Morton v Bechtel (Western Australia) Pty Ltd - [2021] WADC 108

JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA
IN CIVIL

LOCATION:   PERTH
CITATION:   MORTON -v- BECHTEL (WESTERN AUSTRALIA) PTY LTD [2021] WADC 108
CORAM:   FLYNN DCJ
HEARD:   5 AUGUST 2021
DELIVERED          :   5 NOVEMBER 2021
FILE NO/S:   CIV 2236 of 2017
BETWEEN:   WAYNE DAVID MORTON
Plaintiff
AND
BECHTEL (WESTERN AUSTRALIA) PTY LTD
First Defendant
ATCO STRUCTURES & LOGISTICS PTY LTD
Second Defendant
NTC CONTRACTING PTY LTD
Third Party

Catchwords:

Building contracts - Construction and interpretation of contract - Public liability insurance - Subcontractor's obligation to have public liability insurance in name of parties and third parties - Indemnity clause - Obligation on subcontractor to indemnify contractor for negligence of subcontractor

Legislation:

Nil

Result:

Judgment for the first defendant and second defendant against the third party

Representation:

Counsel:

Plaintiff	:	Mr T Lampropoulos SC
First Defendant	:	Mr J R B Ley
Second Defendant	:	Mr J R B Ley
Third Party	:	Ms F A Stanton

Solicitors:

Plaintiff	:	Brand Barristers & Solicitors
First Defendant	:	Greenland Legal Pty Ltd
Second Defendant	:	Greenland Legal Pty Ltd
Third Party	:	Wotton + Kearney Lawyers (Perth)

Case(s) referred to in decision(s):

A Goninan & Co Ltd v Direct Engineering Services Pty Ltd [No 2] [2008] WASCA 112
Black Box Control Pty Ltd v Terravision Pty Ltd [2016] WASCA 219
Erect Safe Scaffolding (Australia) Pty Ltd v Sutton [2008] NSWCA 114
Garnett v Qantas Airways Ltd [2019] WADC 89
Garnett v Qantas Airways Ltd [2021] WASCA 110
GIO General Ltd v Centennial Newstan Pty Ltd [2014] NSWCA 13
GR Engineering Services Ltd v Investment Ltd [2021] WASCA 136
JKC Australia LNG Pty Ltd v CH2M Hill Companies Ltd [No 2] [2020] WASCA 112
Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104
Mustac v Medical Board of Western Australia [2007] WASCA 128
Price v Spoor [2021] HCA 20
QBE Insurance Australia Ltd v Allianz Australia Ltd [2020] FCA 589
Sino Iron Pty Ltd v Mineralogy [2019] WASCA 80; (2019) 55 WAR 89
Tallerman & Co Pty Ltd v Nathan's Merchandise (Victoria) Pty Ltd [1957] HCA 10; (1957) 98 CLR 93
Westina Corporation Pty Ltd v BGC Contracting Pty Ltd [2009] WASCA 213

FLYNN DCJ:

On 19 September 2015, the plaintiff (Mr Morton) was injured while working as a machine operator during the construction of a mining camp in the Pilbara. He was an employee of Onslow Labour Hire Pty Ltd (Onslow). The construction of the camp was the subject of contracts between: Onslow and the third party (NTC); NTC and the second defendant (ATCO) (the ATCO/NTC Contract); ATCO and the first defendant (Bechtel) (the Bechtel/ATCO Contract); and Bechtel and Chevron Australia Pty Ltd.
Mr Morton commenced the present action against ATCO and Bechtel, alleging negligence and breach of a statutory duty (together, Breach of Duty Claims) (Morton v Bechtel/ATCO Action). Bechtel and ATCO joined NTC as a third party (Bechtel/ATCO v NTC Action), seeking, firstly, contribution from NTC as a joint tortfeasor of Bechtel and ATCO (Contribution Claim) and, secondly, damages for breach of the ATCO/NTC Contract (Breach of Contract Claim).
The Morton v Bechtel/ATCO Action settled on agreed terms (Settlement Agreement). The terms of the Settlement Agreement have not been disclosed save that the parties proposed and the court made a consent order for leave to discontinue the Morton v Bechtel/ATCO Action.[1]
[1] ts 2.
The Bechtel/ATCO v NTC Action proceeded to trial on the Breach of Contract Claim. The Contribution Claim was abandoned.[2] The Breach of Contract Claim concerns cl 17 of the ATCO/NTC Contract requiring NTC to arrange a public liability insurance policy in the joint names of Bechtel, ATCO and NTC (the Public Liability Clause).
[2] ts 5 - ts 6.
Bechtel and ATCO contend that:
(a)The Public Liability Clause obliged NTC to arrange an insurance policy to cover liabilities of Bechtel and ATCO that included the Breach of Duty Claims.
(b)The insurance policy arranged by NTC with AIG Australia Ltd (AIG Policy) in purported discharge of NTC's obligation under the Public Liability Clause did not cover the Breach of Duty Claims. The AIG Policy covered the liability of Bechtel and ATCO to the extent that their liability arose from the negligence of NTC.
(c)It follows from (a) and (b) that NTC is in Breach of the Public Liability Clause.
(d)NTC's breach of the Public Liability Clause has resulted in Bechtel and ATCO suffering loss and damage as a result of meeting the costs of defending the Morton v Bechtel/ATCO Action and to the extent of making any payments to Mr Morton under the Settlement Agreement.
NTC responds that:
(a)Properly construed, the Public Liability Clause obliged NTC to arrange an insurance policy to cover the liabilities of Bechtel and ATCO arising only from NTC's negligence. NTC argue that the Public Liability Clause must be construed in light of the obligation upon NTC, in cl 15 of the ATCO/NTC Contract, to indemnify ATCO for claims arising out of the negligence of NTC (the Indemnity Clause).
(b)It follows from (a) that NTC was obliged to arrange a policy that covered the Breach of Duty Claims only insofar as the liability of Bechtel and ATCO arose from NTC's negligence.
(c)If the AIG Policy arranged by NTC had the effect of covering the liability of Bechtel and ATCO on the Breach of Duty Claims only insofar as their liability arose from NTC's negligence, it follows from (a) and (b) that NTC is not in breach of the Public Liability Clause.
The issue in this case is the correct construction of the Public Liability Clause. Bechtel and ATCO contend that the Public Liability Clause requires NTC to arrange insurance to cover the liability of Bechtel and ATCO for the Breach of Duty Claims. NTC contend that, in arranging the AIG Policy to cover the liability of Bechtel and ATCO for NTC's negligence, its obligation under the Public Liability Clause was discharged. For reasons given below, I have concluded that the contention advanced by Bechtel and ATCO with respect to subclause (b) of the Public Liability Clause is correct.

The ATCO/NTC Contract

The evidence in this action was the ATCO/NTC Contract, adduced by Bechtel and ATCO, and the AIG Policy, adduced by NTC. No other evidence was adduced by either party.
The ATCO/NTC Contract comprises written terms identified in a 'formal instrument of agreement'[3] (the Formal Instrument) and five subsequently dated 'addendum' documents.[4]
[3] Exhibit 1, Defendants' Book of Documents filed 27 July 2021 (BOD), pages 640 - 643.
[4] Exhibit 2, BOD, pages 826 - 855.
The Formal Instrument was made on either 28 January 2015 or 3 February 2015.[5] Nothing turns on the difference.
[5] The cover of the Formal Instrument bears the date, '3 February 2015': BOD, page 640. The first page of the Formal Instrument states, 'DATE January 28, 2015': BOD, page 641. No date appears alongside signatures in the execution clause: BOD, page 643.
The inference to be drawn from the content of each addendum is that the ATCO/NTC Contract was varied with effect from each date of the addendum cover letter in accordance with the terms of the enclosures to the addendum cover letter.[6] The fifth (and final) variation of the contract was done by an addendum under cover of a letter dated 29 April 2015. Except where the context indicates otherwise, references below to the terms of the ATCO/NTC Contract will be a reference to the terms of the contract after 29 April 2015.
[6] Tallerman & Co Pty Ltd v Nathan's Merchandise (Victoria) Pty Ltd [1957] HCA 10; (1957) 98 CLR 93, 144.
The Formal Instrument identifies ATCO as the 'Main Contractor' and NTC as the 'Subcontractor'. Clause 1 provides that the terms of the contract are to be found in the Formal Instrument and another document, described as 'the AS 4901 Subcontract Agreement'. That draws upon a publication of Standards Australia known as 'AS 4901'.[7] Clauses 2 and 3 provide that, in accordance with the contract, NTC is to provide 'services' and ATCO is to pay NTC. Clause 4 makes provision for the case if NTC is a trustee and cl 5 contains general provisions including an 'entire agreement' clause. The main purpose served by the Formal Instrument is the incorporation of terms found in the AS 4901 Subcontract Agreement.
[7] See J Pilley and H Coombes, Standard Conditions of Contract (2000) 16 Building and Construction Law Journal 412.
The AS 4901 Subcontract Agreement is a document entitled, 'Subcontract Agreement between [ATCO] and [NTC] ‑ Bulk Earthworks and Civil Infrastructure Works ‑ Project: Wheatstone LNG ‑ CV Expansion Project'.[8] I will refer to the document as 'the Subcontract'. The Subcontract contains 57 numbered clauses and 15 annexures identified by letters 'A' to 'N'. Future references to a 'clause' or an 'annexure' is a reference to a clause or an annexure of the Subcontract unless the context indicates otherwise.
[8] Exhibit 1, BOD, pages 644 - 825.
By cl 2, NTC must 'carry out and complete WUS' and ATCO must pay NTC the 'lump sum' specified in Annexure N. The reference to 'WUS' is a reference to an acronym ('work under the subcontract') defined in cl 1 to mean the work that NTC 'is or may be required to carry out and complete under the Subcontract in accordance with ATCO's requirements set out in annexures'.[9] NTC must satisfy the obligations of ATCO with respect to the WUS (cl 24.4). The lump sum is paid progressively in accordance with a mechanism contained in cl 37.
[9] Clause 1, BOD, page 653, on 'WUS' and page 650, BOD on 'Main Contractor's Requirements'.
The WUS to be performed by NTC is identified in annexures concerning: the scope of the subcontract works (Annexure B); construction program (Annexure C); project drawings (Annexure D); and a schedule of fees (Annexure N) comprising 'schedules of quantities' of services and materials to be supplied by NTC to ATCO.[10] Annexure B reveals the scope of works to include: clearing of a site; bulk and detailed earthworks on the site; supplying and installing systems for stormwater management, sewerage, water reticulation and power. NTC must conform 'with Bechtel site requirements'[11] and is subject to certain human resources policies of ATCO and Bechtel.[12]
[10] Provision is made for variation: see cl 36.
[11] Annexure B, BOD, page 712.
[12] Annexure E, BOD, page 717.
Clauses 12 to 19 of the Subcontract are concerned with the rights and obligations of the parties arising from the risk of damage to property or liability for injury.
Clause 12 is entitled, 'Protection of people and property'. NTC must 'take measures necessary to protect people and property'. If NTC 'damages property' (of any person), NTC must 'rectify the damage and pay any compensation' which is required by law. In default of NTC performing its obligations under cl 12, ATCO may, at NTC's cost, have the obligation performed by a third party.
Clause 13 is entitled, 'Urgent protection'.ATCO may take action that is necessary to urgently protect 'WUS, other property or people' if NTC fails to take the action.
Clause 14 is entitled, 'Care of the work and re-instatement of damage'. NTC is responsible for the care of the whole of WUS, save for 'excepted risks' defined by cl 14.3. By cl 14.3, ATCO (and not NTC) is liable for 'excepted risks' being loss or damage from a list that includes: the negligence of Bechtel and ATCO; risks specifically excepted elsewhere in the Subcontract; and the use of any part of the WUS by Bechtel or ATCO. By cl 14.2, NTC must meet the costs of rectifying any damage to WUS including damage arising from excepted risks, although the latter are to be treated as a variation for which NTC will be compensated.
Clause 14, detailed above, is concerned with allocating risk associated with damage to WUS. Clause 15, detailed below, is concerned with allocating risk associated with: 'damage to property other than WUS'; claims in respect of personal injury; and pure economic loss.
Clause 15 is entitled, 'Damage to persons and property other than WUS'. The whole clause is set out below. In summary, by cl 15.1 NTC indemnifies ATCO against claims, including claims in respect of personal injury, 'arising out of a direct negligent act or omission caused by NTC in the carrying out of WUS'. The emphasised words were a result of the Subcontract being varied by 'Addendum No 4' dated 14 April 2015 as indicated below.[13] The indemnity does not apply to matters identified in cl 15.2 including damage which is the unavoidable result of the Subcontract Works. By cl 15.3, ATCO indemnifies NTC against that 'unavoidable' damage.
[13] Exhibit 2, BOD, pages 846 - 850.
15Damage to persons and property other than WUS
15.1Indemnity by Subcontractor
Insofar as this subclause applies to property, it applies to property other than WUS. The Subcontractor shall be liable for and shall indemnify and shall keep indemnified the Main Contractor and its respective employees and agents against any damage, liability, costs (including reasonable legal fees), demands, actions, suits, proceedings and expenses arising from:
(a)loss of damage to the Principal's or the Main Contractor's property including existing property in or upon which WUS is being carried out;
(b)claims in respect of personal injury or death or loss of, or damage to, any other property, and
(c)pure economic loss
arising out of ~~or in connection with or as a consequence of~~ a direct negligent act or omission caused by the Subcontractor in the carrying out of WUS~~, howsoever caused~~.
This indemnity extends to include any claims by the agents, employees, secondary subcontractors or subconsultants of the Subcontractor and third parties.
Any loss or damage which is or may be incurred by the Main Contractor under this clause will be an amount due from the Subcontractor to the Main Contractor under this Subcontract.
This subclause shall not apply to:
(a)the extent that the Subcontractor's liability is limited by another provision of the Subcontract;
(b)exclude any other right of the Principal or the Main Contractor to be indemnified by the Subcontractor;
(c)things for the care of which the Subcontractor is responsible under subclause 14.1;
(d)damage which is the unavoidable result of the construction of the Subcontract Works in accordance with the Subcontract; and
(e)claims in respect of the Main Contractor's right to have WUS carried out.
15.2Indemnity by Main Contractor
The Main Contractor shall indemnify the Subcontractor in respect of damage referred to in paragraph (d) of subclause 15.1 and claims referred to in paragraph (e) of subclause 15.1.
Clause 16A is entitled, 'Subcontractors General Insurance Obligations'. Insurances held by NTC must be 'on the terms and include the obligations and indemnities of' NTC 'under' the subcontract. NTC must pursue a claim under NTC's insurance to the full extent of NTC's liability before making any claim under the insurance policy of another party.
Clause 16 is entitled, 'Insurance'. ATCO must ensure that there is in force an insurance policy as required by the Bechtel/ATCO Contract for 'work under contract' and, upon request, provide a copy to NTC. NTC must ensure that 'there is in force all insurance required to be effected by NTC by the Subcontract' and, upon request, provide a copy to ATCO. By cl 19.5 (settlement of claims), NTC does not become entitled to any insurance moneys until it completes any reinstatement to which the insurance relates.
Clause 17 is entitled, 'Public Liability Insurance'. The whole clause is set out below. It will be noted that the clause comprises two numbered alternatives. By item 26(a) in Annexure A, the parties stated that 'alternative 2 applies' in preference to (the default) alternative 1.[14] In summary, NTC must 'effect and maintain a public liability policy' in 'the joint names of Bechtel, ATCO and NTC' covering the risks specified in (b), (c) and (d). The cover must be for an amount 'per occurrence' of not less than the sum specified in item 26(b) in Annexure A. By item 26(b) in Annexure A, the default amount of the 'subcontract sum' of $13,166,026 applies.[15] The insurer and the terms must be approved by ATCO.
[14] Exhibit 1, BOD, page 704 (Item 26(a) Annexure A).
[15] Exhibit 1, BOD, page 704 (Item 26(b) Annexure A), page 726 (Annexure N, Lump Sum Price).
17Public liability insurance
The Alternative in Item 26(a) applies.
Alternative 1: Main Contractor to insure
Before the date of acceptance of tender, the Main Contractor shall ensure that there is in force in relation to WUS, a public liability policy in the terms of the policy or proposed policy included in the documents on which the Subcontractor tendered or, if not so included, a copy of which was provided to the Subcontractor following receipt by the Main Contractor of a written request from the Subcontractor for a copy of the policy. The policy or proposed policy shall nominate or state the name of the insurer. The Main Contractor shall ensure that the policy is maintained while ever the Subcontractor has an interest in WUS and that all premiums are paid thereon.
Alternative 2: Subcontractor to insure
Before commencing WUS, the Subcontractor shall effect and maintain for the duration of the Subcontract, a public liability policy.
The policy shall:
(a)be in the joint names of the Principal, the Main Contractor and the Subcontractor;
(b)cover the:
(i)respective rights and interests; and
(ii)liabilities to third parties;
of the parties, the Principal, the Subcontract Superintendent and secondary subcontractors from time to time, whenever engaged in WUS;
(c)cover the parties' respective liability to each other for loss or damage to property (other than property required to be insured by clause 16) and the death of or injury to any person (other than liability which the law requires to be covered under a workers compensation insurance policy);
(d)be endorsed to cover the use of any construction plant not covered under a comprehensive or third party motor vehicle insurance policy;
(e)provide insurance cover for an amount in respect of any one occurrence of not less than the sum in Item 26(b); and
(f)be with an insurer and otherwise in terms both approved in writing by the Main Contractor (which approvals shall not be unreasonably withheld).
Clause 18 is entitled, 'Insurance of employees'. NTC must insure against liability for death or injury of persons employed by NTC, including liability by statute and at common law. To the extent permitted by law, the insurance must indemnify ATCO for any statutory liability to NTC employees. NTC must ensure its subcontractors have similarly insured their employees.
Clauses 19.1 and 19.2 are respectively entitled, 'Proof of insurance' and 'Failure to produce proof of insurance'. If a party fails to provide evidence of insurance required to be affected by the Subcontract, the other party may insure and recover the cost.
Clauses 19.3 and 19.4 are respectively entitled, 'Notices from or to insurer' and 'Notices of potential claims'. NTC must ensure that the insurance policy arranged by it in accordance with the Public Liability Clause contains terms that provide for ATCO and NTC to be given notices by the insurer and that notice of a claim may be made by either ATCO or NTC. ATCO and NTC must inform the other of anything arising out of the WUS that may give rise to a claim under any insurance policy required by cl 16 or cl 17.
Clause 19.6 is entitled, 'Cross liability'. Any insurance required to be in joint names is to include a 'cross liability clause' such that the insurer waives all rights of action against each of the insured.

By cl 34.1, NTC must ensure that 'the Subcontract Works' are completed by the date for practical completion specified in Annexure A. If the works are not completed, NTC is liable to ATCO for liquidated damages (cl 34.7) and, subject to a cap, indemnifies ATCO against ATCO's liability to Bechtel if the Bechtel/ATCO Contract does not reach practical completion (cl 34.7A).
A Subcontract Superintendent, appointed to that position by ATCO, performs the functions identified in various clauses of the Subcontract,[16] including: receipt of documentation and notifications from NTC;[17] giving a binding interpretation of ambiguous documentation relevant to WUS;[18] (reasonable) approval of a secondary subcontractor (ie a subcontractor to NTC);[19] monitoring the quality of work of NTC;[20] directing the suspension of work by NTC where necessary, inter alia, for the safety of any person;[21] extending time;[22] and certifying matters relevant to default.[23]
[16] Clause 20.
[17] Clause 6A, cl 8.3 and cl 8.4, cl 22 and cl 37.
[18] Clause 8.1.
[19] Clause 9.2.
[20] Clause 29.
[21] Clause 33.
[22] Clause 34.
[23] Clause 39.
With the written approval of the Subcontract Superintendent, NTC may subcontract work to a proposed secondary subcontractor (cl 9.2). However, neither party may assign their interests under the Subcontract, save that ATCO's interests under the ATCO/NTC Contract may be assigned to Bechtel in the event that the Bechtel/ATCO Contract is terminated (cl 9.1).
The Subcontract contains terms that facilitate NTC undertaking the WUS. The parties must attend a pre-start meeting for purposes that include NTC satisfying ATCO 'of the payment of insurances' (cl 6A). Mention is made of Bechtel or the Bechtel/ATCO Contract. For example, provision is made for site access by NTC as well as ATCO and Bechtel (cl 24.2). Provision is made for the programming of work, including an obligation on ATCO and NTC to 'co-ordinate WUS with work under the' Bechtel/ATCO Contract (cl 32).
The parties have rights and obligations concerning the quality of the WUS. The Subcontract includes terms on errors by NTC (cl 26.2), cleaning up by NTC (cl 27), quality of material and work of NTC, including warranties (cl 29), testing (cl 30) and defects liability (cl 35).
The parties have rights and obligations where one party is alleged to be in default (cl 39) or one party becomes insolvent (cl 39.11) or a dispute arises (cl 42) or in circumstances of force majeure (cl 53). ATCO may, by notice, terminate the Subcontract Works at any time (cl 40).
The penultimate clause of the Subcontract contains an acknowledgement by NTC of two matters. First, that the rights of Bechtel and Chevron under the Bechtel/ATCO Contract are secured by the Subcontract (cl 56(a)). Secondly, that NTC will fulfil ATCO's duties and obligations under the Bechtel/ATCO Contract insofar as those duties relate to WUS (cl 56(b)).

Submission of NTC

NTC submits that cl 17(b) of the Public Liability Clause, creating an obligation upon NTC to insure the 'respective rights and interests' and 'liabilities to third parties' of ATCO, NTC and Bechtel, cast an obligation upon NTC to insure the 'rights, interests and liabilities of ATCO and NTC pursuant to the Subcontract'.[24] The Indemnity Clause limited the liability of NTC pursuant to the Subcontract to claims upon ATCO arising out of NTC's direct negligent act or omission in carrying out of WUS. On this view, there was no obligation upon NTC to insure ATCO or Bechtel for claims other than claims arising from the direct negligent act or omission of NTC; there was no obligation to insure ATCO or Bechtel against the risk inherent in the Breach of Duty Claims. This interpretation is said to be supported by the presence of the qualifying words at the end of cl 17(b) limiting insurance coverage to occasions 'whenever engaged in WUS'.[25]
[24] Third Party Submissions (TPS) par 11, filed 30 July 2021.
[25] TPS par 12.
NTC submits that cl 17(c) of the Public Liability Clause, creating an obligation upon NTC to insure ATCO and NTC's 'respective liability to each other for the injury to any person', cast an obligation upon NTC to insure the liability of NTC to ATCO as defined by the Subcontract.
The Indemnity Clause, limiting the liability of NTC to ATCO to an indemnity for claims arising from the direct negligent act or omission of NTC, was also said to define the extent of the obligation upon NTC found in the Public Liability Clause.[26]
[26] TPS par 13.
NTC argued that any contrary interpretation of cl 17(b) or cl 17(c) would result in NTC having an obligation to insure against a risk 'of matters beyond its control, and such a reading would run counter to the evident purpose of the variation of the Indemnity Clause made by Addendum No 4' on 14 April 2015.[27] The purpose was said to be evident from the change in text by which NTC's indemnity for 'claims arising out of carrying out of WUS' was removed and replaced with an indemnity for claims arising out of a direct negligent act or omission caused by NTC in carrying out of WUS.
[27] TPS par 14.
In support of its submissions, NTC rely upon the reasoning in three cases.[28]
[28] Garnett v Qantas Airways Ltd [2019] WADC 89 [163] - [170] and Garnett v Qantas Airways Ltd [2021] WASCA 110 (Garnett); Westina Corporation Pty Ltd v BGC Contracting Pty Ltd [2009] WASCA 213 [72] - [83] (Westina); and Erect Safe Scaffolding (Australia) Pty Ltd v Sutton [2008] NSWCA 114 [167] (Erect Safe Scaffolding).

Submission of Bechtel and ATCO

Bechtel and ATCO contend that the 'natural and ordinary meaning' of the Public Liability Clause required NTC to effect a public liability policy covering the liabilities to third parties of ATCO, NTC and Bechtel, whenever engaged in WUS and the failure of NTC to effect a policy to cover the risk inherent in the Breach of Duty Claims was a breach of this obligation.[29]
[29] Defendants' Outline of Further Submissions (DOFS) pars 12 and 27, dated 4 August 2021; ts 66.
Bechtel and ATCO note NTC's submission that the Indemnity Clause informs the content of the Public Liability Clause with the consequence that the obligation in the latter clause is discharged by NTC arranging insurance limited to the direct negligence of NTC.[30] Bechtel and ATCO observe that NTC's obligation to ATCO alone found in the Indemnity Clause cannot be co-extensive with NTC's obligation in the Public Liability Clause to ATCO and other entities: Bechtel, the Subcontract Superintendent and secondary subcontractors (of NTC).
[30] DOFS par 24.
The authorities relied upon by NTC are distinguished (primary judgment in Garnett, Westinaand Erect Safe Scaffolding) or said to be inconsistent with the later case of GIO General Ltd v Centennial Newstan Pty Ltd[31] (primary judgment in Garnett and Erect Safe Scaffolding).
[31] GIO General Ltd v Centennial Newstan Pty Ltd [2014] NSWCA 13 (GIO General).

Analysis

The principles to be applied in the construction of written contracts are well established. Those principles have been summarised in decisions of the Court of Appeal[32] and the High Court.[33] It is sufficient, for present purposes, to quote a recent summary from GR Engineering Services Ltd v Investment Ltd[34] [96] (Quinlan CJ & Beech JA):
(1)The construction of a contract involves a determination of the meaning of the words of the contract by reference to its text, context and purpose. The starting point for the proper construction of a clause is the language used in the clause. In particular, one starts by identifying the possible meanings that the words chosen by the parties can bear.
(2)Ascertaining the meaning of terms in an instrument requires a determination of what a reasonable person would have understood those terms to mean. That inquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract, and the commercial purpose or objects to be secured by the contract. The instrument must be read as a whole.
(3)The general principle applicable to the construction of commercial contracts is that they should be given a businesslike interpretation. Absent a contrary intention, the court approaches such contracts on the basis that the parties intended to produce a result which makes commercial sense. This requires that the construction placed on the term or terms in question is consistent with the commercial object of the agreement. However, it must also be borne in mind that business commonsense may be a topic on which minds may differ.
[32] For example: Black Box Control Pty Ltd v Terravision Pty Ltd [2016] WASCA 219 [42] (Newnes & Murphy JJA & Beech J); Sino Iron Pty Ltd v Mineralogy [2019] WASCA 80; (2019) 55 WAR 89 [295] ‑ [298]; JKC Australia LNG Pty Ltd v CH2M Hill Companies Ltd [No 2] [2020] WASCA 112 [67] (Buss P & Vaughan JA).
[33] See the cases cited in Price v Spoor [2021] HCA 20 [42] footnotes 47, 48 (Gageler & Gordon JJ) including Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd [2015] HCA 37; (2015) 256 CLR 104 [46] ‑ [51], [59] (French CJ, Nettle & Gordon JJ).
[34] GR Engineering Services Ltd v Investment Ltd [2021] WASCA 136.
The Public Liability Clause casts an obligation upon NTC to put in place a 'public liability policy' before commencing WUS. Clause 1 of the Subcontract states that 'public liability policy has the meaning in clause 17' ie the Public Liability Clause itself. As a result, the public liability policy effected by NTC must comply with the six requirements found in subclauses (a) to (f). NTC produce and rely upon the AIG Policy in discharge of this obligation.
Subclause (a) provides that the 'joint names' of the policy must be Bechtel, ATCO and NTC. NTC is in breach of this provision of the Subcontract because the 'named insured' in the AIG Policy is NTC alone.[35] However, Bechtel and ATCO have suffered no loss unless the Public Liability Clause obliges NTC to cover Bechtel and ATCO's liability for claims that would include the Breach of Duty Claims.
[35] Exhibit 3, 'Policy Schedule' BOD, page 856.
Subclauses (b) and (c) identify the relevant liabilities to be insured by NTC ie what the policy must 'cover'.
The obligation created by subclause (b) of the Public Liability Clause, literally, is that NTC must effect and maintain a public liability policy to cover the liabilities to third parties of ATCO, NTC, Bechtel, the Subcontract Superintendent and secondary subcontractors, whenever engaged in WUS.
The sole qualification to the obligation to cover liabilities to third parties is that the cover apply 'whenever engaged in WUS'.
The ordinary meaning of the words 'whenever engaged in WUS' are unambiguous. The definition of WUS is found in cl 1: 'work which NTC is or may be required to carry out under the Subcontract'. NTC engages in WUS when carrying out work under the subcontract.[36] The ATCO/NTC Contract also provides for circumstances in which ATCO, Bechtel, the Subcontract Superintendent and secondary subcontractors may, as a fact, become involved in WUS in circumstances that expose those entities to risk of liability to third parties. By way of example, in the above summary of the ATCO/NTC Contract mention was made of: ATCO being responsible for the overall co-ordination of the WUS; NTC is required to defer to Bechtel's requirements on identified matters; the role of the Subcontract Superintendent; and to provision for secondary subcontractors to perform any of the WUS.
[36] Subject to: (1) Secondary subcontractors appointed by NTC, see cl 9; (2) The 'non-exclusive right clause', see cl 54.
By the ordinary meaning of the words of subclause (b) of the Public Liability Clause, NTC must insure the risk of each of those entities (ATCO, Bechtel etc) against the risk of their liability to a third party whenever, as a fact, the entity is engaged in a function, sanctioned by the subcontract, in connection with the WUS.
A consideration of the Public Liability Clause in the context of provisions of the Subcontract concerned with the allocation of risk suggest that the promise of NTC contained in the Indemnity Clause and the promise of NTC contained in the Public Liability Clause are independent of each other.
There is no express or implicit textual link between subclause (b) of the Public Liability Clause and the Indemnity Clause so as to suggest that the latter informs the content of the former. NTC does not promise, by the Indemnity Clause, to indemnify Bechtel, the Subcontract Superintendent or secondary subcontractors for claims made by third parties arising out of negligence by NTC in carrying out WUS. By way of contrast, NTC does promise, by the Public Liability Clause to effect insurance cover of Bechtel, the Subcontract Superintendent and secondary subcontractors for liabilities to third parties whenever engaged in WUS.
There is a textual link between cl 16A on NTC's 'general insurance obligations' and the Indemnity Clause. Clause 16A(a) provides for insurance by NTC of the 'obligations and indemnities of NTC' under the Subcontract. In context, the 'obligations' and 'indemnities' each may be taken as an implicit is reference to, respectively, the 'obligations' of NTC that include cl 14 by which NTC assumes the risk of damage to WUS and the 'indemnity' granted by NTC to ATCO by cl 15.1.
There is also a textual link between cl 19.6, requiring any insurance required to be effected in joint names to include a cross liability clause as if a separate policy of insurance had been issued to each of them, and the Public Liability Clause. If Bechtel and ATCO had a separate policy of insurance covering liabilities to third parties, each would be insured for the Breach of Duty Claims.
The requirement that NTC insure Bechtel and ATCO for third party liability is not inconsistent with the circumstances addressed by the contract and the purpose of the contract. In broad terms, the purpose of the subcontract is for NTC to perform agreed work (WUS) in exchange for agreed remuneration. More specifically, the subcontract serves the purpose of ATCO discharging its contractual obligations to Bechtel by having NTC perform the WUS. This purpose is evident from the references to Bechtel in the subcontract.
In assessing the context and purpose of the Public Liability Clause, it is open to consider the deleted 'alternative 1' of the Public Liability Clause for the limited purpose of aiding in the construction of the remainder of the clause.[37] By 'alternative 1', ATCO would have ensured a public liability policy on terms known to NTC was in force in relation to WUS. In deliberately choosing 'alternative 2', the circumstances addressed by the parties in the Subcontract may be taken to have included that insurance for the risk of liability to third parties in relation to WUS was to be arranged by NTC, notwithstanding NTC lacked the capacity to control the contribution of ATCO and Bechtel to that risk. The alternatives amount to a 'not uncommon' term by which the parties anticipate that 'one of them will take out a composite policy of insurance indemnifying all the parties who may be involved in' the WUS.[38] In choosing 'alternative 2', the parties agreed that NTC would take out that composite policy of insurance.
[37] A Goninan & Co Ltd v Direct Engineering Services Pty Ltd [No 2][2008] WASCA 112.
[38] The quoted text is from GIO General [118] (Gleeson JA). See also Meagher JA [13].
Subject to authority (discussed below), NTC was required by subclause (b) to effect insurance that covered the liability of ATCO and Bechtel for the Breach of Duty Claims. My assessment of the authorities relied upon by NTC does not result in any different conclusion.
The decision of the Court of Appeal in Westina neither supports nor detracts from NTC's submission that an indemnity clause, supporting an insurance clause, may inform the ambit of the obligation to insure. A contract provided for the supply of a truck with an operator by hire from an owner to a hirer. The contract contained an indemnity clause by which the owner agreed to indemnify the hirer against any injury arising from the hire of the truck and an insurance clause by which insurance was the responsibility of the owner. At issue was the proper construction of the indemnity clause. In the result, it was construed so as not to require the owner to indemnify the hirer for loss caused by negligence of the hirer.[39] The ambit of the insurance clause was not discussed.[40]
[39] Westina [78] Buss JA.
[40] Westina [70] Buss JA.
Two decisions of the New South Wales Court of Appeal have considered the relationship between indemnity and insurance clauses.
Erect Safe Scaffolding concerned indemnity and insurance clauses found in a contract between Australand, a builder, and Erect Safe, a subcontractor supplier of scaffolding services for the purposes of a development. Clause 11 of the contract was entitled, 'Indemnity'. It provided that Erect Safe must indemnify Australand against all damage or liability of any nature 'arising out of the performance of the Subcontract Works and its other obligations under the Subcontract'. Clause 12 of the contract was entitled, 'Insurance, Public Liability'. It provided that Erect Safe must 'effect and maintain insurance in the joint names of Australand and Erect Safe to cover them for their respective rights and interests against liability to third parties'. Mr Sutton, an employee of a subcontractor of Australand, was injured while working on the development. Liability for negligence was apportioned 60% to Erect Safe, 25% to Australand and 15% to Mr Sutton's employer. Erect Safe did not place any insurance in the name of Australand.
With respect to the insurance clause, McClellan CJ (with whom Giles J agreed on this point) considered that 'it would be surprising if the parties intended that Erect Safe obtain insurance for any liability of Australand, even that arising from its own negligence'.[41] Of significance was a finding that the insurance clause was intended to require Erect Safe to obtain insurance to support the indemnity. Unlike the Public Liability Clause, the obligation to insure the 'respective rights and interests' of Australand and Erect Safe was an obligation to insure the rights and interests of the same parties contained in the indemnity clause.[42] Erect Safe Scaffolding is distinguishable on the facts.
[41] Erect Safe Scaffolding [164].
[42] Erect Safe Scaffolding [167].
GIO General concerned indemnity and insurance clauses in a contract between the operator of a coal mine, Centennial, and a subcontractor supplier of labour, Advantage. The indemnity clause provided that Advantage must indemnify Centennial for all claims except to the extent that a claim arises as a result of the negligence of Centennial.[43] The insurance clause was found in an attachment to the contract 'for use by all subcontractors in the execution of any work for Centennial' and provided for the public liability policies of subcontractors to note Centennial as an interested party and to cover the respective liabilities of each of those parties to each other and to third parties'.[44] The same clause provided that Advantage indemnified Centennial for any failure to obtain the required insurances. Mr McDonald, an employee of a third party subcontractor to Advantage, was injured while working on Centennial's coal mine and liability for negligence was apportioned 100% to Centennial. An issue was whether the insurance clause required Advantage to effect insurance cover for the negligence of Centennial.
[43] GIO General [43].
[44] GIO General [55].
Meagher JA (& Hoeben JA) agreed with Gleeson JA that the insurance clause served a purpose independent of supporting the indemnity clause. Each judgment notes that, in two respects, the insurance clause 'goes further than it would need to go if its purpose was only to' support the indemnity.[45] The insurance clause extended to the liabilities of entities of subcontractors of Advantage and was not restricted to liabilities which arise in negligence. The same observation may be made of the Indemnity clause compared to the Public Liability Clause.
[45] GIO General [17] Meagher JA; [132] Gleeson JA.

The indemnity and insurance clauses considered by the primary judge in Garnett were found in a lease between an airport owner (Karratha) and a lessee who operated ground handling services (Skystar) at the Karratha Airport (the Lease). The subject of the lease was office space within the airport comprising 48 square metres. Skystar's operations at the Karratha Airport extended beyond the office and involved supervising disembarking passengers from Qantas flights. Mr Garnett was injured when he fell while disembarking from a Qantas flight. Clause 6 of the Lease was entitled 'Insurance and Indemnities'. By cl 6.1 of the Lease, Skystar indemnified Karratha from all claims resulting from any neglect by Skystar occurring on the leased premises. By cl 6.2 of the Lease, Skystar promised to effect a public liability insurance policy on behalf of Skystar and Karratha for their respective rights and interests.' One issue (of many) determined by the primary judge was whether Skystar breached the insurance clause by failing to effect a public liability insurance policy that indemnified Karratha against claims such as that made by Mr Garnett.
The primary judge in Garnett concluded that Skystar's obligation under the insurance clause (cl 6.2) was in support of 'the limited right of indemnity' found in the indemnity clause (cl 6.1) 'and going no further'.[46] It followed that Skystar was not obliged to insure Karratha other than for loss from negligence of Skystar; Skystar was not obliged to insure Karratha against all claims. Favouring the conclusion of the 'supporting' role performed by the insurance clause, the primary judge noted two matters. First, the insurance and indemnity sub-clauses were adjacent to each other in one clause entitled, 'Insurance and Indemnities'. Secondly, the leased office space accounted for a small area of an airport in which Skystar and Karratha each engaged in operations involving risk to third parties.[47]
[46] Primary judgment in Garnett [169].
[47] Primary judge in Garnett, [170] - [173].
The Court of Appeal in Garnett did not find it necessary to determine whether the insurance clause was to be read as only requiring cover in respect of Skystar's obligation to indemnify Karratha for the 'respective rights and interests of' the parties.[48] It was sufficient to find that Skystar's obligation to insure Karratha did not run beyond the boundaries of the leased office space and Mr Garnett was injured outside that space.[49]
[48] Appeal in Garnett [272] - [273].
[49] Appeal in Garnett [273] - [276].
If the decision of the primary judge in Garnett was a decision on a question of law, judicial comity would result in the same question of law being decided in the same way.[50] However, Garnett concerned the construction of particular text in a particular context. The text is different to the Public Liability Clause. The context, involving an airport lease, is distinguishable from the context of the Public Liability Clause found in a building contract.
[50] Mustac v Medical Board of Western Australia [2007] WASCA 128 [38] (Martin CJ, Wheeler & Buss JA agreeing).
For completeness, I note that my conclusion on the construction of the Public Liability Clause is consistent with the observation of Allsop CJ in QBE Insurance Australia Ltd v Allianz Australia Ltd[51] on the effect of an insurance clause that is in the same terms as the Public Liability Clause.
[51] QBE Insurance Australia Ltd v Allianz Australia Ltd [2020] FCA 589 [17].
The obligation created by subclause (c) of the Public Liability Clause, literally, is that NTC must insure the parties' respective liability to each other for the injury to any person.
Liability of ATCO to NTC (and vice versa) can only arise from an obligation imposed by law. One source of lawful obligations, urged by NTC to be the sole source, is the Subcontract itself. However, in the context of a clause in a building contract concerned with public liability insurance, the parties may be expected to be concerned with the risk of liability from obligations that are also imposed by the common law and by statute. In context, the ordinary meaning of the word 'liability' in subclause (c) requires NTC to arrange insurance to cover ATCO's liability arising from the Subcontract itself and from a liability arising from the common law or statute.
However, the obligation in subclause (c) is qualified. The cover is limited to the liability of the parties to each other.
Subclause (c) requires NTC to arrange insurance to cover ATCO's liability to NTC arising from a breach of duty by ATCO imposed by the Subcontract, the common law or by statute. The Breach of Duty Claims against ATCO do not arise from any liability of ATCO to NTC.
Subclause (c) also requires NTC to arrange insurance to cover NTC's liability to ATCO arising from a breach of duty by NTC imposed by the Subcontract, the common law and by statute. Arguably, the AIG Policy covers this liability of NTC to ATCO.[52] In any event, as ATCO has abandoned the Contribution Claim, NTC has no liability to ATCO other than arising from the Breach of Contract Claim.
[52] DOFS par 6.
Any liability of ATCO for the Breach of Duty Claims does not involve a liability of ATCO to NTC or vice versa. If NTC is in breach of subclause (c), ATCO has failed to establish any loss or damage as a result of that breach.

Conclusion

I have concluded that NTC was required by subclause (b) of the Public Liability Clause to effect insurance that covered the liability to third parties of ATCO and Bechtel for the Breach of Duty Claims. The effect of the AIG Policy is that Bechtel and ATCO, falling within the definition of 'Insured' in the AIG Policy,[53] are indemnified under the policy to the extent that NTC assumes tort liability under the Subcontract.[54] I accept the submission of ATCO and Bechtel, not contested by NTC, that the tort liability of NTC under the Subcontract is limited so as not cover the Breach of Duty Claims.[55] It follows that the AIG Policy does not discharge the obligation upon NTC imposed by subclause (b) of the Public Liability Clause and NTC is in breach of that clause of the Subcontract. I will hear from the parties on the orders necessary to give effect to these reasons.
[53] Exhibit 3, 1.11(f) BOD, page 867.
[54] Exhibit 3, 1.12 BOD, page 867.
[55] DOFS pars 6 - 11.

I certify that the preceding paragraph(s) comprise the reasons for decision of the District Court of Western Australia.
SC
Associate to Judge Flynn
4 NOVEMBER 2021