Mie Force Pty Ltd v Allianz Australia Insurance Limited

Case •

[2022] NSWSC 1606

•

24 November 2022

No judgment structure available for this case.

Supreme Court


New South Wales

Medium Neutral Citation: Mie Force Pty Ltd v Allianz Australia Insurance Limited [2022] NSWSC 1606
Hearing dates: 1 November 2022
Decision date: 24 November 2022
Jurisdiction:Equity
Before: Peden J
Decision:

(1) The Amended Summons is dismissed.

(2) The Plaintiff pay the Defendant’s costs as agreed or assessed.

Catchwords:

INSURANCE — Construction of a general liability policy — Where plaintiff is a subcontractor of a subcontractor of the named insured — Whether sub-subcontractors are insured under the policy — Whether plaintiff is an “insured” or “named insured” as defined in the policy for the purposes of an insuring clause — Whether plaintiff was a person to whom the named insured had assumed responsibility and therefore an “insured” — Whether plaintiff was the agent of a subcontractor and therefore a “named insured”— Where plaintiff not insured under the policy

Cases Cited:

Admiral International Pty Ltd v Insurance Australia Ltd [2021] NSWSC 1440

Allianz Australia Limited v Rawsons Homes Pty Ltd [2021] NSWCA 224

Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99

Certain Underwriters at Lloyd’s of London v Dural 24/7 Pty Ltd [2022] FCA 206

Comalco Aluminium Ltd v Garraway Metals Pty Ltd (Full Federal Court of Australia, 8 December 1993)

Co‑operative Retail Services Ltd v Taylor Young Partnership Ltd [2002] 1 WLR 1419

Electricity Generation Corporation v Woodside Energy Ltd (2014) 251 CLR 640

Flying Colours Film Co Ltd v Assicurazioni Generali SpA [1993] 2 Lloyd’s Rep 184

Goninan & Co Ltd v Direct Engineering Services Pty Ltd [No 2] [2008] WASCA 112

International Harvester Co of Australia Pty Ltd v Carrigan’s Hazeldene Pastoral Co (1958) 100 CLR 644

Kennedy v De Trafford [1897] AC 180

Malamit Pty Ltd v WFI Insurance Ltd [2016] NSWSC 1306

McCann v Switzerland Insurance Australia Limited (2000) 203 CLR 579

MetLife Insurance Ltd v RGA Reinsurance Company of Australia Ltd [2017] NSWCA 56

Mount Bruce Mining Pty Limited v Wright Petrofina (UK) Ltd v Magnaload Ltd [1984] QB 127

Plevin v Paragon Personal Finance [2014] 1 WLR 4234

Prospecting Pty Limited (2015) 256 CLR 104

Tektrol v International Insurance Co [2005] 2 Lloyd’s Rep 701

Tokio Marine & Nichido Fire Insurance Co Ltd v Hans Bo Kristian Holgersson trading as Holgerssons Complete Home Service [2019] WASCA 114

Transfield Pty Limited v National Vulcan Engineering Insurance Group Limited [2002] NSWSC 830

Transfield Pty Limited v National Vulcan Engineering Insurance Group Limited [2003] NSWCA 327

Wallaby Grip Limited v QBE Insurance (Australia) Limited (2010) 240 CLR 444

Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522

Zhang v ROC Services (NSW) Pty Ltd (2016) 93 NSWLR 561

Texts Cited:

P Watts, W Bowstead and F M B Reynolds, Bowstead and Reynolds on Agency (22nd ed, 2021, Sweet & Maxwell)

Category:Principal judgment
Parties: Mie Force Pty Ltd ACN 608 385 557 (Plaintiff)
Allianz Australia Insurance Limited ACN 000 122 850 (Defendant)
Representation:

Counsel:
H K Insall SC (Plaintiff)
D Lloyd SC and C Coventry (Defendant)

Solicitors:
Hugh & Associates Lawyers (Plaintiff)
Wotton + Kearney (Defendant)
File Number(s): 2021/322242
Publication restriction: Nil

Judgment

  1. The plaintiff, Mie Force Pty Ltd (Mie Force), has been sued in two proceedings concerning destruction of property caused by a fire, which occurred when three of its employees were engaged in demolition work on a site, for which Rohrig (NSW) Pty Limited (Rohrig) was responsible.

  2. Mie Force seeks an indemnity in relation to defence of those proceedings from the defendant insurance company, Allianz Australia Insurance Ltd (Allianz), on the basis that an Allianz insurance policy insuring Rohrig also insures Mie Force.

  3. The only issue to be determined is the proper construction and application of the definition of “insured” in that insurance policy and whether it extends to insure Mie Force.

  4. Rhino Commercial Stripouts Pty Ltd (Rhino), a company related to Mie Force, had sought Mie Force’s employees to carry out subcontractor work Rhino was doing for Rohrig.

  5. Allianz accepts that Rhino, which is also sued in the same proceedings as Mie Force, is insured under the policy.

  6. There is no factual dispute between the parties.

Questions of construction to be determined

  1. The parties agreed that the following questions are to be determined:

  1. Is Mie Force a "Named Insured" because it was:

  1. a "sub-contractor" as that word is used in the definition of "Named Insured" (fourth line); and/or

  2. an "agent" as that word is used in the definition of "Named Insured" (sixth line) of either Rohrig or Rhino?

  1. Is Mie Force an "Insured" because it was:

  1. an "other organisation under the control of the Named Insured" (being Rhino) and over which Rhino "was exercising active management" as those phrases are used in the definition of "Insured" in clause 2?

  2. a "person or entity" for which an insured party in paragraph 1 and 2 (namely Rhino) was "obliged to arrange insurance by virtue of a Contract or assumption of responsibility" as those words are used in the definition of "Insured" in clause 3, being:

  1. a contractor and/or subcontractor of Rhino within sub-clause (c)?

  2. a supplier and/or other consultant of Rhino within sub-clause (d)?

Agreed facts

  1. The following facts are not in contest.

  2. The Rhino Group of companies operated a strip-out and demolition business, which included structural demolition works. Two entities within the Rhino Group are:

  1. Rhino, which operated as the trading entity of the Rhino Group in the relevant years of 2017 and 2018; and

  2. Mie Force, which was incorporated for the purpose of employing workers which could be procured by other entities in the Rhino Group for work. Since Mie Force’s incorporation, it has supplied the majority of workers in the Rhino Group upon arrangements with Rhino. Mie Force otherwise does not carry on any trade of its own. Some of Rhino’s workforce were supplied by another entity in the Rhino Group not relevant to these proceedings.

  1. At all material times, Mr Ryan Murphy was a director and controlling mind of Rhino and Mie Force. He held the position of managing director of all companies in the Rhino Group and made all day-to-day decisions for the Rhino Group.

  2. Allianz wrote two relevant insurance policies:

  1. One "Construction Risks – General Liability Policy" for “Rohrig and others” (Policy) effective from 30 June 2017.

  2. A later "Construction Risks – General Liability Policy" for “Rohrig and others” (Renewed Policy) effective from 30 June 2018.

  1. In May 2017, Rohrig entered into a deed dated 9 May 2017, styled "Works Period Agreement" (Deed), with Rhino. Under clause 1, Rhino offered to procure and perform each request for, and item of, Works for which Rohrig issued a Works Order.

  2. In or around June 2018, Rohrig entered into a contract for the design and construction of building works at the General Gordon Hotel (Head Contract). The work under this contract included renovation of the ground floor of the Hotel, including partial demolition and modification.

  3. In May or June 2018, pursuant to the Deed, Rohrig issued a document to Rhino styled "Works Order - NH1897" (Works Order). By issuing the Works Order, a contract between Rohrig and Rhino whereby Rhino was obliged to procure and perform each item of works in the Works Order was formed (Subcontract).

  4. The Subcontract required Rhino to procure and perform certain demolition works in the Works Order on the General Gordon Hotel. In the period between 7 June 2018 and 30 July 2018, Rhino performed work required under the Subcontract.

  5. Rhino had no employees at any relevant time, including during the performance of the works under the Works Order given by Rohrig to Rhino (June to July 2018).

  6. On or about 25 June 2018 and 25 August 2018, Rhino issued to Rohrig two invoices for payment in relation to the work performed by Rhino under the Subcontract, which were paid on or about 31 July 2018 and 15 October 2018 respectively.

  7. The Policy and the Renewed Policy provide for indemnity on certain terms to persons who come within the definition of "Insured" under the Policy or Renewed Policy respectively. Under the Policy and the Renewed Policy, a "Named Insured" is also an "Insured" (within the meaning of those terms in the Policy and Renewed Policy respectively).

  8. Rohrig was, at all material times and, in particular, from June 2018 to August 2018, a Named Insured (and therefore an Insured) under the Policy and Renewed Policy.

  9. Allianz accepted that Rhino was, at all material times and in particular, from June 2018 to August 2018:

  1. a Named Insured (and therefore an Insured) within the meaning of those terms in the Policy and Renewed Policy; and

  2. a Named Insured (and therefore an Insured) within the meaning of those terms in the Policy and Renewed Policy by virtue of being a "sub-contractor" as that word is used in the definition of Named Insured (fourth line of definition).

  1. On 30 July 2018, three employees of Mie Force were undertaking works specified in the Works Order at the Hotel; and there was a fire at the Hotel. No employees of Rhino performed any work under the Subcontract or specified in the Works Order on 30 July 2018.

  2. The fire has generated several ongoing proceedings. The registered proprietor of properties neighbouring the Hotel commenced proceedings in the Local Court of NSW against General Gordon Hotel Project Pty Ltd and Rohrig seeking damages for the fire damage caused to its property (Neighbour Proceedings). On 30 July 2021, Mie Force was joined to the Neighbour Proceedings (as fourth defendant). The Neighbour Proceedings have subsequently been transferred to this Court.

  3. General Gordon Hotel Project Pty Ltd commenced proceedings against Rohrig seeking declarations concerning breaches of contract and duty of care (Hotel Proceedings). On 7 April 2022, Mie Force was joined to the Hotel Proceedings (as third defendant).

  4. Allianz is defending the Neighbour Proceedings and Hotel Proceedings on behalf of and in the name of, inter alia, Rhino.

  5. If Mie Force is a "Named Insured" or "Insured" (as defined in the Policy or Renewed Policy), which Allianz denies, Allianz agrees that Mie Force is entitled to indemnity under the relevant policy, and it was submitted that Allianz would likely take over the defence of the Neighbour and Hotel Proceedings for Mie Force in exercising its rights of subrogation under cl 1.2 of the Policy.

Relevant terms of the policies

  1. The policies are identical for all relevant purposes, albeit applicable to different periods. The parties agreed at the trial that it is the first Policy that applies if Mie Force is insured.

  2. The Introduction to the Policy provides:

In consideration of the Named Insured having paid or agreed to pay the Premium, the Insurers agree to indemnify the Insured in the manner and to the extent provided herein, subject always to the Limits and Sub-limits of Liability, Conditions, Exclusions and other terms of or any Endorsements to this Policy.

  1. The “Insured Operations” are defined as:

All activities of the Insured including, but not limited to Commercial, Residential, Retail and Industrial Building Contractors; Project and Construction Managers; Civil Contractors; Design Consultants and Engineers; Property Owners and Occupiers including hobby farm; Plant Owners, Operators and Hirers and all associated activities and/or as declared or to be included at expiration of the Period of Insurance, including testing, commissioning, paving, vegetation, landscaping, roads, draining, lighting, car parks, equipment, machinery and buildings of any kind or description undertaken by or on behalf of the Named Insured and commenced during the Period of Insurance, but shall not include Excluded Contracts unless endorsed onto this policy.

  1. The only “Excluded Contracts” were:

(a) Civil Works – Civil Dry Works – Dams, bridges, any tunnels, underground works, mining

(b) Civil Works – Civil Wet Works – All works (including but not limited to wharfs; piers, pontoons), off shore works

  1. The “Project Values of Insureds Operations” was estimated at $110,500,000.

  2. Clause 1.1 contains the insuring clause. It relevantly provides:

The Insurers will indemnify the Insured against the legal liability of the Insured to pay compensation or damages in respect of

a) …;

b) Property Damage; or

c) …

happening:

(i) during the Construction Period or Defects Liability Period in Respect of the Insured Operations or

(ii) during the Period of Insurance in respect of the Insured's Products

within the Territorial Limits in connection with the Insured Operations and related activities as a result of an Occurrence.

  1. Clause 1.2 obliges Allianz to, amongst other things, defend any proceedings against the Insured for compensation or damages to which indemnity under the policies apply or would apply if the claim was sustained, and to pay all legal costs.

  2. The "Insured" is defined in five clauses as:

1. the Named Insured;

2. any parent or subsidiary company (including subsidiaries thereof) of the Named Insured and any other organisation under the control of the Named Insured and over which it is exercising active management, whether now or hereafter incorporated;

3. any of the following persons or entities for whom or for which the insured parties under clauses (1) and (2) above are obliged to arrange insurance by virtue of a Contract or assumption of responsibility, but only to the extent required by such Contract or assumed responsibility and in any event only for such coverage and Limits of Liability as provided in this Policy:

a) any principal or owner or agent of the principal or owner; or joint venture partner;

b) any construction manager or project manager or superintendent;

c) any contractor or sub-contractor of any tier, other than those categories more specifically defined elsewhere in this Policy;

d) any architect, supplier, manufacturer, engineer or other consultant for their on site activities only;

e) any lessor, financier, mortgagee or trustee;

f) any government body;

g) any other party with an insurable interest in the Contract(s);

4. any director, executive officer, Employee, contract staff or partner of any of the Insured under clauses (1), (2) or (3) whilst acting as such; and

5. any office bearer or member of any social, sporting, safety, security, medical or welfare facility of any of the insured under clauses (1), (2), (3)(a), (3)(b) or (3)(c) whilst acting as such.

  1. The "Named Insured" is defined in the schedule to the Policy as follows:

Rohrig (Qld) Pty Ltd, Rohrig (NSW) Pty Ltd, Rohrig (Vic) Pty Ltd, Rohrig Constructions Pty Ltd, Rohrig Rentals Pty Ltd, Rohrig Investments Pty Ltd ATF GK & AK Rohrig Trust and Elite Shop Fitting Pty Ltd and /or subsidiary and/or related corporations and/or financiers and/or sub-contractors and/or principals as defined under Australian Corporations Law for their respective rights, interests and liabilities including employees and agents of such entities and subsidiary or controlled companies now or hereafter formed or acquired.

Principles of construction

  1. The principles of construction which apply to insurance contracts are not in dispute and are no different to those applicable to other kinds of commercial agreements. Recently, the NSW Court of Appeal in Allianz Australia Limited v Rawsons Homes Pty Ltd [2021] NSWCA 224 at [43] (White JA, with whom Meagher and Leeming JJA agreed) stated:

As a commercial contract, a policy of insurance is to be given a business-like interpretation. The task of interpretation is an objective one that 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. A preference is to be given to the construction supplying a congruent operation to the various components of the whole: McCann v Switzerland Insurance Australia Limited (2000) 203 CLR 579; [2000] HCA 65 at 589 (Gleeson CJ); Mount Bruce Mining Pty Limited v Wright Prospecting Pty Limited (2015) 256 CLR 104; [2015] HCA 37 at 116 (French CJ, Nettle and Gordon JJ); MetLife Insurance Ltd v RGA Reinsurance Company of Australia Ltd [2017] NSWCA 56 at [100]-[101] (Leeming JA, with whom McColl JA and Emmett AJA agreed); Wilkie v Gordian Runoff Ltd (2005) 221 CLR 522; [2005] HCA 17 at 529 (Gleeson CJ, McHugh, Gummow and Kirby JJ).

  1. Furthermore, a court cannot attribute a different meaning to the words of a policy simply because the court regards the meaning as otherwise working a hardship on one of the parties. Where words are unambiguous, they cannot be ignored: Australian Broadcasting Commission v Australasian Performing Right Association Ltd (1973) 129 CLR 99; [1973] HCA 36 at 109 (Gibbs J).

  2. As the party contending the insurance clause has been satisfied, the plaintiff here bears the onus of proof: Wallaby Grip Limited v QBE Insurance (Australia) Limited (2010) 240 CLR 444 at 457 (French CJ, Gummow, Hayne, Heydon and Kiefel JJ).

  3. It was not in dispute that the Schedule (where “Named Insured” is found) and the Policy Wording (where the definition of “Insured” is found) must be read together.

  4. Below I consider each of Mie Force’s submissions supporting its claim that it is entitled to an indemnity from Allianz under the proper construction of the Policy.

Clause 1 – Is Mie Force a “Named Insured”?

  1. Senior Counsel for the plaintiff conceded early in his oral submissions that his best argument was that the plaintiff is a “Named Insured” because it was a sub-subcontractor of Rohrig or, alternatively, an agent of Rhino, which was a subcontractor.

  2. It is not in dispute that Rhino was a “subcontractor” and captured within the meaning of “Named Insured”. As noted above, Allianz has already accepted liability to insure Rhino under the Policy.

  3. Mie Force’s primary submission was that it also falls within “Named Insured”, properly construed, because either:

  1. “subcontractor” includes sub-subcontractors, Mie Force being a “subcontractor” of Rhino and therefore a sub-subcontractor of Rohrig; or

  2. Mie Force was an “agent” of Rhino, a sub-contractor.

Does “subcontractor” include sub-subcontractors?

  1. Mie Force submitted that the word “sub-contractor” ought properly be construed to include sub-subcontractors, and therefore it was a sub-subcontractor of Rohrig (through Rhino).

  2. For this construction, Mie Force relied on Lloyd J’s decision in Petrofina (UK) Ltd v Magnaload Ltd [1984] QB 127 (Petrofina) for a general proposition that the overall character of the Policy in this case is designed to cover the widest categories of persons. However, it was accepted that the actual language used in the policy could not be ignored.

  3. In Petrofina, a sub‑contractor was one of several co‑insureds under a “contractor's all risks policy”. The sub‑contractor damaged the works being undertaken by the contractor and its sub‑contractors. The insurers indemnified the proprietors for the relevant damage and, in purported exercise of their right of subrogation, brought proceedings against the sub‑contractor for damages for negligence. The sub‑contractor asserted that the claim was not maintainable in that it was fully insured under the policy in respect of the property, which it had damaged.

  4. Lloyd J (as his Lordship then was) held that, on a proper construction of the contractor's all risks policy, each co‑insured was insured in respect of the whole of the works, including in respect of property owned by other co‑insureds. His Lordship also held that, since the sub‑contractor was entitled to insure the whole of the works, and not merely that part of the works for which it was responsible, the insurers had no right of subrogation against the sub‑contractor.

  5. In the course of his reasons, Lloyd J observed at 136:

In the case of a building or engineering contract, where numerous different sub‑contractors may be engaged, there can be no doubt about the convenience from everybody's point of view, including, I would think, the insurers, of allowing the head contractor to take out a single policy covering the whole risk, that is to say covering all contractors and sub‑contractors in respect of loss of or damage to the entire contract works. Otherwise each sub‑contractor would be compelled to take out his own separate policy. This would mean, at the very least, extra paperwork; at worst it could lead to overlapping claims and cross‑claims in the event of an accident. Furthermore, as Mr Wignall pointed out in the course of his evidence, the cost of insuring his liability might, in the case of a small sub‑contractor, be uneconomic. The premium might be out of all proportion to the value of the sub‑contract. If the sub‑contractor had to insure his liability in respect of the entire works, he might well have to decline the contract.

  1. Although Lloyd J's analysis of circuity of action in the context of subrogated proceedings, which was important in that case, was rejected by the House of Lords in Co‑operative Retail Services Ltd v Taylor Young Partnership Ltd [2002] 1 WLR 1419 at 1423 and 1438, their Lordships did not cast any doubt on the accuracy of the observations of Lloyd J above.

  2. Those observations have been relied upon by judges in other contexts. For example, in Tokio Marine & Nichido Fire Insurance Co Ltd v Hans Bo Kristian Holgersson trading as Holgerssons Complete Home Service [2019] WASCA 114, Buss P, Beech and Pritchard JJA, in dismissing an appeal, recorded the trial judge’s reliance on Lloyd J’s comments, which he considered apt in the context of a construction and legal liability policy, despite the fact that Lloyd J was considering a different type of policy.

  3. Nevertheless, as accepted by the parties, Lloyd J’s observations, even if apt to the context of the Policy, cannot influence the proper construction of a contractual provision that obviously evinces an intention to give effect to something other than the referenced “convenient” and sensible practice; the starting point is always the language of the contract itself, which may be sufficient to deal with the question of construction: see eg Goninan & Co Ltd v Direct Engineering Services Pty Ltd [No 2] [2008] WASCA 112 at [64]-[65] (Martin CJ).

  4. Mie Force submitted that it was appropriate to construe “sub-contractor” more broadly, because the real restriction on the ambit of the cover was that it was only provided for “Insured Operations” as defined. Thus, it was said that the focus and purpose of the Policy was to insure “all activities of the Insured”, irrespective of which legal persons carried out the work.

  5. I do not accept Mie Force’s construction that “subcontractor” includes “sub-subcontractor”. Instead, I consider the better construction is that “Named Insured” was intended to include only those legal entities that had a direct legal relationship with the Rohrig companies, for at least the following reasons:

  1. The definition of “Insured” provides cover in clause 1 for a group of legal persons within the words of “Named Insured” and that ought not be too broadly construed, because there is further cover for other persons that satisfy the requirements of clauses 2 and 3.

  2. All the clauses can be read harmoniously, rather than there being overlaps, because clause 2 provided cover only to those persons within the meaning of Named Insured, and clause 3 provided cover only to those listed persons, in relation to whom persons within clause 1 (Named Insured) or clause 2 (related entities) had promised, either contractually or otherwise, to provide insurance.

  3. Lloyd J’s reasons in Petrofina were in the context of a different sort of policy being an “all risks policy”, which was intended to cover works on the “property”, whereas here the Policy is a liability policy which was responsive to occurrences of, inter alia, property damage and liabilities to third parties. The language the parties have used here does not manifest a commercial purpose that a sub-subcontractor would be insured. There is no reason to depart from the actual words used and look for a different “commercial purpose”, where there is no ambiguity.

  4. The parties have in clause 3(c) referred to “any contractor or sub-contractor of any tier” (emphasis added), which expressly contemplates a chain of sub-contractors. That is not the language in “Named Insured”, which only refers to “subcontractors”.

  5. If a broader meaning was given to “subcontractor” in the meaning of “Named Insured”, then many parts of clause 3 would be unnecessary or entirely redundant, because “sub-subcontractor” could already encompass, for example, “construction manager” (clause 3(b)), “contractor or sub-contractor of any tier” (clause 3(c)), or “other consultant” (clause 3(d)).

  6. A broader meaning for “subcontractor” would render irrelevant the constraint in clause 3 which conditions coverage to other persons on a “contract or assumption of responsibility” by a person already insured. While the presumption against surplusage is not an unbending rule, the Court will strain against interpreting a contract in a way which renders clauses nugatory: Chapmans Ltd v Australian Stock Exchange Ltd (1996) 67 FCR 402 at 411 (Lockhart and Hill JJ). I accept that there are infelicities in parts of the Policy language which have led to overlapping categories. However, the construction advanced by the plaintiff does not merely suggest the draftsperson has been overinclusive, and instead gives clause 3 no real work to do, at least concerning sub-subcontractors. There is no issue that an insured may have a few different routes to be able to establish an entitlement to indemnity. That is not the same for a person to have an easier route to that entitlement in circumstances where other aspects of the Policy clearly indicate that such an entitlement is predicated on a higher threshold. I therefore consider it unlikely that the parties intended the definition of “Insured” to operate that way.

  1. Based on this construction, sub-subcontractors are still covered by the Policy, but only if they satisfy the requirements in clause 3(c) (or fall within some other provision).

  2. It is therefore not necessary to determine whether Mr Murphy made an admission in post contractual conduct that Mie Force was not a subcontractor by Rhino not including Mie Force as a subcontractor in a Subcontractor’s Statement provided to Rohrig.

Was Mie Force a “subcontractor” of Rhino?

  1. Even if I am wrong, and “subcontractor” ought to be given a broader meaning, then I am not persuaded on the evidence that Mie Force was the “subcontractor” of Rhino and therefore a sub-subcontractor of Rohrig.

  2. There is no evidence that the contract between Rhino and Mie Force included an agreement by Mie Force to carry out certain parts of the work that Rhino had contracted with Rohrig to do. Instead, on Mr Murphy’s evidence, Mie Force provided labour to Rhino, and Mr Murphy, as controller of Rhino and Mie Force, gave those persons directions and instructions on site day to day. Therefore, it cannot be said that Rhino handed over responsibility of those parts of the works to Mie Force.

Was Mie Force an “agent” of Rhino?

  1. Alternatively, Mie Force submitted that it is a “Named Insured” because it was the “agent” of Rhino, who was a sub-contractor. Senior Counsel for Allianz conceded during oral submissions that, if Mie Force was properly described as Rhino’s agent, then it would fall within the definition of “Named Insured”, but he submitted that neither the proper construction nor the facts would lead to that conclusion.

  2. “Agent” is not defined in the Policy, and it is therefore a question of construction as to what was intended by the extension of cover to persons falling within that definition. The parties accepted that the word “agent” can be used in different ways. As Lord Herschell said “[n]o word is more commonly and constantly abused than the word 'agent'”: Kennedy v De Trafford [1897] AC 180 at 188.

  3. The parties diverged on whether the word “agent” used in the Policy means an “agent” as understood:

  1. in its stricter legal meaning of a person who can legally bind a principal; or

  2. in a more colloquial meaning, for example as described by P Watts, W Bowstead and F M B Reynolds, Bowstead and Reynolds on Agency (22nd ed, 2021, Sweet & Maxwell): “the term is often used of any form of intermediary, or of persons who simply perform functions for others.”

  1. Allianz submitted that “agent” ought to be given its ordinary legal meaning and that would require Mie Force to have been empowered to create legal relations that bound Rhino, citing traditional definitions given of the legal concept of “agent”, for example, International Harvester Co of Australia Pty Ltd v Carrigan’s Hazeldene Pastoral Co (1958) 100 CLR 644 at 652-653 (Dixon CJ, McTiernan, Williams, Fullagar and Taylor JJ). This is arguably consistent with the use throughout the Policy of the phrase “on behalf of”, which is generally considered to import the full legal concept of agency: see, eg, Plevin v Paragon Personal Finance [2014] 1 WLR 4234 at [32] (Lord Sumption JSC), cited in Malamit Pty Ltd v WFI Insurance Ltd [2016] NSWSC 1306 at [55] (Sackar J) (appeal dismissed).

  2. However, when asked how such a construction would operate practically, the following submission was made:

The way it works is that in the event that one of these nominated persons or companies or categories is operating via the agency of another entity in the strict sense, then they are brought within it. Because otherwise, you would have a situation where the evident intent of the parties to extend para 1 to a subcontractor, if it's effectively operating via the agency of another, might be defeated. But to read into it, it's bearing in mind the Protean nature of the word "agent", it's probably easier to identify what it doesn't, or on a proper construction, can't mean here.

Without identifying the leaps and bounds of it, it can't mean, with the greatest respect, any entity who is authorised to carry out a task on behalf of any of the nominated entities within para 1.

  1. Allianz also submitted a legal meaning was required because the parties’ intention was to contain the number of persons who would be insured rather than covering, as it was submitted, “all of the people who are basically doing any work on the site”. It was also submitted that such a construction was consistent with the commercial desire of the parties to have a higher degree of certainty as to the scope of the insuring clause: Certain Underwriters at Lloyd’s of London v Dural 24/7 Pty Ltd [2022] FCA 206 at [48] and [53] (Jagot J).

  2. However, Allianz’s oral submissions mostly focussed on demonstrating that, even if Mie Force’s construction was adopted, it would not succeed as a matter of fact.

  3. Had it been necessary to decide, I would have preferred the construction of Mie Force for the following reasons.

  4. First, the statement by Northrop, French and O’Loughlin JJ in Comalco Aluminium Ltd v Garraway Metals Pty Ltd (Full Federal Court of Australia, 8 December 1993, unreported), relied upon by the plaintiff, is useful:

There is no doubt that in ordinary language the word “agent” is used in many different ways. Unless this is understood, the word “agent”, erroneously, can be given its legal meaning of describing the relationship which exists where one person has an authority or capacity to create legal relations between a person occupying the position of principal and third parties when in fact the word is to be given a different meaning….

…

A person may be spoken of as an ‘agent’ and no doubt in the popular sense of the word may properly be said to be an ‘agent’, although when it is attempted to suggest that he is an ‘agent’ under such circumstances as create the legal obligations attaching to agency that use of the word is only misleading”: Kennedy v De Trafford (1897) AC 180 at p188.

At para 702 of Halsbury, the authors illustrate other uses of the word “agent” as follows:

… The word “agent” is also frequently used to describe the position of a person who is employed by another to perform duties often of a technical or professional nature which he discharges as that other’s alter ego and not merely as an intermediary between the principal and third party.

  1. In Comalco, the Court accepted that “agent” in the particular agreement was intended to bear the meaning explained in the quote from Halsbury’s above, and that “Comalco requires Garraway to perform services on its behalf as if it was Comalco”. I consider that such a construction is appropriate in this Policy.

  2. Secondly, it was open to the insurer to employ a definition of agent reflecting its legal meaning similar to the insurer’s use of the definition of “employee”, but it had not chosen to do so.

  3. Thirdly, “agents” appears to be directing attention to those persons who are carrying out the “Insured Operations”, which is the construction work, as either employees or “agents”. This supports the meaning of “agents” in the sense of an “alter ego” of the principal, as in Comalco. The definition of “Insured Operations” contemplates that such activities may be undertaken “on behalf of the Named Insured”. The activities described include “paving, vegetation, landscaping, roads, drainage” and a variety of other construction tasks. Again, nothing in those tasks requires the person undertaking the work to be authorised to bind the principal in other legal relations. The practical meaning of “agent” under the Policy is, in my view, the more businesslike construction, where the focus is on what was sufficient to achieve the task at hand.

  4. “Agents” is placed next to “employees” and its meaning is coloured by that grouping with “employees”. Employees do not generally have any capacity to effect legal relations with third parties. That does not, in itself, mean that both employees and agents are used in the sense that neither have capacity to effect legal relations. However, absent any words which suggest that “agents” is specifically used to extend the concept beyond an employee’s usual limitations vis-à-vis third parties, this is another factor favouring the plaintiff’s construction.

  5. In circumstances where subcontractors have already been listed in the definition of “Named Insured”, it is difficult to see how an “agent” in the legal sense could be involved in the construction work, for which insurance might be required.

  6. However, even adopting Mie Force’s construction, I do not consider it factually was Rhino’s “agent”. Mie Force was not the “alter ego” of Rhino. Rhino attended the site through Mr Murphy, who directed Mie Force’s employees to carry out work in his capacity as a controller of Rhino and Mie Force. Therefore, Mie Force was not doing Rhino’s work on its behalf. Further, there was no evidence that Rhino ever disclosed to Rohrig or others that Mie Force was its agent or sub-contractor. Finally, Mie Force was not authorised to perform Rhino’s contractual obligations; instead, Mie Force, along with another entity, was contracted to provide labour and then Rhino used that labour force to carry out its own obligations.

  7. Therefore, I do not accept that Mie Force was a “Named Insured” within the meaning of the Policy.

Clause 2 – Was Mie Force “under the control of” Rhino and was Rhino “exercising active management over Mie Force?

  1. Mie Force submitted that another alternative was that it fell within clause 2 of the definition of “Insured” because it was “under the control of” Rhino and Rhino “was exercising active management” over it.

  2. The submission was that these words ought not be given strict legal meanings, such as found within the “Corporations Law” and instead what was intended by the words was a more practical sense of “informal control” and “management”. Consistent with this submission, Mie Force accepted that it alone was responsible for the “suite of statutory and regulatory obligations” imposed on it as employer and Rhino was not involved in those matters.

  3. In writing, Mie Force also submitted that:

  1. it was “under the control” of Rhino because, while not technically a subsidiary of Rhino, it was part of a “group of related companies where Rhino is the trading entity of the group and Mie Force exists simply to employ workers to be supplied to other companies in the group; and

  2. Rhino was exercising active management over Mie Force because Rhino “performed and had the obligation to perform the work under the contracts which it entered into… and it did so by directing Mie Force in relation to the day to day tasks required”.

  1. I do not accept that the Policy ought to be read in the “informal” way submitted. However, even if “informal” control and management was all that was necessary, I do not consider that Mr Murphy’s selection of and direction on site of Mie Force’s employees amounted to Rhino’s control or active management of Mie Force. Rhino and Mie Force were separate legal entities, albethey with a common sole director (Mr Murphy), that carried out discrete business activities. According to Mr Murphy’s own evidence, Rhino itself had no employees during the relevant period and it is therefore unclear who, other than Mr Murphy, could be exercising any management over Mie Force.

  2. Therefore, I do not consider that Mie Force falls within clause 2.

Clause 3 – Was Rhino obliged to arrange insurance for Mie Force by reason of a “Contract” or “assumption of responsibility”?

  1. I consider that clause 3 provides that, in order to obtain cover for the listed persons, including “subcontractors of any tier”, the following condition must be satisfied for Mie Force to be a subcontractor:

…for whom or for which [Rhino is] obliged to arrange insurance by virtue of a Contract or assumption of responsibility, but only to the extent required by such Contract or assumed responsibility.

  1. Mie Force was required to demonstrate that Rhino had a contractual obligation to insure it, or had assumed such a responsibility, and it was a relevantly defined person as either:

(c) any contractor or sub-contractor of any tier, other than those categories specifically defined elsewhere in this Policy;

(d) any… supplier… for their on site activities only. ….

  1. Mie Force relied upon Rohrig’s terms with Rhino in its Works Period Agreement, which provided expressly at clause 21 that Rhino was obliged to have taken out insurance, including for “workers compensation”, “public liability” and “common law liability to any person employed by [Rhino in connection with the Works]” on “terms acceptable to Rohrig”. It was submitted that this clause demonstrated that Rhino was contractually obliged to Rohrig to take out insurance for Mie Force and it was not relevant to Mie Force’s submission that there was no evidence of Rhino having in fact taken out insurance.

  2. I do not accept that clause 21 satisfies the condition in clause 3 for the following reasons:

  1. I do not consider that clause 21 required Rhino to take out insurance for Mie Force, because it has not been suggested that Mie Force was a “person employed” by Rhino.

  2. Further, other clauses in the Works Period Agreement distinguish between “employee” and “sub-contractor”. Clause 8.1 provided that Rhino “must not …subcontract all or any portion of the Works without the written consent of Rohrig, which [sic] consent may be withheld in Rohrig’s absolute discretion”. Further, clause 20 provides that Rhino was obliged to indemnify Rohrig for any losses caused by Rhino or its “servants, or agents… contractors or subcontractors”. These clauses tell against Rhino’s promise of insurance being intended to cover subcontractors, who were not permitted at the time of formation.

  3. I consider that what was contemplated in clause 3 was that there needed to be a contractual obligation or assumption of responsibility between Rhino and Mie Force. A promise by Rhino to Rohrig does not meet that requirement. The contract between Rhino and Mie Force was informal and oral. Mr Murphy did not give evidence that the parties made any promise or representation about insurance.

  1. It is therefore unnecessary to determine the precise meaning of “obliged to arrange insurance by virtue of … assumption of responsibility”. It may be intended to operate in circumstances falling short of a contract, such as arrangements not bargained for where the insured has represented to a sub-contractor that it will insure or has promised without consideration that it will insure. In Admiral International Pty Ltd v Insurance Australia Ltd [2021] NSWSC 1440, Fagan J dealt with an “insured” definition of a similar kind, which included “organisations and other entities to whom … the named Insured has a responsibility to maintain insurance”. In that case, it was alleged that the insured made a representation to a user of its premises that it would procure insurance for it. The premises were later damaged in a fire. It was not necessary for Fagan J to construe the clause in that case (at [267]). I was not referred to any other authorities on the issue and no detailed submissions were made.

  1. I do not consider it has been factually demonstrated that the requirement in clause 3 was satisfied and Mie Force cannot therefore obtain cover pursuant to that clause.

  2. It is not necessary to consider any other arguments raised by Allianz.

Orders

  1. For the reasons above, I make the following orders:

  1. The Amended Summons is dismissed.

  2. The Plaintiff pay the Defendant’s costs as agreed or assessed.

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Decision last updated: 24 November 2022

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