The Singapore High Court has examined the construction of general conditions in the case of Grace Electrical Engineering Pte Ltd v EQ Insurance Co Ltd [2016] SGHC 233 and, in particular, whether the conditions in question were capable of being construed as conditions precedent. 

The Plaintiff (“GE”) was the occupier of a factory unit used for the assembly and testing of electrical equipment and an insured under a public liability policy (the “Policy”) issued by the Defendant (“EQ Insurance”). 

In September 2012, a fire started at the unit spreading to an adjoining unit occupied by Te Deum Engineering Pte Ltd (“Te Deum”). 

After an investigation by the Singapore Civil Defence Force, GE was charged under the Fire Safety Act (“FSA”) with eight charges concerning the unauthorised use of the unit as accommodation for workers and for carrying out unauthorised fire safety works. GE pleaded guilty to five of the charges. 

Te Deum (successfully) sued GE for the damage to its unit and GE commenced proceedings against EQ Insurance for an indemnity under the Policy.

EQ Insurance raised defences relating to a number of general conditions in the Policy and, in particular, relied on General Conditions 4, 9, 12 and 13 (“GC4”, “GC9”, “GC12” and “GC13” respectively).

GC9 provided that GE:

“shall exercise reasonable care … that all statutory requirements and bye-laws and regulations imposed by any public authority are duly observed and complied with”.

The court decided that a determination would have to be made as to whether there had been a breach of a relevant regulatory provision and whether such non-compliance occurred due to the insured’s failure to “exercise reasonable care”. The court had no difficulty in construing GC9 as applying to breaches of the FSA as “fire safety was [GE’s] responsibility and any outbreak of fire would present a significant risk to the nearby third party property” and, in the circumstances, found that GE had failed to exercise reasonable care.

The question then was whether GC9 was a condition precedent by virtue of general declaration clause GC13 which stated:

“due observance and fulfilment of the terms provisions and conditions of this Policy insofar as they relate to anything to be done or not to be done by the Insured … shall be condition precedents to any liability of [EQ Insurance] to make any payment under this Policy”. 

The court stated that the effect of such a clause must be examined alongside each clause purported to be a condition precedent. The use of the term “condition precedent”, whilst relevant, is not decisive especially in circumstances where “the label is attached to a number of terms of different nature”. 

The factors a court will take into account include:

  • The workability of the contractual obligation as a condition precedent to liability;
  • The purpose of the condition or that of the policy itself; and
  • In the event of ambiguity, the contra proferentem rule 

The court found that there was no ambiguity and there was no reason not to interpret GC9 as a condition precedent as “the insured is required to comply with fire safety regulations so as not to increase the insured risk during the period of insurance”. EQ Insurance was therefore not liable to indemnify GE under the Policy.

GC4 required that GE obtain the consent of EQ Insurance before making “any admission … in connection with any accident or claim”. GE had pleaded guilty to five of the charges under the FSA. However, the court considered that a criminal charge was not a “claim” in the circumstances and the guilty pleas were not an “admission” within the meaning of GC4 as the charges related to strict liability offences. 

GC12 provided that if legal proceedings are not commenced within 12 months from the time when EQ Insurance “shall offer an amount in settlement or disclaim liability for any claim” then such claim shall be deemed abandoned. EQ Insurance argued it had disclaimed liability in a letter dated March 2013 whereas proceedings against it had not commenced until July 2014. The court held that, as the objective of the Policy was to indemnify GE against “legal liability”, no claim for an indemnity could arise under the Policy until the “establishment of liability and quantum of the underlying third party claim”. GE’s liability to Te Deum had not been established in March 2013 and GE was therefore not in breach of GC12.

This case is good news for insurers, confirming the Singapore courts’ willingness to give effect to general declaration clauses, albeit their effect on any individual condition will need to be considered on an individual basis.