007-SLLR-SLLR-2005-V-2-CEYLINCO-INSURANCE-COMPANY-LTD-vs-RATNAYAKE.pdf
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Ceylinco Insurance Company Ltd vs Ratnayake (Wimalachandra J)
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CEYLINCO INSURANCE COMPANY LTDVSRATNAYAKEI
COURT OF APPEALAMARATUNGA, J.
WIMALACHANDRA J.
A 14/2004 {LG),
C. TANGALLA 9507/MJULY 14, 2004
Prescription Ordinance -Section 9 – Is it Contrary to the provisions of thePrescription Ordinance for parties to agree to limit the period of prescription toa shorter time ?
The Plaintiff – Respondent filed action on 30.08.2000, seeking to enforce a fireinsurance contract he had entered with the Defendant, Appellant on 19.10.1998.The Plaintiff Respondent’s business was destroyed.by fire. He contended thatthe Defendant Petitioner had on 16.02.1999 rejected his claim. The Defendantin its answer took up the position that the action is prescribed in Law. It was theDefendants position that in terms of clause 20 of the Insurance Policy theDefendants's liability ceases at the expiry of 12 months from the date of theloss and damage, unless, the claim is the subject of a pending case orarbitration and in terms of Clause 18, if the claim is rejected and if no action orarbitration is commenced within 3 months from the date of rejection.
The trial Judge over-ruled the application of the Defendant to try as a preliminaryissues, regarding the maintainability of the action, on the basis that Section 9of the Prescription Ordinance prevails over the terms of the insurance policy.The Defendant sought leave to appeal from the said Order and was grantedsame.
HELD-
The parties to a contract have the right to agree with regard to thelimitation period and the time period agreed upon by the parties willprevail over the Prescription Ordinance.
The Prescription Ordinance will not apply as the parties had agreedon a time period within which action has to be instituted.
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Sri Lanka Law Repons
(2005) 1 Sri L R.
The plaintiff has not filed this action wfthin 12 months from the date ofthe fire, more over, he has not filed this action within 3 months fromthe date of rejection of his claim. The action therefore is time barred.
Application for leave to appeal.
From an order of the District Court of Tangalle, with leave being granted.
I. S. de Silva for the Defendant Petitioner.
Plaintiff-Respondent absent and unrepresented.
cur.adv.vutt.
January 13, 2005WIMALACHANDRA, J.
Leave was granted of consent on 11.02.2004. This is an appeal to setaside the order made by the learned District Judge dated 29.12.2003overruling the preliminary objections of the defendant- appellant (defendant)and answering the issues numbering 38 to 41 in favour of the plaintiff-respondent (plaintiff).
Briefly, the facts as set out in the petition are as follows :
The plaintiff filed action against the defendant in the District Court ofTangalle seeking to enforce a fire insurance contract he had entered intowith the defendant. Admittedly, the plaintiff insured his business premisesat No. 181, Tissa Road, Tangalle against fire under a policy of insurancebearing No. AM/TC/593 obtained from the defendant company. The plaintiffstates that on or about 19.10.1998 his business premises was destroyedby a fire. The plaintiff filed the District Court action on the basis that thedefendant had failed to honour its obligations under the said insurancepolicy and thus a cause of action had accrued to him to seek the interventionof Court for compensation and damages in terms of the said contract ofinsurance. The defendant filed answer and took up the position that theplaintiff’s action is prescribed and the Court has no jurisdiction to hear anddetermine the action. The defendant’s position was that in terms of clause20 of the said insurance policy, the defendant’s liability ceases at theexpiry of 12 months from the date of the loss and damage unless theclaim is the subject of a pending case or arbitration and in terms of clause
CA ' Ceylinco Insurance Company Ltd vs Ratnayake (Wimalachandra J) 35
18 if the claim is rejected for the reasons set out therein and if no action or
arbitration is commenced within three months from the date of rejection.
At the trial the following issues were tried as preliminary Issues :
Does the Court have jurisdiction to hear and determine this action ?
As set out in paragraph 2(a) of the answer, has the plaintiff failedto institute action within 12 months from the happening of theloss and damages as required by clause 20 of the InsurancePolicy? '
As set out in paragraph 2(b) of the answer has the plaintiff failedto institute action within 3 months from the date of rejection of theclaim as required by clause 18 of the Insurance Policy?
If issues 38,39 and 40 or any one of them are answered in favourof the defendant, is the plaintiff’s action liable to be dismissed?
Thereafter the Court directed the parties to tender written submissions.
The Court made the order on 29.12.2003 overruling the preliminary objections
and answered the aforesaid issues in favour of the plaintiff in the following
manner.
Issue No.: 38.-Yes
-Yes, but it is not a reason to dismiss the
– action.
-Yes, but it is not a reason to dismiss the
action.
-No.
In his order the learned Judge has observed that the plaintiff has failedto institute the action within twelve months from the date of the fire asrequired by clause 20 of the Insurance Policy and has also not filed theaction within three months from the date of rejection of his claim in termsof clause 18 of the Insurance Policy. However, the learned Judge held thatthe provisions of section 9 of the Prescription Ordinance prevails over theterms of the said insurance policy.
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Sri Lanka Law Reports
(2005) 1 Sri L. R.
Admittedly, the fire took place on 19.10.1998. The Plaintiff submittedhis claim on the insurance policy on 07.12.1998 and the defendant by itsletter dated 16.02.1999 rejected the claim of the plaintiff. Thereafter theplaintiff instituted this action against the defendant on 30.08.2000.
The insurance policy Am/TC/593 has clauses 18 and 20 which read asfollows
Clause 18- FRAUD:
If the claim be in any respect fraudulent, or if any falsedeclaration be made, or used in support thereof if anyfraudulent means or devices are used by the insured, or oneacting on his behalf to obtain any benefits under this policyor if the loss or damages be occasioned by the wilful act, orwith the connivance of the insured or if the claim be madeand rejected and an action or suit be not commenced withinthree months after such rejection or (In case of an arbitrationtaking place in pursuance of the 19th condition of this policy)within three months after the arbitrator, arbitrators or umpireshall have made their award all benefit under this policy shallbe forfeited.
Clause 20 – TIME LIMIT FOR COMPANY’S LIABILITY
In no case whatever shall the Company be liable to any lossor damage after the expiration of twelve months from thehappening of the loss or damage unless the claim is thesubject of pending action or arbitration.
It will be seen that in terms of clause 18 if the claim is rejected on theground of fraud and if no action is filed or arbitration is commenced withinthree months from the date of rejection of the claim, all benefits under thesaid policy is forfeited. In terms of clause 20 the defendant will not beliable for any loss and damage after the expiry of 12 months from thehappening of loss and damage unless the claim is the subject of pendingaction or arbitration. In the instant case it is to be noted that there is noother pending case or arbitration proceedings under the said InsurancePolicy with regard to the loss or damage sustained by the plaintiff as aresult of the said fire to the said premises.
Ceylinco Insurance Company Ltd vs Ratnayake (Wimalachandra J)
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Is it contrary to the provisions of the Prescription Ordinance for partiesto enter into an agreement to limit the period of prescription to a shortertime period or curtail the period of prescription that is provided in thePrescription Ordinance? On such an occasion does the time period agreedupon by the parties prevail over the provisions of the PrescriptionOrdinance?
In this regard C. G. Weeramantry in his book “The Law of Contracts”volume II at page 797 states thus :
“It is not contrary to public policy for parties to enter into anagreement not to plead limitation. Such an agreement is validand enforceable in English Law if supported by consideration,whether it be made before or after the limitation period hasexpired. The same observation holds good for our law, exceptthat such an agreement need not be supported byconsideration.”
The learned Counsel for the defendant also cited Chitty on “Law ofContract” 27th edition at 1366, on the question of whether it is open toparties to an agreement to stipulate in the agreement that legal proceedingsbe commenced within a shorter period of time than provided in theLimitation Act.
Chitty on Contract, 27th edition at page 1366 in paragraph 28-084states as follows:-
“Agreement of the parties- It is open to the parties to a contractto stipulate in the contract that legal or arbitral proceedingsshall be commenced within a shorter period of time than thatprovided in the Limitation Act 1980. Such stipulations are notuncommon in commercial agreements and their effect maybe (depending on the precise wording of the stipulation) tobar or extinguish any right of action, or to deprive a party ofhis right to have recourse to particular proceedings, e.g.arbitration, after the expiration of the agreed time limit. It isalso open to the parties to agree that one party shall bereleased from liability or the other party’s claim shall beextinguished or become barred unless a claim has beenpresented within a stipulated period of time.”
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Sri Lanka Law Reports
(2005) 1 Sri L Ft.
It appears that the parties to a contract have the right to agree withregard to the limitation period and the time period agreed upon by theparties will prevail over the Prescription Ordinance. In the circumstancesboth parties to the contract of insurance are bound by the terms set out inthe Policy of Insurance with regard to the period of limitation. Therefore inthis case the Prescription Ordinance will not apply as the parties hadagreed on a time period within which the action had to be instituted.
In this case the plaintiff is suing on the fire insurance policy. Accordingly,the cause of action accrues to the plaintiff on the occurrence of fire causingloss and damage to the plaintiff and not on the rejection of the claim. Inany event he has failed to file action within three months from the rejectionof his claim by the defendant. Admittedly, the fire took place on 19.10.1998.The defendant by letter dated 16.02.1999 rejected the plaintiff s claim. Theplaintiff filed this action on 30.08.2000. Accordingly the plaintiff has notfiled this action within twelve months from the date of the fire. Moreover, hehas not filed this action within three months from the date of rejection ofhis claim by the defendant which was 16.02.1999. Since the plaintiff hasfailed to file the plaint within the stipulated period of time the plaintiff’saction is time barred.
I therefore allow the appeal and set aside the order of the learned DistrictJudge dated 29.12.2003, but without costs.
AMARATUNGA, J.—I agree.
Appeal Allowed.