NTC Contracting Pty Ltd v Morton - [2022] WASCA 160

JURISDICTION     :   SUPREME COURT OF WESTERN AUSTRALIA
TITLE OF COURT :   THE COURT OF APPEAL (WA)
CITATION:   NTC CONTRACTING PTY LTD -v- MORTON [2022] WASCA 160
CORAM:   BUSS P
MURPHY JA
VAUGHAN JA

HEARD:   24 OCTOBER 2022
DELIVERED          :   9 DECEMBER 2022
FILE NO/S:   CACV 111 of 2021
BETWEEN:   NTC CONTRACTING PTY LTD
Appellant
AND
WAYNE DAVID MORTON
First Respondent
BECHTEL (WESTERN AUSTRALIA) PTY LTD
Second Respondent
ATCO STRUCTURES & LOGISTICS PTY LTD
Third Respondent

ON APPEAL FROM:
Jurisdiction              :   DISTRICT COURT OF WESTERN AUSTRALIA
Coram:   FLYNN DCJ
Citation: MORTON -v- BECHTEL (WESTERN AUSTRALIA) PTY LTD [2021] WADC 108
File Number            :   CIV 2236 of 2017

Catchwords:

Contracts - Construction - Building subcontract - Indemnity clause - Insurance clause - Whether scope of indemnity clause confines scope of insurance clause

Legislation:

Nil

Result:

Appeal dismissed

Category: B

Representation:

Counsel:

Appellant	:	F A Stanton
First Respondent	:	No appearance
Second Respondent	:	J R B Ley SC
Third Respondent	:	J R B Ley SC

Solicitors:

Appellant	:	Wotton + Kearney Lawyers (Perth)
First Respondent	:	No appearance
Second Respondent	:	Greenland Legal Pty Ltd
Third Respondent	:	Greenland Legal Pty Ltd

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

A Goninan & Co Ltd v Direct Engineering Services Pty Ltd [No 2] [2008] WASCA 112
Andar Transport Pty Ltd v Brambles Ltd [2004] HCA 28; (2004) 217 CLR 424
Ankar Pty Ltd v National Westminster Finance (Australia) Ltd [1987] HCA 15; (1987) 162 CLR 549
Black Box Control Pty Ltd v TerraVision Pty Ltd [2016] WASCA 219
Cervellone v Besselink Bros Pty Ltd (1984) 55 ACTR 1
CSR Ltd v Adecco (Australia) Pty Ltd [2017] NSWCA 121
Erect Safe Scaffolding (Australia) Pty Ltd v Sutton [2008] NSWCA 114; (2008) 72 NSWLR 1
Federation Insurance Ltd v Wasson [1987] HCA 34; (1987) 163 CLR 303
Garnett v Qantas Airways Ltd [2019] WADC 89
General Accident Fire & Life Assurance Corporation Ltd v Midland Bank Ltd [1940] 2 KB 388
GIO General Limited v Centennial Newstan Pty Ltd [2014] NSWCA 13
Gold Valley Iron Pty Ltd (in liq) v OPS Screening & Crushing Equipment Pty Ltd [2022] WASCA 134
GR Engineering Services Ltd v Investmet Ltd [2021] WASCA 136
National Vulcan Engineering Insurance Group Ltd v Transfield Pty Ltd [2003] NSWCA 327; (2003) 59 NSWLR 119
Steele v Twin City Rigging Pty Ltd (1992) 114 FLR 99
Woodside Petroleum Development Pty Ltd v H & R-E & W Pty Ltd (1999) 20 WAR 380

JUDGMENT OF THE COURT:

Introduction

This appeal arises out of a decision of Flynn DCJ in Morton v Bechtel (Western Australia) Pty Ltd[1] (primary decision).
[1] Morton v Bechtel (Western Australia) Pty Ltd [2021] WADC 108.
In the primary proceedings, the first respondent (Mr Morton) sued in negligence and for breach of statutory duty in relation to an alleged accident involving him allegedly falling into a trench whilst working on site on the construction of a mining camp in the Pilbara.[2] The second respondent (Bechtel) was engaged to construct the camp. Bechtel appointed the third respondent (ATCO) as main contractor. ATCO appointed the appellant (NTC) to perform the earthworks for the camp. Mr Morton was employed by a labour hire company (Onslow), which supplied staff to NTC. Mr Morton brought his claim in negligence and for breach of statutory duty against Bechtel and ATCO. Bechtel and ATCO joined NTC as a third party. Onslow was not a party to the proceedings.
[2] BB 30.
Mr Morton settled his proceedings against ATCO and Bechtel and the action was discontinued.[3] Consequently, the trial only concerned ATCO's and Bechtel's third party claim against NTC.
[3] Primary decision [3].
Relevantly for present purposes, in the third party proceedings Bechtel and ATCO claimed that NTC was in breach of a term of the subcontract between NTC and ATCO for failing to procure for their benefit an insurance policy covering Mr Morton's claims against them.
NTC denied that it had any such liability under the subcontract and contended that the obligation to insure was to be read in the context of, and was limited by, an indemnity clause under which NTC, broadly speaking, assumed a contractual obligation to indemnify ATCO, but limited to claims 'arising out of a direct negligent act or omission caused by NTC' in the carrying out of works under the subcontract. NTC contended that, read in the context of the indemnity clause, its obligation under the insurance provision was to arrange a public liability policy to cover the liabilities of Bechtel and ATCO arising only from NTC's negligence.[4]
[4] Primary decision [6].
For the purposes of the primary proceedings, it was accepted that Mr Morton's claim did not arise out of a direct negligent act or omission caused by NTC within the meaning of the indemnity provision.[5] It was also accepted that if Mr Morton was injured as alleged, the accident occurred when NTC was engaged in the works under the Subcontract.[6]
[5] GB 5 - 6.
[6] Appeal ts 4; see also [63] below.
The learned primary judge accepted the contentions of ATCO and Bechtel in relation to the scope of the insurance clause. The judge concluded that NTC was obliged to procure insurance that covered ATCO's and Bechtel's liability for Mr Morton's claims in negligence and for breach of statutory duty, and that, under the insurance clause, NTC did not merely promise to arrange public liability cover for ATCO and Bechtel only to the extent that they incurred any liability to third parties arising from the negligence of NTC.[7] NTC now appeals that decision.
[7] Primary decision [7].
For the reasons which follow, in our opinion the appeal should be dismissed.

Background

The subcontract was between ATCO and NTC, and comprised a 'formal instrument of agreement' (Formal Instrument) entered into by early February 2015, an attached 'AS4901 Subcontract Agreement' containing 'Subcontract Conditions', and addenda documents subsequently entered into (collectively, the Subcontract). There were five addenda at the time of Mr Morton's accident on 19 September 2015, including an addendum dated 14 April 2015, which introduced a limitation to the scope of the indemnity clause. There was no amendment to the insurance clause.[8]
[8] Primary decision [9], [13]; GB 54 - 181.

NTC took out an insurance policy with AIG. The AIG Policy was in the name of NTC alone, although Bechtel and ATCO came within the definition of 'Insured'.[9] The AIG Policy only indemnified Bechtel and ATCO 'to the extent that NTC assumes tort liability under the Subcontract'. This did not include cover for Mr Morton's claims against Bechtel and ATCO.[10]
[9] Primary decision [46], [76].
[10] Primary decision [76], see also primary decision [5(b)].

The Subcontract

The parties to the Subcontract were ATCO as the 'Main Contractor' and NTC as the 'Subcontractor'.[11]
[11] GB 55.
In the Formal Instrument, the parties recited that (1) ATCO required the provision of the Services, and (2) NTC had agreed to provide the Services on the terms and conditions of the Subcontract.[12]
[12] GB 55.
By cl 1 of the Formal Instrument, any inconsistency was to be resolved in favour of the Formal Instrument, unless otherwise provided by the Subcontract.
Clauses 2 and 3 of the Formal Instrument provided that NTC would provide the Services under the Subcontract, and that ATCO must pay NTC and perform ATCO's obligations under the Subcontract.

Subcontract Agreement

The conditions in the Subcontract also included the following provisions.[13]

Interpretation and construction of the Subcontract

[13] In the text of the Subcontract, in provisions containing defined terms, the defined terms were italicised. For ease of exposition, in the quotation of the provisions which follow, defined terms are not italicised.

Clause 1 was concerned with the interpretation and construction of the Subcontract.
By cl 1 read with Annexure Part A:
1.the 'Main Contractor' was ATCO;
2.the 'Principal' was Bechtel;
3.the 'Subcontractor' was NTC;
4.a 'Secondary Subcontractor' was a subcontractor to NTC; and
5.the 'main contract' was the agreement between Bechtel and ATCO.
Clause 1 also defined 'Subcontract Superintendent' to mean the person stated in Item 5 of Schedule Part A as the Subcontract Superintendent or other person from time to time appointed in writing by ATCO to be the Subcontract Superintendent. It also defined 'Superintendent' to mean the person stated in Item 9 of Annexure Part A as the Superintendent or other person from time to time appointed in writing by Bechtel to be Superintendent under the main contract.
Clause 1 also included the following definitions:
[P]ublic liability policy has the meaning in clause 17;
…
[T]he Subcontract Works means the whole of the work to be carried out and completed in accordance with the Subcontract, including variations provided for by the Subcontract, which by the Subcontract is to be handed over to [ATCO];
…
[W]ork includes the provision of materials;
WUS (from 'work under the Subcontract') means the work which [NTC] is or may be required to carry out and complete under the Subcontract and includes variations, remedial work, construction plant and temporary works and in accordance with [ATCO's] Requirements[.]
Clause 1 also provided that clause headings and subclause headings in the Subcontract Conditions do not form part of those conditions, and were not to be used in the interpretation of the Subcontract.[14]
[14] GB 68.
Under pt B of the Subcontract, the scope of works included the clearing of the site, earthworks, and supplying and installing systems for stormwater management, sewerage, water reticulation and power.[15]

Performance and payment

[15] Primary decision [15]; GB 125.

Clause 2 provided, in effect, that NTC shall carry out and complete the WUS in accordance with the Subcontract and directions authorised by the Subcontract, and ATCO shall pay NTC in accordance with the Subcontract.[16]

Pre-start meeting

[16] GB 68.

Clause 6A provided, relevantly in effect, that NTC, at a pre‑start meeting prior to ATCO and NTC commencing the Works on site, must satisfy ATCO of the payment of insurances (if applicable) and provide documentary evidence in that regard.

Subcontract documents

By cl 8.4, NTC must keep available to the Subcontract Superintendent and ATCO on site, one complete set of documents affecting WUS, and must keep, at the place of manufacture or assembly of any significant part of WUS off site, a set of the documents affecting that part.

Assignment and second subcontracting

Clause 9 concerned requirements in relation to assignment and secondary subcontracting. Clause 9.2 provided that NTC could not subcontract to a secondary subcontractor without the Subcontract Superintendent's prior written consent, which was not to be unreasonably withheld.[17]
[17] GB 73.
Clause 9.5 provided that unless the Subcontract otherwise provides, NTC 'shall be liable to [ATCO] for the acts, defaults and omissions of secondary subcontractors … and employees and agents of secondary subcontractors as if they were those of [NTC]' and that '[a]pproval to subcontract shall not relieve [NTC] from any liability or obligation under [the Subcontract]'.[18]

Care of WUS

[18] GB 74.

Clause 14 concerned NTC's liability for care of WUS. In general terms, by cl 14.1, NTC was responsible for care of WUS from the date of commencement until practical completion, at which time responsibility would pass to ATCO for care of the Subcontract Works. Clause 14.2 in general terms provided that other than caused by an 'excepted risk', NTC must rectify any loss or damage to WUS during the period of NTC's care. Work done to rectify any loss or damage due to an 'excepted risk' would be treated as a variation. Clause 14.3 identified the 'excepted risks' for which ATCO was liable as including any negligent act or omission of the Superintendent, Bechtel, NTC, the Subcontract Superintendent, or ATCO.[19]

Indemnities

[19] GB 76 - 77.

Clause 15.1 required NTC to indemnify ATCO. It provided that insofar as cl 15.1 applied to property, it applied to property other than WUS.[20]
[20] GB 77, 175.
Clause 15.1 continued:[21]
[21] GB 77, 175
[NTC] shall be liable for and shall indemnify and shall keep indemnified [ATCO] 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 or damage to [Bechtel's] or [ATCO'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 a direct negligent act or omission caused by [NTC] in the carrying out of WUS.[22]
This indemnity extends to include any claims by the agents, employees, secondary subcontractors or subconsultants of [NTC] and third parties.
Any loss or damage which is or may be incurred by [ATCO] under this clause will be an amount due from [NTC] to [ATCO] under this Subcontract.
This subclause shall not apply to:
(a)the extent that [NTC's] liability is limited by another provision of the Subcontract;
(b)exclude any other right of [Bechtel] or [ATCO] to be indemnified by [NTC];
(c)things for the care of which [NTC] 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 [ATCO's] right to have WUS carried out. (emphasis added)
[22] Prior to the amendment on 14 April 2015, cl 15.1 was in identical terms, save that the concluding words at the end of the first paragraph, italicised above, were:^{^[22]}
arising out of or in connection with or as a consequence of the carrying out of WUS, howsoever caused. (emphasis added)
Clause 15.2 concerned an indemnity of NTC provided by ATCO. It provided that ATCO must indemnify NTC in respect of damage referred to in 15.1(d) and claims referred to in 15.1(e).[23]

Subcontractor's General Insurance Obligations

[23] GB 77.

Clause 16A provided:[24]
(a)All insurances held by [NTC] must be on the terms and include the obligations and indemnities of [NTC] under this Subcontract.
(b)[NTC] must, where there is a claim on any insurance policy under this Subcontract, pursuant to clauses 16, 17, 18 or otherwise and before there is any entitlement in [NTC] to claim under the insurance of any other party, pursue a claim under [NTC's] insurance for the full extent of the [NTC's] liability.
(c)[NTC] must, where there is a claim on any insurance policy for loss or damage for which it is responsible, in proportion to its responsibility for the cause of that loss or damage, bear the cost of any deductible pursuant to the relevant insurance policy.

Insurance

[24] GB 78.

Clause 16 provided for insurance to be effected by ATCO as required under the Main Contract, prior to acceptance of the tender:[25]
Before the date of acceptance of tender, [ATCO] shall ensure that there is in force a policy of insurance in relation to loss or damage as required by the Main Contract for work under contract (WUC), and a copy of the policy of insurance will be provided to [NTC] following receipt by [ATCO] of a written request by [NTC] for a copy of the policy. The policy or proposed policy shall nominate or state the name of the insurer.
[25] GB 78.
Clause 16 also made provision for insurance to be effected by NTC prior to commencement of work on site:[26]
Before the commencement of work on site, [NTC] shall, ensure there is in force all insurance required to be effected by [NTC] by this [Subcontract] and if requested by [ATCO] provide copies of such policies of insurance. [NTC] shall if required provide the insurance in item 25 [of Attachment Part A].

Public Liability Insurance

[26] GB 78.

Clause 17 provided for two alternative clauses in relation to public liability insurance. Alternative 1 provided for ATCO to procure a public liability policy in relation to WUS:[27]
Alternative 1: Main Contractor to insure
Before the date of acceptance of tender, [ATCO] 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 [NTC] tendered … The policy or proposed policy shall nominate or state the name of the insurer. [ATCO] shall ensure that the policy is maintained while ever [NTC] has an interest in WUS and that all premiums are paid thereon.
[27] GB 78.
Alternative 2 required NTC to procure a public liability policy. Read with Attachment Part A item 26(a), 'Alternative 2' is the operative provision.[28] Clause 17 relevantly provided:[29]
[28] GB 118.
[29] GB 78 - 79.
Alternative 2: Subcontractor to insure
Before commencing WUS, [NTC] shall effect and maintain for the duration of the Subcontract, a public liability policy.
The policy shall:
(a)be in the joint names of [Bechtel], [ATCO] and [NTC];
(b)cover the:
(i)respective rights and interests; and
(ii)liabilities to third parties;
of [ATCO and NTC], [Bechtel], the Subcontract Superintendent and secondary subcontractors from time to time, whenever engaged in WUS;
(c)cover [ATCO's and NTC's] 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) [of Annexure Part A]; and
(f)be with an insurer and otherwise in terms both approved in writing by [ATCO] (which approvals shall not be unreasonably withheld).
Item 26(b) of Annexure Part A, although somewhat unclear, appears to specify the amount as $10 million.[30]

Insurance of Employees

[30] GB 118.

Clause 18 concerned insurance coverage of NTC's employees:[31]
Before commencing WUS, [NTC] shall insure against liability for death of or injury to persons employed by [NTC], including liability by statute and at common law. The insurance cover shall be maintained until completion of all WUS.
Where permitted by law, the insurance policy or policies shall be extended to provide indemnity for [ATCO's] statutory liability to [NTC's] employees.

Inspection and provisions of insurance policies

[31] GB 79.

Clause 19.1 provided that:[32]
Before [NTC] commences WUS and whenever requested in writing by the other party, a party liable to insure shall provide satisfactory evidence of such insurance effected and maintained.
Insurance shall not limit liabilities or obligations under other provisions of the Subcontract.
[32] GB 79.
Clause 19.6 provided that:[33]
Any insurance required to be effected in joint names in accordance with [the Subcontract] shall include a cross liability clause in which the insurer agrees to waive all rights of subrogation or action against any of the persons constituting the insured and for the purpose of which the insurer accepts the term 'insured' as applying to each of the persons constituting the insured as if a separate policy of insurance had been issued to each of them[.]

Site

[33] GB 80.

Clause 24 was concerned with the site.[34] Clause 24.1 provided, in effect, that if NTC complied with cl 19.1 (presumably a reference to evidence of insurance), ATCO would provide NTC with non‑exclusive possession of sufficient of the site for the commencement of WUS on site. Non‑exclusive possession of the site conferred on NTC a right only to such use and control of the site as was necessary to enable NTC to carry out WUS.
[34] GB 81 - 83.

Clause 24.2 provided in effect that Bechtel, ATCO and ATCO's employees, consultants, contractors and agents may, at any reasonable time, have access to any part of the site for any purpose and that NTC shall permit persons engaged by Bechtel or by ATCO to carry out work on the site other than WUS and shall cooperate with them. It also provided that Bechtel, ATCO and ATCO's employees, contractors, consultants and agents may be working at the site 'during the performance of the WUS' and NTC's work or use of facilities may be interfered with as a result of such 'concurrent activities'. ATCO reserved the right to require NTC to schedule the order of performance of the WUS in such a manner as would minimise interference with work of any of the parties involved.
By cl 24.4, NTC must comply with and satisfy all of the obligations of ATCO with respect to the WUS.

Programming

Clause 32 contained provisions including to the effect that NTC must cooperate with ATCO's other subcontractors and with others engaged by ATCO or Bechtel and, subject to ATCO being responsible for the overall coordination of WUS into the work under the main contract, ATCO and NTC shall coordinate WUS with the work under the main contract. The Subcontract Superintendent may direct in what order and at what time the various stages of portions of WUS shall be carried out, and NTC must comply with such directions to the extent that it can reasonably do so.[35]

Variations

[35] GB 89 - 90.

Clause 36 concerned variations. Clause 36.1 provided, in effect, that NTC must not vary WUS, except as directed in writing. Clauses 36.1 ‑ 36.3 included provisions for the Subcontract Superintendent to give directions to NTC to vary WUS, including for the convenience of NTC.

Default or insolvency

Clauses 39 and 40 concerned insolvency, defaults and termination, including for convenience.[36] By cl 39.2(a)(ii), if NTC failed to 'provide evidence of insurance', it had committed a 'substantial breach' entitling ATCO to issue a show cause notice.[37]

Main contract

[36] GB 100 - 104.

[37] GB 100.

Clause 56 provided, in effect, that NTC acknowledged and agreed that (1) all of Bechtel's rights and remedies under the Main Contract were secured by the Subcontract, and (2) it would fulfil all of ATCO's duties and obligations under the Main Contract insofar as such duties and obligations related to, or were concerned with, the Subcontract.[38]
[38] GB 112.

NTC's grounds of appeal and submissions

NTC's grounds of appeal allege numerous errors by the primary judge in relation to the proper construction of cl 17 of the Subcontract. In substance, the grounds read with the submissions alleged that:[39]
1.on the true construction of the Subcontract, the (only) purpose of the insurance clause, cl 17, was to secure or support NTC's indemnity obligations under cl 15.1 of the Subcontract;
2.the judge erred in law by construing the insurance clause, cl 17, as a standalone clause instead of reading it down with reference to the indemnity clause, cl 15, which construction had the effect of depriving of any practical operation the terms of cl 15, which confined NTC's obligation to indemnify;
3.the judge should have found that cl 17, on its proper construction, did not require NTC to procure public liability insurance for ATCO and Bechtel to cover their liabilities to third parties for their own independent negligent acts or omissions; and
4.there was a lack of 'judicial comity' in his Honour's failure to 'follow' an earlier decision of the District Court in Garnett v Qantas Airways Ltd.[40]
[39] Appeal ts 6, 7, 12.
[40] Garnett v Qantas Airways Ltd [2019] WADC 89.
This is not a verbatim summary of the five grounds of appeal as articulated in the appellant's case. However, it captures the gravamen of the real contentions that were advanced in support of the appeal in counsel for NTC's oral submissions. There is, in our view, no need to separately recount or address the various other matters raised in the written grounds of appeal. NTC's grounds took the all too common approach of challenging numerous different strands of the primary judge's approach to the constructional task as if appellable error would be established if it could be shown that in some way the primary judge had infringed one or more constructional or other legal principles as a step along the way to reaching a conclusion as to the proper construction of cl 17. That overlooks that there is only one true construction of any legal instrument. The correctness standard of appellate review applies. To establish material error whereby the appeal ought to be allowed it was necessary for NTC to persuade this court that the construction adopted by the primary judge was wrong and that NTC's preferred construction was the true construction of cl 17 - a matter that NTC's counsel accepted, with respect correctly, in the course of her oral submissions.[41]
[41] Appeal ts 24 - 25.
In support of its preferred construction, NTC contended that the words 'to the extent required by cl 15.1' should be read into par (b) of cl 17, between the word 'cover' and the word 'the'. In context, the words 'required by' in this proposed interpolation meant 'required to secure NTC's indemnity under'. Thus, the submission was to the effect that the opening words and first paragraph of cl 17 were to be read as:[42]
[42] Appeal ts 20 - 21.
Before commencing WUS [NTC] shall effect and maintain for the duration of the Subcontract a public liability policy.
The policy shall:
(a)be in the joint names of [Bechtel], [ATCO] and [NTC];
(b)cover to the extent required to secure NTC's indemnity obligation under cl 15.1 the:
(i)respective rights and interests; and
(ii)liabilities to third parties;
of [ATCO and NTC], [Bechtel], the Subcontract Superintendent and secondary subcontractors from time to time, whenever engaged in WUS[.] (interpolation emphasised)
In substance, NTC's submissions were to the following effect:[43]
1.The construction of cl 17 of the Subcontract should be approached in the same manner as that taken by McClellan CJ at CL in Erect Safe Scaffolding (Australia) Pty Ltd v Sutton[44] and by Higgins J in Steele v Twin City Rigging Pty Ltd.[45]
2.Adopting that approach, cl 17 is not a 'standalone' clause and is to be read subject to the indemnity in cl 15.1.
3.There is a 'textual link' in cl 16A connecting cl 15 and cl 17.
4.There is no material inconsistency between the scope of cl 15.1 and the scope of cl 17 because the indemnity in cl 15.1 is itself wide enough to require NTC to indemnify not just ATCO, but also Bechtel, given that the reference in the opening lines of cl 15.1 to ATCO's 'employees and agents' include, on their proper construction, a reference to Bechtel.
5.Reasonable persons in the position of the parties would read down cl 17 in light of cl 15.1 because otherwise the words confining the indemnity in cl 15.1 to (in effect) the negligence of NTC would be given no operative effect, which would ignore the commercial purpose of the amendment made on 14 April 2015.
[43] Appeal ts 8, 11 ‑ 12, 16 - 19, 22 - 23, 26 ‑ 27; appellant's submissions, pars 28 - 30, 42.
[44] Erect Safe Scaffolding (Australia) Pty Ltd v Sutton [2008] NSWCA 114; (2008) 72 NSWLR 1.
[45] Steele v Twin City Rigging Pty Ltd (1992) 114 FLR 99.
NTC accepted that aside from the inclusion of the indemnity provision in cl 15.1 itself, there is nothing in the express language of cl 17(b), or elsewhere in cl 17, or elsewhere in the Subcontract, which indicates that the obligation to procure public liability cover is confined by reference to cl 15.1.[46]
[46] Appeal ts 7 - 9.

Erect Safe and Steele

As much of the debate by NTC in the appeal concerned the decisions of Erect Safe and Steele, it is convenient to outline the circumstances of those cases and their contractual provisions.

Steele

In Steele, the owner's building project manager (Tekmat) engaged a contractor (Senlos) to fabricate, supply and erect structural steel for the purposes of the construction. Senlos engaged a subcontractor (Twin City) to erect the steel fabricated and supplied by Senlos. The plaintiff, a director of Twin City, who worked as a rigger, fell and was injured in the course of the erection work when a rope he was using broke. Senlos supplied the defective rope and was liable in negligence and for breach of a statutory regulation.[47] Each of Tekmat, Senlos and Twin City was also liable in negligence for failing to make the system of work as safe as reasonable care could make it.[48] The judge apportioned liability (aside from the issue of contractual indemnity) 45% to Tekmat, 45% to Senlos and 10% to Twin City. Tekmat claimed, however, that it was entitled to full contractual indemnity against its liability to the plaintiff under the contract between Tekmat and Senlos.[49]
[47] Steele (103, 108).
[48] Steele (105, 109).
[49] Steele (111).
There were two relevant provisions. By cl 29, Senlos agreed to indemnify Tekmat against claims arising under statute or common law in respect of personal injury arising out of, or caused by, the execution of the works or relating to the works, 'to the extent that the same is due to any act, negligence, omission or default of [Senlos, its servants, agents or subcontractors] …'. Clause 30 contained two subclauses, cl 30.1(a) and cl 30.1(b). Clause 30.1(a) also contained its own words of indemnity. Unlike cl 29, the reference to indemnity in cl 30.1(a) was unconfined by reference to any negligence, omission or default on the part of Senlos, its servants, agents or subcontractors. Clause 30.1(b)(ii) provided for Senlos to:
effect insurance for … Public Liability Insurance to cover injury to persons and property extended to include the name of [Tekmat] and the owner of the site of the project[.]
Higgins J found that the effect of cl 29 was to require Senlos to bear, as against Tekmat, its own liability and the liability of its subcontractor, Twin City, but cl 29 did not require Senlos to bear any liability for Tekmat's own negligence. Accordingly, his Honour found that under cl 29, Senlos was to hold harmless Tekmat for all but 45% of the judgment debt.[50]
[50] Steele (112).
Tekmat contended that, notwithstanding the limitation in cl 29, it was nevertheless entitled to a full indemnity under the contract. Tekmat observed that the language in cl 30.1(a) was 'couched in wider terms' (than cl 29) and that the grant of a full indemnity should be inferred from the obligation to insure under cl 30.1(b).[51] Tekmat referred in this regard to a decision of Kelly J in Cervellone v Besselink Bros Pty Ltd[52] which considered the effect of a breach by the subcontractor of a provision in a contract between the main contractor and subcontractor requiring the subcontractor to insure, in joint names, against liability arising out of the works to be performed by the subcontractor.[53] Higgins J in Steele rejected Tekmat's contention. His Honour said:[54]
Such a clause seems to me to be subordinate to a primary obligation to give indemnity. It seeks to ensure that, if the contractor were called on to meet a claim against which it had indemnity, there would be an insurance fund it could claim against. It avoids the necessity for the contractor to be dependent on the solvency of the sub‑contractor or upon the latter's dealings with its own insurers to recover any such loss. …
In this case, cl 29 is limited to indemnity against liability arising only from the acts or omissions of subordinate contractors. Clause 30 is intended to support that primary right to indemnity granted by cl 29. It has no wider scope than that.

Erect Safe

[51] Steele (112 - 113).

[52] Cervellone v Besselink Bros Pty Ltd (1984) 55 ACTR 1.

[53] Cervellone (12).

[54] Steele (113 - 114).

In Erect Safe, the head contractor (Australand) on a building site engaged a subcontractor (Erect Safe) to erect and maintain scaffolding. Australand separately engaged another subcontractor (Dalma) to construct the formwork. The plaintiff, an employee of Dalma, was assisting in constructing the formwork using the scaffolding supplied by Erect Safe when he was injured. He sued Dalma as his employer, and also Erect Safe and Australand for breach of duty of care. The trial judge dismissed the plaintiff's claim against Dalma, but allowed the claims against Australand and Erect Safe. The judge held that Dalma escaped liability because it had raised the hazard at a site 'Safety Committee'. Although Dalma was also a member of the Safety Committee, the judge found that Australand and Erect Safe were the members of the Safety Committee who negligently failed to address the hazard. The trial judge apportioned responsibility as to two‑thirds Erect Safe and one‑third Australand. The judge also found that as between Erect Safe and Australand, under the terms of the subcontract between Erect Safe and Australand, Erect Safe was obliged to indemnify Australand in respect of the plaintiff's claim, and that Erect Safe was also in breach of a provision requiring it to maintain a public liability insurance policy in favour of Australand.[55]
[55] Erect Safe [101] - [111].
Both Australand and Erect Safe appealed the judge's finding that the plaintiff's employer, Dalma, was not liable in negligence. Erect Safe also appealed the finding that under its subcontract with Australand, it was required to (1) indemnify Australand in respect of its liability for the plaintiff's injuries, and (2) maintain a policy of public liability insurance in favour of Australand. On the question of apportionment, the Court of Appeal held that Dalma had not discharged its duty by leaving the matter in the hands of the Safety Committee. The Court of Appeal held, by majority (Basten JA & McClellan CJ at CL), that the appropriate apportionment of liability in the circumstances was 60% to Erect Safe which created the danger, 25% to Australand which was responsible for the Safety Committee which had responsibility for the entire site, and 15% to Dalma.[56] Also by majority (Giles JA and McClellan CJ at CL), the court found, in effect, that (1) the indemnity given by Erect Safe under the indemnity clause was not engaged on its proper construction in circumstances where Australand was in breach of its own duty of care to the plaintiff, and (2) the insurance provision in Erect Safe's subcontract did not impose on it an obligation to obtain insurance to support Australand's direct liability to the plaintiff caused by the negligent act of Australand.[57]
[56] Erect Safe [18], [137].
[57] Erect Safe [1], [167].
In Erect Safe, the relevant provisions were:[58]
11[Erect Safe] must indemnify [Australand] against all damage, expense (including lawyers' fees and expenses on a solicitor/client basis), loss (including financial loss) or liability of any nature suffered or incurred by [Australand] arising out of the performance of the Subcontract Works and its other obligations under the Subcontract.
12.1Public Liability
Before commencing work, [Erect Safe] must effect and maintain during the currency of the Subcontract, Public Liability insurance in the joint names of Australand and [Erect Safe] to cover them for their respective rights and interests against liability to third parties for loss of or damage to property and the death of or injury to any person.
'Subcontract Works' means the whole of the design and work to be executed in accordance with the Subcontract, including variations[.] (emphasis added)
[58] Erect Safe [20].
In relation to the scope of the indemnity in cl 11, the case effectively turned on the phrase italicised above and, in particular, the words 'arising out of the performance of the Subcontract Works and its other obligations under the Subcontract'. Giles JA construed these words to mean incurred by Australand 'arising out of the performance by Erect Safe of the Subcontract Works and of its [Erect Safe's] other obligations under the Subcontract'.[59] His Honour said that the reference to the incurring of liability by Australand directed attention to why the liability was incurred, and, in particular, to whether an act or omission of Australand itself brought about the liability upon it. In this case, Australand's breach was by its own default and not because it was fixed with liability by reason of the default of Erect Safe. His Honour considered this to be insufficient for the liability to have arisen out of the performance by Erect Safe of the Subcontract Works and of its other obligations, within cl 11.[60]
[59] Erect Safe [8].
[60] Erect Safe [12].
McClellan CJ at CL referred to Steele,[61] and said:[62]
[155]The question in the present dispute is whether cl 11 confines the liability of Erect Safe to indemnify Australand for liabilities arising from Erect Safe's performance of the Subcontract Works or whether it extends to a liability of Australand which arises in relation to those Works. To my mind the indemnity is confined. Although the appropriate meaning may have been more obvious if the word 'its' had been included before the words 'performance of the Subcontract Works' I do not believe the clause lacks clarity. However, if the clause is ambiguous, it would have to be construed in favour of the surety, Erect Safe (see [Ankar Pty Ltd v National Westminster Finance (Australia) Ltd[63]]).
[156]Clause 11 provides for Erect Safe to indemnify Australand against all 'damage etc'. Although the indemnity is initially described in broad terms, it is confined by the word 'arising'. The clause provides that the relevant obligation can arise in two situations being: 'out of the performance of the Subcontract Works' and 'its (Erect Safe's) other obligations under the Subcontract'.
[157]In the present case the liability of Australand does not 'arise' out of the performance by Erect Safe of any of its contractual obligations. Although it is true that the occasion for the liability of Australand was the erection by Erect Safe of the faulty scaffold, the liability of Australand arises from its own independent act of negligence in failing to maintain an appropriate safety regime for the site.
…
[160]In the present case the cause of the plaintiff's injury was, in part, the negligence of Erect Safe but was also in part caused by the independent act of negligence of Australand. The liability of Australand was as a result of its own negligent act rather than arising out of the performance of the Subcontract Works by Erect Safe. (emphasis added)
[61] Erect Safe [140] - [141].
[62] Erect Safe [155] ‑ [157], [160].
[63] Ankar Pty Ltd v National Westminster Finance (Australia) Ltd [1987] HCA 15; (1987) 162 CLR 549.
In relation to the scope of the insurance clause, cl 12, McClellan CJ at CL (with whom Giles JA agreed on this point) observed that cl 12 followed cl 11, and, having concluded that the liability under cl 11 was confined, said that it 'would be surprising if, notwithstanding that limitation, the parties intended Erect Safe to obtain insurance for any liability of Australand, even that arising from its own negligence'.[64] His Honour then returned to the approach taken by Higgins J in Steele[65] and concluded:[66]
[167]In my opinion it is appropriate to adopt the same approach to the construction of cl 12.1 in the present case. The obligation was to obtain insurance to cover Australand and Erect Safe 'to cover them for their respective rights and interests against liability to third parties …'. Australand's 'rights and interests' referred to are those provided by the indemnity provided in cl 11. There being no right in Australand to recover from Erect Safe in respect of damages occasioned by its own negligence, there was no obligation in Erect Safe to obtain insurance to support Australand's direct liability to another caused by the negligent act of Australand. (emphasis added)
[64] Erect Safe [164].
[65] Erect Safe [165] - [166].
[66] Erect Safe [167].

Disposition

The following observation should be made at the outset. The concluding words of cl 17(b) of the conditions in the Subcontract are 'whenever engaged in WUS'. Syntactically, those words prima facie refer to whenever ATCO, NTC, Bechtel, the Subcontract Superintendent and NTC's subcontractors are 'engaged in WUS'. Given the definition of 'WUS', it is plain enough to see how NTC and its subcontractors may be 'engaged in WUS'. Also through the giving of directions, the Subcontract Superintendent might arguably be 'engaged in WUS'. However, it is less obvious how Bechtel and ATCO could be 'engaged in WUS' given the definition of 'WUS'. Perhaps reasonable persons in the position of the parties would not read the words 'engaged in WUS' distributively so as to apply to Bechtel and ATCO in addition to NTC, its subcontractors and the Subcontract Superintendent. When the question of the meaning of the phrase 'whenever engaged in WUS' at the end of cl 17(b) was raised by the court with counsel for NTC (neither party having addressed its meaning in written submissions), counsel for NTC said that NTC's argument proceeded on the basis that the words 'whenever engaged in WUS' meant, relevantly, 'whenever [NTC was on site] engaged in WUS'. Counsel for NTC said that the event which Mr Morton alleged caused him injury occurred 'when NTC was engaged in the works under [the Subcontract]'.[67] NTC submitted (without dispute in this appeal) that there was no issue in the appeal as to the meaning of the words 'whenever engaged in WUS' at the conclusion of cl 17(b).[68] These reasons proceed on the above basis.
[67] Appeal ts 2 - 4.
[68] Appeal ts 5.
As has been observed by the New South Wales Court of Appeal in cases in which reliance has been placed by a party on the decision in Erect Safe, each case must stand or fall on the terms of the relevant provision construed in the context of the contract as a whole. The statement of McClellan CJ at CL in Erect Safe[69] concerning an 'approach' to construction is not to be taken as a statement of legal principle.[70]
[69] Erect Safe [166].
[70] See CSR Ltd v Adecco (Australia) Pty Ltd [2017] NSWCA 121 [215] ‑ [216]; GIO General Limited v Centennial Newstan Pty Ltd [2014] NSWCA 13 [136] ‑ [145].
The principles of contractual construction were not in dispute.[71] As this court recently observed:[72]
A commercial contract must be construed as a whole. The words of a clause in the contract are to be given the most appropriate meaning which they can legitimately bear. A court must have regard to all of the provisions of the contract with a view to achieving harmony among them. If more than one construction of a clause is open having regard to the text, context and purpose or objects of the contract as a whole, the court will prefer a construction that will avoid consequences which appear to be capricious, unreasonable, inconvenient or unjust.
[71] See, for example, Black Box Control Pty Ltd v TerraVision Pty Ltd [2016] WASCA 219 [42]; GR Engineering Services Ltd v Investmet Ltd [2021] WASCA 136 [96]; Gold Valley Iron Pty Ltd (in liq) v OPS Screening & Crushing Equipment Pty Ltd [2022] WASCA 134.
[72] Gold Valley Iron [118] (Buss P & Murphy JA).
In this case, the following observations may be made in relation to the proper construction of cl 17 which, as NTC accepted,[73] on its ordinary or literal meaning does not convey the limitation advanced by NTC in this appeal.
[73] Appeal ts 18 - 19.
Clause 15 provides for ATCO's and NTC's respective liabilities to each other under cross indemnities. Clause 15.1 deals with NTC's agreement to indemnify ATCO and cl 15.2 deals with an indemnity by ATCO in favour of NTC. There then follows a range of provisions (cl 16A, cl 16, and cl 17 ‑ cl 19) dealing with the topic of insurance under the Subcontract. This is not a contract in which cl 15.1 is adjacent to cl 17, or where the insurance provision is combined with the indemnity provision in one clause.
Clause 16 provides the overview for the insurance provisions. By the first paragraph of cl 16, ATCO must procure the policy required of it under the Main Contract before it accepts NTC's tender, and must maintain that policy and provide a copy to NTC at its request. By the second paragraph of cl 16, NTC, for its part, must procure, before the commencement of work on site, any insurance required of it under the Subcontract.
By cl 16A(a), any insurance required of NTC must be procured 'on the terms' provided for in the Subcontract and must 'include' cover for its obligations and 'indemnities' under the Subcontract (including, it may be inferred, under cl 15). The words 'on the terms and include' in cl 16A(a) connote an intended breadth of application prima facie inconsistent with a construction of cl 17 in which its operation is limited by reference to the indemnity in favour of ATCO under cl 15.1 of the Subcontract.
Clause 17 and cl 18 then deal with the types of insurance required for the purposes of the Subcontract. Clause 17 addresses public liability cover, and cl 18 addresses the coverage required in respect of NTC's employees.
The architecture of cl 17 is that the parties will select one of two potential alternative provisions for the arrangement of public liability cover. One alternative is for public liability cover to be procured by ATCO and the other is for public liability cover to be procured by NTC. Clause 17 read with item 26(a) provides that the second of those alternatives applies. In our view, the overall structure within which the parties have selected the second alternative to apply may be considered as part of the context in the proper construction of cl 17.[74] It tends to support the view that the parties contemplated a comprehensiveness in the scope of the public liability cover required under cl 17 for the benefit of ATCO, NTC and Bechtel.
[74] cf A Goninan & Co Ltd v Direct Engineering Services Pty Ltd [No 2] [2008] WASCA 112 [30], [40].
The phrase 'public liability policy' in the chapeau of cl 17 would ordinarily refer to an insurance policy to cover the insured for liabilities for death or personal injury to third parties and for damage to property belonging to third parties. Although by cl 17(a), the insurance was to be in the 'joint names' of ATCO, Bechtel and NTC, by cl 17(b)(i), the cover was to apply at least to the named insured's 'respective rights and interests' (if not also to the rights and interests of the other persons mentioned in cl 17(b) - see [74] below). Accordingly, the required cover was not of a 'joint' character but 'composite' in nature, which required the insurer to undertake separate and distinct obligations to each of the insured.[75] The respective rights and interests of Bechtel, ATCO and NTC in this context prima facie include their respective rights and interests arising from the concurrent use of the site during the performance of the WUS (cl 24.1 and cl 24.2).
[75] Federation Insurance Ltd v Wasson [1987] HCA 34; (1987) 163 CLR 303, 314; General Accident Fire & Life Assurance Corporation Ltd v Midland Bank Ltd [1940] 2 KB 388, 404 ‑ 406, 408.
Clause 17(b)(i) may be susceptible to two meanings in its reference to 'respective rights and interests'. Prima facie, those words would ordinarily apply aptly to the named insured. On that basis, cl 17(b)(i) refers to NTC procuring public liability insurance for the respective rights and interests of Bechtel, ATCO and NTC, and cl 17(b)(ii) recognises that public liability cover for the respective rights and interests of Bechtel, ATCO and NTC should include cover for the liabilities to third parties of each of Bechtel, ATCO, NTC, the Subcontract Superintendent and NTC's own subcontractors.
On the other hand, cl 17(b) has unusual punctuation. It may refer to the 'respective rights and interests' of not only the named insured (Bechtel, ATCO and NTC), but also the respective rights and interests of the other persons referred to in cl 17(b), namely the Subcontract Superintendent and NTC's subcontractors. On this basis, the words 'respective rights and interests' (in subpar (b)(i)) and the words 'liabilities to third parties' (in subpar (b)(ii)) would each be read as applying to ATCO, NTC, the Subcontract Superintendent and NTC's subcontractors.
On either construction of cl 17(b), it does not contain the limitation advanced by NTC in [49] above. Moreover, on either view, the scope of cl 17 is not coextensive with cl 15.1 insofar as the beneficiaries of the obligation to insure in cl 17(b) (including Bechtel) extend beyond the beneficiaries of the indemnity in cl 15.1 (confined to ATCO, its servants and agents). Thus, it is difficult to construe cl 17(b) as merely designed to pick up the rights and interests of ATCO under NTC's indemnity obligation in cl 15.1. A response to this by NTC was to contend that Bechtel was itself a beneficiary of the indemnity in cl 15.1 in that it was an 'employee or agent' of ATCO. In our view, NTC's submission should not be accepted. ATCO was defined as the 'Main Contractor'. Bechtel was defined as the 'Principal'. Clause 15.1 uses the word 'Principal' where the intention is evidently to refer to Bechtel (cl 15.1(a)). Reasonable business persons would not infer that whilst the parties omitted any reference to the 'Principal' in the chapeau of cl 15.1, they nevertheless intended to identify Bechtel by the inapposite language of 'employees and agents' of the Main Contractor.
Clause 17(c) then directs attention to the respective liability of the parties to each other (as opposed to third party liability). Although the reference to the exclusion of property insurance required by 'clause 16' lacks some clarity, it is presumably a reference to any insurance covering property loss or damage required by the first par of cl 16. Clause 17(c) prima facie refers to, or at least includes, the respective liabilities of ATCO and NTC to each other under the cross indemnities in cl 15. In that way, cl 17(c) applies to coverage for the indemnity obligations presaged by cl 16A(a).
The intended comprehensive nature of insurance cover is also apparent in cl 18, which requires cover (where permitted by law) in respect of ATCO's statutory liability to NTC's employees.
The reference in cl 19.1 to 'insurance' not limiting 'liabilities or obligations under other provisions of the Subcontract', including indemnities, is suggestive of a general intention that the obligations of contractual indemnity and the procurement of insurance are to be found within the scope of their respective provisions. That said, the principal concern was evidently that the indemnity provisions might otherwise be read down consistently with the principle that any ambiguity would be construed against the indemnitee.[76]
[76] Andar Transport Pty Ltd v Brambles Ltd [2004] HCA 28; (2004) 217 CLR 424 [17] ‑ [23]; Erect Safe [23] ‑ [26].
By cl 19.6, the public liability policy to be effected under cl 17 is to include a cross liability clause and, subject in effect to the waiver of subrogation, is to operate as if a separate policy had been issued to each of the named insured, Bechtel, ATCO and NTC. Clause 19.6 is consistent with, and reinforces, the requirement of cl 17(b) that the insurance policy is to cover the respective rights and interests of (at least) each of Bechtel, ATCO and NTC.[77] The waiver of subrogation under cl 19.6 against any of the persons constituting the insured is expressed in general terms and, prima facie, applies, subject to the cross indemnities in cl 15, in all cases in which the public liability insurer might otherwise have rights of subrogation against any of ATCO, Bechtel or NTC. It suggests, particularly in light of cl 24, cl 32 and cl 56, that the parties contemplated an insurance arrangement designed to limit the scope for internecine disputes between the parties on the site which might otherwise not be conducive to the efficient and cooperative effectuation of the works.[78]
[77] National Vulcan Engineering Insurance Group Ltd v Transfield Pty Ltd [2003] NSWCA 327; (2003) 59 NSWLR 119 [49] ‑ [52].
[78] cf Woodside Petroleum Development Pty Ltd v H & R-E & W Pty Ltd (1999) 20 WAR 380, 393.
Finally, cl 17 is a provision of considerable elaboration and detail, the necessity for which is not prima facie evident if its purpose were simply to require NTC to procure public liability cover to support or secure its own indemnity obligation under cl 15.1.
The intention of the parties as to the operation of the Subcontract upon effectuation of the amendment to cl 15.1 is to be ascertained objectively from the language of the amended instrument read as a whole. The above considerations, in our view, combine to indicate that there is nothing in the text, context or purpose of the Subcontract (objectively ascertained) which would suggest that the construction of cl 17 advanced by NTC should be accepted.
The matters referred to by NTC in [50] above do not, in our opinion, alter the conclusion referred to in [81] above. The relevant contractual provisions in Erect Safe and Steele were materially different in their terms and in their contractual setting, from the provisions under consideration in this case. Also, the relevant contractual provisions in Garnett were different, including that in Garnett there was a single composite clause dealing with insurance and indemnities.
In relation to point 5 of [50] above, three further observations may be made. First, having regard to the terms and structure of the Subcontract, in our view a contraction in the agreed scope of the indemnity would not necessarily import an amendment to the insurance obligations in cl 17. Secondly, it is not uncommon for a building contract between a principal and head contractor (or, it may be added, head contractor and subcontractor) to provide that one of them will take out a policy of insurance indemnifying all the parties who may be involved in the works.[79] As noted earlier, it may be inferred that an insurance arrangement of this kind is designed to limit the scope for internecine disputes between the parties on the site which might otherwise not be conducive to the efficient and cooperative effectuation of the works.
[79] GIO [13], [118].
Thirdly, the effect of the construction we prefer is that where the subcontractor is negligent within the operation of the indemnity in cl 15.1, the risks of underinsurance, or that the policy may not respond, or of insurer insolvency, are borne by the subcontractor. In relation to circumstances not falling within the contractual indemnity, those risks are borne by the Main Contractor (ATCO) and the Principal (Bechtel). Whilst the construction which we prefer is more advantageous to the Main Contractor and the Principal than the construction advanced by NTC as subcontractor, the consequences of that construction are not, in our opinion, capricious, unreasonable, unjust or inconvenient in the sense referred to in the principles of construction referred to in [65] above.

Conclusion

For these reasons, the appeal should be dismissed.

I certify that the preceding paragraph(s) comprise the reasons for decision of the Supreme Court of Western Australia.
RK
Research Associate to the Honourable Justice Murphy and the Honourable Justice Mazza
9 DECEMBER 2022