Carriers Liability Insurers – to Pay or Not to Pay – Malaysia

It is therefore important for parties entering into contracts and agreements to seriously consider the implied and express conditions/term of the contract or the agreement.

There are many ways whereby an individual or an organization may be legally liable for an agreement or a binding contract. One will be legally liable if there is a breach of the terms or clauses of a binding contract or agreements. However it doesn’t stop here, an individual or an organization will also be “legally liable” if determined by a final judgment of a court.

The recently decided case of Tiong Nam Trading & Transport (M) Sdn Bhd v Commercial Union Assurance (M) Sdn Bhd (2008) considered the issue of whether Commercial Union Assurance, the insurer, was legally liable to make payment to Tiong Nam Trading, the insured, under the Marine Goods- In Transit/Carrier Liability Policy.

Tiong Nam Trading entered into an oral agreement with Leader Cable Industry Berhad to transport telecommunications cables. On or about 10/2/1993, Tiong Nam Trading’s motor-lorry while transporting the cables overturned, resulting in the damage to the telecommunication cables belonging to Leader Cable Industry. Leader Cable Industry then sued Tiong Nam Trading, who on the other hand brought the driver of the motor lorry as the 1st third party and Commercial Union Assurance, insurers of Tiong Nam Trading, as second third party.

A consent judgment was entered between Leader Cable Industry and Tiong Nam Trading, however Tiong Nam Trading’s suit against Commercial Union Assurance was dismissed by the trial judge on the grounds that the consent judgment was entered without the consent of Commercial Union Assurance.

There were no express conditions attached in the carrier liability policy between Tiong Nam Trading and Commercial Union Assurance requiring Tiong Nam Trading to obtain prior consent before it can enter into a consent judgment with any party. It is therefore important for parties entering into contracts and agreements to seriously consider the implied and express conditions/term of the contract or the agreement.

Commercial Union Assurance relied on the decision of Post Office v Norwich Union Fire Insurance Society (1967) 2 (please insert full citation), whereby the court in Post Office’s case held that there was an express condition that prior consent of the insurance company is required before other parties proceed to enter into a consent judgment failing which the insurance company will not be legally liable to make payment. The trial judge relied on this case, amongst others, in dismissing Tiong Nam Trading’s case against Commercial Union Assurance. In this case, there was no express condition in the carrier liability policy requiring the prior consent. So, the consent judgment entered between the parties ought not have prevented Tiong Nam Trading from suing Commercial Union Assurance under the carrier liability policy.

Even though a consent judgment was entered that should not, in this case, mean that Tiong Nam Trading (shouldn’t it be Commercial Union Assurance, as defendants, not legally liable to Tiong Nam?) is not legally liable, the trial judge found that Tiong Nam Trading (Commercial Union Assurance?) had not become “legally liable” because of the consent judgment. The judge’s conclusion is totally flawed and accordingly, the Court of Appeal reversed the decision of the trial judge. The words “legally liable” simply means “responsible in law” Once a consent judgment is entered the defendant is then legally liable to pay to the plaintiff and as such the defendants insurance company will automatically become legally liable to pay to the defendant.

In conclusion one may say that it is rather important to read the terms of a contract or agreement before proceeding to repudiate liability or contract.

By Rahayu Partnership, Malaysia
Law Firm Website: www.rahayupartnership.com