1. ) DAQ WAREHOUSE SDN BHD 2. ) DAQ LOGISTICS SDN BHD 3. ) DEEP SEA FISHERY KINGDOM SDN BHD v 1. ) TANG LIN YAU SDN BHD 2. ) ECOLD REFRIGERATION SDN BHD 3. ) TAN YOW BOON PENCELAH BASIC FRONTIER SDN BHD

Case Significance

Illustrates the strict construction of an indemnity clause in a deed of assignment, striking out a developer's unsustainable third-party indemnity claim against a purchaser arising from a fire at the sold property.

This High Court decision at Shah Alam concerns a developer's third-party claim for indemnity and contribution, and whether it should be struck out, in litigation arising from a fire at an industrial property. Under a sale and purchase agreement, the first defendant, as developer and vendor, had sold a leasehold industrial lot with a warehouse to the third party, as purchaser, on an as-is-where-is basis, with the first plaintiff in occupation as a tenant under an existing tenancy agreement. A deed of assignment of tenancy then assigned to the third party all the first defendant's rights and benefits under the tenancy agreement. After the sale, a fire broke out at the property, and in the resulting action the first defendant sought to pass any liability on to the third party by way of an indemnity claim.

The first defendant's claim rested on the indemnity clause in the deed of assignment, Clause 4, under which the assignee (the third party) was to keep the assignor (the first defendant) indemnified against actions, claims, and costs brought against or incurred by the assignor by reason of the assignee's non-observance of the stipulations on the assignor's part contained in the tenancy agreement. The court construed that clause on its plain wording and held that it operates only where there is non-observance by the third party of the relevant tenancy stipulations that results in the first defendant's exposure to liability, and that it did not extend to fixing the third party with an indemnity for the fire in the circumstances pleaded.

Applying that construction, and considering the allocation of duty of care as between the developer, the purchaser, and the tenant, including whether the developer had relinquished its duty of care on execution of the sale and assignment, the court found the first defendant's third-party claim for indemnity and contribution to be obviously unsustainable. It struck the third-party claim out with costs of RM5,000. The judgment illustrates the careful construction of an indemnity clause in a deed of assignment, and the striking out of an unsustainable indemnity claim against a purchaser.