Action Workforce Pty Ltd v DHL Exel Supply Chain (Australia) Pty Ltd; DHL Exel Supply Chain (Australia) Pty Ltd v Action Workforce Pty Ltd

[2017] NSWCA 321

Court of Appeal

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:

Action Workforce Pty Ltd v DHL Exel Supply Chain (Australia) Pty Ltd; DHL Exel Supply Chain (Australia) Pty Ltd v Action Workforce Pty Ltd [2017] NSWCA 321

Hearing dates:

21 November 2017

Decision date:

12 December 2017

Before:

Basten JA at [1]; Meagher JA at [22]; Simpson JA at [23]

Decision:

(1)  Appeal dismissed;

 

(2)  Cross-appeal dismissed;

 (3)  Appellant pay the respondent’s costs of the appeal.

Catchwords:

GUARANTEE AND INDEMNITY – indemnities – liabilities established by settlement – where provider of warehousing services and employer of person responsible for damage to warehoused goods separately settled with owner of goods – whether settlement by provider of warehousing services was reasonable having regard to liability in fact to owner of goods

Legislation Cited:

Civil Liability Act 2002 (NSW), ss 34, 35

Cases Cited:

BNP Paribas v Pacific Carriers Ltd [2005] NSWCA 72
Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640; [2014] HCA 7
Mainteck Services Pty Ltd v Stein Heurtey SA (2014) 89 NSWLR 633; [2014] NSWCA 184
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104; [2015] HCA 37
UGL Rail Pty Ltd v Wilkinson Murray Pty Ltd [2014] NSWSC 1959
Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603; [1998] HCA 38

Category:

Principal judgment

Parties:

Action Workforce Pty Ltd (Appellant/Cross-Respondent)
DHL Exel Supply Chain (Australia) Pty Ltd (Respondent/Cross-Appellant)

Representation:

Counsel:
D S Weinberger (Appellant/Cross-Respondent)
E Cox (Respondent/Cross-Appellant)

  Solicitors:
Meridian Lawyers (Appellant/Cross-Respondent)
Mills Oakley (Respondent/Cross-Appellant)

File Number(s):

2017/134236

 Decision under appeal 

Court or tribunal:

District Court

Date of Decision:

06 April 2017

Before:

Gibb DCJ

File Number(s):

2015/49334

HEADNOTE

[This headnote is not to be read as part of the judgment]

The respondent operates a warehousing, storage and logistics facility in Sydney. In 2008, the respondent contracted with Sony Australia Ltd to provide warehousing and logistics services to Sony (“the Warehousing Agreement”). The Warehousing Agreement included several relevant clauses: cl 3, which required the respondent to (a) exercise due care diligence and skill, and (b) keep the products secure and protect them against moisture; cl 8, which required Sony to take out insurance to cover the value of the goods, and to claim against that insurance policy rather than the respondent save for limited circumstances; and cl 9.4, which rendered the respondent liable to Sony for any “losses of, or damage to, the products caused by [the respondent], its employees, agents or sub-contractors”.

The appellant is a labour hire company. In 2013 the appellant contracted with the respondent to provide staff to the respondent pursuant to an agreement (“the Service Agreement”). The Service Agreement included an indemnity clause, by which the appellant indemnified the respondent “in full against all liability, loss, damages, cost or expenses … as a result of or in connection with … any negligent act or omission of [the appellant] or its employees, agents or sub-contractors …”.

In October 2013, an employee of the appellant, was providing services to the respondent in the warehouse when she struck and damaged a fire sprinkler pipe with a forklift, causing flooding. Sony’s goods were damaged.

Sony commenced proceedings in the District Court against both the respondent and appellant for negligence. Sony also claimed against the respondent for breach of the Warehousing Agreement. Both the respondent and appellant settled Sony’s claims against them. However, the respondent filed a cross-claim, claiming against the appellant for the settlement sum paid to Sony. The respondent’s claim relied on the indemnity clause in the Service Agreement. The appellant contended, inter alia, that no obligation to indemnify the respondent arose because the respondent was negligent itself, and because the respondent failed to mitigate its loss by not relying on a clause in the Warehousing Agreement that required Sony to claim against its insurer rather than the respondent. The primary judge found in favour of the respondent, rejecting the arguments of the appellant, and found that the settlement reached between Sony and the respondent was reasonable.

On appeal the appellant contended that the settlement reached between the respondent and Sony was unreasonable as, absent a finding by the trial judge of negligence by the respondent, there was no basis on which the respondent could be liable to Sony. Reliance was also placed on the insurance clause. The appellant complained that the respondent had a complete defence to Sony’s claim that it did not pursue, rendering its settlement of Sony’s claim unreasonable.

The appellant also contended on appeal that the indemnity contained in the Service Agreement, properly construed, did not extend to render the appellant liable for an amount paid by the respondent to Sony in settlement of Sony’s claim against the respondent. The appellant contended that the indemnity did not extent to the respondent’s negligence.

Held, dismissing the appeal:

per Simpson JA at [23] (Meagher JA at [22] agreeing):

(1)   The respondent’s settlement of Sony’s claim was reasonable in the circumstances, having regard to the appellant’s liability to Sony pursuant to cl 9.4 of the Warehousing Agreement.

Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603; [1998] HCA 38; BNP Paribas v Pacific Carriers Ltd [2005] NSWCA 72 considered.

(2)   The indemnity clause, properly construed, was not limited to liability attributable to the indemnifying party’s negligence.

per Basten JA:

(3) There is no commercial basis for distinguishing between the liability of a corporate subcontractor for its own negligence and its vicarious liability for the negligence of its employees. Accordingly, DHL would be liable to Sony for the loss caused by an employee of the appellant and was entitled to recover through the contractual indemnity it had obtained from the appellant: [14]-[15].

(4) Clause 9.4 of the Warehousing Agreement made express provision for DHL to be liable for the acts or omissions of its subcontractors. Thus, whether or not DHL had been negligent, it was liable to Sony for negligent acts of its subcontractors, for which Sony could bring a claim pursuant to the exception in the insurance requirement contained in cl 8.2: [17].

(5) Reading the indemnity in cl 11.1 of the Services Agreement as excluding any contributing responsibility of DHL did not conform with its language. The clause was not limited to so much of the liability as would be attributable to the negligent act of the appellant on an apportionment: [18].

per Simpson JA at [23]:

(5)   The obligations in cl 3.1 of the Service Agreement were not qualified by a requirement of reasonableness, and, accordingly, cl 3.1 afforded a basis for liability of the respondent to Sony.

Judgment

1. BASTEN JA: In October 2013 the respondent, DHL Exel Supply Chain (Aust) Pty Ltd (“DHL”) was storing property owned by Sony Australia Ltd at DHL’s warehouse in Erskine Park, Sydney. The terms of the arrangement between Sony and DHL were contained in a document known as the “Warehousing and Logistics Agreement” (“the Warehousing Agreement”).

2. DHL obtained at least part of its workforce pursuant to a “Services Agreement” with a labour hire supplier, Action Workforce Pty Ltd, (“the appellant”). One of the workers so supplied was a forklift driver. On 28 October 2013 the forklift struck a water sprinkler which broke open and sprayed water over Sony’s property valued at some $550,000.

3. Sony brought proceedings against both DHL and the appellant. The proceeding against DHL were settled on the basis that DHL would pay Sony $270,000 inclusive of interest and costs. The proceeding against the appellant was also settled, on the basis that it would pay Sony $300,000 inclusive of interests and costs.

4. The matter proceeded to a hearing in the District Court, limited to a cross-claim brought by DHL against the appellant. On 6 April 2017 judgment was given by Gibb DCJ in favour of DHL in an amount of some $420,000, being the settlement sum ($270,000) paid to Sony by DHL, together with an additional amount for costs and legal expenses. The appellant appealed from that judgment.

Issues on appeal

5. The Services Agreement between DHL and the appellant contained an indemnity expressed in the following terms (the appellant being identified as the “Supplier”):

“11   Liability and Indemnity

11.1   Supplier shall indemnify DHL in full against all liability, loss, damages, costs and expenses (including legal expenses) awarded against or incurred or paid by DHL as a result of or in connection with:

…

(b)   any negligent act or omission of the Supplier or its employees, agents or subcontractors in connection with the performance of the Services;

….”

6. There was some obscurity in the way in which the appellant put its case in this Court. The submissions (the grounds of appeal being somewhat obscure) adopted alternative approaches. First, it was said that if DHL were not negligent it was not liable to Sony, and the payment made by DHL to Sony did not result from any enforceable liability under the Warehousing Agreement; the payment to Sony was therefore not a reasonable settlement of a dispute which would attract the indemnity under cl 11 of the Services Agreement.

7. In the alternative, if the loss suffered by Sony was the result of DHL’s negligence it was said that the indemnity did not apply because the loss did not flow “as a result of or in connection with” any negligent act or omission of the appellant or its employees.

Failure to determine if DHL negligent

8. There was no challenge in this Court to the finding of the trial judge that the forklift driver was negligent and that the appellant was vicariously liable for her conduct. The primary challenge was directed to the failure of the trial judge to determine that DHL was negligent (and therefore liable to Sony). The appellant submitted that DHL was not in breach of the Warehousing Agreement and that, even if it had been in breach of its obligations under cl 3, it had a “complete defence” pursuant to cl 10.6 of that agreement. Reliance on cl 10.6 was abandoned (correctly) in the written submissions in reply. [1] In oral argument reliance was placed upon a different clause in the Warehousing Agreement, namely cl 8.2.

   1.    Tcpt, 21/11/17, p 33(40).

9. DHL accepted that its claim under the indemnity clause of the Services Agreement for the amount of its payment to Sony depended upon the settlement being reasonable, in accordance with the principles recently articulated by Ball J in UGL Rail Pty Ltd v Wilkinson Murray Pty Ltd. [2] It did not agree it had to prove its own liability.

   2. [2014] NSWSC 1959 at [2005]-[2015].

10. Although DHL bore the onus of proving that the settlement with Sony was reasonable, it submitted it was not required to demonstrate that Sony’s claim was irresistible, or that Sony would probably have succeeded. Rather, it was required to demonstrate that there was a claim with sufficient prospects of success to warrant settlement on the terms which eventuated. The matter proceeded at trial on the basis of a statement of agreed facts which set out the history of the claim made against DHL by Sony and the legal advice obtained by DHL before making its offer of settlement. Annexed to the statement of agreed facts were the legal advices upon which the offer made by DHL was based. The lawyers who gave the relevant advice were not called for cross-examination and there was no other evidence challenging the reasonableness of the settlement.

11. DHL relied upon two aspects of the claim pleaded against it by Sony. The first was an alleged breach of DHL’s contractual obligation to keep Sony’s products secure and protected against loss or damage, pursuant to cl 3.1(b)(iii) of the Warehousing Agreement. [3] Secondly, Sony had relied upon DHL’s liability for loss or damage caused by DHL or its subcontractors, pursuant to cl 9.4 of the Warehousing Agreement. [4]

    3.    Statement of Claim, par 24.

    4.    Statement of Claim, par 28.

12. Clause 9 of the Warehousing Agreement was headed “Product losses and damage”. Relevantly for present purposes, it read:

“9.4   Subject to clauses 8.2 …, DHL will be liable to Sony for any losses of, or damage to, the Products caused by any act or omission (including a negligent act or omission or breach of contract) of DHL, its employees, agents or sub-contractors ….”

Clause 8 was headed “Insurance”; cl 8.1 required Sony to take out insurance in respect of destruction or loss of or damage to its products “to their full value on an all risks basis whilst in the custody of DHL or its agents or sub-contractors.” Clause 8.2 relevantly provided:

“8.2   If any damage to or loss or destruction of Products occurs and the same falls within the terms of such policy or policies then Sony shall, if able, claim indemnity from the insurer(s) concerned … and, in the event that full indemnity is received from the insurers, Sony shall not bring any claim against DHL in respect of any such loss, damage, cost or expense except to the extent that any loss, damage, cost or expense is caused by the negligence, wilful misconduct, or unlawful act [or] omission of DHL, its employees, agents or sub-contractors. Nothing in this clause shall be construed as a waiver of any subrogation rights of Sony’s insurers.” (Emphasis added.)

13. Read together, cll 8.2 and 9.4 would provide a defence to any claim by Sony which did not fall within the exception in cl 8.2. Accepting that DHL was not personally liable in negligence, the exception in cl 8.2 would only be satisfied if the loss were caused by the negligence of a subcontractor, in this case the appellant. The appellant submitted at trial, and repeated somewhat elliptically on appeal, that the exception did not extend to the negligence of employees of a subcontractor and therefore did not extend to the negligence of the forklift driver.

14. In response, DHL called in aid well known statements as to the principles to be applied in construing commercial contracts, including Electricity Generation Corporation v Woodside Energy Ltd,[5] applied in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd,[6] and, in this Court, Mainteck Services Pty Ltd v Stein Heurtey SA. [7] It contended that the relevant context included the indemnity relied on by DHL (which expressly extended to the negligent acts or omissions of the appellant and its employees). DHL submitted that in this context there was no commercial basis for distinguishing between the liability of a corporate subcontractor for its own negligence and its vicarious liability for the negligence of its employees. Accordingly, DHL would be liable to Sony for the loss caused by an employee of the appellant and was entitled to recover through the contractual indemnity it had obtained from the appellant.

    5. (2014) 251 CLR 640; [2014] HCA 7 at [35] (French CJ, Hayne, Crennan and Kiefel JJ).

    6. (2015) 256 CLR 104; [2015] HCA 37 at [47] (French CJ, Nettle and Gordon JJ).

    7. (2014) 89 NSWLR 633; [2014] NSWCA 184 at [69]ff (Leeming JA, Ward and Emmett JJA agreeing).

15. Subject to any issue as to the reasonableness of the settlement, DHL’s submissions should be accepted.

Appellant not liable for DHL’s negligence

16. The appellant’s alternative argument was that it (the appellant) was only liable for the consequences of its own negligence, including that of its employee. Thus, accepting that DHL was liable under its contract with Sony, the appellant was not required to indemnify DHL for a loss which flowed from DHL’s own negligence. To the extent that DHL had been liable in negligence, that liability had been met by the payment it had made to Sony and the indemnity was not engaged.

17. On its face, that submission failed for two reasons. First, it did not conform with the terms of cl 8.2 of the Warehousing Agreement which permitted Sony to bring a claim against DHL in respect of loss caused by the negligence of DHL’s subcontractor. The appellant’s response was that it remained necessary to find a basis for DHL’s liability elsewhere in the contract. So far as DHL was obliged to keep the Sony products secure and protected against damage and loss (cl 3.1(b)(iii)), and to store the products in an appropriate manner to protect them against, amongst other things, “moisture” (cl 3.1(b)(v)), those obligations were subject to a requirement that DHL exercise “all due care, diligence and skill and … conform to industry standards reasonably expected of persons providing services of the type described in [the] Agreement”, pursuant to cl 3.1(a). Clause 3.1(a) was said by the appellant to govern the obligations included in par (b), including (iii) and (v). Accepting that to be so, cl 9.4 made express provision for DHL to be liable for the acts or omissions of its subcontractors. Thus, whether or not DHL had been negligent, it was liable to Sony for negligent acts of its subcontractors, for which Sony could bring a claim pursuant to cl 8.2.

18. Secondly, the alternative argument failed because it required that the indemnity be read so as to exclude any contributing responsibility of DHL. That reading did not conform with the language of the indemnity which required the appellant to “indemnify DHL in full against all liability … paid by DHL as a result of or in connection with” any negligent act of the appellant or its employees. Clause 11.1 was not limited to so much of the liability as would be attributable to the negligent act of the appellant on an apportionment.

Reasonableness of settlement

19. Finally, although there appeared at one stage to be a challenge to the reasonableness of the settlement between Sony and DHL, [8] no submissions were directed to the question of reasonableness.

    8.    Notice of appeal, ground 3.

20. In accordance with established principle,[9] the trial judge correctly identified the need for the settlement to be “reasonable” for the liability to arise under the indemnity clause. The judge considered the evidence of the settlement negotiations and found that the settlement was reasonable. There is no basis to doubt the correctness of that conclusion.

    9. Unity Insurance Brokers Pty Ltd v Rocco Pezzano Pty Ltd (1998) 192 CLR 603; [1998] HCA 38.

Conclusions

21. For these reasons, the appeal must fail; the appellant must pay the respondent’s costs in this Court.

22. MEAGHER JA: I agree with the orders Simpson JA proposes and, subject to one minor matter, her Honour’s reasons. That matter concerns the construction and application of cl 3.1 of the Warehousing Agreement as a basis for concluding that DHL was liable to Sony so as to engage the indemnity in cl 11.1 of the Services Agreement. I do not express any view as to whether para (a) of cl 3.1 governs the obligations included in para (b) (see Basten JA at [17]). On any view, cl 9.4 applied and DHL was liable for the negligence of the appellant, as DHL’s subcontractor.

23. SIMPSON JA: Before the Court are an appeal and a cross-appeal arising out of a decision of Gibb DCJ (“the primary judge”) delivered on 6 April 2017 awarding damages in the amount of $418,189.50 to the respondent. The circumstances giving rise to the proceedings have a degree of complexity. I will endeavour to explain them.

Background

24. The respondent (DHL Exel Supply Chain (Australia) Pty Ltd, to which I will refer as “DHL”) operates a warehousing, storage and logistics facility at Erskine Park in Sydney.

25. Sony Australia Ltd is a manufacturer or importer of electronic goods. In September 2008 DHL contracted with Sony to provide warehousing and logistics services to Sony. The services to be provided included receipt, inspection and storage of Sony’s products, maintenance of an inventory, and delivery up (hand over) in accordance with orders from Sony. The contract has been referred to as “the Warehousing Agreement”. It contained the following relevant clauses:

“3   Provisions of Services

3.1   In the provision by DHL of the Services pursuant to this Agreement:

(a)   DHL shall exercise all due care, diligence and skill and shall conform to industry standards reasonably expected of persons providing services of the type described in this Agreement.

(b)   DHL must:

…

(iii)   keep the Products secure and protected against theft, damage, loss or unauthorised access, including as specified in Schedule 7 [which dealt with security];

…

(v)   store the Products at the Premises in an appropriate manner to protect the Products from vermin, moisture and any other reasonably foreseeable threat to the Products or the packaging or the value of the Products, and give immediate written notice to Sony of any damage, defect or deterioration to the Products or the value of the Products;

…

(ix)   use its reasonable endeavours to protect the Products in its possession or control or in the possession or control of its officers, employees, agents or sub-contractors against distress, execution or seizure;

(x)   not do anything which might damage or bring into disrepute Sony, the Products or any Customer;

…

8   Insurance

8.1   Sony shall take out and maintain at its own expense a policy or policies of insurance with reputable insurers in respect of destruction or loss of or damage to Products to their full value on an all risks basis whilst in the custody of DHL or its agents or sub-contractors.

8.2   If any damage to or loss or destruction of Products occurs and the same falls within the terms of such policy or policies then Sony shall, if able, claim indemnity from the insurer(s) concerned in respect of any loss, damage, cost or expense it suffers or incurs as a result of the occurrence of any of the same and, in the event that full indemnity is received from the insurers, Sony shall not bring any claim against DHL in respect of any such loss, damage, cost or expense except to the extent that any loss, damage, cost or expense is caused by the negligence, wilful misconduct, or unlawful act of [sic – or] omission of DHL, its employees, agents or sub-contractors. Nothing in this clause shall be construed as a waiver of any subrogation rights of Sony’s insurers.

…

9   Product Losses and Damage

…

9.4   Subject to clauses 8.2, 9.6 and 9.7, DHL will be liable to Sony for any losses of, or damage to, the Products caused by any act or omission (including a negligent act or omission or breach of contract) of DHL, its employees, agents or sub-contractors, and DHL will reimburse Sony within thirty (30) days of the end of any year for any losses of, or damage to, the Products which were suffered during that year.

[Cl 9.7 provided for a “loss allowance” to a specified maximum in any year.]

10   Liability of both parties

10.1   To the full extent permitted by law, under no circumstances shall the liability of DHL under this Agreement exceed:

(a)   in the case of liability for loss and/or damage to Product arising through negligence, $250,000 per incident and $1,000,000 in aggregate per annum;

(b)   …

…

10.6   Notwithstanding any other provision of this Agreement a party shall not be liable for any Claim to the extent that the Claim is attributable to the negligence or wrongful act or omission of the other party or to the negligence or wrongful act or omission of the other party’s employees, agents or subcontractors.”

26. In accordance with the Warehousing Agreement, DHL received and stored goods in the Erskine Park warehouse.

27. Action Workforce Pty Ltd (“Action Workforce”) is a labour hire company. It supplies staff on a temporary basis to client businesses. The individuals are and remain employees of Action Workforce, although they work as directed by the client company and (it may be assumed) usually at the premises of the client company.

28. In July 2013 DHL contracted with Action Workforce for the provision of “temporary staffing services” (“the Service Agreement”). Relevant clauses of the Service Agreement are:

“11.   LIABILITY AND INDEMNITY

11.1   [Action Workforce] shall indemnify DHL in full against all liability, loss, damages, costs and expenses (including legal expenses) awarded against or incurred or paid by DHL as a result of or in connection with:

(a)   …

(b)   Any negligent act or omission of [Action Workforce] or its employees, agents or sub-contractors in connection with the performance of the Services;

…

12   INSURANCE

12.1   DHL agrees to ensure that it has sufficient insurance to provide coverage for the indemnities given in this Agreement.

12.2   [Action Workforce] shall maintain fully comprehensive insurance cover for Workers Compensation in accordance with statutory requirements, Public & Product Liability to AUD $20,000,000 per occurrence and Professional Indemnity to AUD $5,000,000 per occurrence per annum. Certificates of Currencies will be forwarded on request.”

29. One employee of Action Workforce whose services were provided to DHL under the Service Agreement was Ms Maria Tia, who was engaged as a forklift driver. On 28 October 2013 Ms Tia was operating a forklift in the warehouse at Erskine Park. She manoeuvred it in such a way that it struck and damaged a fire sprinkler pipe, causing flooding. Goods the property of Sony were damaged.

30. It seems that Sony gave notice of its intention to claim compensation from DHL for its losses. Between 28 August 2014 and 20 December 2016, on a number of occasions, DHL received legal advice as to its liability to Sony. Put shortly, the advice was that DHL was liable to Sony under the Warehousing Agreement, although, by reason of cl 10.1(a) of that agreement, the quantum of damages for which it was liable was limited. On 28 August 2014, solicitors acting for DHL wrote to Action Workforce, claiming indemnity for that liability under cl 11.1(b) of the Service Agreement. By letter dated 27 November 2014 solicitors acting for Action Workforce declined indemnity, asserting that liability for Sony’s claim rested with DHL.

The proceedings in the District Court

31. On 16 February 2015 Sony commenced proceedings in the District Court, claiming damages for the losses it suffered. It named DHL as first defendant and Action Workforce as second defendant. Its claim against Action Workforce was framed in negligence; its claim against DHL alleged both negligence and breach of contract. Its claim in contract specifically pleaded DHL’s contractual obligations under cl 3.1(a), cl 3.1(b)(iii), (v), (ix) and (x), and cl 9.4 of the Warehousing Agreement.

32. DHL filed a cross-claim, naming Action Workforce as cross-defendant. It pleaded a claim in contract, in reliance upon the indemnity clause in the Service Agreement (cl 11.1). It asserted that the damage to Sony’s property was caused by the negligence of Ms Tia. It also pleaded a cause of action in negligence, repeating the assertion that Sony’s losses had been caused by Ms Tia’s negligence, for which Action Workforce was vicariously liable.

33. Action Workforce filed a defence to the cross-claim. It denied that Ms Tia had been negligent. It denied that cl 11.1 of the Service Agreement obliged it to indemnify DHL for any liability it had to Sony. Specifically in response to the claim in negligence, it relied upon ss 34 and 35 of the Civil Liability Act 2002 (NSW), asserting that Sony’s claim was an “apportionable claim” for the purpose of those provisions.

34. On 10 January 2017 DHL settled Sony’s claim against it by agreeing to pay $270,000. Action Workforce also settled Sony’s claim against it, agreeing to pay $300,000. The terms of both settlements were incorporated in a single Deed dated 30 January 2017.

35. The matter was listed for hearing in the District Court on 30 January 2017. All that then remained outstanding were the issues raised by the cross-claim and the defence to the cross-claim. Action Workforce filed an amended defence to the cross-claim. It pleaded (additionally to what had been pleaded in the original defence) that DHL was in breach of cl 12.1 of the Service Agreement (that required DHL to maintain sufficient insurance “to provide coverage for the indemnities given” in the Service Agreement). It invoked cl 8.1 of the Warehousing Agreement (to which Action Workforce was not a party), and pleaded that DHL’s failure to defend Sony’s proceedings against it (DHL) by relying on cl 8.2 constituted a failure to mitigate its loss. Action Workforce also pleaded that, by reason of cl 8.2, DHL was not liable to Sony, and that DHL’s payment to Sony was not made “as a result of or in connection with” any negligent act or omission of Action Workforce, and was therefore not within the terms of cl 11.1(b) of the Service Agreement.

36. DHL filed a reply to Action Workforce’s defence to the cross-claim. It asserted, in response to the plea of failure to mitigate, that it had acted reasonably in reaching the settlement it did with Sony.

37. An Agreed Statement of Facts, to which were annexed, inter alia, the various legal advices that DHL had received was put before the primary judge. Two witnesses, both employees of DHL, provided affidavits and gave oral evidence. The case proceeded primarily on documentary evidence. The primary judge gave judgment on 6 April 2017.

The primary judgment

38. At the outset of the reasons, the primary judge outlined four “points of controversy”, reflecting how the case had been litigated. She identified the four points as:

1. the circumstances in which the forklift struck the pipe. (DHL asserted that this occurred by reason of the negligence of Ms Tia, for whose acts Action Workforce was vicariously liable; Action Workforce asserted that it was caused by the negligence of DHL. It seems that Action Workforce sought to make a case that DHL was negligent, in the design or layout of the warehouse, the dimensions of the forklift, or in failure to afford adequate supervision of Ms Tia);

2. the proper construction of cl 11.1 of the Service Agreement, in the light of Action Workforce’s contention that DHL was, within the meaning of s 34 of the Civil Liability Act, a concurrent wrongdoer;

3. the proper construction of DHL’s contractual obligation to insure (cl 12.1 of the Service Agreement); and

4. DHL’s obligation to mitigate its damage. (Action Workforce maintained, in accordance with its pleading, that, under cl 8.2 of the Warehousing Agreement, Sony was obliged, in the first instance, to claim its losses from its insurer, and that DHL’s failure to defend Sony’s claim against it on that basis constituted failure to mitigate.)

39. The primary judge resolved these controversies as follows.

Points of controversy 1 and 2:

40. The primary judge found that Ms Tia was negligent in the manner in which she operated the forklift, by failing to keep a proper lookout, and by failing to exercise reasonable care in the operation of the forklift, that her negligence caused the damage to Sony’s property, and that Action Workforce was vicariously liable for her negligence.

41. She found no relevant breach of duty or negligence on the part of DHL.

42. Both aspects of the first point of controversy were therefore resolved in favour of DHL. The consequence was that the second point of controversy, whether DHL was a concurrent wrongdoer, and any implication that such a finding might have had for the construction and application of cl 11.1(b), evaporated. However, her Honour considered whether, if she were wrong and negligence was established against DHL, that would have affected the operation of cl 11.1. She accepted a submission to the effect that the language of cl 11.1 did not permit a construction that allowed Action Workforce to escape its obligation to indemnify DHL by reason of any negligence on the part of DHL. The payment made by DHL to Sony was made, within the words of cl 11.1:

“… as a result of or in connection with … any negligent act or omission”

of Action Workforce’s employee. The second point of controversy (on the hypothesis that DHL had been negligent) was therefore also resolved in favour of DHL.

Point of controversy 3:

43. The third point of controversy revolved around cl 12.1 of the Warehousing Agreement, requiring DHL to ensure that it maintained sufficient insurance to provide coverage for “the indemnities given in this Agreement”.

44. The construction of cl 12.1 advanced on behalf of Action Workforce was that “the indemnities given in this Agreement” against which DHL was obliged to insure extended to the indemnity provided for by cl 11.1 – that is, DHL was obliged to provide insurance coverage for the indemnity that Action Workforce gave to DHL against negligent acts of its (that is, Action Workforce’s) own employees. The pleading in the amended defence to the cross-claim was as follows:

“By reason of cl 12.1 of the Agreement [DHL] was obliged to effect insurance to provide coverage on behalf of [Action Workforce] which provides [Action Workforce] with cover for [Action Workforce’s] indemnity obligations under 11.1 of the Agreement.”

45. In other words, on Action Workforce’s contention, cl 12.1 of the Service Agreement required DHL to insure Action Workforce against Action Workforce’s own indemnity liability to DHL. Her Honour (unsurprisingly) rejected that contention.

Point of controversy 4: mitigation of loss

46. Although cll 8.1 and 8.2 of the Warehousing Agreement were pleaded in the context of the assertion of failure to mitigate, the essence of Action Workforce’s claim was that those clauses gave DHL a (complete) defence against Sony’s claim by requiring Sony first to claim redress from its insurer. Essential to that proposition was that DHL was not negligently responsible for Sony’s losses. That was because cl 8.2 placed the obligation to claim on the insurance policy on Sony:

“… except to the extent that any loss, damage, cost or expense is caused by the negligence, wilful misconduct, or unlawful act [or] omission of DHL, its employees, agents or sub-contractors.”

It was accepted that Action Workforce was, for the purposes of cl 8.2, DHL’s sub-contractor.

47. Again unsurprisingly, the primary judge rejected Action Workforce’s contention that cl 8.2 afforded DHL a complete defence to Sony’s claim, and its contention that its failure to rely on that defence constituted a failure to mitigate. In the light of the finding that DHL had not been negligent, Action Workforce’s contention was plainly untenable.

48. Also relevant to the mitigation question was DHL’s plea (in reply) that it acted reasonably in reaching the settlement with Sony that it did. The primary judge accepted that that was so.

49. All issues having been resolved in favour of DHL, the primary judge gave judgment against Action Workforce in the amount of $418,189.50.

The appeal and cross-appeal

50. Four grounds of appeal were pleaded. They are as follows:

“1.  The trial judge erred in failing to find that a cause of the damage to Sony’s products was the negligence of [DHL].

2.  The trial judge should have found that a cause of the damage to Sony’s products was the negligence of [DHL].

3.  The trial judge erred in finding that on the proper interpretation of the [Warehousing Agreement] [DHL] was liable to Sony and therefore entered into a reasonable settlement with Sony.

4.  The trial judge should have found that on the proper interpretation of the [Warehousing Agreement] (including clause 10.6) [DHL] was not liable to Sony for the damage to Sony’s products and therefore [DHL’s] settlement with Sony was not a result of or in connection with any negligent act of [Action Workforce] or its employees within the meaning of clause 11.1(b) of the Services Agreement between [Action Workforce] and [DHL].”

51. Reliance by Action Workforce on cl 10.6 of the Warehousing Agreement was (as it had to be, given the clause’s clear meaning) abandoned.

52. The ground of cross-appeal pleaded was:

“1  In the event that the appeal is allowed on grounds 3 and/or 4 of [Action Workforce’s] notice of appeal, [DHL] says that the Court should still determine what a reasonable settlement of the claim by Sony against [DHL] would have been; and that settlement would be [DHL’s] loss.”

53. At the hearing of the appeal, counsel for Action Workforce identified as the substantial question raised by the appeal what he asserted to be the failure of the primary judge to make two essential findings. The findings concerned the construction of cll 3.1 and 8.2 of the Warehousing Agreement. Neither is reflected in the pleaded grounds of appeal, and neither was mentioned in Action Workforce’s written submissions.

Resolution

54. Despite the length of the preceding exposition, the issues on the appeal may be disposed of with expedition. The first two grounds of appeal challenge the finding of the primary judge that Action Workforce had not established that the damage to Sony’s property had been caused by DHL’s negligence. Although, as required, written submissions were filed on behalf of Action Workforce, no submission was directed to identification of any error in the approach taken by the primary judge, nor to establishing any basis upon which DHL could or should have been found to have been negligent. Nothing further was advanced in oral argument. These grounds must be rejected.

55. By Ground 3 as formulated, Action Workforce appears to make a two-pronged attack on the primary judgment. By the first, it complains of a finding that, on the proper construction of the Warehousing Agreement, DHL was liable to Sony for the damage to Sony’s property. Nowhere in the Notice of Appeal nor in the submissions did Action Workforce identify the precise finding or passage in the primary judgment of which it complains. It is, however, implicit in the judgment that the primary judge proceeded on the basis that DHL was so liable.

56. The written submissions referred to Sony’s claim that DHL was in breach of various parts of cl 3 of the Warehousing Agreement and contended:

“… it is difficult to see how Sony may have succeeded [in negligence] if it did not succeed in contract. When one looks at the contractual obligations allegedly breached by DHL it is difficult to see how DHL is likely to have been found liable to Sony – importantly, absent a finding that DHL itself was culpable (which the trial judge did not so find).”

57. The submission went on to refer to cl 10.6 of the Warehousing Agreement, but reliance on that clause was subsequently abandoned. There was no further explication of the assertion that it “is difficult to see how DHL” could be found to have been liable to Sony. It appears that this was the context in which a new complaint (not reflected in the grounds of appeal) was sought to be advanced – the asserted failure on the part of the primary judge to make relevant findings, whether of fact or law. An argument was put, for the first time, that the obligations spelled out in cl 3.1 were not absolute, but qualified by a requirement of reasonableness. Thus, for example, the requirement in cl 3.1(b)(iii), that DHL keep Sony’s products secure and protected against damage, was to be read as a requirement that DHL take reasonable steps to ensure the security of the products. The requirement, under cl 3.1(b)(ix) that DHL use reasonable endeavours to protect the products from legal process was cited in support.

58. Far from affording such support, the inclusion in one sub-clause of a condition that reasonable endeavours be used highlights the absence of such a condition in the other sub-clauses of cl 3.1(b). I would reject the construction proposed.

59. In any event, no argument as to that construction was made to the primary judge. Nor was any issue raised concerning the reasonableness of the manner in which DHL stored the goods, or evidence adduced to establish the reasonableness of DHL’s conduct with respect to the custody of Sony’s goods.

60. Having regard to those parts of cl 3.1 extracted above, particularly cl 3.1(b)(iii), of the Warehousing Agreement upon which reliance was placed by Sony, I do not have any difficulty in seeing how DHL could have been found liable to Sony. In any event, Sony’s claim against DHL under cl 9.4, which obliged DHL to reimburse Sony for damage to its products caused by any act or omission of DHL or its sub-contractors, was unanswerable.

57. The second prong of Ground 3 as pleaded complains of the finding that the settlement reached by DHL with Sony was reasonable. It may be noted that the finding that the settlement was reasonable arose in the context of the primary judge’s consideration of Action Workforce’s pleading that DHL, by failing to rely on cl 8.2 of the Service Agreement, failed to mitigate its damage. A fair reading of par 5 of DHL’s reply to the amended defence, however, could suggest that DHL intended to rely on the reasonableness of its settlement in response to Action Workforce’s denial of indemnity under cl 11.1.

58. The language of cl 11.1 includes no express requirement of reasonableness. However, as Giles JA observed in BNP Paribas v Pacific Carriers Ltd [2005] NSWCA 72 at [186]-[187], where, as here, an indemnifier (in that case, an insurer) has breached the contract by denying liability, the indemnified party can recover in a claim for damages the amount of a reasonable settlement: see also [13] (Handley JA) to the same effect. The requirement that the settlement be reasonable derives from general principles of causation, remoteness and mitigation, as those principles in this context. The primary judge found that the settlement was reasonable. The only argument advanced in opposition to that finding was that, since DHL was not liable to Sony, the settlement could not have been reasonable. That is answered by the immediately preceding conclusions, that, under cl 3.1 and cl 9.4, DHL was liable.

59. Action Workforce’s submission quoted above appears to contemplate that DHL might be liable to Sony only if it were found to have been negligent. As mentioned earlier, Sony’s first claim against DHL was in contract, in reliance in particular on certain provisions of cl 3.1 and cl 9.4 of the Warehousing Agreement. There was every reason to anticipate (as DHL was advised from the beginning) that DHL would be found liable in contract. No further argument was directed to the proposition that there was error in the primary judge’s assessment that DHL’s settlement with Sony was reasonable.

60. Ground 3 must be rejected.

61. Ground 4 depended on a proposition that is in direct contradiction to the premise of Grounds 1 and 2 – that DHL was not liable (presumably, either in contract or tort) to Sony. Following receipt of DHL’s written submissions, Action Workforce (correctly) abandoned reliance on cl 10.6 of the Warehouse Agreement. On what basis it was contended that DHL was not liable to Sony was not spelled out in the submissions. The relevant submission was:

“15  It follows that the settlement amount of $270,000 was not a liability which was a result of or had the requisite connection with the matters prescribed by cl 11.1(b) of the Services Agreement. DHL ‘incurred the settlement’ as a volunteer. That submission is supported by the reasons of the trial judge in finding, in substance, the absence of negligence on the part of DHL.”

66. The submission misconstrues the language of cl 11.1. The clause is not concerned with whether DHL was or was not negligent, or even in breach of its contractual obligations to Sony. What it provides is an indemnity given by Action Workforce to DHL in respect of:

“All liability, loss, damages, costs and expenses … awarded against or incurred or paid by DHL as a result of or in connection with:

(b)  any negligent act or omission of [Action Workforce] or its employees … in connection with the performance of the services.”

67. At the hearing, counsel maintained the proposition that, on the proper construction of cl 11.1(b), Action Workforce could not be required to indemnify DHL to the extent that any “liability, loss, damages, costs [or] expenses” were caused by DHL’s own negligence. Two simple answers rebut this proposition. The first is that it is inconsistent with the language of the clause. The second is that, in any event, the primary judge found no “negligent act or omission” on the part of DHL. Even if the construction advanced were correct (which it is not), it does not, on the facts here, avail Action Workforce.

68. In those circumstances, it is unnecessary to consider two additional grounds (raised for the first time during oral argument) concerning the asserted failure of the primary judge to make findings concerning cll 3.1 and 8.2 of the Service Agreement. I would, in any event, have rejected the grounds. The finding that Action Workforce was negligent, and the accepted position that Action Workforce was a sub-contractor of DHL, have the result that the exception to cl 8.2 applied. Sony was not obliged under that clause first to make a claim on its insurance policy.

69. It is unnecessary to deal with the cross-appeal, which should be dismissed.

70. The orders I propose are:

(1)   Appeal dismissed;

(2)   Cross-appeal dismissed;

(3)   Appellant pay the respondent’s costs of the appeal.

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Endnotes

Amendments

12 December 2017 - substitute “DHL Supply” with “DHL Exel Supply”: coversheet

Decision last updated: 12 December 2017