Debra Valkonen and J a Ceilfix Pty Ltd v Jennings Construction Ltd and Ors No. SCGRG 91/681 Judgment No. 5344 Number of Pages 15 Negligence Contracts

[1995] SASC 5344

COURT IN THE FULL COURT OF THE SUPREME COURT OF SOUTH AUSTRALIA COX(1), MATHESON(2) AND PERRY(3) JJ

CWDS
Negligence - apportionment of responsibility and damages - Industrial accident - plaintiff fell from mobile scaffold on new building site when protecting rail gave way - plaintiff sued scaffold erector and head contractor and latter brought in plaintiff's employer - appeal relating to respective responsibilities of all four parties.

Contracts - indemnity - building contractor sub-contracted for erection of ceiling in new building - sub-contractor's director/employee injured at work and sued head contractor - whether sub-contract required sub-contractor to indemnify head contractor against any liability to sub-contractor's employee - interpretation of insurance/indemnity clause - whether Canada Steamship Lines v The King (1952) AC 192 is good law in Australia - cases discussed.

Wrongs Act 1936 , referred to. Nicol v Allyacht Spars Pty Ltd (1987) 163 CLR
611; Kondos v State Transport Authority (1986) 160 CLR 16; Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500 at 510-11; Schenker and Co. (Aust.) Pty Ltd v Malpas Equipment and Services Pty Ltd (1990) VR 834, applied. Canada Steamship Lines Ltd v The King (1952) AC 192; Alderslade v Hendon Laundry Ltd (1945) 1 KB 189; Graham v The Royal National Agricultural and Industrial Association of Queensland (1989) 1 Qd R 624; International Terminal Operators Ltd v Miida Electronics Inc. (1986) 28 DLR (4th) 641, not followed.

HRNG ADELAIDE, 7-11 September 1995 #DATE 29:11:1995 #ADD 13:12:1995

Counsel for appellant Jennings Construction Ltd:
   Mr D M Quick QC with him
   Mr B F Beazley

Solicitors for appellant Jennings Construction Ltd:
   Jervis Smith and Thomas

Counsel for appellant The Scaffold Connection Pty Ltd:
   Mr B R Martin QC with him
   Mr J T Birchall

Solicitors for appellant The Scaffold Connection Pty Ltd:
   Lawson Downs

Counsel for respondents Aki and Debra Valkonen:
   Mr T R Anderson QC with him
   Mr P D Hannon

Solicitors for respondents Aki and Debra Valkonen:
   Duncan Hannon

Counsel for respondent J A Ceilfix Pty Ltd:
   Mr S Walsh QC with him
   Mr M N Rice

Solicitors for respondent J A Ceilfix Pty Ltd:
   Michell Sillar Lynch and
   Meyer

ORDER
Appeals allowed.

JUDGE1 COX J Mr Aki Valkonen, one of the plaintiffs, was badly injured on 27 April 1988 when he fell from a mobile scaffold at the site of a supermarket at Glenside during the course of the supermarket's construction. Jennings Construction Ltd (Jennings) was the building contractor which engaged J.A. Ceilfix Pty Ltd (Ceilfix), of which Mr Valkonen was a shareholder and a director and an employee, to erect the ceiling of the supermarket. Ceilfix in turn contracted with The Scaffold Connection Pty Ltd (Scaffold Connection) to construct the scaffold from which Ceilfix's staff would do the ceiling work. Mr Valkonen's case at the trial was that he fell from the scaffold when one of its horizontal railings gave way. He and his wife sued Scaffold Connection for not erecting the scaffold properly and Jennings for failing to carry out an adequate inspection of the scaffold before allowing anyone to use it. Ceilfix was brought in as a third party by both defendants on the grounds that it had failed in its duty to Mr Valkonen as his employer and (Jennings argued) that in any event it had contracted to indemnify Jennings against any such claim as this. The learned Judge who tried the action in this Court found that both Jennings and Scaffold Connection were negligent. He acquitted Ceilfix of any blame and Mr Valkonen of contributory negligence. He held that Scaffold Connection should bear 80 per cent of the responsibility for Mr Valkonen's injuries and Jennings 20 per cent. He dismissed the indemnity claim on the ground that the contract term in question was not applicable to Mr Valkonen's accident. Both defendants have appealed against the Judge's findings.

2. Ceilfix was a small family company of which Mr Aki Valkonen (whom I shall now call simply "the plaintiff") and his brother, Mr Jack Valkonen, were the directors. It specialized in the construction and erection of ceilings. It had experience in large undertakings such as this supermarket. Jack Valkonen looked after the tendering and other paperwork but he also, like the plaintiff, worked on jobs as a tradesman employee of the company. They had a small but floating staff to help them.

3. Ceilfix began work at the supermarket on 26 April 1988. By that time Scaffold Connection, acting on Ceilfix's instructions, had built two large mobile scaffolds to provide platforms at a suitable height from which the Ceilfix workmen could install the ceiling panels. Jack Valkonen said in evidence that the usual practice on any building site is that the builder inspects the scaffolding before anyone is allowed to use it, and it was not disputed that on this occasion an inspection was made by two members of Jennings' staff named Walker and Shaw. Mr Walker was Jennings' foreman and Mr Shaw a deputy safety officer. Prior to the inspection the plaintiff had discovered that the scaffold platforms were not at the correct height. They did not provide a comfortable working level. Scaffold Connection was notified and its staff adjusted the height by fitting larger wheels to the scaffolds. Work was carried out on the ceiling that day and the next. The accident happened on the second afternoon.

4. The scaffolds were made of aluminium pipes. Each scaffold was nine metres long and three metres wide with a solid platform which (after the larger wheels had been fitted) was 3.2 metres above the supermarket floor. The ceiling height was to be five metres from the floor. There was a safety rail about one metre high around each scaffold platform. It consisted of sections of pipe, each three metres long, fastened to upright posts by means of what are called rhino hooks. A rhino hook is a metal clamp, semi-circular in shape, attached to the end of the horizontal rail and fitted with a locking device that snaps onto the tubular upright and holds the two pipes firmly together. The case against Scaffold Connection was that its workmen had failed to snap the rhino hook locking device home properly at the end of the safety rail alongside which the plaintiff was working, so that when he leaned against the rail it gave way and he fell to the supermarket floor. He is now a quadriplegic.

5. At the time of the accident the two scaffolds had been placed together so that they created a continuous platform eighteen metres long. The plaintiff was working with other Ceilfix men putting the ceiling panels into place. They found that their work was obstructed by a large metal fire hood that had been fixed, mouth down, just below ceiling height. It was necessary for them to raise the hood a short distance so that they could fit the ceiling panels around it. The hood was about two metres square and quite heavy, and it was a matter of getting some workmen to stand on the platform and lift the hood a little higher while the plaintiff adjusted the holding nuts at each corner of the hood. The plaintiff could remember in evidence encountering the problem and telling Walker, the Jennings foreman, about it, but he could not remember anything after that. Given his very severe injuries that is not surprising.

6. Photographs (Exhibit P1) were taken within half an hour of the accident. They show that the hood was not directly above the scaffold but partly over it and partly to one side. That created a difficulty when it came to reaching the holding nuts that were farthest from the scaffold. However, the plaintiff was a tall man and the evidence of Mr Hall, an engineer, whose evidence the Judge accepted, showed that it was possible for the plaintiff to reach the nut that he was adjusting when he fell by standing at the edge of the scaffold platform. He only had to raise the nut five or six centimetres. The job was an awkward one, though, and he would have been at full stretch. There was a steel trestle on the platform close to the place where the plaintiff was working, and an important issue at the trial was whether the plaintiff gave himself another thirty centimetres in height, while adjusting the farthest nut, by standing on the bottom rung of the trestle and leaning out over the safety rail. Another possibility that was advanced was that the plaintiff had one foot on the trestle rung and the other on the safety rail. The learned Judge rejected those theories and found that the plaintiff was standing on the platform itself when he stumbled or slipped or leaned against the guard rail. He fell because the guard rail gave way, and it gave way because Scaffold Connection's workmen had failed to fix it properly to the upright post. It should have been stable enough and secure enough to take the plaintiff's weight.

7. The photographs show the guard rail in question down at one end. It was simply resting on the platform, close to but in no way connected to its upright post. The trial Judge accepted the evidence that no-one interfered with that rail before the accident. Both defendants argued that someone, probably a fellow worker of the plaintiff's, must have interfered with the rail after the accident to fake an explanation for the accident that would assist the plaintiff. The Judge rejected that submission.

8. There was a great deal of evidence about the reliability or otherwise of rhino hooks and the precautions that can be taken to guard against their failure. The general practice is to have the mouth of the rhino hook facing outward from the platform so that any pressure from the inside will tend to strengthen the hook's grip, not lessen it. Supplementary clamps are used sometimes to prevent a horizontal rail sliding down the upright and often the joint is secured by wire as well. An inspection the morning after this accident showed that many of the guard rail joints on this scaffold had been wired, and it did not detract from the force of the defendants' argument that after the accident a loose piece of wire was found draped over the end guard rail, close to the upright from which the rail over which the plaintiff fell had been disengaged. However, the learned Judge found that there was no supplementary clamp or wire securing that end of the rail when the accident happened, and that the cause of the accident was the failure of Scaffold Connection's workmen to secure the rail to its upright properly. They cannot have ensured that the rhino hook was fully engaged. Jennings was also to blame because the inspection made by Walker and Shaw must have been inadequate. As for the plaintiff himself, the learned Judge found that he was not leaning out to any extent that produced danger. He could have had the scaffold moved so that he was directly beneath the nut that he was adjusting, but his reaching out over the edge of the platform and possibly leaning against the guard rail to some extent did not indicate an insufficient regard for his own safety. He was not guilty of contributory negligence.

9. I am satisfied from my reading of the evidence that it is physically possible that the accident happened in the way described by the learned Judge, with the plaintiff standing directly on the scaffold platform and simply stretching up to his right, though no doubt putting some weight against the side of the guard rail, and the guard rail collapsing because it had not been attached to its upright properly. That might not provide an obvious or satisfactory explanation for certain aspects of the evidence, but no-one claimed to have witnessed the accident in its entirety and I do not think that the apparent anomalies are fatal to that hypothesis. The more difficult question is whether the learned Judge's conclusions accord with the probabilities of the case.

10. There is no doubt to my mind that the defendants presented a plausible case of some degree of interference, possibly innocent though probably not, with the horizontal rail after the accident. To start with, rhino hooks usually snap into place and I should have thought that even a lackadaisical workman was likely to have fitted the hooks on this guard rail correctly. Other joints had been wired, so one might suppose that this one would have been wired also had it needed it. A government inspector replaced the guard rail the following morning and subjected it to rigorous testing with only some moderate vertical displacement. The rhino hook catch did not fly open. The hooks certainly appear from the photographs to have been fitted mouth outwards so that any lateral pressure from the inside was likely to cause a carelessly fitted rhino hook to snap home. The possibility, then, of someone having the presence of mind to give a prompt helping hand to a potential and obviously substantial damages claim cannot be dismissed out of hand. The trestle had been used previously on the scaffold as a makeshift step ladder and there was evidence, that the Judge accepted, that someone moved it after the accident but before the photographs were taken, although there may not be anything sinister about that. The only witness who claimed to have seen what happened to the guard rail when the plaintiff fell was Mr Malin, a Ceilfix workman, and he described it as "hanging on the outside of the scaffold in mid air," but the learned Judge did not accept that evidence. His Honour relied heavily on Mr Gould whom he considered to be an excellent witness. Gould was employed by Frigrite, the sub-contractor that installed the fire hood. He was summoned to the scaffold to assist in the hood-raising exercise. He was standing in a corner of the platform, within a metre of the plaintiff and facing him, although he was holding one side of the fire hood above his head and looking upwards when the plaintiff fell. (His back was against the short end of the scaffold, and the plaintiff's counsel made use of that to explain how the side rail could have been dislodged altogether from its upright post.) Gould was looking up at the plaintiff and could see him tightening the nut. He said that the plaintiff was "at a height that you could say wasn't his normal height". He heard the plaintiff cry out and saw him "tumble over in the air" and fall to the ground. Gould was very upset afterwards. Nevertheless it is surprising that he was unable to say whether the appellant was standing on the platform or on something else, and that he did not notice anything about the guard rail at the time of or after the plaintiff's fall. I should have thought that everyone on that platform would have wondered how the plaintiff could have fallen as he did and would have noticed immediately and remembered any displacement of the guard rail, as indeed Malin said he did. Then there is the piece of wire that someone left looped over the end rail and for which there does not appear to be any satisfactory explanation. So, as I say, the case for dishonest interference certainly has to be taken seriously. Nevertheless, it is no small thing to find that there was deliberate interference with the accident evidence, either by Ceilfix workmen to help the plaintiff or - less probably, I should have thought - by someone from Jennings with the object of concealing the evidence of that defendant's inadequate inspection. The trial Judge considered that submission carefully - he was addressing particularly a cover up by Jennings' staff - and rejected it. Furthermore, in reaching the conclusion that the plaintiff was not standing on the trestle or the guard rail he relied, not only on the fact that no-one claimed to have seen him doing so, but also on his own appraisal of the plaintiff. He described the plaintiff as a good witness and said,
    "He is an intelligent man. Standing on the guard rail or
    trestle and guard rail would have been foolhardy. I cannot
    believe he would have done it."

11. In my opinion, the learned Judge was entitled to place considerable weight on that factor in reaching a conclusion in this difficult matter. He had the advantage, denied to an appeal court, of seeing the plaintiff in the witness box. Besides, it is possible that the rail, inadequately secured, just slipped down the upright a little way, causing the plaintiff to lose his balance, and that the rail in some way broke free when the plaintiff fell on it or - more likely, on this theory - that someone improperly removed it altogether afterwards. (Note the irregular position of other guard rails shown in the photograph P1/5.) I do not think that the Judge's findings about the negligence of Scaffold Connection should be disturbed.

12. I turn to the case against Jennings. I have referred to the plaintiff's evidence that it is the usual practice for a building contractor to inspect scaffolding before any workmen are allowed on it. Jennings did not contradict that evidence. The two Jennings officials, Walker and Shaw, did not give evidence at all and it therefore remains a matter of conjecture what Jennings meant when it described the inspection in its interrogatory answer as "casual" and "visual". The learned Judge interpreted "casual" as meaning "cursory". His Honour said -
    "The first defendant assumed the responsibility of
    inspection. Its men inspected carelessly. They should have
    seen that there was no clamp or wire. They should have done
    more than merely look in a cursory way. They should have,
    in the absence of wire or clamps, shaken or felt the
    attachment. That could have revealed the lack of proper
    attachment. They could have foreseen that the man in the
    plaintiff's position might fall if a guard rail was not
    securely attached. There was sufficient proximity between
    the plaintiff and the first defendant to make the
    plaintiff's case in negligence against the first defendant
    complete."

13. I think those findings and conclusion were justified by the evidence. It is true that his Honour had referred earlier to the Regulations made under the Occupational Health, Safety and Welfare Act 1986 as requiring that "some competent person or persons inspect scaffolding before anyone mounts it." It would seem that reg10(3) only requires an examination of scaffolding components and gear before a scaffold is erected, not afterwards, and our attention was not directed to any other regulation about the inspection of scaffolding. Nevertheless Jennings, evidently in accordance with a prevailing practice, tacitly assumed the responsibility of inspecting the scaffold in this instance and it is plain that the Ceilfix workmen relied on its inspection. That was enough in the circumstances to create in Jennings a relevant duty of care to those workmen including the plaintiff.

14. So far, then, I would uphold the trial Judge's findings as to liability in negligence. However, Jennings and Scaffold Connection also complain of the learned Judge's exculpation of Ceilfix and the plaintiff himself.

15. Ceilfix was the plaintiff's employer. It therefore owed the plaintiff the employer's usual common law duty of care including the obligation to provide him with a safe place of work. The duty was not abrogated or lessened by the circumstance that the plaintiff was also a director of the employer company. Nicol v Allyacht Spars Pty Ltd (1987) 163 CLR 611. It was a non-delegable duty which meant that Ceilfix not only had a duty to take reasonable care in making the plaintiff's workplace safe but it also had to ensure that reasonable care was taken to that end. Ceilfix, therefore, could not hand over its responsibility to Scaffold Connection and claim that it was justified for one reason or another in reposing its confidence in that company, because the consequence of the special relationship of master and servant meant that Ceilfix was for practical purposes liable for any negligence on the part of its contractor in failing to build the scaffold properly. I say "for practical purposes" because, strictly speaking, Scaffold Connection was not providing the plaintiff with a place of work; Ceilfix was. Scaffold Connection simply built a mobile scaffold which Ceilfix, without making any inspection of its own, then required its workmen to use. On the learned Judge's findings the scaffold was unsafe and it follows that Ceilfix was in breach of its duty to the plaintiff. Kondos v State Transport Authority (1984) 154 CLR 672; cf Stevens v Brodribb Sawmilling Co. Pty Ltd

(1986) 160 CLR 16. There is no doubt, of course, that the breach in this case was a cause of the plaintiff's injuries. Ceilfix must therefore, in my opinion, share with Jennings and Scaffold Connection in the responsibility for the plaintiff's loss and damage.

16. What of the plaintiff himself? The learned trial Judge rejected the defendants' plea of contributory negligence. He said -
    "The plaintiff working on a platform is not to be blamed if
    he fell, stumbled or leant against the guard rail. He was
    entitled to expect that competent men had competently
    erected and secured the guard rail. He was entitled to
    expect that there had been a thorough inspection by a
    foreman and a deputy safety officer. It would be a counsel
    of perfection to hold him guilty of lack of care for his own
    safety."

17. I think these words would be entirely apt had one of the ordinary Ceilfix workmen been injured in such circumstances as these. However, the plaintiff was an executive director of Ceilfix and he was in effect its foreman on this particular job. He had decided, jointly with his brother, what sort of scaffold was needed and he was the one who was in de facto charge of the ceiling work from Ceilfix's point of view. It was therefore his task to ensure that Ceilfix's duty to provide its workmen with a safe place of work was carried out properly. That meant effectively that someone from Ceilfix - most obviously but not necessarily the plaintiff himself - should have inspected the scaffold before any of the Ceilfix workmen used it. The plaintiff knew that this had not been done. (There is an equivocal answer in Jack Valkonen's cross-examination about his looking at the scaffold on April 26 and making sure that it was assembled correctly, but he really seems to be saying that he left that task to the sub-contractor that erected the scaffold.) The plaintiff, like his employer, relied implicitly on the competence of the Scaffold Connection workmen and on Walker and Shaw who carried out the cursory inspection to which I have referred. For a workman in the plaintiff's directorial position that was not good enough, especially as he was aware from his own experience that rhino hooks do not always work properly. Testing the guard rail connections would have taken very little time. I would find in all the circumstances that the plaintiff failed to take reasonable care for his own safety.

18. On that view of the matter there are four parties between whom responsibility for the plaintiff's damage must be apportioned in accordance with the Wrongs Act, having regard to the extent of each party's fault or responsibility - Jennings, Scaffold Connection, Ceilfix and the plaintiff. The major share of the blame must rest with Scaffold Connection. Obviously the Jennings inspection was too perfunctory, but it is to be kept in mind that as an inspector Jennings (unlike Scaffold Connection and Ceilfix) was a volunteer. The Ceilfix inspection was non-existent, but it is understandable, though not excusable, that Ceilfix should have relied on the competence of Scaffold Connection and Jennings. The plaintiff's individual responsibility was relatively minor. I would reduce his damages because of his contributory negligence by 10 per cent. I would apportion the respective degrees of responsibility of the three defendants among themselves for the plaintiff's damage as follows: Scaffold Connection 60 per cent, Ceilfix 30 per cent and Jennings 10 per cent.

19. That leaves Jennings' indemnity claim.

20. Ceilfix was a sub-contractor of Jennings. The contract between them, made in July 1987, was headed "Sub-Contract Work Order" and incorporated nineteen clauses of "Terms and Conditions" occupying two pages of minuscule print. It was obviously Jennings' document and the Terms and Conditions covered the usual range of subjects in a building contract. Clause 8 reads -
    "INSURANCE:

(a) Workers' Compensation - The Sub-Contractor shall insure
    against any liability, loss, claim or proceeding, to or by
    or in respect of any person employed or engaged by the
    Sub-Contractor in connection with the Sub-Contract works or for
    whom the Sub-Contractor can be held in any way liable or
    responsible whether arising under any Act relating to
    Workers' Compensation or Employers' Liability or at Common
    Law.

(b) Public Liability - The Sub-Contractor shall be solely
    liable for and shall indemnify the Builder in respect of and
    shall insure against any liability, loss, claim or
    proceedings whatsoever arising under any statute (other than
    as provided in (a)) or at Common Law in respect of or in
    connection with the death of or injury to any person, or any
    loss of or damage to any property arising out of or in any
    way connected with or caused by the execution of the
    Sub-Contract works. Such insurance shall be for the amount
    (if any) specified in the Head Contract or if no amount is
    specified then for such amount as may be requested by the
    Builder.

(c) Contractors All Risks - The Sub-Contractor shall insure
    against all other risks in respect of which the Builder is
    obliged to insure under the Head Contract and in particular
    he shall take out a Contractors All Risks policy which shall
    cover (inter alia) the whole of the Sub-Contract works and
    any extensions there to to the extent of their full value.

(d) Proof that such Insurances have been effected shall be
    furnished to the Builder prior to the commencement of the
    Sub-Contract works and the Sub-Contractor shall not be
    entitled to receive the first progress payment until such
    proof has been furnished."

21. Jennings is the Builder and Ceilfix is the Sub-Contractor. Jennings' case is that it is entitled under par(b) of clause 8 to be indemnified by Ceilfix against any liability it may be held to have incurred to the plaintiff by reason of the accident on 27 April 1988.

22. Ceilfix argued at the trial that clause 8 should be treated as an exclusion clause, which meant that Jennings, which was seeking to rely on it, had to show that it was incorporated into the contract and that Jennings took reasonable steps to bring it to the notice of Ceilfix. The learned Judge found on the evidence that this requirement had been satisfied and on the appeal Ceilfix had no complaint to make about that finding. Ceilfix's next submission was that clause 8 on its proper interpretation did not have anything to say about the negligence of the Builder - rather, as its main heading indicated, the clause was really about insurance, and whether or not Ceilfix had met its obligations under clause 8 to insure was not an issue in these proceedings. The learned Judge relied, in interpreting clause 8, on the English case of Smith v South Wales Switchgear Co. Ltd (1978) 1 WLR 165 which gave a restrictive interpretation to the sort of language that is used in par(b) of clause 8. His Honour considered that there was no inconsistency between the approach of the House of Lords in that case and the reasoning of the High Court in the cases of Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500, and Nissho Iwai Australia Ltd v Malaysian International Shipping Corporation, Berhad (1989) 167 CLR 219 which dealt generally with the interpretation of exclusion and limitation clauses in commercial contracts. His Honour in conclusion said -
    "Clause 8 does not contemplate indemnity against the
    consequences of the negligence of the first defendant
    through its servants.

I think, too, that Clause 8 is no more than a contract
    requiring the sub-contractors (the Third Party) to insure
    and hold the first defendant harmless against the
    consequences of any failure to insure against the risk
    mentioned in Clause 8. The whole clause is in various ways
    addressed to insurance. Clause 8(b) speaking of public
    liability requires the Third Party to insure and concludes
    with a reference to the "amount of insurance". Sub-clauses
    (a), (c) and (d) are all addressed mainly to insurance.

I hold that clause 8 does not apply and does not grant the
    first defendant the indemnity which it claims because it
    does not in terms or by necessarily implication cover the
    consequences of the negligence of the first defendant
    itself. Second, I hold that it is only a clause requiring
    the taking out of insurance and making provision for the
    consequences of failure to insure. We are not on these
    pleadings concerned with the consequences of the absence of
    insurance covering a relevant loss."

23. Accordingly the learned Judge rejected Jennings' claim to be indemnified by Ceilfix.

24. Clause 8 throws up a number of questions of interpretation and policy, some of them quite difficult. There is the question whether it is simply concerned with insurance and contains no true indemnity provision at all. If that is not the case, what is the reach of par(b), taken at face value? Is that apparent meaning to be cut down because there is no express mention of the Builder's negligence? Is par(b) to be read as excluding liability to any of the persons mentioned in par(a)?

25. In my opinion, with all respect to the learned Judge, clause 8 cannot be regarded as dealing only with the subject of insurance. True, the heading of the clause might be thought to indicate as much, and certainly the clause has a lot to say about insurance, but to interpret par(b) as providing only for insurance is, as it seems to me, to interpret the words "shall be solely liable for and shall indemnify the Builder in respect of" out of the contract. Those words must, in my view, create a right of indemnity of some sort that can stand independently of the Sub-Contractor's obligation to insure. I do not think that the reference to the "amount" of the insurance in the second sentence of par(b) requires a different conclusion.

26. There is a long line of cases, particularly in England, that expresses an antipathy to exclusion clauses and indemnity clauses and the like in commercial contracts. The modern starting point is Alderslade v Hendon Laundry Ltd (1945) 1 KB 189 which dealt with a limitation clause. A laundry relied on a limitation clause with respect to "lost or damaged articles" and the question arose whether it could take advantage of the clause where articles were lost through the laundry's negligence. It was held that it could, but only because that was the only way liability for lost or damaged articles could arise. Lord Greene MR referred to earlier authorities on the subject and said -
    "The effect of those authorities can I think be stated as
    follows : where the head of damage in respect of which
    limitation of liability is sought to be imposed by such a
    clause is one which rests on negligence and nothing else,
    the clause must be construed as extending to that head of
    damage, because it would otherwise lack subject-matter.
    Where, on the other hand, the head of damage may be based on
    some other ground than that of negligence, the general
    principle is that the clause must be confined in its
    application to loss occurring through that other cause, to
    the exclusion of loss arising through negligence. The
    reason is that if a contracting party wishes in such a case
    to limit his liability in respect of negligence, he must do
    so in clear terms in the absence of which the clause is
    construed as relating to a liability not based on
    negligence. A common illustration of the principle is to be
    found in the case of common carriers. A common carrier is
    frequently described, though perhaps not quite accurately,
    as an insurer, and his liability in respect of articles
    entrusted to him is not necessarily based on negligence.
    Accordingly if a common carrier wishes to limit his
    liability for lost articles and does not make it quite clear
    that he is desiring to limit it in respect of his liability
    for negligence, then the clause will be construed as
    extending only to his liability on grounds other than
    negligence. If, on the other hand, a carrier not being a
    common carrier, makes use of such a clause, then unless it
    is construed so as to cover the case of negligence there
    would be no content for it at all seeing that his only
    obligation is to take reasonable care. That, broadly
    speaking, is the principle which falls to be applied in this
    case." (at 192)

27. That decision has been followed in a great number of cases since 1945. In Canada Steamship Lines Ltd v The King (1952) AC 192 the advice of the Privy Council, delivered by Lord Morton of Henryton, summarized the position with respect to an exclusion clause in the following way -
    "(1) If the clause contains language which expressly
    exempts the person in whose favour it is made (hereinafter
    called "the proferens") from the consequence of the
    negligence of his own servants, effect must be given to that
    provision ...

(2) If there is no express reference to negligence, the
    court must consider whether the words used are wide enough,
    in their ordinary meaning, to cover negligence on the part
    of the servants of the proferens. If a doubt arises at this
    point, it must be resolved against the proferens ...

(3) If the words used are wide enough for the above
    purpose, the court must then consider whether "the head of
    damage may "be based on some ground other than that of
    negligence," to quote again Lord Greene in the Alderslade
    case. The "other ground" must not be so fanciful or remote
    that the proferens cannot be supposed to have desired
    protection against it; but subject to this qualification,
    which is no doubt to be implied from Lord Greene's words,
    the existence of a possible head of damage other than that
    of negligence is fatal to the proferens even if the words
    used are prima facie wide enough to cover negligence on the
    part of his servants." (at 208)

28. In Smith v South Wales Switchgear Co. Ltd (1978) 1 WLR 165 the House of Lords applied this three-fold test to an indemnity clause in a commercial contract.

29. This was the alternative route by which the learned trial Judge found that Jennings could not rely on clause 8 in this case. His Honour said -
    "(i) There is no mention of indemnity "for" the negligence
    of the first defendant mentioned in terms in the clause.
    The clause does not clearly grant an indemnity to the first
    defendant from the consequences of the negligence of its own
    servants.

(ii) In my opinion the words in Clause 8 are not wide
    enough to cover the consequences of the negligence of the
    servants of the first defendant.

(iii) This does not apply but if it did the existence of
    the cause of action for breach of statutory duty would be
    fatal to the first defendant (the proferens)."

30. There is a question, however, whether Lord Morton of Henryton's summary in Canada Steamship Lines is good law in Australia now. In Darlington Futures, which was an appeal from this Court, the High Court examined a number of recent Australian and English cases on the interpretation of exclusion clauses and limitation clauses and held that the rules are the same for both types of clause. It noted that recent decisions had given emphasis to the natural meaning of the words of exclusion and limitation clauses, read as a whole, although it was always necessary to have regard to the context in which the clauses appeared. The High Court said -
    "These decisions clearly establish that the interpretation
    of an exclusion clause is to be determined by construing the
    clause according to its natural and ordinary meaning, read
    in the light of the contract as a whole, thereby giving due
    weight to the context in which the clause appears including
    the nature and object of the contract, and, where
    appropriate, construing the clause contra proferentem in
    case of ambiguity. Notwithstanding the comments of Lord
    Fraser in Ailsa Craig Fishing Co. Ltd v Malvern Fishing Co.
Ltd (1983) 1 WLR 964, at 970, the same principle applies to
    the construction of limitation clauses. As King C.J. noted
    in his judgement in the Supreme Court, a limitation clause
    may be so severe in its operation as to make its effect
    virtually indistinguishable from that of an exclusion
    clause. And the principle, in the form in which we have
    expressed it, does no more than express the general approach
    to the interpretation of contracts and it is of sufficient
    generality to accommodate the different considerations that
    may arise in the interpretation of a wide variety of
    exclusion and limitation clauses in formal commercial
    contracts between business people where no question of the
    reasonableness or fairness of the clause arises." (at 510-1)

31. That statement of the proper approach would seem to be equally applicable to indemnity clauses. See Smith v South Wales Switchgear; Schenker and Co. (Aust.) Pty Ltd v Maplas Equipment and Services Pty Ltd (1990) VR 834.

32. The interpretation problem arises most acutely when the indemnity clause is said to entitle one party to a contract to claim from the other an indemnity against the consequences of his own negligence.

33. In Graham v The Royal National Agricultural and Industrial Association of Queensland (1989) 1 Qd R 624, Connolly J held, "with some hesitation", that Darlington Futures is not to be read as having abrogated the rules of construction enunciated in Canada Steamship Lines. His Honour was considering there an exclusion clause. In Schenker, which dealt with an indemnity clause in a commercial contract, the Full Court of Victoria took the opposite view. It considered that the guidelines stated in Canada Steamship Lines were inconsistent with the principles stated in the Australian cases culminating in Darlington Futures. Commercial contracts should be interpreted as they would be understood by business people and not given a strained construction.

34. In my respectful opinion the Full Court of Victoria was right. The first and second of the Canada Steamship Lines tests provide acceptable working rules but the third imposes an artificial and inflexible rule of interpretation that is as likely as not to frustrate the intention of the parties. The solicitude for the indemnifying party which explains the rule's creation will often be inappropriate in modern commercial conditions. There may be good practical reasons for providing that one party to a contract shall be indemnified by the other against any liability the former might incur to a third party, even if it is caused by his own fault, and where, as commonly happens, the obligation to indemnify is to be secured by insurance (as in the case of this contract) there is no sound policy reason for expecting the contract term to conform with an arbitrary judge-made textual requirement before its provisions will be given their natural operation. Indeed, a narrow interpretation of such a term is likely in any given case to benefit only the insurance company which writes the obligatory policy in prudently liberal terms and charges appropriately for it.

35. The recent reassessment of the principles of interpretation applicable to exemption clauses and the like has not yet produced a uniform result in common law countries. In the Canadian case of International Terminal Operators Ltd v Miida Electronics Inc. (1986) 28 DLR (4th) 641 McIntyre J noted that, while recent cases had generally accepted Canada Steamship Lines as authoritative, the third test had caused some difficulties and courts had endeavoured to relax the qualification expressed in that test. In DHL International (NZ) Ltd v Richmond Ltd (1993) 3 NZLR 10, the Court of Appeal of New Zealand had to interpret exclusion and liability limitation clauses in a bill of lading. The Court generally favoured giving standard terms in international commercial arrangements their "natural plain meaning read in the light of the contract as a whole" (p17), and it had reservations about applying a stricter test to clauses that exempted one party altogether from any liability to the other. For a recent English instance of the principles of construction being expressed in general terms with reference to the clear intention of the parties, but in the end simply applying the third of Lord Morton of Henryton's rules as a rule of thumb, see EE Caledonia Ltd v Orbit Valve Co. Europe (1993) 4 All ER 165.

36. I return to clause 8 itself. Paragraph (b), applied to these parties, provides that Ceilfix shall be solely liable for and shall indemnify Jennings in respect of any liability whatsoever arising at common law in respect of or in connection with the injury to any person arising out of or in any way connected with the supply and installation of the supermarket ceiling. I have already said that, in my opinion, the clause effectively grants some kind of indemnity; it is not concerned merely with insurance. It does not speak in terms of negligence; it refers simply to any "liability" - verbum generalissimum - without limiting it to a liability of any particular legal kind or category. One such common law liability is a liability in negligence, and it is that sort of liability that Jennings has been found to have incurred in respect of the injury suffered by the plaintiff. His fall from the scaffold while working on the ceiling meant that his injury arose out of and was connected with Ceilfix's execution of the Sub-Contract works. The paragraph is not ambiguous. Giving its words their plain and natural meaning, and having regard to the context in which they appear, they are wide enough to include a liability caused by the negligence of Jennings' own servants, and I see no reason to suppose that to interpret the paragraph in this way would not accord with the intention of the parties. They may well have considered that the best course for both of them was to avoid the possibility of disputes about liability among themselves by providing that Ceilfix should satisfy all legitimate claims against one or both of them and then look for reimbursement to the single comprehensive insurer. On that view of the matter Jennings can recover against Ceilfix. It could not have done so under the Canada Steamship Lines rules for, while in my opinion it would have satisfied the second test, it would have failed the third as there are other grounds of liability than negligence (e.g. breach of statutory duty) to which the word "liability" in clause (8) can refer. (Compare EE Caledonia.)

37. Mr Walsh QC, for Ceilfix, submitted that pars (a) and (b) of clause 8 are dealing with different and mutually exclusive subjects. Paragraph (a) is concerned with a liability to a person employed or engaged by Ceilfix and par(b) deals with a liability to other persons. The plaintiff's case falls within par(a) and therefore it does not fall within par(b). I do not accept this argument. There is no indemnity provision in par(a). It is unlikely that the parties intended that Jennings should have its indemnity in the case of some potential claims apparently described in par(b) but not others. It is unnecessary to decide whether interpreting clause 8 in that way would require Ceilfix to duplicate the insurance - I doubt it - because I do not think that this would in any event be a sufficient reason for reading down the indemnity provision.

38. There is the question whether the sub-heading "Public Liability" in par(b) limits the scope of the text that follows it. Public liability insurance is a description generally given to insurance against legal liability to members of the general public. However, the Builder, as the present case shows, is just as likely to need the indemnity and insurance cover with respect to the Sub-Contractor's staff as to strangers. Indeed, it may well be that a typical public liability policy, with the usual exclusion with respect to Jennings' own staff, is the appropriate insurance policy for this paragraph. It is noteworthy that the sub-heading for par(a) of clause 8 ("Workers' Compensation") does not fully describe the extent of the insurance cover required under that paragraph. I would not read down par(b) because of its sub-heading.

39. In my opinion, for the reasons I have given, Jennings is entitled to be indemnified by Ceilfix against Jennings' own liability to the plaintiffs.

40. I would allow the appeals. I would order that the plaintiffs recover from the defendants 90 per cent of their damages to be assessed, and that the defendants have the usual rights of contribution and recovery among themselves and the third party so that they contribute to the plaintiffs' judgements in the following proportions - Jennings 10 per cent, Scaffold Connection 60 per cent and Ceilfix 30 per cent. Judgement should be entered accordingly. Ceilfix should be ordered to reimburse Jennings for its share of the plaintiffs' damages.

41. I would hear the parties on the matter of costs.

JUDGE2 MATHESON J I agree that both appeals should be allowed. I agree with the reasons of Cox J and the order he proposes.

JUDGE3 PERRY J For the reasons given by Cox J, I agree that both appeals should be allowed for the purpose of making the adjustments which find expression in the order proposed by him.