| JURISDICTION : DISTRICT COURT OF WESTERN AUSTRALIA LOCATION : PERTH CITATION : PEBSA PTY LTD -v- McNAUGHTON GARDINER INSURANCE BROKERS PTY LTD & ANOR [2002] WADC 190 CORAM : COMMISSIONER GREAVES HEARD : 14 JUNE 2002 DELIVERED : 23 AUGUST 2002 FILE NO/S : CIV 3337 of 2000 BETWEEN : PEBSA PTY LTD (ACN 079 208 138) Plaintiff
AND
McNAUGHTON GARDINER INSURANCE BROKERS PTY LTD (ACN 070 159 492)
First Defendant
ZURICH AUSTRALIAN INSURANCE LIMITED (ACN 000 296 640)
Second Defendant
Catchwords: Contract - Contract of insurance - Exclusion clause - Construction - "Physical or legal control" of property means physical or legal control over property - Insured exercised control over property of another in order to insert corks in filled wine bottles - Liability under policy excluded
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Legislation:
Nil
Result: Declaration in terms of reasons Representation:
Counsel:
Plaintiff : Mr J V O'Dea
First Defendant : Mr T M Clavey
Second Defendant : Mr H M O'Sullivan
Solicitors:
Plaintiff : Mallesons Stephen Jaques
First Defendant : Phillips Fox
Second Defendant : Srdarov Richards Burton
Case(s) referred to in judgment(s):
Botany Fork & Crane Hire Pty Ltd v New Zealand Insurance Co Ltd (1993) 44 FCR 27
Gray Brothers Engineering Ltd v The New Zealand Insurance Co Ltd (1992) 7 ANZ Insurance Cases 61-124
Case(s) also cited:
Allied Mutual Insurance Ltd v Kearneys Services Ltd (1994) 8 ANZ Insurance Cases 61-229
Australian Casualty Co Ltd v Federico (1986) 160 CLR 513
Botany Fork & Crane Hire Pty Ltd v New Zealand Insurance Co Ltd (1993) 116 ALR 473
Canadian Surety Co v Acadia Road Contractors Ltd [1978] 88 DLR (3d) 287
Collin v Botany Fork & Crane Hire (1993) 113 FLR 83
Collin v Botany Fork & Crane Hire Pty Ltd & Anor (1993) 7 ANZ Insurance Cases 61-157
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Commercial Union Insurance Co Ltd v Willetts Radio & TV Ltd (1985) 3 ANZ Insurance Cases 60-677
Cornish v Accident Insurance Co Ltd (1889) 23 QBD 453
Dryden Construction Co Ltd v New Zealand Insurance Co Ltd [1959] NZLR 1336
Federal Commissioner of Taxation v ANZ Banking Group Ltd & Ors (1979) 143 CLR 499
Green v FP Special Assets Ltd & Ors (1991) 9 ACLC 75
Indemnity Insurance Co v Excel Cleaning Service [1954] 2 DLR 721
Interprovincial Pipeline Co v Seller's Oil Field Ltd [1966] 66 DLR (3d) 360
Moors v Burke (1919) 26 CLR 265
Provincial Insurance Australia Pty Ltd v Consolidated Wood Products Pty Ltd (1991) 25 NSWLR 541
R v Amanatidis [2001] NSWCCA 400
Spiteri Nominees Pty Ltd v The Chief Commissioner for Business Franchise Licences (Tobacco), unreported; SCt of NSW; BC8801572; 25 August 1988
Stratton v Van Driel Ltd (1998) 87 IR 151
Sunrise Auto Ltd v Deputy Commissioner of Taxation (1995) 133 ALR 274
Walz Construction Co Pty Ltd v Suncorp Insurance and Finance & Ors [2001] QSC 063
Western Australian Bank v Royal Insurance Co (1908) 5 CLR 533
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1 COMMISSIONER GREAVES: The statement of issue for preliminary determination dated 12 June 2002 in this action reads:
"It being admitted by the defendants that: 1. the second defendant, pursuant to a policy of insurance number 632682475, agreed to indemnify the plaintiff against liability which the plaintiff may incur to pay compensation or damages for damage to property sustained by others between 28 February 1999 and 28 February 2000 as a result of an occurrence happening in connection with the plaintiff's business, including the bottling of wine; and 2. the plaintiff being liable to pay compensation to Nepenthe Wines Pty Ltd as a result of an occurrence that caused damage to Nepenthe Wines Pty Ltd's property on or about 27 July 1999, the amount of the plaintiff's liability to pay such compensation to be assessed; the parties submit for preliminary determination the issue of whether or not the second defendant may rely on exclusion 3 of the said policy of insurance to avoid its obligation to indemnify the plaintiff for its liability to pay compensation to Nepenthe Wines Pty Ltd." 2 Paragraphs 17 and 20 of the amended statement of claim allege: "17. In July 1999, in the course of bottling wine for Nepenthe Wines Pty Ltd ('Nepenthe') at Lenswood, South Australia the plaintiff caused damage to Nepenthe's property. The plaintiff's machine chipped glass from some of Nepenthe's bottles and deposited that glass in Nepenthe's wine.
Particulars
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(c) the fresh bottles had to be corked, capped and labelled. 20. Acting as a prudent insured the plaintiff paid to Nepenthe and Nepenthe accepted the sum of $120,000 and $20,000 worth of bottling work, a total of $140,000 as compensation for the damage caused by the plaintiff." 3 By amendment to its defence at trial of the preliminary issue, the second defendant admits the facts alleged in pars 17 and 20 of the amended statement of claim. The first defendant does not admit the facts alleged in pars 17 and 20 of the amended statement of claim. Counsel for the first defendant admitted at the trial of the preliminary issue that the liability of the plaintiff to pay compensation arose as a result of an occurrence that caused damage to Nepenthe's property. (T62) 4 The trial of the preliminary issue did not proceed before me only upon the facts stated in the statement of issue for preliminary determination dated 12 June 2002 and the facts alleged in pars 17 and 20 of the statement of claim and admitted by the second defendant. The plaintiff also called Mr Treva Underwood who described himself as the manager of the plaintiff. His evidence is partly contained in Exhibit 2, the contents of which he read to the court, and partly contained in his oral evidence before the court and transcribed at T6 - 31. 5 Counsel for the plaintiff and the second defendant invited the court to find as a fact on the evidence of Mr Underwood that the stainless steel centering cone of the corking machine scraped fragments of glass from the wine bottles. I propose to determine the preliminary issue upon the facts alleged in pars 17 and 20 of the amended statement of claim and the uncontroverted evidence of Mr Underwood. 6 I find the plaintiff's corking machine chipped glass from some of Nepenthe's bottles and deposited that glass in Nepenthe's wine. It follows property damage within the meaning of those words in cl 3 of the definitions contained in the combined general liability policy occurred to Nepenthe's property. 7 The preliminary issue for determination is whether the second defendant may rely on exclusion cl 3 of the policy to avoid its obligation to indemnify the plaintiff for its liability to pay compensation to Nepenthe Wines Pty Ltd.
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8 Clause 3 of the exclusions contained in the combined general liability policy reads:
"The Company shall not be liable for claims in respect of: … 3. PROPERTY IN PHYSICAL OR LEGAL CONTROL Property Damage to property owned by or in the physical or legal control of the Insured other than premises leased or rented to the Insured. This Exclusion does not apply to Property Damage to: (a) personal effects of directors, employees and visitors of the Insured; (b) property, other than a Vehicle in a car park or an Aircraft or Watercraft, not owned by but in the physical or legal control of the Insured subject to a maximum of $100,000 for any one Occurrence and in the aggregate during any one Period of Insurance. No coverage is provided for that part of any property upon which the Insured is or has been working where Property Damage arises from the work of the Insured;" 9 The evidence of Mr Underwood in par 6 of Exhibit 2 was that the bottling line machinery was operated by the plaintiff's employees. At par 7, Mr Underwood explained the bottling process as follows:
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• the bottles then passed through the corking machine where corks supplied by Nepenthe were inserted; • the bottles then passed through the capping machine where caps supplied by Nepenthe were applied; • the bottles then passed through the labelling machine where labels supplied by Nepenthe were applied; • the filled, corked, capped and labelled bottles were then packed into cartons by Nepenthe's employees and passed through PEBSA's sealing machine on the bottling line; • the sealed cartons of wine were taken away from the bottling line by Nepenthe's employees." 10 Mr Underwood gave evidence that he and his employees were on the bottling line for all or most of the process. Upon the facts stated and admitted, and the evidence of Mr Underwood, I find the plaintiff was corking the filled wine bottles with its corking machine when the property damage occurred. 11 The question for determination is whether the filled wine bottles were in the physical or legal control of the plaintiff when the property damage occurred. The answer to this question is a question of construction only in the context of the policy as a whole. The Full Federal Court explained the approach to be taken to this question of construction in Botany Fork & Crane Hire Pty Ltd v New Zealand Insurance Co Ltd (1993) 44 FCR 27 at 30: "A contract of insurance is but a species of commercial contract. Its interpretation must be approached with this in mind. The Court will ascertain the ordinary English meaning of the words used by the parties having regard to the context in which they appear, the purpose of the policy, the presumed common intention of the parties and in the light of all relevant circumstances in which the contract of insurance came into being. However, because the terms of the policy are ordinarily standard and unalterable, so far as the insured is concerned, any
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ambiguity in language of the policy will be construed against the insurance company." 12 At p 34 of the report, the court continued: "From these cases it may be concluded first, that both custody and control refer not only to legal custody and control but also to actual or de facto custody or control. Secondly, it may be said that the custody or control need not be exclusive of some other person, that is to say, that more than one person may have, at any given point of time, custody or control of the item in question. Thirdly, while control clearly relates to dominion or power over the item ultimately damaged, the exclusion clause will not be attracted where the control is merely in relationto that item but not over it. Nor will the exclusion clause be attracted if the control is of a part only but not the whole of the item." 13 In Gray Brothers Engineering Ltd v The New Zealand Insurance Co Ltd (1992) 7 ANZ Insurance Cases 61-124 at 77,620 Williamson J stated: "In my view the fact that a person has some degree of control over part of the property or is in charge of repairs to property does not mean that the person is in charge of the property itself or that the item of property is under the control of the person. Ultimately it is a question of fact and in many cases the answer will depend upon evidence as to the degree of authority or dominion being exercised by the insured." 14 I conclude, therefore, that the words "property … not owned by but in the physical or legal control of the insured …" in this exclusion clause mean physical or legal control over the property damaged at the relevant time. 15 Counsel for the plaintiff submitted that the plaintiff did not exercise physical or legal control over Nepenthe's wine, bottles, corks, capsules or labels. Its involvement, he said, with those items was of a limited degree characterised at most as work "in relation to" those items and not work upon them. I do not accept that submission. Upon the facts stated and admitted and the evidence of Mr Underwood, I find as a fact that the plaintiff necessarily exercised control over the filled wine bottles at the time that the plaintiff was corking those wine bottles. It matters not Nepenthe may have had control over the property at the same time. The
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degree of control which the plaintiff required over the filled wine bottles in order to cork them leads to the conclusion the plaintiff exercised physical control over the filled wine bottles at the time the damage occurred. I find, therefore, the filled wine bottles were in the physical control of the plaintiff at the relevant time. 16 The exclusion clause contains an exception in sub-paragraph (b) for property not owned by but in the physical control of the insured. That exception to the exclusion applies in this case unless the final words of sub-clause (b) apply. The evidence of Mr Underwood was that the plaintiff was or had been working on the wine bottles and the damage to the wine bottles occurred from that work. It follows the plaintiff is not entitled to the benefit of the exception. 17 For these reasons I am of the opinion that upon a proper construction of the policy the second defendant may rely on exclusion clause 3 to avoid its obligation to indemnify the plaintiff for its liability to pay compensation to Nepenthe Wines Pty Ltd and I shall make a declaration accordingly.
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