Certain Underwriters at Lloyds of London v Allianz Australia Insurance Limited

IN THE SUPREME COURT OF VICTORIA

Not Restricted

AT MELBOURNE

COMMERCIAL COURT

INSURANCE LIST

S ECI 2017 00257

CERTAIN UNDERWRITERS AT LLOYDS OF LONDON	Plaintiff
v
ALLIANZ AUSTRALIA INSURANCE LIMITED (ACN 000 122 850)	Defendant

---

JUDGE:	RIORDAN J
WHERE HELD:	Melbourne
DATE OF HEARING:	29 and 30 October and 14 November 2018 (Written Submissions)
DATE OF JUDGMENT:	27 November 2018
CASE MAY BE CITED AS:	Certain Underwriters at Lloyds of London v Allianz Australia Insurance Limited
MEDIUM NEUTRAL CITATION:	[2018] VSC 735

---

INSURANCE – Contribution between insurers – Contractor’s third party insurance policy extended to the principal but only to the extent the contractor was required by the contract to effect such cover in respect of activities relating to that contract – Whether principal was entitled to indemnity under contractor’s third party insurance policy – Principles of construction of clauses requiring a party to take out insurance cover for the acts of another party – Whether claims against the principal arose out of performance of the contract by the contractor – Whether claims were in respect of activities relating to the contract – Whether the contractor’s worker was a third party – Applicability of authorities relating to construction of indemnities considered.

---

APPEARANCES:	Counsel	Solicitors
For the Plaintiff	G G McArthur QC	Wotton & Kearney
For the Defendant	P G Cawthorn QC with C G K Madder	Moray & Agnew

TABLE OF CONTENTS

Agreed facts................................................................................................................................... 1
The issues....................................................................................................................................... 5
Were the Worker’s Claim and the VWA Claim claims arising out of the performance of the contract by Alstom?................................................................................................................................. 7
Plaintiff’s submissions........................................................................................................ 7

Defendant’s submissions............................................................................................................. 8
Authorities..................................................................................................................................... 9
Principles of construction.......................................................................................................... 27
Decision........................................................................................................................................ 34
Were the Worker’s Claim and the VWA Claim ‘in respect of activities relating to the Alliance Agreement’ within the meaning of the Allianz Policy?............................................... 39
Defendant’s Submissions................................................................................................. 39
Plaintiff’s Submissions...................................................................................................... 39

Decision........................................................................................................................................ 40
Was the worker a third party for the purposes of the Allianz Policy?............................... 41
Decision........................................................................................................................................ 41
Order............................................................................................................................................. 42

LIST OF CASES CITED

Albion Insurance Company Ltd v Body Corporate Strata Plan No 4303 [1983] 2 VR 339

Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549

Australian Paper Plantations Pty Ltd v J & E M Venturoni [2000] VSCA 71

CGU v Lawless [2008] VSCA 38

Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337

CSR Limited v Adecco (Australia) Pty Ltd [2017] NSWCA 121

Davis v Commissioner for Main Roads (1968) 117 CLR 529

Dickinson v Motor Vehicle Insurance Trust (WA) (1987) 163 CLR 500

Drayton v Martin (1996) 67 FCR 1

DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423

Ecosse Property Holdings Pty td v Gee Dee Nominees Pty Ltd (2017) 343 ALR 58

Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640

Erect Safe Scaffolding (Australia) v Sutton (2008) 72 NSWLR 1

Eureka Operations Pty Ltd v Viva Energy Australia Ltd [2016] VSCA 95

F & D Normoyle Pty td v Transfield Pty Ltd (2005) 63 NSWLR 502

Gillespie Brothers v Roy Bowles Transport [1973] 1 QB 400

GIO General Limited v Centennial Newstan Pty Ltd [2014] NSWCA 13

GIO v R J Green (1966) 114 CLR 437

Leighton Contractors Pty Limited v Smith [2000] NSWCA 55

Lister v Romford Ice & Cold Storage Co Ltd [1957] AC 555

Lumley General Insurance Ltd v Port Phillip City Council [2013] VSCA 367

Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104

National Vulcan Engineering Group Ltd v Pentax [2004] NSWCA 218

New South Wales v Tempo [2004] NSWCA 4

Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451

Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989

Roads and Traffic Authority (NSW) v Palmer (2003) 38 MVR 82

Royal Botanical Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45

Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85

Speno Rail Maintenance Australia Pty Ltd v Hamersley Iron Pty Ltd (2000) 23 WAR 291

Todd v Alterra at Lloyds Ltd (2016) 239 FCR 12

Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165

Westina Corporation Pty Ltd v BGC Contracting Pty Ltd (2009) 41 WAR 263

Zhu v Treasurer of New South Wales (2004) 218 CLR 530

HIS HONOUR:

By originating process filed 3 November 2017, the plaintiff (‘Aegis’) claims contribution from the defendant (‘Allianz’), as co-insurer of Hazelwood Power (‘Hazelwood’), in the sum of $418,149 plus interest, being 50 per cent of the sums:

(a) paid by Aegis under its Combined Liability Insurance Policy (‘the Aegis Policy’) with Hazelwood Power, in respect of certain claims again Hazelwood; and

(b) in respect of which Hazelwood is allegedly entitled to indemnity under the Combined Public and Products Liability Policy No 99 0966987 LCP, to which Allianz is an insurer (‘the Allianz Policy’).

Allianz denies that Hazelwood is entitled to indemnity from it under the Allianz Policy with respect to the claims.

For the reasons below, I find that Hazelwood is entitled to indemnity from Allianz under the Allianz Policy and that, as a result, Aegis is entitled to contribution from Allianz in respect of its liability to Hazelwood.

Agreed facts

Hazelwood is a partnership of four companies that owns and operates the Hazelwood Power Station at Morwell (‘the premises’).

Alstom Ltd (‘Alstom’) carries on business as a specialist provider of maintenance services and personnel to power generation and energy customers.

By an agreement dated 30 October 2001 (‘the Alliance Agreement’) Hazelwood and Alstom agreed that Alstom would provide outage and maintenance works for Hazelwood at the premises. This would require Alstom’s employees to work at the premises.

Hazelwood and Alstom were defined in the Alliance Agreement as ‘Alliance Participants’ and the following recitals emphasised the parties’ intention that they would adopt a co-operative approach to the performance of the Agreement:

Recitals:
A.Under this Agreement, we have formed an Alliance to carry out the Work.
B.We have entered into this Agreement because we want to establish the basis for a long-term commitment between us for the purpose of achieving specified business objectives by maximising the effectiveness of each party’s resources.
C.We acknowledge that the establishment of this commitment requires:
(a)       changing traditional relationships;
(b)       mutual trust;
(c)       intense joint planning with dedication to common goals;
(d)      open communication;
(e)sharing and understanding of each of our individual expectations and values; and

(f) dynamic flexibility.

In a similar vein, the definition section explained the use of the plural pronouns in the Agreement:

References, to “we”, “us” and “our” are a convenient way of referring to Hazelwood and Alstom. Using this language reflects our spirit of wanting to work together and our desire to avoid legalistic language. Our use of “we”, “us” and “our” is hot intended to mean that Hazelwood is responsible for the performance of Alstom, or the reverse. Hazelwood and Alstom, are each individually responsible for carrying out our obligations, although we will encourage the other Alliance Participants to carry out then obligations for the benefit of all of us.

Under the Alliance Agreement, Hazelwood and Alstom were each respectively required to arrange certain insurance policies; and to each indemnify the other in respect of certain matters. The relevant clauses with respect to insurances and indemnities were as follows:

13.       INSURANCES AND INDEMNITIES
13.1      INSURANCES PROVIDED BY HAZELWOOD
Hazelwood has effected and agrees to maintain insurance policies covering:
(a)        property damage; and
(b)        business interruption.
13.2      INSURANCES TO BE PROVIDED BY ALSTOM
Before commencing performances of the Work under this Alliance Agreement, Alstom shall effect and maintain with an insurer and on terms to be agreed by Hazelwood the following insurances:
i)Construction All Risks covering the Works for the full reinstatement value including an allowance for variation and free supplied items. The policy should be maintained until formal acceptance by Hazelwood of the Works. The limit of liability provided should be not less than $A20,000,000 for any one occurrence.
ii)Marine Transit Insurance in respect of all items whilst undergoing transit anywhere in the world. The policy should be in a sum sufficient to reinstate the property in transit.
iii)Plant and Equipment Insurance in respect of all items belonging to or in the care, custody or control of Alstom or any employee, agent or sub-contractor of Alstom. This policy should cover plant and equipment anywhere within Australia and provide settlement on an indemnity basis.
iv)Third Party Liability Insurance covering legal liability for loss or damage to property or persons. The policy should be effected in the name of Alstom and provide indemnity to Hazelwood for claims wrought against it by third parties arising out of the performance of the contract by Alstom. The limit of Liability provided should be not less than A$50,000,000 for any one occurrence.
v)Comprehensive Motor Vehicles incorporating Third Party Liability insurance in respect of property damage. This policy should cover all registered motor vehicles used by Alstom at any time in connection with the Work under this Alliance Agreement.
vi)All other insurances as required by statute or regulation.

13.3      PERIOD OF INSURANCES
All insurances under clauses 13.1 and 13.2 must be maintained until completion of all of the Work under this Alliance Agreement.
13.4      OTHER INSURANCES
We may take out whatever further insurance the [Alliance Leadership Team][1] considers suitable or necessary.
[1]The Alliance Leadership Team consisted of equal numbers of representatives of Hazelwood and Alstom and was established to assist in fulfilling the parties’ commitments under the Agreement.
13.5      LIABILITY NOT LIMITED BY INSURANCE
As is usual, taking out or approval of any or all insurance required by this Alliance Agreement does not in any way limit our liabilities or obligations under this Alliance Agreement.
13.6      INSURANCE GENERALLY
13.6.1     Insurance Claims Procedures
Alstom agrees to immediately notify in writing both Hazelwood and the relevant insurer of any occurrence or incident likely to give rise to a claim under the policies referred to in this Alliance Agreement or of any other matter or thing in respect of which notice should be given by Alstom to the relevant insurers. After then, Alstom must give all information and assistance as is reasonably practicable in all the circumstances.
13.6.2     Both of us are Responsible
We are each responsible for complying with the exclusions and conditions of the insurances effected by us under this Alliance Agreement.
13.7      INDEMNITIES
We are each liable for, and shall indemnify each other and our directors, employees, agents and contractors against:
(a)        loss or damage to property of an Alliance Participant;
(b)        claims about in respect of loss of or damage to any property;
(c)        claims about personal injury, disease, illness or death;
(d)any consequences of non-compliance with the terms of the insurance by an Alliance Participant, its employees, agents or Subcontractors;
(e)claims about any patent, registered design, trade mark or name, copyright or other protected right; and

to the extent that the loss, damage or claim was caused by an act, error or omission of the indemnifying Alliance Participant arising out of, or in connection with, the indemnifying Alliance Participant carrying out the Work. The responsibility to indemnify any other Alliance Participant is reduced to the extent that an act or omission of any other Alliance Participant contributed to the loss or damage suffered.
(Emphasis added)

On 9 April 2011, an employee of Alstom left the changeroom at the Hazelwood Power Station and was walking along the path towards the clock-off gate to the car park. His foot caught on an uneven section of the walkway and he tripped and fell.

By writ filed 21 May 2014, the worker claimed damages from:

(a) Alstom for breach of its duties as his employer; and

(b) Hazelwood for breach of its duties owed as occupier of the premises (‘the Worker’s Claim’).

By writ filed 9 September 2014, the Victorian WorkCover Authority sought recovery, under s 138 of the Accident Compensation Act 1985, of payments of workers’ compensation benefits made to the worker (‘the Recovery Claim’).

On 3 August 2016, the Worker’s Claim settled on the basis of the payment of $575,000 plus costs, to which Hazelwood and Alstom each contributed 50%.

On 10 August 2016, the Recovery Claim settled on the basis of Hazelwood paying $625,000 plus costs agreed at $40,000.

Alstom was entitled to indemnity with respect to the Worker’s Claim and the Recovery Claim (together ‘the Claims’) as the Named Assured under the Allianz Policy.

Hazelwood was entitled to indemnity with respect to the Worker’s Claim and the Recovery Claim under the Aegis Policy.

Relevant to the present dispute, under cl 2 of the Allianz Policy, the definition of Assured includes:

in so far as any contract may require, the Principal for whom the Named Assured is working but only to the minimum amount to which the Named Assured is required to effect such insurance and only in respect of activities relating to that contract.

The issues

First, Aegis contends that Allianz is a co-insurer of Hazelwood’s liability under the Claims and seeks 50 per cent contribution of the amounts it has paid with respect to those claims. It is common ground that a claimant for such contribution must prove the following:

(a) The claimant was liable to indemnify the insured under its own policy.

(b) The claimants paid out sums in respect of that liability.

(c) The alleged co-insurer is also liable under its policy to indemnify the insured.

(d) The alleged co-insurer has not paid out the sum to meet its liability to the insured.[2]

[2]Drayton v Martin (1996) 67 FCR 1, 13 (Sackville J).

It is common ground that:

(a) the elements referred to in sub-paragraphs 18 (a), (b) and (d) above are satisfied;
(b)Hazelwood was the Principal for whom the Named Insured (Alstom) was working, within the meaning of the Allianz Policy; and
(c)under cl 13.2 (iv) of the Alliance Agreement, Alstom was required to effect third party liability insurance to ‘provide indemnity to Hazelwood for claims [b]rought against it by third parties arising out of the performance of the contract by Alstom’.

However, Alstom contends that Hazelwood is not entitled to indemnity under the Allianz Policy because:

(a)the claims did not arise out of the performance of the contract by Alstom within the meaning of cl 13.2 (iv) of the Alliance Agreement;
(b)the Claims were not in respect of activities relating to the Alliance Agreement within of meaning of cl 2 of the Allianz Policy.

(c) Alstom’s worker was not a third party for the purpose of the Allianz Policy.

Accordingly, the questions to be determined by this Court are as follows:

(a)Were the Worker’s Claim and the VWA Claim claims arising out of the performance of the contract by Alstom?
(b)Were the Worker’s Claim and the VWA Claim ‘in respect of activities relating to the Alliance Agreement’ and within the meaning of the Allianz Policy?

(c) Was the worker a third party for the purposes of the Allianz Policy?
Were the Worker’s Claim and the VWA Claim claims arising out of the performance of the contract by Alstom?
Plaintiff’s submissions

Mr McArthur QC submitted that the Claims did arise out of the performance of the contract by Alstom, on the following bases:

(a)The performance of the contract by Alstom provided the occasion for the worker to be injured.
(b)Under the Alliance Agreement, Alstom was to effect insurance for motor vehicles, plant and equipment, Construction All Risks and Marine Transit, which all covered Alstom, Hazelwood, or anyone else. He submitted that ‘it would make no sense to imply a limitation upon those covers [or the public liability cover under cl 13.2(iv)] to damage caused by Alstom’s negligence and not have them cover damage caused by Hazelwood’s negligence’.
(c)Sufficient connection is established by the fact that the claim was brought by Alstom’s employee who was present at the premises to perform the Alliance Agreement for Alstom.
(d)The commercial purpose of cl 13.2 (iv) of the Alliance Agreement was to insure Hazelwood for liability it may have to Alstom employees as a result of them being on the premises.
(e)Clause 13.5 suggests that the obligation to insure is not intended to support the indemnities separately given under cl 13.7 of the Alliance Agreement.
(f)The indemnity under cl 13.7 is limited to damage caused by the act, error or omission of the indemnifier; but cl 13.2 (iv) contains no such limitation.
(g)The indemnities could extend to uninsured liabilities such as injuries relating to asbestos.
(h)Clause 13.2 is not an indemnity provision and is therefore not subject to the same rules of construction.[3]
[3]Todd v Alterra at Lloyds Ltd (2016) 239 FCR 12, 18–23 [20]–[42] (Allsop CJ and Gleeson J, with whom Beach J agreed), concluding at [40]: ‘From the nature, character and purpose of insurance there is no reason, and no precedent, for according an insurer the tenderness accorded to guarantors and indemnifiers as reflected in the general principle recently restated in Bofingerv Kingsway Group Ltd (2009) 239 CLR 269, 292 [53]’.

Defendant’s submissions

Mr Cawthorn QC submitted that the Claims did not arise out of the performance of the contract by Alstom, on the following bases:

(a)In contracts of indemnity there is a presumption that, absent clear words, the indemnity does not extend to the indemnified party’s own negligence.[4]
(b)‘Arising out of’ requires the act to be a contributing factor and not a ‘mere casual concomitant’. The fact that the worker was on Hazelwood’s premises was an example of the latter. The fact that the performance of the Alliance Agreement may have provided the occasion for the injury occurring is insufficient.[5]

(c)The obligation to maintain insurance under cl 13.2(iv) of the Alliance Agreement is intended to cover the contractual indemnity in cl 3.7, which plainly does not extend to Hazelwood’s own acts of negligence. This construction is supported by the fact that cl 13.2(iv) limits the obligation to performance of the contract by Alstom.
[4]Gillespie Brothers v Roy Bowles Transport [1973] 1 QB 400, 419 (Buckley LJ, with whom Lord Denning MR and Orr LJ did not disagree, on that point); Westina Corporation Pty Ltd v BGC Contracting Pty Ltd (2009) 41 WAR 263, 280 [64]–[67] (Buss JA, with whom Wheeler and Newnes JJA agreed).
[5]Australian Paper Plantations Pty Ltd v J & E M Venturoni [2000] VSCA 71 [15] (Buchanan JA, with whom Ormiston JA agreed).

Authorities

In Davis v Commissioner for Main Roads (‘Davis’),[6] the High Court considered a contract between Davis, a contractor, and the Commissioner for Main Roads for the cartage of spoil across a railway level crossing. Clause 7 of the contract provided as follows:
[6](1968) 117 CLR 529 (Barwick CJ, McTiernan, Kitto, Menzies and Windeyer JJ).

The Contractor shall undertake the whole risk of carrying out the contract, and without limiting the generality thereof, shall –
(a) hold the Commissioner indemnified against all claims arising out of –
(i) damage to the property of the Contractor or any third party;
(ii)death of or bodily injury to the Contractor or his employees, or employees of the Commissioner, or any third party including persons transported in vehicles engaged by the Contractor;

whether such damage, death or bodily injury is caused by the use of a motor vehicle or by goods falling or projecting therefrom or otherwise howsoever …[7]

[7]Italics added, extracted from ibid 532.

The contractor’s truck was involved in an accident. In the action by a third party against the contractor for property damage, the contractor alleged that the accident was caused or contributed to by the negligence of the Commissioner. On a demurrer, the issue was whether the Commissioner was entitled to be indemnified by the contractor for liability to the third party based on the negligence of the Commissioner.[8]
[8]Ibid 536 (Menzies J).

Menzies J (with whom Barwick CJ and McTiernan J agreed) found that the Commissioner was entitled to indemnity under cl 7 for liability arising from its own negligence for the following reasons:

(a)Clause 7 provides indemnity for claims against the Commissioner arising out of bodily injury to the contractor himself; and such a claim ‘could not be maintained in the absence of fault on the part of the Commissioner’. Accordingly, the principal purpose of the indemnity was to protect the Commissioner against liability for its own fault.[9]
(b)As the indemnity was intended to extend to cover the Commissioner for negligence, there was no basis for limiting the indemnity to particular breaches of the duty of care.[10]
(c)The language of cl 7 was unambiguous even if it produced ‘what may be thought to be hardship’.[11]

[9]Ibid 537.

[10]Ibid.

[11]Ibid.

Kitto J (with whom Windeyer J agreed) dissented and held that the indemnity was impliedly confined to claims caused by the negligence of the contractor in carrying out the contract. He agreed with Sugerman J (who had dissented in the Full Court of the New South Wales Supreme Court) that cl 7 only extended to claims asserting a vicarious responsibility on the part of the Commissioner for the acts of the contractor in the performance of the contract.[12] His Honour reasoned as follows:

(a)The opening words of cl 7, being ‘[t]he Contractor shall undertake the whole risk of carrying out the contract’, refers to ‘the whole risk of [the Contractor] carrying out the contract’.[13]
(b)The parties could not have intended to indemnify for all damage which was not caused by the contractor; and therefore, where the negligence of both the contractor and the Commissioner caused the same damage, the indemnity would not extend to that part caused by the Commissioner’s negligence.[14]
(c)Further, cl 7 was part of the Commissioner’s general conditions and, if there was any doubt, it was resolved by construing the clause contra proferentem.[15]

[12]Ibid 532–533.

[13]Ibid 533.

[14]Ibid 534.

[15]Ibid.

In Australian Paper Plantations Pty Ltd v J & E M Venturoni (‘Venturoni’),[16] the Court of Appeal considered a claim for indemnity in the following circumstances:
[16][2000] VSCA 71 (Ormiston and Buchanan JJA).

(a)The owner of land engaged a contractor to fell trees on its land. The contractor, in turn, engaged the worker to fell the trees.
(b)A worker was injured felling trees on land and his claim against the owner, in negligence and breach of statutory duty, was settled.
(c)The written agreement (‘the tree-felling agreement’) between the owner and the contractor provided:

(i) Under the heading ‘Indemnity’:

The Tenderer [the contractor] hereby indemnify and agrees to keep the Company [the owner] indemnified against all costs, damages, fines, expenses, claims, actions and suits whatsoever arising out of or in respect of the carrying out of the agreement. (‘Clause 9’) (Emphasis added)

(ii) The owner would obtain at its expense insurance to cover the contractor for liability under the Workers Compensation Act 1958.

Buchanan JA (with whom Ormiston JA agreed) found that the contractor was not obliged to indemnify the owner under cl 9 for the following reasons:

(a)Clause 9 should be read as limited to claims ‘arising out of … the carrying out of the agreement’ by the contractor — not by the contractor or the owner for the following reasons:

(iii) Unless it was limited to the contractor, the owner would be entitled to ‘indemnity against its accounting, bank and postal costs of mailing cheques to the respondents in payment for their work under the contract’ — an absurd construction.[17] Buchanan JA said:
[17]Ibid [9]–[10].

If it had been intended that the clause was to apply to the performance of the contract by both parties, I would have expected the indemnity to have been limited to claims, actions and suits. The addition of costs, damages, fines and expenses does produce absurd results if the clause applies to the performance of the contract by both parties.[18]
[18]Ibid [11].

(iv) An analysis of the tree-felling agreement demonstrated that it principally imposed obligations on the contractor.[19]
[19]Ibid [10].

(v) The tree-felling agreement required the owner to provide workers compensation insurance for the contractor for claims by the contractor’s workers. It would be incongruous if the same agreement required the contractor to indemnify the owner for the same claims. However, ‘[t]he incongruity disappears if clause 9 is limited to liability arising from or in respect of the carrying out of the contract by the [contractor]’.[20]

(b) The only connection between the contractor and the worker’s injury was that he had been engaged by the contractor to perform its obligations under the tree-felling agreement — it not being contended by the worker that the injury occurred in the course of actually performing the contractor’s obligations under the tree-felling agreement. Buchanan JA considered this was no more than a temporal connection between the worker’s claim and the carrying out of the contract by the contractor (or, otherwise stated, was the mere occasion for the relevant liability),[21] which it had been conceded by the owner was insufficient to enliven cl 9.[22]

[20]Ibid [13].

[21]Ibid [15], [18].

[22]Ibid [7], [15].

In Speno Rail Maintenance Australia Pty Ltd v Hamersley Iron Pty Ltd (‘Speno’),[23] the Western Australian Court of Appeal considered whether Zurich Australian Insurance Ltd, the insurer of a contractor, was obliged to indemnify the principal under the following circumstances:

(a)The contractor and the principal had entered into a contract for the performance of certain work on a railway line operated by the principal. Under the contract, the contractor was obliged to indemnify the principal for injuries to the contractor’s employees.
(b)The contractor’s employee was injured while carrying out work on the railway line solely as a result of the negligence of the principal’s employees.
(c)Under a contract of insurance between the contractor and Zurich, the principal was named as an insured; and insurance for the principal was ‘in respect of his liability arising out of the performance, by [the contractor] … of any contract or agreement for the performance of work for such principal to the extent required by such contract or agreement’.[24]
(d)Zurich accepted that the principal was an insured under the policy but contended that the relevant liability of the principal did not ‘arise out of the performance’ by the contractor of any contract for the performance of work for the principal. In particular, Zurich contended that the principal’s liability arose out of the negligence of its employees and not the performance by the contractor of the contract.

[23](2000) 23 WAR 291 (Malcolm CJ, Ipp and Wheeler JJ).

[24]The policy is extracted at ibid 297 [8] (Malcom CJ).

Each of the members of the Court rejected this contention and found that liability did arise out of the contractor’s performance of the contract for the following reasons:

(a) The words ‘arising out of’ are wider than the words ‘caused by’.[25]
(b)The fact that the employee was doing something in the course of the performance of the contract by the contractor at the time of the injury meant it ‘occurred in the course of such performance … [and] this was enough to establish that [principal’s] liability was one “arising out of” the performance by [the contractor] of the contract’.[26]
(c)The narrow view, as contended for by Zurich, made it ‘difficult to conceive any situation’ in which cover would be provided under the policy.[27]
(d)The duty of care owed by the principal and the breach by the principal arose out of (i.e. had a causal or consequential relation with) the performance by the contractor of the contract.[28]

[25]Ibid 298 [11] (Malcolm CJ) and 317 [122] (Wheeler J), citing Dickinson v Motor Vehicle Insurance Trust (WA) (1987) 163 CLR 500, 505 (Mason CJ, Wilson, Brennan, Dawson and Toohey JJ); see also 309 [67] (Ipp J).

[26]Ibid 298 [12] (Malcolm CJ); also 309 [66] (Ipp J), 319 [131]–[132] (Wheeler J).

[27]Ibid 309 [67] (Ipp J), 319 [128] (Wheeler J).

[28]Ibid 318–9 [127] (Wheeler J).

In Leighton Contractors Pty Limited v Smith,[29] the New South Wales Court of Appeal considered a claim for indemnity in the following circumstances:

(a)A worker, who was employed by a contractor, was injured while securing roof trusses on a day he was in fact working for a sub-contractor.
(b)The contractor and the sub-contractor were both found liable to the worker for negligence and breach of statutory duty.
(c)The contractor claimed indemnity under its contract with the sub-contractor, which provided:
[The sub-contractor] shall indemnify and keep indemnified [the contractor] against all loss or damage resulting from personal injury arising out of or resulting from any act, error, or omission or neglect of [the sub-contractor].

[29][2000] NSWCA 55 (Mason P, Meagher and Fitzgerald JJA).

Mason P and Fitzgerald JA rejected the sub-contractor’s submission that the indemnity was ‘only against such liability as might be imposed on [the contractor] by fault on the part of [the sub-contractor]’,[30] on the following bases:

(a)The clause was not directed to the cause of liability to the worker but the cause of the injury to the worker. It was irrelevant that the sub-contractor had not been the cause of the contractor’s liability.[31]
(b)The meaning of the clause was not ambiguous and there was no basis to read it as though the word ‘solely’ was inserted after the words ‘personal injury’.[32]

[30]Ibid [4].

[31]Ibid [7].

[32]Ibid [7]–[9]. Meagher JA came to the same conclusion at [26].

In Roads and Traffic Authority (NSW) v Palmer,[33] the New South Wales Court of Appeal considered a claim for indemnity in the following circumstances:
[33] (2003) 38 MVR 82 (Spigelman CJ, Handley and Giles JJA).

(a)A driver sued the Road Traffic Authority, a council and a contractor ( who was engaged in roadworks), for damages for injuries sustained as a result of a car accident in an area of the roadworks.
(b)The council and the contractor were both found liable. The council claimed indemnity from the contractor under the terms of their contract, which relevantly provided an indemnity ‘… against any claim or action brought by any person against the Principal … in respect of personal injury … of any person … arising out of the construction of the Works by the Contractor’ (‘Clause 18’).[34]
[34]The clause is at ibid 105 [66].

(c) The contract also provided that:

(vi) the contractor would effect public liability insurance to cover the council and the contractor for liability to third parties including the liabilities set out in Clause 18;

(vii) the contractor would indemnify the council against liability for personal injury to the contractor or his agents occurring during the execution of the Works, except such injury resulting from breach of the contract by the council or his negligent act; and

(viii) the contractor would effect workers’ compensation insurance, which cover would include the council’s liability at common law.

Giles JA (with whom Handley JA agreed) identified the issue as whether the words in the indemnity ‘by the Contractor’ (after the words ‘arising out of the construction of the Works’):

(a)are descriptive of the activity of construction of the roadworks out of which the damage must arise (which his Honour termed ‘the first approach’); or
(b)mean that the damage must arise out of the contractor’s performance of that activity (‘the second approach’).[35]

[35]Ibid 134 [238].

For the following reasons, the Court accepted the contractor’s contention that the indemnity did not extend to claims arising out of acts of the council:

(a)Spigelman CJ (with whom Handley JA also agreed) accepted the contractor’s submission that the concluding words of the indemnity, ‘by the contractor’, was ‘intended to limit the scope of the “claims or actions” for which [the contractor] agreed to indemnify the council’,[36] so as to exclude ‘claims arising out of the acts or omissions of the council, whether those acts or omissions occur in the context of the “construction of the works” or otherwise’.[37] He said that it was not an easy matter to resolve;[38] and considered ‘the conclusion was reinforced by the application of the contra proferentem rule’.[39]
[36]Ibid 130 [213].
[37]Ibid 129 [203].
[38]Ibid 130 [213].
[39]Ibid 131 [214].

(b) Giles JA also preferred the second approach, reasoning that:

(ix) if the words were only descriptive of the works, they were of little significance because no one else was constructing the works;[40] and
[40]Ibid 134 [240].

(x) the provisions with respect to insurance favoured the second approach.[41]

He observed that the first approach would mean the contractor would accept the risk of liability arising from wrongs of the council, which although unbalanced is not unknown.[42]

[41]Ibid 135 [244].

[42]Ibid 134 [241]–[242].

In New South Wales v Tempo,[43] the New South Wales Court of Appeal considered a claim for indemnity in the following circumstances:

(a)A worker, who was employed by a cleaning contractor, was injured at work while crossing a yard at a state school, and sued the State of New South Wales.
(b)The worker’s claim failed, and the State claimed its costs under its indemnity from the cleaning contractor, which provided:
The Contractor … indemnifies … the Government against any liability … in respect of personal injury (including illness) … arising out of or in connection with or caused by the performance of the Services.

[43][2004] NSWCA 4 (Meagher, Giles and Hodgson JJA).

The trial judge dismissed the State’s claim finding that the indemnity did not respond because:

(a)applying Venturoni, the fact that the worker was walking across the State’s premises for the purpose of carrying out her work was not a sufficient connection; and
(b)applying the contra proferentem rule, the words ‘arising out of’ did not extend to circumstances where there was no blame attributable to the cleaning contractor.

Meagher JA upheld the appeal on the basis that the words ‘in connection with’ are of the widest import and the worker’s presence at the school for cleaning purposes ‘compel[led] a finding that the injury arose “in connection with” the performance of the services’. With respect to Venturoni, he said ‘that case concerned the construction of the words “in respect of” not “in connection with”, and in any event is plainly unsupportable’.[44]
[44]Ibid [8].

Hodgson JA (with whom Giles JA agreed) similarly rejected the argument that the indemnity only applied if services were being provided by the worker at the time of the injury. He opined that:

(a)the ‘provision of services’ means provision of services by the cleaning contractor (not just the injured worker) included ‘doing whatever is necessary to have cleaners in place at appropriate times, as well as monitoring and supervising the provision of services in various ways;’[45]
(b)the fact that ‘the injury occurred at a work place, during working hours, when the plaintiff was there for the purpose of performing services, had signed on, and was going about the performance of services, gives the injury sufficient connection with the provision of services’;[46] and
(c)Venturoni was distinguishable ‘because the words “in respect of” can be considered, in this context, as being narrower than the words “in connection with”’.[47]

[45]Ibid [19].

[46]Ibid [20].

[47]Ibid.

In National Vulcan Engineering Group Ltd v Pentax (‘Pentax’),[48] the New South Wales Court of Appeal considered a claim for indemnity in the following circumstances:

(a)A worker successfully sued a sub-contractor (his employer) and the principal contractor for injuries, which occurred while leaving a building site.

(b) It was accepted that the sub-contractor and the contractor were equally liable.
(c)Under the subcontract, the sub-contractor agreed to indemnify the principal contractor against ‘all loss, damages, claims, liens, actions, liabilities or proceedings whatsoever arising under any statute or at common law including claims in respect of personal injury to or death of any person … arising out of or in the course of or caused by breach of performance of this Agreement or by the execution of the Works’.[49]

[48](2004) 20 BCL 398; [2004] NSWCA 218 (Handley, Hodgson JJA and Campbell AJA).

[49]Ibid [5].

Campbell AJA (with whom Handley JA agreed and Hodgson JA substantially agreed) rejected the contention that the fact that the worker ‘had completed the day’s work meant that his injury did not arise out of and in the course of the performance of the agreement or the execution of the work’.[50]
[50]Ibid [28].

Although the indemnity did not expressly refer to negligence, the indemnity extended to cover the principal contractor’s negligence because:

(a)       of the width of the language used;
(b)      the word ‘damages’ connotes fault;
(c)       the indemnity extends to injury to ‘any person’; and
(d)it is difficult to see how a claim could be maintained against the principal contractor without fault.[51]

[51]Ibid [46].

In F & D Normoyle Pty td v Transfield Pty Ltd,[52] the New South Wales Court of Appeal considered a claim for indemnity in the following circumstances:

(a)A worker (an employee of the first contractor) successfully sued the main contractor for damages for injuries sustained on a construction site occupied by the main contractor, after falling over pipes brought onto the site by the second sub-contractor (but then placed in the dangerous position by someone unknown).
(b)The main contractor claimed indemnity from the first sub-contractor and the second sub-contractor (both of whom were found not liable to the worker)[53] under the following standard provision in the sub-contracts:
The sub-contractor shall indemnify … [the main contractor] … against all claims, demands, proceedings, liabilities, costs, charges and expenses arising as a result of any act, neglect or default of the sub-contractor, its employees or agents … relating to its execution of the Works.

[52](2005) 63 NSWLR 502 (Ipp, McColl and Bryson JJA).

[53]Ibid 513 [73], 514 [86] (Ipp JA).

Ipp JA (with whom McColl JA agreed) held that ‘any act’ should be interpreted ejusdem generis with ‘neglect’ and ‘default’; and therefore it does not include an act that is ‘neither a neglect nor a default’.[54] Accordingly, the employer and the first sub-contractor was not obliged to indemnify the main contractor because the worker’s injury was not caused by an act or omission of the employer that amounted to a breach of a duty of care, a contract or a statutory duty.[55] His Honour explained:

Further, in my view, while the phrase ‘arising as a result of’, in cl 12, is a particularly broad expression of the notion of causation, it is not open ended. The clause plainly does not connote ‘proximate cause’ or ‘direct cause’, but it could not be construed so as to import an unlimited concept of causation. The clause does involve some causal or consequential relationship (cf Dickinson v Motor Vehicle Insurance Trust (1987) 163 CLR 500, 505). Remoteness must form an element of the meaning of ‘arising as a result of’; more is required than the mere existence of connecting links between an act, neglect or default of the sub-contractor and the liability incurred by the [main contractor].
In my opinion, the acts of [the second sub-contractor] in bringing the pipes on to the ground level of the construction site and storing them in their proper place are so remote from the accident which caused [the worker’s] injuries that the liability which the [main contractor] incurred in consequence of those injuries could not be said to arise as a result of those acts.[56]

[54]Ibid 512 [67].

[55]Ibid 512 [68], 513 [75].

[56]Ibid 515 [90]–[91].

Bryson JA dissented on the basis that ‘the word “act” is strikingly distinct from “neglect” and from “default” and conveys in … an altogether clear way the intention of the parties to give a right of indemnity in situations of which fault was not an aspect.’[57] His Honour concluded that:

(a)the employer was obliged to indemnify the main contractor because the worker’s successful claim arose as a result of an act of an employee of the employer being the worker himself;[58] and
(b)the second sub-contractor was not obliged to indemnify the main contractor. The fact that the sub-contractor brought the pipes onto the site (but not to the place of the accident) was too remote to constitute a relevant act.[59]

[57]Ibid 520 [147].

[58]Ibid 521 [153].

[59]Ibid 521 [155].

In Erect Safe Scaffolding (Australia) v Sutton (‘Erect Safe’),[60] the New South Wales Court of Appeal considered a claim for indemnity in the following circumstances:

(a)On appeal, a worker successfully claimed damages from the head contractor (25 per cent), a scaffolding sub-contractor (60 per cent) and his employer (15 per cent) with respect to an accident, when he hit his head on scaffolding.
(b)The head contractor claimed indemnity from the scaffolding sub-contractor under the sub-contract, which relevantly provided:
Indemnity
The Subcontractor must indemnify [the head contractor] against all damage, expense …, loss … or liability of any nature suffered or incurred by [the head contractor] arising out of the performance of the Subcontract Works and its other obligations under the Subcontract.[61]

[60](2008) 72 NSWLR 1 (Giles and Basten JJA and McClellan CJ at CL).

[61]Ibid 4 [6].

Giles JA considered that the words ‘arising out of’ were wide but required a substantial relationship that was not remote. However, the relationship was ‘less than that required by words such as “caused by” or “as a result of”’.[62] Applying F & D Normoyle Pty td v Transfield Pty Ltd,[63] he concluded that the head contractor’s liability did not arise out of act of the scaffolding sub-contractor because, although the works ‘provided the occasion for [the injury] to incur liability … that is insufficient …’[64]
[62]Ibid 5 [11].
[63](2005) 63 NSWLR 502 (Ipp, McColl and Bryson JJA).
[64]Erect Safe, 5–6 [12]–[15].

McClellan CJ at CL identified the question as whether the scaffolding sub-contractor was obliged to indemnify the head contractor for liability arising from:

(a)the scaffolding sub-contractor’s performance of the subcontract works; or

(b) in relation to those works.[65]

[65]Ibid 35 [155].

His Honour concluded that the liability did not arise out of the sub-contractor’s performance of the subcontract works — for the following reasons:

(a)Although the faulty erection of the scaffolding by the scaffolding sub-contractor provided the ’occasion’ for the head contractor’s liability, the head contractor’s liability arose from its own independent act of negligence.[66]
(b)He distinguished Leighton Contractors Pty Limited v Smith,[67] on the basis that, in that case, the sub-contractor was entirely responsible for the worker’s injury; and the main contractor was only liable because it had a non-delegable duty as the worker’s employer.

[66]Ibid 36 [157].

[67][2000] NSWCA 55 (Mason P, Meagher and Fitzgerald JJA).

After a comprehensive review of the authorities, Basten JA dissented and concluded that the scaffolding contractor was liable to indemnify because the main contractor’s liability did arise out of the performance of the subcontract works. He reasoned as follows:

(a)The phase ‘arising out of’ only connoted ‘a weak causal relationship, which [was] satisfied when the activity of the sub-contractor in the performance of the contract contributes in a material way to the breach of duty by the [head] contractor’.[68]
(b)A requirement that ‘the liability of the head contractor be entirely derivative from that of the sub-contractor would deprive the indemnity of any obvious operation.’[69]

[68]Erect Safe, 22–3 [97].

[69]Ibid 23 [98].

In Lumley General Insurance Ltd v Port Phillip City Council,[70] the Court of Appeal considered a claim for indemnity in the following circumstances:
[70][2013] VSCA 367 (Nettle, Weinberg and Santamaria JJA).

(a)A worker, an employee of a sub-contractor, successfully sued the Council (35 per cent) and a building contractor (5 per cent) (among others) for damages for personal injuries sustained when he tripped on a step-over in the course of works on a building site.
(b)The Victorian Workcover Authority (‘the VWA’) also recovered compensation, with respect to payments made to the Worker, from the Council and a building contractor (among others) pursuant to s 138 of the Accident Compensation Act 1985.
(c)The Council claimed indemnity under the construction contract with the building contractor, which provided:
17.1Indemnity by Contractor
The Contractor shall indemnify the [Council] against —
(a)…,
(b)claims by any person against the [Council] in respect of personal injury …,

arising out of or as a consequence of the carrying out by the Contractor of the work under the Contract, but the Contractor’s liability to indemnify the [Council] shall be reduced proportionally to the extent that the act or omission of the Principal … may have contributed to the loss, damage, death or injury.[71]

(d)The Council also claimed indemnity under a public liability insurance policy taken out by the building contractor with Lumley. Under the policy, Lumley agreed to indemnify the Council for all sums which the Council should become obliged to pay as compensation for personal injury ‘as a result of an Occurrence which arises in connection with the Business and Activities of [the building contractor] and Insured Contracts [being the construction contract]’.[72]

[71]Ibid [34].

[72]Ibid [100], it being accepted that the construction contract was an ‘Insured Contract’ and that work under that contract constituted ‘Business and Activities of the [building contractor]’: [106].

The trial judge identified the relevant question under cl 17 as whether ‘a causative link [was] established between the injury suffered and the carrying out of works under the contract in the manner described’.[73] He found that there was no such link and therefore the Council could not claim an indemnity from the building contractor.[74] Although this was not the subject of an appeal, Santamaria JA (with whom Nettle and Weinberg JJA agreed) said that he did not disagree with this finding. [75]
[73]Ibid [101].
[74]Ibid [52].
[75]Ibid [101].

With respect to the building contractor’s public liability policy, Santamaria JA found that ‘the Council’s liability to compensate the VWA and to pay damages to Threlfall arose in connection with the [construction contract]’. [76] He reasoned as follows:
[76]Ibid [117].

(a)The phase ‘arises in connection with’ is not a causal phrase except in the most attenuated sense.[77]
[77]Ibid [108].
(b)The necessary relationship between the relevant occurrence was established, in summary, because:

(xi) the construction contract was an Insured Contract as defined in the policy; and

(xii) the building contractor had constructed the step-over as part of its obligations under the construction contract and, on leaving the site, had left it in place at the direction of the Council.[78]
[78]Ibid [116]

(b) Applying Speno, he said:

Just as Hamersley’s liability arose out of the performance by Speno of its contract, so, it seems to me, the Council’s liability to compensate the VWA and to pay damages to [the worker] arose in connection with the Business and Activities of [the building contractor] and Insured Contracts.[79]

[79]Ibid [117].

In GIO General Limited v Centennial Newstan Pty Ltd,[80] the New South Wales Court of Appeal considered a claim for indemnity in the following circumstances:
[80][2014] NSWCA 13 (Meagher, Hoeben and Gleeson JJA).

(a)A worker sued his employer, a related company that supplied his services (‘the supplier’), and the principal, to which he had been assigned under the labour hire contract, for injuries he sustained while working at the principal’s premises.
(b)The trial judge found the principal’s negligence the sole cause of the worker’s injury.
(c)The principal sought indemnity from the insurer of the supplier on the basis it was an insured person to whom the supplier was ‘obligated by virtue of any contract or agreement to provide insurance … but only to the extent required by such contract or agreement’.

(d) Under the labour hire contract, the supplier was required to:

(xiii) indemnify the principal from all claims for injury to the supplier’s personnel except to the extent that the injury result from the principal’s negligence; and

(xiv) maintain public liability insurance under the labour hire contract.

The Court found, in the circumstances of the contractual relations between the parties, the intention of the parties was for the supplier to maintain third party insurance for the principal beyond the supplier’s liability to indemnify the principal.[81] In particular Meagher JA observed that:[82]

it is not uncommon for a building contract between a principal and head contractor to provide that one of them will take out a policy of insurance indemnifying all parties who may be involved in the works, including subcontractors, against liabilities to each other or to third parties arising out of those activities.

[81]Ibid [17] (Meagher JA), [19] (Hoeben JA), [133] (Gleeson JA).

[82]Ibid [13]; also see Gleeson JA, [118].

In CSR Limited v Adecco (Australia) Pty Ltd,[83] the New South Wales Court of Appeal considered a claim for indemnity in the following circumstances:
[83][2017] NSWCA 121 (McColl, Macfarlan and Simpson JJA, where McColl JA gave the leading judgment).

(a)A worker sued his employer, being a labour hire company (‘the supplier’), and the principal, to which he had been assigned under the labour hire contract (‘CSR’), for injuries he sustained while driving a defective truck performing deliveries, or ‘Assignments’.
(b)CSR claimed indemnity from the supplier under the labour hire contract, which provided:
23.2Any loss of or damage to property of CSR, real or personal caused or contributed to by the Supplier or its employees, agents, sub-contractors or Temporary Staff
Notwithstanding any other provision of this Agreement, the Supplier indemnifies [CSR] against
23.2.1 any claim by Temporary Staff for personal injury …
damage arising out of or in connection with the performance of Assignment duties ~~where~~,[84] if that person had been an employee of [CSR] at the time, such claim could have been made against [CSR] under the applicable workers compensation legislation;
[84]I have deleted the word ‘where’ because McColl JA found it was surplusage, [204].
and

23.2.2 any liability to any person (including the Supplier and any workers
compensation insurer claiming in the name of the Supplier) in respect of or in connection with such personal injury and/or property damage.

(Emphasis added)
(c)The labour hire contract also obliged the supplier to effect insurance covering CSR for:

(xv) public liability (cl 18.2.1);

(xvi) workers compensation (cl 18.3.1); and

(xvii) liability for the supplier’s employees or sub-contractors (cl 18.3.2).[85]

(d)The worker’s claim against CSR was settled for $800,000 and the claim against the supplier was dismissed with no order as to costs.[86]

[85]Ibid [211].

[86]Ibid [44].

McColl JA (with whom MacFarlan JA and Simpson JA agreed) held that the supplier was obliged to indemnify CSR (even in circumstances where the worker was injured while under CSR’s direction and supervision) for the following reasons:

(a)The words ‘arising out of’ are of broad import and do not require a causal connection.[87]
(b)The ‘occasion’ for the worker’s presence at CSR’s premises to carry out an Assignment was sufficient to constitute the claim ‘arising out of … the performance of Assignment duties.[88] Her Honour rejected the argument that the claim did not arise out of the performance of Assignment duties because it arose out of the negligence of CSR.[89]

(c) The authority of Davis[90] applied squarely to the case.[91]
(d)Reference to the terms of the labour hire agreement, particularly the insurance provisions, demonstrated that a purpose of the agreement was that the Supplier would be legally responsible for the Temporary Staff it supplied.[92]
[87]Ibid [206].
[88]Ibid [216].
[89]Ibid [215]-[216].
[90](1968) 117 CLR 529 (Barwick CJ, McTiernan, Kitto, Menzies and Windeyer JJ).
[91][2017] NSWCA 121 [209].
[92]Ibid [211].

Principles of construction

To determine the meaning of the terms of a commercial contract, the Court will ask the question ‘what would a reasonable business person have understood those terms to mean?’[93] For the purpose of answering that question, ‘the reasonable businessperson [is] placed in the position of the parties’,[94] and the Court applies the following principles:
[93]Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, 116 [47] (French CJ, Nettle and Gordon JJ).
[94]Ecosse Property Holdings Pty td v Gee Dee Nominees Pty Ltd (2017) 343 ALR 58, 63 [16] (Kiefel, Bell and Gordon JJ).

(a)The terms are construed objectively and the subjective intentions of the parties are irrelevant.[95] A court ‘cannot receive evidence from one party as to its intentions and construe the contract by reference to those intentions’.[96]
[95]Ibid.
[96]DTR Nominees Pty Ltd v Mona Homes Pty Ltd (1978) 138 CLR 423, 429 (Stephen, Mason and Jacobs JJ).

(b) The Court will consider not only the text and the ordinary meaning but also:

(xviii) the context, being the entire text of the contract including matters referred to in the text of the contract;[97] and

(xix) the commercial purpose and object of the contract.

[97]Eureka Operations Pty Ltd v Viva Energy Australia Ltd [2016] VSCA 95 [45]–[47] (Santamaria, Ferguson and McLeish JJA).

The identification of the commercial purpose and object of a contract ‘presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating’.[98] For this purpose, the Court:

(a) may have regard to the surrounding circumstances known to the parties;[99]
(b)is entitled to assume ‘that the parties intended to produce a commercial result’;[100]
(c)will avoid a construction that renders it ‘commercial nonsense or working commercial inconvenience’;[101] and
(d)will prefer a construction ‘supplying a congruent operation to the various components of the whole’.[102]

[98]Reardon Smith Line Ltd v Hansen-Tangen [1976] 1 WLR 989, 995–6 (Lord Wilberforce) cited with approval by Mason J in Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337, 350 which in turn was cited by Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ in Royal Botanical Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45, 52–3. Also see Pacific Carriers Ltd v BNP Paribas (2004) 218 CLR 451, 461–2 (Gleeson CJ, Gummow, Hayne, Callinan and Heydon JJ).

[99]Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165, 179 [40].

[100]Ecosse Property Holdings Pty td v Gee Dee Nominees Pty Ltd (2017) 343 ALR 58, 63 [17] (Keifel, Bell and Gordon JJ).

[101]Zhu v Treasurer of New South Wales (2004) 218 CLR 530, 559 [82] (Gleeson CJ, Gummow, Kirby, Callinan and Heydon JJ); cited with approval in Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640, 656–7 [35] (French CJ, Hayne , Crennan and Kiefel JJ); and Simic v New South Wales Land and Housing Corporation (2016) 260 CLR 85, 111 [78] (Gageler, Nettle and Gordon JJ).

[102]Todd v Alterra at Lloyds Ltd (2016) 239 FCR 12, 22 [42] (Allsop CJ and Gleeson J, with whom Beach J agreed).

Accordingly, the Court may ‘have regard to more than internal linguistic considerations’,[103] but ordinarily, where there is no ambiguity, the intention must be discerned by reference to the contract alone. As French CJ, Nettle and Gordon JJ observed in Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd:

Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning’.[104]

[103]Royal Botanical Gardens and Domain Trust v South Sydney City Council (2002) 240 CLR 45, 52 [10] (Gleeson CJ, Gaudron, McHugh, Gummow and Hayne JJ).

[104]Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd (2015) 256 CLR 104, 116 [48] (French CJ, Nettle and Gordon JJ).

The difference between the matters constituting the context and purpose (which may be referred to) and events, circumstances and things external to the contract (which may not) was explained by the plurality in the High Court as follows:

(a)A court may refer to ‘events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating’.[105]
(b)However, ‘evidence of the parties’ statements and actions reflecting their actual intentions and expectations’ is inadmissible.[106]Even though evidence of prior negotiations is admissible to establish objective known background facts and the subject matter of the contract, evidence of actual intentions and expectations is not receivable.[107]

[105]Ibid 117 [50].

[106]Ibid.

[107]However, evidence of mutual intention may be admissible ‘to negative an inference sought to be drawn from surrounding circumstances’: Codelfa Construction Pty Ltd v State Rail Authority of NSW (1982) 149 CLR 337, 352-353 (Mason J).

A clause imposing an obligation to indemnify is interpreted strictissimi juris and ambiguous contractual provisions are construed in favour of the indemnifier.[108] However, contracts of insurance are interpreted as are other commercial contracts generally;[109] and insurers are not treated with the ‘tenderness accorded to guarantors and indemnifiers’.[110]
[108]Ankar Pty Ltd v National Westminster Finance (Australia) Ltd (1987) 162 CLR 549, 561 (Mason ACJ, Wilson Brennan and Dawson JJ).
[109]McCann v Switzerland Insurance Australia (2000) 203 CLR 579, 589 [22] (Gleeson CJ).
[110]Todd v Alterra at Lloyds Ltd (2016) 239 FCR 12, 22 [40] (Allsop CJ and Gleeson J).

With respect to clauses requiring a party to take out insurance cover for the acts of another party (‘Insurance Clauses’), I consider, as suggested by Gleeson JA in GIO General Ltd v Centennial Newstan Pty Ltd:[111]

(a) the Court should apply ‘the accepted principles of construction’; and
(b)‘[t]he operation of different words in different contracts are likely to be of limited assistance’.[112]

[111][2014] NSWCA 13 (Meagher, Hoeben and Gleeson JJA).

[112]Erect Safe (2008) 72 NSWLR 1, 4 [5] (Giles JA); also see McClellan CJ at CL, 35 [154] and Basten JA, 21 [89]: quoted with approval by Gleeson JA in GIO General Ltd v Centennial Newstan Pty Ltd [2014] NSWCA 13 [137].

I adopt the approach of Basten JA in Erect Safe Scaffolding (Australia) v Sutton,[113] who explained that:

In seeking to identify the proper construction of a contractual provision, the Court is not bound by the outcome in another case involving a similar but not identical contract. The Court is, however, bound to apply principles established in such cases

[113]2008) 72 NSWLR 1, 21 [89]. Basten JA was in dissent but not on this point of principle.

In these circumstances, I do not think it is appropriate to draw a squiggly line distinguishing each of the cases considering indemnity and Insurance Clauses in an attempt to establish a consistent principle. However, I consider the following interpretative guides can be discerned:

(a)Although the words ‘arising out of’ do involve ‘some causal or consequential relationship’[114] (‘the relationship requirement’), they should be construed broadly.[115] The phrase dictates a less stringent test than the words ‘caused by’.[116] It has been said that it requires a more proximate relationship than a mere ‘casual concomitant’;[117] but the words should be interpreted as they are, and an alternate form of words should not be substituted.[118]
[114]Dickinson v Motor Vehicle Insurance Trust (1987) 163 CLR 500, 505 (Mason CJ, Wilson, Brennan, Dawson and Toohey JJ).
[115]Speno 309 [67] (Ipp J).
[116]Dickinson v Motor Vehicle Insurance Trust (1987) 163 CLR 500, 505 (Mason CJ, Wilson, Brennan, Dawson and Toohey JJ).
[117]GIO v R J Green (1966) 114 CLR 437, 447 (Windeyer J).
[118]Erect Safe (2008) 72 NSWLR 1, 5 [11] (Giles JA).
(b)A requirement that ‘the principal’s liability arise from performance by the indemnifier’, may indicate that the indemnity does not cover the principal’s liability for its own negligence because such liability was caused by the principal’s breach.[119]
[119]Palmer, Normoyle, Venturoni; cf Speno, Leighton Contractors.
(c)An interpretation of an indemnity that gives it practical operation is to be preferred to one that does not. For example, interpreting an indemnity clause as limited to:

(xx) liability arising vicariously to the indemnifier’s liability;[120] or
[120]Davis 537 (Menzies J) cf 533 (Kitto J); Pentax [46] (Campbell AJA); Erect Safe 21–2 [90] (Basten JA);

(xxi) the negligent act by the indemnified party, which has arisen out of the performance by the indemnifier[121]

may deprive it of any real purpose.

[121]Speno 319 [128] (Wheeler J).

With respect to the issue of whether a liability (or a claim or an injury) arises out of the performance of a contract, where the contract merely provides ‘the occasion’ for the worker to be on the indemnified party’s premises, the relevant authorities are difficult to reconcile:

(a)In Venturoni, Buchanan J noted that the evidence did not disclose any more than the worker was beneath the falling tree because he had been engaged to perform work under the contractor’s contract; and it had been conceded that a mere temporal connection was insufficient to meet the relationship requirement. Accordingly, he held that the relationship requirement was not satisfied because the contractor’s performance of the contract was ‘no more than the occasion for the [worker’s] claim’.[122]
[122][2000] VSCA 71 [15] (with whom Ormiston JA agreed).
(b)In Speno, the worker was injured while returning to the depot in a rail car to hand over to the next shift and provide work reports to Speno.[123]In these circumstances, Wheeler J held that:
[123]Speno 319 [132] (Wheeler J).

(xxii) the worker’s ‘presence was directly related to and formed part of the performance of the contract, and in that sense the duty, which was one ingredient of [the principal’s] liability, “arose out of the performance of the contract by [the contractor]”’;[124]
[124]Ibid 319 [131].

(xxiii) ‘the injuries (and hence [the principal’s] liability) were consequential on the performance by [the contractor]’;[125] and
[125]Ibid 319 [132].

(xxiv) these features satisfied more than the ‘but for’ test.[126]
[126]Ibid 319–20 [133].

(c)Malcolm CJ held that the test imposed by the words ‘arising out of the performance of the contract by the contractor’ was satisfied by the fact that the worker’s ‘journey [in the rail car] was something being done in the course of the performance of the contract by Speno. It follows that the negligent incident giving rise to liability occurred in the course of the [contractor’s] performance of the contract’.[127]
[127]Ibid 298 [12].
(d)Ipp J also held that there was a sufficient link because the ‘presence’ of the worker in the rail car was due to the contractor requiring him ‘to be in those places so as to enable it to perform the contract’.[128]
(e)In Tempo,[129] the worker, a cleaning contractor, was injured at work while crossing a yard at a state school. The relevant relationship words were ‘in connection with’. Hodgson JA (with whom Giles JA agreed) specifically rejected the argument that the relationship test would only be satisfied if the injury occurred while the worker was actually providing services, and found the test was satisfied because:
(i)provision of services by the cleaning contractor included ‘doing whatever is necessary to have cleaners in place at appropriate times’;[130] and
(ii)‘the injury occurred at a work place, during working hours, when the plaintiff was there for the purpose of performing services, had signed on, and was going about the performance of services, gives the injury sufficient connection with the provision of services’.[131]

(f)In Pentax,[132] the worker was injured when he jumped a fence while leaving work. The Court found that the relationship requirement was satisfied and specifically rejected the contention that the fact that the worker ‘had completed the day’s work meant that his injury did not arise out of and in the course of the performance of the agreement or the execution of the work’.[133]
(g)In Erect Safe,[134] the worker was injured while constructing formwork. McClellan CJ and Giles JA both found that the relationship requirement was not satisfied because the performance of the contract by the subcontractor only provided the ‘occasion’ for the head contractor’s liability. The head contractor’s liability in fact arose from its own independent negligence.[135]
(h)In Adecco (Australia),[136] the worker suffered an injury to his back after driving a truck with a defective seat for a period. The relevant relationship words were ‘arising out of or in connection with the performance of Assignment duties’. McColl JA (with whom MacFarlan JA and Simpson JA agreed) specifically rejected the contention that the relationship test was not satisfied because the delivery duties only provided the ‘occasion’ for the contractor’s negligence and therefore ‘it was not a claim which arose out of, or in connection with, the performance of [the delivery] duties’.[137] Her Honour found that it was sufficient that ‘the occasion for [the worker] being at the … plant was to carry out [a delivery]’.[138]
[128]Ibid 309 [66].
[129][2004] NSWCA 4 (Meagher, Giles and Hodgson JJA).
[130]Ibid [19].
[131]Ibid [20].
[132](2004) 20 BCL 398; [2004] NSWCA 218 (Handley, Hodgson JJA and Campbell AJA).
[133]Ibid [28] (Campbell AJA with whom Handley JA agreed and Hodgson JA substantially agreed).
[134](2008) 72 NSWLR 1 (Giles and Basten JJA and McClellan CJ at CL).
[135]Ibid 5 [12] (Giles JA); 36 [157] (McClellan CJ at CL) cf 22–3 [97]–[98] (Basten JA).
[136][2017] NSWCA 121 (McColl, MacFarlan and Simpson JJA).
[137]Ibid [201].
[138]Ibid [216].

Decision

In my opinion, a reading of the Alliance Agreement and in particular cl 13 makes it plain that its commercial purpose was to allocate responsibility between the parties for insuring certain specified risks arising out of the performance of the Alliance Agreement. This is so for the following reasons:

(a)Clause 13 in its terms requires Hazelwood to take out specified insurances, and Alstom to take out other insurances associated with the Alliance Agreement.
(b)There is a patent commercial sense and efficiency in the Alliance Agreement avoiding both parties being required to separately insure for specified risks and, relevant to cl 13.2(iv), the risk of claims by third parties arising out of the performance of the Alliance Agreement by Alstom.
(c)The co-operative commercial purpose — which is consistent with the division of the responsibility to insure against certain risks, as above — is supported by the recitals and the definition section in the Alliance Agreement referred to in paras [7] and [8] above.

I do not consider that reading cl 13 down to effectively limit the third party liability insurance cover to any vicarious liability of Hazelwood would be consistent with this commercial purpose. This is so for the following reasons:

(a)On such a limited interpretation, there would be no real commercial benefit to Hazelwood because it would still need to take out third party liability insurance cover.
(b)Relevant to commercial context, there is no evidence, and it must be doubted, that standard third party liability policies would be available to Alstom which included cover to Hazelwood limited to vicarious liability.
(c)Such insurance would be of negligible value to Hazelwood because, regardless of the insurance cover to Hazelwood, Hazelwood would be likely to be entitled to indemnity from Alstom for its vicarious liability arising from Alstom’s breach of duty under cl 13.7 of the Alliance Agreement.[139]
(d)Because Alstom was an independent contractor, as a general rule Hazelwood would not be vicariously liable for Alstom’s conduct in carrying out the Alliance Agreement.[140]

[139]Also see Lister v Romford Ice & Cold Storage Co Ltd [1957] AC 555 (Viscount Simonds, Lords Morton of Henryton, Radcliffe, Tucker and Somerville of Harrow).

[140]LexisNexis, Halsbury’s Laws of Australia, vol 165 (as at 22 November 2018) 165 Employment, ‘8 External Liabilities Deriving From the Employment Relationship’ [165-1055].

Further, I do not consider that the third party liability insurance referred to in cl 13.2(iv) was only intended to cover Alstom’s obligation to indemnify under cl 13.7, which does not extend to Hazelwood’s own acts of negligence. This is so for the following reasons:

(a)The principal commercial purpose of third party liability insurance is to provide cover for liability arising from an insured’s breaches of duty or other acts or omissions.[141] To adopt the construction contended for by Allianz would defeat the usual commercial purpose of insurance.
(b)There is no suggestion in the text of the Alliance Agreement that the parties intended that the third party liability insurance referred to in cl 13.2(iv) would equate to, or be co-ordinate with, the indemnity under cl 13.7. In fact, cl 13.5 indicates that there was no intention that the insurance would be co-ordinate with the liabilities under the Alliance Agreement including the obligations to indemnify under cl 13.7.

[141]Albion Insurance Company Ltd v Body Corporate Strata Plan No 4303 [1983] 2 VR 339, 345 (McGarvie J with whom Young CJ and Anderson J agreed); CGU v Lawless [2008] VSCA 38 [14] (Redlich JA with whom Maxwell P and Neave JA agreed).

I consider that I must take care in applying previous decisions relating to different provisions and circumstances in indemnity and insurance clauses. In particular, decisions relating to indemnities must have limited application for the following reasons:

(a)Indemnity clauses are interpreted strictissimi juris in favour of the indemnifier. Plainly, cl 13.2(iv) imposes an obligation to take out insurance and is not an indemnity. It was not contended by either party that it should be construed strictissimi juris.
(b)The fact that the commercial purpose of third party insurance is usually to provide cover for liability arising from the insured’s fault means that the parties’ intention to arrange such insurance cover may more readily be inferred. Such an intention may not be so readily inferred when interpreting an indemnity. In Davis, Kitto J (in dissent) expressed his reluctance in inferring such an intention in interpreting an indemnity clause saying:
It seems to me impossible to suppose that the parties were intending that the [contractor] should indemnify the [Commissioner] against claims based upon the [Commissioner’s] negligence. [142]

[142]Davis, 534.

The most applicable authority is Speno because it also dealt with an insurance clause.

With respect to the issue of whether the Claims arose out of the performance of the contract by Alstom, I respectfully adopt the reasoning of Wheeler J in Speno (referred to above) being:

(a)the worker’s ‘presence was directly related to and formed part of the performance of the contract, and in that sense the duty, which was one ingredient of [the principal’s] liability, ‘arose out of the performance of the contract by [the contractor]’;[143]
(b)the injuries (and hence [the principal’s] liability) were consequential on the performance by [the contractor];[144] and

(c) these features satisfied more than the ‘but for’ test.[145]

[143]Speno 319 [131].

[144]Ibid 319 [132].

[145]Ibid 319–320 [133].

I reject Alstom’s submission that to satisfy the relationship requirement, the claim must at least arise out of an injury to a worker while he is ‘on the tools’ and not, as in this case, when the worker has finished work for the day and is leaving the premises.

In this respect, in construing cl 13.2(iv), I must consider what a reasonable business person would have understood the clause to mean. I do not consider a reasonable business person would have thought to make the distinctions, for the purposes of determining when the insurance would apply, between whether the worker was:

(a) ‘on the tools’;
(b)moving from one work area to another work area within the premises;[146] or
(c)while on the premises, walking to his area of work or leaving his area of work.[147]

[146]See Tempo.

[147]See Pentax.

In my opinion, the Claims, in this case, arose out of the performance by Alstom of the Alliance Agreement. It would be artificial in the extreme to distinguish the facts of Speno (where the worker had finished his shift and was walking to where he would provide his work report before finally leaving the premises) from the facts of this case (where the worker was walking to check-off before finally leaving the premises).

As I have previously said, I am not proposing to undertake the task of distinguishing each of the authorities relating to the construction of indemnities to which I have referred. However, I make the following comments about the High Court’s decision in Davis and the Court of Appeal’s decision in Venturoni:

(a)Although differently formulated, I consider the indemnity in Davis gave rise to a similar construction issue as cl 13.2(iv). The effect of cl 7 of the contract referred to in Davis was that the indemnity related to ‘all claims arising out of [relevant] damage’ in ‘the Contractor … carrying out the contract’. As Menzies J (with whom Barwick CJ and McTiernan J agreed) said:
Such a claim against the Commissioner could not be maintained in the absence of fault on the part of the Commissioner, its servants and agents. Accordingly, the only purpose, or at least the principal purpose, for taking such an indemnity, would be to protect the Commissioner against liability for its own fault.[148]
[148]Davis 537 (Menzies J).

In my opinion, this commercial purpose applies even more strongly in construing an insurance clause.
(b)With respect to Venturoni, Buchanan JA gave a restricted reading to the indemnity on the basis that:

(xxv) the particular words of that indemnity meant that a broad construction would be absurd;[149] and

(xxvi) the broad interpretation would have been incongruous with the insurance provisions in the same agreement.[150]

With respect I agree with the observation of Basten JA in Erect Safe that ‘Venturoni may be understood in its own commercial and contractual context as providing a more limited indemnity than the language of the clause, taken in isolation would have suggested’.[151]
[149]Venturoni [9]–[10].
[150]Ibid [13].
[151]Erect Safe, 22 [94].

Were the Worker’s Claim and the VWA Claim ‘in respect of activities relating to the Alliance Agreement’ within the meaning of the Allianz Policy?
Defendant’s Submissions

Pursuant to leave granted at the end of the trial, Allianz filed further submissions developing arguments its counsel raised orally. These arguments, as I understand them, were as follows:

(a)The Alliance Agreement, and in particular cl 13.2(iv), was expressly referred to and incorporated into cl 2.2 of the Allianz Policy.
(b)After reference to the Alliance Agreement, cl 2.2 of the Allianz Policy should be read as follows:
Insofar as clause 13.2(iv) of the Alliance Agreement requires, the Assured includes Hazelwood as Principal for whom Alstom is working, but only up to the sum of $50M, and only in respect of [Alstom’s] activities relating to the Alliance [Agreement].

(c)Hazelwood’s liability was not in respect of Alstom’s activities relating to the Alliance Agreement — for substantially the same reasons as it did not arise out of the performance of the contract by Alstom.

Plaintiff’s Submissions

On behalf of the Aegis, it was submitted that the Claims were ‘in respect of activities relating to the Alliance Agreement’ for the following reasons:

(a)The words ‘relating to’ were a wide import requiring only ‘a logical or (not necessarily) causal connection of a very broad range’.[152]
(b)The last words of clause 2.2 (being ‘in respect of activities relating to‘) were wider than the expression in cl 13.2(iv) (being ‘arising out of the performance of the contract by Alstom’). Accordingly, if the relationship required by cl 13.2(iv) was satisfied, so too would be cl 2.2.
(c)The provision by Hazelwood of safe premises for Alstom’s employees when they are at work for Alstom for the purpose of performing Alstom’s outage works under that contract is an activity relating to that contract.
(d)There is nothing in the text of cl 2.2 of the defendant’s insurance policy that requires the “activities relating to that contract” to only be Alstom’s activities and no basis to read such words into the clause.
(e)Whilst the opening words of cl 2.2 of the Allianz Policy direct the reader to consider the contract between Hazelwood and Alstom that consideration does not lead to part of cl 13.2 (iv) from the Alliance Agreement being extracted and incorporated into some type of redraft of cl 2.2 of the Allianz Policy.
[152]D Derrington and R S Ashton, The Law of Liability Insurance (LexisNexis, 3^rd ed, 2013) 508.

Decision

I accept Aegis’ submissions for the following reasons:

(a)Clause 2.2 of the Allianz Policy neither refers to nor incorporates cl 13.2(iv) of the Alliance Agreement. The fact that the Allianz Policy limits its cover, for Alstom’s principals, to insurance that Alstom is required by a contract to effect, does not incorporate all such contracts into the Allianz Policy.
(b)I do not consider that, on the facts of this case, the rules of construction would permit the Court to have regard to the Alliance Agreement for the purpose of interpreting the Allianz Policy. There is no evidence that Allianz was even aware of the Alliance Agreement at the time of entry into the Allianz Policy.
(c)The words ‘only in respect of activities relating to the Alliance contract’ are words of limitation; but I reject the contention that there is any basis to interpret cl 2.2 to further limit the cover under the policy by reading the word ‘activities’ as limited to ‘Alstom’s activities’.
(d)In my opinion, the liability of Hazelwood under the Claims was ‘in respect of activities relating to the [Alliance Agreement]’ substantially for the same reasons as set out in [67] to [77] above.

Was the worker a third party for the purposes of the Allianz Policy?

For the following reasons, the defendant submitted that the expression ‘third parties‘ in cl 13.2(iv) does not include Alstom’s employees:

(a)Alstom had worker compensation insurance to cover claims by its employees and there was an exclusion in the Allianz Policy with respect to claims for injuries for which worker compensation insurance was required.
(b)Clause 13.6.1 only contemplates one insurer being notified and, in the case of an injured worker, that would be the workers compensation insurer.
(c)Clause 14.4.3(e) provides an exception to confidentiality requirements in the case of information that is acquired from third parties. The expression ‘third parties’ in that clause could not include employees.

Decision

I reject Alstom’s submission that its employees are not third parties within the meaning of clause 13.2(iv) for the following reasons:

(a)Third party insurance has a well-established meaning and, as would be expected, the insuring clauses of each of the parties’ third party policies provided indemnity to the insured ‘for all sums which the Insured shall become obligated to pay by reason of liability’[153] without restriction on the person who might bring the claim. The fact, as would be expected, that each policy contains an exclusion with respect to liability required to be covered under workers’ compensation legislation, only confirms the fact that insureds’ employees are third parties for the purpose of the policy.

(b) The argument is not supported by the definition of third party being:
Any person other than the principals to some transaction, proceeding, or agreement.[154]
[153]The quotation is taken from the Aegis Policy. The Allianz Policy was to ‘indemnify the Insured against their liability to pay compensation’.
[154]Macquarie Dictionary, 6^th ed.

For the same reasons as set out above, to interpret third party’s insurance to create a lacuna with respect to claims by Alstom’s employees would fly in the face of the commercial purpose of insurance. Reasonable business persons in the positions of Hazelwood and Alstom would recognise that one of the principal risks, for which Hazelwood required insurance, would be claims made by employees of Alstom, who were brought on to the premises for the purposes of the performance of the Alliance Agreement.

Although as previously stated, care must be taken in applying other decisions, I consider the reasoning of Gleeson JA in Centennial Newstan to be generally supportive of this conclusion.[155]
[155][2014] NSWCA 13 [144]–[151].

Order

I propose to enter judgment for the plaintiff and order that the defendant pay the plaintiff the sum of $418,149 plus interest.

---

[2018] VSC 735

27 November 2018