Heather v Croucher Pty Ltd

[1989] TASSC 123

Serial No B45/1989
List “B”

COURT:  SUPREME COURT OF TASMANIA

CITATION:              Heather v Croucher Pty Ltd [1989] TASSC 123; B45/1989

PARTIES:  HEATHER
  v
  CROUCHER PTY LTD
  NEW ZEALAND INSURANCE CO LTD

FILE NO:  1766/1983
DELIVERED ON:  20 October 1989
JUDGMENT OF:  Wright J

Judgment Number:  B45/1989
Number of paragraphs:  13

Serial No B45/1989
File No 1766/1983

HEATHER v CROUCHER PTY LTD
AND NEW ZEALAND INSURANCE CO LTD

REASONS FOR JUDGMENT  WRIGHT

20 October 1989

1. The plaintiff's claim has been settled by the defendant company which now seeks to recover the cost of that settlement from its insurers.

1. The defendant carries on the business of carpet cleaning. On 22 February 1983 it undertook to clean the plaintiff's carpets. The carpets had hessian backing but the defendant was not aware of this. In the course of the cleaning operation an excessive amount of water was applied to the carpets as a consequence of which they became discoloured. This problem could not be corrected and the plaintiff claimed damages. The carpets had undergone a degree of wear prior to the commencement of the cleaning operation and the damages claim was compromised by the defendant paying to the plaintiff a proportionate part of the cost of replacing the carpet, together with legal costs.

1. The defendant seeks to recover the damages and costs so paid from its insurer, the New Zealand Insurance Co Ltd which was joined as a third party in the proceedings prior to the plaintiff's claim being compromised. The defendant's claim is made under a Public Liability policy which provides (inter alia):

"That in consideration of the payment of the Premium and subject to the terms conditions exceptions and memoranda contained herein endorsed hereon or attached hereto the Company will pay to or on behalf of The Insured all sums which The Insured shall become legally liable to pay for compensation in respect of

(a)       ...

(b)damage to property (which expression includes loss of property), occurring during the period of insurance as a result of an accident and happening in connection with the business carried on and from any place specified in the Schedule."

1. It was not disputed that the defendant's claim was in respect of "damage to property ... as a result of an accident and happening in connection with the business ...". The third party however relies upon an exception which is couched in the following terms:

"The company shall not be liable for ...

(d)claims in respect of the cost of rectifying faulty workmanship to any goods or land or building or structure."

1. The meaning of this exclusionary provision was the central issue debated at the trial. The third party contended that the exception applied in respect of the plaintiff's claim against the defendant and consequently that the third party is not liable to indemnify the defendant.

1. I am left in no doubt that the defendant's faulty workmanship caused damage to the plaintiff's carpet. I am also quite satisfied that the work was done negligently as well as defectively. (See Manufacturers Mutual Insurance Ltd v The Queensland Government Railways (1968) 118 CLR 314). I reject the defendant's submission that the fault on the defendant's part consisted only of failing to recognise that the carpet may become discoloured because of the way it was manufactured. It was suggested by the defendant that on this basis the negligence was on the part of the proprietor of the defendant company in failing to recognize the carpet's vulnerability prior to the cleaning commencing, rather than on the part of the workman who applied too much water, but in other respects operated the cleaning machine in accordance with normal practice. In my opinion, this is an artificial, inappropriate and unrealistic distinction to make. Applying excessive quantities of water to a carpet when unfamiliar with its structure, whilst at the same time being generally aware that carpets with a hessian backing may become discoloured or damaged as the result of becoming excessively wet, the defendant, in my opinion, was clearly guilty of faulty workmanship. Consequently, if the plaintiff's claim can properly be characterised as one in respect of "the cost of rectifying faulty workmanship to goods", the defendant's claim for indemnity will be defeated by exception (d).

1. I have had some difficulty with this point. Counsel for the insurer was unable to refer me to any specific authority for the proposition that a claim of the present nature may properly be so characterised. The argument however, ran as follows:

(1)"Rectify" is a word defined in the Shorter Oxford English Dictionary as meaning (inter alia):

"To put or set right, to remedy (a bad or faulty condition or state of things) to correct, amend, make good (an error, omission etc.) ... To restore (an organ) to a sound or healthy condition ... To put or set (a person or thing) right".

(2)       The agreed statements of facts provides (inter alia):

"8As a result (of too much water being applied to them) the carpets were permanently discoloured. They could not be restored to their former state.

9The defendant attempted to rectify the problem by cleaning the carpets again on a second occasion but to no effect."

(3)The only way the defendant's faulty workmanship could be rectified was by replacing the plaintiff's carpets.

(4)Therefore the cost (or part of the cost) of replacing the carpets was a cost of rectifying faulty workmanship to goods.

1. Counsel for the defendant on the other hand, argued that the damage to the plaintiff's carpet was in the nature of a consequential loss resulting from the faulty workmanship. That is, assuming the workmanship to be faulty it was incapable of being rectified as it had permanently and irretrievably damaged the plaintiff's carpet. The only way proper recompense could be made to the plaintiff was by compensating him for the total loss of his carpet which had been damaged beyond repair. The exception in the policy does not apply to "claims in respect of loss or damage caused by faulty workmanship ...", but to the "cost of rectifying faulty workmanship".

1. A certain amount of support is given to this argument by the decision of the Court of Appeal in New South Wales, see The Tokio Marine and Fire Insurance Company Ltd v Costain Australia Ltd, (unreported, dated 23 December 1988). It must be remembered that a claim under the policy is concerned directly with the policy holder's claim for indemnity against the insurer rather than a claim by an aggrieved customer for compensation for breach of a cleaning contract. The type of claim therefore, at which the exception appears to be primarily directed, is a claim by the policy holder for reimbursement of cost which it has undertaken in terms of labour or materials or both to correct its defective work. It is clear that the same exception will also apply in relation to a claim by a disgruntled customer of the policy holder who, rather than risking further damage at the hands of an incompetent or negligent workman, engages the services of another firm to remedy damage caused by the policy holder and then claims the cost of such remedial work from the policy holder. In either of these cases the insurer would be relieved of liability by the exception because the claim would be "in respect of" the cost of rectifying faulty workmanship.

1. The third party's counsel argued that although in a sense the consequences of the faulty workmanship could not be rectified, the cost of replacing the carpet or a proportionate part of that cost is tantamount to rectification. I find this argument difficult to accept. It is like saying that the cost of rebuilding a house which has been set on fire and totally destroyed by a workman's negligent use of a blow torch may be regarded as the cost of rectifying his faulty workmanship. No doubt it is a matter of degree in many situations. To replace materials or parts, may in some circumstances properly be regarded as part of the process of rectification of bad work by a tradesman, but I do not see that normal usage of the English language entitles one to describe the payment of damages for destruction of a carpet as "the cost of rectifying" the faulty workmanship of the negligent cleaner. To my mind it is not possible to speak sensibly of "rectifying" something, whether tangible like a machine, paintwork or joinery or intangible like workmanship to goods, unless the subject matter of the remedial exercise is capable of being reinstated or repaired. I know of no instance in which the cost of rectification has been regarded as synonymous with the cost of replacement of an article damaged beyond repair or payment of its value.

1. Although "rectification" and "reinstatement" are not entirely synonymous they do have a close similarity of meaning. It is therefore interesting and relevant to note the distinction made by the Court of Appeal between "reinstatement" and "replacement" in Anderson v Commercial Union Assurance Co (1885) 55 LJQB 146 at p148:

"We have come to the conclusion that the words 'reinstate or replace' should be thus applied: if the property is wholly destroyed the company may, if they think fit, replace it by other things which are equivalent to the property destroyed instead of paying in money the amount of the loss; or, if the goods insured are damaged and not destroyed by fire, the company may exercise their option and reinstate them, or, in other words, may repair them and put them in the state in which they were before the fire."

1. For these reasons I do not think the exception in the policy applies so as to disentitle the defendant and consequently I think its claim succeeds. It is not necessary to resort to the contra proferentem rule to reach this conclusion.

1. A claim has also been made by the defendant for interest under s35 of the Supreme Court Civil Procedure Act 1932. This assumes that the proceedings constitute a "claim in respect of a policy of insurance" and consequently that damages in the nature of interest over and above the money recoverable on or under the policy may be awarded. Counsel for the defendant requested interest at 10% per annum but this was on the assumption that interest is payable at the same rate under s35 as under s34. However, interest under s35 is not restricted. I think I am entitled to take judicial notice of interest rates presently being charged in the community without evidence thereof being required. Interest is claimed as from 20 June 1986. Rather than assessing interest at varying rates over the intervening period, I think it would be appropriate to allow interest at the conservative rate of 12% per annum over the entire period from that date until the date of judgment. It seems to me that it is arguable that although the defendant's claim against the third party is in form a claim for an indemnity, it is in substance an action on a policy of insurance such as qualifies it to receive damages in the nature of interest as provided in s35(1)(b) of the Supreme Court Civil Procedure Act. However, neither party addressed argument to me on this aspect of the claim and I prefer not to attempt to resolve the question until I have given both counsel an opportunity to make submissions on the point.