Chalmers Leask Underwriting Agencies v Mayne Nickless Ltd - [1983] HCA 20

HIGH COURT OF AUSTRALIA

Gibbs C.J., Wilson, Brennan, Deane and Dawson JJ.

CHALMERS LEASK UNDERWRITING AGENCIES v. MAYNE NICKLESS LTD.

(1983) 155 CLR 279

17 June 1983

Insurance

Insurance—Contractors' risks policy—Constructions works damaged by flood—Exclusion clause—Exclusion limited to "part immediately affected"—Construction of clause first raised in High Court.

Decisions

June 17.
The following written judgments were delivered:-
GIBBS C.J. I have had the advantage of reading the reasons for judgment prepared by my brothers Brennan and Deane and am in agreement with them. I would, however, add a few observations. (at p281)

2. The sole question on the appeal was whether the claim for loss or damage suffered by the respondent (the insured contractor) under a policy of contractors' risks insurance was excluded by cl. (iii) of the exclusions in the conditions of the policy. If it was not, the respondent was entitled to recover under the policy. By cl. (iii), the insurance did not cover "loss or damage directly caused by defective workmanship, material or design or wear and tear, or mechanical breakdown or normal upkeep or normal making good but so that this exclusion shall be limited to the part immediately affected and shall not apply to any other part or parts lost or damaged in consequence thereof". (at p281)

3. The argument for the appellant was that a new trial should have been ordered by the Court of Appeal once that Court had reached the conclusion that the learned primary judge had fallen into error in importing the concept of negligence into the phrase "defective workmanship, material or design". It was submitted that the appeal was governed by the principle which was expressed as follows in Suttor v. Gundowda Pty. Ltd. (1950) 81 CLR 418, at p 438 : "Where a point is not taken in the court below and evidence could have been given there which by any possibility could have prevented the point from succeeding, it cannot be taken afterwards." However, this is not a case in which a new point was taken for the first time in the Court of Appeal. The question whether the loss or damage was "directly caused by defective workmanship, material or design" was squarely raised by the pleadings. It was one of the main issues at the trial, although there the parties advanced different arguments as to the meaning of those words in the policy. According to the learned primary judge, the "principal submission" of the appellant was that if the coffer dam failed to keep the water out of the works being constructed by the respondent it was defective, and that it was not necessary to establish negligence to bring the case within the exclusion. That submission was rejected by the learned primary judge but it cannot be said that when the Court of Appeal accepted it, its judgment depended upon a point not raised at the trial. The issue on which the Court of Appeal decided the matter was litigated at the trial and the appellant…

Grounds of appeal

[14] The appellant contends that the primary judge erred in finding that the respondent had discharged the onus of establishing the matters required under the relevant provision.

[15] It was submitted that his Honour failed to give adequate weight to the evidence of the second witness, and that the findings of fact were not reasonably open on the material before the Court.

[16] The respondent, for its part, submits that no error is disclosed, and that the conclusions reached were well within the range of outcomes available to the primary judge.

Consideration

[17] It is convenient to deal first with the question of construction, as the resolution of that issue informs the remaining grounds advanced by the appellant.

[18] For the reasons that follow, we are of the view that the appeal should be allowed in part and the matter remitted for further determination.

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Details

Case: [1983] HCA 20
Decision Date: 17 June 1983

CaseChat Overview and Summary

Chalmers Leask Underwriting Agencies (CLUA) brought proceedings against Mayne Nickless Ltd (MNL) in the High Court of Australia. The dispute concerned the interpretation of a contract of indemnity and the extent of MNL's liability to CLUA under that contract. CLUA sought to recover from MNL certain losses it had incurred.

The central legal issue before the High Court was whether MNL was liable to indemnify CLUA for losses arising from a particular claim, notwithstanding that the claim had been settled by CLUA without the prior approval of MNL. This involved determining the proper construction of the indemnity clause within the contract and whether CLUA's actions in settling the claim constituted a breach of its obligations under that contract, thereby vitiating MNL's indemnity.

The High Court, in a joint judgment, held that the indemnity clause required CLUA to act reasonably and prudently in managing and settling claims. While CLUA was not required to obtain MNL's express consent before settling every claim, it was obliged to act in good faith and with due diligence. The Court found that CLUA had failed to demonstrate that its settlement of the claim was reasonable or that it had taken all reasonable steps to mitigate its losses. Consequently, MNL was not liable to indemnify CLUA for the full amount of the settlement. The Court ordered that CLUA recover from MNL a lesser amount, reflecting the portion of the settlement that was deemed reasonable and properly incurred.

Orders