Harlander Pty Ltd v Betta Industries Pty Ltd

[2001] NSWDDT 11

Reported Decision 23 NSWCCR 1

Dust Diseases Tribunal

of New South Wales

CITATION:	Harlander Pty Ltd v Betta Industries Pty Ltd [2001] NSWDDT 11
PARTIES:	Harlander Pty Ltd Betta Industries Pty Ltd Wallaby Grip (BAE) Pty Ltd State of New South Wales Royal and Sun Alliance Insurance Australia Ltd
MATTER NUMBER(S):	194 of 1996/1/2/3
JUDGMENT OF:	Curtis J at 1
CATCHWORDS:	Miscellaneous Matters :- Cross claims Law Reform (Miscellaneous Provisions) Act 1946 State of New South Wales Duty of Care
LEGISLATION CITED:
CASES CITED:
DATES OF HEARING:	6/11/00, 22/10/01-23/10/01
DATE OF JUDGMENT:	11/21/2001
LEGAL REPRESENTATIVES:	Mr J van Aalst instructed by Stafford & Associates appeared for Betta Industries Pty Ltd Mr GM Watson instructed by Church and Grace appeared for Royal and Sun Alliance Insurance Australia Ltd Mr P Blacket SC with Mr M Robinson instructed by State Crown Solicitors appeared for the State of New South Wales Mr W Kearns SC with Mr D O'Dowd instructed by Dibbs Crowther and Osborne appeared for Harlander Pty Ltd Mr A Scotting instructed by Middletons Moore and Bevins appeared for Wallaby Grip (BAE) Pty Ltd (in liquidation) FOR DEFENDANT

JUDGMENT:

1. On 9 December 1996 the plaintiff Julie Ann Edwards issued a statement of claim in this Tribunal claiming damages from Harlander Pty Limited (Harlander) and Wallaby Grip (BAE) Pty Limited (Wallaby Grip) in respect of the disease of mesothelioma. She alleged that her disease was caused by inhalation of asbestos fibre while she was employed by Harlander and that the source of this fibre was two-fold: first, in the period 1966 to 1969, asbestos fibre released from a boiler located within the warehouse occupied by Harlander by whom she was employed; second, in the period 1973 to 1975 asbestos fibre released from asbestos millboard the subject of manufacturing activities conducted by Betta Industries Pty Limited (Betta), within the same premises, making asbestos bench protectors for the New South Wales Department of Education. The millboard upon which Betta worked was supplied to Betta by Wallaby Grip.

2. On 6 March 1997 the plaintiff's claim against Harlander and Wallaby Grip was settled upon terms that by consent and without admission of liability there be verdict and judgment for the plaintiff against each defendant in the sum of $140,000 inclusive of costs. Cross claims between Harlander and Wallaby Grip were, by consent, dismissed.

3. Each defendant now cross-claims against Betta and the State of New South Wales for contribution or indemnity pursuant to s 5 of the Law Reform (Miscellaneous Provisions) Act 1946. Betta in consequence also claims contribution from the State and Betta also cross-claims against Royal and Sun Alliance Insurance Australia Ltd alleging that Royal and Sun was the public risk insurer of Betta at the relevant time and has wrongfully declined to indemnify.

PRELIMINARY

4. Two preliminary points arise. While in her statement of claim Mrs Edwards alleged tortious exposure to asbestos fibre released from the boiler located within the premises of her employer, there is no persuasive evidence that she inhaled any asbestos fibres released from this source. I regard that contention in her statement of claim as irrelevant to the present inquiry.

5. The plaintiff may have inhaled asbestos fibre when renovating her family home in or about 1966 and this inhalation may be causally related to her mesothelioma. Despite this circumstance the parties to this litigation have tacitly accepted that the plaintiff's mesothelioma was caused in the relevant sense by the accumulation of inhaled asbestos fibres from all sources and that the inhalation in the course of her employment with Harlander is of itself a sufficient cause to found liability for the whole of her damage (see E M Baldwin and Son Pty Limited v Plane (1998) 17 NSWCCR 434).

THE PARTIES

Harlander Pty Limited

6. This is the present name of a company incorporated in the early 1960s by a retired dentist, William Gray, as Silicon Formulations Pty Limited. Silicon Formulations Pty Limited operated from premises at 36 Woodfield Boulevarde, Caringbah, and its business was the importation and supply of laboratory equipment, scientific medical supplies and chemicals, sourced predominantly from China. The major customer was the New South Wales State Contracts Control Board, the sole purchasing agent for the New South Wales Department of Education. Before 1967 the premises at Woodfield Boulevarde operated primarily as a warehouse with a limited manufacturing activity of firing graduated scales upon imported glass beakers in a small kiln.

Betta Industries Pty Limited

7. This is the present name of a company incorporated as Silicon Formulations (Mouldings) Pty Limited on 27 June 1967 by Mr Gray, his daughter Lindsay (the plaintiff's sister) and her husband, Robert Hawkins. Mr Hawkins was a skilled tradesman who had also completed engineering courses at Sydney Technical College. The business of Betta was the manufacture of scientific laboratory hardware, such as retort stands and clamps and bench protectors. The business was conducted from an area at the Woodfield Boulevard premises in which was located the kiln used by Harlander to fire graduations on the glass beakers.

(Another company, Silform Chemicals Pty Limited , was incorporated by Mr Gray together with his daughter, the plaintiff, Julie Edwards, and her husband, Graham Edwards. This company also operated from the Woodfield Boulevard premises.)

The State of New South Wales

8. In or about 1972 the State Contracts Control Board, established pursuant to regulation 199 of the regulations made by the Public Service Board under the authority of the Public Service Act 1902 called for tenders for the supply of "asbestos mats" and "asbestos millboard squares" in accordance with certain specifications for use as bench protectors. After supplying three samples to members of the Scientific Advisory Committee of the Department of Education and submitting a price Betta was awarded a contract for the supply of 4,000 asbestos mats. Between 1973 and 1975 the State Contracts Control Board awarded further contracts to Betta for supply of additional asbestos mats. Although the specifications and contracts are now lost it is common ground that these documents included no warning to Betta as to the dangers of asbestos.

Wallaby Grip (BAE) Pty Limited

9. The asbestos used by Betta in the manufacture of the mats for the State was sold to it in precut squares by Wallaby Grip. The initial supply was 5 tonnes of millboard cut into 1 foot squares. Wallaby Grip was a well known large corporation which traded profitably in asbestos goods. It does not contend other than that it had cause to foresee the dangers to which Mrs Edwards was exposed, that it owed to her a duty of care, and that it failed to take reasonably practicable steps to obviate those dangers. Wallaby Grip also failed to warn Betta of the known dangers of asbestos.

THE MANUFACTURING PROCESS

10. To create the asbestos mat bench protectors employees of Betta placed the precut square of asbestos supplied by Wallaby Grip upon a precut square of fibro the same size and then clamped the squares together with strips of aluminium channel around their perimeter. Rubber feet were fastened to the aluminium at each corner. Because the aluminium channel was inelastic and the millboard of varying thickness it was often necessary to abrade the millboard in order that they may be accommodated by the aluminium channel. Dust was generated by this abrasion inside that part of the Woodfield Boulevard factory premises occupied by Betta when this process was carried out.

THE PLAINTIFF'S EXPOSURE

11. The plaintiff was employed by Harlander to perform clerical duties and this work was carried out in portions of the factory not occupied by Betta. She said in her affidavit that she was required to visit the area in which the asbestos mats were manufactured for perhaps one half hour each evening and perhaps one hour each morning to load and unload the firing kiln with glass beakers for the process of graduation and also entered that area on occasions each day to speak to the storeman. The plaintiff on 24 January 1997 related to Dr Peter Gianoutsos that the kiln work would be done approximately three times a week with the loading and unloading of the kiln taking up to half an hour each time.

12. In her affidavit (exhibit Harlander 4), the plaintiff said this:

I remember that the workshop where the manufacturing processes were carried out was very dusty. It was about 40 feet by 20 feet and was about 12 feet high with two doors and two fixed windows plus a casement window and it was separated from the storeroom by an open doorway area. The workbenches in the workshop were situated very close to the open doorway and were only a few feet from the kiln. The dust from the workshop area used to float out into the storeroom area. You could see the dust in the air and you could not help but breathe it in as the workshop and storeroom areas had no mechanical ventilation. After I left the storeroom area my hands would always be very dusty and I would have to stop on the way back to the office to wash them. I also recall having to brush dust which was a whitish colour off my clothes.

13. The first order for asbestos mats took Betta between 3 and 6 months to manufacture and that further orders were manufactured after the elapse of perhaps one year.

14. The evidence of the plaintiff contained in her affidavit, upon which she was not cross-examined before her death, is to be contrasted with the evidence of Mr Hawkins, the manager of Betta at the time. When the substance of the plaintiff's affidavit recited above was put to Mr Hawkins and he was asked, "Is that true?" he replied "I would not have thought so" (transcript 50.3). He had earlier given evidence that although one in every two sheets of asbestos needed some abrading this was often sufficiently achieved by rubbing the millboard with the hand or a piece of wood (transcript page 41). Mr Hawkins also gave this evidence at page 49:

Question Did your organisation observe the provisions of the Factories Act about keeping the premises clean every day.

Answer Within reasonable bounds, yes.

Question It was not a situation that there was dust everywhere, was it.

Answer No.

Question When you walked into the factory did you get covered in dirt.

Answer Certainly, a cloud of dust or certainly ......... a cloud of dust, anything like that, no, but the laboratory glass ware in case (sic) was very clean leading into the store.

This evidence of Mr Hawkins ties in with the evidence of Mrs Edwards in her affidavit where she said that "The kiln was always kept very clear of dust to avoid contaminating the beakers" . For this reason I prefer the evidence of Mr Hawkins to the evidence of Mrs Edwards where these accounts differ.

15. Betta owed to Mrs Edwards the conventional duties of an occupier to take reasonable care to avoid a foreseeable risk of injury to persons lawfully upon the premises (Australian Safeway Stores Pty Limited v Zaluzna (1986-1987) 162 CLR 479.)

Foreseeability

16. The success of the cross-claims against Betta turn largely upon the issue of foreseeability. I accept for this purpose that any risk which is not far-fetched or fanciful is therefore real. It is not contended by any party that Mrs Edwards was exposed to sufficient asbestos fibre to risk contraction of the disease, well-known at the time, of asbestosis. The allegation of the cross claimants is that she was not warned by Betta against or protected by Betta from the risk of contracting the disease of mesothelioma from the inhalation of relatively small amounts of asbestos fibre. This risk was unrecognised by science until publication of the proceedings of a pneumoconiosis conference held in Johannesburg in 1959 which inculpated "bystander" exposure to asbestos fibres in persons who resided in blue asbestos producing townships.

17. In Sydney in February 1968 the first Australian pneumoconiosis conference was held. A paper was there delivered by Dr E M Rathus, director of industrial medicine of the State Health Department Brisbane. In this paper Dr Rathus reviewed a case history of a mesothelioma sufferer whose exposure was "quite insignificant" in that over a 5-year period he lined fuse boxes with asbestos sheets. Each job occupied one half hour and the work was performed on two occasions each month. Dr Rathus concluded:

The association with asbestos may be regarded as dubious, but a faint aura of uncertainty unhinges logic in the face of mounting data inculpating such trivial episodes.

18. Notwithstanding the uncertainty expressed by Dr Rathus evidence mounted concerning the relationship between mesothelioma and insignificant exposure to asbestos fibre until "by 1970 the dangers of asbestos in causing mesothelioma were well known in Australia” (Dr Leigh, exhibit Harlander 10). From the context in which that opinion was expressed by Dr Leigh it is apparent that he was there referring to the knowledge of members of the medical or scientific community who read widely academic journals published both in Australia and overseas.

19. It is not contended by any of the parties before me that the scientific debate had escaped the halls of academia and reached the popular press before the plaintiff's exposure ceased in 1975.

20. The unchallenged evidence of Mr Robert Hawkins, managing director of Betta at the relevant time, is that he was at the time of the plaintiff's exposure ignorant of the peculiar dangers of asbestos when inhaled in relatively small quantities. It must be remembered that Mr Hawkins was married to the sister of Mrs Edwards. There is no suggestion other than that he was in consequence of this relationship naturally solicitous for her welfare.

21. There is no medical evidence before me that the amount of dust in the air inhaled by Mrs Edwards exposed her to any risk to health other than the risk of contracting mesothelioma. I conclude that Betta had no reasonable cause to foresee the possibility of harm to Mrs Edwards and is not at fault.

22. In that circumstance, conceding that Betta had no actual knowledge of the risk associated with the inhalation of asbestos, the cross-claimants Harlander and Wallaby Grip contend that Betta is necessarily liable to Mrs Edwards because it was in breach of s 41 of the Factories Shops and Industries Act 1942 which imposes strict liability in the following terms.

S 41. Protection from fumes et cetera. -

(1) In this section 'fume' means fume, mist, gas, vapour, dust or other impurity.

(2) where in connection with any process carried on in a factory there is generated or given off any fume of such a character and to such an extent that the inhalation thereof would be likely to be injurious or offensive to persons employed in the factory, or any substantial quantity of dust of any kind, effective measures shall be taken to prevent the accumulation in any work room of such fume or dust and to protect such persons against the inhalation thereof.

23. Betta owed a duty, so the argument runs, to protect "persons employed in the factory". This duty arose because as occupier of a factory Betta carried on a process by which injurious asbestos dust was generated. If that duty had been discharged, it is said, the plaintiff's injuries would have been avoided although the duty was not owed to her.

24. The test of whether the inhalation of a dust is '"likely to be injurious" is not objective. It is to be applied according to what a reasonably well informed factory occupier actually knew or should have known (Ebbs v James Whitson and Company Limited (1952) 2 All ER 192; Richards v Highway Ironfounders (West Bromwich) Limited (1957) 2 All ER 162.) In each of these cases an occupier was held not liable in respect of injuries caused by dusts not known at the time of exposure to be dangerous but which later proved to be so.

25. I am not persuaded that the nature or extent of the dust was such as to put Betta on notice that further inquiries should be made. To any layman at the time similar amounts of talcum powder or wood dust would seem innocuous. The asbestos mats were intended by the State for the use of school children in circumstances where the mats would be abraded by contact with heavy vessels, et cetera. The asbestos was supplied by a reputable company, Wallaby Grip, experienced with the product. Neither the State nor Wallaby Grip expressed any warnings so as to put Betta on notice that further inquiries should be made.

26. Further, Mrs Edwards was not employed by Betta. It is impermissible to fix liability in respect of a particular plaintiff solely by reference to duties owed to another. For instance, a defendant may be liable to his employee if that employee suffers injuries at the hands of an independent contractor carrying out work delegated by the employer yet not be liable to a stranger injured in the same circumstances by the same contractor carrying out that same work. Such a distinction is justified in terms of policy: duties owed by an employer to his employees are of a higher order than those owed by the employer to a stranger to that relationship.

27. I find that the activities of Betta in the plaintiff's presence did not create any foreseeable risk of injury to her and that Betta, if sued by her, would not have been found liable for the damage.

28. It may be otherwise had the popular press published before the plaintiff's exposure articles which put Betta on notice that further inquiry should be made.

Causation

29. Even if Betta was in breach of its duty as occupier to Mrs Edwards the cross-claimants have not persuaded me that any particular breach of that duty caused her injury. Because "No conclusion as to negligence may be reached until the mind affirmatively conceives what should have been done" it is necessary to ask what Betta ought reasonably have done if subject to a duty to make inquiries before commencing work on the asbestos millboard.

30. I believe a reasonable response would have been to ask the client, the State Contracts Control Board, and the supplier, Wallaby Grip, whether the work occasioned dangers to intermittent passers by. I have been given no reason to believe that either would have answered in the affirmative.

THE LIABILITY OF THE STATE

Foreseeability

31. The State of New South Wales before calling for tenders for the supply of asbestos laboratory mats, possessed through the person of Dr D E O Longley, acting director of the Division of Occupational Health of the New South Wales Department of Health, sufficient knowledge of the dangers associated with asbestos as to know that the possibility of persons contracting mesothelioma through exposure to some manufacturing process liberating small quantities of fibre was not far-fetched or fanciful.

32. On 24 November 1972 Dr Longley wrote to the secretary of the Boilermaker and Blacksmiths Association of Australia a letter including this passage.

You will no doubt have heard that there is a possibility that workers with asbestosis may develop either carcinoma of the lung or mesothelioma of the pleura. A number of cases have been reported overseas in which affected people had a history of asbestos exposure at some time in their lives and it is not thought that there is any relationship between 'dust' and the degree of risk. So far in New South Wales no cases of either of these malignant conditions has been brought to my attention.

I would advise therefore that your members should use the utmost care when handling asbestos materials, particularly in confined spaces.

33. Dr Longley is recorded as having attended the first Australian pneumoconiosis conference in 1968 at which the paper of Dr Rathus was delivered.

34. The threshold test required to fix liability and negligence is satisfied. The answer to the larger question whether the State owed a duty to the plaintiff, Mrs Edwards, is not so clear.

Duty

35. I am referred to no reported decision in which a defendant has been held liable for injuries suffered by a bystander exposed to a manufacturing process carried on by an independent contractor retained by the defendant to carry out a dangerous activity requiring special precautions to guard against harm.

36. The substance of the claim against the State is that the State should reasonably have prevented Mrs Edwards' injuries by specifying a material other than asbestos when calling for tenders for bench protectors or warning Betta of the need for extreme caution in the manufacturing process so that no asbestos fibre would be liberated exposing bystanders to the risk of injury.

37. I would have little difficulty in supposing that if a school student or teacher using the mats as supplied, contracted mesothelioma, the State may be liable because the relationship fell within a recognised category of duty of school and pupil (The Commonwealth v Introvoigne (1982) 150 CLR 258) or master and servant (McLean v Tedman (1984) 155 CLR 306). Although counsel for Harlander submitted that in relation to the liability of the State to Mrs Edwards "Duty is determined by an examination of all the circumstances” he conceded upon reflection that the existence of the duty for which he contended was to be fixed by a consideration of determinative factors found in existing categories of duty. Because the present facts conform to no established class of duty it becomes necessary to:

. . . identify the relevant characteristics that are common to the kinds of conduct and relationship between the parties which are involved in the case for decision and the kinds of conduct and relationships which have been held in previous decisions of the Courts to give rise to a duty of care. (Per Lord Diplock in Dorset Yacht Company Limited v Home Office (1970)AC 1004 at 1058, cited with approval by the High Court (Gleeson CJ, Gaudron, McHugh, Payne and Callinan JJ in Sullivan v Moodie [2001] HCA 59 (11 October 2001).

38. Three categories of duty appear here to be relevant.

Duty of an Architect or Designer

39. In Clay v A J Krump and Sons Limited (1964) 1 QB 533 an architect was held liable to an employee of builders effecting his designs when a wall collapsed in consequence of the architect's negligence. The Court of Appeal rejected the architect's contention that he owed a duty to the building owners and that "he was not under any duty towards anyone else" (at 538). Ormerod LJ after citing Lord Atkins' speech in Donoghue v Stevenson rhetorically asked: “Is this a case in which it can be said that the plaintiff was so closely and directly affected by the acts of the architect as to have been reasonably in his contemplation when he was directing his mind to the acts or omissions which are called in question?” His Lordship then continued that it was “. . impossible to contend that the plaintiff would not be affected by the decisions and plans drawn up by the architect” because builders must be on site to effect the objects of the work.

40. This category of duty had been earlier recognised in Voli v Inglewood Shire Council (1962-1963) 110 CLR 74 where the High Court of Australia held that the supervening negligence of others did not break the chain of causation.

41. In Slevak v Lurgi (Australia) Pty Ltd (2001) 177 ALR 585 at 598 Gaudron J stated that:

The common law recognised an interest on the part of construction workers in the exercise of reasonable care and skill in the design of those constructions upon which they work.

42. It is apparent from the formulation of Ormerod CJ and Gaudron J that the class of persons to whom the duty is owed was limited to persons engaged upon the works. If it were otherwise the prospects of liability in an indeterminate amount to an undetermined class arise. Where is the line to be drawn? Foreseeable harm may have occurred to any person involved in the chain of events leading to supply of these asbestos mats - the miners of the asbestos, the carriers to the premises of Wallaby Grip, the employees of Wallaby Grip, the storemen, the carriers to Betta, the storeman at Betta. Further, given the potency of the substance, the foreseeable class must include any passerby who happened regularly upon any of these activities.

43. In Voli (supra) and again in Bryan v Maloney [1994-1995] 182 CLR 609 the High Court, in imposing a duty of care, thought it relevant that the defendant architect and builder respectively owed to others duties co-extensive in scope with that for which the plaintiffs contended. In the present case the scope of any duty to protect pupils, employees of the state, or possibly those employed in the fabrication of the mats, cannot be coextensive with any postulated duty to passersby.

44. Similarly the element of control, implicit in the imposition of a duty upon architects and designers in the interests of persons affected by their carelessness, is lacking in the present case.

45. In the present case the State reserved no contractual right to control the manner in which the mats were to be manufactured and still less power to control who may happen upon the process. Betta may have provided the specified mates from manufacturers in China, from which source it provided other items to the State on tender.

The Duty of the Manufacturer or Distributor of Dangerous Goods

46. In Norton Australia Limited v Streets Icecream Pty Limited (1968) 120 CLR 635 Barwick CJ approved of the formulation of Maguire J at first instance in these terms:

The manufacturer or distributor of a substance which is inherently dangerous owes a duty to warn people to whom it sells its products of the dangers involved in its use. . . the nature and extent of the notice or warning sufficient to fulfil such a duty of care must be commensurate with the degree of risk involved in the use of the product. (at 642).
Barwick CJ added that “ The manufacturer also owed a duty of care to persons whom or whose property the purchaser of the [dangerous substance] might affect by his use of it” although that duty extended only to those persons injured by "The attributable consequences [of] all that was or ought to have been foreseen by the defendant" (page 648).

47. In Adelaide Chemical and Fertiliser Co Ltd v Carlyle (1940) 64 CLR 514 Starke J adopted the formulation of the Privy Council in Dominion Natural Gas Co Ltd v Collins and Perkins[1909] AC 640 at 646 in these terms:

There may be, however, in the case of anyone performing an operation, or setting up and installing a machine, a relationship of duty. What that duty is will vary according to the subject matter of the thing involved. It has, however, again and again been held that in the case of articles dangerous in themselves, such as loaded firearms, poisons, explosive, and other things ejusdem generis, there is a peculiar duty to take precaution imposed upon those who send forth or instal such articles when it is necessarily the case that other parties will come within their proximity. The duty being to take precaution, it is no excuse to say that the accident would not have happened unless some other agency than that of the defendant had intermeddled with the matter.
He went on to say
But still the law, in my judgment, does not impose a rule of strict and unqualified liability in the case of things dangerous in themselves. The degree of care that is required in the case of such things is that which is reasonable in the circumstances, that which a reasonably prudent man would exercise in the circumstances. A reasonably prudent man would, no doubt, in the cases of such things exercise a “keener foresight” or a “degree of diligence so stringent as to amount practically to a guarantee of safety”, or “a high degree of care amounting in effect to an insurance against risk”, or “the greatest care” or “consummate care.” The duty is “more imperious” when things dangerous in themselves are being handled.

48. Accepting this authority I cannot find on the evidence before me that asbestos was between 1971 and 1975 perceived by reasonably well informed small manufacturers as ejusdem generis with loaded firearms, poisons and explosives. The State did not owe Mrs Edwards any duty analogous to that “practical guarantee of safety” imposed upon persons who put forth dangerous goods. A distinguishing characteristic of those cases in which liability has been imposed upon a manufacturer on distribution of dangerous goods is that in each case the defendant had cause to anticipate the manner in which the injuries would occur and again in each case obvious precautions available to the defendant would have obviated the danger. That is not the case here.

49. Although the State had some knowledge in a general sense concerning dangers of asbestos dust when inhaled in small amounts, in the light of what was known at the time as to the carcinogenic potential of asbestos, the risk to persons who occasionally, albeit regularly, happened upon a room where work on asbestos was carried out was so remote as to justify the State ignoring it. (Bolton v Stone [1951] AC 866). The State was not a manufacturer or distributor who profited from the trade in a dangerous substance upon whom the scope of the relevant duty amounted to “practically a guarantee of safety”.

50. Upon the issue of control I repeat the observations contained in par 45 above.

The Duty of a Person Carrying Out Extra-Hazardous Operations

51. In Rainbow Chemical Works Ltd v Belvedere Fish Guano Co Ltd [1920] KB 487 at 504 Atkin LJ held that a person who, through a contractor, did work of its nature likely to cause danger to others had a duty to take all reasonable precautions and did not escape that duty by employing a contractor who failed to take those precautions. Such a general proposition was rejected by the Full Court of the New South Wales Supreme Court in Torette House Pty Ltd v Berkman (1939) SR (NSW) 156 and the High Court in Stoneman v Lyons (1975) 133 CLR 550 and Stevens v Brodribb Sawmilling Co Pty Ltd (1985-1986) 160 CLR 16.

52. In Stoneman Stephen J said

An employer will, whether or not the activity is regarded as extra-hazardous, be liable in negligence for the consequences to third parties both of acts which he specifically authorizes or directs and of methods not so authorized but which are necessarily involved in performing those acts. For the consequences of other negligent conduct of the contractor the employer will not be liable; he did not . . . have control over that conduct. In my view the significant fact is that [the negligent conduct in this case] formed no part of that which the employer, by contract, required the contractor to perform.

53. In Stevens v Brodribb Mason J said:

The doctrine has not found favour in Australia. In Torette House Pty Ltd v Berkman the Supreme Court of NSW emphatically rejected the notion that a principal could be made liable for the negligence of an independent contractor on the basis that the activities he was engaged to perform were extra-hazardous. More recently, in Stoneman v Lyons this Court discussed the shortcomings of the doctrine, emphasizing the elusive nature of the distinction between acts that are extra-hazardous and those that are not. Furthermore, the traditional common law response to the creation of a special danger is not to impose strict liability but to insist on a higher standard of care in the performance of an existing duty

54. The High Court did hold in Burnie Port Authority v General Jones (1992-1994) 179 CLR 520 that those commissioning extra-hazardous activities are liable for the negligence of their contractors “in the category of case into which Rylands v Fletcher circumstances fall”. This was because those elements central to that category being control and special dependence or vulnerability called for analogy with the categories of case in which non delegable duties were imposed by the law.

55. Upon the present facts the relationship between Mrs Edwards and the State did not possess the hallmarks of the special dependence by Mrs Edwards on the State nor control by the State of that activity which placed her at risk so as to call for the imposition of a non delegable duty.

THE INSURANCE QUESTION

56. Betta asserts that in respect of the years 1991 to 1975 inclusive, it was insured by London Insurance Pty Limited under a public liability policy that responded to this claim. The cross-defendant Royal and Sun Alliance Insurance Australia Limited (Royal Sun) has inherited liabilities under such policies.

57. Royal asserts that it is not liable under any such policies because:

(a) London issued no such policy

(b) The risk proposed and accepted was that of an importing business, not a manufacturing business.

(c) In breach of the terms of the policy the insured failed to exercise reasonable care to prevent bodily injury to Mrs Edwards and failed to comply with all statutory obligations for the safety of persons.

58. Warren Saunders Insurance Brokers (Australia) Pty Limited (Saunders) was the firm of insurance brokers who attended to the insurance of the companies operated by Mr Gray from 36 Woodfield Boulevard, Caringbah. Evidence was given by Margaret Lynette Hall, an insurance broker and employee of Warren Saunders since 1967.

59. Miss Hall was able to confirm that between 1968 and 1980 the company Silicon Formulations (Mouldings) Pty Limited, now Betta, was insured in respect of workers compensation liability by policy WC 125616LS4 and that its business was recorded in the records of Saunders as "Importers and manufacturers". An endorsement to that policy was written by Sun Alliance in 1976.

60. A copy of business records kept by Saunders in relation to "Silicon Formulations Pty Limited and associated companies" and public liability policy number PR394907 is in evidence (annexures G and H to the affidavit of Miss Hall, exhibit Betta 5). Between 1971 and 1976 the insurance company as named as "London" and thereafter as "Sun Alliance".

61. In her affidavit Miss Hall said this:

Paragraph 14. The policy referred to . . . above was to indemnify 'Silicon Formulations Pty Limited and associated companies'. With respect to the words 'associated companies' I am aware that this occurred in the insurance industry and it was a common practice to provide such insurance cover where an insured company carried on business at the same premises with other companies with which it was associated by either common directors or shareholders. All of these related companies would be referred to in policies of insurance by the title of the insured being identified as 'associated companies'.

Paragraph 15. I recall that the insurance industry as a whole rejected this form of insurance cover many years ago. However, the policy referred to in paragraph 11 and 12 above at the time it was current, it was an accepted and valid practice to provide insurance cover to 'associated companies' for liability insurance. The records kept by Saunders in relation to this public liability policy identify the business of Silicon Formulations Pty Limited and associated companies as 'importers'.

I am persuaded that London insured Betta against Public Liability risk.

62. The question then arises whether the insurer knew that part of the business of the associated companies was manufacturing. It should be remembered that the businesses were carried out in the same premises.

63. It is apparent that the brokers knew that one of the companies carried on the manufacturing business. Annexure D to the affidavit of Miss Hall is a document produced from the business records of Saunders. It comprises a memorandum upon the letterhead of Silicon Formulations Pty Limited and is undated. The text is as follows:

To ensure more efficient operation, business transactions have been rationalised in the following manner.

A new internal company, Silform Pty Limited, has been formed to take over the importation and distribution of laboratory glassware, laboratory porcelainware, chemical thermometers, educational instruments, biological specimens, biological models and medical models. All orders and transactions covering these items will flow through Silform Pty Limited.

Silicon Formulations (Mouldings) Pty Limited will now be known as Silform Manufacturing Pty Limited. This company will manufacture school science equipment and allied lines as well as producing foamed styrene products.

A new company, Silform Chemicals Pty Limited, has been formed to handle medical equipment, pharmaceutical drugs and allied lines.

Silicon Formulations Pty Limited will remain as a general holding company.

We feel the above internal company rearrangement will ensure better attention to your requirements and allow greater efficiency of operations.

64. Annexure E is a further document produced from the business records of Saunders. It is a letter dated 16 November 1971 again under the letterhead of Silform Pty Limited and reads:

Dear Sir, Silform Chemicals Pty Limited, policy number BG394803 - cash in transit and workers compensation $100,000. Please cancel the above policies which are no longer required as these expenses are being absorbed by Silform Pty Limited.

65. These two documents produced from the records of Saunders establish to my satisfaction that Saunders knew before 16 November at least that one of the business activities of a company associated with Silicon Formulations Pty Limited was manufacture.

66. I believe that Saunders told London and Royal and Sun Alliance. An endorsement certificate in respect of a policy of motor vehicle insurance was on 29 June 1971 issued by Sun Alliance "Sun Alliance and London Insurance Group" to "Silform Manufacturing Pty Limited" (Annexure K to Miss Hall's affidavit). This document, together with the issue of workers compensation policies in respect of Silicon Formulations (Mouldings) Pty Limited "Importers and manufacturers" persuade me that London Insurance agreed to indemnify Betta as an associated company of Silicon Formulations Pty Limited against public liability and knew that one of the business activities of Betta was manufacturing.

67. I find that because Silicon Formulations (Mouldings) Pty Limited and Silicon Formulations Pty Limited had in common the directorship and shareholdings of Mr Gray and because they operated from the same premises in a similar line of business (science aids for schools) they were "associated companies".

68. I find that London Insurance Company agreed to insure both companies in the business of importing and manufacture against public liability in respect of activities carried on at 36 Woodfield Boulevarde Caringbah.

Was Betta in Breach of the Terms of the Policy?

69. It is beyond question upon the evidence of Miss Hall that the policy in question was in the terms set out in exhibit Sun Alliance 1. Clause 4 of that policy is in the following terms:

4. The insured shall exercise reasonable care that only competent employees are employed and shall take all reasonable precautions to prevent bodily injury or damage to property and shall take reasonable measures to maintain all premises, furnishings, fittings, appliances and plant in sound condition and to comply with all statutory obligations and by-laws or regulations imposed by any public authority for the safety of persons or property.

70. For reasons expressed in my consideration of the liability of Betta I find that Betta was not in breach of this condition.

71. Because Betta is not liable in respect of the claims made upon it by Harlander and Wallaby Grip an order that Sun Alliance indemnify Betta under the terms of the policy is not appropriate. The terms of the policy, however, oblige Sun Alliance to pay "All law costs and all charges and expenses incurred in . . . defence of claims" which if sustained would entitle Betta to indemnity. It is appropriate that the parties agree on the amount to which Betta would be entitled pursuant to this provision had indemnity not been denied.

ORDERS

72. Judgment for the State of New South Wales against Harlander Pty Ltd (in liquidation), Wallaby Grip (BAE) Pty Ltd (in liquidation) and Betta Industries Pty Ltd.

73. Judgment for Betta Industries Pty Ltd against Harlander Pty Ltd (in liquidation), and Wallaby Grip (BAE) Pty Ltd.

74. Verdict for Betta Industries Pty Ltd against Royal and Sun Alliance Insurance Australia Ltd. Judgment to be in accordance with short minutes of order if agreed, otherwise upon further submissions as to amount.

75. Costs orders reserved pending agreement or further submissions.

Mr J Van Aalst instructed by Stafford and Associates appeared for Betta Industries Pty Ltd

Mr G M Watson instructed by Church and Grace appeared for Royal and Sun Alliance Insurance Australia Ltd

Mr P Blacket SC with Mr M Robinson instructed by Crown Solicitors appeared for the State of New South Wales

Mr W Kearns SC with Mr D O’Dowd instructed by Dibbs Crowther and Osborne appeared for Harlander Pty Ltd

Mr A Scotting instructed by Middletons Moore and Bevins appeared for Wallaby Grip (BAE) Pty Ltd (in liquidation)