractor's duty to insure under Clause 5(c).

24. The last sentence in paragraph (c) of the modified G2-C3 at p.32 seemed to be attempting at a somewhat different arrangement from that in the third paragraph of the standard General Specification G2-C3 at p.70. This third paragraph at p.70 referred to coverage by "the insurance policy of Building Contract". The excess was to be borne by "each self of the Main Contractor, Sub-Contractor or Specialist Contractor". In this incomplete and unintelligible modified version in paragraph (c) at p.32, the last sentence sought, to throw the whole excess of some different policy "provided by the Main Contractor" onto the Sub-Contractor. No capital was sought to be made of this sentence or unfinished sentence, and I can derive no assistance from it.

25. To sum up: Paragraph (a) of the modified G2-C3 at p.32 placed on the Main Contractor the burden of effecting and maintaining "the contractor's all risks insurance and third party liability insurance". Needless to say that it did not contradict or depart from Clause 5(c).

26. G2-C16(a) at p.78 reiterated the Main Contractor's obligation to insure against fire risk. That could present no challenge to Clause 5(c).

27. Under M5-17 at p.85, the Sub-Contractor was contractually obliged to insure its equipment against fire and other risks for two weeks after delivery to site. How would this M5-17 conflict with Clause 5(c) even assuming the word "equipment" in M5-17 to be synonymous with the terms "the Sub-Contract Works" in Clause 5(c) and "the whole work" in G2-C16(a)? The Main Contractor and the Sub-Contractor had separate insurable interests. Their rights to effect an insurance were not mutually exclusive. Moreover, it was incumbent on the former to insure against fire risk at all material times for the benefit of both including its own, and the latter was required by M5-17 to maintain an insurance policy against fire and other risks for two weeks and then to liaise with the employer's architect.

28. In its vigorous attempt to deny liability, the Main Contractor introduced M5-17 as an overriding General Specification clause allegedly contradictory in terms to Clause 5(c). I can detect no such incompatibility.

29. At the hearing, construction of these various provisions had been attempted with not inconsiderable confusion. Was such an undertaking necessary? On behalf of the Sub-Contractor, Mr. Lewis submitted that it was a futile exercise by reason of the terms in Clause 5. 1 agree.

30. Clause 5 is against a marginal reference of "Damage by Fire" Clause 5(a) transferred "the sole risk" and hence property of the subject materials destroyed by fire to the Main Contractor as regards fire and other risks. Pausing here for a moment, one would not expect "the sole risk" or the property of the subject materials to revert back to the Sub-Contractor upon any failure to insure on the part of any party. There can be little doubt, in my view, that Clause 5(a) was a free-standing provision independently of any obligation to insure.

31. I pass then on to Clause 5(b), whereby the Main Contractor was bound, without any reservation, to pay to the Sub-Contractor the full value of fire loss to be calculated in accordance with another provision of the Sub-Contract. If, in fact, the parties to the Sub-Contract had intended to subject the Sub-Contractor's right to be paid under Clause 5(b) to any condition precedent, they could have simply said so in plain language. The doctrine of contra proferentem need not be invoked. Even if the operation of Clause 5(b) had been made dependent on a binding obligation on the part of the Main Contractor to insure against fire risk, I have held the Main Contractor to its duty so to insure as a matter of construction.

32. The Sub-Contractor had throughout maintained an all risks insurance policy. I was told by counsel for the Main Contractor that the Main Contractor had likewise insured against fire risk for the subject materials. But these insurance policies would be of no assistance to the court. It was contended by Mr. Wong on behalf of the Main Contractor that the Main Contractor's liability to pay under Clause 5(b) hinged upon the Main Contractor's legal obligation to insure at the material time rather than on what had in fact transpired. Therefore, the Main Contractor's insurance policy is of no relevance.

33. It is trite law that a stranger not enjoying privity of contract with the Sub-Contractor's insurers, cannot claim under the Sub-Contractor's insurance policy. See paragraphs 8-08 and 3-28 of the Law of Insurance, 5th edition. I have rejected a belated attempt of the Main Contractor to introduce an allegation that the Sub-Contractor was obliged to take out an insurance policy for and on behalf of the Main Contractor. Therefore, neither of the insurance policies of the Sub-Contractor can be relevant in the instant case. As a matter of fact, M5-17 did not require the Sub-Contractor to insure against fire and other risks on behalf of or for the benefit of the Main Contractor. There was no evidence that any one of the Sub-Contractor's policies was entered into for the Main Contractor's benefit or on its behalf. The Sub-Contractor was not contractually bound to the Main Contractor to file any claim under its own policy to which the Main Contractor was a total stranger. It was not even suggested that the Sub-Contractor had received any insurance money. The declaration prayed for in the Counterclaim is wholly unsupported and cannot be acceded to.

34. The claim for damages is not founded on any or any proper pleading; nor was it substantiated by evidence. I know not what the Main Contractor's claim is in damages. Special damages have also not been specifically set out in the Counterclaim. No action for damages can be expected to succeed in these circumstances. I need say no more. The interest claim also falls consequently to the ground.

35. Since the plaintiff's claim as Sub-Contractor is less than the quantum of loss that I have accepted on the balance of probabilities, I give judgment to the plaintiff as claimed with interest thereon from the date of writ to the date of judgment at the rate of, subject to what counsel have to say, 12% per annum. I would also grant costs to the plaintiff against the defendant.