Ritchie v Advanced Plumbing and Drains Pty Ltd

[2019] NSWSC 1028

Supreme Court

New South Wales

• Amendment notes

Medium Neutral Citation:	Ritchie v Advanced Plumbing and Drains Pty Ltd [2019] NSWSC 1028
Hearing dates:	20 August 2018
Date of orders:	16 August 2019
Decision date:	16 August 2019
Jurisdiction:	Common Law
Before:	Campbell J
Decision:	(1) Grant leave to the plaintiff to proceed against Insurance Australia Limited trading as CGU Insurance pursuant to s 5 of the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW); (2) Grant leave to the plaintiff to file and serve an Amended Statement of Claim to include a claim for relief against Insurance Australia Limited Trading as CGU Insurance under s 4 of the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW).
Catchwords:	CIVIL PROCEDURE – Leave to proceed against insurer – defendant in liquidation – third party claims against insurers – arguable case that policy responds to liability – construction of insurance contracts – whether insurer has validly disclaimed liability – held arguable case against defendant – held arguable case that insurance policy responds to liability – held insurer has not discharged onus disclaiming liability – held leave to proceed against insurer granted.   CONTRACT LAW – Interpretation of insurance contracts – exclusion and limitation clauses – construing ambiguous words – whether general expression “spark producing equipment” should be read down – held general expressions to be read in context – held expression confined to include only specified equipment – held general expression to be read down.
Legislation Cited:	Civil Liability Act 2002 (NSW), s 5B Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW), s 5 Corporations Act 2001 (Cth), s 500
Cases Cited:	Andar Transport Pty Ltd v Brambles Limited (2004) 217 CLR 424; [2004] HCA 28 Australian Aviation Underwriting Pty Ltd v Henry (1988) 12 NSWLR 121 Burnie Port Authority v General Jones Pty Ltd (1994) 179 CLR 520; [1994] HCA HCA 13 Cody v JH Nelson Pty Ltd (1947) 74 CLR 629 Darlington Futures Ltd v Delco Australia Pty Ltd (1986) 161 CLR 500; [1986] HCA 82 Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544; [2017] HCA 12 Electricity Generation Corporation v Woodside Energy Pty Ltd (2014) 251 CLR 640; [2014] HCA 7 General Steel Industries Inc. v Commissioner for Railways (1964) 112 CLR 125; [1964] HCA 69 Lend Lease Real Estate Investments Limited v GPT RE Limited [2006] NSWCA 207 McCann v Switzerland Insurance Australia Limited & Ors (2000) 203 CLR 579; [2000] HCA 65 Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd and Anor (2015) 256 CLR 104; [2015] HCA 37 Murphy, McCarthy & Associates Pty Limited v Zurich Australian Insurance Limited [2018] NSWSC 627 Voli v Inglewood Shire Council (1963) 110 CLR 74; [1963] HCA 15 Sweeney v Boylan Nominees Pty Ltd (2006) 226 CLR 162; [2006] HCA 19 Watts v Perry [1971] 1 NSWLR 73 Wickstead v Browne (1992) 30 NSWLR 1 Zaki v Better Building Constructions Pty Ltd [2017] NSWSC 1522
Texts Cited:	New South Wales Law Reform Commission, Third party claims on insurance money: Review of s 6 of the Law Reform (Miscellaneous Provisions) Act 1946, Report No 143 (2016)   Lewison and Hughes, The Interpretation of Contracts in Australia, (Law Book Co. 2012)
Category:	Procedural and other rulings
Parties:	Ritchie (Plaintiff/Applicant) Advanced Plumbing and Drains Pty Ltd (Defendant) Insurance Australia Limited T/as CGU Insurance (Respondent to the Motion)
Representation:	Counsel: G. Dalton Q.C. with A.H. Edwards (Applicant) P.H. Greenwood SC with Z Heger (Respondent)   Solicitors: Maddens Lawyers (Plaintiff/Applicant) McCabe Curwood (Respondent)
File Number(s):	2017/00126664; 2018/00031598

Judgment

1. The plaintiff seeks leave to proceed against Insurance Australia Limited t/as CGU Insurance (“CGU”) which insured the defendant, Advanced Plumbing and Drains Pty Ltd (“Advanced Plumbing”) under a legal liability insurance policy when the plaintiff’s cause of action accrued on 17 February 2017. Advanced Plumbing went into voluntary liquidation on 18 December 2017.

2. The plaintiff wishes to exercise her statutory right to recover the insurance moneys that would have been payable by CGU under the policy to Advanced Plumbing. This right is created by s 4 of the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW) (“the Act”). The Act replaces the now repealed s 6 Law Reform (Miscellaneous Provisions) 1946 (NSW).

3. Leave to commence or continue proceedings against an insurer is required by section 5 of the Act, which is in the following terms:

5   Leave to proceed

(1) Proceedings may not be brought, or continued, against an insurer under section 4 except by leave of the court in which the proceedings are to be, or have been, commenced.

(2) An application for leave may be made before or after proceedings under section 4 have been commenced.

(3)   Subject to subsection (4), the court may grant or refuse the claimant’s application for leave.

(4)   Leave must be refused if the insurer can establish that it is entitled to disclaim liability under the contract of insurance or under any Act or law.

4. The repeal and replacement of s 6 of the 1946 Act was driven by Report 143 of the New South Wales Law Reform Commission, Third Party Claims on Insurance Money; review of s 6 of the Law Reform (Miscellaneous Provisions) 1946 of November 2016 (“NSWLRC report”). In Zaki v Better Building Constructions Pty Ltd [2017] NSWSC 1522, I said (at [27]):

As paragraph [2.46] of Report 143 indicates, a grant of leave will be determined by reference to what the authors of the report refer to as “well settled criteria”: that there is an arguable case of liability against the defendant; that there is an arguable case that the insurer’s policy responds to that liability; and there is a real possibility that, if the plaintiff obtains judgment against the defendant, the defendant will not be able to meet it. Given the interlocutory nature of the leave application, it is appropriate that contestable issues as to the liability of the insured person, and the availability of cover under an insurer’s policy, should be determined at the ultimate hearing. (My emphasis.)

As the language of s 5(3) makes clear, even if a consideration of the “well-settled criteria” points in the direction of a grant of leave there remains a residual discretion to refuse leave in appropriate cases. The factors relevant to the exercise of the residual discretion need not be considered here. Sub-section 5(4) makes clear that leave must be refused if the insurer “can establish it is entitled to disclaim liability” under the policy, by statute or otherwise at law. It is implicit in s 5(4) that an insurer should be given that opportunity on the leave hearing if it seeks it.

Issues

5. Mr G Dalton QC appeared for the plaintiff with Mr AH Edwards, and Mr PH Greenwood SC appeared for CGU with Ms Z Heger. It is clear from counsels’ written and oral submissions that the areas of dispute relate to the first and second of the “well settled criteria”: whether there is an arguable case that Advanced Plumbing is liable to the plaintiff; and whether there is an arguable case that CGU’s policy responds to that liability. There is no real question that Advanced Plumbing is not a good common law defendant, it having gone into voluntary liquidation and the initial report to creditors indicating an excess of liabilities over assets. I should say that by the end of the hearing the first issue was not strongly pressed by CGU (29.35-45T).

6. As will be explained and developed below, in resisting leave CGU also relies upon s 5(4) to submit there is no arguable case that its policy responds to Advanced Plumbing’s liability, if any. If this is so, as I have said, leave must be refused. From the language of the sub-section it is clear that CGU carries the onus of establishing “it is entitled to disclaim liability” under the policy (my emphasis). CGU says that any liability of Advanced Plumbing is: not covered by the “insuring clause” contained in the policy because it did not arise “as a result of an occurrence in connection with [Advanced Plumbing’s] business”; and is caught by the “welding endorsement” excluding liability arising from work involving certain processes, or the use of specified equipment, unless specific safety measures are adopted.

Background

7. The proceeding is a representative action in which the plaintiff claims damages for herself and on behalf of members of a group of claimants for losses suffered as a result of a bushfire which spread from a property at Carwoola NSW, on the Southern Tablelands near the Australian Capital Territory, on 17 February 2017. The plaintiff alleges that the bushfire was negligently started by Advanced Plumbing.

8. The plaintiff says that the essential act of negligence of Advanced Plumbing pertains to the actions of its employees, and another, who, on a total fire ban day, used a “power cutting wheel” to cut reinforcing steel. The use of this equipment produced a “shower of sparks” that ignited nearby long grass causing a large bushfire. This fire spread over about 3500 hectares and caused very extensive damage. The occurrence took place at a construction site on which a house was to be erected for the company’s director who had directed several employees to carry out with the works on his private property. The evidence read at the hearing suggests that the person operating the cutting tool was a sometime employee of Advanced Plumbing not then currently on its books who the foreman had enlisted for the day. He appears to have been subsequently, formally re-employed as an apprentice plumber.

9. The proceeding was commenced by statement of claim filed on 28 April 2017. However on 19 December 2017 the defendant went into voluntary liquidation. By dint of s 500 of the Corporations Act 2001 (Cth) the plaintiff required the leave of the Court to proceed against the defendant. On 14 February 2018 while preparing an application for such leave the plaintiff obtained from the liquidator, by notice to produce, Advanced Plumbing’s public liability insurance policy issued by CGU. On 20 March 2018 the liquidator provided the plaintiff’s solicitors with a letter from CGU dated 16 March 2018 denying liability to indemnify Advanced Plumbing for the claims the subject of the proceeding.

10. On 12 April 2018 a notice of motion was lodged by the plaintiff seeking the following orders: first, that the plaintiff have leave to proceed against CGU; secondly, an order joining CGU to the proceeding; and thirdly an order granting leave to file and serve an amended statement of claim proceeding against CGU. The application for leave to continue the proceedings against Advanced Plumbing was also listed before me but was not dealt with pending my decision on the motion under the Act.

Submissions

Plaintiff’s Submissions

11. The plaintiff relies upon s 5 of the Act and submits that the Court is entitled to use the NSWLRC report as an aid to construing s 5. Mr Dalton argued that the exercise of the Court’s discretion is informed by the three well-settled criteria referred to at [4] above (Report 143 [2.46]). Reference was made to the judgment of Hammerschlag J in Murphy, McCarthy & Associates Pty Limited v Zurich Australian Insurance Limited [2018] NSWSC 627 where his Honour said of the grant of leave in s 5 of the Act at [16]:

[The plaintiff] must have an arguable case against [the defendant], there must be an arguable case that the Policy responds to it and there must be a real possibility that if judgment is obtained [the defendant] would not be able to meet it.

Mr Dalton submitted that “arguable case” is a relatively low threshold requirement for a successful application.

12. It is submitted that there is an arguable case against Advanced Plumbing because by its own defence it concedes that: the foreman, Mr Orford, was its employee; he was operating the power cutting wheel or “quick cut” on 17 February 2017; it was known the quick cut produced sparks; and that a fire was started on the property that day.

13. There is an arguable case that CGU’s policy responds to the liability for personal injury and property damage alleged. Mr Dalton submits that the occurrence was connected with Advanced Plumbing’s business in the extended sense given to that expression by the definition of business in the policy. And that work using a quick cut machine was not caught by the welding endorsement properly construed.

CGU’s Submissions

14. The overarching submission of CGU is that there is no arguable case that the policy responds to Advanced Plumbing’s liability (which is disputed), and CGU is entitled to disclaim liability pursuant to s 5(4) of the Act. As such the Court must refuse leave to proceed against it.

15. CGU relies on its letter of 16 March 2018 denying cover for the Plaintiff’s claim on two bases:

1. The Business Ground: that is, the occurrence did not happen “in connection with the Insured’s Business or Products” within the meaning of clause 1.1 (cl 1.1) of the Policy.

2. The Welding Ground: that is, the welding endorsement applied and the work was not performed in strict compliance with AS 1674.1

16. Mr Greenwood also argued in written submissions that “the plaintiff has not established that there is an arguable case that Advanced breached any duty of care causing loss”. This ground was not amplified in oral submissions, as I have said.

Decision

Arguable case against Advanced Plumbing

17. I have dealt with the evidence read before me in relation to the nature of the work being carried out on 17 February 2017 in the context of the nature of Advanced Plumbing’s business in some detail below when evaluating the business ground said to entitle CGU to deny indemnity. Suffice it to say, and for the present limited purposes, I am of the view it cannot seriously be contested that the plaintiff has an arguable case that Advanced Plumbing is liable to her and other group members for the losses sustained in the bushfire of 17 February 2017.

18. The material read before me clearly shows that there will be evidence available at the trial of the action demonstrating that Advanced Plumbing’s director and guiding mind, Jason Hooper, directed a number of employees to perform work on the construction site for his proposed private dwelling. Two persons were directly involved in the work using the quick cut. They were Shannon Orford, described as Advanced Plumbing’s “Civil Foreman”, and Harry Elliot who at that time probably was not employed by Advanced Plumbing. In an interview with police on 18 February 2017, Mr Orford said of Mr Elliot: he was a “good kid” (Q 107); Mr Orford knew “he wasn’t working (Q 108); and as Mr Orford “knew [he] was getting behind on this job … just asked him to come out and give [Mr Orford] a hand” (Q 109). He told Mr Hooper he was bringing Mr Elliot along (Q 110) and said to Mr Hooper “I’d sort it out” (Q 111). There were two other employees of Advanced Plumbing working on the site that day who performed work in accordance with instructions given by Mr Orford (Q 91).

19. The evidence seems to indicate that Mr Orford and Mr Elliot were working in a trench which had been previously dug for footings for a proposed retaining wall, near the construction pad for the dwelling. They were placing reinforcing steel for concrete footings which were to be poured on one of the following days. It was necessary to cut the steel in places where the footing dropped a level. The cutting was done using the quick cut, more formally a Husqvarna K 970 power cutter. The friction between the high speed cutting wheel and reinforcing steel ordinarily causes a shower of sparks. For this reason the usual method is to cut directing the shower of sparks into the trench. Half a dozen or so cuts had been made earlier without incident.

20. Aerial photographs show that there was a cleared area completely devoid of vegetation for some distance around the footprint of the proposed dwelling where the ground had been graded. The dry, long grass was beyond the cleared area. The cleared area was described by, at least, Mr Elliot as the “fire ring” in an endorsement he marked on the photograph.

21. The men were apparently entirely oblivious to the total fire ban then in place. Mr Orford and Mr Hooper both agreed that had they been aware of the ban, bolt cutters would have been used to cut the steel, rather than the quick cut.

22. Initially Mr Orford claimed to be the person using the quick cut when the fire started. It later became apparent he had said that to protect the younger Mr Elliot. It appears to be the case that Mr Elliot was given the task of completing a particular cut. He had experience cutting with an angle grinder. Initially he directed the shower of sparks into the trench in the proper manner. However, the sparks rained on Mr Orford who yelled out for Mr Elliot to turn the machine around. It is apparent that Mr Elliot obeyed this yelled command directing the shower away from the line of the trench and in the direction of the long grass across the fire ring.

23. The material before me does not indicate any other possible source of ignition and it is obviously clearly arguable that, if this evidence is lead at the trial, the act of Mr Elliot redirecting the spray of sparks started the fire in the long grass.

24. Whatever complexities there may be in deciding questions of the existence, nature and scope of duties of care in the modern law of negligence, generally speaking a person who undertakes the performance of work on land will be under a duty to exercise reasonable care in its performance to avoid foreseeable risk of harm to others: Voli v Inglewood Shire Council (1963) 110 CLR 74; [1963] HCA 15. Where the work is hazardous work, including work involving a foreseeable risk of the escape of fire from the land, the landowner or other person authorising the work will be subject to a non-delegable duty of care extending to ensuring that the persons performing the work take reasonable care to avoid that occurrence: Burnie Port Authority v General Jones Pty Ltd (1994) 179 CLR 520; [1994] HCA 13. For this reason, and given the relatively low threshold I have referred to, it is pointless to pause to consider whether Advanced Plumbing would be vicariously liable for any negligence on the part of Mr Elliot: cf, Sweeney v Boylan Nominees Pty Ltd (2006) 226 CLR 161; [2006] HCA 19.

25. I regard it as arguable that Advanced Plumbing owed Ms Ritchie and other neighbours a non-delegable duty of care of the type, and having the content, I have described. I am also satisfied that it is arguable, applying s 5B of the Civil Liability Act 2002 (NSW), that cutting steel using a quick cut on an extremely hot day exposed the plaintiff and other group members to a reasonably foreseeable and not insignificant risk of harm by the escape of fire from Mr Hooper’s property. I am also satisfied that it is arguable that a reasonable person in the position of Advanced Plumbing would have taken the precaution of requiring the work of cutting the reinforcing steel to be performed using bolt cutters which, on the material read at the hearing, did not involve the risk of the ignition and escape of fire.

26. It is also arguable that use of the quick cut or the failure to use bolt cutters was a necessary condition, as a matter of fact, of starting the fire and of its escape sufficient to satisfy the requirements of 5D of the Civil Liability Act. Given that the case falls into an established category of duty, it is also at least arguable that no real question arises about the scope of Advanced Plumbing’s liability properly extending to the harm suffered by the plaintiff and other group members.

27. Mr Greenwood’s attitude to this particular issue was entirely proper and appropriate.

Arguable case that CGU’s policy responds

28. Section 5 of the Act clearly imposes the onus on CGU to establish that it is entitled to disclaim liability under the insurance policy. If successful leave must be refused. If unsuccessful the Court must still consider whether cover is arguably available. In Zaki (at [28]) I ventured that the onus imposed on the insurer by s 5(4) of the Act requires it to demonstrate beyond argument an entitlement to decline indemnity. I also ventured that General Steel Industries Inc. v Commissioner for Railways (1964) 112 CLR 125; [1964] HCA 69 applies given the Court is asked to make this decision without affording the parties the opportunity of a trial. Naturally, frequently the question will depend upon a pure question of law, such as a point of construction of the policy, which may be confidently decided without the benefit of findings of contested fact: eg, Wickstead v Browne (1992) 30 NSWLR 1 at 15-17. This may be so even if extensive legal argument is necessary before a decision may be made: General Steel at [130]; Wickstead at [5]. However, where in truth the question is one of mixed fact and law, the existence of unresolved contestable questions of fact will usually demonstrate the existence of an arguable case.

Principles of construction

29. As CGU’s argument in respect of both the business ground and the welding ground depends on the legal meaning of its policy, it is well to bring to mind the applicable principles of construction. As Gleeson CJ said in McCann v Switzerland Insurance Australia Limited & Ors (2000) 203 CLR 579; [2000] HCA 65 at [22], an insurance policy is a commercial contract and should be given a business-like interpretation. This requires attention to the language contained in the policy, “the commercial circumstances which the document addresses, and the objects which it is intended to secure.”

30. In Mount Bruce Mining Pty Ltd v Wright Prospecting Pty Ltd and Anor (2015) 256 CLR 104; [2015] HCA 37. French CJ, Nettle and Gordon JJ expressed the legal principles applicable to the interpretation and construction of commercial contracts in the following terms (at [46] to [51]):

[46] The rights and liabilities of parties under a provision of a contract are determined objectively, by reference to its text, context (the entire text of the contract as well as any contract, document or statutory provision referred to in the text of the contract) and purpose.

[47] In determining the meaning of the terms of a commercial contract, it is necessary to ask what a reasonable businessperson would have understood those terms to mean. That enquiry will require consideration of the language used by the parties in the contract, the circumstances addressed by the contract and the commercial purpose or objects to be secured by the contract.

[48] Ordinarily, this process of construction is possible by reference to the contract alone. Indeed, if an expression in a contract is unambiguous or susceptible of only one meaning, evidence of surrounding circumstances (events, circumstances and things external to the contract) cannot be adduced to contradict its plain meaning.

[49] However, sometimes, recourse to events, circumstances and things external to the contract is necessary. It may be necessary in identifying the commercial purpose or objects of the contract where that task is facilitated by an understanding “of the genesis of the transaction, the background, the context [and] the market in which the parties are operating”. It may be necessary in determining the proper construction where there is a constructional choice. The question whether events, circumstances and things external to the contract may be resorted to, in order to identify the existence of a constructional choice, does not arise in these appeals.

[50]  Each of the events, circumstances and things external to the contract to which recourse may be had is objective. What may be referred to are events, circumstances and things external to the contract which are known to the parties or which assist in identifying the purpose or object of the transaction, which may include its history, background and context and the market in which the parties were operating. What is inadmissible is evidence of the parties’ statements and actions reflecting their actual intentions and expectations.

[51] Other principles are relevant in the construction of commercial contracts. Unless a contrary intention is indicated in the contract, a court is entitled to approach the task of giving a commercial contract an interpretation on the assumption “that the parties … intended to produce a commercial result”. Put another way, a commercial contract should be construed so as to avoid it “making commercial nonsense or working commercial inconvenience”.

(Footnotes omitted)

(See also Electricity Generation Corporation v Woodside Energy Pty Ltd (2014) 251 CLR 640; [2014] HCA 7 at [35]; and Ecosse Property Holdings Pty Ltd v Gee Dee Nominees Pty Ltd (2017) 261 CLR 544; [2017] HCA 12 at [16]).

31. Mr Dalton also invoked the specific approach to construction applicable in the case of guarantees and contracts of indemnity. These approaches are subject to the usual rules of commercial construction but may be applicable in the case of ambiguity. Senior Counsel invoked the canons of construction embodied in the expressions contra proferentem, ejusdem generis and noscitur a sociis. The latter two are not specific to guarantees or indemnities.

32. The decision of the High Court of Australia concerning exclusion or limitation clauses, in Darlington Futures Limited v Delco Australia Limited (1986) 161 CLR 500; [1986] HCA 82 should also be borne in mind, particularly in relation to the welding ground. There Mason, Wilson, Brennan, Deane and Dawson JJ stated (at p. 510):

.. the interpretation of an exclusion clause is to be determined by construing the clause according to its natural and ordinary meaning, read in the light of the contract as a whole, thereby giving due weight to the context in which the clause appears including the nature and object of the contract, and, where appropriate, construing the clause contra proferentem in case of ambiguity. Notwithstanding the comments of Lord Fraser in Ailsa Craig (citation omitted), the same principle applies to the construction of limitation clauses. …

(See also Andar Transport Pty Ltd v Brambles Limited (2004) 217 CLR 424; [2004] HCA 28 at [17] – [23].)

33. Lewison and Hughes, The Interpretation of Contracts in Australia, Law Book Co. 2012, formulate the ejusdem generis rule as follows:

If it is found that things described by particular words have some common characteristic which constitutes them a genus, the general words which follow them ought to be limited to things of that genus. (Page 325, [7.12])

34. The learned authors referred to the judgment of Starke J in Cody v JH Nelson Pty Ltd (1947) 74 CLR 629 at 639 where his Honour said:

… where there are general words following particular or specific words the general words should be confined to things of the same kind as those specified. 

Dixon J (at p 647) said that these maxims “relate to the context and subject matter in which indications of narrower meaning may be seen”.

35. In Lend Lease Real Estate Investments Limited v GPT RE Limited [2006] NSWCA 207 at [32] Spigelman CJ said:

The reading down of general words is one of the most common mechanisms applied in the course of legal interpretation. The Court should not give one word in an interrelated, overlapping list of expressions a meaning that is so broad as to be inconsistent with adjoining words or that renders those words irrelevant.

36. Lewison and Hughes formulate the noscitur a sociis maximum as meaning “a word of ambiguous meaning may take its character from the surrounding words if they have a common characteristic”. It obviously bears a relationship to the ejusdem generis maxim. In Australian Aviation Underwriting Pty Ltd v Henry (1988) 12 NSWLR 121 at 126, Hope JA said:

The principle represented by the [noscitur a sociis] maxim is not some exceptional or strained principle of construction. It is an obviously sensible principle to be applied in understanding the meaning of words.

His Honour applied the maxim to read down what may be the ordinary meaning of the expression “from an Insured Person’s own criminal act” in an exclusion clause in a policy of life insurance to mean “intentional criminal acts” as opposed to “negligent or inadvertent acts”.

37. It needs to be emphasised that the contra proferentum approach may only be applied in real cases of ambiguity, even if it may have particular work to do, inter alia, in contracts of indemnity or insurance. It is often regarded as a rule of last resort: see Lewison and Hughes, p 311 [7.08.4].

Business ground

38. CGU’s first ground of disclaimer is the business ground. CGU’s central contention is expressed on page 2 of the 16 March 2018 letter to Advanced Plumbing. It states:

Any alleged injuries or property damage did not occur as a result of an Occurrence happening in connection with Advanced’s Business within the meaning of the insuring clause:

i) The Works were private works for Advanced’s Director, Jason Hooper, who owns the property with his wife Julie Hooper

ii) The Cutting/Grinding Works were part of the preparation and laying of metal reinforcement mesh, in preparation for a concrete pour as part of the footings for a concrete block retaining wall. The work on the retaining wall footings was not related to drainage or plumbing work. The preparation of the footings was not incidental to drainage or plumbing work required for the dwelling. The requirements of the insuring clause for an Occurrence happening in connection with Advanced’s Business have not been satisfied to enliven the insuring clause.

39. That the works for Advanced Plumbing’s Director, Jason Hooper were undertaken on his property does not preclude them from being covered by the insurance policy. On the contrary, by cl 4.4.5 there is express allowance for work that is undertaken privately by an insured’s employees for any “director, partner or senior executive of the Insured”. This private work clause is found in the policy definitions and is one of the listed meanings of Business expressly provided for in the policy.

40. For ease of reference the relevant terms of the policy are extracted now. The insuring clause is as follows (block lettering is in the original denoting defined terms):

1.   The Indemnity

…the Insurer will indemnify the Insured against the legal liability of the Insured to pay:

1.1   Compensation in respect of:   

0.0.1 Injury to any person;

0.0.2 Property Damage;   

0.0.3 Advertising Injury;

Occurring within the Geographical Limits during the Period of Insurance as a result of an Occurrence in connection with the Insured’s Business or Products...

It is clear from a plain reading of the indemnity clause that CGU is obliged to cover the Advanced Plumbing against compensation they would be legally liable to pay in respect of personal injury and property damage if the liability occurred within the geographical limits of the cover during the period of insurance as a result of an occurrence in connection with Advanced Plumbing’s business.

41. Business is defined (in part):

4.   Definitions

For the purpose of this Policy the following definitions apply…

4.4   The Business means:

4.4.1   The Business specified in the Schedule;

…

4.4.3   first aid, medical, fire and ambulance services;

…

4.4.5   private work undertaken by the Insured’s Employees for any director, partner, or senior executive of the Insured;

…

4.4.10   any other occupation ancillary or incidental to the Business stated in the Schedule.

42. The business specified in the policy schedule is “[p]rincipally plumbing and any other activities incidental thereto” (my emphasis). I accept the submission that Advanced Plumbing was not a typical residential plumbing service. Rather, on the evidence it is apparent that it was a business which undertook larger scale commercial projects. This is supported by the liquidator’s creditors’ report which describes the business as a “commercial and civil hydraulics and drains business” (19.5T).

43. In addition, in his police interview Mr Hooper provided details relevant to the characteristics of the business, including the number of workers employed and the range of duties they performed for the business. (At tab 5, p 5) Mr Hooper stated: “Murray’s just an excavator operator, but Shannon [Orford]’s the civil foreman”. Mr Orford elaborated on his role as civil foreman in his interview of 18 February 2017. He said that he looks after all of Advanced Plumbing’s “ground works… all our digging, in ground works anything that we do that goes underground”. He stated that he had worked at Advanced Plumbing “for close to 5 years”. As regards the size of the business and types of work conducted, Mr Hooper said the business employed around 40 workers, and had in operation a number of sizeable excavators including a 12 tonne Hitachi excavator.

44. Mr Hooper provided further information about the nature of the work Advanced Plumbing conducted. When asked about the work on his property in relation to the “footings” and “steel works” he said (17.20T):

I’m using my resources ah from my company Advanced Plumbing to just do the footings and drainage. I guess that’s what we do….when we wanted to place the steel I instructed my foreman Shannon and Shannon of course is Shannon Orford to do that because um it’s a bit more probably of his expertise, (sic) (17.40T) (My emphasis.).

45. When evaluating the evidence of Mr Hooper at any trial doubtless some caution will need to be observed given he was the director and “owner” of the defendant now in liquidation. Nevertheless, it seems on a fair reading of his evidence that the works conducted on his private premises were well within the scope of the usual business activities of Advanced Plumbing. There is no evidence that such work was any more complex than usual, or that that it was significantly different from the types of jobs typically undertaken by Advanced Plumbing. It should also be borne in mind that this description was provided by Mr Hooper to police investigating the cause and origin of the fire. He was not being quizzed by investigators for the purpose of an insurance claim. He had no reason other than to accurately describe the business of Advanced Plumbing to police.

46. The cutting of the steelwork, the digging of the footings and the drainage works all appear to have been undertaken for the preliminary civil preparation of the site. These works, based on the interview of Mr Hooper, were distinct from the additional construction works also scheduled for the property. It was planned that these additional works would eventually result in the completion of several stand-alone structures including the actual dwelling, stables and shed. To this extent, Mr Hooper said National Build, a separate contractor, was contracted to complete the actual building of the house, (at tab 5, Q 21). The delineation of these two categories of jobs; that being the civil works on the one hand and the building construction work on the other hand, indicates that Mr Hooper was cognisant of the types of works falling within the expertise of Advanced Plumbing and those that were not. This material suggests that Mr Hooper had actively categorised the preliminary works as being within the usual business expertise of Advanced Plumbing.

47. It is important to emphasise the word, principally qualifying the description of the business contained in the policy schedule. Such descriptions are typically terse or taciturn. The use of the word itself demonstrates the actual business activities of Advanced Plumbing extend beyond what might be characteristic of or strictly incidental to plumbing work. This issue will need to be addressed by evidence and the trial: Watts v Perry [1971] 1 NSWLR 73. This authority demonstrates that where ordinary words not having any technical significance are used in a policy of insurance the question of their meaning may be one of mixed fact and law which may be addressed by admissible evidence at the trial.

48. I accept that there will be evidence available at the trial that the business of Advanced plumbing extended beyond that typical of a domestic plumber and that the occurrence happened in connection with this business. The statements of Mr Hooper and Mr Orford depict Advanced Plumbing as a commercial drainage and ground works business of significant size and scale. This material supports the description given by the liquidator regarding the nature of Advanced Plumbing’s business, namely that it was a “commercial and civil hydraulics and drains business”.

49. It is apparent on the evidence that the business was engaged in substantial civil and ground works and unlike the archetypal work of a house-hold plumber, was capable of undertaking substantial commercial projects on a scale requiring commercial materials, tools and equipment. I accept that it is at least arguable based upon the statements of Mr Hooper and Mr Orford that the cutting of the steel mesh was an occurrence that took place as part of the normal business activity of Advanced Plumbing as contemplated within the primary description of the business contained in the schedule to the insurance policy.

Business Ground: “Occurrence” in “Connection” with the Business

50. Lest I am wrong in what I have written about the ignition and escape of the fire being an occurrence in connection with Advanced Plumbing’s business as specified in the schedule to the policy of insurance, I should address an alternative argument relating to what may be referred to as the extended definition of business in the policy. In particular, it was argued that if the occurrence was not connected with the business specified in the schedule, it was in connection with the extended definition of the business to be found in cl 4.4.5 as set out at [41] above. The effect of this clause is that the meaning of business extends to “private work undertaken by [Advanced Plumbing’s] employees for any director, partner or senior executive of the insured”. It is clear that adopting a literal or grammatical approach to the meaning of cl 4.4.5, the work being carried out by Mr Orford on 17 February 2017 was private work undertaken by Advanced Plumbing’s employees for the director, namely, Mr Hooper.

51. However, Mr Greenwood argues that cl 4.4.5 should not be read divorced from the context provided by the whole of cl 4.4. Specifically, he argues there are 10 sub-clauses of cl 4.4, the extent of each of which must be limited by the concluding words of sub-clause cl 4.4.10 which is in the following terms:

Any other occupation ancillary or incidental to the business stated in the Schedule.

Mr Greenwood argued the expression any other occupation ancillary or incidental to the business is a clear contextual indication that each of the other activities or occupations described in sub-clauses 4.4.2 to 4.4.9 must be given a similar limitation. That is to say that the apparently general words describing the various activities the subject of those sub-clauses should be read as though they were qualified by the words ancillary or incidental to the business. I have not set out all of the categories of activity covered by all those sub-clauses. However, taking sub-clause 4.4.3 as an example, Mr Greenwood’s argument is that it can only apply to first aid, medical, fire and ambulance services ancillary or incidental to the business specified in the schedule. Learned Senior Counsel argued that sub-clause 4.4.3 would not extend to first aid etc. services provided by Advanced Plumbing on a commercial basis to other entities. So much may be accepted. But I am not persuaded that each of the activities, occupations or services described in sub-clauses 4.4.2 to 4.4.9 can sensibly be read down in the manner contended for by Mr Greenwood. For instance sub-clause 4.4.8 is “hire or loan of plant to other parties”. It is hard to see how such loan or hire could be read down in the manner suggested. The hire or loan need not be ancillary or incidental to “[p]rincipally plumbing”.

52. It seems to me that the key to understanding sub-clause 4.4.5 is the phrase “private work”. This phrase is apt to provide a marked distinction from, say, work in or connected with the business specified in the schedule. Conceptually it is difficult to see how “private work” can be “ancillary or incidental to the business”. I am not persuaded that “private work” within sub-clause 4.4.5 is restricted to the type of work which would be covered by a business specified as “principally plumbing and any other activities incidental thereto”.

53. I am not satisfied that CGU has established that it is beyond argument that it is entitled to disclaim indemnity because Advanced Plumbing’s potential liability is not a result of an occurrence happening in connection with Advanced Plumbing’s business as required by the insuring clause.

54. The policy terms do not need to be read-down in this regard as submitted by CGU, rather they should be given their plain and ordinary meaning as required by law. The onus is on CGU to establish an entitlement to disclaim liability. In respect of the business ground. I do not accept that the insurer has discharged this onus. I accept that it is arguable that Advanced Plumbing is covered by CGU’s policy for any legal liability resulting from the occurrence that happened on 17 February 2017, at least so far as the business ground is concerned.

Welding Ground

55. The argument central to the welding ground is that even if it is accepted that Advanced Plumbing was arguably covered by the indemnity clause as I have found, CGU is entitled to disclaim liability due to the welding endorsement provided for in the policy schedule. The endorsement, so far as is presently relevant, is set out below (tab 3, p13):

WELDING ENDORSEMENT

The liability of the Insurer to indemnify the Insured pursuant to Clause 1.1 and to pay other costs and expenses pursuant to Clause 1.2 shall not extend to any liability arising out of or in any way connected with any arc or flame cutting, flame heating, arc or gas welding, electric, oxy-acetylene, laser cutting and/or spark producing equipment by or on behalf of the Insured or similar operation in which welding equipment is used, unless such activity is conducted in strict compliance with the:

1.   Australian Standard AS 1674, part 1 – 1997 ‘Safety in Welding and Allied Processes – Fire Precautions’

As can be seen the welding endorsement is effectively an exclusion clause subject to a proviso.

56. CGU’s argument is that the Husqvarna K970 power cutter is "spark producing equipment” within the meaning of the welding endorsement. And that the work in question was not conducted in strict compliance with Australian Standard AS1674 Part 1 – 1997. When the endorsement is read in full there may be other standards involved dealing with electrical safety and the safety of laser products. These standards are not in question in the current case. The argument is that the liability of Advanced Plumbing for the ignition and escape of the fire on 17 February 2017 arose out of or was connected with spark producing equipment used by or on behalf of Advanced Plumbing and this activity was not, as I have said, conducted strictly in compliance with the applicable standard.

57. It is also argued that when interpreting the endorsement in accordance with the principles of construction I have referred to above, regard may be had to the Australian Standard as part of the context as the standard is a document referred to in the text of the insurance contract of which the policy schedule forms part: Mount Bruce Mining at [46]; see [30] above. There is no question that the policy schedule forms part of the policy or contract of insurance.

58. Mr Greenwood submitted that AS1674.1 provided important context in this regard. He pointed to cl 1.1 describing the scope of the standard which “specifies precautions to be taken prior to and during hot work (including welding and allied processes) to prevent the possibility of fire or explosion, which may result in harm to persons or property”. The standard defines hot work as meaning “grinding, welding, thermal or oxygen cutting or heating, and other related heat producing or spark producing operations” (my emphasis). Clause 4.4 of the Standard is in the following terms:

Grinding machines work that includes the use of grinding machines driven by either electric power or compressed air shall be regarded as hot work within the meaning of this standard.

Mr Greenwood also point outs that in Part 1 of the standard, cl 2.11 includes precautions against starting a grass fire or bushfire during the performance of hot work. He argued that the inclusion of grinding work, the definition of hot work and the general words “other … spark producing operations” in the standard are important matters of context demonstrating that the Husqvarna K9079 power cutter is spark producing equipment within the meaning of the welding endorsement and CGU is entitled to disclaim cover because the precautions specified in the standard were not strictly complied with.

59. Mr Dalton accepts that the central question is whether the power cutter is spark producing equipment within the meaning of the endorsement. He points out that there is no express reference to grinding equipment, or indeed to hot work per se in the endorsement. He submits that the expression “spark producing equipment” ought to be read by reference to either the ejusdem generis canon or the noscitur a sociis canon so that the meaning of the expression is limited by reference to the type of equipment actually specified in the endorsement. He argues that all of the equipment specifically mentioned in the endorsement involves the direct and deliberate, generation and application of flame or heat in their operation rather than the production of sparks as an incidental aspect of their operation in some circumstances.

60. Mr Dalton also points out that the characteristics of processes or equipment specified in the endorsement are matters beyond the ken of ordinary people. Their meaning is technical. In this regard he submits that reliance can be placed upon expert opinion to understand the meaning of the expressions used in the endorsement. To this extent the construction of the endorsement too is a mixed question of fact and law. An expert report of Dale Rankin dated 1 June 2018 was tendered as part of the plaintiff’s case. Mr Rankin has 40 years’ experience in mechanical engineering as a boiler maker/welder. He is an educator in these fields. There is no relevant question about his expertise. His report describes each of the specific operations or equipment referred to in the endorsement. In his opinion, each of the processes specifically described in the endorsement:

Involve the direct application of heat to the material being worked on in order to create the cut or weld. [The Husqvarna K907 power cutter] involves a friction cut. A friction cut is created by, in this case a wheel spinning at high speed, removing the unwanted material. The contact of the cutting blade with the material being worked on creates friction which in turn creates heat. It does not involve the direct application of heat, nor does it rely on this heat to create the cut. The power cutter can be used with a coolant (such as water) to minimise the generation of heat through the friction process. When used with a coolant it is still an effective cutting process. None of the processes [specifically described in the endorsement] are used with a coolant.

…

The power cutter would only create sparks when cutting metallic objects or material with metallic objects in it such as concrete with reinforcing steel. The power cutter can be used to cut a wide range of materials which would not produce sparks e.g. wood, plaster, concrete and plastic. In instances where sparks are created they would be smaller than the spatter or molten waste metal created from the cutting and welding processes [specified in the endorsement]. Any sparks created by the power cutter would be a directed stream. Sparks from a power cutter are likely to be finer than a dressmakers pin.

61. Mr Dalton also argued that the meaning of the expression “spark producing equipment” could not be garnered from the terms of the standard. The standard was not expressly incorporated in the endorsement and “hot work” was not a concept picked up by the endorsement. It was open to the insurer to choose what operations it required to be conducted in strict compliance with the standard. Had it so chosen it might have made all work, the subject of the standard, the subject of the endorsement. It did not do so. It did not seek to exclude all “hot work” as defined in the standard not conducted in accordance with it. To this extent the endorsement ought to be read contra proferentem.

62. In any event, the context provided by the specific processes nominated in the endorsement was a surer guide to the meaning of spark producing equipment which should be read down as being confined to equipment involving the direct and deliberate generation and application of flame or heat to perform the function for which the equipment was used.

63. I accept Mr Dalton’s arguments. In my opinion the general expression “spark producing equipment” in context in the welding endorsement should be read down to be limited to equipment of the type specified, all of which, as Mr Rankin explains, involve the direct application of heat in one form or another to perform their function. In my judgment “spark producing equipment”, in context, does not apply to equipment which may incidentally produce sparks depending upon the particular use to which it is being put on a particular occasion. It’s clear that the power cutter, or other grinders, can be used in a variety of industrial situations, all of which may depend upon friction to perform the equipment’s function, but not all of which produce sparks. I am not satisfied that it is beyond argument that the power cutter is caught by the endorsement.

64. It seems to me in any event that even if I were wrong in this interpretation or construction of the endorsement, the evidence indicates that certain precautions were taken including clearing the fire circle and the provision of fire-fighting equipment. It seems to be at least arguable if the endorsement applied that the standard was complied with at least in so far as the risk of grass or bushfire was concerned. I am satisfied that, for these reasons, it is arguable that CGU’s policy covers any legal liability of Advanced Plumbing for the consequences of the bush fire of 17 February 2017.

65. This is not to say what I have found arguable for the purpose of a grant of leave may not be contestable at the final hearing. After all the issues involve mixed questions of fact and law the resolution of which may depend upon the evidence actually lead at the trial.

Conclusion

66. I am not satisfied that CGU has discharged its onus of proving that it is entitled to disclaim liability under its contract of insurance or under any act or law in accordance with the provisions of s 5(4) of the Act. I am satisfied that it is arguable that Advanced Plumbing is liable to the plaintiff and other group members; that there is an arguable case that CGU’s policy responds to that liability; and there is a real possibility that if the plaintiff obtains judgment against Advanced Plumbing, that Advanced Plumbing will not be able to meet or satisfy that judgment. I accept that there remains a residual discretion as to whether or not leave should be granted for the joinder of CGU to the proceedings. But no specific matter has been raised that would suggest that leave should be refused on other grounds. For these reasons I make orders as sought in the Notice of Motion filed on 12 April 2018:

1. Grant leave to the plaintiff to proceed against Insurance Australia Limited trading as CGU Insurance pursuant to s 5 of the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW);

2. Grant leave to the plaintiff to file and serve an Amended Statement of Claim to include a claim for relief against Insurance Australia Limited Trading as CGU Insurance under s 4 of the Civil Liability (Third Party Claims Against Insurers) Act 2017 (NSW).

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Amendments

21 August 2019 - Case title amended;

Parties amended

Decision last updated: 21 August 2019