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2013 MarsdenLR 1478
COURT OF APPEAL PUTRAJAYA
AXA AFFIN ASSURANCE BERHAD – Appellant
Versus
MTD CONSTRUCTION SDN BHD – Respondent
[Civil Appeal No: W-02-1600-2011]
Insurer's liability under Contractors' All Risks Policy can be limited by proving faulty design or late notification as conditions precedent; compliance with project specifications mitigates liability.
Headnote:(A) Contractors' All Risks Policy - Issues of insurable risks and coverage - Respondent's claims for slope failures disputed by appellant, relying on policy exclusions for faulty design and late notification. Court ruled that burden of proof lay with appellant to establish that failures were due to faulty design. Court held compliance with 'need statement' precluded liability based on faulty design. Time limits for claim notifications were confirmed as conditions precedent. (Paras 22-33)
(B) Faulty design - Definition - Court established that faulty design is not synonymous with negligence, but whether the design meets intended purposes. (Paras 22-24)
(C) Condition precedent and notification - The requirement to notify claims within 14 days was treated as a condition precedent to liability; failure to comply resulted in dismissal of claims for prior incidents. (Paras 30-32)
| Table of Content |
|---|
| 1. scope and requirements of the contract (Para 1 , 2 , 3) |
| 2. details of insurance policy and claims process (Para 4 , 5 , 6 , 7) |
| 3. formulated issues for court determination (Para 8 , 9) |
| 4. appellant's case on liability and faulty design (Para 10 , 11 , 12 , 13 , 14 , 15 , 16 , 17 , 18) |
| 5. respondent's defense and interpretation of contract terms (Para 19 , 20) |
| 6. court's findings on burden of proof and compliance (Para 22 , 23) |
| 7. legal reasoning regarding faulty design and causation (Para 24 , 25 , 26 , 27 , 28) |
| 8. interpretation of notification obligations under insurance policy (Para 29 , 30 , 31) |
| 9. limitation of liability established by policy terms (Para 32 , 33) |
| 10. final orders and conclusion of the court (Para 34) |
Background Facts
[1] By a letter of award dated 9 April 1997, the Government of Malaysia employed the respondent as the main contractor for the project known as "Membina dan Menyiapkan Jalan Simpang Pulai - Lojing - Gua Musang - Kuala Berang, Pakej 2 (Dari Pos Slim, Perak Darul Ridzuan ke Ladang Blue Valley, Kg Raja Cameron Highlands, Pahang Darul Makmur)" ('the project').
[2] The respondent's scope of works under the project was inter alia to carry out detailed engineering design, construct, complete and maintain the road transportation system between Simpang Pulai in the State of Perak and Ladang Blue Valley, Kampung Raja in the State of Pahang, all in accordance with a 'need statement' agreed between the respondent and the Government of Malaysia.
[3] The 'need statement' inter alia required the respondent to:
"4.4 Independent check of bridge and slope stabilisation
Designs all bridge and slope stabilisation designs shall be independently checked by experts, to be appointed by the contract, the prior appointment of which is subjected to the approval of the Project Director"
"5.7 Design standards, specification and guidelines unless otherwise stated in this need statement or subsequently approved by the Project Director, all designs shall be in accordance with the latest edition of the JKR Design Standard, Specification and Guidelines (appendix A4) and the relevant Malaysia of British Standards, current at the time of contract award"
[4] On 16 May 1996, the respondent procured a contractor's all risk policy ('CAR policy') from the appellant. By a special exclusion to s 1 of the policy, by way of Endorsement 115. Clause (d) was deleted and the replacement thereof reads as follows:
"(d). The costs of replacement, repair or rectification of loss or damages to items due to defective material and/or workmanship and/or fault designs, but this exclusion shall be limited to the items immediately affected and shall not be deemed to exclude loss or damage to correctly excluded items resulting from an accident due to such defect materials and/or workmanship and/or fault design"
[5] Between June 1998 and March 2001, major slope failures occurred at the project site. Further major slope failures occurred at the project site in January and March 2001. Brief particulars of the location in the project site of these failures and the date of the failures are as follows:
[6] On or about 22 January 2001, the respondent informed the appellant of the slope failures. The respondent then made claims under the CAR policy. The respondent's claim was met with the request that it furnish further reports and other information pertaining to its claim. On 3 June 2002, the respondent submitted its interim claim no 2 for the cost of repairs done on the slope failures or landslips amounting to RM26,507,510.90 to the appellant's loss adjusters. The respondent had indicated that the cost of repair works at CH 22+600 to CH 22+90 and CH 23+800m could not be finalised at the date of submission because of ongoing repairs. In March 2003, the respondent submitted a consolidated claim which amongst others consolidated claim numbers 1 and 2 totaling RM38,586,234.06 for the cost of remedial works undertaken by the respondent as o
