Manufacturers' Mutual Insurance Ltd v Queensland Government Railways

[1968] HCA 52

HIGH COURT OF AUSTRALIA

Barwick C.J., McTiernan, Kitto, Menzies and Windeyer JJ.

MANUFACTURERS' MUTUAL INSURANCE LTD. v. QUEENSLAND GOVERNMENT RAILWAYS

(1968) 118 CLR 314

22 August 1968

Arbitration—Insurance

Arbitration—Award—Setting aside—Error of law on face of award—Incorporation in award of reasons—General reference—Reference of question of law. Insurance—All risks policy—Exclusion of loss arising from "faulty design".

Decisions

August 22
The following written judgments were delivered:-
BARWICK C.J., McTIERNAN, KITTO AND MENZIES JJ. The appellant issued an all risks policy to the Queensland Government Railways and Electric Power Transmission Pty. Ltd. - in the policy called "the insured" - covering all loss of or damage to certain works described as follows: "arising out of or in connection with the insured's contract for supply and erection of Railway Bridge at Mirani, Pioneer River, Queensland." This bridge was to replace one built in 1897 and swept away by a flood in March 1956 and was to be built upon the site of the earlier bridge. The period of the insurance was from 25th September 1957 until 25th September 1958; the policy was limited to the sum of 102,246 pounds. (at p318)

2. The work being done under the contract had commenced but was not completed on 17th and 18th February 1958 when a flood, higher than any previously recorded, brought down three concrete piers which had been erected in the bed of the river as some of the supports for the bridge. An indemnity against this loss was claimed under the policy and it seems that it has always been common ground between the parties that the loss is covered by the policy unless it falls within the description of "loss or damage arising from faulty design". This the insurance company affirmed and the insured denied. The dispute was referred to arbitration pursuant to condition 6 of the policy, and the arbitrator, having found against the insurance company that the loss did not arise from faulty design, awarded that the insured were entitled to be indemnified "in respect of the loss and damage sustained to the works, the subject of the submission on or about 17th and 18th February 1958". (at p318)

3. The award of the learned arbitrator stated: "The circumstances leading up to the reference were as set out and referred to in the reasons for award published herewith." The award also provided: "There shall be deemed to be annexed to and incorporated in this award the documents that are set out in the schedule hereto." The schedule listed thirty-six documents including the proposal, the policy and the submission and documentary evidence submitted to the arbitrator. The policy, as has already been indicated, excluded "loss or damage arising from faulty design . . . ". The arbitration clause provided inter alia that "all differences arising out of this policy shall be referred to the decision of an arbitrator to be appointed in writing by the parties in difference". The principal question submitted to arbitration was as follows:

"Are the insured entitled to be indemnified by the insurer in respect of loss and damage sustained to the works on or about 17th and 18th February 1958?" (at p318)

4. In his reasons for award published with the award and referred to therein, the learned arbitrator, having stated that the insurance company accepted the onus of establishing that the exclusion already referred to applied, and having considered the question of the cause of the collapse of the piers, said:

". . . the transverse forces which may operate upon piers in a stream are of a magnitude not previously realized or recognized by engineers, and that where piers will be subjected in a stream to such transverse forces, their shape is of great importance. It follows from what I have said that on the evidence which I heard, I have concluded that the prismatic piers as designed, and as they were being constructed, were inadequate to withstand the transverse forces to which they could be subjected in the Pioneer River." . . . ". . . I am satisfied that the design of the piers in the sense of their prismatic shape resulted in loss, but the question which then follows for consideration is the meaning and effect of 'faulty design' as those words appear in the policy." (at p319)

5. The learned arbitrator came to the conclusion that work done at the University of Queensland in investigating the cause of the collapse of the piers "operated as an enlargement of engineering knowledge" and that, when the bridge was designed, "engineering knowledge and practice lacked a proper appreciation of the extent of the powerful forces which bridge piers may be required to withstand". (at p319)

6. Finally referring to Mr. Casey, the designer of the piers, and to his examination of the piers of the earlier bridge, the arbitrator came to a statement which is of critical importance for present purposes. It is as follows:

". . . I do not conclude that Mr. Casey was guilty of any negligence or inadvertence in his planning. From his point of view he had the precedent of the earlier bridge which had stood the test of more than fifty years and whilst he - after the failure of that bridge - noticed that a transverse force had led to the failure, I think that examination of the piers led to a very reasonable conclusion by him that, but for the lack of reinforcement and bonding in the concrete of the piers, they would have withstood the particular flood. If 'faulty design' means a design which was inadequate in the sense that it was capable of improvement then the company would succeed, but if those words mean that in the designing of the piers there was some element of personal failure or non-compliance with the standards which would be expected of designing engineers, the exclusion in my opinion would not be applicable. The first of these alternatives would be analogous to an exclusion which one finds in motor vehicle policies, whereby the indemnity does not apply if a car is being driven in a damaged or unsafe condition. In such case it matters not that the driver of the vehicle at the relevant time had no knowledge of an unsafe condition. (Cf. Trickett v. Queensland Insurance Co. (1936) AC 159 .) On this matter which appears so essential to me, my mind has wavered to an extent, but I think that the personal element is involved in the phrase not only because one finds a necessary personal element in the earlier exclusion relating to faulty workmanship, but also because if this be not so it would be difficult to consider that a design short of perfection was other than faulty." (at p320)

7. Before this Court two points, not relied upon before the Full Court and now, it seems, taken principally to preserve whatever rights the respondent may have, were raised. First, that the reasons for award did not form part of the award, and secondly, that as the question of the construction of the policy had been referred to the arbitrator, an error of construction afforded no ground for interference by the Court. Were either point to be accepted, the award could not be impeached and that would be an end of the matter. In our opinion, however, neither point is valid. The formal award refers expressly to "the reasons for award published herewith"; moreover the express incorporation of the documents listed as part of the award would have been without significance unless the arbitrator was regarding the reasons for award as part of his award. In these circumstances it is our opinion that the reasons for award are, as was assumed in the Full Court, to be regarded as part of the award. The submission to arbitration was, as has already appeared, in general terms, viz.: "Are the insured entitled to indemnity?" Such a submission, although it no doubt involves the arbitrator in construing the policy, does not refer the construction of the policy to him as a specific question of law. The basis of a general submission, such as there was here, is that the policy will be construed by the arbitrator in accordance with law so that an error in construction appearing from the award is an error of law upon the face of the award. The authorities upon both the points now raised were recently considered by this Court in Council of the City of Gold Coast v. Canterbury Pipe Lines (Aust.) Pty. Ltd. (1968) 118 CLR 58; 16 LGRA 191 . Because we consider there is no substance in either point we proceed to consider the substantial question determined by the Full Court and argued before us. (at p320)

8. Accepting, of course, the learned arbitrator's findings of fact, which have already been set out, we have come to the conclusion that upon a proper construction of the relevant exclusion, the loss which occurred did arise from faulty design. Let it be accepted, as the arbitrator found, that the piers, as designed, failed to withstand the water force to which they were subjected because they were designed in accordance with engineering knowledge and practice which was deficient, rather than because the designer failed to take advantage of such professional knowledge as there was nevertheless the loss was due to "faulty design" and the arbitrator has done no more than explain how it happened that the design was faulty. We think it was an error to confine faulty design to "the personal failure or non-compliance with standards which would be expected of designing engineers" on the part of the designing engineers responsible for the piers. To design something that won't work simply because at the time of its designing insufficient is known about the problems involved and their solution to achieve a successful outcome is a common enough instance of faulty design. The distinction which is relevant is that between "faulty", i.e., defective, design and design free from defect. We have not found sufficient ground for reading the exclusion in this policy as not covering loss from faulty design when, as here, the piers fell because their design was defective although, according to the finding, not negligently so. The exclusion is not against loss from "negligent designing"; it is against loss from "faulty design", and the latter is more comprehensive than the former. (at p321)

9. For the foregoing reasons we consider that this appeal should succeed. (at p321)

WINDEYER J. Piers which had been built to carry a new bridge collapsed. They did so because their bases were so constructed, shaped and placed that they did not withstand floodwaters coming with force across the river bed and not simply following what would appear to be the mid-line of the stream. This transverse force at this point was a phenomenon which was not, it is said, reasonably to be expected or foreseen. The arbitrator therefore held that the collapse of the piers was not the result of any negligence on the part of the designing engineer. Accepting this finding, the question was whether the collapse of the piers was within the words in the insurance policy: " . . . this Insurance shall not apply to or include . . . loss or damage arising from faulty design and liabilities resulting therefrom". The case turned on whether or not the collapse of the piers arose from "faulty design". These words, like the rest of the policy, are "to be construed in their plain, ordinary, popular meaning rather than their strictly precise, etymological, philosophic, or scientific meaning": Halsbury's Laws of England, 3rd ed., vol. 22, p. 212. That I do not doubt. Nor do I doubt or dispute that, as counsel urged, the policy is to be read as a whole and that it is legitimate to compare two phrases in it, "faulty design" and "faulty workmanship". But the mistake which seems to me to have been made is to read into the first phrase a meaning of fault which is foreign to it, although that meaning may have some place in the second, to which I shall come later. (at p322)

2. The ordinary meaning of words today is not to be ascertained by etymology. Nevertheless the derivation of the word "fault" does I think explain two different denotations which it now commonly has. The word comes to us I believe from old French, "faute", which is hypothetically derived from a late Latin word meaning a falling short, a failure. In ordinary English today the word "fault" is used in senses which are all indicative of the basic concept, a falling short, a shortcoming. When used in relation to a person, a fault is a falling short in conduct or behaviour, some act or omission which, whether wilful or negligent, predicates blame. In this sense the word has a wide meaning when used of a person. "If he has means of knowledge which he ought to have used and does not avail himself of them, his omission so to do may be a fault": per Buckley L.J. in Asiatic Petroleum Co. Ltd. v. Lennard's Carrying Co. Ltd. (1914) 1 KB 419, at p 432 ; applied in Royal Exchange Assurance v. Kingsley Navigation Co. (1923) AC 235, at p 245 . The same considerations apply when a thing is personified and fault is attributed to it, for example to a vessel in collision with another vessel: The Miraflores and The Abadesa (1967) AC 826 . (at p322)

3. I have mentioned these cases, to which we were referred in the argument for the respondent, not because I think they have any bearing on the question which we have to decide, but to show why in my opinion they have none. Here we are not concerned with the word "fault" or "faulty" as an attribute, importing blame, of a person, or a personified thing. We are concerned with the word "faulty" as descriptive of an inanimate thing. The words "fault" and "faulty" then have a different sense. They, again according to their derivation, connote a falling short; but not now a falling short in conduct or behaviour. They designate an objective quality of a thing. It is not up to a required standard. It is "faulty", because it has defects, flaws or deficiencies. This use of the word "faulty" in relation to a thing is old and quite common. Doctor Johnson defined "faulty" in this sense as meaning "defective, bad in any respect, not fit for the use intended" . The word can be applied not only to concrete things, but also to plans or designs to be used to produce intended results. (at p323)

4. The two uses of the word "fault" which I have mentioned are reflected also in the corresponding uses in law of the word "default". Sometimes it refers to misdeeds, by act or omission, by a person, sometimes to a mere lack or want of something, as for example "in default of issue". It is of some interest too that the word "faute" in modern French is also used with two differing senses comparable to our "fault". It may mean fault in the sense of responsibility for something wrong: or it may mean a defect or a lack, as in faute de mieux. (at p323)

5. It is because I think that in the Supreme Court their Honours did not keep sharply distinct the two senses of the word which I have mentioned that I consider their decision in this case was mistaken. Doubtless a faulty design can be the product of fault on the part of the designer. But a man may use skill and care, he may do all that in the circumstances could reasonably be expected of him, and yet produce something which is faulty because it will not answer the purpose for which it was intended. His product may be faulty although he be free of blame. It seems to me that Hoare J., who spoke for the Supreme Court, was misled by an irrelevant consideration when he said that in their context "the words 'faulty design' do imply some element of blameworthiness or negligence which has been negatived by the arbitrator's findings". The piers failed to stand up in a flood which it might reasonably have been considered might occur and which did occur. It seems to me that into the question whether they were of faulty design there has been intruded unnecessarily a consideration of whether the faults of the design were the result of fault in the designer. In other words, fault in the sense of shortcoming in the static quality and character of a thing has become involved with fault in the sense of shortcomings in conduct and action. (at p323)

6. The case for the respondent was not, I think, advanced by comparison of "faulty design" and "faulty workmanship", also used in the policy. I do not think that either phrase can be used to expand or contract the effect of the other. Indeed I think rather that, properly construed, they illustrate the very distinction to which I have referred. Faulty workmanship I take to be a reference to the manner in which something was done, to fault on the part of a workman or workmen. A faulty design, on the other hand, is a reference to a thing. If the words were "faulty designing" the two phrases might perhaps be comparable: but the words are "faulty design". I think that reading these words in their ordinary meaning, the collapse of the piers was the result of their design being faulty. I agree that the appeal should be allowed. (at p324)

Orders

Appeal allowed. Order of the Full Court of the Supreme Court set aside. In lieu thereof order that the Award made on 15th December, 1966, by Ronald Henry Mathews as arbitrator be set aside and that the submission be referred back to the said arbitrator for reconsideration. Order that the respondent the Queensland Government Railways pay to the appellant the costs of the proceedings before the said Full Court and of this appeal.