Hakan Celik v Commonwealth of Australia & Delaware North (Australia) Pty Ltd - [2002] ACTSC 27

Hakan Celik v Commonwealth of Australia & Delaware North (Australia) Pty Ltd [2002] ACTSC 27 (12 April 2002)

CATCHWORDS

INDEMNITY CLAIM – contractual obligation for contractor to insure owner of premises – employee of contractor injured as a result of negligence of owner of premises – whether contractor required to indemnify owner.

CONTRACT – insurance clause – whether policy meets contractual requirements.

Evidence Act 1995 (Cth) s 79, 80

Canada Steamship Lines v R [1952] AC 192
Canberra Formwork Pty Ltd v Civil and Civic Ltd (1982) 41 ACTR 1
Cervellone v Besselink Bros Pty Ltd (1984) 55 ACTR 1
Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500
Lyons v Fondi Investments Pty Ltd [1998] ACTSC 76, (1999) 10 ANZ Insurance Cases ¶61-421
Steele v Twin City Rigging Pty Ltd (1992) 114 FLR 99

No. SC 849 of 1996

Coram: Master T. Connolly
Supreme Court of the ACT
Date: 12 April 2002

IN THE SUPREME COURT OF THE  )
  )              No. SC 849 of 1996
AUSTRALIAN CAPITAL TERRITORY                  )

BETWEEN:HAKAN CELIK
Plaintiff

AND:COMMONWEALTH OF AUSTRALIA
First Defendant

AND:DELAWARE NORTH (AUSTRALIA) PTY LTD
Second Defendant

ORDER

Coram:  Master T. Connolly
Date:  12 April 2002
Place:  Canberra

THE COURT ORDERS THAT:

The notice claiming contribution and indemnity by the First Defendant addressed to the Second Defendant dated 13 May 1999 be dismissed

The parties be heard as to costs

This matter involves a determination of the status of two defendants arising from an employment personal injuries claim. The plaintiff was a kitchen worker at the Royal Australian Air Force base at Fairburn in the Australian Capital Territory. He was injured when a hatchway in the kitchen ceiling fell and struck him on the head. The plaintiffs claim against the defendants was settled in the sum of $161,238.80 and costs. Judgment was entered for the plaintiff on 21 February 2002. The remaining issue between the parties was the claim by the first defendant claiming indemnity from the second defendant of May 1999.

There was an agreed set of facts between the two defendants. The first defendant, the Commonwealth, was the owner of the Royal Australian Air Force base. The second defendant, Delaware North (Australia) Pty Ltd was a firm that supplied catering services. The first and second defendants had entered into a contract dated 7 September 1992 which involved what may be described as the “out-sourcing” of the catering facilities at the mess at RAAF Fairburn.

It was also agreed that the accident occurred on 7 July 1995 when the hatch fell and struck the plaintiff, who was an employee of the second defendant, and that the probable cause of this was that a person using the hatch to access either the roof or the air conditioning plant had failed to properly secure the lugs to secure the hatch in the closed position. It was agreed that it was impossible to tell from looking at the hatch from below whether the lugs were properly secured. It was agreed that

“The hatch had been used in the three months prior to the accident by servants or agents of the first defendant in relation to repair work to a leaking ceiling. The access hatch had not been used by any servant or agent of the second defendant.”

It seems to me to flow from these agreed facts that the plaintiff, an employee of the second defendant, was injured as a result of the failure of the servants or agents of the first defendant to properly secure the hatch after they had used it to access the ceiling area. The first defendant agrees that it is solely responsible for the damages and costs awarded to the plaintiff, but claims an indemnity from the second defendant.

The first defendant alleges that the contract of 7 September 1992 required the second defendant to arrange for insurance which would have indemnified the Commonwealth in relation to the plaintiff’s claim. The second defendant arranged for insurance cover, and the relevant insurance policy was in evidence before me, along with the contract. The first defendant alleges that the insurance arranged by the second defendant did not comply with the terms of the contract.

The contract sets out the following indemnities in clause 5:

5.1.1The Contractor shall indemnify and forever keep indemnified the Commonwealth, its officers, employees and agents against any loss, damages, expenses or costs relating to:
a.the loss of, or damage to property of the Commonwealth
b.claims by any person in respect of personal injury or death;
c.claims by any person in respect of loss or, or damage to, any property; and
d.any defence or settlement of any claim referred to in 5.1.1 subparagraphs b and c

arising as a consequences of any wilful, unlawful or negligent act or omission of the Contractor, its employees, agents or sub-contractors in connection with the Contract.
5.1.2In the absence of any negligence on the part of the Commonwealth, its officers, employees or agents, the Commonwealth shall not be liable or in any way responsible to the Contractor for any loss, damage, injury or death which may be suffered or sustained by any person in or around premises used for the purposes of the Contract however sustained.
5.1.1In the absence of any negligence on the part of the Commonwealth, its officers, employees or agents, the Commonwealth shall not be liable or in any way responsible to the Contractor for any loss or damage to any stock in trade, merchandise, machinery, plant, tools, furniture, fixtures, fittings, goods, chattels or effects of any kind or description in or around premises used for the purposes of the Contract however caused.

Counsel for the second defendant made the argument that these indemnities on their face apply in the situation where a loss is sustained by a person as a consequence, in 5.1.1, of a negligent act or omission of the Contractor, its employees, agents or sub-contractors in connection with the contract, which is not the case, and, in relation to clauses 5.1.2 and 5.1.3, where there is absence of any negligence on the part of the Commonwealth its officers or employees. The loss here occurred in the absence of any negligence on the part of the second defendant, so clause 5.1.1 does not operate, and as a consequence of negligence on the part of the Commonwealth, its officers employees or agents, so clauses 5.1.2 and 5.1.3 do not apply. I find this argument compelling.

There is also a requirement in the contract relating to the taking out of insurance. Clause 5.2.1 provides:

“ The contractor shall take out a public liability insurance policy in the joint names of the Commonwealth and the Contractor in respect of the premises used for the purposes of the contract for the sum of $30,000,000 in respect of any one claim with an insurance company approved by the Contract Authority (such approval not to be unreasonably withheld) and shall include in the policy a provision in which the insurer agrees to waive all rights of subrogation against the Commonwealth. The Contractor agrees to hand over to the Commonwealth the insurance policy and the receipts for all premiums and other moneys paid in respect of such insurance.”

It was common ground that the relevant policy was taken out in the sum of only $10,000,000. It does not seem to me, however, that this is material, as the judgment sum is well below this. It is also common ground that the policy was apparently not approved by the Contract Authority or passed over with receipts to the Commonwealth. The real issue at the hearing before me was whether the policy complied in other regards with the requirement of the contract, and whether the clause 5.2.1 required the contractor to insure the Commonwealth against the consequences of the Commonwealth’s own negligence.

The primary argument of the second defendant is that the insurance clause should be read in conjunction with the indemnity clauses. As the indemnity clauses make it clear that the Commonwealth is responsible for its own negligence, clause 5.2.1 should be interpreted to require the contractor to take out a public liability insurance policy, but not one which would insure the Commonwealth against the Commonwealth’s own negligence.

This approach of construing a contractual requirement to insure by reference to the extent of the contractual requirement to indemnify is consistent with a line of authority in this Court. In Canberra Formwork Pty Ltd v Civil and Civic Ltd (1982) 41 ACTR 1 Blackburn CJ had to consider similar provisions in the context of head contractors and sub-contractors where an employee of the sub-contractor was killed as a consequence of negligence of the head contractor. His Honour said at 23

“It is undeniable that to construe a clause such as this, which one strongly suspects to be the result of a succession of uncoordinated attachments of fragments, as if it were the single opus of a careful draftsman, leaves a feeling of unease. But I am fortified in my tentative conclusion by two further matters. One is the principle expressed by Buckley LJ in Gillespie Bros v Bowles Transport Pty Ltd [1973] QB 400 at 419: “It is…a fundamental consideration in the construction of contracts of this kind that it is inherently improbable that one party to the contract should intend to absolve the other party from the consequences of the latter’s own negligence.” Or as Kitto J said (dissenting) in Davis v Commissioner for Main Roads (1968) 117 CLR 529 at 534 “It seems to me impossible to suppose that the parties were intending that the appellant should indemnify the respondent against claims based upon the respondent’s negligence.”
The other matter is the contra proferentem rule…Nothing would have been easier than to draw a clause by which the liability of the sub-contractor to indemnify the general contractor against the consequences of the latter’s own negligence was made explicit, if that had been the intention. The defendant rather than the plaintiff should bear the consequences of the omission to do so.”“.

A contrary view was expressed by Kelly J in Cervellone v Besselink Bros Pty Ltd (1984) 55 ACTR 1, but as Higgins J noted in Steele v Twin City Rigging Pty Ltd (1992) 114 FLR 99, in that case the indemnity clause was absolute in respect of the nature of the injury suffered by the injured worker. Higgins J said of the decision of Kelly J that, if it was suggested that an insurance clause

“irrespective of context, created a right to indemnity by creating an obligation to effect insurance against a particular risk, then I would respectfully disagree. Such a clause seems to me to be subordinate to a primary obligation to give indemnity. It seeks to ensure that, if the contractor were called on to meet a claim against which it had indemnity, there would be an insurance fund it could claim against. It avoids the necessity for the contractor to be dependent on the solvency of the sub-contractor or upon the latter’s dealings with its own insurers to recover any such loss. However, in Cervellone’s case, it seems to me that the insurance clause was intended to support the apparently complete indemnity granted to the head contractor by cl 13. It was a complete indemnity limited in relation to certain particular equipment only, but it was the failure of that equipment which caused the loss in question. To regard the decision as authority otherwise would bring into conflict with the approach of Blackburn C J, which I would respectfully support, in Canberra Formwork Pty Ltd v Civil and Civic Ltd, and also the cases referred to in Hudsons Building and Engineering Contracts, 10^th ed (1970) at 306-313. Accordingly, whilst I concur with the result, I think that the expressed reasons require qualification.”

When this issue was most recently before this court, in Lyons v Fondi Investments Pty Ltd [1998] ACTSC 76, (1999) 10 ANZ Insurance Cases ¶61-421, Crispin J adopted Blackburn CJ’s approach and read down a requirement.

Counsel for the first defendant submitted that I should prefer the reasoning in Cervellone to that of Canberra Formwork v Civil and Civic, Steele v Twin City Rigging and Lyons v Fondi Investments Pty Ltd. In the ordinary course I would regard the conflict between Cervellone and Canberra Formwork to have been resolved by the decision of Higgins J and its apparent acceptance by Crispin J. Counsel for the first defendant, however, argued that Higgins J’s approach was inconsistent with the approach taken by the High Court in Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500. With respect, I am unable to accept this proposition. Darlington Futures stands for the proposition that, in the joint judgment of Mason, Wilson, Brennan, Deane and Dawson JJ ;

“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.”

15. With respect, this seems to me quite consistent with the approach of Blackburn CJ endorsed by Higgins J.

It is argued that the approach of Blackburn CJ, Higgins and Crispin JJ is alike flawed in that they adopted the construction of the indemnity clause on the basis of a test laid down by Lord Morton in Canada Steamship Lines v R [1952] AC 192, which decision is said to be inconsistent with the Darlington Futures test. I am not persuaded that this is an error which effects the conclusions their Honours reached, and it seems to me that their reasoning process is consistent with the Darlington Futures test.

It follows that I am not satisfied that the contract required the second defendant to effect insurance whereby the first defendant was covered against a claim by an employee of the second defendant injured as a consequence of the negligence of the first defendant. On this basis I would dismiss the first defendant’s claim for indemnity against the second defendant.

There is an alternative argument advanced by the second defendant if I am not satisfied that the primary argument is successful. This is, in effect, that although the insurance does not comply with the terms of the contract, in that it does not name the Commonwealth as a joint insured, the effect of the policy is the same, as the policy provides relevant cover to the Commonwealth, and so the breach of the contract does not result in any loss to the Commonwealth as first defendant.

In support of its argument relating to the proper interpretation of the insurance policy the second defendant sought to call evidence from Mr Hoffman, who would be called to give his view on the meaning of the terms as an expert in the insurance industry. Mr Hoffman has been involved in the insurance industry since 1952, and is a past president of the Australian Insurance Law Association and the Insurance Institute of New South Wales. Objection was taken to this evidence, but I ruled that Mr Hoffman could give evidence as an expert, pursuant to s 79 of the Evidence Act 1995, and that, to the extent that that evidence went to the proper construction of the insurance policy, s 80 of the Act meant that any former exclusion of that evidence on the basis of the ultimate issue rule was not longer appropriate. Following this ruling the first defendant indicated that it would also adduce evidence from an insurance expert, Mr Nolan, who was also an experienced insurance industry executive.

Mr Hoffman expressed the view that, apart from the amount insured for, the insurance policy obtained by the second defendant met the requirements of clause 5.2.1 of the contract.

The contract requires an insurance policy in the name of both the Commonwealth and the contractor. The policy names only the second defendant, Delaware North Austrlaia Ltd as the insured. However, the Definitions clause in the policy states as follows:

1.“Insured”
Each of the following is Insured under this policy to the extent set forth below:
(a) The Named Insured
…
(d) Any principal in respect of the liability of such principal arising out of the performance by the Named Insured…of any contract or agreement for the performance of work for such principal, to the extent required by such contract or agreement.”

The argument of Mr Stretton, for the second defendant, is that this clause has the effect that under the policy the “Insured” includes both the second defendant and the Commonwealth, because the Commonwealth falls within the definition of principal under clause 1(d). Mr Hoffman said that the wording of clause 1(d) in the broadform liability policy had the effect that there could be multiple principals if the contractor had multiple arrangements.

I should note that Mr Nolan, the expert for the Commonwealth, agreed that the Commonwealth would be included in the definition of principal in the policy.

I am satisfied that the terms of the policy are such that the policy does include insurance coverage for the Commonwealth under definition 1(d), and because of this I am satisfied that the failure to ensure that the Commonwealth has not been separately named has not lead to any loss on the part of the Commonwealth.

The contract also required the contractor to obtain insurance a provision in which the insurer agrees to waive all rights of subrogation against the Commonwealth. No such provision exists in the policy, but Mr Hoffman said that “the fact that the principal is an insured under the policy has the same effect, technically, of a waiver of subrogation. You cannot subrogate against your own insured. You’ve got joint insureds. Subrogation only takes place after that insurer has paid a claim and then he takes his rights against another party.”

This evidence was not disputed by Mr Nolan.

Mr Hoffman and Mr Nolan were also both in agreement as to the effect of General Condition 6 of the policy which provides:

“The inclusion of more than one person or organisation as Insured under this Policy does not in any way affect the rights of any such person or organisation either as respects any claim, demand, suit or judgment made or in favour of any employee of such other Insured or otherwise it being the intent of this Policy to protect such person or organisation; but nothing herein contained operates to increase the Company’s Limit of Liability”.

They agreed that this was a cross-liability clause that has the effect that both the first and second defendant have a right to claim under the policy.

The real dispute between the experts was as to whether the policy would provide coverage to the Commonwealth if it was called upon in the circumstances of this case, that is where the Commonwealth has been held liable for negligent injury to an employee of Delaware North Australia. The policy contains the following exclusion clauses:

“This insurance does not apply to:
Personal Injury to any employees of the Insured arising directly or indirectly out of or in the course of employment in the business of the Insured.
Any liability which the Insured may have in respect of Personal Injury sustained to any person who is, pursuant to any legislation relating to Workers Compensation, deemed to be an employee of the Insured or in respect of which the Insured is entitled to seek indemnity under any Policy of Insurance required to be taken out pursuant to any legislation relating to Workers Compensation and whether or not the Insured is party to such contract of Insurance.”

The first defendant says that the exclusion clause 1 operates to preclude the Commonwealth from bringing a claim in the circumstances of this case because the injured person was an employee of the second defendant (the Insured) and he was injured in the course of his employment. The second defendant says that the exclusion clause does not operate because, for the purposes of the Commonwealth’s claim, the injured worker was not an employee of the Commonwealth, and so not an employee of “the Insured” where the Commonwealth is the insured by virtue of clause 1(d) in the definition of insured.

Mr Nolan says that, in his opinion, the Commonwealth could not claim against the policy because, as Mr Celik was an employee of the second defendant, the claim if brought by the Commonwealth would be excluded by exclusion clause 1. Mr Nolan said that the whole premise of the insurance is to cover negligent acts causing injury to a third party, but that the worker is not a third party. He disagreed with Mr Stretton when it was put to him that, the worker is a third party as far as the Commonwealth is concerned. He said “I would agree with that proposition if the Commonwealth was also a stand alone entity.” Mr Stretton then put it to him that that was the effect of general condition 6, described by both Mr Nolan and Mr Hoffman as the stand alone clause, and Mr Nolan agreed with this.

It seems to me that the exclusion clause does not preclude a claim by the Commonwealth in respect of this injury merely because the worker was an employee of the contractor, being the second defendant. It seems to me that this is best confirmed by looking at the reverse situation, where as a consequence of the contract caterers negligence an Air Force employee sustains an injury. It seems to me that this is the type of situation that would be expected to be covered by the insurance, that is to say, a claim where the contractor seeks to avail itself of the insurance for an injury caused by the contract caterer which lead to personal injury being sustained by an employee of the Commonwealth. As far as the contract caterer is concerned this would be an injury, not to the employee of the caterer, but to a third party. It does not seem to me to matter that that third party would be an employee of the Commonwealth, which is itself insured, although if the Commonwealth sought to bring the claim in respect of an injury to its employee due to its own negligence, that would of course be excluded by the clause.

As I am of the view that the insurance policy would allow a claim by the Commonwealth, it follows that there has been no breach by the first defendant of the contract requirements, or at least no breach leading to any loss, because I am satisfied that the failure to name the Commonwealth, to provide cover in the sum of $30 million, and to provide expressly that the insurer waives its right of subrogation, have not lead to any loss in this case for the reasons set out above. It follows that on this argument I would also dismiss the claim for indemnity.

I dismiss the first defendant’s notice claiming indemnity from the second defendant. I will hear the parties as to costs.
I certify that the preceding thirty three (33) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Master, Mr T Connolly
Associate:
Date: 12 April 2002

Counsel for the Plaintiff: Mr B Salmon QC

Solicitor for the Plaintiff: Bradley Allen

Counsel for the First Defendant: Mr N Adams

Solicitor for the First Defendant: Australian Government Solicitor

Counsel for the Second Defendant: Mr G Stretton

Solicitor for the Second Defendant: Minter Ellison

Date of hearing: 21 February 2002

Date of judgment: 12 April 2002