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Red Sea Insurance V. Bouygeus Notes

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RED SEA INSURANCE V. BOUYGEUS FACTS The defendant in this case is an insurance company incorporated in Hong Kong but having its head office in Jeddah, Saudi Arabia. The first to third plaintiffs, as parties to a joint venture, were employed by the Government of Saudi Arabia to carry out as main contractors construction work at the University of Riyadh. The plaintiffs began proceedings against the defendant claiming, under the terms of an insurance policy issued by the defendant, to be indemnified for loss and expense incurred in repairing or replacing structural damage which occurred in the buildings constructed. The defendant denies that P.C.G. is covered by the contract of insurance and it contends, amongst other defences, that the costs incurred by the plaintiffs were not for the purpose of rectifying structural damage but were for work not covered by the policy such as the improvement or alteration of poor design, materials or workmanship shown up by the cracks which had appeared in parts of the building. The defendant counterclaimed against P.C.G. on the basis that P.C.G. had supplied faulty precast units in breach of its duty of reasonable care to the other plaintiffs, and that if the defendant was liable under the policy for the loss suffered by the other plaintiffs the defendant could recover the amount of such loss by way of subrogation to the other plaintiffs' rights. P.C.G. applied to strike out the counterclaim as disclosing no reasonable cause of action on the basis that under Hong Kong law the defendant could not claim to be subrogated unless it had paid the plaintiffs other than P.C.G., which it had not done; the defendant's riposte was to apply for leave to amend in order to claim that the law governing the relations between P.C.G. and the other plaintiffs and the defendant's claim against P.C.G. was that of Saudi Arabia under which the defendant was entitled to sue P.C.G. directly for the damage caused to the other plaintiffs. QUESTION The central issue arising on the appeal, thus, is whether the defendant can rely purely on Saudi Arabian law, the lex loci delicti, to establish direct liability in tort when Hong Kong law (the lex fori) does not recognise such liability. HOLDING Dicey, Rule 203: Based on Boys v. Chaplin

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