Nilsen Electric (SA) P/L v Mitsubishi Motors Aust No. Scgrg-98-1640 Judgment No. S105

NILSEN ELECTRIC (SA) PTY LTD v MITSUBISHI MOTORS AUSTRALIA LIMITED
[1999] SASC 105

Full Court: Doyle CJ, Bleby and Martin JJ

DOYLE CJ. In my opinion the appeal should be dismissed. The conclusion reached by the judge of the District Court was correct. I agree in substance with the reasons given by Bleby J for dismissing the appeal. There is nothing that I wish to add to those reasons.
BLEBY J. The appellant (“Nilsen”) was a contractor to Mitsubishi Motors Australia Limited (“MMAL”) pursuant to a contract in writing. The contract was to supply high tension switch gear service work in accordance with a certain specification, and subject to MMAL’s General Contract Conditions Specification No PES-2F (“the conditions”).
Mr March was an employee of Nilsen engaged on work in connection with the performance of the contract. On 3 January 1995 he was injured as a result of the act or neglect of an employee or employees of MMAL. He sued MMAL in the District Court of South Australia for damages. MMAL joined Nilsen as a third party, claiming indemnity pursuant to the conditions in respect of any liability that MMAL might have to Mr March. By consent of all parties, judgment was entered against MMAL in favour of Mr March for $125,000, which sum included interest and costs. The question which the District Court had to determine was Nilsen’s liability (if any) to indemnify MMAL under the conditions of the contract.
The point at issue was a simple one, turning on the proper construction of cl27 of the conditions. A Judge of the District Court decided the point in favour of MMAL, and ordered that Nilsen should indemnify MMAL in respect of the plaintiff’s damages. Nilsen now appeals to this Court against that order.
Clause 27 of the conditions reads as follows:
“INSURANCE
27.1.        Insurance of Persons or Property
(a)    Any Person
The contractor shall be solely liable for and shall insure and indemnify M.M.A.L against any legal liability, loss, claim or proceedings whatsoever arising under statute (other than as provided in the next subclause) or at common law in respect of personal injury to or death of any person or persons whomsoever, arising out of, or in the course of, or caused by the execution of the works unless due to any act or neglect of M.M.A.L Employees or of other persons for whom M.M.A.L is responsible.
(b)    Employees
(i)    The Contractor shall insure or indemnify M.M.A.L against any liability, loss, claim or proceedings whatsoever, whether arising at Common Law or by virtue of any statute relating to Worker’s Compensation or Employer’s Liability, by any person employed by him in or about the execution of the works and shall ensure that every Sub-Contractor shall so be insured or indemnify against any such liability in the case of employees of such Sub-Contractor.
(ii) The Contractor shall provide, and ensure provision by each and every Sub-contractor, copies of current Workcover Registration Certificates prior to the commencement of the Contracted Works and will ensure maintenance of Registration by himself and each and every Sub-contractor for the life of the Contract and/or any period of warranty, adjustments etc. which may subsequently be necessary.
(c)    Any Property
The Contractor shall be liable for and shall indemnify M.M.A.L and shall insure against any legal liability, loss, claim or proceedings in respect of any injury or damage whatsoever, to any property real or personal, in-so-far-as such injury or damage arises out of or in the course of or by reason of the works, provided always that the same is due to any negligence, omission or default of the Contractor, his servants, agents or Sub-contractors.
(d)    Non-liability for Occupied Portion
Should, however, any portion of the works of this Contract be utilised by M.M.A.L or tenant of his or their employees during the progress of the works, the Contractor shall not be liable for any injury to or the death of any person or loss or damage to property which may be occasioned by reason of such utilisation of such portion of the works by any such person or persons, provided always that the same is NOT due to any negligence, act, omission or default by the Contractor, his servants, agents or Sub-contractors.” (Original emphasis.)
The clause is written against the background of a long history of a statutory requirement on an employer to provide, normally by way of compulsory insurance, compensation for injured workers, regardless of fault, where the injuries arise out of or in the course of employment. The scheme in South Australia no longer places such a direct burden on the employer but on the statutory corporation to which the employer is required to pay a levy. However, one way or another, the scheme is financed by the employer.
Sub-clause (a) of cl27.1 requires Nilsen to provide indemnity in respect of an unlimited class of person, but limits the scope of that liability by reference to an act or default of MMAL. Sub-clause (b) also requires Nilsen to provide indemnity. That is in respect of a limited class of person but with unlimited scope.
Mr Hayes QC, counsel for Nilsen, argued that the words “any person or persons whomsoever” in subcl(a) must include employees of the contractor. So construed, the subclause, standing alone, is consistent with business commonsense in that the contractor agrees to provide complete indemnity except in the case of identified fault on the part of MMAL. The effect of the trial judge’s interpretation is to allow subcl(b) to remove that exception in respect of the contractor’s employees. That does not make sound business sense, argued Mr Hayes, because it renders the contractor responsible for breaches of workplace safety over which it may have no control.
There are two difficulties with that argument. On the one hand, it would make equally sound business sense for a contractor to agree, consistent with the general thrust of workers compensation legislation, to be responsible for all liability arising out of injuries to his employees no matter how caused, and in respect of other people, to agree to indemnify MMAL only where there is not fault on the part of MMAL. More importantly, however, it renders nugatory the clear obligation contained in subcl(b) to provide indemnity arising at common law in any circumstances where injury is caused to an employee of the contractor.
Both the subclauses impose on the contractor an obligation to indemnify MMAL. On the facts of this case, no obligation to indemnify arises under subcl(a) because the injury was due to an act or neglect of an MMAL employee or employees. The obligation to indemnify does arise under subcl(b) because the plaintiff was an employee of the contractor. There is nothing anomalous about an obligation to indemnify arising under one provision of a contract but not under another. However, Nilsen argues that the limitation on the scope of the indemnity imposed by subcl(a) should apply also to the indemnity provided by subcl(b), at least in respect of liability at common law.
Although subcl(a) purports to require indemnity to be given in respect of personal injury or death occurring to any person, the clause must be read as a whole. Subclause (a) states the broad proposition in respect of indemnity for liability for personal injury. It contains within itself an exception limiting the scope of that liability. A further exception or qualification appears in subcl(b) in respect of employees of the contractor, in which the subclause itself deals comprehensively with the scope of the indemnity in respect of that class of person. Subclause (c) provides the obligation to indemnify MMAL in respect of loss or damage to property, and that clause itself contains a qualification on the general proposition. Then subcl(d) provides a further qualification on the obligation to indemnify applicable to all previous subclauses. It is not until one gets to the end of the clause that the full picture of qualifications to the broad propositions contained in subcl(a) and subcl(c) can be fully seen. Read in that fashion, it seems reasonably clear that the general proposition contained in subcl(a) is qualified by particular provisions relating both to persons and to scope of liability, depending on the persons being dealt with. It is not surprising that there should be different requirements and limitations in respect of employees of the contractor compared with other persons, given the legislative requirements imposed on employers, including the contractor, to contribute to the statutory scheme under which workers compensation legislation provides compensation for that class of person.
The clause is inelegantly drafted. The words in brackets in subcl(a) “(other than as provided in the next subclause)” are strangely juxtaposed between the qualifying phrases “arising under statute” and “or at common law”. The appellant argues that those words exclude any obligation to indemnify MMAL in respect of liability arising under any statute referred to in subcl(b), leaving the contractor’s indemnity in respect of all common law claims to be subject to the final exclusion based on MMAL’s responsibility. However, as I have pointed out, that construction fails to give any effect to the plain words of subcl(b) which requires the contractor, in respect of injury to its own employees, to provide indemnity to MMAL in respect of any liability it might have arising out of such injury, including at common law. Furthermore, the contract was made in South Australia between companies apparently incorporated in South Australia and was to be performed in South Australia. Not only is the law of the contract South Australian law, but it must be construed against the background of South Australian law to which I have already referred. If the words in brackets in subcl(a) are intended to provide an exclusion only in respect of claims arising under a statute referred to in subcl(b), it may well create an anomaly far worse than that suggested by the appellant - a course to be avoided if at all possible. The South Australian Workers Rehabilitation and Compensation Act 1986 does not impose liability upon MMAL to any employee of a contractor who might suffer injury. There may be statutes which impose independent statutory duties on MMAL in respect of such employees, but such liability would then only arise as a result of some act or neglect of MMAL employees. One would therefore arrive at the anomalous conclusion, in respect of claims by employees of a contractor arising out of fault of MMAL, that if they are brought at common law MMAL would have no right to indemnity, but if they resulted from a breach of some statutory duty by MMAL, indemnity would have to be provided by the contractor. In my opinion the only way to provide any sensible work for the words in brackets in subcl(a) to do is to treat the qualification as relating to claims arising out of injury to employees, which topic is covered exclusively by subcl(b).
If I am wrong in my construction of subcl(a), namely that it applies only to persons other than employees of the contractor, and if subcl(a) also applies to such employees, it merely means that there is a certain degree of overlap between the two clauses whereby indemnity may be required in some circumstances under both clauses. However, it does not give rise to an artificial reading down of the liability imposed by subcl(b) in respect of the employees of contractors.
There can be no dispute that if there is ambiguity in an exclusion clause contained in a commercial contract, it will be construed against the party for whose benefit the clause is designed, who required its insertion in the contract and who seeks to rely on the exclusion: Darlington Futures Limited v Delco Australia Pty Ltd (1986) 161 CLR 500 at 510. That principle would appear to apply equally to the construction of indemnity clauses: Smith v South Wales Switch Gear Co Ltd [1978] 1 WLR 165; Schenker & Co (Aust) Pty Ltd v Maplas Equipment and Services Pty Ltd [1990] VR 834; Valkonen v Jennings Construction Ltd (1995) 184 LSJS 87 at 97. However, when properly construed there is no ambiguity, and the application of the rule does not arise. Ambiguity is not created simply because in certain circumstances (if the injury had not been caused by an employee of MMAL), an obligation to indemnify might, on its face, arise under both clauses.
In my opinion the judgment of the District Court was correct. I would dismiss the appeal.
MARTIN J. I agree that the conclusion reached by the Judge of the District Court was correct. The appeal should be dismissed for the reasons given by Bleby J.

[1999] SASC 105

18 March 1999