Regal Pearl Pty Ltd v Zurich Australian Insurance Ltd

[2005] NSWSC 1055

Reported Decision: (2006) 14 ANZ Insurance Cases 61-666

New South Wales

Supreme Court

CITATION:	Regal Pearl Pty Ltd v Zurich Australian Insurance Ltd [2005] NSWSC 1055
HEARING DATE(S):	10/10/05, 11/10/05, 12/10/05
JUDGMENT DATE :	25 October 2005
JUDGMENT OF:	Cooper AJ at 1
DECISION:	Judgment in favour of the plaintiff against the defendant. The agreed amount is $1,473,155, subject to interest.

LEGISLATION CITED:	Law Reform (Miscellaneous Provisions) Act 1946 (NSW) Sale of Goods Act 1923 (NSW) Trade Practices Act 1974 (Cth)
CASES CITED:	McCann v Switzerland Insurance Australia Limited [2000] HCA 65 Nigel Watts Fashion Agencies Pty Ltd v GIO General Insurance 1995 ANZ Insurance Cases 61-235 Allianz Australia Limited v Wentworthville Real Estate Pty Ltd (2004) NSWCA 100 National Vulcan Engineering Insurance Group Limited v Pentax Pty Ltd (2004) NSWCA 218 Canadian Indemnity Co v Andrews and George Co Ltd (1952) 4 DLR 690
PARTIES:	Regal Pearl Pty Ltd Zurich Australian Insurance Ltd
FILE NUMBER(S):	SC 11173/03
COUNSEL:	Plaintiff: Mr R. Cavanagh Defendant: Mr M Neil QC/ Mr J Gracie
SOLICITORS:	Plaintiff: Holman Webb Lawyers Defendant: Goldrick Farrell Mullan

LOWER COURT JURISDICTION:

IN THE SUPREME COURT
OF NEW SOUTH WALES
COMMON LAW DIVISION

ACTING JUSTICE COOPER

Tuesday 25 October 2005

11173/03 REGAL PEARL PTY LTD v ZURICH AUSTRALIAN INSURANCE LTD

JUDGMENT

1 HIS HONOUR: By its Amended Summons the plaintiff seeks a declaration that pursuant to section 6(1) of the Law Reform (Miscellaneous Provisions) Act 1946 the defendant is liable to pay to the plaintiff the amount payable by Tai Kwan Seafood Pty Ltd pursuant to a judgment of the New South Wales Court of Appeal on 15 November 2002. In addition, an order is sought that the defendant pay to the plaintiff certain monies being damages and costs of the District Court and Court of Appeal proceedings payable by the plaintiff in respect of injuries, loss and damages recoverable from the plaintiff being the amount of the charge on the defendant created by virtue of section 6(1) of that Act.

2 In addition the plaintiff claims interest and costs.

3 The facts in this case are not in issue. What is in issue is whether the liability of Tai Kwan Seafood Pty Ltd (Tai Kwan) to pay money to Regal Pearl Pty Ltd (Regal Pearl) is a liability which is covered by an insurance policy between Tai Kwan and the defendant.

The Background to this Litigation

4 In order to understand the nature of the claim it is necessary to examine the background facts.

5 Regal Pearl was the operator of a restaurant at Coogee known as the China Bowl Restaurant. On about 11 May 1997 a number of customers attended that restaurant where they purchased and consumed meals which included prawns.

6 Unfortunately those prawns contained the hepatitis A virus which caused injury to the customers.

7 Regal Pearl had purchased those prawns from Tai Kwan.

8 Tai Kwan in turn had purchased those prawns from Great Ocean Products Pty Ltd (Great Ocean) which had imported them into Australia from Myanmar.

9 Proceedings were commenced in the District Court by five customers (the claimants). Other claimants commenced separate proceedings or resolved their claims against Regal Pearl without recourse to litigation.

10 In none of these actions was Tai Kwan named as a defendant. Rather it was a cross-defendant to cross-claims brought by Regal Pearl and/or Great Ocean.

11 These five cases came on for hearing before Woods ADCJ in May 2001 and judgment was delivered on 31 May.

12 His Honour described the proceedings thus:-

“The claims of the plaintiffs are as follows:

Claims under the Sale of Goods Act section 19, claims in negligence and breaches of the provisions of the Trade Practices Act .

The plaintiffs relied on implied warranties contained in section 19(1) of the Sale of Goods Act in that the restaurant failed to insure that the prawns were not contaminated.

Claims against the restaurant are in general terms for failing to provide meals without contamination and refer to the unhygienic nature of the kitchen premises.

Claims against the importer namely Great Ocean Products are in negligence in failing to insure the prawns were not contaminated and failing to comply with provisions of the Trade Practices Act .

The owners of the restaurant, Regal Pearl, are cross-claiming against the importer Great Ocean Products and the wholesaler Tai Kwan Seafood Pty Ltd whom the restaurant dealt with, on the basis of breach of the implied condition under the Sale of Goods Act , that goods should be of merchantable quality, and in negligence. The restaurant company is also claiming contribution from the importer and the wholesaler on the basis of coordinate liability.

With respect to claims under the Trade Practices Act, the importer and the wholesaler would appear to have the defence under section 75AK(1)(c) that the defect could be not be discovered having regard to the scientific or technical knowledge at the time of supply”.

13 His Honour found negligence in the owner of the restaurant (Regal Pearl) and breaches by the owner of the implied warranties under the Sale of Goods Act.

14 His Honour added:-

“It is not necessary for me to consider any extra liability or claims for breaches of the Trade Practices Act as my findings of negligence and breaches of implied warranties under the Sale of Goods Act adequately cover all claims and I find that on the evidence of the origin of the prawns and the responsibility of the importer and the wholesaler there is no liability in the importer or wholesaler”.

15 The importer was Great Ocean and the wholesaler was Tai Kwan.

16 Woods ADCJ then found verdicts in favour of the plaintiffs against Regal Pearl in negligence and for breaches under the Sale of Goods Act and dismissed any claims by the plaintiffs against Great Ocean Products and Tai Kwan and dismissed the cross-claims of Regal Pearl against Great Ocean and Tai Kwan.

17 Regal Pearl then appealed to the Court of Appeal arguing that it was entitled to be indemnified by the wholesaler, Tai Kwan, under the Sale of Goods Act in breach of contract. Regal Pearl also submitted that Woods ADCJ should have found that the importer was liable to the plaintiff in negligence and pursuant to section 74(b) and (d) of the Trade Practices Act.

18 As to the claim of Regal Pearl under the Trade Practices Act, Great Ocean argued that such claims were not included in Regal Pearl’s amended cross-claim filed shortly before the trial and accordingly it should not be permitted to rely on that argument. The Court of Appeal held that Regal Pearl, having abandoned its cross-claim against the importer (Great Ocean) for a breach of the Trade Practices Act was not entitled to seek to run that claim on the appeal.

19 It also held that Regal Pearl’s case against the importer in negligence must fail because there was no evidence that the importer, Great Ocean, was aware that the prawns contained the virus when it acquired them. Moreover it was not foreseeable to the importer that the prawns when purchased by the restaurant would not be adequately cooked thereby destroying the virus. Further, it would have been unreasonable to require the importer to have tested the prawns for the virus.

20 The Court of Appeal, however, found that Regal Pearl was entitled to succeed on its cross-claim against the wholesaler, Tai Kwan, for a breach of section 19 of the Sale of Goods Act.

21 Accordingly it ordered that the verdict in favour of Tai Kwan as against Regal Pearl on the cross-claim be set aside and in lieu thereof, Regal Pearl’s cross-claim against Tai Kwan be upheld and Tai Kwan be ordered to indemnify Regal Pearl in respect of Regal Pearl’s liability to the plaintiff in each case.

22 It should be noted that none of the claimants was a party to this appeal.

23 Subsequent to the judgment of Woods ADCJ, Regal Pearl settled all of the claimant’s claims and paid all of the settlement monies and their costs.

24 Tai Kwan did not appeal the decision of the Court of Appeal. However Regal Pearl sought and was granted leave to appeal to the High Court in respect of the Court of Appeal’s decision confirming the trial judge’s dismissal of Regal Pearl’s cross-claim against Great Ocean.

25 The appeal to the High Court was settled between Regal Pearl and Great Ocean on terms not to be disclosed.

26 Tai Kwan has not paid the judgment entered against it. It has not traded since June 2001 and has no assets.

27 Zurich Australian Insurance Limited (Zurich) concedes that the settlements entered into by Regal Pearl in respect of all claimants were reasonable.

28 It agrees that if Regal Pearl is entitled to a verdict against it then the amount of such verdict is $1,473,155. (See exhibit E).

The Insurance Issues

29 As at May 1997 Tai Kwan held insurance with Zurich titled “AllGuard Business Insurance” which included a cover for product liability. The precise terms of the policy will be considered later.

30 Prior to commencement of the District Court Proceedings, Tai Kwan sought indemnity from Zurich in respect of its liability arising out of the injuries to the claimants.

31 By letter dated 3 March 1998 Zurich denied indemnity to Tai Kwan relying on exclusion clause 12 of the policy.

32 Subsequent to that denial, Tai Kwan conducted the District Court and Court of Appeal proceedings itself instructing its own legal representatives and did not join Zurich in the proceedings or otherwise challenge Zurich’s denial of indemnity.

33 Subsequent to the entry of judgment against Tai Kwan in the Court of Appeal, Regal Pearl filed a summons seeking leave to enforce the charge against Zurich in accordance with section 6(4) of the Law Reform (Miscellaneous Provisions) Act 1946 and such leave was granted on 22 April 2004 by Associate Justice Malpass.

34 No argument has been raised before me as to the effects of section 6 of the Law Reform (Miscellaneous Provisions) Act 1946.

35 It is conceded by both parties that the issue before me is whether, upon its true construction, the AllGuard Business Insurance Policy which was admittedly in force at the relevant time, responded to the liability created by the order of the Court of Appeal.

36 The defendant, in short, argues that under the insuring clause it is liable to indemnify Tai Kwan only in respect of amounts that it becomes legally liable to pay in compensation for personal injury. Its argument continues that Tai Kwan became legally liable to pay, not compensation for personal injury, but compensation for economic loss. Therefore, it is not liable under the insuring clause.

37 Alternatively, it argues that its liability to indemnify Tai Kwan is excluded by exclusion clause 12.

38 It is first convenient to consider what appellate courts have laid down as the principles of interpreting a policy of insurance.

39 In McCann v Switzerland Insurance Australia Limited [2000] HCA 65, Gleeson CJ at paragraph 22 said:-

“A policy of insurance even one required by statute, is a commercial contract and should be given a business like interpretation. Interpreting a commercial document requires attention to the language used by the parties, the commercial circumstances which the document addresses, and the objects which it is intended to secure”.

40 In the same case at paragraph 74 Kirby J said:-

“The meaning to be given to an insurance policy must take into account the commercial and social purpose for which it was written. Under the guise of giving the language of a policy its ordinary and fair meaning, a court is not entitled to make a new contract for the parties at odds with that upon which they have agreed. Maxims and rules of construction, developed as tools to aid the task of interpretation, are subordinate to the primary duty which is to uphold the contract between the parties. Without the authority of statute, no court is authorised to attribute a different meaning to the words of a policy simply because the court regards the meaning as otherwise working a hardship on one of the parties”.

The Insurance Policy

41 I now pass to a consideration of the policy. It is headed “AllGuard Business Insurance”. The cover is described thus in the policy:-

“Subject to all of the terms and conditions contained in your policy and payment of the premium we will provide you with the cover shown in the cover sections of your policy up to the appropriate amount shown in the schedule or other limits shown in your policy.”

42 The Renewal Schedule which forms part of the policy describes the period of insurance as from 20 February 1997 to 20 February 1998. The type of business conducted by Tai Kwan, the insured, is described as “cold storage/wholesale of frozen goods” and also as “cold storage/frozen foods”.

43 The Policy is in two sections, namely “Part A – General Liability” and “Part B – Products Liability”

44 The words “General Liability” are not specifically defined. The relevant part of the cover under Part A states:-

“. . .we will pay all amounts that an Insured Person becomes legally liable to pay in compensation for:

1. Personal Injury; or

2. Property Damage

that results during the period of insurance from an occurrence within the territorial limits that happens in connection with your business”

45 This case is concerned with Part B which covers “Products Liability".

46 The limit of liability for products liability is declared as five million dollars for “any one occurrence and in the aggregate any one period of insurance”. There is nil excess.

47 The insuring clause which is headed “Products Liability” is in these terms:-

“When a limit of liability is shown in the schedule for products liability we will pay for all amounts up to the limit of liability that an insured person becomes legally liable to pay in compensation for:

1. Personal injury; or

2. Property damage;

that results during the period of insurance from an occurrence within the territorial limits that happens in connection with your products.”

48 The policy contains a number of definitions which have to be considered when interpreting the insuring clause.

49 The relevant parts of the definition of “Your Products” states:-

“Your products means anything that is not in your physical custody or in your legal control that has been . . . sold . . . by you in the course of the business”.

50 It is not in dispute that the subject contaminated prawns were sold by Tai Kwan to Regal Pearl in the course of its business.

51 In the policy “Products Liability” is defined as:-

“Products liability means any liability for an occurrence that is caused by or arises out of any of your products.”

52 “Occurrence” is also defined and the relevant part of that definition is:-

“Occurrence means an event which causes personal injury or property damage that is neither expected or intended by an insured person.”

53 When one combines the insuring clause together with the definitions to which I have referred (excluding “your products”), it reads this way:-

“When a limit of liability for an event which causes personal injury or property damage that is neither expected or intended by an insured person, that is caused by or arises out of any of the insured’s products, we will pay for all amounts up to the limit of liability that an insured person becomes legally liable to pay in compensation for personal injury or property damage that results during the period of insurance from an event which causes personal injury or property damage that is neither expected or intended by an insured person within the territorial limits that happens in connection with your products.”

54 The words in the definition of “products liability” - “that is caused by or arises out of any of your products” plus the words in the insuring clause “that happens in connection with your products” satisfies me that this insuring clause has a much wider application than merely limiting the liability of the insurer to indemnifying the insured only against personal injury or property damage which the insured is found liable to pay to an injured person.

55 These phrases, in my view, extend the liability of the insurer to indemnify the insured in respect of its liability to pay monies to a third person arising out of its products which cause injury to others.

56 In short I am satisfied that the insuring clause covers the liability of Tai Kwan to indemnify Regal Pearl even though that liability can be described as economic loss. This is because that liability happens in connection with Tai Kwan’s products and the liability is caused by or arises out of its products.

57 On behalf of the defendant it is submitted that the words in the insuring clause “We will pay for all amounts up to the limit of liability that an insured person becomes legally liable to pay in compensation for personal injury or property damage” means just what it says. Accordingly the liability of Zurich is limited to indemnifying Tai Kwan for amounts which it is legally liable to pay for personal injury or property damage.

58 In support of this submission it relies upon a number of cases.

59 The first is Nigel Watts Fashion Agencies Pty Ltd v GIO General Insurance 1995 ANZ Insurance Cases 61-235 page 75,638.

60 In that case the plaintiff had been injured when entering a lift in office premises. He received workers compensation benefits from his employer and sued the landlord claiming damages at common law for negligence. The landlord in turn issued a third party notice joining the employer as a third party. That third party notice succeeded against the employer only on the basis of the terms of the contract of lease. The employer sought recovery against its workers compensation insurer.

61 The relevant clause of the policy is set out in the judgment of Handley JA at page 75,648 and included liability “to pay any other amount in respect of his liability independently of the act for any injury to any such person.”

62 Handley JA says at 75,648:-

“The term “for”, is, of course, one which has a wide operation. The extent of it in each case is to be determined by the context in which it is used. I do not think that the employer’s liability in the present case, though arising because Mr Watts was injured is a liability “for” that injury. It is, in the relevant sense, a liability arising under the indemnity which by terms of the lease, was contracted to be given.”

63 In my view this case is distinguishable from the instant case because the words of the insuring clause do not contain the surrounding words which are incorporated into the instant insuring clause by reason of the respective definitions. In particular, I refer to the definition of “products liability” which means liability for an occurrence that is caused by or arises out of any of the Insured’s products.

64 Furthermore, that was a case based upon a statutory form of compensation clearly designed to cover an employer in respect of liabilities under the workers compensation legislation as well as for common law liability to the injured worker.

65 The next case is Allianz Australia Limited v Wentworthville Real Estate Pty Ltd (2004) NSWCA 100.

66 In that case Starr Partners managed a rental property owned by Mr and Mrs Khoury. A tenant of the property, Mr Hudson, sued the Khourys in negligence after he fell in the shower and cut himself on a glass screen. The Khourys filed a cross-claim against Starr Partners. The matter was ultimately settled with the Khourys and Starr Partners agreed to pay half of the agreed sum of damages. That case was a claim by Starr Partners against its insurer, Allianz, for indemnities against the liability incurred in the settlement.

67 Allianz sought to deny liability on the basis of exclusion clause K which stated:-

“Except as expressly provided for in the extensions, this policy shall not indemnify the insured in respect of any claim against the insured for any alleged or actual bodily injury or property damage.”

68 The Court of Appeal held that the claim fell outside exclusion clause K because the claim by Starr Partners was one for contribution/indemnity against economic loss. Mr Hudson’s claim against the Khourys was for bodily injury but the Khoury’s claim against Starr Partners was not of that character.

69 In that case the court held that the words in the exclusion clause: “for any alleged or actual bodily injury” limited its terms to bodily injury.

70 In my view this case is also distinguishable from the instant case for two reasons.

71 First it was the construction of an exclusion clause which is normally read in favour of an insured. Secondly and more importantly, the only words that were relevant in that clause were “for any liability involving bodily injury or property damage.” The relevant clause in that case was not as wide as the insuring clause as amplified by the definitions in the present case.

72 The next case is National Vulcan Engineering Insurance Group Limited v Pentax Pty Ltd (2004) NSWCA 218.

73 A worker employed by Pentax was injured while working on a building site on which was being conducted a building project by Multiplex. Vulcan had issued an insurance policy in respect of the project insuring contractors and subcontractors, including Multiplex and Pentax, in respect of certain legal liabilities.

74 The worker sued Pentax and Mulitplex. Multiplex cross-claimed against Pentax seeking an indemnity against its liability to the worker. Pentax cross-claimed against Vulcan claiming indemnity in respect of any liability it had to Multiplex. The worker’s claim against Pentax and Multiplex was settled on the basis that he receive certain verdict monies.

75 Under the subcontract between Pentax and Multiplex, Pentax agreed to indemnify Multiplex “against all loss, damages, claims, liens, actions, liabilities or proceedings whatsoever arising under any statute or at common law including claims in respect of personal injury to…any person…arising out of or in the course of or caused by breach of performance of this agreement or by the execution of the works”.

76 The question was whether Vulcan was liable to indemnify Pentax in the respect of this liability.

77 The insuring clause relevantly obliged Vulcan to indemnify Pentax in respect of sums which Pentax “shall become legally obligated to pay for or in respect of…personal injury…suffered…by any person…caused by…an occurrence…in connection with” the project.

78 The insurance policy contained a relevant exclusion of “liability…for personal injury sustained by any person arising out of and in the course of his/her employment by the insured…where claims for such personal injury are brought directly against the insured by an employee of that insured”.

79 At paragraphs 11 and 12 of his judgment Hodgson JA said:-

“11. I note that Vulcan's main argument was that Pentax's liability to Multiplex was not a sum which Pentax became legally obligated to pay for or in respect of personal injury, because Pentax's liability to Multiplex was pursuant to a contractual indemnity. In my opinion, this liability was a sum which Pentax was legally obligated to pay "for or in respect of" personal injury; but this was so only because the width of the words "in respect of". Had the indemnity been limited to sums which Pentax was legally obligated to pay "for" personal injury, this wording would not in my opinion have extended to a contractual liability to indemnify Multiplex for its liability for the worker's personal injury.

12. Consistent with this view, in my opinion the exclusion does not apply because Pentax's liability is not for personal injury, and the fact that a claim for personal injury had been brought directly against it is not of itself sufficient to engage the exclusion.”

80 On behalf of the insurer in the instant case it is submitted that the words in the insuring clause is “legally liable to pay in compensation for”. The words “in respect of” are not present. Accordingly the insuring clause does not respond to the liability claimed.

81 In my view this submission involves too narrow a reading of the insuring clause. It fails to take into account the definition clauses and to incorporate them within the insuring clause. Hence, the instant case is clearly distinguishable from the National Vulcan case.

82 In his separate judgment in that case, M. W. Campbell AJA considered a number of decided cases and concluded at paragraph 122 that the authorities to which the court had been referred provide little or no guidance to the resolution of the matter. They concern different expressions in different insurance policies, or in statutory context, and arise out of different factual circumstances.

83 Those words, with respect, are apposite to the present case.

84 Furthermore, the defendant argues that it is not liable under the insuring clause because the liability of Tai Kwan does not arise out of any liability to the injured claimants but instead arises out of a breach of the implied terms in the agreement between it and Regal Pearl.

85 The argument continues that the liability of Tai Kwan to Regal Pearl was based only on that contract and not imposed by law within the meaning of the clause in the insurance policy.

86 The defendant relies on the decision of the Supreme Court of Canada in Canadian Indemnity Co v Andrews and George Co Ltd (1952) 4 DLR 690.

87 In that case the plaintiff insured with the defendant “against the liability imposed by law upon the insured for damages to or destruction of property of others caused by accident and arising out of the handling or use of or the existence of any condition in merchandise, products or containers manufactured, sold, or handled by the insured after the insured has relinquished possession of such merchandise, products or containers to others and away from premises owned by, leased to or controlled by the insured.”

88 An exemption clause excluded liability for “damage to or destruction of property where the insured has assumed liability therefore under the terms of any contract or agreement”.

89 The plaintiff manufactured defective glue. This glue was supplied to a plywood manufacturer whose plywood was thereby made defective and the plaintiff was made liable for this damage by implied warranty arising under the Canadian Sale of Goods Act.

90 The court found that if the purchaser’s cause of action against the plaintiff respecting the defective glue was based only on contract, the latter’s liability for damage was not imposed by law within the meaning of the clause above quoted. Further, the exemption in the policy bars recovery since the plaintiff assumed liability under its contract with the purchaser, for the implied condition provided in section 21 of the Sale of Goods Act.

91 At page 693 Kerwin J said:-

“The fact that section 21 of the Sale of Goods Act 1948 provides that in certain circumstances there shall be an implied condition as to the quality of fitness for any particular purpose of goods supplied under a contract of sale, and that section 58 provides for damages for breach of such a condition (treated as a warranty) does not affect the matter. If the lumber company’s cause of action against the respondent were based only on contract, the latter’s liability for damage to the former’s property was not imposed by law upon the respondent within the meaning of clause 1 of exception 10.”

92 The defendant submits that in the present case the liability of Tai Kwan to Regal Pearl is based entirely upon a corresponding provision of the New South Wales Sale of Goods Act. Accordingly it is not a form of liability which is covered under the insuring clause.

93 The insuring clause considered in Canadian Indemnity case was in terms quite different from that in the instant case.

94 A further matter which distinguishes the instant case from Canadian Indemnity is an exclusion clause that applies to Part B (which covers products liability) in Zurich’s policy.

95 Paragraph 1 of that exclusion in its relevant part states:-

“We will not pay for
(c) Liability assumed by any warranty or guarantee given by you other than any warranty as to the safety of your products implied by Statute”.

96 The warranty upon which Tai Kwan was held liable to Regal Pearl related to the safety of its products and it is implied by Statute. Accordingly it is outside that particular exclusion clause and within the terms of the insuring clause.

97 For all of these reasons I would hold that the insuring clause responds to the liability imposed by the order of the Court of Appeal.

Exclusion Clause 12

98 I now pass to the exclusion clause upon which the defendant relies. It is one of fourteen which are said to apply to both Part A and Part B of the policy.

99 The relevant parts of this clause are:-

“This Cover Section does not cover:

12. Contractual liability
Liability for personal injury or property damage that is accepted by any insured person under any contract, warranty or agreement requiring:


(a) insurance to be effected upon any property not owned by the insured person;

(b) the acceptance of any liability, except liability that would have existed even if the contract accepting the liability did not exist; or

(c) the waiving or limitation of the insured persons rights of recovery against another party.

100 The defendant submits that Tai Kwan accepted liability for personal injury or property damage under a contract or agreement which required the waiving or limitation of its rights of recovery against another party namely Great Ocean.

101 It is agreed that the terms of the sale of the subject prawns from Great Ocean to Tai Kwan was subject to written terms and conditions the relevant parts of which are as follows:-

“TERMS AND CONDITIONS

Great Ocean Products Pty Ltd (the company) agrees to sell the goods to the customer named hereon and the customer agrees to purchase the goods subject to and in accordance with the following terms and conditions:

1. The company shall not be bound to consider any claim by the customer unless made within seven days after receipt of goods and in no instant shall any claim be greater in amount than the actual invoice value of the goods claimed to be faulty when delivered by the company. Any warranty or conditions expressed or implied whether by statute or otherwise, as to the goods, their description, quality of fitness for any purpose or any use is, so far as is permitted by law or statute, expressly excluded and the customer assumes all risks and liabilities whatsoever for any consequences arising from the use of the goods, whether singularly or in combination with any other products. The customer shall indemnify and hold the company harmless from and against any and all claims, demands, obligations, causes of action, liabilities, expenses and damages arising out of or relating to any alleged defects whether latent or patent in the goods purchased.”

102 This document contains further provisions not relevant for present purposes and concludes “This contract is subject to laws and courts of New South Wales only”.

103 The defendant submits that this agreement expressly waives the liabilities which might otherwise be imposed upon Great Ocean to Tai Kwan under the Sale of Goods Act and goes further and provides that Tai Kwan indemnifies Great Ocean from all claims arising out of or relating to any alleged defects whether latent or patent in the goods purchased.

104 The defendant’s submission continues that the effect of this document is that Tai Kwan accepted liability under a contract or agreement requiring the waiving or limitation of its rights of recovery against another party namely Great Ocean as provided in exclusion clause 12 set out above.

105 The defendant argues that it is relying upon the ordinary meaning of the words of exclusion clause 12 and, in particular, of paragraph (c). Under that paragraph, Tai Kwan has effectively waived its rights of recovery against Great Ocean. This means that the defendant has lost the right of recovery from Great Ocean and therefore the exclusion clause applies.

106 On behalf of the plaintiff it is submitted that the liability of Tai Kwan to Regal Pearl was not accepted under any contract, warranty or agreement. That liability was imposed upon it by order of the Court of Appeal. The liability of Tai Kwan to Regal Pearl arises by order of that court and not by reason of an agreement between it and Great Ocean. Accordingly, submits the plaintiff, the agreement between it and Great Ocean is no bar to the liability which it has to Regal Pearl.

107 The argument is, that to come within exclusion clause 12 Tai Kwan would have had to accept liability to the plaintiff.

108 Put another way, the plaintiff submitted that Tai Kwan’s liability under the order of the Court of Appeal is to pay money to Regal Pearl and not to Great Ocean. Hence the agreement with Great Ocean does not relate to the liability referred to in the insuring clause of the policy. Furthermore, the amount that Tai Kwan has to pay to Regal Pearl is in no way affected by the contract between Tai Kwan and Great Ocean.

109 If exclusion clause 12 contained only paragraphs (a) and (b) I would have little difficulty in accepting the plaintiff’s submissions.

110 Unfortunately for the plaintiff, paragraph (c) excludes liability accepted by Tai Kwan under a contract, warranty or agreement requiring waiving or limitation of its rights of recovery against another party.

111 In my view this exclusion clause clearly means that if Tai Kwan enters into an agreement which waives or limits its rights of recovery against another party then Zurich does not have to indemnify it.

112 Contrary to the submissions of the plaintiff, the clear purpose of this clause is that the insurer wanted to be in a position where it could exercise rights of recovery against a third party. The effect of the agreement between Tai Kwan and Great Ocean is that those rights of recovery are waived.

113 The plaintiff further submits that the liability referred to in exclusion clause 12 is liability for personal injury or property damage. The liability referred to here, being so limited, does not cover the instant case where the liability found to be due from Tai Kwan to Regal Pearl is one of indemnity for economic loss. Accordingly, it is submitted that this clause does not apply.

114 It should be noted that the words “personal injury or property damage” included within exclusion clause 12 are identical with the words “personal injury or property damage” included within the insuring clause. As mentioned earlier, exclusion clause 12 is included within exclusions that apply to Part A and Part B of the policy of insurance.

115 Although these words are the same, the liability referred to in the insuring clause is different from the liability that is referred to in exclusion clause 12.

116 The liability under the insuring clause is a liability that an insured person becomes legally liable to pay. That liability (for products) is a liability for an occurrence that is caused by or arises out of any of Tai Kwan’s products.

117 By way of contrast the liability in the exclusion clause is “liability for personal injury or property damage that is accepted by the insured person under any contract, warranty or agreement.”

118 Exclusion clause 12 does not refer to “products liability” as does the insuring clause. It refers only to “liability for personal injury or property damage”.

119 If it was intended to exclude liability for an occurrence that is caused by or arises out of Tai Kwan’s products, the exclusion clause could have said so. It does not.

120 As in the case of National Vulcan Engineering Insurance Group Limited v Pentax Pty Ltd (2004) NSWCA 218, the words “in respect of” are not present.

121 Accordingly, I hold that this exclusion clause does not apply because Tai Kwan’s liability to Regal Pearl is not for personal injury or property damage. It is for indemnity for economic loss.

122 Having held that this form of liability is covered by the insuring clause and is not within the ambit of the exclusion clause, it follows that there should be judgment in favour of the plaintiff against the defendant. The agreed amount is $1,473,155, subject to interest.

123 At the request of Counsel I have reserved the questions of interest and costs and I now invite submissions on those issues.

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