Manitowoq Platinum Pty Ltd v WFI Insurance Ltd
[2017] WADC 32
•17 MARCH 2017
MANITOWOQ PLATINUM PTY LTD -v- WFI INSURANCE LTD [2017] WADC 32
| DISTRICT COURT OF WESTERN AUSTRALIA | Citation No: | [2017] WADC 32 | |
| Case No: | CIV:118/2014 | 29 AUGUST - 2 SEPTEMBER 2016 | |
| Coram: | DAVIS DCJ | 17/03/17 | |
| PERTH | |||
| 45 | Judgment Part: | 1 of 1 | |
| Result: | Judgment for plaintiffs | ||
| PDF Version |
| Parties: | MANITOWOQ PLATINUM PTY LTD JDE ROMA PTY LTD WFI INSURANCE LTD |
Catchwords: | Insurance Action by plaintiffs against insurer pursuant to s 601AG of the Corporations Act 2001 (Cth) Business liability policy Construction of policy Whether the policy covers the plaintiffs' claim Condition to comply with legislation and Australian Standards Products exclusion Workmanship exclusion |
Legislation: | Corporations Act 2001 (Cth) s 601AG |
Case References: | Albion Insurance Co Ltd v Body Corporate Strata Plan No 4303 [1983] 2 VR 339 Allianz Australia Insurance Ltd v Inglis [2016] WASCA 25 Barrie Toepfer Earthmoving and Land Management Pty Ltd v CGU Insurance Ltd (2016) 75 MVR 108; [2016] NSWCA 67 BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266 Buckley v Metal Mart Pty Ltd [2008] ACTSC 79 Carlingford Australia General Insurance Ltd v EZ Industries Ltd [1988] VK 349 Casino Show Society v Norris (1984) 3 ANZ Ins Cas 60-580 CGU Insurance Limited v Porthouse [2008] HCA 30; (2008) 235 CLR 103 CGU Insurance Ltd v Graeme Robert Lawless [2008] VSCA 38 Dale v Dennis [2005] WADC 49 Darlington Futures Ltd v Delco Australia Pty Ltd [1986] HCA 82; (1986) 161 CLR 500 Distillers Co (Bio-Chemicals) (Aust) Pty Ltd v Ajax Insurance Co Ltd (1974) 130 CLR 1 Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 Fazio v Fazio [2012] WASCA 72 Fraser v BN Furman (Productions) Ltd [1967] 3 All ER 57 Gold Coast Bakeries (Qld) Pty Ltd v Heat & Control Pty Ltd [1992] 1 Qd R 162 Graham Evans & Co (Qld) Ltd v Vanguard Insurance Co Ltd (1986) 4 ANZ Ins Cas 60-689 Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd [2012] WASCA 216; (2012) 45 WAR 29 Jones v Dunkel (1959) 101 CLR 298 Kim v Cole (2002) Aust Contract R 90-149; (2002) Aust Torts Reports 81-662; [2002] QCA 176 Kim v Cole [2001] QSC 289 Legal & General Insurance Australia Ltd v Eather (1986) 6 NSWLR 390 Macewans Machinery Ltd v Peters (WA) Ltd (Unreported, WASC, Lib No 930263, 14 May 1993) McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579 Pioneer Concrete (UK) Ltd v National Employers' Mutual General Insurance Association Ltd [1985] 2 All ER 395 Prentice Builders Ltd v Carlingford Australia General Insurance Ltd (1988) 6 ANZ Ins Cas 60-951 Servcorp WA Pty Ltd v Perron Investments Pty Ltd [2016] WASCA 79 State Government Insurance Commission v Lane (1997) 68 SASR 257 Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165 VACC Insurance Co Ltd v BP Australia Ltd (1999) 47 NSWLR 716; (2000) 11 ANZ Ins Cas 61-457; [1999] NSWCA 427 Victorian WorkCover Authority (VWA) v Concept Hire Ltd (2009) 24 VR 695; [2009] VSC 194 Walker Civil Engineering Pty Ltd v Sun Alliance & London Insurance Plc (1996) 9 ANZ Ins Cas 61-311, (1999) 10 ANZ Ins Cas 61-418 Wallaby Grip Ltd v QBE Insurance (Australia) Ltd (2010) 240 CLR 444; [2010] HCA 9 WFI Insurance Ltd v Verini [2016] WASCA 143 Wilkie v Gordian Runoff Ltd [2005] HCA 17; (2005) 221 CLR 522 |
JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
- IN CIVIL
- JDE ROMA PTY LTD
Plaintiffs
AND
WFI INSURANCE LTD
Defendant
Catchwords:
Insurance - Action by plaintiffs against insurer pursuant to s 601AG of the Corporations Act 2001 (Cth) - Business liability policy - Construction of policy - Whether the policy covers the plaintiffs' claim - Condition to comply with legislation and Australian Standards - Products exclusion - Workmanship exclusion
Legislation:
Corporations Act 2001 (Cth) s 601AG
Result:
Judgment for plaintiffs
Representation:
Counsel:
Plaintiffs : Mr I R Freeman
Defendant : Mr G J Pynt
Solicitors:
Plaintiffs : Lavan Legal
Defendant : Greenland Legal Pty Ltd
Case(s) referred to in judgment(s):
Albion Insurance Co Ltd v Body Corporate Strata Plan No 4303 [1983] 2 VR 339
Allianz Australia Insurance Ltd v Inglis [2016] WASCA 25
Barrie Toepfer Earthmoving and Land Management Pty Ltd v CGU Insurance Ltd (2016) 75 MVR 108; [2016] NSWCA 67
BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266
Buckley v Metal Mart Pty Ltd [2008] ACTSC 79
Carlingford Australia General Insurance Ltd v EZ Industries Ltd [1988] VK 349
Casino Show Society v Norris (1984) 3 ANZ Ins Cas 60-580
CGU Insurance Limited v Porthouse [2008] HCA 30; (2008) 235 CLR 103
CGU Insurance Ltd v Graeme Robert Lawless [2008] VSCA 38
Dale v Dennis [2005] WADC 49
Darlington Futures Ltd v Delco Australia Pty Ltd [1986] HCA 82; (1986) 161 CLR 500
Distillers Co (Bio-Chemicals) (Aust) Pty Ltd v Ajax Insurance Co Ltd (1974) 130 CLR 1
Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89
Fazio v Fazio [2012] WASCA 72
Fraser v BN Furman (Productions) Ltd [1967] 3 All ER 57
Gold Coast Bakeries (Qld) Pty Ltd v Heat & Control Pty Ltd [1992] 1 Qd R 162
Graham Evans & Co (Qld) Ltd v Vanguard Insurance Co Ltd (1986) 4 ANZ Ins Cas 60-689
Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd [2012] WASCA 216; (2012) 45 WAR 29
Jones v Dunkel (1959) 101 CLR 298
Kim v Cole (2002) Aust Contract R 90-149; (2002) Aust Torts Reports 81-662; [2002] QCA 176
Kim v Cole [2001] QSC 289
Legal & General Insurance Australia Ltd v Eather (1986) 6 NSWLR 390
Macewans Machinery Ltd v Peters (WA) Ltd (Unreported, WASC, Lib No 930263, 14 May 1993)
McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579
Pioneer Concrete (UK) Ltd v National Employers' Mutual General Insurance Association Ltd [1985] 2 All ER 395
Prentice Builders Ltd v Carlingford Australia General Insurance Ltd (1988) 6 ANZ Ins Cas 60-951
Servcorp WA Pty Ltd v Perron Investments Pty Ltd [2016] WASCA 79
State Government Insurance Commission v Lane (1997) 68 SASR 257
Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165
VACC Insurance Co Ltd v BP Australia Ltd (1999) 47 NSWLR 716; (2000) 11 ANZ Ins Cas 61-457; [1999] NSWCA 427
Victorian WorkCover Authority (VWA) v Concept Hire Ltd (2009) 24 VR 695; [2009] VSC 194
Walker Civil Engineering Pty Ltd v Sun Alliance & London Insurance Plc (1996) 9 ANZ Ins Cas 61-311, (1999) 10 ANZ Ins Cas 61-418
Wallaby Grip Ltd v QBE Insurance (Australia) Ltd (2010) 240 CLR 444; [2010] HCA 9
WFI Insurance Ltd v Verini [2016] WASCA 143
Wilkie v Gordian Runoff Ltd [2005] HCA 17; (2005) 221 CLR 522
1 DAVIS DCJ: The plaintiffs' claim arises out of the negligence of Boss Shop Fitting Pty Ltd (Boss) when it fitted out the plaintiffs' restaurant premises in Hay Street, Perth in 2007 and 2008. Because of the number of problems which followed the fitout by Boss, the plaintiffs had to completely shut down the restaurant in September and October 2013 to repair and refit the restaurant.
2 Initially the plaintiffs made a claim against Boss for damages suffered as a result of Boss' negligence and breach of contract. Boss made a claim on its insurance with WFI Insurance Ltd, seeking cover for the plaintiffs' claim. Proceedings were then commenced by the plaintiffs against Boss, but ultimately those could not continue when Boss went into liquidation and then, on 15 December 2015, was deregistered.
3 The plaintiffs then sought payment of their claim from Boss' insurer, WFI Insurance Ltd (the defendant), bringing proceedings against the defendant pursuant to s 601AG of the Corporations Act 2001 (Cth), which provides that:
601AGClaims against insurers of deregistered company
A person may recover from the insurer of a company that is deregistered an amount that was payable to the company under the insurance contract if:
- (a) the company had a liability to the person; and
(b) the insurance contract covered that liability immediately before deregistration.
5 For the reasons set out in this judgment, I am satisfied that the insurance contract covered Boss' liability to the plaintiffs' immediately before deregistration, and I allow the plaintiffs' claim against the defendant.
The facts
6 The evidence of witnesses was given by their witness statements which stood as their evidence-in-chief. There were documents annexed to those witness statements and other documentary exhibits tendered, either by consent or without objection. The following are my findings of fact.
7 By contract dated 19 July 2007 Boss agreed to carry out a total fitout of the plaintiffs' premises for a restaurant known as Tony Roma's. The cost of the fitout was $786,628.
8 By the fitout Boss undertook to complete all of the plumbing. That much is admitted by the defendant in the pleadings in this matter and it is also apparent from all of the evidence. Plumbing was, of course, not the only work which was carried out.
9 The plumbing work under the contract was carried out by Mr Todd O'Dea of Millstream Plumbing Pty Ltd. Mr O'Dea was a registered plumber. (I do not know what the contractual arrangements were between Boss and Millstream Plumbing).
10 The fitout was completed by Boss between November 2007 and March 2008. Handover to the plaintiffs took place on 1 April 2008. There was a defects liability period under the contract.
11 In June 2008, the director of the first plaintiff, Mr Hartawan Djakaria, started to notice water damage to the tiles of the kitchen floor. Tiles were breaking up and cracking or lifting up in one particular area of the kitchen at the rear of the premises. Mr Djakaria first noticed the tile problems when heavy kitchen equipment was delivered or when a trolley was used to move heavy items around the kitchen area. In the area around the griller, the main cooking area, the floor was also sinking.
12 As this was discovered within the defects liability period of the contract, Mr Djakaria contacted Mr Ralph Perone, the director of Boss. Mr Perone inspected the area and acknowledged there was a problem with the floor. Boss had built a raised timber floor on top of the concrete floor on a platform supported by stumps. The raised timber floor was overlaid with tiles. Mr Perone agreed to demolish the existing platform and floorboards and re-build the floor area.
13 Mr Djakaria believed that the existing platform and floorboards would be replaced with a concrete slab, over which new tiles would be placed. Certainly Mr Djakaria's evidence was that Mr Perone told him he would lift and remove the raised floor and fill the hollow section with concrete and then tile over the concrete. It was discovered subsequently, however, that this had not been done.
14 This rectification to be carried out by Boss was only in one small area of the kitchen and the result, after the work was finished, was that there was an area in the kitchen where two different materials met.
15 Mr Djakaria started to notice tiles breaking in the area where the two different materials met. There was water going down the gaps or cracks in these tiles. Then on 3 September 2008 Mr Djakaria noticed significant cupping along the timber floors adjacent to the kitchen.
16 At this point Mr Djakaria had lost all confidence in Mr Perone and notified the plaintiffs' insurer, Zurich, by his broker. Zurich then appointed loss adjusters, Crawford & Company (Crawfords) to assess and investigate the loss.
17 On that same day, 3 September 2008, Mr Craig Larkin of Crawfords attended the premises and inspected the damage. He confirmed the cupping of the restaurant floorboards was consistent with having been caused by water. According to a report prepared by Mr David Boots of Crawfords (exhibit 16, annexure DB1) both Mr Djakaria and Mr Perone of Boss were present during that meeting and it was agreed that the likely cause of the water damage was the escape of water from plumbing pipes within the kitchen wash-down area which was adjacent to the damaged area of the flooring.
18 On 8 September 2008 the original plumber who had carried out the plumbing works, Mr Todd O'Dea, attended the premises and pressure tested the plumbing to the area. The pressure testing failed, which confirmed that there was a problem with the plumbing in the stud wall between the kitchen wash-down area and the restaurant. Investigations at that stage showed a slow water leak from a brass elbow joint to the plastic cold water supply pipe. That was replaced by Mr O'Dea. It was believed at that time that this would stop the problems. A decision was made to leave the floorboards to dry out before they were sanded and sealed (exhibit 16, annexures DB1 and DB2 TB).
19 Unfortunately there were still problems with the floors in the kitchen and when more damage appeared in the walls and floors in the kitchen and dining areas of the restaurant, Mr Djakaria engaged another independent licensed plumber, Clinton Goldfinch, trading as Clinton & Co.
20 Coincidentally there were reported water leakages from plumbing pipes in the car park in the basement of the building, below the kitchen of the premises, particularly the B1 (basement 1) car park.
21 On 26 December 2008 Mr Goldfinch attended the premises to inspect the water leakages and view the plumbing. Mr Goldfinch found the plumbing was under the raised kitchen floor, which in his experience was unusual. He found a number of problems with the plumbing based on what he could inspect above the floor in the kitchen and also in the car park. These problems were:
(a) incorrectly installed joints in the PVC pipes;
(b) that the fall of the pipes was incorrect, with drains falling backwards (instead of sloping gradually downwards) underneath the concrete slab in the B1 car park;
(c) no inspection opening on change of directions in the pipes; and
(d) incorrect connections between fixtures to floor drains. There was a lack of vents and no fire collars and a problem with the PVC drain off the dishwasher.
22 Mr Goldfinch informed Mr Djakaria that the matter should be reported to the Plumbing Licensing Board (PLB) which could hold the plumber who carried out the initial installation (Mr O'Dea) responsible for his work.
23 Mr Djakaria did make a complaint to the PLB and Mr Goldfinch also wrote a letter dated 19 January 2009 (exhibit 11) confirming the problems that he had found.
24 As set out in Mr Goldfinch's letter dated 19 January 2009 the major problem appeared to be under the raised kitchen floor (which he described as the kitchen's 'false' floor). This was where the major leak appeared to be coming from, but Mr Goldfinch was unable to access this area.
25 The PLB inspected the plumbing and found a number of defects. Arrangements were made for Mr O'Dea to return to do some rectification work. However, Mr O'Dea failed to complete the work and did not answer Mr Djakaria's phone calls.
26 On 5 February 2009 Mr Djakaria contacted Crawfords to advise that the cupping of the floorboards was getting worse and he believed further leaks were occurring (exhibit 16, annexures DB1 and DB2).
27 On 10 February 2009 Mr David Boots of Crawfords re-attended to inspect the further damage to the timber flooring of the restaurant. Mr Garry Hearnes of the PLB was also present at that inspection (exhibit 16, annexures DB1 and DB2). A number of issues were identified:
(a) water was still leaking under the raised kitchen flooring and migrating through to the restaurant flooring. It was not clear whether this was due to further escape of water from the plumbing or from water splashing onto the raised tiled kitchen floor and seeping through;
(b) the floor tiling within the kitchen was noted to be poor with several tiles loose. On lifting one loose tile it was noted the tile had been laid on a partial bit of adhesive onto the plywood sub-strait which was saturated and deteriorating; and
(c) there was no evidence of any sealing around the plumbing pipes as they passed through that raised kitchen flooring.
28 As the PLB had issued a 'fix it notice' to Mr O'Dea for the repairs, he was required under that notice to undertake the repairs necessary to the plumbing. He did not undertake the necessary repairs. Crawfords requested a full description from Mr O'Dea on what works he had undertaken to the plumbing, but were not successful in obtaining any information (exhibit 16, annexure DB2, fourth report).
29 On 21 April 2009 Mr Djakaria informed Crawfords that the water leak to the basement car park directly below the kitchen had become worse and mould growth had started to appear on the restaurant wall to the bar cold store and to the bar front itself at low level (exhibit 16, annexure DB2, fourth report).
30 While the plaintiffs' complaint was with the PLB, no other plumber could do any work and so Mr Djakaria arranged to withdraw the complaint so that he could engage another plumber to effect the repairs to the leaking plumbing. It appears from the report from Crawfords (exhibit 16, annexure DB1, page 352) that Mr Djakaria's formal withdrawal of his complaint to the PLB to allow a new plumber to be engaged took place on 24 April 2009.
31 That new plumber was Mr Goldfinch. Once a section of the floor from the kitchen was removed, Mr Goldfinch saw that the drains laid under the floor and on top of the slab were virtually flat, without an adequate gradient to allow the water to drain away. He also observed that a number of joints had not been properly glued and joined, with a resultant seepage of water (exhibit 8, pars 37 - 40).
32 On 18 May 2009 Mr Goldfinch prepared a report to Crawfords (exhibit 12). In that report Mr Goldfinch also quoted for repairs which were required in three areas – the bar, kitchen and the basement. Mr Goldfinch undertook those repairs between 15 May and 22 July 2009 (exhibit 5, TB pages 106 - 112 inclusive). Mr Djakaria also engaged another contractor to repair the damaged (cupping) floorboards.
33 Mr Goldfinch's opinion was that in each of these areas water damage had occurred because of the escape of water from the plumbing installed by Mr O'Dea. The main issues were due to a lack of fall (gradient) to the pipes (the drains laid under the raised kitchen floor and on top of the slab were virtually flat, with no adequate grading to allow water and waste to drain away), and a number of joints were not properly glued and joined. In his opinion the plumbing works did not comply with Australian Standard 3500 and he described the workmanship for the plumbing work as 'very poor' (exhibit 8, pars 41 - 44).
34 The work undertaken by Mr Goldfinch included rectification work for items which did not produce water leaks. He had to replace PVC with copper pipes for discharge pipes for the dishwasher – the PVC pipes were the incorrect type of pipes to use as they could not withstand the very high temperatures of waste discharged from the dishwasher. The hot and cold water taps for a sink had been incorrectly installed so that hot water came from the cold tap, and cold water from the hot tap, and the ice making machine had been plumbed into the hot water system. He also found that fire collars had not been installed to the PVC pipes in the basement carpark and he had to install seven of these collars (exhibit 8, pars 48 - 51).
35 At a site meeting on 23 July 2009 between Mr Boots of Crawfords, Mr Djakaria and Mr Goldfinch, he confirmed all plumbing leaks had been fixed to the kitchen and restaurant areas. The work done in the kitchen was undertaken in three stages along what has been described as the areas of the raised kitchen floor. There were still, however, problems in the bar area (exhibit 16, annexure DB1, TB page 352).
36 In November 2009 Mr Djakaria noticed water damage to the bar wall area and the facing panels to the bar area of the premises. He notified Crawfords again and Mr Goldfinch was asked once more to attend to investigate and repair the water leaks.
37 Another contractor, WA Total Shop Fit Solutions, carried out other repairs to the bar area damaged by water leaks. This included new flooring, replacement of the rear wall and wall on the right-hand side and replacement of the timber panels along the bar (exhibit 16, annexure HD9).
38 Unfortunately the plaintiffs continued to experience ongoing water damage in the kitchen and there were outstanding repairs to be carried out to the floors and to the bar area.
39 Mr Djakaria obtained two reports about these areas, the first following an inspection in March 2012 by another shop fitting company, Total Shopfit Solutions (exhibit 5, annexure HD12), and the next in June 2013 from BSP Building Inspections (exhibit 5, annexure HD14; also exhibit 15 annexure BP3). The latter report written by Brad Porteous dated 17 June 2013 was very detailed and reported on the cause of the damage and work which was required to be done.
40 Mr Porteous confirmed in his report, and in his evidence at trial, that there was significant water damage to most of the restaurant. He noted in his report (among other issues with the fitout) that:
(a) In the kitchen area, while about 70% of the kitchen floor had now been replaced with fill concrete and the plumbing to those areas repaired, there was one section of timber flooring to the kitchen next to the cookers which still required replacement. The plumbing inside the flooring may also be leaking and require repair or replacement when this floor was opened.
(b) The material which had originally been used in the raised flooring material was chipboard, not water resistant and not suitable for its intended purpose, especially for a commercial kitchen.
(c) The timber floor area of the restaurant had incurred water ingress damage. The timber flooring had been replaced three times since the original fitout, but there were still water leaks to the timber floor reported to be coming from the kitchen.
(d) The bar booth seat walls were water damaged and required replacement. Water appeared to be coming from the kitchen area backing onto the seats.
(e) There was an ongoing water leak into the car park below the kitchen which required further inspection and repair.
41 These and other defects noted in Mr Porteous's report required extensive repairs. Mr Porteous advised it was necessary to carry out a total replacement of most of the damaged areas of the restaurant including the kitchen floor, bar area floor, the solid timber floor, and the walls of the kitchen and restaurant area. It was, in his opinion, entirely appropriate and necessary for the restaurant to be closed down for the period during this repair work (exhibit 15, pars 11 - 15 and annexure BP3).
42 After receiving these reports, a decision was made in about June 2013 by Mr Djakaria and his partner that it would be more effective and efficient to do a complete refit, rather than keep doing patch up work on a piecemeal basis. The decision was made to close the restaurant in the months of September and October 2013 in order to undertake all the repairs and refit.
43 Mr Djakaria engaged another company, Pinnacle Commercial Interiors Pty Ltd ('Pinnacle'), to undertake the repairs and refit the restaurant in September and October 2013. Mr Djakaria also asked Mr Porteous to do a further inspection in early September 2013 and he provided a further report dated 2 September 2015 (exhibit 5, annexure HD15; exhibit 15, annexure BP8).
44 On this second inspection Mr Porteous observed, and reported, that the wall and floor areas had been further damaged by water – in his words 'the wall and floor areas had incurred significant water ingress to a greater extent than I had originally anticipated'. When he opened up hollow sections of the kitchen floor he found that they were badly water damaged with water sitting below the raised floor, up to 5 mm in depth. The water appeared to be coming from general floor cleaning water, as the waterproof membrane to the floor had failed and there were holes to the perimeter of the kitchen floor where water could pass to the underside of the floor. The wall to floor junction had not been adequately sealed at the time of construction. The water penetration to the floor had corroded the timber floor sheeting making it unsafe to access the area (exhibit 15, par 20 and annexure BP8).
45 Mr Porteous also found the kitchen wall linings were of standard gyprock and had not been waterproofed before the tiles had been laid. Floor to wall connections had not been sealed and water was passing all perimeter walls of the kitchen. Water was also passing through the wall fixing and pipe penetrations. This was because there was no sealer between the penetration and the wall lining where the fixtures came through. This meant that water would pass straight through the gap (exhibit 15, annexure BP8). He concluded that all the kitchen wall lining had to be removed and replaced with a waterproof material and all the kitchen walls needed to be waterproofed before tiling.
46 Mr Steven Kidd, the managing director of Pinnacle, gave evidence that it was not until Pinnacle commenced the demolition work and removed all of the flooring in the bar and kitchen areas that he realised the extent of the damage caused by water. It was significantly greater than he had anticipated. He found that the raised timber floor in the bar and kitchen area had not been properly sealed. Usually a gap under timber flooring will be filled with concrete and the timber laid on top of the concrete. That was not done in this case and what he described as a 'significant gap' was left which allowed leaking water to migrate and sit, causing damage and in his opinion, attracting the unusual amount of vermin he observed (exhibit 14, pars 10 - 13).
47 Mr Kidd also observed the plumbing pipes under the floor had insufficient slope to enable wasted water to flow away and in fact there were bad smells coming from pipes in the restaurant and car park. Once the pipes were cut open significant blockage of waste in the pipes was found and there are some photographs which demonstrate this (exhibit 14, pars 13 - 15 and annexure SK3).
48 Because of the extent of the water damage which was only discovered on demolition, the cost of the refit to the restaurant increased. As Mr Kidd explained (exhibit 14, par 17) Pinnacle had to do extra work to prepare for flooring because the concrete sub-floor had 'popped' and showed signs of being waterlogged. It was not possible to simply place a new flooring on top of this. In Mr Kidd's opinion the flooring had been significantly damaged from water leaks and did not form an adequate base.
49 The plumbing had to be re-done and this required pulling up the flooring and walls to gain access to it. (This was not part of the previous works undertaken by Mr Goldfinch and others).
50 A number of items had to be replaced because they had been damaged by water. These were:
(a) walls and plasterboards;
(b) timber flooring;
(c) kitchen tiling;
(d) electrical works; and
(e) ceilings.
51 In Mr Kidd's opinion the damage which was caused to these items were as a result of the leaking water which had significantly reduced the life span of the structural integrity of the restaurant (exhibit 14, par 19).
52 The cost of repairs was significant and the plaintiffs also incurred a loss of trade as a consequence.
Expert evidence
53 The defendant called an expert witness, Mr Mark Hanley, a licensed plumber, who described himself as a senior hydraulic and fire services engineer. He produced two reports which were tendered into evidence, the first dated 23 March 2016 (exhibit 18), and the second dated 20 July 2016 (exhibit 19). He also gave oral evidence.
54 For the purpose of providing his reports, exhibits 18 and 19, Mr Hanley was provided a copy of the Scott Schedule prepared by the parties for the purpose of trial setting out the work that was undertaken to the premises (and the damages claimed for each item). He was also given, among other documents, copies of the witness statement of Mr Goldfinch, Mr Goldfinch's reports of 19 January 2009 and 18 May 2009 and Pinnacle site reports.
55 In his first report, exhibit 18, Mr Hanley set out 19 defects in the hydraulic services (plumbing), details of which I have set out in Schedule 1 to these reasons. In his opinion (exhibit 18, par 4.1) these defects were caused by:
(a) the use of materials (mainly uPVC piping) which were not fit for their purpose;
(b) the installation of piping at less than minimum prescribed gradients;
(c) piping not being properly secured;
(d) unsatisfactory and incomplete pipe jointing procedures;
(e) the installed piping not being subjected to a hydrostatic pressure test; and
(f) the fact that pipes were not sealed at the point where they passed through the floors and walls.
56 Mr Hanley was also of the view (like Mr Goldfinch) that it was particularly unusual for a false floor (ie the raised floor) to be constructed in a commercial kitchen. In fact he stated that it was 'virtually unheard of', explaining that such an installation is not usually adopted were because of (exhibit 18, Report Conclusions par 5.1):
• The potential for vermin to breed in the sub-floor space
• The difficulty in guaranteeing a waterproof joint, particularly at the perimeter of the floor to ensure that regular floor wash-down practices by kitchen staff do not lead to water leaking into the sub-floor space
• The need to have a number of potentially dangerous steps or a ramp at the entry/exit to the kitchen giving rise to potential OH & S problems.
57 Mr Hanley was of the opinion that the installation of the raised floor at the height it was installed caused the 'significant defects at item no 3' (which was the installation of piping at incorrect gradients).
58 In his second report, exhibit 19, Mr Hanley stated his opinion that many of the 19 defects he had identified in his first report were in breach of Australian Standards, including AS 3500.1:2003, AS 3500.2:2003, and AS 3500.4:2003 which deal with plumbing and drainage – water services, sanitary plumbing and drainage, and heated water services respectively. Further details are set out in Schedule 1.
59 In cross-examination Mr Hanley asked and answered (ts 300) the following:
Is it fair to say from the answers you've given that the Australian Standards essentially mirror what you consider appropriate practice for good workmanship by a plumber --- Correct. Always recognising the Australian Standards are a minimum standard.
60 In his second report, exhibit 19, Mr Hanley also gave the following executive summary:
4.2 Executive Summary
Approximately 33% of the noted defects identified … directly relate to the substantial costs of the rectification building and financial impact costs, claimed in the 'draft' Scotts [sic] schedule. The balance of the defects primarily relate to non-compliant installations, poor workmanship or not following manufacturer's recommended installation procedures.
The selection of an inferior piping material by MP Plumbing meant that the plumbing and drainage system installed at Tony Roma's restaurant collapsed due to the effects of heated water, bad jointing procedures, incorrect piping gradients, incorrect venting installation, non-existing ceiling at penetrations, and a false floor structure comprising porous materials that also failed.
The damages suffered by the plaintiffs
62 At the time of trial the total claim by the plaintiffs was $2,143,147.13. It has been agreed that the plaintiffs' claim be dealt with in this court without reference to the upper limit of the court's jurisdiction pursuant to s 50(1)(e) of the District Court of Western Australia Act 1969.
63 The Scott Schedule was amended after the trial to take into account some changes. By the end of the trial, many of the items were not in dispute and some items were agreed to be removed by the plaintiffs.
64 In the amended Scott Schedule the total of the plaintiffs' claim is now $1,831,372.05. The claims by the plaintiffs which are not in dispute, in the sense that the defendant does not dispute Boss' liability to the plaintiffs, total $1,549,721.83.
65 I should record that the amended Scott Schedule highlights two items said to be in dispute:
(a) Item 37, the hydraulics or plumbing work done during the Pinnacle fitout in 2013. The amended Scott Schedule records there is a dispute of Boss' liability to the plaintiff because some of the works are unrelated to the negligence of Boss and were not done to rectify a defect or repair damage caused by any alleged negligence. However, in closing submissions counsel for the defendant (ts 360) advised that this was not disputed as a proper claim by the plaintiffs against Boss. The defendant submitted, however, that it fell within the exclusions of the policy. Accordingly this properly forms part of the quantum of the plaintiffs' claim for which Boss is liable. I discuss below whether the defendant is liable pursuant to the terms of the policy.
(b) Item 64, $1,155.00, for the costs of 'building certification services in support of a building compliance review for the plaintiffs' tenancy', which I will refer to as the compliance certificate. However, in closing submissions counsel for the defendant advised that this was not in dispute, although it would be argued that if fell within the exclusions of the policy.
66 The items where the defendant in closing submissions argued there is no liability of Boss to the plaintiffs were confined to architects' fees and the cost of sales and kitchen supplies as expenses incurred while the restaurant was closed during the Pinnacle fitout.
Architects' fees
67 The plaintiffs claimed the costs of the architectural design of the Pinnacle fitout. These are items 21, 26, 32, 55, 57, 58, 59, 60, 65 of the amended Scott Schedule and total $86,840.98. All of these items are described as being 'for the architectural design of the fitout'.
68 The defendant submitted that the costs of designing the fitout were unnecessary, given Mr Djakaria's evidence that he was happy with the initial plans prepared by the architect engaged by Boss, Mr Cirocco. Mr Djakaria made a decision to engage new architects because he believed Mr Cirocco to be related to Mr Perone and he did not want to work with Mr Cirocco because Mr Djakaria had a problem with Mr Perone. In Mr Djakaria's words (ts 147) he wanted 'to cut the connections [with Mr Perone] or sever the connections altogether'. The defendant submitted that the plaintiffs did not need new plans drawn. If the plaintiffs chose not to use Mr Cirocco's plans it should be at their cost, not at the cost of Boss.
69 In my view there is merit in the defendant's submissions in light of the amended Scott Schedule, apart from item 65. The details in the amended Scott Schedule for each of items 21, 26, 32, 55, 57, 58, 59 and 60 indicate that the costs relate to design (and items 59 and 60 also include the costs of an interior designer).
70 Item 65 has a further description of 'Project manager overseeing Pinnacle work, redoing kitchen; design work; inserting new seating'. However, the amended Scott Schedule is only a form of pleading: Macewans Machinery Ltd v Peters (WA) Ltd (Unreported, WASC, Lib No 930263, 14 May 1993); Dale v Dennis [2005] WADC 49 [5]. The original invoices from the architects are not in evidence, nor do I have any other evidence about the costs the subject of item 65.
71 In the absence of evidence or agreement from the parties in relation to item 65, the plaintiffs have failed to prove the liability of Boss for any of the architects' fees.
Cost of sales and kitchen supplies
72 The next dispute about Boss' liability to the plaintiffs relates to part of item 71 of the amended Scott Schedule, the loss incurred by the plaintiffs during the closure of the restaurant for the Pinnacle fitout.
73 The claimed loss in item 71 is evidenced in a combined profit and loss statement for September and October 2013 (exhibit 5, annexure HD19). There is no dispute that this covers the period when the restaurant was closed. The plaintiffs' losses for these two months totalled $493,985. From this amount the plaintiff has agreed to deduct $70,000 representing the agreed amount of the costs of wages incurred in retaining casual staff which the defendant argued was unnecessary and in respect of which the plaintiffs had failed to mitigate their loss.
74 The defendant has submitted that from the remaining sum of $423,985.22 there should be deducted two amounts shown on the combined September and October 2013 profit and loss statement - $67,353.38 for the cost of sales which include food purchases, ribs, other meat, beverages, milk and cream and seafood, and $17,047.29 for 'kitchen supplies' (details of which are not set out).
75 Counsel for the defendant submitted that Boss is not liable for either of these items because this was a planned shutdown and the plaintiffs were not operating at all in those two months. The purchases which are included in the profit and loss statements for those months could only be for the following month, November 2013, when the plaintiffs recommenced trading.
76 In Mr Djakaria's witness statement he stated (exhibit 5, par 180), in the context of the overheads and expenses he still had to pay while the restaurant was closed, that 'the only significant saving was that the business did not need to buy food for the ingredients'.
77 Later, however, he stated (exhibit 5, par 184):
While there was no costs in having to buy supplies for the restaurant during the period while the business was closed, I suffered a loss from perishable stock which was unable to be kept over the two month period.
78 Mr Djakaria was not cross-examined about this and in the absence of any challenge I am prepared to accept it. I had no difficulties at all with the truthfulness and reliability of Mr Djakaria's evidence generally.
79 Mr Djakaria was also not cross-examined about the amounts in the combined September and October 2013 profit and loss statement for the cost of sales and kitchen supplies.
80 The facts in this case include the other months' cost of sales and kitchen supplies as shown in the annexures to exhibit 5, HD 18 and HD 20 and the fact that most of the cost of sales includes perishable food items.
81 The cost of sales in the months March to August 2013 ranged from $123,387.26 to $147,882.41. The average costs of sales in the two months before the shutdown (July and August) was $144,307.57.
82 The cost of sales in the following month, November, was $148,462.89, and in December it was $146,848.32. These figures are consistent with the cost of sales before the shutdown. Interestingly, the figure for November includes an amount for the cost of ribs which is considerably higher than any other month, which indicates a bigger than usual purchase for that fresh food item. That tends to contradict the defendant's contention that the costs of sales in the profit and loss statement for September and October could only be for the following month, November 2013.
83 Similarly in relation to kitchen supplies, the cost of these in the months March to July 2013 ranged from $2,038.91 to $4,114.70. In August the cost was very low, only $987.15. In November, kitchen supplies were $2,983.56, consistent with the months before the shutdown, with the exception of August. Kitchen supplies in December were $15,963.85.
84 I am able to draw inferences from facts. Inferences from proved facts are just as much part of the evidence as those facts themselves: Jones v Dunkel (1959) 101 CLR 298, 309 (Menzies J); Fazio v Fazio [2012] WASCA 72 [46] - [50] (Pullin JA).
85 Having regard to the costs of sales and kitchen supplies both before and after the months when the restaurant was shut down, and Mr Djakaria's evidence as I have set out in [77] above, I am not able to conclude that these items in the combined September and October 2013 profit and loss statement were an expense incurred with a view to being ready to open in November. I consider it more probable that these were the costs of perishable stock which could not be kept, because of the shutdown.
86 I am thus satisfied on the balance of probabilities on the whole of the evidence that the two amounts of $67,353.38 and $17,047.29 are damages for which Boss is liable.
The basis of the defendant's liability as insurer
87 The principal issue in this case is whether the defendant was liable to indemnify Boss pursuant to its policy of insurance with the defendant.
88 As I have mentioned, there are two heads of damages, the hydraulics and the compliance certificate, which the defendant has submitted fall within the exclusions of the policy. The exclusions relied on by the defendant are what I will refer to as the Products exclusion and Workmanship exclusion.
89 The defendant denies, however, that it is liable to indemnify for the claim at all, on the basis of a condition of the policy that Boss must 'comply with legislation and Australian standards'. For ease of reference I will refer to this as General Condition (b).
90 In this case the relevant Australian Standards are those identified by Mr Hanley which I have set out in Schedule 1. The principle focus at trial was on AS 3500.1:2003, AS 3500.2:2003 and AS 3500.4:2003 ('the Plumbing Standards') dealing with plumbing work. The requirement to comply with the Plumbing Standards was also embodied in legislation, inthe Water Services Licensing (Plumbers Licensing and Plumbing Standards) Regulations 2000, reg 47 which provided:
47. Duty to comply with plumbing standards
(1) A person -
(a) who is carrying out plumbing work; or
(b) under whose general direction and control or supervision plumbing work is being carried out; or
(c) who is a licensed plumbing contractor or permit holder responsible for plumbing work that is being carried out,
must ensure that the plumbing that is the result of the plumbing work complies with the plumbing standards.
(2) In these regulations, the plumbing standards are -
(a) the provisions of AS/NZS 3500.1:2003, AS/NZS 3500.2:2003 and AS/NZS 3500.4:2003, which are applied for the purposes of this regulation as modified as set out in regulation 49; and
(b) the provisions of Division 2.
92 The defendant has argued that accordingly, General Condition (b) was breached and the defendant was entitled to refuse indemnity for the whole of the plaintiffs' claim.
93 No issue of s 54 of the Insurance Contracts Act 1984 (Cth) has been raised and thus the defendant's liability is to be determined upon a construction of the terms of the policy.
94 Because of the defendant's argument I will deal first with the issue of the General Condition (b), then turn to the exclusions.
The law relating to the construction of an insurance policy
95 A policy of insurance is a commercial contract and should be given a businesslike interpretation. Interpreting a commercial document requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure: McCann v Switzerland Insurance Australia Ltd [2000] HCA 65; (2000) 203 CLR 579 [22]; Wilkie v Gordian Runoff Ltd [2005] HCA 17; (2005) 221 CLR 522 [15] (Gleeson CJ, McHugh, Gummow and Kirby JJ); CGU Insurance Limited v Porthouse [2008] HCA 30; (2008) 235 CLR 103.
96 The role of the court in construing a written contract, including a policy of insurance, is to give effect to the common intention of the parties. The common intention of the parties is to be ascertained objectively. That is, the meaning of the terms of a contract in writing is to be determined by what a reasonable person would have understood them to mean: Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd (2004) 219 CLR 165. The subjective intention or actual understanding of the parties as to their contractual rights and liabilities is irrelevant in the construction exercise: Hancock Prospecting Pty Ltd v Wright Prospecting Pty Ltd [2012] WASCA 216; (2012) 45 WAR 29 [9], [75].
97 There is no general rule of construction of insurance contracts that limiting terms, such as exclusion clauses, are to be construed strictly or narrowly: Allianz Australia Insurance Ltd v Inglis [2016] WASCA 25 [25].
98 When construing an exclusion or 'limiting' clause, the court must give effect to the clause's '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': Allianz Australia Insurance Ltd v Inglis; WFI Insurance Ltd v Verini [2016] WASCA 143 [57]; Darlington Futures Ltd v Delco Australia Pty Ltd [1986] HCA 82; (1986) 161 CLR 500, 510.
99 Ambiguity arises where the language of the contract is reasonably capable of having more than one meaning: Allianz Australia Insurance Ltd v Inglis [26].
Submissions of the parties about General Condition (b)
100 It was submitted by counsel for the defendant that General Condition (b) was a 'limiting term' (as described in Allianz Australia Insurance Ltd v Inglis) and there was nothing ambiguous about it. This was a condition precedent or conditional promise. General Condition (b) allocated to Boss the risk of any claims against it if it did not comply with Australian Standards applicable to its particular trade activity. As Boss breached General Condition (b), the defendant's remedy was to deny Boss cover for the plaintiffs' claim.
101 Counsel for the defendant relied on two authorities, Casino Show Society v Norris (1984) 3 ANZ Ins Cas 60-580 and Kim v Cole (2002) Aust Contract R 90-149; (2002) Aust Torts Reports 81-662; [2002] QCA 176. It was submitted that in Kim v Cole the insured had breached an 'almost identical' general condition in the policy and that was sufficient to deprive the insured of cover.
102 It was submitted (written submissions date 2 September 2016, par 9) that since Kim v Cole was decided 'the defendant had intended and expected that a breach by an insured of General Condition (b) would deprive the insured of cover under the policy' and that 'anyone arranging or entering into one of the defendant's policies and thinking about the implications of the condition, intended and expected the same'. I should immediately observe, however, as I have set out in [96] above, that the subjective intention or understanding of either party as to their contractual rights and liabilities is not a relevant consideration when I am construing this policy.
103 It was also submitted that although I am not bound by Kim v Cole, that decision should be followed unless it can be distinguished or I am convinced it is plainly wrong: Farah Constructions Pty Ltd v Say-Dee Pty Ltd [2007] HCA 22; (2007) 230 CLR 89 [135].
104 Counsel for the plaintiffs submitted that read in the context of the policy as a whole, there was ambiguity in General Condition (b), and it should read down in order to give effect to the commercial purpose of the policy, which was to indemnify Boss against liability for its negligence. While on the evidence there was no dispute that there had been a breach of Australian Standards, the evidence from Mr Hanley and from Mr Goldfinch was that in relation to the items about which there was said to have been a breach, the Australian Standards reflected what they thought would be the appropriate manner in which a reasonable and competent plumber would have undertaken the work. Thus the Australian Standards reflected nothing more than what one would regard as the common law duty to perform the task with good workmanship and due skill and care.
105 Accordingly, on the construction of General Condition (b), counsel for the plaintiffs submitted that there should be some reasonableness implied into the clause.
Insurance cases dealing with breach of a condition
106 There is a long line of authority that, when construing a condition of an insurance policy which is a condition precedent to the liability of the insurer, it is necessary to do so in the context of the specific risks covered by the policy and applying the rule that one does not construe a condition as repugnant to the commercial purpose of the contract. The policy may be read down in an appropriate case to avoid the situation where the purpose of the policy and the indemnity granted by it would be substantially defeated: Fraser v BN Furman (Productions) Ltd [1967] 3 All ER 57, 60, 61 (Fraser); Albion Insurance Co Ltd v Body Corporate Strata Plan No 4303 [1983] 2 VR 339; Legal & General Insurance Australia Ltd v Eather (1986) 6 NSWLR 390, 393 (Eather). I shall refer to this as the 'repugnancy rule.'
107 Fraser concerned a condition of an employer's liability insurance policy (cl 4) which provided that 'the insured shall take reasonable precautions to prevent accidents and disease'. The policy specifically stated that 'the due observance and fulfilment of the conditions of this policy' was a condition precedent to any liability of the insurer under the policy. After noting that it was necessary to construe these provisions in the context of a policy of insurance that covers specific risks and that 'one does not construe a condition as repugnant to the commercial purpose of the contract', Diplock LJ went further in Fraser to say (61):
What in my judgment is reasonable as between the insured and the insurer, without being repugnant to the commercial purpose of the contract, is that the insured, where he does recognise the danger, should not deliberately court it by taking the measures which he himself knows are inadequate to avert it. In other words, it is not enough that the employer's admission to take any particular precautions to avoid accidents should be negligent; it must be at least reckless, ie, made with actual recognition by the insured himself that a danger exists, not caring whether or not it is averted.
108 Following Fraser, there has been a number of Australian cases which have construed a condition by which the insured is required to 'take reasonable precautions' or 'reasonable care' as requiring the insured to do no more than to avoid recklessness: see for example CGU Insurance Ltd v Graeme Robert Lawless [2008] VSCA 38; VACC Insurance Co Ltd v BP Australia Ltd (1999) 47 NSWLR 716; (2000) 11 ANZ Ins Cas 61-457; [1999] NSWCA 427; State Government Insurance Commission v Lane(1997) 68 SASR 257, 262 - 263; Albion Insurance Co Ltd v Body Corporate Strata Plan No 4340; Eather.
109 The notion of 'deliberately courting danger', or recklessness (as I will refer to it), involves the insured recognising that the danger exists and either taking measures which are known to be an inadequate response to the recognised danger, or not taking any measures at all when it is appreciated that the taking of some measure is required: see Barrie Toepfer Earthmoving and Land Management Pty Ltd v CGU Insurance Ltd (2016) 75 MVR 108;[2016] NSWCA 67[51], [74] [80] (Barrie Toepfer).
110 While I have referred to the repugnancy rule in Fraser and the authorities which have followed Fraser, I have taken into account that the repugnancy rule has been overtaken by more recent authorities enunciating the general principles relevant to the construction of insurance policies, which I have set out in [95] - [99] above.
111 The test of recklessness applied in Fraser still does have application, however (and was applied most recently in Barrie Toepfer).
112 Usually the test of recklessness has been applied where there is an obligation of an insured to take 'reasonable care' to take precautions or measures as set out in the condition. There are few cases which have considered a condition where the insured must comply with legislation or Australian Standards.
113 In the following cases which have considered such a condition, the issue has been whether the repugnancy rule applies or whether the condition should be construed as impliedly subject to the qualification of reasonableness, so that the insured's default would need to be deliberate or reckless (a construction raised in Gold Coast Bakeries (Qld) Pty Ltd v Heat & Control Pty Ltd [1992] 1 Qd R 162, 173, but not decided upon).
Casino Show Society v Norris
114 In Casino Show Society v Norris, three children were injured when a Chair-o-Plane ride at a local show tipped over while in operation. The evidence showed that the ride had not been properly erected, had not been approved by the local council as required by reg 157C of the Construction Safety Amendment (Amusement Devices) Regulation 1988, and the operators of the ride had not registered the machine with the appropriate government department as required by reg 157B. When the operators of the ride claimed indemnity under a liability insurance policy, the insurer denied the claim on the grounds of breaches of condition 5 of the policy, one of which provided:
The insured shall:
(a) ...
(b) take all reasonable precautions to
(i) ...
(iii) comply...with all statutory obligations...or regulations imposed by any Public Authority in respect thereof for the safety of persons or property.
116 The trial judge found that there had been a contravention of reg 157C, but read down the words of condition 5 to treat breaches of condition as being those related to the liability in question. The NSW Court of Appeal (Priestley JA, with whom Glass & Mahoney JJA agreed), were not prepared to so read the policy down in this way. The Court of Appeal found on the facts of the case that the insured's non-compliance had a real relevance to the loss which occurred because, had the operators complied with the regulation to obtain the approval of the council, there was a real likelihood that approval would have been withheld and the ride not used. Priestley JA stated (78,501):
It is clearly to the interest of the insurer that operators of entertainment devices of this kind should comply with all the safety regulations even if in many cases there will be no observable relation between such compliance and the safe operation of the devices. Obviously, it seems to me, the higher the standard of general compliance by operators with safety regulations, the greater are the chances of keeping the number of accidents down. Insurers frame their policies on the basis of such general judgments and it does not seem unreasonable to me that a policy should make it a condition of the insurer's liability that there be a general observance of safety regulations notwithstanding the possibility that in some cases an accident will happen at a time when the insured is in breach of the requirement to observe those regulations and the accident is unconnected with that breach.
117 The Court of Appeal rejected an argument, based on Fraser, that the condition was repugnant to the commercial purpose of the insurance contract and deprived the operators of any cover at all in a practical sense under the policy, stating (78,501):
This argument may have some force in regard to some other parts of condition 5, breaches of which were relied upon by the insurer. It does not, however, appear to me to have any force in regard to that part of condition 5 with which I have been dealing. Indeed it seems to me that not only is the construction which I put upon the relevant part of condition 5 one required by the language, it is also the meaning which the insurer actually intended the policy to have.
118 For the purpose of later comparison of this case, I observe that the condition of the policy in Casino Show Society v Norris was limited in its express terms to statutory obligations in respect to the safety of persons and property.
Kim v Cole
119 In Kim v Cole the insured, Mr Hurst, was a plumber and gasfitter who failed to install a valve for an oven in a pizza shop which was 'fail safe' as required by a regulation made under the Gas Act 1965 (Qld). His failure to do so led to an explosion which destroyed the building and badly damaged nearby structures.
120 Mr Hurst was found liable to the owners of the pizza shop and claimed indemnity for his liability to the plaintiffs under his insurance, a Legal Liability policy with Wesfarmers.The relevant sections of the policy headed Section 1 - General Liability declared that
... we will pay to you all sums ... which you shall become legally liable to pay for compensation in respect of:
(a) ...
(b) Damage to Property
occurring during the Period of Cover as a result of a happening in connection with the Business.
122 Wesfarmers denied liability to indemnify. One of the grounds for refusal of indemnity was the insured's breach of a general condition, referred to as condition (c), which was contained in a paragraph entitled 'Your obligations':
In addition to any other provisions set out in the Policies you shall:
(a) take all reasonable measures to prevent ... damage to property ...
(b) take all reasonable precautions for the safety of property insured;
(c) comply ... with all statutory obligations, By-laws and Regulations imposed by any Public Authority
123 Unfortunately, neither the appeal decision nor the decision at first instance (Kim v Cole [2001] QSC 289)records the term of the policy which entitled the insurer to deny indemnity for breach of this condition.
124 The Queensland Court of Appeal concluded that Wesfarmers was entitled to deny indemnity. McPherson JA (with whom McMurdo P and Helman J agreed), noted at [37] that conditions (a) and (b) required the insured to 'take all reasonable measures' in relation to damage to property and for its safety, however condition (c) was not so qualified. Because of that difference, McPherson JA was not prepared to imply the qualification of reasonableness in relation to the requirement to comply with statutory obligations and held that the obligation of the insured was to comply with all statutory obligations and not merely to take all reasonable precautions to do so.
125 The explanation for McPherson JA's construction and why he was not prepared to imply the qualification of reasonableness to condition (c) is not clear, but from what follows in the decision, it appears to have much to do with the particular facts of the case. Immediately after stating in [37] that he was not prepared to imply the qualification of reasonableness into the condition, McPherson JA stated [38] 'The problem for Mr Hurst arises in this way' and then, after addressing the Gas Act 1965 (Qld) and its Regulations and Mr Hurst's obligations, then stated [40]:
The result is that Mr Hurst was in breach of subpara(c) of that part of the General Conditions of the policy headed Your Obligations. He failed to comply with all statutory obligations and regulations imposed by any public authority, who in this case was the Governor in Council, who, acting under s 64 of the Gas Act made the Regulation in question. I do not see any escape from the conclusion that this has the consequence that he loses the benefit of the cover that would otherwise have been provided under Section 1: General Liability in the Legal Liability Policy issued by Wesfarmers. His Honour considered that such a result might be avoided by regarding s100(1) of the Gas Regulation as applying only to the installation of appliances and not to their subsequent modification. I am not persuaded that this is so; but, even if it can be so confined, s81(1)(b) of the Regulation makes it clear that Mr Hurst ought not to have installed a fitting (the manual valve) that was not 'failsafe' within the meaning of cl5.2.10, but ought to under cl5.2.6 have fitted a component such as a minivalve that would achieve the safe operation of the appliance.
126 The breach by the insured in Kim v Cole was thus a serious one, relating to safety. That the decision can be explained by the particular facts of the case is in my view confirmed by McPherson JA's next comments [41]:
On this aspect of the appeal, reference was made to some remarks in the judgment of the Full Court in Gold Coast Bakeries (Qld) Pty Ltd v Heat & Control Pty Ltd [1992] 1 Qd R 162, 173, to the effect that 'a simple breach of a regulation or by-law' would not be enough to constitute breach of a policy provision requiring reasonable care to be taken to comply with all regulations and by-laws. As already mentioned, no such qualification ('take reasonable care to comply') appears in subpara (c) of the relevant portion of Section 1 - General Liability in the present case, and, in my opinion, it cannot be implied. Even if it could be, it would scarcely be correct to regard what happened as a simple breach of a regulation or by-law. It is a statutory provision that is plainly intended to serve the interests and ensure the safety both of consumers and members of the public whose persons and property would be placed at serious risk if it were to be omitted. As events showed here, it was not somewhere at the periphery but at the very centre of the Gas Regulation as a measure designed to guard against the very risk that eventuated.
(italics my emphasis)
127 I would add that there is no reference in the Court of Appeal decision in Kim v Cole to any argument on the repugnancy rule and there is certainly no reference to any of the authorities I have set out in [106] - [108], nor any reference to Casino Show Society v Norris.
Buckley v Metal Mart Pty Limited
128 Buckley v Metal Mart Pty Ltd [2008] ACTSC 79concerned the public liability section of a Business Insurance policy. The insuring clause was for 'legal liability to pay damages for an occurrence in the course of your business'. The policy also contained the following clause under the heading 'Special Conditions':
(1) Reasonable Care
You shall
- (a) take all reasonable precautions to prevent:
(i) Public liability and Products Liability
(ii) Personal Injury and Damage to Property
(iii) the manufacture, sale or supplier of defective Products.
(b) comply with and ensure Your employees, servants and agents comply with, all laws, by-laws, regulations and recognised standards for the safety of persons or property;
(c) ensure that only competent employees use, operate, maintain and service plant and equipment;
(d) to maintain all premises, fittings, plant and equipment in sound condition; and
(e) take immediate action to trace, recall modify all Products that You know or have reason to suspect contain a defect or deficiency.
There is in my view, a significant difference between the clause with which I am concerned and those considered in Kim v Cole and Casino Show Committee. In both of those cases only the requirement to comply with statutory obligations was not qualified by reference to reasonableness and, for that reason, the argument that the unqualified obligation to comply with statutory requirements was repugnant to the commercial purpose of the contract had less weight.
In this case, however, subcll (b), (c), (d) and (e) are all unqualified. If the construction for which CGU contends were to be accepted it would mean, for instance, that subcl (d) would effectively preclude any claim that stemmed from a failure or malfunction of any plant or equipment, unless, perhaps, it could be shown to flow from some inherent defect. Only the most explicit statement that strict compliance was a precondition to the insurer's liability would be sufficient to support such an interpretation. For this reason, special condition 1(b) should be construed as subject to a qualification of reasonableness in the same way as special condition 1(a).
Victorian Workcover Authority v Concept Hire Ltd
130 InVictorian WorkCover Authority (VWA) v Concept Hire Ltd (2009) 24 VR 695; [2009] VSC 194, the Victorian WorkCover Authority (VWA) denied that it was liable to indemnify its insured under an employer's liability WorkCover insurance policy. Among other matters, VWA relied on a term in the policy, cl 14 (under the heading 'Precautions') which provided that the insured 'shall comply at all times with the provisions of the Occupational Health and Safety Act 1985 and the Dangerous Goods Act 1985'.
131 It was noted by Beach J (at [22]) that VWA did not identify which particular clause of the policy entitled it to deny indemnity for failing to comply with that clause.
132 In any case Beach J held (at [24]) that the VWA was not entitled to deny indemnity upon the basis of any alleged breach of the obligation to comply with occupational health and safety laws imposed by cl 14 because that clause fell to be construed in a similar manner to conditions in public liability policies which required the insured to take 'reasonable precautions' to prevent the happening of an insured event, operating where the insured had been reckless. Beach J stated (with footnote and citations included in parenthesis):
… it is almost inevitable that when an employee succeeds in a claim in negligence against his or her employer, s 21(1) (when it was in force) will have been breached. In my view, cl 14 falls to be construed in a similar manner to conditions in public liability policies which require the insured to take “reasonable precautions” to prevent the happening of an insured event. Those clauses are construed as operating where the insured has been guilty of reckless conduct, and specifically where the insured, with actual recognition of the danger, has not cared whether the danger has been averted or not. (footnote 18: See, for example, Body Corporate Strata Plan No 4303 v Albion Insurance Co Ltd[1983] 2VR 339; Fraser v BN Furnam (Productions) Ltd [1967] 1 WLR 898 ; WJ Lane v Spratt [1970] 2 QB 480 ; Kodak (Aust) Pty Ltd v Retail Traders Mutual Indemnity Insurance Association (1942) 42 SR (NSW) 231 ; Legal and General Insurance Australia Ltd v Eather (1986) 6 NSWLR 390) and CGU Insurance Ltd v Lawless (2008) 15 ANZ Ins Cas 61-755) …Barrie Toepfer Earthmoving and Land Management Pty Ltd v CGU Insurance Ltd
133 In Barrie Toepfer the policy concerned was a commercial motor vehicle policy. When the insured was found liable for damage to a bridge caused by the driving of its prime mover and low loader, it claimed indemnity under its policy with CGU. CGU refused indemnity, relying on the conditions of the policy which included, relevantly, the following condition (condition 3):
We may refuse to pay a claim, or may reduce the amount payable under a claim to the extent that Your breach of any condition of this policy causes or contributes to loss, damage or liability or prejudices Our interest or rights, in respect of that claim.
…
3. REASONABLE CARE
You and any person acting on Your behalf must exercise reasonable care and precautions to prevent loss or damage to the Motor Vehicle, and comply with all statutory obligations and by-laws or regulations imposed by any public authority, for the safety of the Motor Vehicle/s and, for the carriage of goods and merchandise.
135 The NSW Court of Appeal (Meagher JA; Ward JA and Sackville AJA agreeing) rejected CGU's argument and accepted the insured's argument, with Meagher JA stating (at [85], [86]):
In my view the condition should be read as the insured contends. The relevant principles are not in doubt. The policy, being a commercial contract, should be given a businesslike interpretation. In doing so, a construction which gives a congruent operation to the different parts of the policy is, where possible, to be preferred: Wilkie v Gordian Runoff Limited[2005] HCA 17; 221 CLR 522 at [15] - [16]. The heading forms part of the policy and, there being no clause saying it should be ignored, may be taken into account as a general description of the provision which follows: Digby v General Accident Fire and Life Assurance Corporation Ltd [1943] AC 121 at 136; Tokio Marine and Fire Insurance Co Ltd v Costain Australia Ltd[1988] NSWCA 157; (1989) 5 ANZ Ins Cas 60-891 at 75,682 (per Mahoney JA, Samuels and McHugh JJA agreeing).
There is a significant difference between a provision requiring the exercise of reasonable care to comply with a statutory obligation, and one imposing an absolute duty to do so. The subject matter of condition 3 is not correctly described as 'Reasonable Care' if the second limb of the condition is not also qualified by the words 'reasonable care and precautions'.
Observations
136 From my review of these authorities, it is apparent that each case has been determined on its own facts and policy terms. None of Buckley, Victorian Workcover v Concept Hire and Barrie Toepfer followed Kim v Cole.
137 I must construe General Condition (b) in the light of the policy terms in this case, applying the principles of construction which I have set out in [95] - [99]. I need to give weight to the context in which General Condition (b) appears including the nature and object of the contract, and, where appropriate, construing the condition contra proferentem in case of ambiguity.
Onus of proof
138 As General Condition (b) is, on the defendant's own description, a 'limiting clause' which the defendant says justifies its refusal to pay the claim the subject of this action, the defendant bears the onus of proving the limitation: Wallaby Grip Ltd v QBE Insurance (Australia) Ltd(2010) 240 CLR 444; [2010] HCA 9 [35], [36]; Barrie Toepfer Earthmoving and Land Management Pty Ltd v CGU Insurance Ltd [46] - [50].
Construction of General Condition (b)
139 The contract between Boss and the defendant (exhibit 3) is described as 'Commercial Plan Insurance Cover', consisting of a number of different policies covering a range of risks. On the first page of the policy document is a section entitled 'How the Commercial plan works'. It is stated:
The commercial plan consists of 18 different policies covering a wide range or risks relevant to day to day business and private activities.
140 From the Certificates attached to the policy, Boss took out Business Liability, General Property and Motor Vehicle cover.
141 The Business Liability Policy (exhibit 3 page 28) insured Boss against 'legal liability to pay compensation for … damage to property caused by an occurrence' during the period of insurance and in connection with the insured's business ('the insuring clause').
142 The definition of occurrence (page 32) is 'an event, including continuous or repeated exposures to substantially of the same general conditions which you did not reasonably expect or intend'.
143 The word 'you' is defined to mean 'the person or entity show on the certificate of the insurance as the insured'. The word 'we' means the defendant (page 5). The certificate of insurance (Certificate 09 CPL 2708312, attached to exhibit 3) names only Boss as the insured. The business specified on that certificate is Shop Fitter.
144 In the section entitled 'How the Commercial plan works', on page 1, under a subheading 'Understanding the significant features, benefits and risks' there is a reference to the fact that the insured should read the general conditions section on page 5 because it sets out matters such as:
- Conditions which you must meet whilst you have the policy (if you don't meet these conditions we may be able to refuse or reduce any claim or cancel your policy).
145 The conditions which apply to all of the policies commence on page 5. After setting out the duty of utmost good faith, the insured's duty of disclosure and that sums insured, limits of indemnity and other limits in the policy are inclusive of any GST, there is a section on page 7 which reads as follows:
What you must do when you have a policy
You must:
• keep all property insured in good condition
• comply with legislation and Australian Standards
Australian Standards means standards published by the Standards Association of Australia
• comply promptly with requirements of public authorities
• take reasonable care to safeguard yourself and all property insured
• take reasonable care to avoid causing harm to others or to property belonging to others
• tell us immediately:
• if there is, or you know there will be, any material change in the property insured (including where it is kept) or in the nature of the risk. We may cancel or change the terms and conditions on which we are prepared to offer or continue cover if this occurs
- • if you no longer have an interest in the property insured
• if you take out any other insurance which covers any property insured or liability against similar risks
146 For ease of reference, because none of these conditions is numbered, I will refer to these collectively as the General Conditions, and each of them individually as follows:
(a) keep all property insured in good condition - General Condition (a);
(b) comply with legislation and Australian Standards - General Condition (b);
(c) comply promptly with requirements of public authorities – General Condition (c);
(d) take reasonable care to safeguard yourself and all property insured - General Condition (d);
(e) take reasonable care to avoid causing harm to others or to property belonging to others - General Condition (e);
(f) tell us immediately - General Condition (f):
• if there is, or you know there will be, any material change in the property insured (including where it is kept) or in the nature of the risk. We may cancel or change the terms and conditions on which we are prepared to offer or continue cover if this occurs - General Condition (f)(i)
• if you no longer have an interest in the property insured – General Condition (f)(ii)
• if you take out any other insurance which covers any property insured or liability against similar risks – General Condition (f)(iii)
(g) make sure that any safety system or security device installed to protect your property is in working order and activated – General Condition (g).
147 Still within the same section of the policy, on page 8, there is a clause which reads:
What can affect your entitlements
If you do not do what you are obliged to do under your policy, we may refuse to pay a claim or any part of it. For example, if you have a motor vehicle policy and do not keep your car's brakes in good condition and this causes an accident, we are entitled to refuse to pay all or part of any claim you make under the policy arising out of the accident.
148 Having regard to the natural and ordinary meaning of General Condition (b), 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 Business Liability Policy, namely to insure Boss for its legal liability to pay compensation for damage to property, I am not satisfied that any breach of General Condition (b) entitles the defendant to refuse indemnity for a claim. It is not clear that this was the common intention of the parties – in other words, on an objective reading it is not clear the insured (Boss) and the insurer (the defendant) agreed that there will be no liability on the defendant to indemnify for a claim unless General Condition (b) was complied with. My reasons for this follow.
149 If it was intended that compliance with General Condition (b) was an absolute obligation on the insured which overrode the terms of the insuring clause, and allocated to Boss the risk of any claims against it in the event of non-compliance (as submitted by the defendant), this had to be made clear. In my view, it has not been made clear.
150 The policy does not expressly state that compliance with either the General Conditions as a whole or General Condition (b) in particular is a condition precedent to indemnity (compare the clear language in Fraser; see also Pioneer Concrete (UK) Ltd v National Employers' Mutual General Insurance Association Ltd [1985] 2 All ER 395, 397). It has not been expressly stated that no claim will be payable unless all of the General Conditions have been complied with, nor has it been expressly stated that compliance with General Condition (b) is a condition precedent to the defendant's liability to indemnify for a claim.
151 In the opening page under 'How the Commercial Plan Works' there is a statement that 'if you don't meet these conditions, we may be able to refuse or reduce any claim or cancel your policy', but in the section where the General Conditions are set out, it is not stated what the consequences of a breach of any condition is, except for General Condition (f)(i).
152 The matter is not, in my view, made any clearer by the clause on page 8 under the heading 'What can affect your entitlements'. That gives an example relating to General Condition (a), namely the condition to keep all property insured in good condition. The example given is also an example of a serious breach, relating to the safety of a motor vehicle (a car without brakes kept in good condition).
153 It is thus not clear from all of the terms of the policy that any failure of the insured to comply with legislation or Australian Standards would, in every case, lead to a refusal of indemnity for a claim. Having regard to what is stated in 'How the Commercial plan works', what is not stated in the General Conditions, and then what is set out in the clause headed 'What can affect your entitlements', there is more than one possible consequence of a breach of General Condition (b). A serious breach which involves an issue of safety may mean that the defendant will refuse the claim. A less serious breach may give the defendant the option to refuse the claim, or alternatively to reduce the claim. Another possible consequence, reading what is stated in 'How the Commercial plan works' (set out in [144] above) is that the defendant may choose to cancel the policy.
154 The result is that the effect of a breach of General Condition (b) is uncertain and unknown and there is ambiguity in the policy, in the sense that the language of the policy as to what happens to the insured's entitlement to indemnity if General Condition (b) is not complied with, is reasonably capable of having more than one meaning: Allianz Australia Insurance Ltd v Inglis [26].
155 I consider that the decisions in Casino Show Society v Norris and Kim v Cole are distinguishable, both on their facts and the relevant policy terms.
156 As to the policy terms, there are the differences between the policy wording in this case, compared to Casino Show Society v Norris andKim v Cole as I have already discussed. A further consideration, applying the reasoning in Buckley, is that General Condition (b) in this policy is not the only General Condition which is unqualified by reasonableness. General Conditions (a), (c), (g) are also unqualified. If the construction for which the defendant contends were to be accepted it would mean, for example, that General Condition (a) would effectively preclude any claim that stemmed from property which was not in good condition, and that General Condition (c) would preclude any claim arising from a situation where the insured had not 'promptly' complied with the requirement of a public authority.
157 I agree with Stone J's statement in Buckley that only the most explicit statement that strict compliance was a precondition to the insurer's liability would be sufficient to support such an interpretation. There is no such explicit statement in the defendant's policy.
158 Having regard to the terms of the policy in this case, it would in my view be inconsistent with its commercial purpose and the terms of the insuring clause, which is to cover Boss for acts of negligence, to construe General Condition (b) as the defendant contends.
159 I must construe the policy in a way which avoids any inconsistency and preference is given to a construction that provides a congruent operation to the various components of the policy as a whole: Wilkie v Gordian Runoff Ltd [16]; Barrie Toepfler [85]. Accordingly, I consider that General Condition (b) should be read down and construed to imply in its terms that the insured must 'take reasonable care to' comply with legislation and Australian Standards.
160 This qualification to General Condition (b) is, in my view, required to give the policy business efficacy. It is reasonable and equitable, consistent with the express terms of the policy (in particular the insuring clause), obvious so that it goes without saying, capable of clear expression and it does not, in my view, contradict any express term of the contract: BP Refinery (Westernport) Pty Ltd v Hastings Shire Council (1977) 180 CLR 266, 282 - 283; Servcorp WA Pty Ltd v Perron Investments Pty Ltd [2016] WASCA 79 [71] - [72].
161 It is also proper to give it a meaning to avoid consequences that appear irrational and injust: Distillers Co (Bio-Chemicals) (Aust) Pty Ltd v Ajax Insurance Co Ltd (1974) 130 CLR 1, 11 (Gibbs J); Carlingford Australia General Insurance Ltd v EZ Industries Ltd [1988] VK 349, 352 – 353.
162 With the implication that the insured must take reasonable care to comply with General Condition (b), the issue is whether Boss acted recklessly when it breached that condition, applying the test in Fraser. The facts are that the restaurant fitout involved more than plumbing work and the latter was carried out by Mr O'Dea. Boss' liability under the legislation (reg 47) and the Australian Standards could only be in relation to its general direction and control or supervision of the plumbing work which was being carried out. In the expert report of Mr Handley, exhibit 18, he was asked and answered:
7. Whether a reasonably competent builder would have been aware of the defects you have identified with or without an inspection of the works done
Answer:
• In my expert opinion, no
Reason:
• If a reasonably competent builder was relying on MP [Millstream Plumbing] telling him that all hydraulic services installations at Tony Roma's were code compliant, and the reasonably competent builder did not undertake an inspection of the works, then that reasonably competent builder would not have been aware of the defects identified in Answer No. 1.
The cost of hydraulics (plumbing)
164 The defendant has argued that item 17 in the Scott Schedule, $100,000 from the cost of the Pinnacle fitout relating to hydraulics, is excluded from cover by reason of both the Products exclusion and the Workmanship exclusion.
165 The exclusions upon which the defendant relies appear in the Business Liability Section of the Policy under the heading and opening words:
What is not insured?
Your policy does not insure you against any claim:
3. Products
…
• for failure of products sold or supplied by you to meet the level of performance, quality, fitness or durability you represented either expressly or impliedly.
• for the cost of:
- investigating the cause of any defect or deficiency or suspected defect or deficiency or products sold or supplied by you
- tracing, recalling, repairing or replacing products or refunding the purchase price for products sold or supplied by you.
18. Workmanship
• for the cost of doing, redoing, completing, correcting or improving any work (including the supply of materials or parts) which you or anyone for you or on your behalf did not do correctly or did not do but should have done in the first place.
166 In my view neither parts of the Products exclusion clause apply in the circumstances of this case. The natural and ordinary meaning of these clauses is that they both relate to the failure of defects in products 'sold and supplied' by Boss. This is not a case of a goods which have failed, or defective goods. It is a case of a failure to properly perform the fitout, in particular failing to properly carry out the plumbing work.
167 The natural and ordinary meaning of the Workmanship exclusion is that it is only the cost of re-doing or correcting poor workmanship which is excluded from the policy. The exclusion does not apply to consequential damage: see Graham Evans & Co (Qld) Ltd v Vanguard Insurance Co Ltd (1986) 4 ANZ Ins Cas 60-689; Walker Civil Engineering Pty Ltd v Sun Alliance & London Insurance Plc (1996) 9 ANZ Ins Cas 61-311 (Rolfe J); (1999) 10 ANZ Ins Cas 61-418 (CA); Prentice Builders Ltd v Carlingford Australia General Insurance Ltd (1988) 6 ANZ Ins Cas 60-951.
168 Details of the costs of the hydraulics are contained in Pinnacle's scope of works document (exhibit 14, annexure SK1). I have set out in Schedule 2 to these reasons the details of what was involved in the hydraulics from that scope of works document, with each item numbered for ease of reference (none of these were numbered in the original document).
169 The plaintiffs concede (opening submissions dated 18 August 2016, par 39) that the Workmanship exclusion applies to the cost of re-doing work which should have been properly done in the first place such as:
(a) re-gluing the brass elbow, which should have been done in the first place;
(b) re-positioning the PVC pipes at correct angles to allow for proper drainage of water and waste; and
(b) swapping hot and cold water pipes which were found to be incorrectly installed.
170 However, it was submitted that subsequent damage caused to property by inadequate workmanship is covered by the policy. In closing, counsel for the plaintiffs argued that the fact that other work needed to be redone did not mean that it could not be the subject of indemnity and that I should make only a nominal deduction for costs such as, for example, replacing glue in a joint which was faultily done.
171 Having reviewed the items in Schedule 2, the evidence of Mr Goldfinch, Mr Hanley's expert evidence, and also the evidence of Mr Kidd in cross-examination (ts 215 - 220), I find as follows.
172 Items 1 - 5 of Schedule 2 all relate to re-doing plumbing work which was not properly done at the outset. For example, fire protection collars should have been installed but were not; uPVC drainage pipes were used in the initial installation and had to be replaced with HDPE (high density polyethylene) pipes. Thermostatic mixing valves should have been installed, but were not (evidence of Mr Hanley, ts 292; item 2 of Schedule 1).
173 Items 6, 7 and 8 in Schedule 2 relate to replacing existing copper pipes, installing a new hot water system and replacing a circulating pump set. These costs were incurred because the items were due for an upgrade. These items were, therefore not replaced because of any consequential damage to them arising from the defects in the hydraulics system. They were replaced because the plumbing had to be re-done properly.
174 In relation to items 9 - 14 equipment in the kitchen, such as existing sinks, the dishwasher and coffee machine and gas appliances had to be removed so that the plumbing work could be re-done, and then reinstalled. These items were thus not removed and reinstalled because of any consequential damage arising from defects in the hydraulics system.
175 I am therefore satisfied on the balance of probabilities that the Workmanship exclusion applies to the cost of hydraulics, as claimed, in the sum of $100,000 and that this item is not covered by the policy.
The compliance certificate
176 The defendant has also submitted that item 64 in the Scott Schedule, which relates to the cost of a compliance certificate, is also excluded from cover pursuant to the Workmanship exclusion. The basis for the submission is that it relates to re-doing work that had not been done or properly done originally.
177 The plaintiffs' submission is that because of the need to undertake the refit there was a necessity to comply with certification obligations and that is an expense which flows as a result of consequential damage.
178 The evidence shows there was a need for a complete refit of the whole premises required, not only to replace the plumbing, but because of consequential damage to the whole of the premises including the kitchen floor and walls, the bar area floor, the floor and walls of the restaurant area, and the ceilings.
179 I am satisfied that the cost of the compliance certificate is an expense incurred as a result of consequential damage. I am thus not satisfied that Workmanship exclusion applies to this cost.
Conclusion and orders
180 I am satisfied that the insurance contract covered Boss' liability to the plaintiffs immediately before deregistration, and that the plaintiffs are entitled to judgment.
181 The quantum of the claim, on my calculation, is as follows:
Agreed amount $1,549,721.83
Plus:
Costs of food $67,353.38
Kitchen supplies $17,047.29
Compliance certificate $1,155.00
Total $1,635,277.50
182 To this should be added interest as claimed pursuant to s 32 of the Supreme Court Act 1935.
183 I will hear from the parties as to what orders I should make and the question of costs.
SCHEDULE 1
Expert evidence of Mr Hanley – Hydraulic services defects
Defect No. | Description | Relevant Australian Standard Code or Clause |
1 |
|
|
2 |
|
|
3 |
|
|
4 |
|
|
5 |
|
|
6 |
|
|
7 |
|
|
8 |
|
|
Defect No. | Description | Relevant Australian Standard Code or Clause |
9 |
|
|
10 |
|
|
11 |
|
|
12 |
|
|
13 |
|
|
14 |
|
|
15 |
|
|
16 |
|
|
17 |
|
|
18 |
|
|
19 |
|
|
* NOTE: This is taken from Mr Hanley's report exhibit 19. There is no s 23(e) in AS 3500.2:2003. I have assumed he means to refer to s 2.3(e)
SCHEDULE 2
Hydraulics - $100,000 plus GST
1. Electro scanning of floor slab and all core holes to 300 mm maximum including fire protection collars below floor
2. Checking all drainage inverts before work commences to ensure all drainage can be installed around the existing obstructions and advising on any potential problems
3. All drains to kitchens, to be installed in HDPE
4. Supply and installation of 2 x thermostatic mixing valves in lockable stainless steel boxes
5. Supply and install of copper hot water service complete with flow and return ring main to kitchen with thermotec insulation
6. Supply and installation of copper water service as per drawing
7. Supply and installation of 1 x Rheem 613315 315 litre HWS
8. Supply and installation of 1 x dual circulating pump set complete with time and thermostat wall mounted on frame
9. Installation only to 10 x sinks and tapware, 2 x basins and tapware, 1 x dishwasher, 1 x coffee machine, 1 x cleaners sink
10. Connection to 6 x gas appliances
11. Supply and installation of an al425 gas metre
12. Supply and installation of the gas emergency shut off valve with 1 x stop buttons
13. Supply and installation of 8 x nickel bronze grates with integral buckets for vinyl floors
14. Supply and install 2 x vinidex basket wastes as specified to dishwashing sink only
2
29
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