GPS Power Pty Ltd v Gardiner Willis and Associates Pty Ltd

[2000] QSC 75

SUPREME COURT OF QUEENSLAND

CITATION:	Re: GPS Power Pty Ltd & Ors v Gardiner Willis Associates Pty Ltd [2000] QSC 075
PARTIES:	GPS POWER PTY LTD ACN 009 103 422 GPS ENERGY PTY LTD ACN 063 207 456 SUNSHINE STATE POWER BY ARBN 062 295 425 SUNSHINE STATE POWER (NO 2) BV ARBN 063 382 829 SLMA GPS PTY LTD ACN 063 779 028 RYOWA II GPS PTY LTD ACN 063 780 058 AND YKK GPS (QUEENSLAND) PTY LTD ACN 062 905 275 (plaintiffs)
and
GARDINER WILLIS ASSOCIATES PTY LTD ACN 067 249 914 (defendant)
FILE NO:	5789 of 1996
DIVISION:	Trial Division
DELIVERED ON:	6 April 2000
DELIVERED AT:	Brisbane
HEARING DATE:	13 March 2000
JUDGE:	Mackenzie J
ORDER:	1. I give judgment for the plaintiffs in the sum of $40,890.65. 2. I will hear the parties as to costs.
CATCHWORDS:	INSURANCE – SUBROGATION – the defendant was "The Insured" under the policy and protected against subrogation by clause (c) and (d) of the policy – construction works and blanket liability policy; effect of waiver of right to subrogation against "insured"; exclusion of "consultant" from definition in respect of professional duty of care only; whether consulting engineer in breach of duty protected by waiver.
Woodside Petroleum Development Pty Ltd v H&R – E&W Pty Ltd (1999) 10 ANZ Ins Cases 61-430 at 74,851 T.H. Knitwear (Wholesale) Ltd (1988) 1Ch 275, 287 Morganite Ceramic Fibres Pty Ltd v Sola Basic Australia Ltd (1988) 5 ANZ Ins. Cases 60-883 at 75, 623 National Oilwell (U.K.) Ltd v Davy Offshore Ltd (1933) 2 Lloyds Rep 582, 603 Marathon Oil Co v Mid Continent Underwriters (1986) 786 F2d 1301 at 1303-1304 Agip Petroleum Co Inc v Gulf Island Fabrication Inc (1996) 920 FSupp 1318, 1328-1330
COUNSEL:	S Williams QC and M Liddy for the plaintiff D Clothier for the defendant
SOLICITORS:	Gadens Lawyers for the plaintiff Corrs Chambers Westgarth for the defendant

1. MACKENZIE J: The plaintiffs claimed damages in the sum of $476,548.30 in respect of an alleged failure by the defendant, which is a consulting engineering company, to exercise reasonable care and diligence as an engineer in the design, engineering drawings and detailing of a supporting structure of a surge hopper for the Gladstone Power Station.

2. On 16 September 1995 the structure designed by the defendant failed and the surge hopper dropped, causing damage to other equipment. Breach of duty and quantum of $459,651.65 are admitted by the defendant. The difference between the amount claimed and the amount admitted is abandoned by the plaintiffs. The plaintiffs were indemnified to the extent of $418,716 by insurers leaving a loss of $40,890.65 unrecovered by the plaintiffs. The defendant admits liability for this amount.

3. The defendant disputes liability for the amount paid by the insurers on the basis of a construction works and liability blanket insurance policy for the Gladstone Power Station. The construction of the policy will become important at a later stage.

4. Before going into that issue, the engagement of the defendant by ABB Power Plants Ltd ("ABB") which was a party to a contract with the operator of the power station is contained in a purchase order with a number of pages of contractual terms attached. The purchase order itself requested the defendant to provide "design engineering drawing and detailing services" as described in the document and refers on its face to concrete design and detailing, structural steelwork design and layouts, structural steelwork shop details and pipework supports, design and detailing. The pages attached to the purchase order define more specifically what these design detail and drawings are to cover.

5. A special condition required the defendant to provide and perform the services exercising due skill, care, diligence and judgment to a standard of competence regarded as acceptable by members of the consulting engineering profession and also required it to ensure that its standard of competence matched or was better than that of the consulting engineering profession generally. The defendant was permitted by the contract to employ "sub-consultants".

6. For reasons which will emerge the question whether the defendant was a "consultant" within the meaning of the policy is of some significance. It may also be noted that the contract between ABB and the defendant required it to provide a certificate of currency relating to professional indemnity insurance. This was consistent with a notation in the purchase order, "your care professional indemnity insurance". Confirmation of the defendant's professional indemnity insurance cover is in the agreed documents.

7. The rights of the defendant under the contract works and liability blanket insurance policy in respect of the project and the question whether it imposes a restraint upon the right of the insurer to take action against the defendant will become significant later.

8. It is necessary initially to refer to one aspect of the pleadings. On its face the statement of claim is silent as to whether the claim is brought by the plaintiff in its own right or by the insurer exercising a right of subrogation (cf Woodside Petroleum Development Pty Ltd v H&R – E&W Pty Ltd (1999) 10 ANZ Ins Cases 61-430 at 74, 851). This issue came into focus when, in the amended defence, a defence based on the construction works and liability blanket insurance policy was pleaded. This involved a pleading, inter alia, that the insurer had indemnified the plaintiffs in respect of the loss and damage pleaded in the statement of claim and that proceedings had therefore been commenced by the insurer in the name of the plaintiff. It was alleged that this had certain consequences in terms of the policy and the defendant's status under it.

9. In reply it was, in effect, pleaded that the insurer had only partially indemnified the plaintiffs. With respect to the allegation (par 13 of the amended defence) that proceedings had been commenced in the plaintiffs' name by subrogation the reply is as follows:

   "8 The plaintiffs admit the allegations contained in paragraph 13 of the amended defence insofar as those allegations relate to the extent of the indemnity in the amount of $418,761, but say that in respect of the balance of the claim, the plaintiffs are proceeding in their own right."

10. Notwithstanding this Mr Williams QC for the plaintiffs asserted in his written and oral submissions that the plaintiffs' claim was not a subrogated claim by the insurer. It was a claim by the insured for its loss, some of which was insured and some of which was uninsured. He submitted that the defendant's defence was misguided since authorities which dealt with the case where the sole action was a subrogated one by insurers were irrelevant. He described the notion that the defendant could separate the insured and uninsured portions of the plaintiffs' loss and defend each separately (notwithstanding the way the reply was pleaded) as a novel approach for which there was no authority. I note that the pleading was not Mr Williams'.

11. In his submissions Mr Clothier maintained that it was clear on the pleadings that the claim was not a claim by the plaintiffs for the whole of the loss, but one where the insurers were proceeding in respect of the indemnified amount of the claim and the plaintiffs were proceeding in respect of the unindemnified part of the claim.

12. The plaintiffs' pleadings established the basis upon which it was chosen to conduct the action. I should not go behind them notwithstanding Mr Williams' argument as to the novelty of the notion of splitting the claims. I note, in this regard, in re T.H. Knitwear (Wholesale) Ltd (1988) 1Ch 275, 287 and Morganite Ceramic Fibres Pty Ltd v Sola Basic Australia Ltd, (1988) 5 ANZ Ins. Cases 60-883, at 75, 623 which seem not to exclude the possibility of an insurer being able to pursue, pro tanto, a claim by subrogation where there has been partial indemnity. I also note that no procedural point was taken in respect of the form of proceedings, and that there is nothing in the pleadings to support Mr Williams' assertion that the plaintiff intended to retain control of the proceedings.

13. As liability for the unindemnified portion of the claim is admitted there is no issue about it. As to the indemnified portion, it becomes necessary to consider the policy in more detail.

14. The principal clauses of interest are the definition of "The Insured" and the clause relating to subrogation (cl 1 in the general conditions). Relevantly the definition of "The Insured" includes:

"(a)	The parties nominated in the schedule; (which includes the plaintiffs) ...
(c)	All contractors and sub-contractors (which shall include all other lower tier sub-contractors), but only to the extent of their activities in connection with the insured operations and their interests therein; ...
(g)	Any unnamed party being of other category than specified under (a) to (f) above, having an insurable interest in the Insured Operations and/or Insured Property;

This definition of "The Insured" shall exclude consultants but only in respect of such consultant's professional duty of care to other persons &/or parties included in this definition of "The Insured"."

1. Paragraph (a) of the subrogation clause provides that upon payment of any claim under the policy, the insurer is subrogated to all rights and remedies of the insured arising out of the claim against any person. Paragraph (c) and (d) provide as follows:

"(c)	In the event of the insurers indemnifying or making a payment to any insured(s), the insurers shall not exercise any rights of subrogation against any other insured(s) hereunder.
(d)	The insurers agree to waive any rights and remedies or relief to which they may become entitled by subrogation against:- .......................
(ii) Any insured named or described by this policy
...................... ."

1. In addition to the general conditions applying to all policy sections there were specific provisions and exclusions applying to Sections A and B (the construction period and the maintenance and defects liability period) and to section C (third party legal liability). The subrogation clause is in the general conditions.

2. The plaintiffs' primary submission that the terms of the insurance are irrelevant fails because of the position taken in the pleadings. Their secondary submissions were that the defendant was not an "insured" within the meaning of the policy. Alternatively, if it was an "insured" it was only so in a limited respect and on the facts of the case any limitation on the insurer's remedy under the policy did not assist it. Whilst the plaintiffs had been paid an amount under the policy, the fact of payment by the insurers was irrelevant to the plaintiffs' rights to recover their loss in full because the plaintiffs had not been indemnified fully. Even if the defendant was an insured "under the policy" and the plaintiffs had been indemnified neither the policy provisions including the waiver nor the general law would be effective to prevent success in the subrogated claim.

3. The focus of the defendant's case is that since it is an insured paragraphs (c) and (d) of the subrogation clause prevent a subrogated right being exercised against it. The combination of the obligation not to exercise the right of subrogation and the waiver of any right, remedy or relief to which the Insurer may become entitled by subrogation extinguish such right.

4. Fundamental to this is that the defendant is within the definition of "The Insured". It was submitted that it was either a sub-contractor under the contractor who engaged it, or if not, an otherwise unnamed party with an insurable interest in the insured operations or the insured property. The submission that it was not a "consultant" is of some importance since under the definition of "The Insured" a "consultant" is excluded from the benefit of the policy in respect of its professional duty of care to other persons and/or parties included in the definition. "Consultant" is not defined but it may be inferred that one characteristic of such a person is that the person's activities give rise to a "professional duty of care". It also may be inferred as a matter of construction that the last sentence of the definition must have been intended to exclude persons who were otherwise within the categories (a) to (g) if they were professionally negligent in relation to other persons or parties who were insured. Otherwise the exclusion is devoid of any operation.

5. It was argued that if the defendant is within the definition of "The Insured" the subrogation clause protects it from action on the part of the insurer. As a secondary argument it was submitted that even if the defendant was within the exclusion as a "consultant" with respect to professional negligence it nevertheless remained insured for some purposes under the policy and therefore remained an insured for the purpose of paragraphs (c) and (d) of the subrogation clause. The essence of this argument was that because the provisions were in a general condition the fact that the defendant could claim to be an insured under the policy in some respects was sufficient to give it the benefit of the clauses.

6. In this regard the question whether the defendant is a consultant needs to be explored. Counsel could not refer me to any case in which the term had been defined. Nor have my researches found any relevant authority. Its ordinary meaning (OED Second Edition) includes "a person qualified to give professional advice or services, e.g. in problems of management or design; ...". In my opinion that is the sense in which the word is used in the exclusion. It accords with the notion of exclusion only in respect of professional duty of care, to which the exclusion refers. Where the facts establish, as they do by admission in this case, that the professional services of designing a supporting structure for the surge hopper miscarried because of a breach by the defendant of its duty to exercise all reasonable care, skill and diligence as an engineer in the design, engineering, drawings and detailing of the structure it is not covered by the policy for that risk.

7. The remaining question is what effect this has on the capacity of the insurer to pursue the defendant for the loss. There are conflicting authorities on the issue. In favour of the plaintiffs is National Oilwell (U.K.) Ltd v Davy Offshore Ltd (1993) 2 Lloyds Rep 582, 603 where Colman J held that a waiver of subrogation by the words "against any assured and any person, company or corporation whose interests are covered by this policy" confined the effect of the waiver to claims for losses which were insured for the benefit of the party claimed against under the policy. He went on to observe that one did not qualify for the benefit of the waiver clause merely by being a party to the contract of insurance and that the benefit was only available for insured losses.

8. However in Woodside Petroleum at 74856, Ipp J (with whom Malcolm CJ and Pidgeon J agreed) referred to American authority in rejecting the argument that waiver was commensurate with cover. So had Anderson J at first instance (1998) 10 ANZ Ins Cases 61-395 at 74, 215-6). The essential parts of the relevant clause considered in Woodside Petroleum were that the underwriters agreed to waive rights of subrogation against any assured and any person whose interests were covered by the policy and a wider class of persons who are irrelevant for present purposes. Marathon Oil Co v Mid Continent Underwriters (1986) 786 F2d 1301 at 1303-1304 and Agip Petroleum Co Inc v Gulf Island Fabrication Inc (1996) 920 FSupp 1318, 1328-1330 were cited as authority for the proposition that National Oilwell had not been followed in the United States of America. In Agip, National Oilwell was referred to but not followed in light of American precedent. In the written submissions the plaintiffs accepted that Woodside Petroleum was authority for the proposition stated without accepting that the case was correct. No specific argument was addressed to that issue.

9. In my opinion, I should apply Woodside Petroleum as representing the current state of the law on the subject. The way the claims were defined has the consequence that the majority of the claim was pursued on the basis of a subrogated claim. Such a claim is unable to be brought because of the provisions of paragraphs (c) and (d) of the subrogation clause. In consequence of that the claim insofar as it is based on subrogation must fail.

10. I give judgment for the plaintiffs in the sum of $40,890.65. I will hear the parties as to costs.