Botany Fork & Crane Hire Pty Ltd v New Zealand Insurance Co Ltd

[1993] FCA 559

BOTANY FORK AND CRANE HIRE PTY LIMITED v THE NEW ZEALAND INSURANCE COMPANY
LIMITED
No. ACTG17 of 1993
FED No. 559
Number of pages - 8
Insurance Contract
(1993) 116 ALR 473
(1993) 44 FCR 27

COURT

IN THE FEDERAL COURT OF AUSTRALIA

AUSTRALIAN CAPITAL TERRITORY DISTRICT REGISTRY
GENERAL DIVISION
Hill(1), Higgins(1) and Cooper(1) JJ

CATCHWORDS

Insurance Contract - construction - exclusion of "damage to property... in the custody or control of the insured" - whether brief custody or control is sufficient - whether control must be exclusive - whether control has to be "over" goods or merely in relation to goods.

Words and Phrases - "custody or control".

Australian Casualty Co v. Federico (1986) 160 CLR 513; discussed.

Commercial Union Insurance Company Ltd v. Willetts Radio and TV Limited (1985) 3 ANZ Insurance Cases 60-677; applied.

Indemnity Insurance Co v. Excel Cleaning Service (1954) 2 DLR 721; applied.

Canadian Surety Co v. Acadia Road Contractors Ltd (1978) 88 DLR (3d) 287; applied.

HEARING

CANBERRA, 28 June 1993

#DATE 13:8:1993

Counsel and Solicitors for the Appellant: G.J. Lunney instructed by

Barker and Barker

Counsel and Solicitors for the Respondent: D.G. Nock instructed by

Macphillamy Cummins and Gibson

ORDER

THE COURT ORDERS THAT:

1. Appeal dismissed.

2. Appellant to pay respondent's costs.

Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules.

JUDGE1

HILL, HIGGINS AND COOPER JJ The appellant, Botany Fork and Crane Hire Pty Limited, ("Botany"), appeals against the judgment of the Chief Justice of the Supreme Court of the Australian Capital Territory holding that the respondent, the New Zealand Insurance Company Limited ("the Insurer"), was not liable to indemnify Botany under the terms of a contract of insurance in respect of Botany's liability to a Mr Collin, the plaintiff in the present proceedings.

1. Mr Collin was the owner of a gondola which had been constructed in Venice and brought to Australia. It was, as his Honour found, "an unusual craft". The gondola and a purpose built trailer made from steel pipes or tubing were stored in a warehouse leased by a company controlled by the plaintiff. The storage was effected by suspending the gondola and trailer to which it was fastened from the trusses of the warehouse. When it came time for the gondola to be used it was necessary that it be removed from the trusses and lowered to the floor of the warehouse. This process was, on several occasions prior to 22 May 1980, carried out by Botany under contract with Mr Collin, by the use of a forklift truck operated by a driver employed by Botany.

2. On 22 May 1980 the gondola was to be taken to Lake Burley Griffin for a day on the lake preparatory to a proposal to transport it by truck to Melbourne for participation in the Moomba festival. His Honour found that Mr Collin had telephoned someone at Botany and ordered a forklift truck to lift the gondola down.

3. The forklift truck was driven by a Mr Shores who was not told by his employer, so his Honour held, what it was that had to be lifted. Mr Shores arrived at the warehouse at which a Mr Murphy was present. Neither could remember any conversation between them before the accident, which damaged the gondola, occurred. Mr Murphy got on to the roof of the forklift, or allowed himself to be raised on the tines, so as to gain access to the gondola. Mr Shores operated the forklift so that the tines "took the weight of the gondola". Mr Murphy noticed that when the forklift took the weight of the gondola the ropes attaching the gondola to the trusses went slack. Mr Murphy then climbed from the forklift into the gondola, untied the ropes at one end and let them drop to the floor. He then made his way along to the other end of the gondola, untied the ropes there and let them drop and quietly crawled back along the hull on the side nearest the mast of the forklift. He got out of the gondola and climbed down the forklift to the floor. Mr Shores began to drive the forklift in reverse along the floor. The forklift had travelled but a few inches when the mast swung backwards and forwards three times. On the third movement the gondola and trailer turned over and crashed to the floor substantially damaging the gondola.

4. The circumstances were such that his Honour found that Mr Shores had been negligent in failing to observe the instability of the load, an instability caused mainly by the fact that the tines did not support the load beyond the centre bar of the trailer and contributed to by the likelihood that the centre of gravity was more than 0.6 metres from the heel of the tines. In the circumstances it was negligent to attempt to move the forklift across the concrete floor. Indeed reasonable care would have required that the driver used slippers (ie extensions) on the tines to ensure that the trailer was supported across the whole of its width and the gondola was likely to have been supported across the whole or almost the whole of its beam. His Honour, accordingly, gave judgment against Botany in favour of Mr Collin in the sum of $30,000.

5. Botany had joined the Insurer claiming indemnity from the Insurer under a motor vehicle insurance policy labelled "Peace of Mind Insurance". The Insurer, by way of defence, relied upon an exception in the policy. The parties are in agreement that the relevant provisions of the policy are as follows:
   

"SECTION ONE - LOSS OR DAMAGE The Insurer will indemnify the Insured against loss of or damage to any motor vehicle described in the schedule together with any spare parts or accessories fitted thereon... SECTION TWO - THIRD PARTY LIABILITY Indemnity to the Insured

(1) The Insurer will indemnify the Insured against legal liability for death of or bodily injury to any person and damage to property arising from an accident caused by through, or in connection with -

(a) the insured vehicle. ...

EXCEPTIONS TO SECTION TWO

...

(b) damage to property belonging to or held in trust by or in the custody or control of the Insured or any person indemnified by this Section."

1. The policy in question refers to a Schedule which relates to the limitations of use of the vehicle insured. Reference is made in the terms of the policy to that limitation being either "private use" or "business use". The parties were in agreement that the vehicle insured was the forklift and it may be assumed that the Schedule referred to "business use" rather than "private use" in these circumstances.

2. His Honour expressed the view that there was no need to draw a distinction between the words "custody" and "control". He said that each imported a notion of possession:
   

"...the power in fact, if not in law, to keep others (not necessarily all others) from access to or interfering with the chattel and to effect some degree of physical disposition or management of the chattel."

1. His Honour found that once Mr Murphy had freed the gondola from the ropes that held it and the trailer suspended from the roof trusses and had made his way down the forklift to the floor, the gondola and trailer had come under the control of the forklift driver. It was still under the control of the driver when it fell and the driver being an employee of Botany, his Honour was of the view that the gondola was in the control of Botany within the meaning of the exclusion clause, with the consequence that the Insurer was not liable to indemnify Botany under the policy. His Honour was of the view that the question whether Mr Murphy was or would have been in a position to exercise some degree of control over the gondola by directing the driver to bring it to rest at some particular place did not arise.

The submissions of the parties
10. For the applicant it was submitted that his Honour had erred in failing to draw a distinction between "custody" on the one hand and "control" on the other. It was submitted that the two concepts were distinct but that in the present case there was neither custody nor control. For there to be "control" in the relevant sense, it was submitted that such control must exist to a substantial extent. The control must, it was said, be substantial, significant or real. The present case involved, so it was argued, an isolated event in which no custody was given to Botany and the degree of control which Botany might exercise in relation to the gondola was said to be not sufficiently significant to lead to the conclusion that Botany was at the moment of the accident in control of the gondola.

1. For the Insurer it was submitted that each of the words "custody" and "control" had wide meanings. It was said that both the concepts of custody and control carried with them the concepts of possession, as his Honour had said, but that in the present case Botany had possession of the gondola at least from the moment that the weight of the gondola and trailer rested upon the tines of the forklift truck. Accordingly it was said that in the present case, as a matter of fact, having regard both to the contract between Mr Collin and Botany and what was done under that contract, it was correct for his Honour to find that Botany had control of the gondola. To the extent that Botany complained of the shortness of time in which the driver had control of the gondola, the question of duration was not relevant.

The meaning of the exclusion clause
12. A contract of insurance is but a species of commercial contract. Its interpretation must be approached with this in mind. The Court will ascertain the ordinary English meaning of the words used by the parties having regard to the context in which they appear, the purpose of the policy, the presumed common intention of the parties and in the light of all relevant circumstances in which the contract of insurance came into being. However, because the terms of the policy are ordinarily standard and unalterable, so far as the insured is concerned, any ambiguity in language of the policy will be construed against the insurance company: Western Australian Bank v Royal Insurance Co (1908) 5 CLR 533 at 567. As to the general principles of interpretation of insurance policies see Sutton KCT 2nd Ed Insurance Law in Australia 1991 at 539-541, MacGillivray and Parkington on Insurance Law, M Parkington (ed), 7th Ed, 1981 at 433-434, 8th Ed, 1988 at 439-440; Federation Insurance Limited v Banks (1984) VR 525 (Full Court); National Protector Fire Insurance Company Limited v Nivert (1913) AC 507 at 513. In Australian Casualty Co v Federico (1986) 160 CLR 513 at 520, Gibbs CJ discussing the rules of interpretation applicable to insurance policies said:

"The ordinary rules of interpretation apply to a policy of insurance. As in the case of any other commercial contract, a court may depart from the strictly literal meaning of a particular expression to place upon it an alternative construction which is more reasonable and more in accord with the probable intention of the parties if the words will bear that construction... Further 'the trend is, if anything, to adopt a liberal interpretation in favour of the assured, so far as the ordinary and natural meaning of the words used by the insurers permits this to be done'."

1. So too in the High Court of New Zealand, Williamson J in Gray Brothers Engineering Limited v The New Zealand Insurance Company (1992) 7 ANZ Insurance Cases 61-124, expressed the principles applicable to the interpretation of insurance policies (at 77,619) as follows:
   

"The approach which the Court must take to this question of construction is clear and not in dispute between the parties. The policy of insurance must be read with the words being given their primary, natural, ordinary and popular meaning. It is important to read the words in the context of the paragraphs in which they occur and having regard to the policy as a whole. (See E.R. Hardy Ivamy, General Principles of Insurance Law, 5th Edn Chapter 35 p 331)."

1. The words "custody" and "control" are words the meaning of which will depend upon context: Federal Commissioner of Taxation v Australia and New Zealand Banking Group Limited (1979) 143 CLR 499 at 520 per Gibbs ACJ, at 533 per Mason J. Thus cases such as the Australia and New Zealand Banking Group Limited case and more recently, Green v FP Special Assets Limited (1991) 9 ACLC 75 concerned with statutory requirements for the production of books, documents etc in the custody or control of the addressee of a notice may be of assistance in elucidating the range of meanings which the words may have, but will clearly not be determinative in showing the meanings which the words have in the present context.

2. The Shorter Oxford English Dictionary gives as its primary definition of "custody": "Safekeeping, protection; charge, care, guardianship." In its ordinary meaning, at least, "control" has a meaning somewhat different from that. As Mason J observed in the Australia and New Zealand Banking Group Limited case (at 533) the meaning of the word control "can vary from sole absolute dominion over the object controlled 'to something weaker than restraint', something equivalent to regulation."

3. The present policy provides cover to an insured person of two kinds. First there is cover of the vehicle itself. If there is loss or damage to the vehicle the insured will be entitled to claim under the policy. There is no specific insurance of any other property owned by the insured. The second part of the policy covers by way of indemnity damage to property brought about by the insured vehicle. Consistent with the policy not directly covering loss or damage to the property of the insured (other than the vehicle insured), the exclusion to Section 2 of the policy precludes claims being brought under the policy for damage to property which, while not belonging to the insured, nevertheless had some connection with the insured which otherwise could make the insured responsible for the loss or damage of the item in question. That idea is expressed through the concepts of custody or control. Where the policy covers business goods, as is presently the case, the policy would not only exclude under Section One damage to the insured's own goods (other than the insured vehicle), but also under Section Two damage to the insured's own goods as well as goods for which the insured had some business responsibility.

4. A similar policy was considered in Commercial Union Insurance Company Ltd v Willetts Radio and TV Limited (1985) 3 ANZ Insurance Cases 60-677 by Cook J in the New Zealand High Court who expressed the following conclusion (at 79,251):
   

"The exclusion is in respect of loss or damage to property owned by the insured or leased or rented to the insured or in his physical or legal control. The only conclusion I can come to is that the exception is intended to exclude loss or damage to property in respect of which the insured has a responsibility and over which he may exercise rights by reason of or arising from contract or bailment or actual possession connected with his business; property which for some reason is under his influence or under his control by reason of his business, as opposed to property belonging to persons with whom he has no such dealings (with the express exclusion from the exception of buildings not owned but rented or occupied)."

1. It is unnecessary in the present case to decide whether damage to goods of the insured might, subject to the exclusion, give rise to a claim under Section Two of the policy, for example, if a truck insured under the policy collided with another truck carrying goods of the insured causing damage to the latter goods.

2. The exclusion of goods in the custody or control of the insured is not unusual in policies of the present kind. In some cases the exclusion is expressed in terms not only of custody and control but also of "care". Counsel for Botany sought to distinguish clauses where the exclusion covered "care" as well as "custody" or "control" from a clause such as the present where the word "care" is omitted. It may very well be that in an appropriate case the word "care" would add something to the policy. However, the issue in the present case is whether the gondola was in the possession or power of Botany at the time of the accident.

3. We were taken to a number of cases where policies had excluded from cover goods in the possession or control of the insured. These included: Indemnity Insurance Co v Excel Cleaning Service (1954) 2 DLR 721; Interprovincial Pipe Line Co v Seller's Oil Field Limited (1976) 66 DLR (3d) 360; Gray Brothers Engineering Limited (supra); Willetts Radio (supra); and Canadian Surety Co v Acadia Road Contractors Ltd (1978) 88 DLR (3d) 287. In each of these cases the facts differed from the present. Nevertheless, some guidance may be found from the application to the facts of those cases of the words in issue.

4. In Excel Cleaning Service the exclusion clause related to property "in the care, custody or control of the insured". The insured was cleaning a rug in a customer's house and while doing so ruined the rug which was tacked to the floor. It was held by the Supreme Court of Canada (Rand, Estey and Locke JJ, Kerwin and Cartwright JJ dissenting) that the rug was not in the care, custody and control of the insured. It was significant in that case that the goods in question were in situ and that the obligation to work upon the carpet was contemplated as an obligation to work upon it while it remained in the exclusive care and control of its owner. Thus Rand J said (at 726):
   

"Clearly custody was not transferred; the only care called for was in the execution of the service, not toward the property as such; and no control in a proprietary sense, was intended. Either care or control would have involved some degree of responsibility towards the property, apart from and in addition to that relating to the application to it of the cleaning process. The situation was one in which all proprietary relations remained in the owner and only an operating responsibility toward the property arose."

1. In the same case Estey J (at 729) said:
   

"Reference to the Oxford Dictionary discloses that these words as commonly used, possess a variety of meanings. A study thereof does indicate that as here used care' would include a measure of protection and preservation, custody' of safekeeping and protection and control' of direction or domination. Respondent and his customer King contemplated that the rug, in the process of cleaning, would not be moved. In the circumstances respondent had but a permission to go upon the rug, to move the furniture and to place thereon such equipment as might be necessary for the cleaning thereof... It does not appear that here the appellant has assumed any responsibility in respect to preservation, safekeeping, protection, direction or domination, as contemplated in the phrase care, custody or control' as used in cl.(g)."

1. The Interprovincial Pipe Line Co case again concerned an exclusion clause relating to property in the care, custody or control of the insured. In that case the insured damaged an oil storage tank in the course of cleaning that tank and it was held that the tank was not in the care, custody or control of the insured during the cleaning process. Again, the goods in question were clearly in situ. Further, although it might have been said that the insured had some control in relation to the tank it clearly did not control the tank itself, nor did the insured have custody or care of the tank.

1. In Gray Brothers Engineering Limited the insured was employed to repair the boom of an excavator at a mining site. After work had commenced on the boom there was an accident which caused damage to the excavator. The exclusion clause excluded property "in the charge or under the control of... the Insured". It was held that the exclusion clause had no application. Again this was a case where the insured could properly be said to have had control over some part of the goods in question, that is control in relation to the goods but not control of the goods themselves. The Court pointed out that the insured had no authority to move the vehicle, no authority to alter it structurally or indeed to make any decisions as to the vehicle's future.

2. The Willetts Radio case was a clear one. The insured was a vendor of video recorders to whom a defective machine had been returned. The insured sent it on to the manufacturer for repair but it did not arrive after having been consigned to the Railways for delivery to the manufacturer. It was found that the exclusion clause applied because the insured was the bailee of the video recorder and as such had legal control of it after it was consigned to the railways notwithstanding that control of it was also vested in the railways. Thus custody or control refers not merely to physical custody or control but extends also to legal custody or control.

3. Finally, in the Canadian Surety Co case the exclusion clause excluded damage to "property owned, used or occupied by or leased to the insured" and "property in the care, custody or control of the insured". Damage was caused to two cranes supplied by third parties for the plaintiff's construction project. The cranes were supplied with drivers who controlled the actual operation of them. It was held that the insured was entitled to indemnity because the cranes were not in the care, custody or control of the insured, but rather in the care, custody and control of the supplier of the crane, vicariously through the driver of the crane.

4. From these cases it may be concluded first, that both custody and control refer not only to legal custody and control but also to actual or de facto custody or control. Secondly, it may be said that the custody or control need not be exclusive of some other person, that is to say, that more than one person may have, at any given point of time, custody or control of the item in question. Thirdly, while control clearly relates to dominion or power over the item ultimately damaged, the exclusion clause will not be attracted where the control is merely in relation to that item but not over it. Nor will the exclusion clause be attracted if the control is of a part only but not the whole of the item.

5. Ordinarily control of an item will entail possession of it. However, in the ordinary meaning of the word at least, control does not require possession. It may be that in the present context it does, but it is unnecessary to decide that question in the present case. Suffice it to say that once the gondola and trailer rested upon the tines of the forklift, the driver of that forklift truck had as much possession of the gondola and trailer as would the driver of a truck into which the gondola and trailer might have been placed in order to transport them by road. That possession enured to Botany through the agency of the forklift truck driver.

6. What distinguishes the present case from others decided before, is that in the present case the goods in question were moved by the driver of the forklift truck, albeit that that movement which was under his control was but brief and was for the purpose merely of moving the goods from the ceiling where they had been stored to the floor of the warehouse premises. Nevertheless, Botany was employed for the precise purpose of moving the goods in this way. Counsel for Botany conceded that if the forklift truck had been engaged to move the goods from the place where they were stored to another building to be loaded on a truck, the goods in question would have been under the control of the forklift driver and thereby Botany. He submitted, however, that the fact that the engagement was a briefer one gave rise to a different result. With respect we cannot agree. There is no difference in an engagement to move goods in a vertical direction from the case where there is in an engagement to move goods in a horizontal direction. In each case while the goods are on the forklift, they are under the control of the forklift truck driver and through him, his employer. We find it unnecessary to determine whether Mr Murphy could be said also to have had some form of control over the gondola and trailer. As presently advised we doubt whether he did. In any event once it is accepted that the control of which the exclusion clause speaks need not be exclusive control, the question whether Mr Murphy had some form of control becomes an irrelevant one. The only issue is whether in the relevant sense Botany had such control. In our view it did with the result that the exclusion clause in the policy operated to deny Botany's indemnity.

7. In these circumstances the appeal should, in our view, be dismissed with costs.